BGSF · Read the filing

Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations.

The following discussion and analysis of our financial condition and results of operations from continuing operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. See “Forward-Looking Statements” in this Annual Report on Form 10-K. These forward-looking statements are subject to risks, uncertainties and other factors including those described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Our actual results of operations may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this Annual Report on Form 10-K. Financial information provided is based on the results of our continuing operations. Please refer to “Note 4 — Discontinued Operations” of our audited consolidated financial statements for information regarding our discontinued operations.

Our historical financial information may not be indicative of our future performance.

Company Overview

We provide workforce solutions to our client partners in a variety of industries through our various divisions in IT, Finance & Accounting, Managed Solutions, and Property Management (apartment communities and commercial buildings) and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff in June 2013, D&W in March 2015, VTS in October 2015, Zycron in April 2017, Smart in September 2017, and LJK in December 2019, 100% of the equity of EdgeRock in February 2020, Momentum Solutionz in February 2021, Horn Solutions in 2022, and Arroyo Consulting in 2023. We have continuing operations in two industry segments Property Management and Professional, and had discontinued operations in the Light Industrial segment. We primarily operate within the United States of America.

On March 21, 2022, we sold substantially all of the assets and certain liabilities of InStaff to Sentech Engineering Services, Inc. The Light Industrial segment provided field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce. The InStaff financial results for periods prior to the sale have been reflected in our Consolidated Statements of Operations and Comprehensive (Loss) Income and Consolidated Statements of Cash Flows as discontinued operations. See “Note 4 — Discontinued Operations” of our audited consolidated financial statements for information regarding our discontinued operations.

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

The Professional segment provides specialized talent and business consultants for information technology (“IT”), managed services, finance, accounting, legal and human resource. The segment operates across the U.S. in three divisions, IT, Managed Solutions, and Finance & Accounting, with the IT division providing additional nearshore and offshore solutions in Colombia and India.

Results of Operations

The following tables summarize key components of our results from continuing operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our consolidated financial statements.

Fiscal Year Ended

(dollars in thousands)

Gain on contingent consideration — — (2,403)

Impairment losses 22,545 — —

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

Income from discontinued operations:

Fiscal Year Ended

Selling, general and administrative expenses 28.3 27.8 27.2

Gain on contingent consideration — — (1.0)

Impairment losses 7.2 — —

Depreciation and amortization 2.5 1.4 1.5

Operating (loss) income (2.3) 5.5 6.1

Interest expense, net 1.9 0.5 0.6

(Loss) income from continuing operations before income taxes (4.2) 5.0 5.5

Income tax benefit (expense) from continuing operations 0.9 (1.2) (1.1)

(Loss) income from continuing operations (3.3) % 3.8 % 4.4 %

Fifty-two Week Fiscal Year Ended December 31, 2023 (Fiscal 2023) Compared with Fifty-three Week Fiscal Year Ended January 1, 2023 (Fiscal 2022)

Revenues:

Fiscal Year Ended

(dollars in thousands)

Revenues by Segment:

Property Management Revenues: Property Management revenues increased approximately $4.0 million (3.3%), primarily due to an 8.5% increase in average bill rate.

Professional Revenues: Professional revenues increased approximately $10.8 million (6.1%). The 2023 Arroyo Consulting acquisition contributed $14.8 million of new revenues. The Horn Solutions acquisition, which was integrated with the organic business, added revenue that was not enough to offset the decline in the existing professional business. Horn Solutions and the existing professional business declined $4.1 million (2.3%), primarily due to fewer hours billed and lower permanent placement revenue.

Gross Profit:

Gross profit represents revenues from workforce solutions less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, field talent costs, and reimbursable costs.

Fiscal Year Ended

(dollars in thousands)

Gross Profit by Segment:

Fiscal Year Ended

Gross Profit Percentage by Segment:

Property Management 39.8 % 39.4 %

Company Gross Profit Percentage 35.7 % 34.7 %

Total gross profit increased approximately $8.2 million (8.0%). As a percentage of revenue, gross profit has increased to 35.7% from 34.7%, with both segments contributing to the increase.

Property Management Gross Profit: Property Management gross profit increased approximately $2.1 million (4.4%), consistent with a 3.3% increase in revenues, partially offset by lower permanent placement revenue, which has no cost of services.

Professional Gross Profit: Professional gross profit increased approximately $6.1 million (11.0%). The Arroyo Consulting acquisition contributed $5.1 million in gross profit. The Horn Solutions acquisition, which was integrated with the organic business, added growth to offset the decline experienced in the existing professional business.

Selling, General and Administrative Expenses: Selling, general and administrative (“SGA”) expenses increased $5.4 million (6.5%) versus prior year. The overall increase slightly outpaced revenue growth adding 40 bps to total SGA expense as a percent of revenue. Acquisition transaction fees increased $0.7 million over the prior year.

Fiscal Year Ended

Amount % of Revenue Amount % of Revenue $Change %Change

(dollars in thousands)

Impairment losses: In Fiscal 2023, managements’s plan to eliminate the use of various trade names was approved by the Board of Directors. The decision to rebrand as BGSF created a $22.5 million write-off in trade names.

Depreciation and Amortization: Depreciation and amortization charges increased $3.7 million (91.8%). The increase in deprecation and amortization is primarily due to the amortization of intangible assets related to the 2022 Horn Solutions acquisition and the 2023 Arroyo Consulting acquisition.

Interest Expense, net: Interest expense, net increased $4.6 million primarily due to the increased debt balances related to the 2022 Horn Solutions acquisition, the 2023 Arroyo Consulting acquisition, and higher interest rates.

Income Taxes: We recorded a tax benefit of approximately $2.9 million primarily due impairment losses on the trade names in the first quarter versus a tax expense of $3.7 million in 2022.

Non-GAAP Same Day Revenues: Same Day Revenues are defined as a fifty-three week fiscal year ended January 1, 2023 (Fiscal 2022) revenues less five revenue days. The Fiscal 2022 revenues of $298.4 million would be less $5.9 million for five revenue days resulting in Same Day Revenues of $292.5 million. Same Day Revenues increased $20.7 million (7.1%) to $313.2 million in Fiscal 2023. Same Day Revenues and GAAP revenues were equal for Fiscal 2023.

