BGSF, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our accompanying Unaudited
Consolidated Financial Statements and related notes thereto and our Annual
Report on Form 10-K for the fiscal year ended December 26, 2021. Comparative
segment revenues and related financial information are discussed herein and are
presented in Note 14 to our Unaudited Consolidated Financial Statements. See
"Forward Looking Statements" on page 3 of this report and "Risk Factors"
included in our filings with the SEC, including our Quarterly Reports on Form
10-Q and our Annual Report on Form 10-K for the fiscal year ended December 26,
2021, for a description of important factors that could cause actual results to
differ from expected results. Please also refer to Note 4- Discontinued
Operation, and to our unaudited consolidated financial statements.

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

Overview


We are a leading national provider of professional workforce solutions 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
October 2015, Zycron, in April 2017, Smart in September 2017, and LJK in
December 2019, 100% of the equity of EdgeRock in February 2020, and
substantially all of the assets of Momentum Solutionz in February 2021. We have
continuing operations in two industry segments: Real Estate and Professional,
and discontinued operations in the Light Industrial segment (see Note 4, and our
unaudited consolidated financial statements). We provide workforce solutions to
client partners primarily within the United States of America. We currently
operate across 46 states and D.C.

On March 21, 2022, we completed the sale of substantially all our Light
Industrial segment, ("InStaff") assets to Jobandtalent ("J&T"), through their
wholly-owned subsidiary, Sentech Engineering Services, Inc. We received
approximately $30.3 million at the closing of the sale, and, subject to the
terms of the Asset Purchase Agreement, will receive an additional $2 million on
the first anniversary of the closing of the transaction.

We have classified the related assets and liabilities associated with our Light
Industrial segment, InStaff, as discontinued operations in our Consolidated
Balance Sheets. The results of InStaff business have been presented as
discontinued operations in our Consolidated Statements of Operations and
Comprehensive Income and Consolidated Statements of Cash Flows for all periods
presented. The sale represents a strategic shift in our business that will have
a major effect on our operations and financial results. See "Note 4 -
Discontinued Operations" of our unaudited consolidated financial statements for
information regarding our discontinued operations.

Our Real Estate segment provides office and maintenance field talent to various
apartment communities and commercial buildings currently in 34 states and D.C.,
via property management companies responsible for the apartment communities' and
commercial buildings' day-to-day operations. Our Real Estate segment operates
through two divisions, BG Multifamily and BG Talent.

Our Professional segment provides skilled field talent on a nationwide basis for
IT and finance, accounting, legal and human resource client partner projects.
Our Professional segment operates through three divisions, IT Consulting, IT
Infrastructure & Development, and Finance and Accounting under various trade
names including Extrinsic, American Partners, Donovan & Watkins, Vision
Technology Services, Zycron, Smart Resources, L.J. Kushner & Associates,
EdgeRock Technology Partners, and Momentum Solutionz.

Our business normally experiences seasonal fluctuations. Our quarterly operating
results are affected by the number of billing days in a quarter, as well as the
seasonality of our client partners' businesses. Demand for our Real Estate
workforce solutions increase in the second quarter and is highest during the
third quarter of the year due to the increased turns in multifamily units during
the summer months when schools are not in session. Demand for our Light
Industrial workforce solutions increases during the third quarter of the year
and peaks in the fourth quarter due to increases in the demand for holiday help.
Overall first quarter demand can be affected by adverse weather conditions in
the winter months. In addition, our cost of services typically increases in the
first quarter primarily due to the reset of payroll taxes.


                                       27
--------------------------------------------------------------------------------

Impact of COVID-19


We continue to observe the impact of the COVID-19 on our consolidated operating
results, our candidate and field talent supply chain, and our client partners
demand in all segments. We will continue to monitor the situation and may find
it necessary, in the future, to take further actions that alter our business
operations as may be required by federal, state, local authorities, or that we
determine are in the best interests of our team members, field talent, client
partners, and stockholders.

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 unaudited consolidated financial
statements. The Fiscal 2021 (as defined below) consolidated statement of
operations and comprehensive income includes eight weeks of Momentum operations.


