UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021March 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-05707

 

GEE GROUP INC.

(Exact name of registrant as specified in its charter)

 

Illinois

36-6097429

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

7751 Belfort Parkway, Suite 150, Jacksonville, FL 32256

(Address (Address of principal executive offices)

 

(630) 954-0400

(Registrant’s (Registrant’s telephone number, including area code)

 

_____________________________________________________________ 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

JOB

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filerFiler

Smaller reporting company

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s common stock as of August 10, 2021May 13, 2022 was 114,100,455.

 

 

 

 

GEE GROUP INC.

Form 10-Q

For the Quarter Ended June 30, 2021March 31, 2022

INDEX

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

3

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements(unaudited)

4

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of Operations

5

Condensed Consolidated Statements of Shareholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

35

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

38

Item 3.

Defaults Upon Senior Securities

36

38

Item 4.

Mine Safety Disclosures

36

38

Item 5.

Other Information

36

38

Item 6.

Exhibits

37

39

Signatures

38

40

 

 
2

Table ofOf Contents

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

 

As a matter of policy, the Company does not provide forecasts of future financial performance. The statements made in this quarterly report on Form 10-Q, which are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements often contain or are prefaced by words such as “believe”, “will” and “expect.” These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. As a result of a number of factors, our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause the Company'sCompany’s actual results to differ materially from those in the forward-looking statements include, without limitation, the negative effects of the Coronavirus Pandemic (“COVID-19”), including uncertainties regarding economic recovery and changed socioeconomic norms, general business conditions, the demand for the Company'sCompany’s services, competitive market pressures, the ability of the Company to attract and retain qualified personnel for regular full-time placement and contract assignments, the possibility of incurring liability for the Company'sCompany’s business activities, including the activities of its contract employees and events affecting its contract employees on client premises, cyber risks, including network security intrusions and/or loss of information, and the ability to attract and retain qualified corporate and branch management, as well as those risks discussed in the Company'sCompany’s Annual Report on Form 10-K for the year ended September 30, 2020,2021, and in other documents which we file with the Securities and Exchange Commission. See additional risk factors included below in Part II – Other Information, Item 1A. Any forward-looking statements speak only as of the date on which they are made, and the Company is under no obligation to (and expressly disclaims any such obligation to) and does not intend to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

 

 
3

Table ofOf Contents

 

PARTPart I -FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

 

GEE GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In Thousands)

 

 

June 30,

2021

 

 

September 30,

2020

 

ASSETS

 

 

 

 

 

 

March 31,

2022

 

 

September 30,

 2021

 

CURRENT ASSETS:

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash

 

$7,359

 

$14,074

 

 

$14,175

 

$9,947

 

Accounts receivable, less allowances ($310 and $2,072, respectively)

 

20,344

 

16,047

 

Accounts receivable, less allowances ($763 and $286, respectively)

 

21,199

 

23,070

 

Prepaid expenses and other current assets

 

 

813

 

 

 

1,393

 

 

 

817

 

 

 

668

 

Total current assets

 

28,516

 

31,514

 

 

36,191

 

33,685

 

Property and equipment, net

 

777

 

906

 

 

1,060

 

765

 

Goodwill

 

63,443

 

63,443

 

 

61,293

 

63,443

 

Intangible assets, net

 

15,769

 

18,843

 

 

12,725

 

14,754

 

Right-of-use assets

 

3,609

 

4,623

 

 

3,522

 

3,920

 

Other long-term assets

 

 

1,144

 

 

 

684

 

 

 

831

 

 

 

1,022

 

TOTAL ASSETS

 

$113,258

 

 

$120,013

 

 

$115,622

 

 

$117,589

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

 

$1,817

 

$2,051

 

 

$1,697

 

$2,257

 

Accrued compensation

 

5,337

 

5,506

 

 

5,823

 

6,413

 

Current Paycheck Protection Program Loans

 

10,966

 

2,243

 

Current Paycheck Protection Program loans

 

0

 

16,741

 

Current operating lease liabilities

 

1,580

 

1,615

 

 

1,612

 

1,681

 

Other current liabilities

 

 

3,706

 

 

 

6,748

 

 

 

4,138

 

 

 

4,065

 

Total current liabilities

 

23,406

 

18,163

 

 

13,270

 

31,157

 

Deferred taxes

 

199

 

430

 

 

482

 

591

 

Paycheck Protection Program loans and accrued interest

 

6,953

 

17,779

 

Revolving credit facility

 

16

 

11,828

 

Term loan, net of discount

 

0

 

37,752

 

Noncurrent operating lease liabilities

 

2,867

 

3,927

 

 

2,498

 

3,006

 

Other long-term liabilities

 

 

2,176

 

 

 

2,756

 

 

 

549

 

 

 

2,066

 

Total long-term liabilities

 

12,211

 

74,472

 

 

3,529

 

5,663

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

MEZZANINE EQUITY

 

 

 

 

 

Preferred stock; no par value; authorized - 20,000 shares, designated 160 shares of Series A, 5,950 shares of Series B, 3,000 shares of Series C, none issued

 

 

0

 

 

 

0

 

Total mezzanine equity

 

0

 

0

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Common stock, no-par value; authorized - 200,000 shares; issued and outstanding - 114,100 shares at June 30, 2021 and 17,667 at September 30, 2020

 

0

 

0

 

Additional paid in capital

 

111,281

 

58,031

 

Common stock, no-par value; authorized - 200,000 shares; issued and outstanding 114,100 shares at March 31, 2022 and September 30, 2021

 

111,715

 

111,416

 

Accumulated deficit

 

 

(33,640)

 

 

(30,653)

 

 

(12,892)

 

 

(30,647)

Total shareholders' equity

 

 

77,641

 

 

 

27,378

 

 

 

98,823

 

 

 

80,769

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$113,258

 

 

$120,013

 

 

$115,622

 

 

$117,589

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 
4

Table ofOf Contents

 

GEE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(In Thousands)

 

 

Three Months Ended

 

Nine Months Ended

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

March 31,

 

March 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

NET REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract staffing services

 

$32,539

 

$23,493

 

$94,850

 

$86,835

 

 

$33,745

 

$31,063

 

$70,429

 

$62,311

 

Direct hire placement services

 

 

5,529

 

 

 

3,101

 

 

 

12,579

 

 

 

11,996

 

 

 

5,884

 

 

 

3,655

 

 

 

12,047

 

 

 

7,050

 

NET REVENUES

 

38,068

 

26,594

 

107,429

 

98,831

 

 

39,629

 

34,718

 

82,476

 

69,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of contract services

 

 

24,242

 

 

 

16,925

 

 

 

70,115

 

 

 

64,654

 

 

 

25,115

 

 

 

23,810

 

 

 

52,380

 

 

 

45,873

 

GROSS PROFIT

 

13,826

 

9,669

 

37,314

 

34,177

 

 

14,514

 

10,908

 

30,096

 

23,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses (including noncash stock-based compensation expense of $231 and $337, and $835 and $1,290 respectively)

 

11,113

 

10,208

 

29,779

 

34,299

 

Selling, general and administrative expenses

 

12,228

 

9,179

 

24,587

 

18,665

 

Depreciation expense

 

78

 

33

 

228

 

181

 

 

94

 

77

 

180

 

150

 

Amortization of intangible assets

 

 

1,015

 

 

 

1,125

 

 

 

3,074

 

 

 

3,921

 

 

1,015

 

1,015

 

2,029

 

2,059

 

INCOME (LOSS) FROM OPERATIONS

 

1,620

 

(1,697)

 

4,233

 

(4,224)

Net (loss) gain on extinguishment of debt

 

(2,047)

 

12,316

 

(1,768)

 

12,316

 

Goodwill impairment charge

 

 

0

 

 

 

0

 

 

 

2,150

 

 

 

0

 

INCOME FROM OPERATIONS

 

1,177

 

637

 

1,150

 

2,614

 

Gain on extinguishment of debt

 

0

 

279

 

16,773

 

279

 

Interest expense

 

 

(539)

 

 

(3,334)

 

 

(5,759)

 

 

(9,618)

 

 

(98)

 

 

(2,534)

 

 

(205)

 

 

(5,220)

(LOSS) INCOME BEFORE INCOME TAX PROVISION

 

(966)

 

7,285

 

(3,294)

 

(1,526)

Provision for income tax (benefit) expense

 

 

(29)

 

 

90

 

 

 

(307)

 

 

271

 

NET (LOSS) INCOME

 

 

(937)

 

 

7,195

 

 

 

(2,987)

 

 

(1,797)

Net gain on redeemed preferred stock

 

 

0

 

 

 

24,475

 

 

 

0

 

 

 

24,475

 

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$(937)

 

$31,670

 

 

$(2,987)

 

$22,678

 

INCOME (LOSS) BEFORE INCOME TAX PROVISION

 

1,079

 

(1,618)

 

17,718

 

(2,327)

Provision for income tax expense (benefit)

 

 

(8)

 

 

117

 

 

 

(37)

 

 

(277)

NET INCOME (LOSS)

 

$1,087

 

 

$(1,735)

 

$17,755

 

 

$(2,050)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC (LOSS) EARNINGS PER SHARE

 

$(0.01)

 

$2.01

 

$(0.07)

 

$1.58

 

DILUTED (LOSS) EARNINGS PER SHARE

 

$(0.01)

 

$1.88

 

$(0.07)

 

$1.48

 

WEIGHTED AVERAGE NUMBER OF SHARES:

 

 

 

 

 

 

 

 

 

BASIC EARNINGS (LOSS) PER SHARE

 

$0.01

 

$(0.10)

 

$0.16

 

$(0.12)