Non-GAAP Same Day Gross Profit: Same Day Gross Profit is defined as a fifty-three week fiscal year ended January 1, 2023 (Fiscal 2022) gross profit less five gross profit days. The Fiscal 2022 gross profit of $103.5 million would be less $2.1 million for five gross profit days resulting in Same Day Gross Profit of $101.5 million. Same Day Gross Profit increased $10.3 million (10.2%) to $111.8 million in Fiscal 2023. Same Day Gross Profit and GAAP gross profit were equal for Fiscal 2023.

Fifty-three Week Fiscal Year Ended January 1, 2023 (Fiscal 2022) Compared with Fifty-two Week Fiscal Year Ended December 26, 2021 (Fiscal 2021)

Revenues:

Fiscal Year Ended

(dollars in thousands)

Revenues by Segment:

Property Management Revenues: Property Management revenues increased approximately $29.1 million (31.6%). The increase was primarily due to an 11.0% increase in average bill rate.

Professional Revenues: Professional revenues increased approximately $30.3 million (20.6%), primarily due to growth in the IT division of $27.6 million, the 2022 Horn Solutions acquisition which contributed $1.4 million of new revenues, and an increase of 11.8% in the average bill rate.

Gross Profit:

Fiscal Year Ended

(dollars in thousands)

Gross Profit by Segment:

Fiscal Year Ended

Gross Profit Percentage by Segment:

Property Management 39.4 % 38.0 %

Company Gross Profit Percentage 34.7 % 33.9 %

Overall, our gross profit increased approximately $22.6 million (27.9%). As a percentage of revenue, gross profit has increased to 34.7% from 33.9%, primarily due to higher gross profits across all our segments.

Property Management Gross Profit: Property Management gross profit increased approximately $12.7 million (36.4%) consistent with the increase in revenue.

Professional Gross Profit: Professional gross profit increased approximately $9.9 million (21.5%) consistent with an increase in revenue, and an increase of $0.6 million from the 2022 Horn Solutions acquisition.

Selling, General and Administrative Expenses: Selling, General and Administrative expenses increased $18.1 million (27.8%). Expenses in 2021 benefited from the CARES Act credit. Adjusting for the impact of the credit, total SGA expenses as a percentage of revenue improved by 20 basis points.

Fiscal Year Ended

Amount % of Revenue Amount % of Revenue $Change %Change

(dollars in thousands)

Workers’ compensation loss retention return (117) — % (348) (0.1) % 231 (66.4) %

Gain on contingent consideration: There were no contingent gains in Fiscal 2022. As a result of the certain business developments in Fiscal 2021, the Company recognized a $2.4 million gain on contingent consideration related to the 2019 LJK acquisition.

Depreciation and Amortization: Depreciation and amortization charges increased $0.4 million (9.6%) primarily due to increases from the information technology improvement project and the Horn Solutions acquisition, which were offset by lower amortization related to the 2020 Edgerock and the 2019 LJK acquisitions.

Interest Expense, net: Interest expense, net decreased $0.1 million (4.9%) primarily due to the pay down of the balance on the Term Loan in March 2022, which was partially offset by the New Term Loan starting in December 2022 and the higher average balance on the Revolving Facility.

Income Taxes: Income tax expense increased $1.0 million primarily due to higher pre-tax 2022 income and a higher effective tax rate in Fiscal 2022, offset by a higher Work Opportunity Tax Credit in 2021.

Liquidity and Capital Resources

Our working capital requirements are primarily driven by field talent payments, tax payments and client partner accounts receivable receipts. Since receipts from client partners lag payments to field talent, working capital requirements increase substantially in periods of growth.

Our primary sources of liquidity are cash generated from operations and borrowings under our amended credit agreement with BMO, that provides for a revolving credit facility maturing March 12, 2028 (the “Revolving Facility”). Our primary uses of cash are payments to field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends and contingent consideration and debt payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new markets throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and

other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.

A summary of our working capital, operating, investing and financing activities are shown in the following table:

Fiscal Year Ended

(dollars in thousands)

Net cash provided by (used in) continuing operations:

Net change in cash and cash equivalents discontinued operations — (3,848) 5,271

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

(1)The 2023 working capital amount includes the movement of the balances from long-term to current liabilities related to the amended credit agreement with BMO Harris Bank, N.A. (“BMO”) maturing July 16, 2024.

Operating Activities

Cash provided by operating activities consists of net (loss) income adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, interest expense, impairment losses, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable, accrued payroll and expenses, and other current liabilities.

During Fiscal 2023, net cash provided by continuing operating activities was $20.4 million, an increase of $23.7 million compared with $3.3 million net cash used in continuing operating activities for Fiscal 2022. This increase is primarily attributable to payments on accounts receivable, payments on accrued payroll and expenses, and payments of deferred employer FICA for the CARES Act in other current liabilities in Fiscal 2022.

During Fiscal 2022, net cash used in continuing operating activities was $3.3 million, a decrease of $4.7 million compared with $1.4 million net cash provided by continuing operating activities for Fiscal 2021. This decrease is primarily attributable to field talent and team member compensation disbursements including bonuses, commissions, and related taxes for services rendered in accrued payroll and expenses, an increase in accounts receivable, and payments of deferred employer FICA for the CARES Act in other current liabilities.

During Fiscal 2021, net cash provided by continuing operating activities was $1.4 million, a decrease of $18.3 million compared with $19.7 million for Fiscal 2020. This decrease is primarily attributable to increased accounts receivable and payments on accrued payroll and expenses, which were partially offset by an increase in the accrual in other long-term liabilities from deferred employer FICA for the CARES Act in Fiscal 2020.

Investing Activities

Cash used in investing activities consists primarily of cash paid for businesses acquired, cash received for businesses sold, and capital expenditures.

In Fiscal 2023, we paid $6.8 million in connection with the Arroyo Consulting acquisition, funded a working capital payment of $0.1 million in connection with the Horn Solutions acquisition, and made capital expenditures of $2.6 million mainly related to continued information technology improvements and for software and computer equipment purchased in the ordinary course of business.

