BGSF INC

For the period ended Dec 31, 2023. Filed Mar 15, 2024.

About this filing

A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.

FY2023 · Filed Mar 15, 2024

BGSF$4.07+3.6%Stored close · as of Nov 10, 2026

Extracted filing text, with the paragraph anchors used by the comparison.

See the whole filing, with its images and exhibits

Contents

Item 8. 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 acquiredand contingent consideration liabilityin 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

(in thousands, except share amounts)

December 31, 2023 · January 1, 2023
ASSETS
Current assets
	Accounts receivable (net of allowance for credit losses of $554 and $558, respectively)		$56,776			$66,285
	Prepaid expenses		2,963			2,418
	Other current assets		7,172			7,459
		Total current assets		66,911			76,162
Property and equipment, net		1,217			2,081
Other assets
	Deposits		2,699			2,616
	Software as a service, net		5,026			4,411
	Deferred income taxes, net		7,271			2,196
	Right-of-use asset - operating leases		5,435			4,462
	Intangible assets, net		30,370			47,552
	Goodwill		59,588			55,193
		Total other assets		110,389			116,430
	Total assets		$178,517			$194,673
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable		$95			$587
	Accrued payroll and expenses		14,902			19,171
	Line of credit (net of debt issuance costs of $128)		24,746			—
	Long-term debt, current portion		34,000			4,000
	Accrued interest		438			273
	Income taxes payable		282			253
	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
		Total current liabilities		85,055			28,207
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
		Total liabilities		92,981			93,937
Commitments and contingencies
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding		—			—
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,887,509 and 10,772,515 shares issued and outstanding, respectively, net of treasury stock, at cost, of 3,930 and 1,845 shares, respectively		52			70
Additional paid in capital		68,551			67,003
Retained earnings		16,933			33,663
		Total stockholders’ equity		85,536			100,736
		Total liabilities and stockholders’ equity		$178,517			$194,673

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except per share and dividend amounts)

2023 · 2022 · 2021
Revenues		$313,167		$298,422		$239,027
Cost of services		201,383		194,874		158,086
	Gross profit		111,784		103,548		80,941
Selling, general and administrative expenses		88,650		83,211		65,116
Gain on contingent consideration		—		—		(2,403)
Impairment losses		22,545		—		—
Depreciation and amortization		7,774		4,054		3,698
	Operating (loss) income		(7,185)		16,283		14,530
Interest expense, net		(5,976)		(1,363)		(1,433)
	(Loss) income from continuing operations before income taxes		(13,161)		14,920		13,097
Income tax benefit (expense) from continuing operations		2,938		(3,659)		(2,639)
	(Loss) income from continuing operations		(10,223)		11,261		10,458
Income from discontinued operations:
	Income		—		1,235		4,570
	Gain on sale		—		17,675		—
	Income tax expense		—		(4,810)		(919)
	Net (loss) income		$(10,223)		$25,361		$14,109
Change in unrealized (losses) gains on cash flow hedges		—		(58)		181
	Other comprehensive (loss) gain		—		(58)		181
	Net comprehensive (loss) income		$(10,223)		$25,303		$14,290
Net (loss) income per share - basic:
	Net (loss) income from continuing operations		$(0.95)		$1.08		$1.01
Net income from discontinued operations:
	Income		—		0.12		0.44
	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:
	Income		—		0.12		0.44
	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:
	Basic		10,766		10,427		10,367
	Diluted		10,766		10,473		10,417
Cash dividends declared per common share		$0.60		$0.60		$0.44