                                                                                       Thirteen Weeks Ended
                                                                                               March 27,              March 28,
                                                                                                  2022                  2021
                                                                                                           (dollars in thousands)
Revenues                                                                                   $     68,542             $   49,750
Cost of services                                                                                 45,111                 33,535
             Gross profit                                                                        23,431                 16,215
Selling, general and administrative expenses                                                     19,716                 15,302

Depreciation and amortization                                                                       899                    836
             Operating income                                                                     2,816                     77

Interest expense, net                                                                              (273)                  (377)
             Income (loss) from continuing operations before income
             taxes                                                                                2,542                   (300)
Income tax (expense) benefit from continuing operations                                            (534)                    89
             Income (loss) from continuing operations                                             2,008                   (212)

Income from discontinued operations:

             Income                                                                               1,235                  1,156
             Gain on sale                                                                        17,273                      -
             Income tax expense                                                                  (4,716)                  (232)
             Net income                                                                    $     15,800             $      712



                                                                                       Thirteen Weeks Ended
                                                                                                   March 27,                 March 28,
                                                                                                     2022                      2021
Revenues                                                                                                 100.0  %                  100.0  %
Cost of services                                                                                          65.8  %                   67.4  %
             Gross profit                                                                                 34.2  %                   32.6  %
Selling, general and administrative expenses                                                              28.8  %                   30.8  %

Depreciation and amortization                                                                              1.3  %                    1.7  %
             Operating income                                                                              4.1  %                    0.2  %

Interest expense, net                                                                                     (0.4) %                   (0.8) %
             Income (loss) from continuing operations before income
             taxes                                                                                         3.7  %                   (0.6) %
Income tax (expense) benefit from continuing operations                                                   (0.8) %                    0.2  %
             Income (loss) from continuing operations                                                      2.9  %                   (0.4) %




                                       28
--------------------------------------------------------------------------------

Thirteen Week Fiscal Period Ended March 27, 2022 (“Fiscal 2022”) Compared with
Thirteen Week Fiscal Period Ended March 28, 2021 (“Fiscal 2021”)

                    Revenues:                                           Thirteen Weeks Ended
                                                                March 27,                    March 28,
                                                                  2022                         2021
                                                                       (dollars in thousands)
                    Revenues by segment:
                                   Real Estate         $     25,916        37.8  %    $ 18,613        37.4  %
                                   Professional              42,626        62.2  %      31,137        62.6  %
                                   Total Revenues      $     68,542       100.0  %    $ 49,750       100.0  %



Real Estate Revenues: Real Estate revenues increased approximately $7.3 million
(39.2%). The increase was due to a 25.6% increase in billed hours and a 9.6%
increase in average bill rate.

Professional Revenues: Professional revenues increased approximately $11.4
million (36.9%), primarily due to the IT Consulting division of approximately
$8.9 million, the 2021 Momentum acquisition incrementally added $1.2 million
from thirteen weeks of revenue in Fiscal 2022 vs. eight weeks in Fiscal 2021, a
37% increase in billed hours, and a slight increase in average bill rate.

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.

                                                                        Thirteen Weeks Ended
                                                                March 27,                    March 28,
                                                                  2022                         2021
                                                                       (dollars in thousands)
    Gross Profit by segment:
                               Real Estate             $      9,971        42.6  %    $  6,866        42.3  %
                               Professional                  13,460        57.4  %       9,349        57.7  %
                               Total Gross Profit      $     23,431       100.0  %    $ 16,215       100.0  %



                                                                                                  Thirteen Weeks Ended
                                                                                          March 27,                 March 28,
                                                                                             2022                      2021

Gross Profit Percentage by segment:

               Real Estate                                                                       38.5  %                    36.9  %
               Professional                                                                      31.6  %                    30.0  %
               Company Gross Profit                                                              34.2  %                    32.6  %



Overall, our gross profit increased approximately $7.2 million (44.5%). As a
percentage of revenue, gross profit has increased to 34.2% from 32.6%, primarily
due to higher gross profits from across all segments.

We determine spread as the difference between bill rate and pay rate.


Real Estate Gross Profit: Real Estate gross profit increased approximately $3.1
million (45.2%) in line with the increase in revenue and an 11.5% increase in
average spread.