In Fiscal 2022, we received $30.7 million in connection with the sale of InStaff, we paid $33.9 million in connection with the Horn Solutions acquisition, and we made capital expenditures of $5.7 million mainly related to the the information technology improvement project and for software and computer equipment purchased in the ordinary course of business.

In Fiscal 2021, we paid $3.8 million in connection with the Momentum acquisition and we made capital expenditures of $3.2 million mainly related to the information technology improvement project and for software and computer equipment purchased in the ordinary course of business.

Financing Activities

Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement, payment of dividends, and contingent consideration paid.

For Fiscal 2023, we disbursed $6.5 million in cash dividends on our common stock, we paid down $6.0 million on the Term Loan, we paid $1.1 million of contingent consideration related to the Momentum acquisition, and borrowed $2.3 million on our Revolving Facility for increased working capital needs.

For Fiscal 2022, we received $40.0 million on the issuance of the New Term Loan, we paid down $26.9 million on the Term Loan, as discussed below, we disbursed $6.3 million in cash dividends on our common stock, we paid $1.1 million of contingent consideration related to the Momentum acquisition, and borrowed $9.8 million on our Revolving Facility for increased working capital needs.

For Fiscal 2021, we borrowed $6.8 million on our Revolving Facility for increased working capital needs and to fund the Momentum acquisition, disbursed $4.6 million in cash dividends on our common stock, and paid down $2.1 million on the Term Loan, as defined below.

Credit Agreements

On July 16, 2019, we entered into a Credit Agreement, as amended (the “Credit Agreement”), maturing July 16, 2024, led by BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for the Revolving Facility permitting us to borrow funds from time to time in an aggregate amount up to $35.0 million. The Credit Agreement also provided for a term loan commitment (the “Term Loan”) permitting us to borrow funds from time to time in an aggregate amount not to exceed $30.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement, all of which has been funded and repaid. We also had the option to request an increase in the aggregate Term Loan by $40 million, which was done in connection with the Horn Solutions acquisition. Our obligations under the Second Credit Amendment are secured by a first priority security interest in substantially all our tangible and intangible property. The Credit Agreement bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin through August 17, 2022 (as such terms are defined in the Credit Agreement). We pay an unused commitment fee on the daily average unused amount of Revolving Facility.

On February 8, 2021, the Company borrowed $3.8 million on the Revolving Facility in conjunction with the closing of the Momentum acquisition.

On March 21, 2022, the Company paid down the balance on the existing Term Loan and a portion of the Revolving Facility using the proceeds from the sale of InStaff (See “Note 4 - Discontinued Operations”).

On August 18, 2022, we entered into an amendment to the Credit Agreement with BMO, which changed the interest rate component from LIBOR to the Secured Overnight Financing Rate (“SOFR”), plus the Applicable Margin (as such terms are defined in the amended credit agreement).

In connection with the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”), we exercised the option to borrow $40 million, as noted above, pursuant to a second amendment to the Credit Agreement (“Second Credit Amendment”). The Second Credit Amendment requires 2.5% of the original principal balance of the New Term Loan payable on the last business day of each quarter, beginning on March 31, 2023. We are subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio (as such terms are defined in the amended Second Credit Amendment).

On April 24, 2023, in connection with the acquisition of Arroyo Consulting, we entered into a Third Amendment to the Credit Agreement (“Third Credit Amendment”) with BMO. The Third Credit Amendment revised language to permit an acquisition of a foreign entity under certain circumstances and modified the terms of permitted distributions and guarantors

On May 19, 2023, we entered into a Fourth Amendment to the Credit Agreement (“Fourth Credit Amendment”) and increased the Revolving Facility by $6.0 million to an aggregate amount up to $41.0 million. We were in compliance with the customary affirmative and negative covenants as of December 31, 2023.

The indebtedness under the Credit Agreement had a maturity date of July 16, 2024 and has therefore been classified within current liabilities on the Company's consolidated balance sheets as of December 31, 2023. On March 12, 2024, the Credit Agreement was amended and restated through the Company’s entry into an Amended and Restated Credit Agreement with certain lenders, BMO Bank, N.A., as administrative agent, letter of credit Issuer, and swing line lender, and BMO Capital Markets Corp., as sole lead arranger and sole book runner. The Amended and Restated Credit Agreement has a maturity date of March 12, 2028. The Amended and Restated Credit Agreement provides for a revolving credit facility permitting us to borrow funds from time to time in an aggregate amount up to $40 million. Term loans with an outstanding principal balance of $34 million were outstanding under the Credit Agreement remain outstanding under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement further provides for a delayed draw term loan commitment of $4.3 million. The Company is required to repay the term loans in quarterly principal installments in an amount equal to 2.5% of the aggregate principal balance thereof. The Amended and Restated Credit Agreement provides for interest either at the Base Rate plus the Applicable Margin, or the Adjusted Term SOFR plus the Applicable Margin (in each case, as such terms are defined in the Amended and Restated Credit Agreement). The Amended and Restated Credit Agreement also provides for letter of credit fees and commitment fees as further described therein. The Company’s obligations under the Amended and Restated Credit Amendment are secured by a first priority security interest in substantially all of the Company’s and its subsidiaries’ tangible and intangible property. The Amended and Restated Credit Agreement provides for a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio (as such terms are defined in the Amended and Restated Credit Amendment), and also provides for, among other items, representations and warranties, affirmative and negative covenants, as described therein.

Contractual Obligations

The following table summarizes our cash contractual obligations as of December 31, 2023.

Payments due by period

Total Less than 1 year 1–3 years 3–5 years More than 5 years

(dollars in thousands)

Long-term debt obligations $ 58,874 $ 58,874 $ — $ — $ —

Off-Balance Sheet Arrangements

Letter of Credit

In March 2020, in conjunction with the 2020 EdgeRock acquisition, we entered into a standby letter of credit arrangement, which expires December 31, 2024, for purposes of protecting a lessor against default on lease payments. As of December 31, 2023, we had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against our Revolving Facility.

Critical Accounting Policies and Estimates

We have identified the policies listed below as critical to our business and the understanding of our results of operations. For a detailed discussion of the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.

Revenue Recognition

We derive our revenues from continuing operations in our Property Management and Professional segments. We provide workforce solutions, placement services, and managed services. Revenues are recognized when promised workforce solutions are delivered to client partners, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We recognize revenue through the following types of services: workforce solutions, contingent placements, retained search placements, and managed services.

