What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2023-03-16 compared with 2022-04-04 · 266 added, 385 removed, 350 unchanged (65% of the section changed)

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S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Shares of the Company’s common stock are traded on The NASDAQ Global Market under the Symbol “RCMT.” 

As of February 11, 2022, the approximate number of holders of record of the Company’s Common Stock was 280 and the number of beneficial owners of its Common Stock was approximately 5,110.

No dividends were declared in fiscal 2020 or fiscal 2021. 

All restricted share awards contain a dividend equivalent provision entitling holders to dividends paid between the restricted stock unit grant date and ultimate share distribution date. 

As of January 1, 2022, there were no accrued dividends. 

While the Company, at this time, has no plans to issue any future dividends, any future payment of dividends will depend upon, among other things, the Company’s earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions, and other factors that the Board of Directors deems relevant. 

The Revolving Credit Facility (as discussed in Item 7 hereof) prohibits the payment of any dividends or distributions on account of the Company’s capital stock without the prior consent of the majority of the Company’s lenders. 

Stock Repurchase by Issuer

On January 13, 2021, the Company’s Board of Directors authorized a program to repurchase shares of the Company’s common stock constituting, in the aggregate, up to an amount not to exceed $7.5 million.

On November 12, 2021, the Company’s Board of Directors further increased the total amount available to repurchase shares up to an amount not to exceed $19.1 million (including the initial $7.5 million authorized), consistent with the maximum limitation set forth by the Company’s revolving line of credit.

The program is designed to provide the Company with enhanced flexibility over the long term to optimize its capital structure.

Shares of the common stock may be repurchased in the open market or through negotiated transactions.

All of the repurchases were conducted under the safe harbor from liability under certain market manipulation rules provided by Rule 10b-18 under the Securities Exchange Act of 1934, as amended. 

The program may be terminated or suspended at any time at the discretion of the Company. 

The following table provides information relating to the shares we purchased during the fourth quarter of the fiscal year ended January 1, 2022:

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (CONT ’

Stock Repurchase by Issuer (Continued)

The following table provides information relating to the shares we purchased during the fourth quarter of the fiscal year ended December 31, 2022:

Weighted Average

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December 1, 2022 –

January 1, 2022

December 31, 2022

MANAGEMENT ’

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COVID-19 Considerations

The Company’s priorities during the COVID-19 pandemic are protecting the health and safety of our employees and, especially in the healthcare segment, deploying our resources, including the talents of our employees, to help the communities we serve meet and overcome the current challenges.

In the future, the pandemic may cause reduced demand for our services if, for example, the pandemic results in a prolonged recessionary economic environment affecting industries in which we serve;

The Company’s priorities during the COVID-19 pandemic and endemic are protecting the health and safety of our employees and, especially in the healthcare segment, deploying our resources, including the talents of our employees, to help the communities we serve meet and overcome the current challenges.

In the future, the pandemic and endemic may cause reduced demand for our services if, for example, the pandemic and endemic results in a prolonged recessionary economic environment affecting industries in which we serve;

however, since certain services that we offer are essential to the daily lives of our customers, we believe that over the long term, there will continue to be demand for our services. 

Our ability to continue to operate without any significant negative operational impact from the COVID-19 pandemic will in part depend on our ability to protect our employees and our supply chain.

Our ability to continue to operate without any significant negative operational impact from the COVID-19 pandemic and endemic will in part depend on our ability to protect our employees and our supply chain.

The Company has endeavored to follow the recommended actions of government and health authorities to protect our employees, with particular measures in place for those working in our customer facilities.

While our revenue, gross profit and operating income were negatively impacted in fiscal 2020 on a consolidated basis and in fiscal 2021 for certain business lines, we have maintained the consistency of our operations, to a substantial degree, from the onset of the COVID-19 pandemic.

We intend to continue to adhere to our employee safety measures as we seek to ensure that any disruptions to our operations remain as limited as possible during the pandemic.

However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our workforce and supply chain (for example, an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our operations. 

We intend to continue to adhere to our employee safety measures as we seek to ensure that any disruptions to our operations remain as limited as possible during the pandemic and endemic.

However, the uncertainty resulting from the pandemic and endemic could result in an unforeseen disruption to our workforce and supply chain (for example, an inability of a key supplier or transportation supplier to source and transport materials) that could negatively impact our operations.

Any material changes to labor rates for the Company’s workforce may have a material negative impact to revenue, gross profit and operating income.

For additional information on risk factors related to the pandemic or other risks that could impact our results, please refer to “Risk Factors”

For additional information on risk factors related to the pandemic and endemic or other risks that could impact our results, please refer to “Risk Factors”

in Part II, Item 1A of this Form 10-K.

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S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

RCM participates in a market that is cyclical in nature and sensitive to economic changes. 

As a result, the impact of economic changes on revenue and operations can be substantial, resulting in significant volatility in the Company’s financial performance. 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to present various health, business and other challenges throughout the United States.

As a result, we have temporarily closed or reduced most of our office locations, with much of our workforce working from home, and have seen a reduction in customer demand to certain business lines.

The duration and ultimate magnitude of the disruption remains uncertain.

Therefore, we experienced a negative impact on a consolidated basis during fiscal 2020 and to certain business lines during fiscal 2021, and this matter may continue to negatively impact our business, results of operations, and financial position throughout fiscal 2022 and possibly beyond, and the related financial impact cannot be reasonably estimated at this time. 

Please see more detailed disclosure by segment in our Segment Discussion and the impact to our consolidated financial position under Financial Activities under Liquidity and Capital Resources, all in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Company believes it has developed and assembled an attractive portfolio of capabilities, established a proven record of performance and credibility and built an efficient pricing structure. 

RESULTS OF OPERATIONS (CONTINUED)

The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and resources.

Such forward-looking statements should be read in conjunction with our disclosures under “

Risk Factors ”

of this Form 10-K.

This section of the Form 10-K generally discusses matters relating to the fiscal years ended December 31, 2022 and January 1, 2022 and year-to-year comparisons between such fiscal years.

Discussions of matters relating to the fiscal year ended January 2, 2021 and year-to-year comparison between that year and the year ended January 1, 2022 that are not included in this Form 10-K can be found in “

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations ”

in Part II, Item 7 of RCM ’

s Annual Report on Form 10-K for the fiscal year ended January 1, 2022.

RCM participates in a market that is cyclical in nature and sensitive to economic changes.

As a result, the impact of economic changes on revenue and operations can be substantial, resulting in significant volatility in the Company’s financial performance.

The Company believes it has developed and assembled an attractive portfolio of capabilities, established a proven record of performance and credibility and built an efficient pricing structure.

The Company is committed to optimizing its business model as a single-source premier provider of business and technology solutions with a strong vertical focus offering an integrated suite of services through a global delivery platform.

The Company believes that most companies recognize the importance of advanced technologies and business processes to compete in today’s business climate. 

However, the process of designing, developing and implementing business and technology solutions is becoming increasingly complex. 

The Company believes that many businesses today are focused on return on investment analysis in prioritizing their initiatives. 

The Company believes that most companies recognize the importance of advanced technologies and business processes to compete in today’s business climate.

However, the process of designing, developing and implementing business and technology solutions is becoming increasingly complex.

The Company believes that many businesses today are focused on return on investment analysis in prioritizing their initiatives.

This has had an adverse impact on spending by current and prospective clients for many emerging new solutions.

Nonetheless, the Company continues to believe that businesses must implement more advanced life sciences, information technology and engineering solutions to upgrade their systems, applications and processes so that they can maximize their productivity and optimize their performance in order to maintain a competitive advantage. 

Although working under budgetary, personnel and expertise constraints, companies are driven to support increasingly complex systems, applications and processes of significant strategic value. 

This has given rise to a demand for outsourcing. 

The Company believes that its current and prospective clients are continuing to evaluate the potential for outsourcing business critical systems, applications and processes. 

The Company provides project management and consulting services, which are billed based on either agreed-upon fixed fees or hourly rates, or a combination of both. 

The billing rates and profit margins for project management and solutions services are generally higher than those for professional consulting services. 

The Company generally endeavors to expand its sales of higher margin solutions and project management services. 

The Company also realizes revenue from client engagements that range from the placement of contract and temporary technical consultants to project assignments that entail the delivery of end-to-end solutions. 

Although working under budgetary, personnel and expertise constraints, companies are driven to support increasingly complex systems, applications and processes of significant strategic value.

This has given rise to a demand for outsourcing.

The Company believes that its current and prospective clients are continuing to evaluate the potential for outsourcing business critical systems, applications and processes.

The Company provides project management and consulting services, which are billed based on either agreed-upon fixed fees or hourly rates, or a combination of both.

The billing rates and profit margins for project management and solutions services are generally higher than those for professional consulting services.