DILUTED EARNINGS (LOSS) PER SHARE

 

$0.01

 

$(0.10)

 

$0.15

 

$(0.12)

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

BASIC

 

92,354

 

15,792

 

42,563

 

14,368

 

 

114,100

 

17,667

 

114,100

 

17,667

 

DILUTED

 

92,354

 

16,805

 

42,563

 

15,373

 

 

115,642

 

17,667

 

115,592

 

17,667

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 
5

Table ofOf Contents

 

GEE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

(In Thousands)

 

 

 

Common

 

 

Additional

 

 

 

 

Total

 

 

 

Stock

 

 

Paid

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

In Capital

 

 

Deficit

 

 

Equity

 

Balance, September 30, 2020

 

 

17,667

 

 

$58,031

 

 

$(30,653)

 

$27,378

 

Share-based compensation

 

 

-

 

 

 

311

 

 

 

0

 

 

 

311

 

Net loss

 

 

-

 

 

 

0

 

 

 

(315)

 

 

(315)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

17,667

 

 

$58,342

 

 

$(30,968)

 

$27,374

 

Share-based compensation

 

 

-

 

 

 

293

 

 

 

0

 

 

 

293

 

Net loss

 

 

-

 

 

 

0

 

 

 

(1,735)

 

 

(1,735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

17,667

 

 

$58,635

 

 

$(32,703)

 

$25,932

 

Issuance of stock for restricted stock

 

 

600

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

231

 

 

 

-

 

 

 

231

 

Sale of common stock in public offering

 

 

95,833

 

 

 

52,415

 

 

 

0

 

 

 

52,415

 

Net loss

 

 

-

 

 

 

-

 

 

 

(937)

 

 

(937)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

114,100

 

 

$111,281

 

 

$(33,640)

 

$77,641

 

 

 

Common 

 

 

 Common Stock

 

 

Accumulated

 

 

Shareholders' 

 

 

 

 Shares

 

 

No Par Value

 

 

Deficit

 

 

Equity

 

Balance, September 30, 2021

 

 

114,100

 

 

$111,416

 

 

$(30,647)

 

$80,769

 

Share-based compensation

 

 

-

 

 

 

147

 

 

 

0

 

 

 

147

 

Net income

 

 

-

 

 

 

0

 

 

 

16,668

 

 

 

16,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

114,100

 

 

$111,563

 

 

$(13,979)

 

$97,584

 

Share-based compensation

 

 

-

 

 

 

152

 

 

 

0

 

 

 

152

 

Net income

 

 

-

 

 

 

0

 

 

 

1,087

 

 

 

1,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2022

 

 

114,100

 

 

$111,715

 

 

$(12,892)

 

$98,823

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

Total

 

 

 

Stock

 

 

Paid

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

In Capital

 

 

Deficit

 

 

Equity

 

Balance, September 30, 2019

 

 

12,538

 

 

$49,990

 

 

$(40,781)

 

$9,209

 

Share-based compensation

 

 

-

 

 

 

597

 

 

 

0

 

 

 

597

 

Issuance of stock for interest

 

 

552

 

 

 

402

 

 

 

0

 

 

 

402

 

Net loss

 

 

-

 

 

 

0

 

 

 

(3,563)

 

 

(3,563)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

13,090

 

 

$50,989

 

 

$(44,344)

 

$6,645

 

Share-based compensation

 

 

-

 

 

 

356

 

 

 

0

 

 

 

356

 

Issuance of stock for restricted stock

 

 

500

 

 

 

0

 

 

 

0

 

 

 

0

 

Issuance of stock for interest

 

 

967

 

 

 

401

 

 

 

0

 

 

 

401

 

Net loss

 

 

-

 

 

 

0

 

 

 

(5,428)

 

 

(5,428)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2020

 

 

14,557

 

 

$51,746

 

 

$(49,772)

 

$1,974

 

Share-based compensation

 

 

23

 

 

 

337

 

 

 

0

 

 

 

337

 

Issuance of stock for interest

 

 

1,276

 

 

 

401

 

 

 

0

 

 

 

401

 

Issuance of stock for debt conversion

 

 

1,718

 

 

 

5,185

 

 

 

-

 

 

 

5,185

 

Issuance of stock for preferred stock conversion

 

 

93

 

 

 

93

 

 

 

-

 

 

 

93

 

Net income

 

 

-

 

 

 

-

 

 

 

7,195

 

 

 

7,195

 

Gain on redemption of preferred stock

 

 

-

 

 

 

-

 

 

 

24,475

 

 

 

24,475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

 

 

17,667

 

 

$57,762

 

 

$(18,102)

 

$39,660

 

 

 

Common

 

 

Common Stock

 

 

Accumulated

 

 

Shareholders'

 

 

 

 Shares

 

 

No Par Value

 

 

Deficit

 

 

Equity

 

Balance, September 30, 2020

 

 

17,667

 

 

$58,031

 

 

$(30,653)

 

$27,378

 

Share-based compensation

 

 

-

 

 

 

311

 

 

 

0

 

 

 

311

 

Net loss

 

 

-

 

 

 

0

 

 

 

(315)

 

 

(315)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

17,667

 

 

$58,342

 

 

$(30,968)

 

$27,374

 

Share-based compensation

 

 

-

 

 

 

293

 

 

 

0

 

 

 

293

 

Net loss

 

 

-

 

 

 

0

 

 

 

(1,735)

 

 

(1,735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

17,667

 

 

$58,635

 

 

$(32,703)

 

$25,932

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 
6

Table ofOf Contents

 

GEE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In Thousands)

 

 

Nine Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

March 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(2,987)

 

$(1,797)

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

 

 

 

 

 

Loss (gain) on extinguishment of debt

 

1,768

 

(12,316)

Net income (loss)

 

$17,755

 

$(2,050)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

Gain on extinguishment of debt

 

(16,773)

 

(279)

Depreciation and amortization

 

3,302

 

4,102

 

 

2,209

 

2,209

 

Non-cash lease expense

 

1,013

 

1,302

 

 

692

 

677

 

Stock Compensation expense

 

835

 

1,290

 

Increase/(decrease) in allowance for doubtful accounts

 

(522)

 

1,633

 

Goodwill impairment charge

 

2,150

 

0

 

Share-based compensation

 

299

 

604

 

Increase (decrease) in allowance for doubtful accounts

 

477

 

(359)

Deferred income taxes

 

(231)

 

100

 

 

(109)

 

(141)

Amortization of debt discount

 

903

 

1,334

 

 

76

 

890

 

Interest expense paid with common and preferred stock

 

0

 

1,288

 

Paid in kind interest on term loan

 

1,210

 

701

 

 

0

 

1,089

 

Change in acquisition deposit for working capital guarantee

 

0

 

(780)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(3,775)

 

5,503

 

 

1,394

 

(2,608)

Accounts payable

 

(234)

 

(1,557)

 

(560)

 

(336)

Accrued compensation

 

(168)

 

1,139

 

 

(590)

 

215

 

Accrued Interest

 

487

 

0

 

Accrued interest

 

32

 

88

 

Change in other assets, net of change in other liabilities

 

 

(3,877)

 

 

(1,697)

 

 

(2,669)

 

 

197

 

Cash (used in) provided by operating activities

 

 

(2,276)

 

 

245

 

Net cash provided by operating activities

 

 

4,383

 

 

 

196

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

��

 

 

 

 

Acquisition of property and equipment

 

 

(68)

 

 

(105)

 

(155)

 

(12)

Net cash used in investing activities

 

 

(68)

 

 

(105)

 

 

(155)

 

 

(12)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Payment on term loan

 

(44,194)

 

(500)

Debt issue costs

 

(764)

 

0

 

Proceeds from the sale of common stock in public offering

 

52,415

 

0

 

Net payments on subordinated debt

 

0

 

(1,724)

Payment on preferred stock redemption

 

0

 

(2,931)

Net proceeds from CARES Act Paycheck Protection Program Loans

 

0

 

19,927

 

Net payments on revolving credit

 

 

(11,828)

 

 

(2,390)

Net cash provided by (used in) financing activities

 

 

(4,371)

 

 

12,382

 

Net cash provided by financing activities

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

(6,715)

 

12,522

 

 

4,228

 

184

 

 

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

 

14,074

 

 

 

4,055

 

 

 

9,947

 

 

14,074

 

 

 

 

 

 

 

 

 

 

 

Cash at end of period

 

$7,359

 

 

$16,577

 

 

$14,175

 

 

$14,258

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$3,619

 

 

$7,375

 

 

$60

 

 

$3,152

 

Cash paid for taxes

 

$245

 

 

$29

 

 

 

248

 

 

 

208

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

 

 

Right-of-use assets

 

$0

 

 

$5,981

 

 

 

294

 

 

 

135

 

Operating lease liability

 

$0

 

 

$6,422

 

Acquisition of equipment with finance lease

 

$76

 

 

$37

 

 

 

320

 

 

 

98

 

Conversion of 8% subordinated notes to common stock by related parties

 

$0

 

 

$1,000

 

Conversion of 10% subordinated notes to common stock

 

$0

 

 

$4,185

 

Conversion of series C preferred stock to common by related parties

 

$0

 

 

$93

 

Redemption of series B preferred stock

 

$0

 

 

$24,441

 

Redemption of series C preferred stock

 

$0

 

 

$34

 

Accrued fees on term loan

 

$0

 

 

$4,978

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 
7

Table ofOf Contents

 

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

1. Description of Business

 

GEE Group Inc. was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Logistics, Inc., and Triad Personnel Services, Inc. (collectively referred to as the “Company”, “us”, “our”, or “we”) are providers of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, accounting, finance, office, engineering, and medical professionals for direct hire and contract staffing for our professional clients and provide temporary staffing services for our commercialindustrial clients.