Intangible Assets

We hold intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to ten years, based on a pattern in which the economic benefit of the respective intangible asset is realized. We capitalize purchased software and internal payroll costs directly incurred in the modification of software for internal use. Software maintenance and training costs are expensed in the period incurred.

Goodwill

Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. We review goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

Income Taxes

The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. We recognizes any penalties when necessary as part of selling, general and administrative expenses. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified net as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. When appropriate, we will record a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. We follow the guidance of Accounting Standards Codification (“ASC”) Topic 740, Accounting for Uncertainty in Income Taxes.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to certain market risks from transactions we enter into in the normal course of business. Our primary market risk exposure relates to interest rate risk.

Interest Rates

A portion of our Revolving Facility and New Term Loan are priced at variable interest rates. Accordingly, future interest rate increases could potentially put us at risk for an adverse impact on future earnings and cash flows.

Item 8. Financial Statements and Supplementary Data.

Page

Audited Consolidated Financial Statements of BGSF, Inc.

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

Notes to Consolidated Financial Statements 48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of BGSF, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of BGSF, Inc., and its subsidiaries (the “Company”) as of December 31, 2023 and January 1, 2023, and the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and January 1, 2023, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2024 expressed an unqualified opinion.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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

Description of the Matter

As discussed in Note 3 to the consolidated financial statements, the Company acquired substantially all of the assets and assumed certain liabilities of Arroyo Consulting, LLC (“Arroyo”) for a purchase price of up to $8.7 million in cash and contingent consideration of up to $8.5 million. The acquisition of Arroyo resulted in a total of $13.9 million of intangible assets, which are comprised primarily of client partner lists.The determination of fair value for the client partner lists required management to make estimates of discounted future cash flows and included their subjective assumptions of the appropriate discount rate, the growth of revenue, and rate of attrition for the related customers.The contingent consideration of up to $8.5 million is based on the forecasted performance of the acquired business for the two years following the date of the acquisition.

We identified the fair value of the intangible assets acquired and contingent consideration liability in the Arroyo business combination to be a critical audit matter due to the significant judgments made by management to estimate their fair values.This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of discount and customer attrition rates, as well as forecasts of future revenues and cash flows.

How We Addressed the Matter in Our Audit

Our audit procedures related to the discount rates, and forecasts of future revenues and cash flows used by management to estimate the fair value of both the intangible assets acquired and contingent consideration liability in the Arroyo business combination included the following, among others:

•We tested the effectiveness of controls over management’s Arroyo purchase price allocation, including those over the determination of the fair value of intangible assets, such as controls related to management’s selection of discount rates, client attrition rate, and forecasts of future revenues and cash flows.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the (i) valuation methodology, (ii) discount rates,(iii) client attrition rate, and (iv) future revenue and growth rates, including testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

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

/s/ Whitley Penn LLP

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

Plano, Texas

March 14, 2024

BGSF, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

ASSETS

Current assets

Other assets

Right-of-use asset - operating leases 5,435 4,462

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable $ 95 $ 587

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

Contingent consideration, current portion 4,208 1,081

Convertible note 4,368 —

Other current liabilities — 1,000

Lease liabilities, current portion 2,016 1,842

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

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

Contingent consideration, less current portion 4,112 —

Convertible note — 4,368

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

Other long-term liabilities — 10

Commitments and contingencies

Total liabilities and stockholders’ equity $ 178,517 $ 194,673

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

BGSF, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except per share and dividend amounts)

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

Gain on contingent consideration — — (2,403)

Impairment losses 22,545 — —

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

Income from discontinued operations:

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

Other comprehensive (loss) gain — (58) 181

Net (loss) income per share - basic:

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

Net income from discontinued operations:

Gain on sale — 1.69 —

Income tax expense — (0.46) (0.09)

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

Net (loss) income per share - diluted:

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

Net income from discontinued operations:

Gain on sale — 1.69 —

Income tax expense — (0.46) (0.09)

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

Weighted average shares outstanding:

Cash dividends declared per common share $ 0.60 $ 0.60 $ 0.44

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

BGSF, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

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

Common Stock

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

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

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

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

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

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

Other comprehensive gain — — — — — — 181 181

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

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

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

Issuance of restricted shares — 32 1 — (1) — — —

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

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

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

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

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

BGSF, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

(in thousands)

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

Common Stock

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

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

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

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

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

BGSF, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

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

Cash flows from operating activities

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

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

Impairment losses 22,545 — —

CARES Act credit — — (2,368)

Loss on disposal of property and equipment 17 6 8

Contingent consideration adjustment — — (2,403)

Amortization of debt issuance costs 199 172 75

Interest expense on contingent consideration payable 740 128 252

Net changes in operating assets and liabilities, net of effects of acquisitions:

Prepaid expenses and other current assets (2,159) (866) (200)

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

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

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

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

Cash flows from investing activities

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

Businesses sold — 30,722 —

Proceeds from sale of property and equipment — — 5

Net cash used in continuing investing activities (9,514) (8,898) (6,990)

Net cash used in discontinued investing activities — (26) (34)

Net cash used in investing activities (9,514) (8,924) (7,024)

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

BGSF, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

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

Cash flows from financing activities

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

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

Debt issuance costs (69) (236) —

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

Cash and cash equivalents, beginning of year — 112 —

Cash and cash equivalents, end of year $ — $ — $ 112

Supplemental cash flow information:

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

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

BGSF, Inc., provides consulting, managed services, and professional workforce solutions to a variety of industries through its various divisions in information technology (“IT”), Finance & Accounting, Managed Solutions, and Property Management (formally known as Real Estate which includes apartment communities and commercial buildings) (collectively, with its consolidated subsidiaries, the “Company”).

On March 21, 2022, the Company completed the sale of substantially all its Light Industrial segment (“InStaff”) assets to Jobandtalent (“J&T”), through the wholly-owned subsidiary, Sentech Engineering Services, Inc. Instaff’s financial results for reported periods have been reflected in our Consolidated Statements of Operations and Comprehensive (Loss) Income and Consolidated Statements of Cash Flows as discontinued operations. See “Note 4 - Discontinued Operations” in the Consolidated Financial Statements included elsewhere in this report for additional information.

