BGSF, INC. 10-K

Item 8. Financial Statements and Supplementary Data. Page Audited Consolidated Financial Statements of BGSF, Inc. Report of Independent Registered Public Accounting Firm - Whitley Penn LLP (PCAOB ID 726) 40 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 Consolidated Statements of Changes in Stockholders’ Equity for each of the three fiscal years ended December 29, 2024 44 Consolidated Statements of Cash Flows for each of the three fiscal years ended December 29, 2024 46 Notes to Consolidated Financial Statements 48 39 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of BGSF, Inc. Opinion on the Financial Statements 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 40 Critical Audit Matter 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 We have served as the Company’s auditor since 2013. Plano, Texas March 14, 2025 41 BGSF, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 29, 2024 December 31, 2023 ASSETS 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 Prepaid expenses 2,485 2,963 Other current assets 2,315 7,172 Total current assets 45,347 66,911 Property and equipment, net 1,137 1,217 Other assets Deposits 2,092 2,699 Software as a service, net 4,438 5,026 Deferred income taxes, net 8,456 7,271 Right-of-use asset - operating leases 4,973 5,435 Intangible assets, net 24,517 30,370 Goodwill 59,151 59,588 Total other assets 103,627 110,389 Total assets $ 150,111 $ 178,517 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 80 $ 95 Accrued payroll and expenses 13,001 14,902 Line of credit (net of debt issuance costs of $128) — 24,746 Long-term debt, current portion (net of debt issuance costs of $24 and $0, respectively) 3,801 34,000 Accrued interest 223 438 Income taxes payable 212 282 Contingent consideration, current portion 2,662 4,208 Convertible note 4,368 4,368 Lease liabilities, current portion 1,573 2,016 Total current liabilities 25,920 85,055 Line of credit (net of debt issuance costs of $770) 5,625 — Long-term debt, less current portion (net of debt issuance costs of $198) 32,527 — Contingent consideration, less current portion — 4,112 Lease liabilities, less current portion 3,770 3,814 Total liabilities 67,842 92,981 Commitments and contingencies Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding — — Common stock, $0.01 par value per share; 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 Retained earnings 11,956 16,933 Total stockholders’ equity 82,269 85,536 Total liabilities and stockholders’ equity $ 150,111 $ 178,517 The accompanying notes are an integral part of these consolidated financial statements. 42 BGSF, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (in thousands, except per share and dividend amounts) Years ended December 29, 2024, December 31, 2023, and January 1, 2023 2024 2023 2022 Revenues, net $ 272,499 $ 313,167 $ 298,422 Cost of services 179,636 201,383 194,874 Gross profit 92,863 111,784 103,548 Selling, general, and administrative expenses 85,333 88,650 83,211 Gain on contingent consideration ( 1,452 ) — — Impairment losses — 22,545 — Depreciation and amortization 7,769 7,774 4,054 Operating income (loss) 1,213 ( 7,185 ) 16,283 Interest expense, net ( 4,921 ) ( 5,976 ) ( 1,363 ) (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 ) (Loss) income from continuing operations ( 3,338 ) ( 10,223 ) 11,261 Income from discontinued operations: Income — — 1,235 Gain on sale — — 17,675 Income tax expense — — ( 4,810 ) Net (loss) income $ ( 3,338 ) $ ( 10,223 ) $ 25,361 Change in unrealized losses on cash flow hedges — — ( 58 ) Other comprehensive loss — — ( 58 ) Net comprehensive (loss) income $ ( 3,338 ) $ ( 10,223 ) $ 25,303 Net (loss) income per share - basic: Net (loss) income from continuing operations $ ( 0.31 ) $ ( 0.95 ) $ 1.08 Net income from discontinued operations: Income — — 0.12 Gain on sale — — 1.69 Income tax expense — — ( 0.46 ) Net (loss) income per share - basic $ ( 0.31 ) $ ( 0.95 ) $ 2.43 Net (loss) income per share - diluted: Net (loss) income from continuing operations $ ( 0.31 ) $ (0.95) $ 1.07 Net income from discontinued operations: Income — — 0.12 Gain on sale — — 1.69 Income tax expense — — ( 0.46 ) Net (loss) income per share - diluted $ ( 0.31 ) $ ( 0.95 ) $ 2.42 Weighted average shares outstanding: Basic 10,896 10,766 10,427 Diluted 10,896 10,766 10,473 Cash dividends declared per common share $ 0.15 $ 0.60 $ 0.60 The accompanying notes are an integral part of these consolidated financial statements. 43 BGSF, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands) Years ended December 29, 2024, December 31, 2023, and January 1, 2023 Common Stock Preferred 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 $ 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 Issuance of shares — 254 3 — 3,338 — — 3,341 Issuance of restricted shares — 32 1 — ( 1 ) — — — Issuance of ESPP shares — 60 — — 653 — — 653 Exercise of common stock options — 1 — — 10 — — 10 Cash dividends declared — — — — — ( 6,290 ) — ( 6,290 ) Net income — — — — — 25,361 — 25,361 Other comprehensive loss — — — — — — ( 58 ) ( 58 ) 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. 