 

2. SignificantThe Company markets its services using the trade names General Employment Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies (including Staffing Now, Accounting PoliciesNow, and Estimates

BasisCertes), Triad Personnel Services and Triad Staffing. As of Presentation

The accompanying unaudited condensed consolidated financial statementsMarch 31, 2022, we operated twenty-eight (28) branch offices in downtown or suburban areas of the Company have been preparedmajor U.S. cities in accordance with accounting principles generally accepted in the United States of America for interim financial informationeleven (11) states and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2020 as filed on December 29, 2020.serve four (4) additional U.S. locations utilizing local staff members working remotely.

  

Liquidity

 

The primary sources of liquidity for the Company are revenues earned and collected from its clients for the placement of contractors and permanent employment candidates and borrowings available under its current and former asset-based senior secured revolving credit facilities. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to the Company’s contract and permanent employees, payment of operating costs and expenses, payment of taxes, payment of interest and principal under its debt agreements,agreement, and capital expenditures.

The Company experienced net losses for the first nine months of its current fiscal year, and for its most recent fiscal years ended September 30, 2020, and 2019, which also negatively impacted the Company’s ability to generate liquidity. During much of this period, the Company significantly restructured its operations, made significant cost reductions, including closing and consolidating unprofitable locations and eliminating underperforming personnel, implemented strategic management changes, and intensified focus on stabilizing the business and restoring profitable growth.

In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from COVID-19. These have included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects continue to be felt, with the most severe impacts being felt in the industrial segment and the finance, accounting and office clerical (“FAO”) end markets within the professional segment.

Between April 29 and May 7, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $19,927. These funds were the only source of financing available to our companies and businesses and have been and continue to be absolutely critical to our ability to maintain operations, including the employment of our temporary and fulltime employees, in order to produce and meet our foreseeable liquidity requirements in the midst of this continuing worldwide Coronavirus Pandemic.

8

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

On April 19, 2021, the Company concluded itscompleted the initial closing of a follow-on public offering of 83,333 shares of common stock at a public offering price of $0.60 per share. Gross proceeds of the offering totaled $50,000, which after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $45,478. On April 27, 2021, the underwriters of the Company’s April 19, 2021follow-on public offering exercised, in full, their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering.

 

On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022in$56,022 in aggregate outstanding indebtedness under its formerthen existing Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, as amended, including accrued interest, using the net proceeds of its recent underwritten public offering and available cash. The repaid debt was originally obtained from investors led by MGG Investment Group LP (“MGG”) on April 21, 2017 and had a maturity date ofJuneof June 30, 2023. The MGG debt was comprised of a revolving credit facility with a principal balance on the date of repayment of approximately $11,828, which was subject to an annual interest rate comprised of the greater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and a term loan with a principal balance on the date of repayment of approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459 was paid in connection with the principal repayments.

 

As of June 30,On May 14, 2021, the Company had cashentered a Loan, Security and Guaranty Agreement for a $20 million asset-based senior secured revolving credit facility with CIT Bank, N.A. (the “CIT Facility”). Concurrent with the May 14, 2021 closing of $7,359, which was a decreasethe CIT Facility, the Company borrowed $5,326 and utilized these funds to pay all remaining unpaid Exit and Restructuring Fees due to its former senior lenders in the amount of $6,715 from $14,074 at September 30, 2020. Working capital at June 30, 2021, was approximately $5,110, as compared$4,978, with the remainder going to working capital of approximately $13,351 for September 30, 2020.direct fees and costs associated with the CIT Facility. Additional information regarding the CIT Facility is presented in Note 8.

8

Table Of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

Management believes that the Company has adequate cash and working capital and can generate adequate liquidity to meet its obligations for the foreseeable future and for at least for one year after the next twelve months assumingdate that these unaudited condensed consolidated financial statements are issued.

Coronavirus Pandemic (“COVID-19”), Paycheck Protection Program Loans and Deferral of Federal Payroll Taxes under the CARES Act

In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from COVID-19. These included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. Some effects of COVID-19 do not worsen, and that economic recovery continues.

Paycheck Protection Program Loanthe subsequent variants of the virus continue to be felt, although to a lesser extent, with the most severe impacts being felt in the commercial (“Industrial”) segment and, to a lesser extent, in the professional segment including finance, accounting and office clerical (“FAO”) contract staffing service end markets.

 

Between April 29 and May 7, 2020, the Company and eight of its operating subsidiaries obtained loans in the aggregate amount of $19,927 from BBVA USA (“BBVA”)(now known as PNC Bank), as lender, pursuant to the PayrollPaycheck Protection Plan (the “PPP”(“PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES(the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). These funds were the only source of financing available to our companies and businesses and have been and continue to bewere critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to provide our services and meet our foreseeable liquidity requirements in the midst of this continuingthe worldwide Coronavirus Pandemic. The PPP loans were used primarily to restore employee pay-cuts, recall furloughed or laid-off employees, support the payroll costs for existing employees, hire new employees, and for other allowable purposes including interest costs on certain business mortgage obligations, rent and utilities. The Company accounted for the PPP loans as a debt (See(see Note 8)9) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 470, Debt.Debt. Accordingly, the PPP loans arewere recognized as current and noncurrent debt in the Company’s accompanying unaudited condensed consolidated financial statements.statements as of September 30, 2021.

 

The Company and its operating subsidiaries have submitted applications forbeen granted forgiveness of their respective outstanding PPP loans. During three-month period ended June 30, 2021,loans, including the Company’s subsidiaries, Triad Personnel Services,last four remaining PPP loans and interest for GEE Group Inc., Triad Logistics,BMCH, Inc., Paladin Consulting, Inc., and Access Data Consulting Corporation were each notified by the SBA that their total outstanding PPP Loans and accrued interest were forgivenSNI Companies, Inc., in the amounts of $408, $79,$2,024, $2,630, $1,956, and $1,470, respectively.$10,163, respectively, which were forgiven by the SBA in December 2021. The SBA previously notified Scribe Solutions, Inc.Company recognized net gains of $16,773, in aggregate, during the three-month periodsix months ended March 31, 2021, that2022.

The PPP loans obtained by GEE Group Inc., and its PPP loanoperating subsidiaries together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and accrued interesttherefore, also will be subject to audit by the SBA in the amountfuture. If any of $279 was fully forgiven.the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately may be reinstated from available liquidity or operating cash flow, we may be required to raise additional equity or debt capital to repay the PPP loans.

 

Management believes that theThe Company and its subsidiaries, whose loans have not yet been forgivenunder the CARES Act, also qualifywere eligible to defer paying $3,654, in aggregate, of applicable payroll taxes incurred during fiscal 2020. One half of the deferred deposits of the employer’s share of Social Security tax were required to be paid on or before December 31, 2021 to be considered timely (and avoid a failure to deposit penalty), and the remaining fifty percent (50%) of the eligible deferred amounts are eligible for forgiveness basedrequired to be paid similarly by December 31, 2022. The first half of the required deferred deposits payments totaling $1,827, in aggregate, were paid prior to December 31, 2021, as required. The remaining deferred amounts are included in other current liabilities on existing available guidance; however, there can be no assurance that these remaining outstanding PPP loans and accrued interest will ultimately achieve forgiveness in whole or in part. Accordingly, the Company and its operating subsidiaries with outstanding PPP loans and accrued interest that have not been forgiven continue to account for them as outstanding debt in the accompanying unaudited condensed consolidated financial statements. (See Note 16. Subsequent Event).

 

 
9

Table ofOf Contents

 

GEEGEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

The Company, under the CARES Act, also was eligible to defer paying $3,6922. Significant Accounting Policies and Estimates

Basis of applicable payroll taxes as of June 30, 2021, which is included in long and short-term liabilities in thePresentation

The accompanying unaudited condensed consolidated financial statements. The deferred depositsstatements of the employer’s shareCompany have been prepared in accordance with accounting principles generally accepted in the United States of Social Security tax must be paidAmerica (“U.S. GAAP”) for interim financial information and with the instructions to be considered timely (and avoid a failure to deposit penalty) by December 31, 2021, fifty (50) percentArticle 8 of Regulation S-X. Accordingly, they do not include all of the eligible deferred amount,information and notes required by U.S. GAAP for complete consolidated financial statements. In the remaining amount byopinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the six-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2022. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2021, as filed on December 31, 2022.23, 2021.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts and transactions of the Company and its wholly-ownedwholly owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP for interim financial information and with the instructions to Article 8 of Regulation S-X requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at 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.

 

Revenue Recognition

 

Revenues from contracts with customers are generated from direct hire placement services, professional contract services, and industrial contract services. Revenues are recognized when promised services are performed for customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Our revenues are recorded net of variable consideration such as sales adjustments or allowances.

 

Direct hire placement service revenues from contracts with customers are recognized when employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company'sCompany’s guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates.

 

Temporary staffing service revenues from contracts with customers are recognized in amounts the Company has a right to invoice as the services are rendered by the Company’s temporary employees. The Company records temporary staffing 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 controls the specified service before that service is performed for a customer. The Company has the risk of identifying and hiring qualified employees (as opposed to client employees), has the discretion to select the employees and establish their price, and bears the risk for services that are not fully paid for by customers.

 

Falloffs and refunds during the period are reflected in the unaudited condensed consolidated statements of operations as a reduction of direct hire placement service revenues and were approximately $271$803 and $1,044,$1,497, and $338$470 and $1,130$773 for the three and nine-monthsix-month periods ended June 30,March 31, 2022 and 2021, and 2020, respectively. Expected future falloffs and refunds are reflected in the unaudited condensed consolidated balance sheet as a reduction of accounts receivable as described under Accounts Receivable, below.