On December 12, 2022, the Company acquired substantially all of the assets, and assumed certain of the liabilities of Horn Solutions, Inc. and Horn Solutions Dallas, LLC (collectively “Horn Solutions”). See “Note 3- Acquisitions.”

On April 24, 2023, the Company acquired substantially all of the assets and assumed certain of the liabilities of Arroyo Consulting, LLC (“Arroyo Consulting”), which is a nearshore and offshore workforce solutions company that specializes in IT and software development with operations in the United States, Colombia, and India. See “Note 3- Acquisitions.”

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.

Fiscal Year

The Company has a 52/53 week fiscal year. Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 31, 2023, and 53 weeks ended January 1, 2023, and the 52 weeks ended December 26, 2021, referred as Fiscal 2023, 2022, and 2021, respectively.

Reclassifications

Certain reclassifications have been made to the 2022 and 2021 financial statements to conform with the 2023 presentation.

Management Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include allowances for credit losses, goodwill, intangible assets, lease liabilities, contingent consideration obligations related to acquisitions, and income taxes. Additionally, the valuation of share-based compensation expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors. The

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Financial Instruments

The Company uses fair value measurements in areas that include, but are not limited to, the allocation of purchase price consideration to tangible and identifiable intangible assets, convertible debt, contingent consideration, and interest rate swap agreements. The carrying values of cash, accounts receivables, accounts payable, accrued payroll and expenses, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with BMO Harris Bank, N.A. (“BMO”) that provides for a revolving credit facility, term loan and current rates available to the Company for debt with similar terms and risk. In Fiscal 2022 and 2021, Management determined the fair value on the interest rate swap based on quoted prices from BMO.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.

Concentration of Credit Risk

Concentration of credit risk is limited due to the Company’s diverse client partner base and their dispersion across many different industries and geographic locations nationwide. No single client partner accounted for more than 10% of the Company’s accounts receivable as of December 31, 2023 and January 1, 2023 or revenue from continuing operations in Fiscal 2023, 2022 and 2021. Geographic revenue from continuing operations in excess of 10% of the Company’s consolidated revenue in Fiscal 2023 and the related percentage for Fiscal 2022 and 2021 was generated in the following areas at:

Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.

Accounts Receivable

The Company extends credit to its client partners in the normal course of business. Accounts receivable represents unpaid balances due from client partners. The Company maintains an allowance for credit losses for expected losses resulting from client partners’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, credit loss, evaluation of credit risk related to certain individual client partners and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all reasonable means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.

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

Acquired allowance for credit losses - Horn Solutions — 109

Provision for credit losses, net 798 315

Amounts written off, net (802) (315)

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

The Company depreciates the cost of property and equipment over the estimated useful lives of the assets using the straight-line method ranging from five to seven years. The costs of leasehold improvements are amortized over the shorter of the estimated useful life or lease term. The cost of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures that increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of properties sold, or otherwise disposed of, and the related accumulated depreciation or amortization, are removed from the accounts, and any gains or losses are reflected in current operations.

Deposits

The Company maintains guaranteed costs policies for workers’ compensation coverage in monopolistic states and minimal loss retention coverage in all other states. Under these policies, the Company is required to maintain refundable deposits of $2.4 million, which are included in Deposits in the accompanying consolidated balance sheets, as of December 31, 2023 and January 1, 2023.

Software as a service

The Company capitalizes direct costs incurred in cloud computing implementation costs from hosting arrangements, and are reported as a component of Software as a service. All other internal-use software development costs are capitalized and reported as a component of computer software within Intangible assets. In Fiscal 2023, the Company added software assets of $0.6 million and reclassified $0.7 million from property and equipment related to the information technology improvement project.

The Company reviews its long-lived assets, primarily fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. There were no impairments with respect to long-lived assets during Fiscal 2023, 2022 or 2021.

Leases

The Company leases all their office space through operating leases, which expire at various dates through 2030. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from 1 to 10 years, exercisable at the Company’s option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.

Right-of-use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined using the incremental borrowing rate based on the information available at lease commencement date, unless the implicit rate in the lease is readily determinable. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses.

Intangible Assets

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

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

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company capitalizes purchased software and internal payroll costs directly incurred in the modification of internal use software. Software maintenance and training costs are expensed in the period incurred.

The Company evaluates the recoverability of Intangible assets whenever events or changes in circumstances indicate that an Intangible asset’s carrying amount may not be recoverable. The Company considered the current and expected future economic and market conditions and its impact on each of the reporting units. The Company annually evaluates the remaining useful lives of all Intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. In the first quarter of Fiscal 2023, management decided to eliminate the use of various trade names and go to market under the BGSF brand. Management’s rebranding created an impairment charge of $22.5 million. The Company determined that there were no impairment indicators for these assets in Fiscal 2022.

Goodwill

Goodwill represents the difference between the total consideration paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. The Company reviews goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Based on annual testing, the Company has determined that there was no goodwill impairment in Fiscal 2023, 2022 or 2021.

The Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill. If after qualitatively assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below.

In assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value.

The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, a reporting unit shall recognize an impairment loss in an amount equal to that excess.

The quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit’s fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.

Cash Flow Hedge

The unrealized gains or losses associated with the change in the fair value of the effective portion of the hedging instrument was recorded in accumulated other comprehensive income or loss. The Company reclassified the interest rate swap from accumulated other comprehensive gain or loss against interest expense in the same period in which the hedge transaction affected earnings. There were no outstanding cash flow hedges at December 31, 2023 or January 1, 2023.

Debt Issuance Costs

Debt issuance costs are amortized using the effective interest method over the term of the respective loans. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contingent Consideration

The Company has obligations, to be paid in cash, related to its acquisitions if certain operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. The fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.

Revenue Recognition

The Company derives its revenues from continuing operations in Property Management and Professional segments by providing workforce solutions, placement services, and managed services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues from continuing operations as presented on the consolidated statements of operations and comprehensive (loss) income represent services rendered to client partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and the related amounts of reimbursable expenses are included in cost of services.

The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified field talent, (ii) has the discretion to select the field talent and establish their price and duties and (iii) bears the risk for services that are not fully paid for by client partners.