The Company generally endeavors to expand its sales of higher margin solutions and project management services.

These services are primarily provided to the client at hourly rates that are established for each of the Company’s consultants based upon their skill level, experience and the type of work performed.

The majority of the Company’s services are provided under purchase orders.

Contracts are utilized on certain of the more complex assignments where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary.

Although contracts normally relate to longer-term and more complex engagements, they do not obligate the customer to purchase a minimum level of services and are generally terminable by the customer on 60 to 90 days’

The Company, from time to time, enters into contracts requiring the completion of specific deliverables.

Typically, these contracts are for less than one year. 

The Company recognizes revenue on these deliverables at the time the client accepts and approves the deliverables.

MANAGEMENT ’

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Overview (Continued)

The majority of the Company’s services are provided under purchase orders. 

Contracts are utilized on certain of the more complex assignments where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary. 

notice. 

The Company, from time to time, enters into contracts requiring the completion of specific deliverables. 

Typically these contracts are for less than one year. 

The Company recognizes revenue on these deliverables at the time the client accepts and approves the deliverables.

Costs of services consist primarily of salaries and compensation-related expenses for billable consultants and employees, including payroll taxes, employee benefits and insurance. 

Selling, general and administrative expenses consist primarily of salaries and benefits of personnel responsible for business development, recruiting, operating activities, and training, and include corporate overhead expenses. 

Costs of services consist primarily of salaries and compensation-related expenses for billable consultants and employees, including payroll taxes, employee benefits and insurance.

Corporate overhead expenses relate to salaries and benefits of personnel responsible for corporate activities, including the Company’s corporate marketing, administrative and financial reporting responsibilities and acquisition program.

The Company records these expenses when incurred. 

Corporate overhead expenses are allocated to the segments based on revenue for the purpose of segment financial reporting.

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Revenue Recognition

The Company records revenue under Accounting Standards Codification ("ASC") Topic 606, 

Revenue from Contracts with Customers . 

Revenue is recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. 

The Company records revenue under Accounting Standards Codification (“ASC”) Topic 606, 

Revenue from Contracts with Customers .

Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers.

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and (5) Recognize revenue when (or as) each performance obligation is satisfied.

The Company derives its revenue from several sources. 

The Company’s Engineering Services, Life Sciences and Information Technology segments perform consulting and project solution services. 

The Healthcare segment specializes in long-term and short-term staffing and placement services to hospitals, schools and long-term care facilities amongst others. 

The Company derives its revenue from several sources.

The Company’s Engineering Services, Life Sciences and Information Technology segments perform consulting and project solution services.

The Healthcare segment specializes in long-term and short-term staffing and placement services to hospitals, schools and long-term care facilities amongst others.

All of the Company’s segments perform staff augmentation services and derive revenue from permanent placement fees.

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Revenue Recognition (Continued)

The following table presents our revenues disaggregated by revenue source for the fifty-two week period ended January 1, 2022 and fifty-three week period ended January 2, 2021:

Time and Material

Permanent Placement Services

Total Engineering

The following table presents our revenue disaggregated by revenue source for the fiscal years ended December 31, 2022 and January 1, 2022:

Specialty Health Care:

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Total Specialty Health Care

Time and Material

Permanent Placement Services

Total Engineering

Life Sciences and Information Technology:

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Time and Material

The Company’s IT and Healthcare segments predominantly recognize revenue through time and material work while its Engineering segment recognizes revenue through both time and material and fixed fee work.

The Company’s Life Sciences and Information Technology and Healthcare segments predominantly recognize revenue through time and material work while its Engineering segment recognizes revenue through both time and material and fixed fee work.

The Company’s time and material contracts are typically based on the number of hours worked at contractually agreed upon rates, therefore revenue associated with these time and materials contracts are recognized based on hours worked at contracted rates. 

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Permanent Placement Services

The Company earns permanent placement fees from providing permanent placement services. 

These fees are typically based on a percentage of the compensation paid to the person placed with the Company’s client.

There was $3.4 million of deferred revenue as of January 1, 2022. 

There was $1.1 million of deferred revenue as of December 31, 2022.

Deferred revenue was $3.4 million as of January 1, 2022.

Revenue is recognized when the service has been performed. 

Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet. 

In each of the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021, the Company recognized revenue of $0.4 million, that was included in deferred revenue at the beginning of the reporting period.

Revenue is recognized when the service has been performed.

Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet.

In the fiscal years ended December 31, 2022 and January 1, 2022, the Company recognized revenue of $3.4 million and $0.4 million, respectively, that was included in deferred revenue at the beginning of the reporting period.

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable are primarily due from trade customers. 

Credit is extended based on evaluation of customers’

financial condition and, generally, collateral is not required. 

Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts. 

Accounts outstanding longer than the payment terms are considered past due. 

The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. 

financial condition and, generally, collateral is not required.

Accounts receivable payment terms vary and are stated in the financial statements at amounts due from customers net of an allowance for doubtful accounts.

Accounts outstanding longer than the payment terms are considered past due.

The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables previously written off are credited to bad debt expense.

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The Company tests goodwill for impairment on an annual basis as of the last day of the Company’s fiscal December each year or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount.

The Company has three reporting units. 

The Company uses a market-based approach to determine the fair value of the reporting units. 

The Company has three reporting units.

The Company uses a market-based approach to determine the fair value of the reporting units.

This approach uses earnings/revenue multiples of similar companies recently completing acquisitions and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.

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There was no goodwill impairment in fiscal 2022 or 2021.

During all periods presented, the Company determined that the existing qualitative factors did not suggest that an impairment of goodwill exists. 

There can be no assurance that future indicators of impairment and tests of goodwill impairment will not result in impairment charges for both its Engineering and Specialty Healthcare segments.

Long-Lived and Intangible Assets

The Company evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 

When the Company determines that it is probable that undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. 

Assets to be disposed of by sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.

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Accounting for Restricted Stock Awards

The Company uses restricted stock awards to attract, retain and reward employees for long-term service. 

The Company follows Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Topic 718 “Compensation –

Stock Compensation”

which requires that the compensation cost relating to stock-based payment transactions be recognized in the financial statements. 

This compensation cost is measured based on the fair value of the equity or liability instruments issued.

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The Company has risk participation arrangements with respect to workers compensation and health care insurance.

The Company establishes loss provisions based on historical experience and in the case of expected losses from workers compensation, considers input from third parties. 

The amounts included in the Company’s costs related to this risk participation are estimated and can vary based on changes in assumptions, the Company’s claims experience or the providers included in the associated insurance programs.

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In establishing the provision for income taxes and deferred income tax assets and liabilities and valuation allowances against deferred tax assets, the Company makes judgments and interpretations based on enacted tax laws, published tax guidance and estimates of future earnings. 

As of January 1, 2022, the Company had both domestic and foreign net deferred tax assets of $0.4 million.  The domestic long term net deferred tax assets of $0.5 million includes $3.4 million in deferred assets offset by $2.9 million in deferred tax liabilities.

The domestic deferred tax assets consist of a net operating loss carryforward of $1.2 million, lease liabilities of $0.8 million and various deferred expense accruals and reserves of $0.8 million.

As of December 31, 2022, the Company had both domestic and foreign net deferred tax liabilities of $1.7 million.  The domestic long term net deferred tax liability of $1.5 million includes $4.0 million in deferred liabilities offset by $2.5 million in deferred tax assets.

The deferred tax liabilities consist of acquisition amortization of $1.7 million, prepaid expenses of $0.9 million and advance depreciation deductions of $0.4 million. 

The domestic deferred tax assets consist of lease liabilities of $1.1 million and various deferred expense accruals and reserves of $0.9 million.

The realization of deferred tax assets is dependent upon the likelihood that future taxable income will be sufficient to realize these benefits over time, and the effectiveness of tax planning strategies in the relevant tax jurisdictions. 

If actual results differ from these estimates and assessments, valuation allowances may be required. 

The Company also had $0.1 million in foreign net deferred tax liabilities as of January 1, 2022.

The Company also had $0.2 million in foreign net deferred tax liabilities as of December 31, 2022.

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Puerto Rico and Serbia.

The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states.

The Company’s federal income tax returns have been examined through 2017.

The Company has no open Federal audits as of January 1, 2022. 

The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states. 

The Company has no open Federal audits as of December 31, 2022.

Except for limited exceptions, the Company is no longer subject to audits by state and local tax authorities for tax years prior to 2018.

The Company is no longer subject to audit in Canada for the tax years prior to tax year 2017. 

The Company is no longer subject to audit in Canada for the tax years prior to tax year 2018.

The Company is no longer subject to audit in Puerto Rico for the tax years prior to tax year 2012.

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The Company pays bonuses to certain executive management, field management and corporate employees based on, or after giving consideration to, a variety of financial performance measures.