 

10

Table Of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

See Note 1514 for disaggregated revenues by segment.

 

Payment terms in our contracts vary by the type and location of our customer and the services offered. The terms between invoicing and when payments are due are not significant.

10

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

Cost of Contract Staffing Services

 

The cost of contract services includes the wages and the related payroll taxes, employee benefits and certain other employee-related costs of the Company’s contract service employees, while they work on contract assignments.

 

Cash and Cash Equivalents

 

Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of June 30, 2021 and September 30, 2020, there were no cash equivalents. The Company maintains deposits in financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. Highly liquid investments with a maturity of three months or less when purchased, if any, are considered to be cash equivalents. As of March 31, 2022 and September 30, 2021, there were no cash equivalents.

 

Accounts Receivable

 

The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for placement falloffs is recorded as a reduction of revenues for estimated losses due to applicants not remaining employed during the Company’s guarantee period. An allowance for doubtful accounts is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues. These allowances taken together reflect management’s estimate of the potential losses inherent in the accounts receivable balances based on historical loss statistics and known factors impacting our clients. Management believes that the nature of the contract services business, wherein client companies are generally dependent on our contract employees in the same manner as permanent employees for their production cycles and the conduct of their respective businesses contributes to a relatively small accounts receivable allowance.

 

As of June 30, 2021,March 31, 2022 and September 30, 2020,2021, the allowance for doubtful accounts was $310$763 and $2,072,$286, respectively. The Company charges off uncollectible accounts once the invoices are deemed unlikely to be collectible. The allowance also includes reserves for permanent placement falloffs of $131$233 and $287$115 as of June 30, 2021March 31, 2022 and September 30, 2020,2021, respectively.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation expense is calculated on a straight-line basis over estimated useful lives of five years for computer equipment and two to ten years for office equipment, furniture and fixtures. The Company capitalizes computer software purchased or developed for internal use and amortizes it over an estimated useful life of five years. The carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If the carrying amount of an asset group is greater than its estimated future undiscounted cash flows, the carrying value is written down to the estimated fair value. There was no impairment of property and equipment for the nine-monththree and six-month periods ended June 30, 2021March 31, 2022 and 2020.2021.

 

Leases

 

The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s unaudited condensed consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain andor failure to exercise such option which resultresults in an economic penalty. All the Company’s real estate leases are classified as operating leases. Also, the Company elected the practical expedient which allows aggregation of non-lease components with the related lease components when evaluating accounting treatment.

 

 
11

Table ofOf Contents

 

GEEGEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company also does not currently have residual value guarantees or restrictive covenants in its leases.

 

Goodwill

 

The Company evaluates its goodwill for possible impairment as prescribed by FASB ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment at least annually, and more frequently when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. The Company allocates its goodwill among two reporting units: its Professional Services reporting unit and its Industrial Services reporting unit for purposes of evaluation for impairments. An impairment charge is recognized for the amount by which the carrying amount exceeds thea reporting unit’s estimated fair value, not to exceed the carrying value of goodwill. In testing for impairments, management applies one or more valuation techniques to estimate the fair values of the reporting units, individual assets or groups of individual assets, as required under the circumstances. These valuation techniques rely on assumptions and other factors, such as theindustry multiples applied to earnings, estimated future cash flows, the discount rates used to determine the present value of associated cash flows, and the market comparable assumptions.

 

The Company allocates its goodwill among two reporting units, its Professional segment and its Industrial segment for purposes of evaluation for impairments. In determining the fair value of our two reporting units, we use one or a combination of commonly accepted valuation methodologies: 1) the income approach, which is based on the present value of discounted cash flows projected for the reporting unit or, in certain instances, capitalization of earnings, and 2) the market approach, which estimates a fair value based on an appropriate revenue and/or earnings multiple(s) derived from comparable companies. In applying our methods, we also use averages or medians to select assumptions derived from comparable companies or market data, andIntangible Assets

Separately identifiable intangible assets held in the applicationform of the income and/or market approaches if we determine that this will provide a more appropriatecustomer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value or rangeat the date of fair value estimatesacquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods.

Impairment of the reporting units. Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of goodwill impairment.Long-lived Assets (other than Goodwill)

 

The Company consideredrecognizes an impairment of long-lived intangible assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and reviewed the recoverabilityestimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of its goodwillthose items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not recognize and record any impairments of long-lived intangible assets used in operations during the nine-month periodthree and six-month periods ended June 30, 2021March 31, 2022 and 2020 and determined that no impairment charge was necessary. In reaching its conclusion, management determined that no triggering events or other circumstances have occurred or changed since the Company’s most recent annual evaluation as of September 30, 2020, that indicate the carrying values of the Company’s reporting segments are higher than their respective fair values. Management also considered the Company’s market capitalization as recently reported on the NYSE American exchange and determined that when adjusted for the assumption of a reasonable control premium over exchange pricing, exceeded its consolidated net book value (consolidated stockholders’ equity) as of June 30, 2021, and 2020.2021.

 

Fair Value Measurement

 

The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC 820, “FairFair Value Measurement”Measurement, which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

 

 
12

Table ofOf Contents

 

GEEGEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances when observable inputs are not available. The hierarchy is described below:

 

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

 

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The fair value disclosures of the Company’s long-term liabilities approximate their respective fair values based on current yield for debt instruments with similar terms. The Company has no assets or liabilities which are measured at fair value on a recurring basis. Fair value measurements utilized in evaluating the Company’s goodwill and other intangible assets for impairments are measured at fair value on a non-recurring basis using principallya combination of Level 2 and Level 3 inputs.

 

Earnings and Loss per Share

 

Basic earnings and loss per share are computed by dividing net income or loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings and loss per share isare computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the vesting of restricted shares granted but unissued, and exercise of stock options and warrants and the conversion of notes payable and preferred stock to common stock.warrants. The dilutive effect of outstanding warrants and options is reflected in earnings and loss per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method.

 

Common stock equivalents, representing approximately 3,110 and 2,882, and 1,761 and 9,675 shareswhich are excluded from the Company’s loss per share calculationsbecause their effect is anti-dilutive, were approximately 1,639 and 1,693, and 2,745 and 2,768 for the three and nine-month periodssix-months ended June 30,March 31, 2022 and 2021, and 2020, respectively, because their effects are anti-dilutive.respectively. For the three and nine-monthsix-month periods ended June 30, 2020,March 31, 2022, the weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares were 1,0131,542 and 1,005, respectively.1,492. For the three and six-month periods ended March 31, 2021, in which a net loss was incurred, all potentially dilutive common shares are considered antidilutive and thus are excluded from the calculation.

 

Advertising Expenses

 

The Company expenses the costs of print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. For the three and nine-monthsix-month periods ended June 30,March 31, 2022 and 2021, and 2020, advertising expense totaled $442$484 and $1,324,$1,001, and $837$458 and $1,874respectively.$882 respectively.

 

Intangible Assets

Separately identifiable intangible assets held in the form of customer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods.

Impairment of Long-lived Assets (other than Goodwill)

The Company recognizes an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not recognize and record any impairments of long-lived assets used in operations during the nine-month periods ended June 30, 2021, and 2020.

13

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

Stock-BasedShare-Based Compensation

 

The Company accounts for stock-basedshare-based awards to employees in accordance with FASB ASC 718, “Compensation-Stock Compensation”Compensation-Stock Compensation, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options.options or restricted stock grants. The grant date fair value of stock options is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options we recognizeand restricted stock grants, the Company recognizes expense on an accelerated basis over the employee'semployee’s requisite service period (generally the vesting period of the equity grant). The Company'sCompany’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact our stock-basedshare-based compensation expense.

 

13

Table Of Contents

Options awarded to purchase shares of common stock issued to non-employees

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model.thousands except per share data, unless otherwise stated)

 

See Note 11 for the assumptions used to calculate the fair value of stock-basedshare-based employee and non-employee compensation. Upon the exercise of options, it is the Company'sCompany’s policy to issue new shares rather than utilizing treasury shares.

 

Income Taxes

 

We accountThe Company accounts for income taxes under the asset and liability method, FASB ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

We recognizeThe Company recognizes deferred tax assets to the extent that we believe thatit is believed these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determineit’s determined that wethe Company would be able to realize our deferred tax assets in the future in excess of theirthe net recorded amount, wean adjustment would make an adjustmentbe made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

We recordThe Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determinedetermines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognizethe Company recognizes the largest amount of tax benefit that is more than fifty (50)50 percent likely to be realized upon ultimate settlement with the related tax authority.

 

We recognize interestInterest and penalties related to unrecognized tax benefits are recognized on the income tax expense line in the accompanying unaudited condensed consolidated statement of operations. As of June 30, 2021March 31, 2022 and September 30, 2020,31, 2021, no accrued interest or penalties are included on the related tax liability line in the accompanying unaudited condensed consolidated balance sheet.

14

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

Segment Data

The Company provides direct hire placement services and temporary professional contract staffing services in the fields of information technology, finance, accounting and office (“FA&O”), engineering, and medical within its Professional Services segment, and industrial contract services within its Industrial Services segment. The Company’s revenues, cost of services and a substantial portion of its operating costs and expenses can be divided into these two reportable segments. Selling, general and administrative (“SG&A”) expenses, including substantially all corporate expenses, are not entirely allocated among Industrial and Professional Staffing Services. Operating results are regularly reviewed by the chief operating decision makers at each segment who make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including type of business, type of employee, length of employment and revenue recognition are considered in determining the Company’s operating segments.