44 BGSF, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED) (in thousands) Years ended December 29, 2024, December 31, 2023, and January 1, 2023 Common Stock Preferred Stock Shares Par Value Treasury Stock Amount Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive (Loss)/Income Total Stockholders’ equity, December 31, 2023 — 10,888 $ 109 $ ( 57 ) $ 68,551 $ 16,933 $ — $ 85,536 Share-based compensation — — — — 989 — — 989 Issuance of restricted shares — 51 1 — ( 1 ) — — — Issuance of ESPP shares — 61 — — 459 — — 459 Exercise of common stock options — 39 — — 262 — — 262 Cash dividends declared — — — — — ( 1,639 ) — ( 1,639 ) Net loss — — — — — ( 3,338 ) — ( 3,338 ) Stockholders’ equity, December 29, 2024 — 11,039 $ 110 $ ( 57 ) $ 70,260 $ 11,956 $ — $ 82,269 The accompanying notes are an integral part of these consolidated financial statements. 45 BGSF, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years ended December 29, 2024, December 31, 2023, and January 1, 2023 2024 2023 2022 Cash flows from operating activities Net (loss) income $ ( 3,338 ) $ ( 10,223 ) $ 25,361 (Income) from discontinued operations — — ( 1,235 ) Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation 345 446 597 Amortization 7,424 7,328 3,457 Gain on sale of discontinued operations — — ( 17,675 ) Impairment losses — 22,545 — Loss on disposal of property and equipment 14 17 6 Gain on contingent consideration ( 1,452 ) — — Amortization of debt issuance costs 425 199 172 Interest expense on contingent consideration payable 44 740 128 Provision for credit losses 2,066 798 315 Share-based compensation 989 1,029 1,085 Deferred income taxes, net of acquired deferred tax liability ( 1,185 ) ( 5,075 ) 2,353 Net changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable 14,516 12,163 ( 14,793 ) Prepaid expenses and other current assets 5,164 ( 2,159 ) ( 866 ) Deposits 705 ( 83 ) 1,503 Software as a service 716 720 660 Accounts payable ( 14 ) ( 492 ) ( 228 ) Accrued payroll and expenses ( 1,902 ) ( 7,426 ) 1,633 Accrued interest ( 215 ) 165 171 Income taxes receivable and payable 103 729 ( 1,202 ) Other current liabilities — ( 1,000 ) ( 4,551 ) Operating leases ( 26 ) ( 35 ) ( 127 ) Other long-term liabilities — — ( 64 ) Net cash provided by (used in) continuing operating activities 24,379 20,386 ( 3,300 ) Net cash used in discontinued operating activities — — ( 3,822 ) Net cash provided by (used in) operating activities 24,379 20,386 ( 7,122 ) Cash flows from investing activities Businesses acquired, net of cash acquired — ( 6,917 ) ( 33,940 ) Businesses sold — — 30,722 Capital expenditures ( 1,640 ) ( 2,597 ) ( 5,680 ) Net cash used in continuing investing activities ( 1,640 ) ( 9,514 ) ( 8,898 ) Net cash used in discontinued investing activities — — ( 26 ) Net cash used in investing activities ( 1,640 ) ( 9,514 ) ( 8,924 ) The accompanying notes are an integral part of these consolidated financial statements. 46 BGSF, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in thousands) Years ended December 29, 2024, December 31, 2023, and January 1, 2023 2024 2023 2022 Cash flows from financing activities Net (payments) borrowing line of credit ( 18,479 ) 2,312 9,781 Proceeds from issuance of long-term debt 4,250 — 40,000 Principal payments on long-term debt ( 1,700 ) ( 6,000 ) ( 26,863 ) Payments of dividends ( 1,639 ) ( 6,507 ) ( 6,290 ) Issuance of ESPP shares 459 512 653 Issuance of shares under the 2013 Long-Term Incentive Plan 262 ( 10 ) ( 1 ) Contingent consideration paid ( 4,250 ) ( 1,110 ) ( 1,110 ) Payments of debt issuance costs ( 1,289 ) ( 69 ) ( 236 ) Net cash (used in) provided by continuing financing activities ( 22,386 ) ( 10,872 ) 15,934 Net change in cash and cash equivalents 353 — ( 112 ) Cash and cash equivalents, beginning of year — — 112 Cash and cash equivalents, end of year $ 353 $ — $ — Supplemental cash flow information: Cash paid for interest, net $ 4,475 $ 4,668 $ 641 Cash paid for taxes, net of refunds $ 685 $ 1,378 $ 7,562 The accompanying notes are an integral part of these consolidated financial statements. 47 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 (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. 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 liabilities of Arroyo Consulting, LLC (“Arroyo Consulting”). 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 40 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 Basis of Presentation The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation. Fiscal Year 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 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 Certain reclassifications have been made to the 2023 and 2022 financial statements to conform with the 2024 presentation. 