Professional Gross Profit: Professional gross profit increased approximately
$4.1 million (44.0%) primarily due to the IT Consulting division of
approximately $3.0 million, the 2021 Momentum acquisition incrementally added
$0.6 million from thirteen weeks of revenue in Fiscal 2022 vs. eight weeks in
Fiscal 2021, and overall increase in gross profit was affected by a 3.1%
increase in average spread.

                                       29
--------------------------------------------------------------------------------

Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased approximately $4.4 million (28.8%), primarily
due to additional compensation generated from increased overall gross profit and
from the Momentum acquisition with thirteen weeks of operations in Fiscal 2022
vs. eight weeks in Fiscal 2021. The components of selling, general and
administrative expense are detailed in the following table:

                                                                                            Thirteen Weeks Ended
                                                         March 27,                                   March 28,
                                                           2022                                        2021
                                                                                                                                       $                  %
                                             Amount             % of Revenue             Amount             % of Revenue             Change             Change
                                                                                           (dollars in thousands)
Compensation and related                   $ 15,236                        22  %       $ 11,659                        23  %       $ 3,577                   31  %
Advertising and recruitment                     483                         1  %            358                         1  %           125                   35  %
Occupancy and office operations                 797                         1  %            812                         2  %           (15)                  (2) %
Client engagement                               189                         -  %             29                         -  %           160                  552  %
Software                                      1,115                         2  %            603                         1  %           512                   85  %
Professional fees                               421                         1  %            436                         1  %           (15)                  (3) %
Public company related costs                    173                         -  %            192                         -  %           (19)                 (10) %
Bad debt                                         51                         -  %             34                         -  %            17                   50  %
Share-based compensation                        211                         -  %            221                         -  %           (10)                  (5) %
Transaction fees                                  -                         -  %            136                         -  %          (136)                (100) %
IT roadmap                                      365                         1  %            422                         1  %           (58)                 (14) %

Other                                           674                         1  %            401                         1  %           274                   68  %
Total                                      $ 19,716                        29  %       $ 15,302                        31  %       $ 4,412                   29  %



Depreciation and Amortization: Depreciation and amortization charges increased
approximately $0.1 million (7.5%). The increase in depreciation and amortization
is primarily due to the information technology improvement project.

 Interest Expense, net: Interest expense, net decreased primarily due to the
gain from the cancellation of the interest rate swap arrangement that was
partially offset by increases to amortization on the deferred finance costs from
the pay down of the balance on the exiting Term Loan and a portion of the
Revolving Facility, and a higher average balance on the Revolving Facility.

Income Tax (Expense) Benefit: Income tax (expense) benefit increased primarily
due to higher state taxes, offset by a higher Work Opportunity Tax Credit in
Fiscal 2022.

Use of Non-GAAP Financial Measures


We present Adjusted EBITDA (defined below), a measure that is not in accordance
with accounting principles generally accepted in the United States of America
("GAAP"), in this Quarterly Report to provide investors with a supplemental
measure of our operating performance. We believe that Adjusted EBITDA is a
useful performance measure and is used by us to facilitate a comparison of our
operating performance on a consistent basis from period-to-period and to provide
for a more complete understanding of factors and trends affecting our business
than measures under GAAP can provide alone. Our board and management also use
Adjusted EBITDA as one of the primary methods for planning and forecasting
overall expected performance and for evaluating on a quarterly and annual basis
actual results against such expectations, and as a performance evaluation metric
in determining achievement of certain compensation programs and plans for our
management. In addition, the financial covenants in our credit agreement are
based on EBITDA as defined in the credit agreement.

We define "Adjusted EBITDA" as earnings before interest expense, income taxes,
depreciation and amortization expense, intangible impairment losses, transaction
fees, and the non-capital information technology project ("IT roadmap") and
certain non-cash expenses such as the gain on contingent consideration and
share-based compensation expense. Omitting interest, taxes and the other items
provides a financial measure that facilitates comparisons of our results of
operations with those of companies having different capital structures. Since
the levels of indebtedness and tax structures that other companies have are
different from ours, we omit these amounts to facilitate investors' ability to
make these comparisons. Similarly, we omit depreciation and amortization because
other companies may employ a greater or lesser amount of property and intangible
assets. We also believe that investors, analysts and other interested parties
view our ability to generate Adjusted EBITDA as an
                                       30
--------------------------------------------------------------------------------

important measure of our operating performance and that of other companies in
our industry. Adjusted EBITDA should not be considered as an alternative to net
income or income (loss) from continuing operations for the periods indicated as
a measure of our performance. Other companies in our industry may calculate
Adjusted EBITDA differently than we do, limiting its usefulness as a comparative
measure.