 

3. New Accounting Pronouncements

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

Current Expected Credit Losses Model. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit LossesLosses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periodsfiscal years beginning after December 15, 2022. The Company has not yet determined the impact of the new guidance on its condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the Incremental approach for intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The ASU is effective for public business entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. ASU 2019-12 became effective for the three-month period ended December 31, 2021 and had no material impact on our consolidated financial statements. The Company will continue to monitor the impact of the ASU on our condensed consolidated financial statements in the future.

14

Table Of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning as of its date of effectiveness, March 12, 2020. The guidance is temporary and can be applied through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to provide supplemental guidance and to further clarify the scope of the amended guidance. The guidance has not impacted the condensed consolidated financial statements to date. The Company will continue to monitor the impact of the ASU on our condensed consolidated financial statements in the future.

 

No other recent accounting pronouncements were issued by the FASB and the SEC that are believed by management to have a material impact on the Company’s present or future financial statements.

 

4. Property and Equipment

 

Property and equipment, net consisted of the following:

 

 

June 30,

2021

 

September 30,

2020

 

 

March 31,

2022

 

 

September 30,

2021

 

 

 

 

 

 

 

 

 

 

 

Computer software

 

$461

 

$1,535

 

 

$481

 

$462

 

Office equipment, furniture, fixtures and leasehold improvements

 

 

3,000

 

 

3,595

 

 

 

3,498

 

 

 

3,042

 

Total property and equipment, at cost

 

3,461

 

5,130

 

 

3,979

 

3,504

 

Accumulated depreciation and amortization

 

 

(2,684)

 

 

(4,224)

 

 

(2,919)

 

 

(2,739)
Property and equipment, net

 

$777

 

$906

 

 

$1,060

 

 

$765

 

 

Depreciation expense for three and nine-monthsix-month periods ended June 30,March 31, 2022 and 2021 was $94 and 2020 was $78$180, and $228,$77 and $33 and $181$150, respectively.

 

5. Leases

 

The Company leases space for all its branch offices, which are generally located either in downtown or suburban business centers, and for its corporate headquarters. Branch offices are generally leased over periods ranging from three to five years. The corporate office lease expires in 2026. The Company’s leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities.

 

Operating lease expenses were $551$543 and $1,674,$1,077, and $575$562 and $1,844$1,123 for the three and nine-monthsix-month periods ended June 30,March 31, 2022 and 2021, and 2020, respectively.

Supplemental cash flow information related to leases consisted of the following:

 

 

Six Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash paid for operating lease liabilities

 

$987

 

 

 

947

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$294

 

 

 

135

 

Supplemental balance sheet information related to leases consisted of the following:

 

 

March 31,

2022

 

 

September 30,

2021

 

Weighted average remaining lease term for operating leases (in years)

 

 

2.3

 

 

 

2.7

 

Weighted average discount rate for operating leases

 

 

5.0%

 

 

5.9%

 

 
15

Table ofOf Contents

 

GEEGEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

Supplemental cash flow information related to leases consisted of the following:

 

 

2021

 

 

2020

 

Cash paid for operating lease liabilities

 

$1,425

 

 

 

1,431

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$0

 

 

 

471

 

Supplemental balance sheet information related to leases consisted of the following:

June 30, 2021

Weighted average remaining lease term for operating leases

2.3

Weighted average discount rate for operating leases

6.0%

 

The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms in excess of one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2021,March 31, 2022, including certain closed offices are as follows:

 

 

 

 

Remainder of Fiscal 2021

 

$453

 

Fiscal 2022

 

1,735

 

Remainder of Fiscal 2022

 

$985

 

Fiscal 2023

 

1,208

 

 

1,472

 

Fiscal 2024

 

918

 

 

1,172

 

Fiscal 2025

 

443

 

 

602

 

Fiscal 2026

 

194

 

Thereafter

 

108

 

 

29

 

Less: Imputed interest

 

 

(418)

 

 

(344)

Present value of operating lease liabilities (a)

 

$4,447

 

 

$4,110

 

 

(a) Includes current portion of $1,580

(a)

Includes current portion of $1,612 for operating leases.

 

6. Goodwill and Intangible Assets

Goodwill

Goodwill as of March 31, 2022 and September 30, 2021 consisted of the following:

 

 

March 31,

2022

 

 

September 30,

2021

 

 

 

 

Goodwill beginning balance

 

$63,443

 

 

$63,443

 

Impairment charges

 

 

(2,150)

 

 

-

 

Goodwill ending balance

 

$61,293

 

 

$63,443

 

The Company completed its most recent annual goodwill impairment assessment, as of September 30, 2021, and determined that its goodwill was not impaired. The amount of discount inherent in the Company’s market capitalization reported on the NYSE American exchange when compared with consolidated stockholders’ equity, or net book value, had increased since September 30, 2021; therefore, the Company performed an interim assessment of its goodwill for impairment as of December 31, 2021. The estimated fair values of its Professional Services and Industrial Services reporting units were adjusted based on qualitative and quantitative analysis so that they reconcile more precisely with the Company’s market capitalization as of December 31, 2021, plus an assumed control premium. As a result, the Company recognized a non-cash impairment charge of $2,150 during three-months ended December 31, 2021. The Company reassessed the qualitative and quantitative analysis at March 31, 2022 and determined there was no additional impairment during the three-month period ended March 31, 2022.

Intangible Assets

 

The following tables set forth the costs, accumulated amortization and net book value of the Company’s separately identifiable intangible assets as of June 30, 2021,March 31, 2022 and September 30, 2020,2021 and estimated future amortization expense.

 

 

June 30, 2021

 

September 30, 2020

 

 

March 31, 2022

 

September 30, 2021

 

 

Cost

 

Accumulated Amortization

 

Net Book Value

 

Cost

 

Accumulated Amortization

 

Net Book Value

 

 

Cost

 

 

Accumulated Amortization

 

 

Net Book Value

 

 

Cost

 

 

Accumulated Amortization

 

 

Net Book Value

 

Customer relationships

 

$29,070

 

$15,185

 

$13,885

 

$29,070

 

$13,188

 

$15,882

 

 

$29,070

 

$17,163

 

$11,907

 

$29,070

 

$15,844

 

$13,226

 

Trade names

 

8,329

 

6,445

 

1,884

 

8,329

 

5,379

 

2,950

 

 

 

8,329

 

 

 

7,511

 

 

 

818

 

 

 

8,329

 

 

 

6,801

 

 

 

1,528

 

Non-Compete agreements

 

 

4,331

 

 

4,331

 

 

0

 

 

4,331

 

 

4,320

 

 

11

 

Total

 

$41,730

 

$25,961

 

$15,769

 

$41,730

 

$22,887

 

$18,843

 

 

$37,399

 

$24,674

 

$12,725

 

$37,399

 

$22,645

 

$14,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Amortization Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining Fiscal 2022

 

$1,440

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2023

 

2,879

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2024

 

2,879

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2025

 

2,741

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2026

 

1,870

 

 

 

 

 

 

 

 

 

 

 

Thereafter

 

 

916

 

 

 

 

 

 

 

 

 

 

 

 

 

$12,725

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Amortization Expense

 

Remaining Fiscal 2021

 

$1,014

 

Fiscal 2022

 

 

3,469

 

Fiscal 2023

 

 

2,879

 

Fiscal 2024

 

 

2,879

 

Fiscal 2025

 

 

2,741

 

Thereafter

 

 

2,787

 

 

 

$15,769

 

16

Table Of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

The trade names are amortized on a straight – linestraight-line basis over their respective estimated useful lives of between five and ten years. Intangible assets that represent customer relationships are amortized on the basis of estimated future undiscounted cash flows or using the straight – linestraight-line basis over estimated remaining useful lives of five to ten years. Non-compete agreements are amortized based on a straight-line basis over the term of the respective non-compete agreements, which are typically five years in duration.

 

The amortization expense for intangible assets was $1,015 and $3,074,$2,029, and $1,125$1,015 and $3,921$2,059 for three and nine-monthsix-month periods ended June 30,March 31, 2022 and 2021, and 2020, respectively.

16

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

7. Former Revolving Credit Facility and Term Loan

Revolving Credit, Term Loan and Security Agreement

 

The Company and its subsidiaries, as borrowers, were parties to a Revolving Credit, Term Loan and Security Agreement (the “Credit“Former Credit Agreement”) with certain investment funds managed by MGG Investment Group LP (“MGG”). The Revolving Credit Facility and Term Loan under the Credit Agreement, as amended, had maturity date on June 30, 2023.MGG. The principal and remaining unpaid accrued interest and fee balances under the Revolving Credit Facility and Term Loan balances outstanding under the Former Credit Agreement, as amended, were fully repaid and the Former Credit Agreement was retired on April 20, 2021. Additional information regarding the repayment of the Former Credit Agreement is presented in Note 1.

 

Term Loan

The Company had outstanding balances under its Term Loan, as follows:

 

 

June 30,

2021

 

 

September 30,

2020

 

 

 

 

 

 

 

 

Term loan

 

$0

 

 

$42,646

 

Unamortized debt discount

 

 

0

 

 

 

(4,894)
Term loan, net of discount

 

 

0

 

 

 

37,752

 

Short term portion of term loan, net of discounts

 

 

0

 

 

 

0

 

Long term portion of term loan, net of discounts

 

$0

 

 

$37,752

 

On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022 in aggregate outstanding indebtedness under its existing Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, including accrued interest, using the net proceeds of its recent underwritten public offering and available cash. The MGG debt was comprised of a revolving credit facility with a principal balance on the date of repayment of approximately $11,828, which was subject to an annual interest rate comprised of the greater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and a term loan with a principal balance on the date of repayment of approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459, in the aggregate, was paid in connection with the principal repayments. The Company took one time charge of $4,004 which represents unamortized debt issue costs associated with its former senior debt.