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 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 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. 48 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 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. In Fiscal 2022, Management determined the fair value on the interest rate swap based on quoted prices from BMO. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. Concentration of Credit Risk 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 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: December 29, 2024 December 31, 2023 January 1, 2023 Tennessee 17 % 13 % 10 % Texas 23 % 25 % 23 % Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations. Accounts Receivable The Company extends credit to its client partners in the normal course of business. Accounts receivable represents unpaid balances due from client partners. 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, 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 as income when received. Changes in the allowance for credit losses from continuing operations are as follows (in thousands): December 29, 2024 December 31, 2023 Beginning balance $ 554 $ 558 Provision for credit losses 2,066 798 Amounts written off ( 1,533 ) ( 842 ) Recoveries 46 40 Ending balance $ 1,133 $ 554 49 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and Equipment The Company depreciates the cost of property and equipment over the estimated useful lives of the assets using the straight-line method ranging from five to seven years . The costs of leasehold improvements are amortized over the shorter of the estimated useful life or lease term. The cost of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures that increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of properties sold, or otherwise disposed of, and the related accumulated depreciation or amortization, are removed from the accounts, and any gains or losses are reflected in current operations. Deposits 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 $ 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, 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. 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 impairment triggering events identified with respect to long-lived assets during Fiscal 2024, 2023, or 2022. Leases The Company leases all their office space through operating leases, which expire at various dates through 2030. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from 1 to 10 years, exercisable at the Company’s option. 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 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. 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 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. Identifiable Intangible assets recognized in conjunction with acquisitions are recorded at fair value. 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. 50 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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 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. There were no impairment indicators identified during Fiscal 2024 or 2022. Goodwill 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 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. If after qualitatively assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below. In assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value. The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, a reporting unit shall recognize an impairment loss in an amount equal to that excess. The quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit’s fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. 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. Debt Issuance Costs 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. Contingent Consideration 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. The fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method. 51 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenue Recognition 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 (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. The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified field talent, (ii) has the discretion to select the field talent and establish their price and duties and (iii) bears the risk for services that are not fully paid for by client partners. Workforce solution revenues - Field talent revenues from contracts with client partners are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s field talent. 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. 