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	Common Stock
	PreferredStock	Shares	Par Value	Treasury Stock Amount	Additional Paid in Capital	RetainedEarnings	Accumulated Other Comprehensive (Loss)/Income	Total
Stockholders’ equity, December 27, 2020	—	10,328	$103	$(29)	$60,457	$5,050	$(123)	$65,458
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 restricted shares, net of 610 shares of treasury stock	—	64	1	(9)	(1)	—	—	(9)
Issuance of ESPP shares	—	32	—	—	340	—	—	340
Exercise of common stock shares	—	1	—	—	8	—	—	8
Cash dividends declared	—	—	—	—	—	(4,567)	—	(4,567)
Net income	—	—	—	—	—	14,109	—	14,109
Other comprehensive gain	—	—	—	—	—	—	181	181
Stockholders’ equity, December 26, 2021	—	10,425	104	(38)	61,876	14,592	58	76,592
Share-based compensation from continuing operations	—	—	—	—	1,085	—	—	1,085
Share-based compensation from discontinued operations	—	—	—	—	7	—	—	7
Transaction fees related to sale of discontinued operations	—	—	—	—	35	—	—	35
Issuance of shares	—	254	3	—	3,338	—	—	3,341
Issuance of restricted shares	—	32	1	—	(1)	—	—	—
Issuance of ESPP shares	—	60	—	—	653	—	—	653
Exercise of common stock options	—	1	—	—	10	—	—	10
Cash dividends declared	—	—	—	—	—	(6,290)	—	(6,290)
Net income	—	—	—	—	—	25,361	—	25,361
Other comprehensive loss	—	—	—	—	—	—	(58)	(58)
Stockholders’ equity, January 01, 2023	—	10,772	$108	$(38)	$67,003	$33,663	$—	$100,736

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

	Common Stock
	PreferredStock	Shares	Par Value	Treasury Stock Amount	Additional Paid in Capital	RetainedEarnings	Accumulated Other Comprehensive (Loss)/Income	Total
Stockholders’ equity, January 01, 2023	—	10,772	$108	$(38)	$67,003	$33,663	$—	$100,736
Share-based compensation	—	—	—	—	1,029	—	—	1,029
Issuance of restricted shares, net of 2,085 shares of treasury stock	—	57	1	(19)	(23)	—	—	(41)
Issuance of ESPP shares	—	54	—	—	512	—	—	512
Exercise of common stock options	—	5	—	—	30	—	—	30
Cash dividends declared	—	—	—	—	—	(6,507)	—	(6,507)
Net loss	—	—	—	—	—	(10,223)	—	(10,223)
Stockholders’ equity, December 31, 2023	—	10,888	$109	$(57)	$68,551	$16,933	$—	$85,536

2023 · 2022 · 2021
Cash flows from operating activities
Net (loss) income		$(10,223)			$25,361			$14,109
	(Income) from discontinued operations		—			(1,235)			(4,570)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
	Depreciation		446			597			685
	Amortization		7,328			3,457			3,013
	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
	Provision for credit losses		798			315			221
	Share-based compensation		1,029			1,085			1,058
	Deferred income taxes, net of acquired deferred tax liability		(5,075)			2,353			1,279
Net changes in operating assets and liabilities, net of effects of acquisitions:
		Accounts receivable		12,163			(14,793)			(15,178)
		Prepaid expenses and other current assets		(2,159)			(866)			(200)
		Deposits		(83)			1,503			(126)
		Software as a service		720			660			319
		Accounts payable		(492)			(228)			156
		Accrued payroll and expenses		(7,426)			1,633			5,730
		Accrued interest		165			171			24
		Income taxes receivable and payable		729			(1,202)			(560)
		Other current liabilities		(1,000)			(4,551)			19
		Operating leases		(35)			(127)			(107)
		Other long-term liabilities		—			(64)			(78)
	Net cash provided by (used in) continuing operating activities		20,386			(3,300)			1,358
	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			—
Capital expenditures		(2,597)			(5,680)			(3,204)
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)

2023 · 2022 · 2021
Cash flows from financing activities
	Net borrowings under line of credit		2,312			9,781			6,804
	Proceeds from issuance of long-term debt		—			40,000			—
	Principal payments on long-term debt		(6,000)			(26,863)			(2,063)
	Payments of dividends		(6,507)			(6,290)			(4,567)
	Issuance of ESPP shares		512			653			340
	Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement costs, net of exercises		(10)			(1)			(41)
	Contingent consideration paid		(1,110)			(1,110)			—
	Debt issuance costs		(69)			(236)			—
		Net cash (used in) provided by continuing financing activities		(10,872)			15,934			473
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:
	Cash paid for interest, net		$4,668			$641			$879
	Cash paid for taxes, net of refunds		$1,378			$7,562			$3,676

ContentsView on SEC.gov

The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.