Bonuses for executive management, field management and certain corporate employees are accrued throughout the year for payment during the first quarter of the following year, based in part upon anticipated annual results compared to annual budgets. 

In addition, the Company pays discretionary bonuses to certain employees, which are not related to budget performance.

Variances in actual results versus budgeted amounts can have a significant impact on the calculations and therefore on the estimates of the required accruals. 

Accordingly, the actual earned bonuses may be materially different from the estimates used to determine the quarterly accruals.

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Forward-looking Information

The Company’s growth prospects are influenced by broad economic trends. 

The pace of customer capital spending programs, new product launches and similar activities have a direct impact on the need for engineering, life sciences and information technology services.

When the U.S., Canadian or global economies decline, the Company’s operating performance could be adversely impacted. 

In addition, global events such as the ongoing COVID-19 pandemic also have a substantial impact on our operations and financial results. 

The Company believes that its fiscal discipline, strategic focus on targeted vertical markets and diversification of service offerings provides some insulation from adverse trends. 

When the U.S., Canadian or global economies decline, the Company’s operating performance could be adversely impacted.

In addition, global events such as the ongoing COVID-19 pandemic and endemic also have a substantial impact on our operations and financial results.

The Company believes that its fiscal discipline, strategic focus on targeted vertical markets and diversification of service offerings provides some insulation from adverse trends.

However, general economic declines could result in the need for future cost reductions or changes in strategy.

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There can be no assurance that the Company will be able to increase the fees charged to its clients in a timely manner and in a sufficient amount to cover increased costs as a result of any of the foregoing.

The consulting and employment services market is highly competitive with limited barriers to entry. 

The Company competes in global, national, regional and local markets with numerous competitors in all of the Company’s service lines. 

The consulting and employment services market is highly competitive with limited barriers to entry.

The Company competes in global, national, regional and local markets with numerous competitors in all of the Company’s service lines.

Price competition in the industries the Company serves is significant, and pricing pressures from competitors and customers are increasing.

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RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended January 1, 2022 Compared to Fiscal Year Ended January 2, 2021

A summary of operating results for the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021 is as follows (in thousands):

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022

A summary of operating results for the fiscal years ended December 31, 2022 and January 1, 2022 is as follows (in thousands):

Fiscal Years Ended

January 1, 2022

December 31, 2022

January 1, 2022

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Amortization of acquired intangible assets

Write-off of receivables and professional fees

incurred related to arbitration

Impairment of right of use assets and related costs

Gain on sale of assets

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Operating costs and expenses

Operating income (loss)

Operating income

Other expense, net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31. 

The fiscal years ended January 1, 2022 (fiscal 2021) and January 2, 2021 (fiscal 2020) consisted of fifty-two weeks and fifty-three weeks, respectively.

Revenue increased 35.5%, or $53.5 million, for the fifty-two week period ended January 1, 2022 as compared to the fifty-three week period ended January 2, 2021 (the “comparable prior year period”). 

Revenue increased $8.5 million in the Engineering segment, $38.0 million in the Specialty Health Care segment and $7.0 million in the Life Sciences and Information Technology segment. 

Income before income taxes

Income tax expense

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31.

The fiscal years ended December 31, 2022 (fiscal 2022) and January 1, 2022 (fiscal 2021) consisted of fifty-two weeks each.

Revenue increased 39.6%, or $80.8 million, for the fiscal year ended December 31, 2022 as compared to January 1, 2022 (the “comparable prior year period”). 

Revenue increased $60.9 million in the Specialty Health Care segment, $19.8 million in the Engineering segment and $0.1 million in the Life Sciences and Information Technology segment. 

See Segment Discussion for further information on revenue changes.

Cost of Services and Gross Profit.

Cost of services increased 35.1%, or $39.2 million, for the fifty-two week period ended January 1, 2022 as compared to the comparable prior year period.

Cost of services increased primarily due to the increase in revenue. 

Cost of services as a percentage of revenue for the fifty-two week period ended January 1, 2022 and the comparable prior year period were 73.9% and 74.2%, respectively. 

Cost of services increased 33.8%, or $51.0 million, for the fiscal year ended December 31, 2022 as compared to the comparable prior year period.

Cost of services increased primarily due to the increase in revenue.

Cost of services as a percentage of revenue for the fiscal years ended December 31, 2022 and the comparable prior year period were 70.9% and 73.9%, respectively.

See Segment Discussion for further information regarding changes in cost of services and gross profit.

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RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended January 1, 2022 Compared to Fiscal Year Ended January 2, 2021 (Continued)

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022 (Continued)

Selling, General and Administrative.

Selling, general and administrative (“SGA”) expenses were $42.0 million for the fifty-two week period ended January 1, 2022 as compared to $37.8 million for the comparable prior year period.

As a percentage of revenue, SGA expenses were 20.6% for the fifty-two week period ended January 1, 2022 and 25.1% for the comparable prior year period.  See Segment Discussion for further information on SGA expense changes.

Write-off of receivables related to arbitration.

The Company recorded a charge of $8.4 million during the comparable prior year period relating to its dispute with a customer that is a major utility in the United States.

This dispute was resolved through binding arbitration April 2020. 

The charge consisted of $6.7 million for the portion of accounts receivable previously recognized by the Company that was not awarded by the arbitrator, $0.7 million from other projects with this customer that were not part of the arbitration, $0.8 million in professional fees related to the dispute and arbitration and $0.2 million of transit accounts receivable associated with disputed projects that were part of the arbitration.

For the fifty-two week period ended January 1, 2022, there was no such charge.

See discussion of Contingencies in Note 16 to the Condensed Consolidated Financial Statements included in this report.

Impairment of Office Leases.

During fiscal 2020, in connection with the continuing developments from COVID-19, the Company reduced its leased office space as a result of its employees moving to a remote work environment. 

The Company does not believe there is an opportunity to sublet any of the vacant office space due to the current commercial rental marketplace. 

This decision and reduction in the use of the office spaces resulted in a right-of-use asset impairment of $1.9 million in fiscal 2020. 

This loss was determined by identifying the fair value of the impacted right-of-use assets as compared to the carrying value of the assets as of the measurement date, in accordance with Property, Plant and Equipment Topic 360 of the FASB ASC. 

The fair value of the right-of-use assets was based on the remaining term of each lease. 

In addition, the Company wrote off a total of $0.3 million in other office lease costs and for obsolete equipment. 

There were no such charges in fiscal 2021.

Selling, general and administrative (“SGA”) expenses were $53.4 million for the fiscal year ended December 31, 2022 as compared to $42.0 million for the comparable prior year period.

As a percentage of revenue, SGA expenses were 18.8% for the fiscal year ended December 31, 2022 and 20.6% for the comparable prior year period.  See Segment Discussion for further information on SGA expense changes.

Gain on sale of assets.

 On July 30, 2021, the Company sold the principal assets and certain liabilities of its Pickering and Kincardine offices, located in Ontario, Canada.

These two offices were often referred to as Canada Power Systems and principally provided engineering services to two major nuclear power providers in Canada. 

The two Canada Power Systems offices were part of a reporting unit within the Company’s Engineering segment.

The Company recorded a net gain on the sale of these assets and liabilities of $2.4 million.

The Company recorded a net gain on the sale of these assets and liabilities of $2.4 million for the fiscal year ended January 1, 2022.

For the fiscal year ended December 31, 2022, the Company recorded a gain of $0.2 million, which was due to receiving escrow funds associated with the sale of Canada Power Systems in fiscal 2021.

Remeasurement of acquisition related contingent consideration.

The Company adjusted the forecasted contingent consideration for active acquisition agreements, which created a discreet gain of $1.7 million .

Other Expense.

Other expense consists of interest expense, unused line fees and amortized loan costs on the Company’s line of credit, net of interest income, imputed interest on contingent consideration and gains and losses on foreign currency transactions. 

Other expense, net decreased by $0.9 million as compared to the comparable prior year period. 

Interest expense decreased by $0.4 million, primarily due to decreased borrowing, and also due to a decreased average borrowing rate under the Company’s line of credit.

Other expense, net also decreased by $0.4 million due a gain on foreign currency transactions in the current period as compared to a loss on foreign currency transactions in the comparable prior year period.

Income Tax Expense (Benefit) . 

The Company recognized $2.9 million of income tax expense for the fifty-two week period ended January 1, 2022, as compared to an income tax benefit of $3.2 million for the comparable prior year period. 

During both periods presented, the Company adjusted the forecasted contingent consideration for active acquisition agreements, which created discreet gains of $0.1 million for the fiscal year ended December 31, 2022 and $1.7 million for the comparable prior year period .

Other Expense (Income).

Other expense (income) consists of interest expense, unused line fees and amortized loan costs on the Company’s line of credit, net of interest income and gains and losses on foreign currency transactions. 