The use of Adjusted EBITDA has limitations as an analytical tool, and you should
not consider this performance measure in isolation from, or as an alternative
to, GAAP measures such as net income. Adjusted EBITDA is not a measure of
liquidity under GAAP or otherwise, and is not an alternative to cash flow from
continuing operating activities. Our presentation of Adjusted EBITDA should not
be construed as an inference that our future results will be unaffected by the
expenses that are excluded from that term or by unusual or non-recurring items.
The limitations of Adjusted EBITDA include: (i) it does not reflect our cash
expenditures or future requirements for capital expenditures or contractual
commitments; (ii) it does not reflect changes in, or cash requirements for, our
working capital needs; (iii) it does not reflect income tax payments we may be
required to make; and (iv) it does not reflect the cash requirements necessary
to service interest or principal payments associated with indebtedness.

To properly and prudently evaluate our business, we encourage you to review our
unaudited consolidated financial statements included elsewhere in this report
and the reconciliation to Adjusted EBITDA from net income or income (loss) from
continuing operations the most directly comparable financial measure presented
in accordance with GAAP, set forth in the following table. All of the items
included in the reconciliation from net income to Adjusted EBITDA are either (i)
non-cash items or (ii) items that management does not consider in assessing our
on-going operating performance. In the case of the non-cash items, management
believes that investors may find it useful to assess our comparative operating
performance because the measures without such items are less susceptible to
variances in actual performance resulting from depreciation, amortization and
other non-cash charges and more reflective of other factors that affect
operating performance. In the case of the other items that management does not
consider in assessing our on-going operating performance, management believes
that investors may find it useful to assess our operating performance if the
measures are presented without these items because their financial impact may
not reflect ongoing operating performance.
                                                                                                       Trailing Twelve
                                                                        Thirteen Weeks Ended            Months Ended
                                                                                 March 27,                March 28,            March 27,
                                                                                    2022                    2021                 2022
                                                                                      (dollars in thousands)
Income (loss) from continuing operations                                    $     2,008                $       (212)         $   12,677
Income tax expense (benefit) from continuing operations                             534                         (89)              3,262
Interest expense, net                                                               274                         377               1,330

Operating income                                                                  2,816                          76              17,269
CARES Act credit                                                                      -                           -              (2,084)
Depreciation and amortization                                                       899                         836               3,761

Gain on contingent consideration                                                      -                           -              (2,403)
Share-based compensation                                                            211                         221               1,049
Transaction fees                                                                      -                         136                  35
Adjusted EBITDA from continuing operations                                        3,926                       1,269              17,627
Adjusted EBITDA from discontinued operations, net of
gain                                                                                985                       1,194               4,504
Adjusted EBITDA, net of gain                                                $     4,911                $      2,463          $   22,131


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 credit agreement with BMO Harris Bank, N.A. ("BMO"), that
provides for a revolving credit facility maturing July 16, 2024 (the "Revolving
Facility"). Our primary uses of cash are payments to field talent, team members,
related payroll liabilities, operating expenses, capital
                                       31
--------------------------------------------------------------------------------

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.


The Company has an effective Form S-3 shelf registration statement allowing for
the offer and sale of up to approximately $100 million of common stock. There is
no guarantee that we will be able to consummate any offering on terms we
consider acceptable or at all.

During this period of uncertainty of volatility related to COVID-19, we will
continue to monitor our liquidity, particularly payments from our client
partners.