8. Senior Bank Loan, Security and Guarantee Agreement

 

On May 14, 2021, GEE Group, Inc.the Company and its subsidiaries Agile Resources, Inc., Access Data Consulting Corporation, BMCH, Inc., GEE Group Portfolio, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Personnel Services, Inc., and Triad Logistics, Inc. entered a Loan, Security and Guaranty Agreement for a $20 million asset-based senior secured revolving credit facility with CIT Bank, N.A. (the “CIT Facility”).N.A.. The CIT Facility is collateralized by 100% of the assets of the Company and its subsidiaries who are co-borrowers and/or guarantors. The CIT Facility matures on the fifth anniversary of the closing date (May 14, 2026). Concurrent with the May 14, 2021 closing of the CIT Facility, the Company borrowed $5,326 and utilized these funds to pay all remaining unpaid Exit and Restructuring Fees due to its former senior lenders in the amount of $4,978, with the remainder going to direct fees and costs associated with the CIT Facility.

 

As of June 30, 2021,March 31, 2022, the Company had $16$0 in outstanding borrowings and $13,102$14,057 available for borrowing under the terms of the CIT Facility. The Company also had $637 in unamortized debt issue cost associated with the CIT Facility. The amortization expense of these debt costs totaled $38 and $76 for the three and six-month periods ended March 31, 2022, respectively.

 

Under the CIT Facility, advances will be subject to a borrowing base formula that will beis computed based on 85% of eligible accounts receivable of the Company and subsidiaries as defined in the CIT Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent. The CIT Facility is subject to usual and customary covenants and events of default for credit facilities of this type. The interest rate, at the Company’s election, will be based on either the Base Rate, as defined, plus the applicable margin; or the London Interbank Offering Rate (“LIBOR” orLIBOR (or any successor thereto) for the applicable interest period, subject to a 1% floor, plus the applicable margin. The CIT Facility also contains provisions addressing the potential future replacement of LIBOR utilized and referenced in the loan agreement, in the event LIBOR becomes no longer available. In addition to interest costs on advances outstanding, the CIT Facility will provide for an unused line fee ranging from 0.375% to 0.50% depending on the amount of undrawn credit, original issue discount and certain fees for diligence, implementation, and administration.

 

17

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

8.9. CARES Act PayrollPaycheck Protection Program Loans

 

Between April 29 and May 7, 2020, the Company obtained PPP loans for each of its operating subsidiaries a loan from BBVA USA (“BBVA”) pursuant to the Payroll Protection Plan (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The PPP loans were necessary to support ongoing operations due to current economic hardship, uncertainty, and the significant negative effects on the business operations and activity levels of the applicants attributable to COVID-19 including the impact of lock-downs, quarantines and shut-downs.subsidiaries. The PPP loans were used primarily to restore employee pay-cuts, recall furloughed or laid-off employees, support the payroll costs for existing employees, hire new employees, and for other allowable purposes including interest costs on certain business mortgage obligations, rent and utilities. Each of the Company’s subsidiarysubsidiaries executed a separate promissory note evidencing unsecured loans under the PPP. The following promissory notes were executed by the Company and its subsidiaries: GEE Group, Inc., for $1,992 (the “GEE Group Note”),$1,992; Scribe Solutions, Inc. for $277 (the “Scribe Note”),$277; Agile Resources, Inc. is for $1,206 (the “Agile Note”),$1,206; Access Data Consulting Corporation for $1,456 (the “Access Note”),$1,456; Paladin Consulting, Inc. for $1,925 (the “Paladin Note”),$1,925; SNI Companies, Inc. for $10,000 (the “SNI Note”),$10,000; Triad Personnel Services, Inc. for $404 (the “Triad Personnel Note”),$404; Triad Logistics, Inc. for $78 (the “Triad Logistics Note”),$78; and BMCH, Inc. for $2,589 (the “BMCH Note”). The GEE Group Note, the Scribe Note, the Agile Note, the Access Note, the Paladin Note, the SNI Note, the Triad Personnel Note, the Triad Logistics Note, and the BMCH Note are referred to together as the “PPP Notes” and each individually as a “PPP Note”. The loans evidenced by the PPP Notes (the “PPP Loans”) are being made through BBVA as the lender.

The Company and its operating subsidiaries submitted applications for forgiveness of their respective outstanding PPP loans as their lender, BBVA USA, that provided access through its electronic portal allowing the Company to submit its applications and related documentation. During nine-month period ended June 30, 2021, the Company’s subsidiaries, Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., and Access Data Consulting Corporation were notified by the SBA that its total outstanding PPP Loans and accrued interest were forgiven in the amount of $279, $408, $79, and $1,470, respectively.$2,589.

 

The Company and its operating subsidiaries have submitted applications forbeen granted forgiveness of their respective outstanding PPP loans. During three-month period ended June 30, 2021,loans, including the Company’s subsidiaries, Triad Personnel Services,last four remaining PPP loans and interest for GEE Group Inc., Triad Logistics,BMCH, Inc., Paladin Consulting, Inc., and Access Data Consulting Corporation were each notified by the SBA that their total outstanding PPP Loans and accrued interest were forgivenSNI Companies, Inc., in the amounts of $408, $79,$2,024, $2,630, $1,956, and $1,470, respectively.$10,163, respectively, which were forgiven by the SBA in December 2021. The SBA previously notified Scribe Solutions, Inc.Company recognized net gains of $16,773, in aggregate, during the three-month periodsix months ended March 31, 2021, that its PPP loan and accrued interest in the amount of $279 was fully forgiven.

Management believes that the Company and its subsidiaries whose loans have not yet been forgiven also qualify and are eligible for forgiveness based on existing available guidance; however, there can be no assurance that these remaining outstanding PPP loans and accrued interest will ultimately achieve forgiveness in whole or in part. Accordingly, the Company and its operating subsidiaries with outstanding PPP loans and accrued interest that have not been forgiven continue to account for them2022 as outstanding debt in the accompanying unaudited condensed consolidated financial statements. (See Note 16. Subsequent Event).

The PPP Loans have two-year terms and bear interest at a rate of 1.00% per annum. Scheduled principal and accrued interest payments are due and payable in monthly instalments, resulting in aggregate principal payments per annum for the current and future fiscal years as follows: remaining fiscal 2021- $1,994, and fiscal 2022 – $15,925. Monthly principal and interest payments under the PPP Loans are to be deferred to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender, or (2) if the borrower does not apply for loan forgiveness, 10 months after the endresult of the borrower’s loan forgiveness covered period. Therefore, the scheduled principal and accrued interest payments presented here may be expected to change. Theof its last four PPP Loans may be prepaid at any time prior to maturity with no prepayment penalties.loans.

 

 
1817

Table ofOf Contents

 

GEEGEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately may be reinstated from available liquidity or operating cash flow, we may be required to raise additional equity or debt capital to repay the PPP loans.

9.10. Accrued Compensation

 

Accrued Compensation is comprised of accrued wages, the related payroll taxes, employee benefits of the Company'sCompany’s employees, including those working on contract assignments, commissions earned and not yet paid and estimated commissions and bonuses payable.

 

10. Subordinated Debt –11. Equity

Preferred Stock

The Company has authorized 20,000 shares of preferred stock of which 1,000 shares have been designated Series A Preferred Stock, and no shares are issued or outstanding; 5,950 shares have been designated Series B Preferred Stock, of which 5,926 shares were issued and none remain outstanding, and 3,000 shares have been designated Series C Preferred Stock, of which 2,093 shares were issued and none remain outstanding as of March 31, 2022 and September 30, 2021. Based on the terms of the Series B Convertible Preferred Stock, if certain fundamental transactions were to occur, the Series B Convertible Preferred Stock would require redemption, which would preclude permanent equity classification on the accompanying condensed consolidated balance sheets. The Series C Convertible Preferred Stock has a Liquidation Value equal to $1.00 per share and Non-Convertibleranks pari passu with the Company’s Series B Convertible Preferred Stock and senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

Amended and Restated 2013 Incentive Stock Plan

As of March 31, 2022, there were stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan (the “Plan”). During fiscal 2021, the 2013 Incentive Stock Plan was amended to increase the total shares available for restricted stock and stock options grants by 10,000 to a total of 15,000 (7,500 restricted stock shares and 7,500 stock option shares). The Plan authorizes the Compensation Committee of the Board of Directors to grant either incentive or non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant. As of March 31, 2022, there were 10,636 shares available to be granted under the Plan (5,778 shares available for stock option grants and 4,858 shares available for restricted stock grants).

Restricted Stock

The Company granted 100 shares of restricted common stock during the six-month period ended March 31, 2022. Share-based compensation expense attributable to restricted stock was $76 and $148, and $163 and $336 during the three and six-month periods ended March 31, 2022 and 2021, respectively. As of March 31, 2022, there was approximately $467 of unrecognized compensation expense related to restricted stock outstanding, and the weighted average vesting period for those options was 3.08 years.