Other expense (income) increased by $0.1 million as compared to the comparable prior year period, primarily due to a decrease in gains on foreign currency transactions. 

Income Tax Expense . 

The Company recognized $7.6 million of income tax expense for the fiscal year ended December 31, 2022, as compared to $2.9 million for the comparable prior-year period. 

The consolidated effective income tax rate for the current period was 26.7% as compared to 21.0% for the comparable prior-year period. 

The Company’s tax rates for fiscal 2022 are 27.0% for the United States, 23.3% for Canada, and 16.8% for Serbia. 

The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company, particularly the ratio of Canadian and Serbian pretax income versus U.S.

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The effective income tax rate can also be impacted by discrete permanent differences affecting any period presented.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended January 1, 2022 Compared to Fiscal Year Ended January 2, 2021 (Continued)

The Company considers its 2021 effective income tax rate to be abnormally low, due mainly to permanent differences detailed in footnote 15 in the Company’s financial statements.

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federal statutory rate may arise, primarily from the effect of state and local income taxes, share-based compensation, and potential tax credits available to the Company.

The actual 2021 effective tax rate may vary from the estimate depending on the actual operating income earned in various jurisdictions, the potential availability of tax credits, and the exercise of stock options and vesting of share-based awards.

Segment Discussion

Engineering revenues of $66.2 million for the fifty-two week period ended January 1, 2022 increased 14.7%, or $8.5 million, compared to the comparable prior year period.  The increase in revenue was comprised of the following:

increases in Aerospace revenue of $10.9 million, Industrial Processing revenue of $3.6 million, and Energy Services of $0.9 million, offset by a decrease in revenue from the Canadian Power Systems Group of $6.9 million. 

The increase in Aerospace revenue was primarily due to a new outsourcing engagement with one of the Company’s major customers that is anticipated to become a multi-year contract.

The increase in Industrial Processing revenue was primarily due to spending increases with several major customers seeking to upgrade their ethanol related production capability.

The decrease in the Canadian Power Systems was primarily due to the sale of this business on July 30, 2021 (see details below).

Gross profit decreased by 2.5%, or $0.4 million, as compared to the comparable prior year period.

Gross profit decreased because of the decrease in gross profit margin.

Gross profit margin of 24.3% for the current period decreased from 28.6% for the comparable prior year period.

The decrease in gross margin was due to three factors:

1) decreased revenue from the Canadian Power Systems Group, as lower revenue negatively impacted utilization of the segment’s billable consultants;

2) lower gross margin for the new Aerospace contract than the Engineering segment typically experiences;

and 3) rework costs on a fixed price contract in the Industrial Processing business.

The Engineering segment’s SGA expense of $14.2 million increased by $1.2 million due to investment in new personnel to reposition and generate future growth.

The Engineering segment experienced operating income of $5.4 million for the fifty-two week period ended January 1, 2022, as compared to an operating loss of $5.9 million for the comparable prior year period.

The reason for improved operating income was primarily due to three discrete differences between the current and comparable prior years periods:

1) the gain on sale of assets associated with selling the Canadian Power Systems business (see paragraph below) of $2.4 million in the current period;

2) the remeasurement of acquisition-related contingent consideration;

and 3) the $8.4 million write-off of receivables and professional fees incurred related to a discrete arbitration in the comparable prior year prior.

On July 30, 2021, the Company sold the principal assets and certain liabilities of its Pickering and Kincardine offices, located in Ontario, Canada.

These two offices were often referred to as the Canadian Power Systems business and principally provided engineering services to two major nuclear power providers in Canada. 

The two Canadian Power Systems offices were part of a reporting unit within the Company’s Engineering segment.

The Company will continue to offer other engineering services in Canada and similar services in the United States. 

For the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021, these two offices generated revenue of $4.9 million and $11.8 million, respectively. 

The actual effective tax rate may vary in future years depending on the actual operating income earned in various jurisdictions, the potential availability of tax credits, and the exercise of stock options and vesting of share-based awards.

MANAGEMENT ’

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RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended January 1, 2022 Compared to Fiscal Year Ended January 2, 2021 (Continued)

Segment Discussion (Continued)

COVID-19 Impact to Engineering Segment

It is difficult to assess both the current and future impact from COVID-19 to the Engineering segment, due to the high degree of uncertainty around COVID-19 and the duration and extent of the pandemic.

The Engineering segment has seen a decline in its field services work as its personnel has constrained access to client facilities.

It is difficult to determine the impact on revenue from the loss in field services work.

The Company believes that an undetermined amount of field services work will eventually return as a portion of that work is mission-critical to our clients.

While the Company has recently seen signs of improvement, given the uncertainties around COVID-19, the Company can give no assurances that it will see an increase in field services revenue. 

Additionally, the Company believes that COVID-19 has had a significant adverse impact on the budgets of many of its Aerospace and Utilities clients.

The Company’s Aerospace clients have seen an impact to their commercial lines of business. 

A number of the Company’s Utility clients have been impacted by their customers’

inability to pay their monthly electric bills.

The Company has transitioned most of its Engineering workforce to work from home.

While this has constituted a significant effort, particularly from a technology standpoint, the Company believes that this effort has been completed relatively effectively.

The Company also believes that its Engineering clients have been generally supportive of these efforts and believes further that it has not lost any significant, previously awarded work.

The Engineering segment continues to see new work proposals, but while recently improved, not at the same level as seen prior to COVID-19.

The Engineering segment’s general response to the effects of COVID-19 is to continue to focus on maximizing gross margin by focusing on utilization of billable consultants and maximizing the efficiency of its SGA expense. 

The Company has also invested in new senior personnel, in part because it anticipates improved demand in the near future.

The Company plans to refine its strategy for responding to COVID-19 as necessary as the situation develops.

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022 (Continued)

Segment Discussion

Specialty Health Care

Specialty Health Care revenue of $98.5 million for the fifty-two week period ended January 1, 2022 increased 62.9%, or $38.0 million, as compared to the comparable prior year period. 

Specialty Health Care revenue of $159.4 million for the fiscal year ended December 31, 2022 increased 61.9%, or $60.9 million, as compared to the comparable prior-year period. 

The increase in revenue was driven by both the Company’s school and non-school clients.

Revenue from school clients for the fifty-two week period ended January 1, 2022 was $55.4 million as compared to $37.3 million for the comparable prior year period.

Revenue from non-school clients for the fifty-two week period ended January 1, 2022 was $43.1 million as compared to $23.2 million for the comparable prior year period.

Revenue from school clients for the fiscal year ended December 31, 2022 was $114.2 million as compared to $66.6 million for the comparable prior-year period.

Revenue from non-school clients for the fiscal year ended December 31, 2022 was $45.2 million as compared to $31.9 million for the comparable prior-year period.

Revenue increases were due to the reopening of Specialty Health Care school clients and unprecedented demand for health care professionals across all types of clients served.

The Specialty Health Care segment’s gross profit increased by 89.4%, or $11.9 million, to $25.3 million for the fifty-two week period ended January 1, 2022, as compared to $13.4 million for the prior year period.

The Specialty Health Care segment’s gross profit increased by 89.2%, or $22.6 million, to $47.9 million for the fiscal year ended December 31, 2022, as compared to $25.3 million for the prior-year period.

The increase in gross profit was primarily driven by the increase in revenue, but also a higher gross profit margin.

Gross profit margin for the fifty-two week period ended January 1, 2022 increased to 25.7% as compared to 22.1% for the comparable prior year period. 

Gross profit margin for the fiscal year ended December 31, 2022 increased to 30.0% as compared to 25.7% for the comparable prior-year period. 

The increase in gross profit margin was primarily due to more normalized revenue and the high demand for certain services. 

Specialty Health Care experienced operating income of $5.5 million for the fifty-two week period ended January 1, 2022, as compared to an operating loss of $2.6 million for the comparable prior year period.

Specialty Health Care experienced operating income of $19.8 million for the fiscal year ended December 31, 2022, as compared to $5.5 million for the comparable prior-year period.

The primary reason for the increase in operating income was the increase to gross profit, offset by an increase in SGA expense.

SGA expense increased by $8.2 million to $27.7 million, as compared to $19.5 million in the comparable prior-year period.

The increase in SGA expense was primarily due to replacing our workforce that was furloughed in the prior year and hiring new employees to help meet increased demand.

The increase in SGA expense was primarily due to increasing our workforce to help meet increased demand.

The Company believes that the impact of the COVID-19 pandemic helped to increase Specialty Health Care revenue and gross margin in the fourth quarter of fiscal 2021 and the first half of fiscal 2022.

The Company also believes the COVID-19 pandemic began to shift to an endemic in the second half of fiscal 2022.

As a result, COVID-19-related revenue has decreased.

However, the Company also believes that the demand for its Healthcare services is greater than it typically had been before the COVID-19 pandemic.