Workforce solution revenues - Field talent revenues from contracts with client partners are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s field talent.

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

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

Managed services revenues - include both workforce solution revenues and fixed fee revenues from client partner contracts. Services performed represent the transfer of control to the client partner over a given period of time. Fixed fee revenues are recognized in equal amounts at fixed intervals as promised services are delivered.

The Company estimates the effect of placement candidates who do not remain with its client partners through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to client partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for placement workforce solutions are charged to employment candidates. These assumptions determine the timing of revenue recognition for the reported period.

Refer to Note 19 for disaggregated revenues by segment.

Payment terms in the Company’s contracts vary by the type and location of its client partner and the workforce solutions offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of December 31, 2023 or January 1, 2023. There were no revenues recognized during Fiscal 2023 related to performance obligations satisfied or partially satisfied in previous periods. There are no contract costs capitalized. The Company did not recognize any contract impairments during Fiscal 2023, 2022, and 2021. The opening balance of accounts receivable at December 26, 2021, was $48.1 million.

Advertising

The Company recognizes advertising expense in selling, general and administrative expenses as the services are incurred. Total advertising expense from continuing operations for Fiscal 2023, 2022, and 2021 was $2.1 million, $2.0 million, and $2.0 million, respectively.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share-Based Compensation

The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.

Earnings Per Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period adjusted to reflect potentially dilutive securities. Antidilutive shares are excluded from the calculation of earnings per share.

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

Effect of dilutive securities:

Stock options and restricted stock — 46 50

Stock options and restricted stock 812 360 402

Income Taxes

The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. The Company recognizes any penalties when necessary as part of selling, general and administrative expenses. As a matter of operation, we first calculated the effective tax on continuing operations, and then allocated the remaining taxes to our discontinued operations, in accordance with Accounting Standards Codification (“ASC”) Topic 740. As of December 31, 2023 and January 1, 2023, goodwill of $45.9 million and $50.4 million, respectively, which is limited annually and is expected to be deductible for tax purposes.

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. As of December 31, 2023, the Company has a $2.6 million net operating loss carry forward from the 2020 EdgeRock acquisition with no expiration date. These net operating losses are subject to an annual Internal Revenue Code Section 382 limitation of $1.3 million. Additionally, there was an increase of $5.2 million to the deferred tax assets related to the $22.5 million in impairment losses as of December 31, 2023.

When appropriate, the Company will record a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results. The Company believes that it is more likely than not that all deferred tax assets will be realized and thus, believes that a valuation allowance is not required as of December 31, 2023 or January 1, 2023.

The Company follows the guidance of ASC Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. The new standard provides guidance to improve reportable segment disclosure with enhanced reporting of significant segment expenses. The new guidance is effective after December 15, 2023, and interim periods beginning after December 15, 2024, early adoption is permitted. The Company is evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

In December 2023, FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures. The new standard requires annual disclosure of the specific categories in the rate reconciliation, and additional information for reconciling items that meet a quantitative threshold. Additional information may be required on reconciling items. The new guidance is effective after December 15, 2024, early adoption is permitted. The Company is evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

NOTE 3 - ACQUISITIONS

Horn Solutions

On December 12, 2022, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Horn Solutions. The purchase price of $42.7 million was paid at closing with $33.9 million in cash and $3.4 million of the Company common stock (254,455 shares of the Company common stock privately placed under Section 4(a)(2) of the Securities Act of 1933, as amended), as well as a two-year convertible promissory note of $4.4 million with an annual interest rate of 6%, with interest paid quarterly. The promissory note is convertible into shares of the Company common stock at any time after the one-year anniversary of the promissory note at a conversion price equal to $17.12 per share. The promissory note is subordinate to the Company’s senior debt. An additional portion of the purchase price, $1.0 million in cash, was held back as partial security for a post-closing purchase price adjustment. The asset purchase agreement contained a provision for a “true up” of acquired working capital within 120 days after the closing date. In May 2023, the hold back and true-up were paid, adjusting businesses acquired by $0.1 million in goodwill. The purchase price at closing was paid out of funds under the Company’s credit agreement led by BMO, see “Note 12 - Debt”.

The acquired business was assigned to the Professional segment. The acquisition of Horn Solutions allowed the Company to strengthen and expand its finance and accounting operations by providing consulting, project loan staff, interim staff, direct hire, and managed services through three complementary business units: strategic accounting and finance, information technology, and transactional accounting and office staffing. Horn Solutions provides services to clients in a variety of industries including, but not limited to energy, financial services, healthcare, real estate and construction, service, manufacturing, and software industries.

Shortly after closing, Horn Solutions was fully integrated into the Company's organizational structure and does not operate as a discrete entity. Consequently, the amount of revenue and earnings of Horn Solutions included in the Consolidated Statement of Comprehensive (Loss) Income since the acquisition date is impracticable to provide.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Accounts receivable $ 3,734

Prepaid expenses and other assets 118

Property and equipment, net 83

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

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

Current liabilities assumed (1,787)

Lease liability - operating leases (1,528)

Total net assets acquired $ 42,242

Convertible Note 4,368

Working capital adjustment (417)

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

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

Estimated FairValue Estimated Useful Lives

Covenants not to compete $ 50 5 years

The Company incurred costs of $0.4 million in Fiscal 2023 and Fiscal 2022 related to the Horn Solutions acquisition. These costs were expensed as incurred in selling, general and administrative expenses.

Arroyo Consulting

On April 24, 2023, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Arroyo Consulting for cash consideration of $6.8 million. Certain post-closing liabilities were held back of $0.4 million and a partial security for any indemnification obligation was held back for one year of $0.9 million. The purchase agreement further provides for contingent consideration of up to $8.5 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase price at closing was paid out of funds under the Company’s credit agreement led by BMO, see “Note 12 - Debt”. The purchase agreement contained a provision for a “true up” of acquired working capital within 120 days after the closing date, which has not yet been finalized with the seller.

The acquired business was assigned to the Professional segment. The acquisition of Arroyo Consulting allows the Company to strengthen the go-to-market cross-selling efforts providing clients a cost effective alternative offering nearshore and offshore IT resources. Arroyo Consulting provides nearshore and offshore professional workforce solutions specializing in IT and software development with operations in the United States, Colombia, and India.