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

                                                                                           March 27,           December 26,
                                                                                             2022                  2021
                                                                                                (dollars in thousands)
Working capital from continuing operations                                               $   28,276          $      25,851

                                                                                                 Thirteen Weeks Ended
                                                                                           March 27,            March 28,
                                                                                             2022                  2021
                                                                                                (dollars in thousands)

Net cash provided by (used in) continuing operations:

                 Operating activities                                                    $   (1,060)         $      (1,184)
                 Investing activities                                                        28,263                 (4,320)
                 Financing activities                                                       (27,963)                 2,417
Net change in cash and cash equivalents discontinued operations                                 648                  3,087
Net change in cash and cash equivalents                                                  $     (112)         $           -



Operating Activities

Cash provided by operating activities consists of net income adjusted for
non-cash items, including depreciation and amortization, share-based
compensation expense, interest expense on contingent consideration payable, and
the effect of working capital changes. The primary drivers of cash inflows and
outflows are accounts receivable and accrued payroll and expenses.

During Fiscal 2022, net cash used in continuing operations activities was $1.1
million, a decrease of $0.1 million compared with $1.2 million for Fiscal 2021.
This increase is primarily attributable to payments of deferred employer FICA
for the CARES Act in other current liabilities and payments on accrued payroll
and expenses, which were partially offset by additional income taxes payable.

Investing Activities

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


In Fiscal 2022, we received $30.3 million in connection to the sale of InStaff
and we made capital expenditures of $2.1 million mainly related to the IT
roadmap 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
                                       32
--------------------------------------------------------------------------------

of $0.5 million mainly related to software and computer equipment purchased in
the ordinary course of business and for the IT roadmap.

Financing Activities

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


For Fiscal 2022, we paid down $26.9 million on the Term Loan, as discussed
below, we paid $1.6 million in cash dividends on our common stock, we paid $1.1
million of contingent consideration related to the Momentum acquisition, and
borrowed $1.4 million on our Revolving Facility for increased working capital
needs. For Fiscal 2021, we borrowed $3.8 million on our Revolving Facility, and
paid $1.0 million in cash dividends on our common stock, and paid down $0.4
million on the Term Loan.

Credit Agreements


On July 16, 2019, we entered into a Credit Agreement (the "Credit Agreement"),
maturing July 16, 2024, with BMO, as led by BMO, as lead administrative agent,
lender, letters of credit issuer, and swing line lender. The Credit Agreement
provides for a Revolving Facility permitting us 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 us 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. We may from time to time, with a maximum of two, request an increase in
the aggregate Term Loan commitment by $40 million, with minimum increases of $10
million. Our obligations under the Credit Agreement are secured by a first
priority security interest in substantially all our tangible and intangible
property. The Credit Agreement bears interest either at the Base Rate plus the
Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined
in the Credit Agreement). We also pay an unused commitment fee on the daily
average unused amount of Revolving Facility and Term Loan.

The Credit Agreement contains customary affirmative covenants and negative
covenants. We are subject to a maximum Leverage Ratio and a minimum Fixed Charge
Coverage Ratio as defined in the Credit Agreement. The Company was in compliance
with these covenants as of March 27, 2022.

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 the Light industrial
segment (See Note 4).

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
March 27, 2022, 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


Our consolidated financial statements are prepared in accordance with GAAP. In
connection with the preparation of our consolidated financial statements, we are
required to make assumptions and estimates about future events, and apply
judgments that affect the reported amount of assets, liabilities, revenue,
expenses and the related disclosures. We base our assumptions, estimates and
judgments on historical experience, current trends, and other factors that
management believes to be relevant at the time our consolidated financial
statements are prepared. On a regular basis, management reviews the accounting
policies, estimates, assumptions and judgments to ensure that our consolidated
financial statements are presented fairly and in accordance with GAAP. However,
because future events and their effects cannot be determined with certainty,
actual results could differ from our assumptions and estimates, and such
differences could be material.


                                       33
--------------------------------------------------------------------------------

Our significant accounting policies are discussed in Note 2, Summary of
Significant Accounting Policies, of the Notes to Unaudited Consolidated
Financial Statements included in "Item 1. Financial Statements." Please also
refer to our Annual Report on Form 10-K for the fiscal year ended December 26,
2021 for a more detailed discussion of our critical accounting policies.

We have classified the related assets and liabilities associated with our Light
Industrial segment, InStaff, as discontinued operations in our Consolidated
Balance Sheets. The results of InStaff business have been presented as
discontinued operations in our Consolidated Statements of Operations and
Comprehensive Income and Consolidated Statements of Cash Flows for all periods
presented. The sale represents a strategic shift in our business that will have
a major effect on our operations and financial results. See "Note 4 -
Discontinued Operations" for additional information.