While it is the overall impact of these offsetting dynamics is uncertain, the Company believes that, except for seasonality, it is well positioned for potential growth in revenue.

MANAGEMENT ’

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RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended January 1, 2022 Compared to Fiscal Year Ended January 2, 2021 (Continued)

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022 (Continued)

Segment Discussion (Continued)

COVID-19 Impact to Specialty Health Care Segment

It is difficult to assess both the current and future impact from COVID-19 to the Specialty Health Care segment, due to the high degree of uncertainty around COVID-19 and the duration and extent of the pandemic, especially as it may impact schools where many of our personnel work.

While the Specialty Health Care segment has a small number of billable professionals performing services from home, in particular, through its telehealth services offerings, most of its billable staff works at client locations.

The majority of the Specialty Health Care segment’s services are historically delivered at schools and health care facilities.

The Company believes that demand for much of its services is very high as a result of COVID-19.

However, health care professionals, such as nurses and doctors, are scarce and difficult to recruit.

Also, the Company believes that any major changes in the pandemic, such as a new variant, could adversely impact revenue.

For example, if the Specialty Health Care segment’s school clients were to return to virtual learning, the Specialty Health Care segment could experience a material decline in revenue.

The Specialty Health Care Segment has historically derived much of its revenue from school systems.

Many school systems nationwide, including most of the Company’s school clients, closed down for in-person instruction in March 2020.

Most of our school clients have opened primarily in-person, but some also offer virtual lessons.

Any announced plans are subject to rapid changes.

There are numerous factors that could influence further decisions of our school clients on their operations.

Any shift toward hybrid and remote operations can have a materially negative impact on revenue generated by the Specialty Healthcare segment.

While the Company is optimistic, it is difficult to estimate the impact of any potential school closures on the Company’s 2022 fiscal year.

Engineering revenue of $85.9 million for the fiscal year ended December 31, 2022 increased 29.9%, or $19.8 million, compared to the comparable prior-year period.  The increase in revenue was comprised of the following:

increases in Aerospace revenue of $16.3 million, Industrial Processing revenue of $5.3 million, and Energy Services revenue of $3.1 million, offset by a decrease in revenue of $4.9 million resulting from the sale of the Canadian Power Systems Group. 

The increase in Aerospace revenue was primarily due to a new outsourcing engagement with one of the Company’s long-time customers and the Company’s entrance into the burgeoning rocket industry.

The increase in Industrial Processing revenue was primarily due to spending increases by several major customers seeking to upgrade their ethanol-related production capability.

Gross profit increased by 35.2%, or $5.7 million, as compared to the comparable prior-year period.

Gross profit increased because of the increase in revenue and an increase in gross profit margin.

Gross profit margin of 25.3% for the current period increased from 24.3% for the comparable prior-year period.

The increase in gross profit margin was due to three factors:

1) decreased revenue from the Canadian Power Systems Group, as the prior-year gross profit margin associated with such revenue was dilutive at 21.7%;

2) improved project execution across all three of the Engineering business lines;

and 3) a concerted effort to improve gross profit margin through better managing of utilization and focusing on higher gross profit margin opportunities.

The Engineering segment’s SGA expense of $17.3 million increased by $3.1 million due to investment in new personnel to reposition and generate future growth.

The Engineering segment experienced operating income of $4.3 million for the fiscal year ended December 31, 2022, as compared to $5.4 million for the comparable prior-year period.

The decrease in operating income was due to the decrease in discrete gains in the current period.

Gain on sale of assets and remeasurement of acquisition-related contingent consideration increased operating income by $0.3 million in the current fiscal year as compared to increasing operating income by $4.1 million in the comparable prior fiscal year.

Life Sciences and Information Technology

Life Sciences and Information Technology revenue of $39.2 million for the fifty-two week period ended January 1, 2022 increased 21.7%, or $7.0 million, as compared to $32.2 million for the comparable prior year period. The increase in Life Sciences and Information Technology revenue was primarily driven by the Company’s Life Sciences practice.

The Company believes that the Life Sciences industry has not seen a negative impact from COVID-19.

Gross profit of $11.7 million for the fifty-two week period ended January 1, 2022 increased 30.5%, or $2.7 million, as compared to $9.0 million for the comparable prior year period.

The increase in gross profit was primarily due to the increase in revenue, as well as an increase in gross profit margin. 

The Life Sciences and Information Technology gross profit margin for the fifty-two week period ended January 1, 2022 was 30.0% as compared to 27.9% for the comparable prior year period. 

Life Sciences and Information Technology revenue of $39.3 million for the fiscal year ended December 31, 2022 increased by $0.1 million, as compared to $39.2 million for the comparable prior-year period. Gross profit of $13.3 million for the fiscal year ended December 31, 2022 increased 13.3%, or $1.6 million, as compared to $11.7 million for the comparable prior-year period.

The increase in gross profit was primarily due to an increase in gross profit margin. 

The Life Sciences and Information Technology gross profit margin for the fiscal year ended December 31, 2022 was 33.9% as compared to 30.0% for the comparable prior-year period. 

The Company attributes the gross profit margin increase to higher revenue from its Life Sciences practice and a concerted effort to increase gross profit margin through its managed service offerings.

SGA expense decreased by $0.9 million to $8.3 million, as compared to $9.2 million in the comparable prior year period.

The decrease in SGA expense was a driven by a concerted effort to reduce SGA expense after the uncertainty around the COVID-19 crisis.

The Life Sciences and Information Technology segment experienced operating income of $3.4 million as compared to an operating loss of $0.2 million for the comparable prior year period.

The increase in operating income was primarily due to the increase in revenue and gross profit, and also the decrease in SGA expense.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Fiscal Year Ended January 1, 2022 Compared to Fiscal Year Ended January 2, 2021 (Continued)

Segment Discussion (Continued)

COVID-19 Impact to Life Sciences and Information Technology Segment

It is difficult to assess both the current and future impact from COVID-19 to the Life Sciences and Information Technology segment, due to the high degree of uncertainty around COVID-19 and the duration and extent of the pandemic.

The Life Sciences and Information Technology segment has seen a decline in its field services work as its personnel has limited access to client facilities.

While the Company has recently seen signs of improvement, given the uncertainties around COVID-19, the Company can give no assurances that it will see an increase in field services revenue.

The Company has transitioned most of its Life Sciences and Information Technology workforce to work from home.

While this has constituted a significant effort, particularly from a technology standpoint, the Company believes that this effort has been completed relatively effectively.

The Company also believes that its Life Sciences and Information Technology clients have been generally supportive of these efforts and believes further that it has not lost any significant, previously awarded work.

The Life Sciences and Information Technology segment’s general response to the effects of COVID-19 is to continue to focus on maximizing gross margin by focusing on utilization of billable consultants and maximizing the efficiency of its SGA expense.

The Company plans to refine its strategy for responding to COVID-19 as necessary as the situation develops.

SGA expense increased to $8.5 million as compared to $8.3 million in the comparable prior-year period.

The Life Sciences and Information Technology segment experienced operating income of $4.7 million as compared to $3.3 million for the comparable prior-year period.

 The increase in operating income was primarily due to the increase in gross profit.

MANAGEMENT ’

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The following non-GAAP measures, which adjust for the categories of expenses described below, are non-GAAP financial measures. 

Our management believes that these non-GAAP financial measures (“Adjusted operating income (loss)”, “EBITDA”, “Adjusted EBITDA”, “Adjusted net income (loss)”, and “Adjusted diluted net earnings (loss) per share”) are useful information for investors, shareholders and other stakeholders of our company in gauging our results of operations on an ongoing basis and to enhance investors’

Our management believes that these non-GAAP financial measures (“Adjusted operating income”, “EBITDA”, “Adjusted EBITDA”, “Adjusted net income”, and “Adjusted diluted net earnings per share”) are useful information for investors, shareholders and other stakeholders of our company in gauging our results of operations on an ongoing basis and to enhance investors’

overall understanding of our current financial performance and period-to-period comparisons. 

We believe these non-GAAP financial measures are performance measures and not liquidity measures.

These non-GAAP financial measures should not be considered as an alternative to net income (loss) or operationg income (loss) as indicators of performance. 

These non-GAAP financial measures should not be considered as an alternative to net income or operating income as indicators of performance. 

In addition, neither EBITDA nor Adjusted EBITDA takes into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. 

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These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

The following unaudited tables present the Company's GAAP net income and GAAP operating income and the corresponding adjustments used to calculate Adjusted operating income (loss), EBITDA, Adjusted EBITDA, Adjusted net income (loss) and Adjusted diluted net earnings (loss) per share for the fifty-two week period ended January 1, 2022 and the fifty-three week period ended January 2, 2021. 