The 2022 and 2021 consolidated statements of operations do not include any operating results of Arroyo Consulting. The Fiscal 2023 consolidated statement of operation and comprehensive (loss) income included thirty-six weeks for approximately $14.8 million of revenue and $4.0 million of operating income, which included $0.7 million in amortization expense on acquisition intangibles.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Accounts receivable $ 3,452

Right-of-use asset - operating leases 141

Goodwill (no deductible tax basis) 3,836

Current liabilities assumed (2,471)

Lease liability - operating leases (140)

Total net assets acquired $ 16,286

Hold back, working capital* 350

Hold back, indemnities* 850

Working capital adjustment* 677

Fair value of contingent consideration 7,609

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

*Included in Other current liabilities

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

Estimated FairValue Estimated Useful Lives

Covenants not to compete $ 352 5 years

Computer software 170 3 years

The Company incurred costs of $0.6 million in Fiscal 2023 related to the Arroyo Consulting acquisition. These costs were expensed as incurred in selling, general and administrative expenses.

Supplemental Unaudited Pro Forma Information

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

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

Net (loss) income per share from continuing operations:

Pro forma net (loss) income includes amortization of primarily client partner lists, interest expense on additional borrowings on the New Term Loan and the revolving facility (the “Revolving Facility”)(see “Note 12 - Debt”) at a rate of 2.5%. The tax benefit of the pro forma adjustments at an effective tax rate of 22.3% for Fiscal 2023 and 24.5% for Fiscal 2022. The pro forma operating results include adjustments to Horn Solutions and Arroyo Consulting related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company. There were no material nonrecurring adjustments.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Horn Solutions and Arroyo Consulting acquisitions taken place on the first day of Fiscal 2022 or of the results that may be achieved by the combined enterprise in the future.

NOTE 4 – DISCONTINUED OPERATIONS

On March 21, 2022, the Company sold substantially all of the assets and certain liabilities of InStaff to Sentech Engineering Services, Inc. (“Sentech”) for a sale price of approximately $30.3 million cash, subject to customary sales price and working capital adjustments specified in the purchase agreement. The purchase agreement provided for deferred consideration of $2.0 million, which was received April 3, 2023. The sale resulted in an original pre-tax gain on sale of discontinued operations of $17.3 million, with an additional pre-tax gain of $0.4 million recognized as part of the net working capital adjustment in October 2022.

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

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

NOTE 5 - OTHER CURRENT ASSETS

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

Deferred consideration — 2,000

Horn Solutions working capital adjustment — 534

Workers’ compensation deposit refund receivable — 448

Due from Arroyo and Sentech, respectively 3,843 411

CARES Act Receivable

The Employee Retention Credit (“ERC”) was established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act allows relief to businesses affected by the coronavirus pandemic, by providing payment to employers for qualified wages and health insurance benefits for team members. The CARES Act applies to taxes incurred from March 27, 2020, through the second quarter of 2021.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - PROPERTY AND EQUIPMENT, NET

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

Leasehold improvements $ 665 $ 1,397

Property and equipment, net $ 1,217 $ 2,081

Total depreciation expense from continuing operations in Fiscal 2023, 2022 and 2021 was $0.4 million, $0.6 million, and $0.7 million, respectively. In Fiscal 2023, the Company completed software assets and reclassed $0.7 million to Software as a service and $0.2 million to Intangible assets related to the information technology improvement project.

NOTE 7 - LEASES

The Company’s future continuing operating lease obligations that have not yet commenced are immaterial. Short-term leases were immaterial. The supplemental balance sheet and cash flow information related to the Company's operating leases were as follows at (dollars in thousands):

Weighted average discount rate for continuing operating leases 6.5 % 5.2 % 5.0 %

Cash paid for continuing operating leases $ 2,185 $ 2,115 $ 2,136

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

Thereafter 74

Total lease payment 6,546

Present value of lease liabilities $ 5,830

NOTE 8 - INTANGIBLE ASSETS

In the first quarter of Fiscal 2023, management decided to eliminate the use of various trade names and go to market under the BGSF brand. Management’s rebranding created an impairment charge of $22.5 million. The Company determined that there were no impairment indicators for these assets in Fiscal 2022.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Gross Value AccumulatedAmortization NetCarryingValue

Finite lives:

Gross Value AccumulatedAmortization NetCarryingValue

Finite lives:

Indefinite lives:

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

Fiscal Years Ending:

Total amortization expense from continuing operations for Fiscal 2023, 2022 and 2021 was $7.3 million, $3.5 million and $3.0 million, respectively. In Fiscal 2023, the Company added software assets of $1.5 million and reclassified $0.2 million from property and equipment related to the information technology improvement project.

NOTE 9 - GOODWILL

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

Property Management Professional Total

Additions from acquisitions — 4,395 4,395

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION

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

Field talent payroll related 1,039 941

Accrued bonuses and commissions 2,931 5,740

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

Estimated Cash Payment Discount Net

Due in:

NOTE 11 - INCOME TAXES

At December 31, 2023, federal income tax receivable of $0.7 million is included in Other current assets and state income tax payable of $0.3 million is included in Income taxes payable. At January 1, 2023, federal income tax receivable of $1.7 million is included in Other current assets and state income tax payable of $0.3 million is included in Income taxes payable.

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

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

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

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

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Deferred tax assets:

Allowance for credit losses $ 120 $ 127

Goodwill and intangible assets 5,242 787

Accrued payroll and expenses 681 404

Share-based compensation 602 504

Net operating loss carry forward 662 985

Deferred tax liabilities:

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

Property and equipment (1,388) (303)

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

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

NOTE 12 - DEBT

On July 16, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, led by BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provided for the Revolving Facility permitting the Company to borrow funds from time to time in an aggregate amount up to $35 million. The Credit Agreement also provided for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed $30 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement, all of which has been funded and repaid. The Company also had the option to request an increase in in the aggregate Term Loan by $40 million, which was done in connection with the Horn Solutions acquisition. The Company’s obligations under the Credit Amendment are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin through August 17, 2022 (as such terms are defined in the Credit Agreement). The Company pays an unused commitment fee on the daily average unused amount of the Revolving Facility.