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. Allowances, recorded as a liability, are established to estimate these losses. Fees to client partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for placement workforce solutions are charged to employment candidates. These assumptions determine the timing of revenue recognition for the reported period. 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 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. There are no contract costs capitalized. The Company did not recognize any contract impairments during Fiscal 2024, 2023, and 2022. The opening balance of accounts receivable at January 1, 2023, was $ 66.3 million. Advertising 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. 52 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Earnings Per Share 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. 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 (in thousands): December 29, 2024 December 31, 2023 January 1, 2023 Weighted-average number of common shares outstanding: 10,896 10,766 10,427 Effect of dilutive securities: Stock options and restricted stock — — 46 Weighted-average number of diluted common shares outstanding 10,896 10,766 10,473 Stock options and restricted stock 902 812 360 Convertible note 255 255 255 Antidilutive shares 1,157 1,067 615 Income Taxes The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. The Company recognizes any penalties when necessary as part of selling, general, and administrative expenses. 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. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. As of December 29, 2024, 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 $ 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 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. 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, 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. 53 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. NOTE 3 - ACQUISITIONS 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 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 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): 54 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounts receivable $ 3,734 Prepaid expenses and other assets 118 Property and equipment, net 83 Right-of-use asset - operating leases 1,528 Intangible assets 13,484 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 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 55 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The allocation of the intangible assets is as follows (in thousands): Estimated Fair Value Estimated Useful Lives Covenants not to compete $ 50 5 years Client partner list 13,434 10 years Total $ 13,484 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. 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, 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. 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 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 Intangible assets 11,468 293 11,761 Goodwill (no deductible tax basis) 3,836 ( 437 ) 3,399 Current liabilities assumed ( 2,471 ) ( 150 ) ( 2,621 ) Lease liability - operating leases ( 140 ) 55 ( 85 ) Total net assets acquired $ 16,286 $ 2 $ 16,288 Cash $ 6,800 Hold back, working capital* 350 Hold back, indemnities* 850 Working capital adjustment* 679 Fair value of contingent consideration 7,609 Total fair value of consideration transferred for acquired business $ 16,288 *Included in Other current liabilities 56 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The allocation of the intangible assets is as follows (in thousands): Estimated Fair Value Estimated Useful Lives Covenants not to compete $ 356 5 years Client partner list 11,235 10 years Computer software 170 5 years Total $ 11,761 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 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): December 31, 2023 January 1, 2023 Revenues $ 320 $ 346 Gross profit $ 114 $ 123 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 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 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. 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 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. 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. 57 BGSF, Inc. 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): January 1, 2023 Revenue $ 16,465 Cost of services 14,144 Gross profit 2,321 Selling expenses 1,062 Depreciation 24 Income from discontinued operations before gain on sale and income taxes $ 1,235 NOTE 5 - OTHER CURRENT ASSETS Other current assets consist of the following at (in thousands): December 29, 2024 December 31, 2023 CARES Act receivable $ 1,661 $ 2,188 Income tax receivable 513 685 Due from Arroyo — 3,843 Other 141 456 $ 2,315 $ 7,172 CARES Act Receivable 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. 