Fifty-Two Week

January 1, 2022

Fifty-Three Week

January 2, 2021

GAAP operating income (loss)

Write-off of receivables and professional fees

incurred related to arbitration

Impairment of right of use assets and related costs

The following unaudited tables present the Company's GAAP net income and GAAP operating income and the corresponding adjustments used to calculate Adjusted operating income, EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted diluted net earnings per share for the fiscal years ended December 31, 2022 and January 1, 2022. 

Fiscal Years Ended

GAAP operating income

Gain on sale of assets

Remeasurement of acquisition related

contingent consideration

Adjusted operating income (loss) (non-GAAP)

GAAP net income (loss)

Income tax expense (benefit)

Adjusted operating income (non-GAAP)

GAAP net income

Income tax expense

Interest expense, net

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EBITDA (non-GAAP)

Write-off of receivables and professional fees

incurred related to arbitration

Impairment of right of use assets and related costs

Gain on sale of assets

Remeasurement of acquisition related

contingent consideration

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Supplemental Operating Results on a Non-GAAP Basis (Continued)

Fifty-Two Week

January 1, 2022

Fifty-Three Week

January 2, 2021

GAAP net income (loss)

Write-off of receivables and professional fees

incurred related to arbitration

Impairment of right of use assets and related costs

Fiscal Years Ended

GAAP net income

Gain on sale of assets

Remeasurement of acquisition related

contingent consideration

Tax impact from normalized rate

Adjusted net income (loss) (non-GAAP)

GAAP diluted net earnings (loss) per share

Write-off of receivables and professional fees

incurred related to arbitration

Impairment of right of use assets and related costs

Adjusted net income (non-GAAP)

GAAP diluted net earnings per share

Gain on sale of assets

Remeasurement of acquisition related

contingent consideration

Tax impact from normalized rate

Adjusted diluted net earnings (loss) per share (non-GAAP)

Adjusted diluted net earnings per share (non-GAAP)

MANAGEMENT ’

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Liquidity and Capital Resources

The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows ($ in thousands):

The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows

($ in thousands):

Fiscal Years Ended

January 2, 2021

Cash provided by (used in):

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Operating Activities

Operating activities provided $0.9 million of cash for the fifty-two week period ended January 1, 2022 as compared to $25.2 million in the comparable prior year period. 

The major components of cash used in or provided by operating activities in the fifty-two week period ended January 1, 2022 and the comparable prior year period are as follows:

net loss or income and changes in accounts receivable, the net of transit accounts payable and transit accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued payroll and related costs, and deferred revenue.

For the fifty-two week period ended January 1, 2022, the Company experienced net income of $11.0 million as compared to net loss of $8.9 million for the comparable prior year period. 

An increase in accounts receivables in the fifty-two week period ended January 1, 2022, used $14.7 million of cash as compared to providing $15.9 million in the comparable prior year period.

The Company primarily attributes this increase in accounts receivables for the fifty-two week period ended January 1, 2022 to the increase in revenue for the fifty-two week period ended January 1, 2022, primarily generated during the Company’s fiscal fourth quarter.

The decrease in accounts receivable for the fifty-three week period ended January 2, 2021 was primarily due to the prolonged impact from COVI-19 in fiscal 2020.

Operating activities provided $28.3 million of cash for the fiscal year ended December 31, 2022 as compared to $0.9 million in the comparable prior year period. 

The major components of cash used in or provided by operating activities in the fiscal year ended December 31, 2022 and the comparable prior year period are as follows:

net income and changes in accounts receivable, the net of transit accounts payable and transit accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued payroll and related costs, and deferred revenue.

For the fiscal year ended December 31, 2022, the Company experienced net income of $20.9 million as compared to $11.0 million for the comparable prior year period. 

An increase in accounts receivables in the fiscal year ended December 31, 2022, used $1.5 million of cash as compared to $14.7 million in the comparable prior year period.

The Company primarily attributes this increase in accounts receivables for the fiscal year ended December 31, 2022 to the increase in revenue for the fiscal fourth quarter 2022 to $70.2 million as compared to $64.9 million for fiscal fourth quarter 2021.

While highly variable, the Company’s transit accounts payable typically exceeds the Company’s transit accounts receivable, but absolute amounts and differences fluctuate significantly from quarter to quarter in the normal course of business. 

The net of transit accounts payable and transit accounts receivable was a net payable of $1.1 million as of January 1, 2022 as compared to a net payable of $2.4 million as of January 2, 2021, using $1.3 million of cash during the fifty-two week period ended January 1, 2022. 

The net of transit accounts payable and transit accounts receivable was a net payable of $2.4 million as of January 2, 2021 as compared to a net receivable of $0.3 million as of December 28, 2019, providing $2.7 million of cash during the fifty-three week period ended January 2, 2021. 

Prepaid expenses and other current assets provided cash of $1.8 million for the fifty-two week period ended January 1, 2022 as compared to using $0.2 million of cash for the comparable prior year period. 

The net of transit accounts payable and transit accounts receivable was a net payable of $6.5 million as of December 31, 2022 as compared to a net payable of $1.1 million as of January 1, 2022, providing $5.4 million of cash during the fiscal year ended December 31, 2022. 

Prepaid expenses and other current assets used cash of $2.4 million for the fiscal year ended December 31, 2022 as compared to providing $1.8 million of cash for the comparable prior year period. 

The Company attributes changes to prepaid expenses and other current assets, if any, to general timing of payments in the normal course of business.

Since certain expenses are paid before a fiscal year concludes and are amortized over the next fiscal year, prepaid expenses and other current assets generally tend to increase at the end of a fiscal year and decrease during the first half.

An increase in accounts payable and accrued expenses provided cash of $1.5 million for the fifty-two week period ended January 1, 2022 as compared to $1.6 million for the comparable prior year period. 

The Company attributes these changes to a deliberate effort to defer payments for cash flow purposes and general timing of payments to vendors in the normal course of business.

The Company’s accounts payable and accrued expenses balance of $9.3 million as of January 1, 2022 includes $1.6 million for the settlement of a class action suit in California that alleges the Company did not properly pay its travel nurses overtime wages. 

This liability was paid in early fiscal January 2022.

An increase in accounts payable and accrued expenses provided cash of $4.9 million for the fiscal year ended December 31, 2022 as compared to $1.5 million for the comparable prior year period. 

The Company attributes these changes to typical fluctuations in the normal course of business.

MANAGEMENT ’

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Operating Activities (Continued)

Changes in accrued payroll and related costs provided cash of $0.1 million for the fifty-two week period ended January 1, 2022 as compared to providing cash of $4.6 million for the fifty-three week period ended January 2, 2021. 

Changes in accrued payroll and related costs provided negligible cash for the fiscal year ended December 31, 2022 as compared to $0.1 million for the fiscal year ended January 1, 2022. 

There are four primary factors that generally impact accrued payroll and related costs:

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A significant portion of these incentive plan accruals are typically paid at the beginning of one fiscal year, pertaining to the prior fiscal year.  

The Company’s last major payroll for the fifty-two week period ended January 1, 2022 was paid on December 31, 2021. 

The Company’s last major payroll for the fiscal year ended December 31, 2022 was paid on December 30, 2022. 

During fiscal 2020, the Company deferred $3.3 million of employer payroll taxes under the CARES Act.

Half of these deferred payroll taxes were paid in fiscal December 2021 and the remaining portion must be paid in fiscal December 2022.

Historically, the Company has experienced small deferred revenue balances that have been included in accounts payable and accrued expenses. 

During the second half of fiscal 2021, the Company’

Industrial Processing group secured several contracts with significant front-loaded payments, thereby generating larger deferred revenue balances than typically generated.

The Company’s deferred revenue balance as of January 1, 2022 was $3.4 million, as compared to $0.4 million as of January 2, 2021, creating positive cash from operations of $3.0 million for the fifty-two week period ended January 1, 2022. 

The Company cannot reasonably forecast if it will experience similar deferred revenue balances over the next several quarters as the timing of contract wins and front-loaded payments is typically haphazard.

Half of these deferred payroll taxes were paid in fiscal December 2021 and the remaining portion was paid in fiscal December 2022.

Historically, the Company has experienced small deferred revenue balances. 

In fiscal 2022 and 2021, the Company’s Industrial Processing group secured several contracts with significant front-loaded payments, thereby generating larger deferred revenue balances than typically generated.

As a result, the Company’s deferred revenue balance as of December 31, 2022, was $1.1 million, compared to $3.4 million as of January 1, 2022, creating positive cash from operations of $2.3 million for the fiscal year ending December 31, 2022. 

While the Company expects to receive future upfront payments from its Industrial Processing clients, the Company cannot reasonably forecast deferred revenue balances as the timing of contract wins and front-loaded payments are typically haphazard.

Investing Activities

Investing activities provided $6.3 million of cash for the fifty-two week period ended January 1, 2022 and used $0.4 million for the fifty-three week period ended January 2, 2021. 