On August 18, 2022, the Company entered into an amendment to the Credit Agreement with BMO, which changed the interest rate component from LIBOR to the Secured Overnight Financing Rate (“SOFR”), plus the Applicable Margin (as such terms are defined in the amended credit agreement). In connection with the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”), the Company exercised the option to borrow $40.0 million, as noted above, pursuant to a second amendment to the Credit Agreement (“Second Credit Amendment”). The Second Credit Amendment requires 2.5% of the original principal balance of the New Term Loan payable on the last business day of each quarter, beginning on March 31, 2023.

On April 24, 2023, in connection with the acquisition of Arroyo Consulting, the Company entered into a Third Amendment to the Credit Agreement (“Third Credit Amendment”) with BMO. The Third Credit Amendment revised language to permit an acquisition of a foreign entity under certain circumstances and modified the terms of permitted distributions and guarantors.

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 19, 2023, the Company entered into a Fourth Amendment to the Credit Agreement (“Fourth Credit Amendment”) increasing the Revolving Facility by $6.0 million to an aggregate amount up to $41.0 million.

The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio (as such terms are defined in the amended Second Credit Amendment). The Company was in compliance with the customary affirmative and negative covenants as of December 31, 2023.

The indebtedness under the Credit Agreement had a maturity date of July 16, 2024, which has been classified within current liabilities as of December 31, 2023. The Credit Agreement was amended and restated on March 12, 2024. See Note 21 - Subsequent Events.

Letter of Credit

In March 2020, in conjunction with the 2020 EdgeRock acquisition, the Company entered into a standby letter of credit arrangement, which expires December 31, 2024, for purposes of protecting a lessor against default on lease payments. As of December 31, 2023, the Company had a maximum financial exposure from this standby letter of credit totaling $0.1 million, all of which is considered usage against the Revolving Facility. The Company has no history of default, nor is it aware of circumstances that would require it to perform under, any of these arrangements and believes that the resolution of any disputes thereunder that might arise in the future would not materially affect the Company’s consolidated financial statements. Accordingly, no liability has been recorded in respect to these arrangements as of December 31, 2023 or January 1, 2023.

Line of Credit

At December 31, 2023 and January 1, 2023, $24.9 million and $22.6 million, respectively, was outstanding on the revolving facilities. Average daily balance for Fiscal 2023, 2022 and 2021 was $23.1 million, $18.4 million, and $9.9 million, respectively.

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

Long-Term Debt

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

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

Less debt issuance costs (128)

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedge

In April 2020, the Company entered into a pay-fixed/receive-floating interest rate swap agreement with our bank syndicate led by BMO that reduces the floating interest rate component on the Term Loan obligation. The $25.0 million notional amount was designed as a cash flow hedge on the underlying variable rate interest payments against a fixed interest rate. In accordance with cash flow hedge accounting treatment, the Company had determined that the hedge was perfectly effective using the change-in-variable-cash-flow method.

On March 21, 2022, the Company paid down the balance, which cancelled the agreement. The unrealized gains or losses associated with the change in the fair value of the effective portion of the hedging instrument was recorded in accumulated other comprehensive income or loss. The Company reclassified the interest rate swap from accumulated other comprehensive gain or loss against interest expense in the same period in which the hedge transaction affected earnings.

Convertible Note

At December 31, 2023 and January 1, 2023, the Company had a two-year convertible unsecured promissory note of $4.4 million due to the seller with an annual interest rate of 6%, with interest paid quarterly related to the Horn Solutions acquisition on December 12, 2022 (See “Note 3 - Acquisitions”). The promissory note is convertible into shares of our common stock at any time after the one-year anniversary of the promissory note at a conversion price equal to $17.12 per share, prior to the maturity date of December 12, 2024. The promissory note is subordinate to the Company’s senior debt.

NOTE 13 - FAIR VALUE MEASUREMENTS

The accounting standard for fair value measurements defines fair value and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established prioritizes the inputs used in valuation techniques into three levels as follows:

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

Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and

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

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

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

The changes in the Level 3 fair value measurements from January 1, 2023 to December 31, 2023 relates primarily to an increase from Arroyo Consulting acquisition, including $0.7 million in accretion, offset by a $1.1 million payment for the 2021 Momentum Solutionz acquisition. Key inputs in determining the fair value of the contingent consideration as of December 31, 2023 and January 1, 2023 included discount rates of approximately 7% and 9%, respectively, as well as management’s estimates of future sales volumes and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”).

BGSF, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - CONTINGENCIES

The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made.

The Company insures against, subject to and upon the terms and conditions of various insurance policies, claims or losses from workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses, crime and cyber risk, and director and officer liability. Under the Company’s bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.

Employment Agreements

The CEO’s employment agreement was effective as of October 1, 2018 and the agreement remains in effect under successive one-year extensions unless terminated pursuant to its terms. In the event that her employment is terminated by the Company without cause or by her for good reason, she will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for her and her dependents, grossed-up for federal income taxes. Additionally, she will become 100% vested in any awards outstanding under the Company’s 2013 Long-Term Incentive Plan, as amended, (“2013 Plan”) or similar plan. Should there be a sale of the Company that results in the termination of her employment or a material adverse change in her duties and responsibilities, she will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months.

The CFO’s employment agreement was effective as of March 20, 2023 and remains in effect through December 31, 2025 with successive one-year extensions unless terminated pursuant to its terms. In the event that his employment is terminated by the Company without cause or by him for good reason, he will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for him and his dependents, grossed-up for federal income taxes. Additionally, he will become 100% vested in any awards outstanding under the 2013 Plan or similar plan. Should there be a sale of the Company that results in the termination of his employment, he will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months.

NOTE 15 - EQUITY

Authorized capital stock consists of 19,500,000 shares of common stock, par value $0.01 per share and 500,000 shares of undesignated preferred stock, par value $0.01 per share.

Bgsf, Inc. BGSF US Equity

BGSF · 10-K · period ended 2023-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Item 8. Financial Statements and Supplementary Data.

Bgsf, Inc. BGSF US Equity☆

BGSF · 10-K · period ended 2023-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Item 8. Financial Statements and Supplementary Data.

Bgsf, Inc. BGSF US Equity