A summary of restricted stock activity is presented as follows:

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Weighted

Average Fair

Value ($)

 

Non-vested restricted stock outstanding as of September 30, 2021

 

 

1,442

 

 

 

0.60

 

Granted

 

 

-

 

 

 

0

 

Vested

 

 

-

 

 

 

0

 

Non-vested restricted stock outstanding as of December 31, 2021

 

 

1,442

 

 

 

0.60

 

Granted

 

 

100

 

 

 

0.53

 

Vested

 

 

-

 

 

 

0

 

Non-vested restricted stock outstanding as of March 31, 2022

 

 

1,542

 

 

 

0.59

 

Warrants

 

The Company had 77 warrants outstanding balances under its Convertibleas of March 31, 2022 and Non-Convertible Subordinated Debt agreements, as follows:

10% Convertible Subordinated Note

On JuneSeptember 30, 2020, the Company and Jax Legacy, the sole holder of the Company’s 10% Note entered into2021 with a Note Conversion Agreement (the “Note Conversion Agreement”) whereby Jax Legacy agreed to immediately convert the $4,185 aggregate principal amount of the 10% Note to 718 shares of Common Stock at the $5.83weighted average exercise price per share conversion rate stated inof $2. The outstanding warrants had a weighted average remaining contractual life of 3.01 and 3.50 as of March 31, 2022 and September 30, 2021, respectively. No warrants were granted or expired during the 10% Notes. The conversion of the 10% Note was executed on June 30, 2020,three and the Company issued 718 shares of Common Stock to Jax Legacy on that date.

Subordinated Promissory Note

On June 30, 2020, the Companysix-month periods ended March 31, 2022 and Enoch S. Timothy and Dorothy Timothy entered into a Note Settlement Agreement (the “Note Settlement Agreement”). Timothy agreed to accept an aggregate amount of $89 in cash consideration for the purchase by the Company of the $1,000 aggregate principal amount of the Subordinated Note dated January 20, 2017. The Subordinated Note was settled at a conversion rate of $5.83 per share (the agreed conversion price at which the Subordinated Note would be convertible to Common Stock) and purchased at $0.52 per share (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Timothy note settlement amount was paid to Timothy on June 30, 2020.

9.5% Convertible Subordinated Notes Payable to SNI Sellers

On June 30, 2020, the holders of the 9.5% Notes agreed to accept an aggregate amount of $1,115 in cash in consideration for the purchase by the Company of the entire $12,500 aggregate principal amount of the 9.5% Notes. The 9.5% Notes were settled at a conversion rate of $5.83 (the price at which the 9.5% Notes were converted into shares of the Company’s common stock) and purchased by the Company at $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020). The payment was made to the note holders on June 30, 2020.

8% Convertible Subordinated Notes to Related Parties

Pursuant to the Repurchase Agreement, Mr. Ron Smith (SNI Sellers’ representative and a former member of the Company’s board of directors) agreed to accept an aggregate amount of $520 in cash (the “Smith Note Payment Amount”) in consideration for the purchase by the Company of the $1,000 aggregate principal amount of 8% Notes (the “Smith Note Amount”) held by him. The Smith Note Payment Amount was calculated based on the following formula: The Smith Note Amount, divided by $1.00 (the price at which the Smith Notes are convertible to Common Stock), times $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Smith Note Payment Amount was paid to Mr. Smith on June 30, 2020.

On June 30, 2020, the holders of the remaining $1,000 aggregate principal amount of the 8% Notes converted such 8% Notes to an aggregate of 1,000 shares of Series C 8% Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) which were immediately and simultaneously converted into 1,000 shares of Common Stock at the $1.00 per share conversion price stated in the 8% Notes and in the Series C Preferred Stock. These holders also converted an aggregate of 93 additional shares of Series C Preferred Stock issued or issuable to them into a total of 93 shares of Common Stock at the $1.00 per share conversion price stated in the Series C Preferred Stock. The issuance of the 1,093 shares of Common Stock to these former holders of 8% Notes and Series C Preferred Stock was completed on June 30, 2020. These shares, along with those of the SNI Sellers that previously held the 9.5% Notes, also were included in the registration statement on SEC Form S-3 filed by the Company on July 31, 2020.2021.

 

 
1918

Table ofOf Contents

 

GEEGEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

11. Equity

On April 19, 2021, the Company concluded its public offering of 83,333 shares of common stock at a public offering price of $0.60 per share. Gross proceeds of the offering totaled $50,000, which after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $45,478. GEE has granted the underwriters a 45-day option to purchase up to an additional 12,500 shares of the Company's common stock to cover over-allotments, if any, at the public offering price, less the underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering.

On April 27, 2021, the underwriters of the Company’s April 19, 2021, public offering exercised in full their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount.

On June 30, 2020, the Company issued 1,718 shares of common stock, in aggregate, for debt conversions of $1,000 aggregate principal amount of the 8% Notes, related shares of Series C Preferred Stock, and of $4,185 aggregate principal amount of the 10% Note. The Company also issued 93 shares of common stock for Series C Preferred Stock discussed above (Note 10).

Restricted Stock

The Company did not grant restricted stock during the nine-month periods ended June 30, 2021. The Company granted 150 restricted shares of common stock during nine-month period ended June 30, 2020. Stock-based compensation expense attributable to restricted stock was $138 and $475, and $130 and $1,015 during the three and nine-month periods ended June 30, 2021, and 2020, respectively. As of June 30, 2021, there was approximately $340 of unrecognized compensation expense related to restricted stock outstanding with vesting period 3 years. On June 15, 2021, 600 shares of restricted common stock held by the Company’s Chief Executive Officer became fully vested.

A summary of restricted stock activity is presented as follows:

 

 

Number of

Shares

 

 

Weighted Average Fair Value ($)

 

Non-vested restricted stock outstanding as of September 30, 2020

 

 

1,450

 

 

 

1.32

 

Granted

 

 

-

 

 

 

-

 

Issued

 

 

-

 

 

 

-

 

Non-vested restricted stock outstanding as of December 31, 2020

 

 

1,450

 

 

 

1.32

 

Granted

 

 

-

 

 

 

-

 

Issued

 

 

-

 

 

 

-

 

Non-vested restricted stock outstanding as of March 31, 2021

 

 

1,450

 

 

 

1.32

 

Granted

 

 

-

 

 

 

-

 

Vested

 

 

(600)

 

 

2.21

 

Non-vested restricted stock outstanding as of June 30, 2021

 

 

850

 

 

 

0.70

 

20

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

Warrants

No warrants were granted or exercised during the nine-month periods ended June 30, 2021, and 2020.

 

 

Number of

Shares

 

 

Weighted Average Exercise Price Per Share ($)

 

 

Weighted Average Remaining Contractual Life

 

 

Total Intrinsic Value of Warrants ($)

 

Warrants outstanding as of September 30, 2020

 

 

77

 

 

 

2.00

 

 

 

4.50

 

 

 

0

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Warrants outstanding as of December 31, 2020

 

 

77

 

 

 

2.00

 

 

 

4.25

 

 

 

0

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Warrants outstanding as of March 31, 2021

 

 

77

 

 

 

2.00

 

 

 

4.01

 

 

 

0

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Warrants outstanding as of June 30, 2021

 

 

77

 

 

 

2.00

 

 

 

3.76

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants exercisable as of September 30, 2020

 

 

77

 

 

 

2.00

 

 

 

4.50

 

 

 

0

 

Warrants exercisable as of June 30, 2021

 

 

77

 

 

 

2.00

 

 

 

3.76

 

 

 

0

 

Stock Options

 

As of June 30, 2021, there were stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan. During fiscal 2020, 2013 Incentive Stock Plan was amended to increase available balance by 1,000 stock options. Compensation Committee of the Board of Directors authorized to grant either incentive or non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant. All stock options outstanding as of June 30, 2021March 31, 2022 and September 30, 20202021 were non-statutory stock options, had exercise prices equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.

 

Stock-basedShare-based compensation expense attributable to stock options and warrants was $93$76 and $360, $207$151, $130 and $274$268 for the three and nine-monthsix-month periods ended June 30,March 31, 2022 and 2021, and 2020, respectively. As of June 30, 2021,March 31, 2022, there was approximately $543$328 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.613.56 years.

 

21

Table of Contents

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

Per Share ($)

 

 

Weighted

Average

Remaining Contractual

Life (Years)

 

 

Total Intrinsic Value of

Options ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding as of September 30, 2021

 

 

1,672

 

 

 

2.14

 

 

 

7.35

 

 

 

0

 

Granted

 

 

-

 

 

 

0

 

 

 

-

 

 

 

0

 

Forfeited/Expired

 

 

(1)

 

 

2.99

 

 

 

-

 

 

 

0

 

Options outstanding as of December 31, 2021

 

 

1,671

 

 

 

2.14

 

 

 

7.10

 

 

 

0

 

Granted

 

 

50

 

 

 

0.53

 

 

 

-

 

 

 

0

 

Forfeited/Expired

 

 

(80)

 

 

1.12

 

 

 

-

 

 

 

0

 

Options outstanding as of March 31, 2022

 

 

1,641

 

 

 

2.14

 

 

 

6.89

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable as of September 30, 2021

 

 

890

 

 

 

3.14

 

 

 

6.08

 

 

 

0

 

Exercisable as of March 31, 2022

 

 

965

 

 

 

3.06

 

 

 

5.65

 

 

 

0

 

 

G12EE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

A summary of stock option activity is as follows:

 

 

Number of

Shares

 

 

Weighted Average Exercise Price per share ($)

 

 

Weighted Average Remaining Contractual Life (Years)

 

 

Total Intrinsic Value of Options ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding as of September 30, 2020

 

 

1,254

 

 

 

2.85

 

 

 

7.34

 

 

 

0

 

Granted

 

 

30

 

 

 

1.10

 

 

 

4.00

 

 

 

-

 

Forfeited

 

 

(20)

 

 

1.26

 

 

 

-

 

 

 

-

 

Options outstanding as of December 31, 2020

 

 

1,264

 

 

 

2.83

 

 

 

7.14

 

 

 

0

 

Granted

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

Forfeited

 

 

(46)

 

 

3.75

 

 

 

-

 

 

 

-

 

Options outstanding as of March 31, 2021

 

 

1,218

 

 

 

2.80

 

 

 

6.91

 

 

 

0

 

Granted

 

 

495

 

 

 

0.54

 

 

 

9.84

 

 

 

-

 

Forfeited

 

 

(32)

 

 

1.96

 

 

 

-

 

 

 

-

 

Options outstanding as of June 30, 2021

 

 

1,681

 

 

 

2.15

 

 

 

7.58

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable as of September 30, 2020

 

 

749

 

 

 

3.43

 

 

 

6.78

 

 

 

-

 

Exercisable as of June 30, 2021

 

 

882

 

 

 

3.15

 

 

 

6.32

 

 

 

-

 

12. Mezzanine Equity

Series A Convertible Preferred Stock

On April 3, 2017, the Company filed a Statement of Resolution Establishing its Series A Preferred Stock with the State of Illinois (“the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 160 shares of its authorized preferred stock as Series A Preferred Stock. There are no shares issued and outstanding under this designation.