The COVID-19 pandemic continues to have a significant impact on our economy as a
result of measures designed to stop the spread of the virus. In light of the
currently unknown ultimate duration and severity of COVID-19, we face a greater
degree of uncertainty than normal in making the judgments and estimates needed
to apply our significant accounting policies. As COVID-19 continues to develop,
management may make changes to these estimates and judgments over time, which
could result in meaningful impacts to our financial statements in future
periods. Actual results and outcomes may differ from management's estimates and
assumptions.

Revenue Recognition

We derive our revenues from continuing operations in Real Estate and
Professional segments. We provide workforce solutions and placement 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. Revenues as presented on the
consolidated statements of operations and comprehensive income represent
workforce solutions 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.

We record revenue on a gross basis as a principal versus on a net basis as an
agent in the presentation of revenues and expenses. We have concluded that gross
reporting is appropriate because we (i) have the risk of identifying and hiring
qualified field talent, (ii) have the discretion to select the field talent and
establish their price and duties and (iii) we bear 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 we have a right to invoice, when
the services are rendered by our 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 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.

We estimate the effect of placement candidates who do not remain with our 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.

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 March 27, 2022. There were no revenues recognized
during the thirteen week period ended March 27, 2022 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 the thirteen week period ended March 27, 2022.


                                       34
--------------------------------------------------------------------------------

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.

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.

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.

We evaluate the recoverability of intangible assets whenever events or changes
in circumstances indicate that an intangible asset's carrying amount may not be
recoverable. We considered the current and expected future economic and market
conditions surrounding COVID-19 and its impact on each of the reporting units.
We annually evaluate the remaining useful lives of all intangible assets to
determine whether events and circumstances warrant a revision to the remaining
period of amortization.

Goodwill


Goodwill is not amortized, but instead is evaluated at the reporting unit level
for impairment annually at the end of each fiscal year, or more frequently, if
conditions indicate an earlier review is necessary. We considered the current
and expected future economic and market conditions surrounding COVID-19 and its
impact on each of the reporting units. If we have determined that it is more
likely than not that the fair value for one or more reporting units is greater
than their carrying value, we may use a qualitative assessment for the annual
impairment test. We determined there were no impairment indicators for goodwill
assets during Fiscal 2022 or Fiscal 2021

Contingent Consideration


We have obligations, to be paid in cash, related to our acquisitions if certain
future 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.

Leases


We lease all their office space through operating leases, which expire at
various dates through 2025. Many of the lease agreements obligate us to pay real
estate taxes, insurance and certain maintenance costs, which are accounted for
separately. Certain of our lease arrangements contain renewal provisions from 3
to 10 years, exercisable at our option. Our lease agreements do not contain any
material residual value guarantees or material restrictive covenants.

We determine 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
primarily using the incremental borrowing rate based on the information
available at lease commencement date. Our operating lease expense is recognized
on a straight-line basis over the lease term and is recorded in selling, general
and administrative expenses.

Financial Instruments

We use fair value measurements in areas that include, but are not limited to,
interest rate swap agreements used to mitigate interest rate risk, and the
allocation of purchase price consideration to tangible and identifiable
intangible assets and contingent

                                       35
--------------------------------------------------------------------------------

consideration. The carrying values of cash and cash equivalents, accounts
receivables, prepaid expenses, accounts payable, accrued liabilities, and other
current assets and liabilities approximate their fair values because of the
short-term nature of these instruments. The 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 the
revolving credit facility and term loan and current rates available to us for
debt with similar terms and risk. The fair value on the interest rate swap is
based on quoted prices from BMO.

Share-Based Compensation

We recognize 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.

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. As of March 27, 2022, goodwill of $26.4 million, which is limited
annually, is expected to be deductible for tax purposes. As a matter of
operation, we first calculate 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.

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. 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 March 27, 2022,
we have a $4.9 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.

When appropriate, we 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, we consider 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.

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

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 Unaudited Consolidated Financial Statements in this Quarterly
Report on Form 10-Q and Note 2 in the Notes to the Consolidated Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended
December 26, 2021.
Item 3. 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 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.

                                       36

——————————————————————————–

© Edgar Online, source Glimpses

Source link