Investing activities used $4.8 million of cash for the fiscal year ended December 31, 2022 and provided $6.3 million for the fiscal year ended January 1, 2022. 

Investing activities used $0.9 million for the purchase of property and equipment in the current period as compared to $0.6 million in the prior year comparable period.

The current period includes $6.9 million in proceeds for the sale of the Company’s Canadian Power Systems business.

The current year period used $4.2 million for the acquisition of TalentHerder.

The prior year period includes $6.9 million in proceeds for the sale of the Company’s Canadian Power Systems business.

Financing Activities

Financing activities used $7.6 million of cash for the fifty-two week period ended January 1, 2022 as compared to $25.6 million in the comparable prior year period. 

The Company made net borrowings under its line of credit of $2.3 million during the fifty-two week period ended January 1, 2022 as compared to net payments of $22.9 million in the comparable prior year period. 

The Company used $9.0 million to repurchase shares of its common stock in the current period as compared to $2.2 million in the comparable prior year period. 

Financing activities used $23.1 million of cash for the fiscal year ended December 31, 2022 and $7.6 million for the fiscal year ended January 1, 2022. 

The Company made net payments under its line of credit of $5.4 million during the fiscal year ended December 31, 2022 as compared to net borrowings of $2.3 million in the comparable prior year period. 

The Company used $17.6 million to repurchase shares of its common stock in the current period as compared to $9.0 million in the comparable prior year period.

The Company generated cash of $0.4 million and $0.1 million from sales of shares from its equity plans for the current period and the comparable prior year period, respectively.

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These alternatives are:

(i) LIBOR (London Interbank Offered Rate), plus applicable margin, typically borrowed in fixed 30-day increments or (ii) the agent bank’s prime rate generally borrowed over shorter durations. 

At the option of Citizens Bank, LIBOR can be replaced with SOFR (Secured Overnight Financing Rate).

The LIBOR alternative is being phased out in 2022. 

Citizens Bank has not indicated when this switch will occur, but in any event, the Company does not believe there will be any material impact on its borrowing rate. 

(i) SOFR (Secured Overnight Financing Rate) (which replaced LIBOR (London Interbank Offered Rate) upon the phasing out of LIBOR), plus applicable margin, typically borrowed in fixed 30-day increments, plus applicable margin, typically borrowed in fixed 30-day increments or (ii) the agent bank’s prime rate generally borrowed over shorter durations. 

The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn. 

Unused line fees are recorded as interest expense. 

The effective weighted average interest rate, including unused line fees, for the fifty-two week period ended January 1, 2022 was 2.0%.

All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge of the stock of its subsidiaries. 

The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts on the Company’s ability to borrow in order to pay dividends. 

As of January 1, 2022, the Company was in compliance with all covenants contained in the Revolving Credit Facility (as amended). 

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.   

Borrowings under the line of credit as of January 1, 2022 and January 2, 2021 were $14.2 million and $11.9 million, respectively.

At both January 1, 2022 and January 2, 2021 there were letters of credit outstanding for $1.9 million.

At January 1, 2022 and January 2, 2021, the Company had availability for additional borrowings under the Revolving Credit Facility of $28.9 million and $35.1 million, respectively.

Unused line fees are recorded as interest expense.

The effective weighted average interest rate, including unused line fees, for the fiscal years ended December 31, 2022 and January 1, 2022 were 2.2% and 2.0%, respectively.

However, during the Company’s fiscal fourth quarter of 2022, it experienced a weighted average interest rate of 5.6%, including unused line.

The Company believes its fourth quarter interest rate is more reflective of rates expected in the near term.

All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge of the stock of its subsidiaries.

The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts the Company’s ability to borrow in order to pay dividends.

As of December 31, 2022, the Company was in compliance with all covenants contained in the Revolving Credit Facility (as amended).

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.

Borrowings under the line of credit as of December 31, 2022 and January 1, 2022 were $8.8 million and $14.2 million, respectively.

At both December 31, 2022 and January 1, 2022 there were letters of credit outstanding for $1.9 million.

At December 31, 2022 and January 1, 2022, the Company had availability for additional borrowings under the Revolving Credit Facility of $34.3 million and $28.9 million, respectively.

In addition to borrowings and sales of shares from its equity plans, the Company may raise capital through sales of shares of common stock under its at the market issuance program (the “ATM Program”) established under its May 2021 At Market Issuance Sales Agreement with B.

Riley Securities, Inc., as the agent (the “Agent”). 

The ATM Program allows the Company to offer and sell shares of the common stock having an aggregate sales price of up to $ 17.9 million from time to time through the Agent. 

To date, the Company has not sold any shares under the ATM Program. 

On June 2, 2020, the Company entered into a stock purchase agreement with certain stockholders of the Company, whereby the Company purchased an aggregate of 1,858,139 shares of the Company’s common stock for a negotiated purchase price of $1.20 per share or $2.2 million in total.

The negotiated price of $1.20 per share was less than the lowest trading price of the stock on the day of the repurchase. 

The consideration paid by the Company was in accordance with the safe harbor from liability under certain market manipulation rules provided by Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and consisted entirely of an unsecured subordinated promissory note for $2.2 million.

The note accrues interest at an annual rate of 9.0%, compounded annually, payable quarterly in arrears commencing on September 1, 2020 and continuing on each December 1, March 1, June 1 and September 1 thereafter, and has a maturity date of August 10, 2023.

Subject to the applicable provisions of the subordination agreement among the Company, Citizens Bank and the selling stockholders, the note was to become immediately due and payable in the event of a default by the Company. 

On September 25, 2020, the Company repaid the subordinated promissory note in full.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

Riley Securities, Inc., as the agent (the “Agent”).

The ATM Program allows the Company to offer and sell shares of the common stock having an aggregate sales price of up to $25.0 million from time to time through the Agent.

To date, the Company has not sold any shares under the ATM Program.

Current Liquidity and Revolving Credit Facility

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The Company believes that it can satisfy its liquidity needs for at least the next twelve months.

The Company’s liquidity and capital resources as of January 1, 2022, included accounts receivable and total current asset balances of $48.3 million and $51.8 million, respectively.

Current liabilities were $30.1 million as of January 1, 2022 and were exceeded by total current assets by $21.7 million.

The Company’s liquidity and capital resources as of December 31, 2022, included accounts receivable and total current asset balances of $50.8 million and $59.0 million, respectively.

Current liabilities were $40.4 million as of December 31, 2022 and were exceeded by total current assets by $18.6 million.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

Current Liquidity and Revolving Credit Facility (Continued)

The Company experiences volatility in its daily cash flow and, at times, relies on the revolving line of credit to provide daily liquidity for the Company’s financial operations.

As of January 1, 2022, the Company was in compliance with all financial covenants contained in the Revolving Credit Facility. 

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.   

As of December 31, 2022, the Company was in compliance with all financial covenants contained in the Revolving Credit Facility.

The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.

All restricted share awards contain a dividend equivalent provision entitling holders to dividends paid between the restricted stock unit grant date and ultimate share distribution date. 

As of January 1, 2022, there were no accrued dividends.

As of December 31, 2022, there were no accrued dividends.

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Commitments and Contingencies

The Company anticipates that its primary uses of capital in future periods will be for working capital purposes. 

Funding for any long-term and short-term capital requirements as well as future acquisitions will be derived from one or more of the Revolving Credit Facility (or a replacement thereof), funds generated through operations or future financing transactions. 

The Company is subject to legal proceedings and claims that arise from time to time in the ordinary course of its business, which may or may not be covered by insurance. 

The Company anticipates that its primary uses of capital in future periods will be for working capital purposes.

The Company is subject to legal proceedings and claims that arise from time to time in the ordinary course of its business, which may or may not be covered by insurance.

Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on our financial position, liquidity, and the results of operations.

The Company’s business strategy is to achieve growth both internally through operations and externally through strategic acquisitions. 

The Company from time to time engages in discussions with potential acquisition candidates.

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As the size of the Company and its financial resources increase however, acquisition opportunities requiring significant commitments of capital may arise.

In order to pursue such opportunities, the Company may be required to incur debt or issue potentially dilutive securities in the future. 

No assurance can be given as to the Company’s future acquisition and expansion opportunities or how such opportunities will be financed.

The Company is exposed to various asserted claims as of December 31, 2022, where the Company believes it has a probability of loss.

Additionally, the Company is exposed to other asserted claims whereby an amount of loss has not been declared, and the Company cannot determine the potential loss.

Any of these various claims could result in an unfavorable outcome or settlement that exceeds the accrued amounts.

However, the Company believes that such matters will not, either individually or in the aggregate, have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows.

As of December 31, 2022, the Company has accrued $2.9 million for asserted claims. 