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): December 29, 2024 December 31, 2023 Leasehold improvements $ 513 $ 665 Furniture and fixtures 1,093 1,152 Computer systems 2,428 3,476 4,034 5,293 Accumulated depreciation ( 2,897 ) ( 4,076 ) Property and equipment, net $ 1,137 $ 1,217 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 2024, the Company completed software assets and reclassified $ 0.2 million to Intangible assets related to new features on the IT infrastructure. 58 BGSF, Inc. 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 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): December 29, 2024 December 31, 2023 January 1, 2023 Weighted average remaining lease term of operation leases 3.7 years 3.5 years 3.3 years Weighted average discount rate for continuing operating leases 7.5 % 6.5 % 5.2 % Cash paid for continuing operating leases $ 2,269 $ 2,185 $ 2,115 Continuing operating lease expense $ 2,274 $ 2,155 $ 1,887 Right-of -use assets obtained in exchange for new operating lease liabilities $ 1,581 $ 2,837 $ 2,248 The undiscounted annual future minimum lease payments of continuing operations consist of the following at (in thousands): December 29, 2024 2025 $ 1,880 2026 1,599 2027 1,250 2028 870 2029 447 Thereafter 119 Total lease payment 6,165 Interest ( 822 ) Present value of lease liabilities $ 5,343 NOTE 8 - INTANGIBLE ASSETS Finite and indefinite lived intangible assets consist of the following at (in thousands): December 29, 2024 Gross Value Accumulated Amortization Net Carrying Value Finite lives: Client partner lists $ 69,403 $ 49,925 $ 19,478 Covenants not to compete 2,747 2,459 288 Computer software 9,103 4,352 4,751 Total $ 81,253 $ 56,736 $ 24,517 59 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 Gross Value Accumulated Amortization Net Carrying Value Finite lives: Client partner lists $ 69,114 $ 44,150 $ 24,964 Covenants not to compete 2,743 2,153 590 Computer software 7,825 3,009 4,816 Total $ 79,682 $ 49,312 $ 30,370 Estimated future amortization expense for the next five years and thereafter is as follows (in thousands): Fiscal Years Ending: 2025 $ 5,935 2026 4,006 2027 3,256 2028 2,574 2029 2,275 Thereafter 6,471 Total $ 24,517 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 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 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 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 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): December 29, 2024 December 31, 2023 Field talent payroll $ 4,506 $ 5,014 Field talent payroll related 1,034 1,039 Accrued bonuses and commissions 1,891 2,931 Other 5,570 5,918 Accrued payroll and expenses $ 13,001 $ 14,902 60 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a schedule of future estimated contingent consideration payment at (in thousands): December 29, 2024 Estimated Cash Payment Discount Net Due in: Less than one year $ 2,750 $ ( 88 ) $ 2,662 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 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 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 (expense) 1,185 5,075 ( 2,353 ) Income tax benefit (expense) from continuing operations 370 2,938 ( 3,659 ) Income tax expense from discontinued operations — — ( 4,810 ) Income tax benefit (expense) $ 370 $ 2,938 $ ( 8,469 ) Significant components of the Company’s deferred income taxes are as follows at (in thousands): December 29, 2024 December 31, 2023 Deferred tax assets: Allowance for credit losses $ 239 $ 120 Goodwill and intangible assets 6,343 5,242 Accrued payroll and expenses 1,935 681 Contingent consideration 664 2,087 Share-based compensation 513 602 Net operating loss carry forward 1,425 662 Deferred tax liabilities: Prepaid expenses and other current assets ( 610 ) ( 735 ) Property and equipment ( 2,053 ) ( 1,388 ) Deferred income taxes, net $ 8,456 $ 7,271 61 BGSF, Inc. 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 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 (expense) benefit, net of federal benefit ( 366 ) 10 % 194 ( 2 ) % ( 795 ) ( 6 ) % Equity, permanent differences and other ( 48 ) 1 % ( 319 ) 2 % ( 178 ) ( 1 ) % Work Opportunity Tax Credit, net — — % 299 ( 2 ) % 447 3 % Income tax benefit (expense) from continuing operations 370 ( 10 ) % 2,938 ( 23 ) % ( 3,659 ) ( 25 ) % Income tax expense from discontinued operations — — % — — % ( 4,810 ) ( 25 ) % Income tax benefit (expense) $ 370 ( 10 ) % $ 2,938 ( 23 ) % $ ( 8,469 ) ( 25 ) % NOTE 12 - DEBT 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 62 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 29, 2024 or December 31, 2023. Line of Credit 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): December 29, 2024 December 31, 2023 Base Rate $ 2,395 10.25 % $ 4,874 9.75 % SOFR 4,000 8.23 % 3,000 7.69 % SOFR — — % 2,000 7.71 % SOFR — — % 15,000 7.77 % Total $ 6,395 $ 24,874 Long-Term Debt Long-term debt consisted of and bore interest at (in thousands): December 29, 2024 December 31, 2023 SOFR $ 36,550 8.23 % $ 34,000 7.79 % Long-term debt $ 36,550 $ 34,000 Maturities on the Revolving Facility with BMO and long-term debt as of , are as follows at (in thousands): Fiscal: December 29, 2024 2025 $ 3,825 2026 39,120 42,945 Less debt issuance costs ( 992 ) Total, net $ 41,953 Convertible Note 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 The accounting standard for fair value measurements defines fair value and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established prioritizes the inputs used in valuation techniques into three levels as follows: 63 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities; Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and 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. 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 The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made. The Company insures against, subject to and upon the terms and conditions of various insurance policies, claims or losses from workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses, crime and cyber risk, and director and officer liability. Under the Company’s bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers. Employment Agreements The CEO’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. In the event that her employment is terminated by the Company without cause or by her for good reason, she will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for her and her dependents, grossed-up for federal income taxes. Additionally, she will become 100% vested in any awards outstanding under the Company’s 2013 Long-Term Incentive Plan, as amended, (“2013 Plan”) or similar plan. 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. 64 BGSF, Inc. 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. 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, he will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months. NOTE 15 - EQUITY Authorized capital stock consists of 19,500,000 shares of common stock, par value $ 0.01 per share and 500,000 shares of undesignated preferred stock, par value $ 0.01 per share. Restricted Stock The Company issued net restricted common stock of 50,790 and 56,889 shares to team members and non-team member (non-employee) directors in Fiscal 2024 and Fiscal 2023, respectively. The restricted shares of $ 0.01 par value per share were issued under the 2013 Plan and contain a three-year service condition. The restricted stock constitutes issued and outstanding shares of the Company’s common stock, except for the right of disposal, for all purposes during the period of restriction including voting rights and dividend distributions. In connection with the vesting portions of the restricted stock, the Company repurchased - 0 -, 2,085 , and - 0 - 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 2024, 2023, and 2022, respectively. Treasury stock is accounted for under the cost method whereby the entire cost of the acquired stock is recorded. NOTE 16 - SHARE-BASED COMPENSATION Stock Options In December 2013, the board of directors adopted the original 2013 Plan. Under the original 2013 Plan team members, directors and consultants of the Company may receive incentive stock options and other awards. To the extent any option or award expires unexercised or is canceled, terminated or forfeited in any manner without the issuance of common stock thereunder, such shares shall again be available for issuance under the original 2013 Plan. As of December 29, 2024, a total of 1,125,490 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. Unless otherwise specified in an option agreement, options vest and become exercisable on the following schedule: 20 % immediately and 20 % on each anniversary date of the grant date. Each option shall be designated as an incentive stock option (“ISO”) or a non-qualified option (“NQO”). The exercise price of an ISO shall not be less than the fair market value of the stock covered by the ISO at the grant date; provided, however, the exercise price of an ISO granted to any person who owns, directly or indirectly, stock of the Company constituting more than 10% of the total combined voting power of all classes of outstanding stock of the Company or of any affiliate of the Company, shall not be less than 110% of such fair market value. The fair value of each option award was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions in the following table. Because this option valuation model incorporates ranges of assumptions for inputs, those ranges are disclosed below. The Company bases the estimate of expected volatility on the historical volatilities of the Company for a period equal to the expected life of the option. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company expects to use historical data to estimate team member termination within the valuation model; separate groups of team members that have similar historical termination behavior are considered separately for valuation purposes. The Company believes these estimates and assumptions are reasonable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions. 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 65 BGSF, Inc. 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 29, 2024 December 31, 2023 January 1, 2023 Weighted-average fair value of awards $ 5.95 $ 3.00 $ 5.17 Weighted-average risk-free interest rate 4.0 % 4.2 % 2.7 % Weighted-average dividend yield $ 0.45 $ 0.60 $ 0.54 Weighted-average volatility factor 52.2 % 52.8 % 54.6 % Weighted-average expected life 10.0 yrs 10.0 yrs 10.0 yrs A summary of stock option activity is presented as follows: Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life Total Intrinsic Value of Options (in thousands) Awards outstanding at December 26, 2021 695,329 $ 16.91 6.7 $ 665 Granted 164,000 $ 12.87 Exercised ( 1,000 ) $ 9.75 Forfeited / Canceled ( 36,650 ) $ 17.65 Awards outstanding at January 1, 2023 821,679 $ 16.08 6.4 $ 1,907 Granted 126,470 $ 10.02 Exercised ( 4,800 ) $ 6.25 Forfeited / Canceled ( 21,039 ) $ 17.38 Awards outstanding at December 31, 2023 922,310 $ 15.30 6.0 $ 104 Granted 40,000 $ 8.80 Exercised ( 38,798 ) $ 6.74 Forfeited / Canceled ( 21,900 ) $ 14.31 Awards outstanding at December 29, 2024 901,612 $ 15.41 5.3 $ — 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 $ — Number of Shares Weighted Average Grant Date Fair Value 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. Restricted Stock For Fiscal 2024, 2023, and 2022, the Company recognized $ 0.6 million, $ 0.6 million, and $ 0.4 million, respectively, of compensation expense related to restricted stock. Unamortized share-based compensation expense as of December 29, 2024 amounted to $ 0.5 million, which is expected to be recognized over the next 1.9 years. 66 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of restricted stock activity is presented as follows: Number of Shares Weighted Average Grant Date Fair Value 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 Issued 57,974 $ 11.22 Vested ( 43,303 ) $ 11.71 Forfeited / Canceled ( 967 ) $ 12.62 Restricted outstanding at December 31, 2023 75,724 $ 11.73 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 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”) In November 2020, the Company’s shareholders approved the 2020 ESPP. 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 thousand shares of common stock of BGSF, Inc. were initially reserved for issuance pursuant to the 2020 ESPP. 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 There were no related party transactions in Fiscal 2024, 2023, or 2022. NOTE 18 - TEAM MEMBER BENEFIT PLAN Defined Contribution Plan The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible team members and field talent. The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations. The Company matches participants contributions 100 % up to the first 3 % and 50 % of the next 2 % of a team member or field talent’s compensation. 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. 67 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - BUSINESS 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. 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 (loss) income from continuing operations by reportable segment to consolidated results for the periods indicated at (in thousands): 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 68 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Total assets $ 29,884 $ 122,751 $ 25,882 $ 178,517 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 69 BGSF, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED) December 29, 2024 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Revenues $ 68,765 $ 68,137 $ 71,186 $ 64,411 $ 272,499 Gross profit $ 23,438 $ 23,630 $ 24,329 $ 21,466 $ 92,863 Net loss $ ( 792 ) $ ( 761 ) $ ( 804 ) $ ( 981 ) $ ( 3,338 ) Net loss per share: Basic $ ( 0.07 ) $ ( 0.07 ) $ ( 0.07 ) $ ( 0.10 ) $ ( 0.31 ) Diluted $ ( 0.07 ) $ ( 0.07 ) $ ( 0.07 ) $ ( 0.10 ) $ ( 0.31 ) Weighted-average shares outstanding: Basic 10,831 10,880 10,919 10,943 10,896 Diluted 10,831 10,880 10,919 10,943 10,896 December 31, 2023 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Revenues $ 75,316 $ 80,800 $ 83,484 $ 73,567 $ 313,167 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 NOTE 21 - SUBSEQUENT EVENTS 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”). Debt 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 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. 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. 70 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.