MANAGEMENT ’

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Commitments and Contingencies (Continued)

The Company is exposed to various asserted claims as of January 1, 2022, where the Company believes it has a probability of loss.

Additionally, the Company is exposed to other asserted claims whereby an amount of loss has not been declared, and the Company cannot determine the potential loss.

Any of these various claims could result in an unfavorable outcome or settlement that exceeds the accrued amounts.

As of January 1, 2022, the Company has accrued $2.9 million for asserted claims. 

Included in the January 1, 2022 accrual of $2.9 million, the Company has reserved $1.6 million for the settlement of a class-action suit in California that alleges the Company did not properly pay its travel nurses overtime wages.

While the Company believes it did not violate any overtime wage laws, it decided to settle this class action lawsuit in December 2020. 

The Company paid the $1.6 million settlement in early January 2022.

The Company utilizes SAP software for its financial reporting and accounting system which was implemented in 1999 and has not undergone significant upgrades since its initial implementation. 

The Company plans to upgrade its current system during fiscal 2022.

In April 2022, a client of the Company’s Industrial Processing Group alleged that a system partially designed by the Company is not operating as intended and that the Company is responsible.

The Company has not determined if it has any liability.

In the event of liability, the Company believes its damages are contractually limited to an amount no higher than $3.3 million.

Furthermore, the Company believes that if it were found liable, any damages would be covered by insurance, subject to a deductible of $0.5 million and maximum coverage of $5.0 million.

While the Company attempts to find a mutually agreeable solution, the Company has reserved $0.5 million for this project.

The Company can give no assurance that its liability is limited to $3.3 million or that liability over $0.5 million, if any, will be covered by insurance.

The Company is also subject to other pending legal proceedings and claims that arise from time to time in the ordinary course of its business, which may not be covered by insurance.

The Company utilizes SAP software for its financial reporting and accounting system which was implemented in 1999 and has not undergone significant upgrades since its initial implementation.

The Company is currently implementing an upgrade of its current system and expects to go live in 2024.

The Company estimates this upgrade or replacement of its financial reporting and accounting system will cost between $0.5 million and $1.0 million.

These estimates are subject to material change.

The Company’s current commitments consist primarily of lease obligations for office space. 

The Company believes that its capital resources are sufficient to meet its present obligations and those to be incurred in the normal course of business for at least the next 12 months.

The Company leases office facilities and various equipment under non-cancelable leases expiring at various dates through November 2027. 

Certain leases are subject to escalation clauses based upon changes in various factors. 

The COVID-19 pandemic has had a profound impact on the Company in 2020.

This led the Company to review the guidance in ASC 360-10 to determine if an impairment of a long lived asset had occurred.

It was determined that a portion of the office space leased in a number of locations would not be utilized through the remaining lease term. 

An impairment of the right of use asset for the unused space of $2.2 million was recorded in 2020.

The Company leases office facilities and various equipment under non-cancelable leases expiring at various dates through November 2027.

Certain leases are subject to escalation clauses based upon changes in various factors.

Maturities of lease liabilities are as follows:

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MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

Future Contingent Payments

As of January 1, 2022, the Company had two active acquisition agreements whereby additional contingent consideration may be earned by the former shareholders:

1) effective October 1, 2017, the Company acquired all of the stock of PSR Engineering Solutions d.o.o.

Beograd (Voždovac) (“PSR”) and 2) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”).

The Company estimates future contingent payments at January 1, 2022 as follows:

Fiscal Year Ending

December 31, 2022

As of December 31, 2022, the Company had two active acquisition agreements whereby additional contingent consideration may be earned by the sellers:

1) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC (together, “TKE”), and 2) effective October 2, 2022, the Company acquired certain assets of TalentHerder LLC.

The Company estimates future contingent payments at December 31, 2022 as follows:

Fiscal Years Ending

December 30, 2023

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Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates. 

Potential future contingent payments to be made to all active acquisitions after January 1, 2022 are capped at a cumulative maximum of $0.7 million. 

The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of January 1, 2022. 

During the fifty-two week period ended January 1, 2022, the Company measured the intangibles acquired at fair value on a non-recurring basis. 

The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of December 31, 2022. 

Contingent consideration related to acquisitions is recorded at fair value (level 3) with changes in fair value recorded in other (expense) income, net.

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Executive Severance Agreements

The Company is a party to Executive Severance Agreements (the “Executive Severance Agreements”) with Mr.

Vizi, dated as of June 1, 2018, and Mr.

Miller, dated as of February 28, 2014, which set forth the terms and conditions of certain payments to be made by the Company to the executive in the event, while employed by the Company, the executive experiences (a) a termination of employment unrelated to a “Change in Control”

The Company is a party to an Executive Severance Agreement (the “Executive Severance Agreement”) with each of Bradley S.

Vizi, the Company's Executive Chairman and President (dated as of June 1, 2018), and Kevin D.

Miller, the Company’s Chief Financial Officer (dated as of February 28, 2014, as amended), which set forth the terms and conditions of certain payments to be made by the Company to the executive in the event, while employed by the Company, such executive experiences (a) a termination of employment unrelated to a “Change in Control”

(as defined therein) or (b) there occurs a Change in Control and either (i) the executive’s employment is terminated for a reason related to the Change in Control or (ii) in the case of Mr.

Miller the executive remains continuously employed with the Company for three months following the Change in Control.

Miller, the executive remains continuously employed with the Company for a period of three months following the Change in Control.

Under the terms of the Executive Severance Agreement, if either (a) the executive is involuntarily terminated by the Company for any reason other than “Cause”

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(i) an amount equal to 1.5 times the sum of (a) the executive’s annual base salary as in effect immediately prior to the termination date (before taking into account any reduction that constitutes Good Reason) (“Annual Base Salary”) and (b) the highest annual bonus paid to the executive in any of the three fiscal years immediately preceding the executive’s termination date (“Bonus”), to be paid in installments over the twelve month period following the executive’s termination date;

and (ii) for a period of eighteen months following the executive’s termination date, a monthly payment equal to the monthly COBRA premium that the executive is required to pay to continue medical, vision, and dental coverage, for himself and, where applicable, his spouse and eligible dependents.  

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

Liquidity and Capital Resources (Continued)

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(1) a lump sum payment equal to two times the sum of the executive’s (a) Annual Base Salary and (b) Bonus;

and (2) a lump sum payment equal to 24 multiplied by the monthly COBRA premium cost, as in effect immediately prior to the executive’s termination date, for the executive to continue medical, dental and vision coverage, as applicable, in such Company plans for himself and, if applicable, his spouse and eligible dependents.  

Upon the occurrence of a Change in Control, the Company shall establish an irrevocable rabbi trust and contribute to the rabbi trust the applicable amounts due under the Executive Severance Agreement.  

Miller receives the Change in Control Payment following his resignation at the end of the three month period following the Change in Control, he will not be eligible to receive any severance payments under his Executive Severance Agreement.

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Miller remains continuously employed for three months following a Change in Control and is employed by the Company on the last day of such specified period, Mr.

Miller will receive a lump sum payment equal to two times the sum of his (a) Annual Base Salary and (b) Bonus (the “Change in Control Payment”). 

Miller receives the Change in Control Payment, he will not be eligible to receive any severance payments under his Executive Severance Agreement.

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Impact of Inflation

Consulting, staffing, and project services are generally priced based on mark-ups on prevailing rates of pay, and as a result are able to generally maintain their relationship to direct labor costs. 

Permanent placement services are priced as a function of salary levels of the job candidates. 

Consulting, staffing, and project services are generally priced based on mark-ups on prevailing rates of pay, and as a result are able to generally maintain their relationship to direct labor costs.

Permanent placement services are priced as a function of salary levels of the job candidates.

The Company’s business is labor intensive;

therefore, the Company has a high exposure to increasing health care benefit costs. 

The Company attempts to compensate for these escalating costs in its business cost models and customer pricing by passing along some of these increased health care benefit costs to its customers and employees, however, the Company has not been able to pass on all increases. 

The Company is continuing to review its options to further control these costs, which the Company does not believe are representative of general inflationary trends. 

therefore, the Company has a high exposure to increasing health care benefit costs.

The Company is continuing to review its options to further control these costs, which the Company does not believe are representative of general inflationary trends.

Otherwise, inflation has not been a meaningful factor in the Company’s operations.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (CONTINUED)

New Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326).

The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. 

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

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ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022.

The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements.

In March 2020, the FASB issued ASU No.

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financial reporting burdens as the market transitions from the LIBOR and other interbank offered rates to alternative reference rates.

In December 2022, the FASB issued ASU No.

2022-06, Deferral of the sunset date of Topic 848.

This update defers the sunset date from December 31, 2022 to December 31, 2024. 

The Company may elect to apply the amendments prospectively through December 31, 2024.

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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 5. Market for Registrant’s Common Equity