Series B Convertible Preferred Stock

On April 3, 2017, the Company issued an aggregate of approximately 5,900 shares of no-par value, Series B Convertible Preferred Stock to certain of the SNIH Stockholders as part of the SNIH acquisition. The no par value, Series B Convertible Preferred Stock had a liquidation preference equal to $4.86 per share and ranked senior to all “Junior Securities” (including the Company's Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

On June 30, 2020, and pursuant to the Repurchase Agreement, the holders of the Series B Preferred Stock agreed to accept an aggregate amount of $2,894 in cash (the “Series B Preferred Stock Purchase Price”) in consideration for the purchase by the Company of all 5,566then outstanding shares of Series B Preferred Stock (the “Series B Preferred Stock Amount”) held by them. The Series B Preferred Stock Purchase Price was paid to the SNI Group Members on June 30, 2020. A net gain attributable to common stockholders of $24,475 was recognized on the redemption of Series B Preferred Stock and Smith Series C Preferred Stock, discussed below, for the three-month period ended June 30, 2020.

22

Table of Contents

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

Series C Convertible Preferred Stock

On May 17, 2019, the Company filed a Statement of Resolution Establishing its Series C Preferred Stock with the State of Illinois (“the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 3,000 shares of its authorized preferred stock as “Series C 8% Cumulative Convertible Preferred Stock”, without par value. The Series C Preferred Stock had a Liquidation Value equal to $1.00 per share and ranked pari passu with the Company’s Series B Convertible Preferred Stock (“Series B Preferred Stock”) and senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Holders of shares of Series C Preferred Stock were entitled to receive an annual non-cash (“PIK”) dividend of 8% of the Liquidation Value per share. Such dividends were payable quarterly in the form of additional shares of Series C Preferred Stock. Each share of Series C Preferred Stock was convertible at the option of the holder thereof into one share of Common Stock at an initial conversion price equal to $1.00 per share, each as subject to adjustment in the event of stock splits, stock combinations, capital reorganizations, reclassifications, consolidations, mergers or sales, as set forth in the Resolution Establishing Series. Except as set forth in the Resolution Establishing Series or as may be required by Illinois law, the holders of the Series C Preferred Stock had no voting rights.

The Company issued approximately 21 shares and 104 shares of Series C Preferred Stock to Investors related to interest of $21 and $104 on the 8% Notes during three and nine-month periods ending June 30, 2020, respectively.

Pursuant to the Repurchase Agreement, Mr. Smith also agreed to accept an aggregate amount equal to $37 in cash (the “Smith Series C Preferred Stock Purchase Price”) in consideration for the purchase by the Company of the 72 shares of Series C Preferred Stock (the “Series C Preferred Stock Amount”) held by him. The Smith Preferred Stock Purchase Price was calculated based on the following formula: the Smith Series C Preferred Stock Amount, divided by $1.00, times $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Smith Series C Preferred Stock Purchase Price was paid to Mr. Smith on June 30, 2020.

The remaining holders of Series C Preferred Stock converted an aggregate of 93 shares of Series C Preferred Stock into a total of 93 shares of Common Stock at the $1.00 per share conversion price stated in the Series C Preferred Stock. The conversion was completed on June 30, 2020.

13. Income Tax

 

The following table presents the provision for income taxes and our effective tax rate for the three and nine-monthsix-month periods ended June 30, 2021,March 31, 2022 and 2020:2021:

 

 

Three Months Ended,
June 30,

 

Nine Months Ended,
June 30,

 

 

Three Months Ended,

March 31,

 

Six Months Ended,

March 31,

 

 

2021

 

2020

 

2021

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Provision for Income Taxes

 

(29)

 

90

 

(307)

 

271

 

 

$(8)

 

$117

 

$(37)

 

$(277)
Effective Tax Rate

 

-3%

 

1%

 

9%

 

-18%

 

0%

 

-7%

 

0%

 

12%

 

The effective income tax rate on operations is based upon the estimated income for the year and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies.

 

Our effective tax rate for the three and nine-monthsix-month period ended June 30,March 31, 2022 and 2021, and 2020, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. Ineffect of the three-month period ended December 31, 2020,valuation allowance on the statutory changes regarding the deductibility of PPP loan expenses resulted in the recognition of a $352 discrete item.net DTA position. Other than the deferred tax liability relating to indefinite lived asset,assets, the Company is maintaining a valuation allowance against the remaining net DTA position.

 

 
2319

Table ofOf Contents

 

GEEGEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

 

14.13. Commitments and Contingencies

 

Litigation and Claims

 

On March 23, 2022, the Company settled a legal matter involving two separate, but related lawsuits, filed by plaintiff Sands Brothers Venture Capital II, LLC. These two lawsuits and others in which the Company was not a named party, involved a dispute amongst certain former affiliate and non-affiliate entities, and certain former officers and directors of the Company, stemming from a series of transactions that allegedly occurred during the period 2008 through 2010. The Company was sued in 2014 and 2017, based on the allegation that it was a participant and aided and abetted in the fraudulent conveyance of funds. The plaintiff was a creditor of an unaffiliated now defunct entity whose assets the Company is alleged to have received. Given the facts and circumstances of the case, it has been the Company’s belief and assessment that the lawsuits were meritless, and that the likelihood of a material adverse resolution was remote. GEE Group’s ongoing legal expenses including depositions, court filings, etc. incurred over the years to defend itself from the claims made by the plaintiff in the respective lawsuits, have, for the most part, been either paid directly to the law firms or reimbursed by insurance.  

The Company continues to believe that its defenses were meritorious and that the final results of litigation would, overall, have been favorable on the merits. However, given the age of the matter, the potential future significant ongoing uninsured portions of legal and other costs to be incurred, including the extraordinary expenses of flying and housing witnesses and experts for the trial, and the future time, attention and effort necessary by management to satisfactorily resolve the matter through the courts, the Company made the business decision to take advantage of an opportunity to settle the case. In this regard, the Company entered into a Confidential Settlement Agreement and Mutual Release, dated March 23, 2022, with the plaintiff for both lawsuits. Under the terms of the agreement and release, neither the plaintiff nor the Company have admitted or conceded to any wrongdoing, and the matter has been settled in its entirety for a one-time, payment to the plaintiff of approximately $1,175, of which the Company’s portion is $975, with insurance paying the balance. This payment was due and paid by April 8, 2022, and the expense has been recognized as a pre-tax charge in the Company’s condensed consolidated financial statements for the three-month period ended March 31, 2022.

The Company and its subsidiaries are involved in various other litigation that arises in the ordinary course of business. There are no other pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.

 

20

Table Of Contents

15.GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Amounts in thousands except per share data, unless otherwise stated)

14. Segment Data

 

The Company provides the following distinctive services: (a) direct hire placement services, and(b) temporary professional contractservices staffing services in the fields of information technology, accounting, finance accounting and office, (“FA&O”), engineering, and medical, within its Professional Services segment, and (c) temporary industrial contractstaffing. These services within its Industrial Services segment. The Company’s revenues, cost of services and a substantial portion of its operating costs and expenses can be divided into these two reportable segments.

Selling,segments: Professional Staffing Services and Industrial Staffing Services. Some selling, general and administrative (“SG&A”) expenses, including substantially all corporate expenses are not entirelyfully allocated among Industrial Services and Professional Staffing Services.

Unallocated corporate expenses primarily include certain executive compensation expenses and salaries, certain administrative salaries, corporate legal expenses, stock compensation expenses, consulting expenses, audit fees, corporate rent and facility costs, board fees, acquisition, integration and restructuring expenses, and interest expense.

 

 

Three Months Ended

 

Nine Months Ended

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

March 31,

 

March 31,

 

 

2021

 

2020

 

2021

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Industrial Staffing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial services revenue

 

$3,792

 

$2,898

 

$12,927

 

$13,025

 

 

$3,735

 

$4,023

 

$7,824

 

$9,134

 

Industrial services gross margin (1)

 

15%

 

37%

 

25%

 

20

 

 

14.7%

 

8.8%

 

15.0%

 

29.3%
Operating income (loss)

 

$(389)

 

$580

 

$1,525

 

$(755)
Depreciation & amortization

 

$17

 

$67

 

$62

 

$206

 

Income (loss) from operations

 

$580

 

$(289)

 

$692

 

$1,918

 

Depreciation and amortization

 

$15

 

$15

 

$31

 

$44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional Staffing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Permanent placement revenue

 

$5,529

 

$3,101

 

$12,579

 

$11,996

 

 

$5,884

 

$3,655

 

$12,047

 

$7,050

 

Placement services gross margin

 

100%

 

100%

 

100%

 

100

 

 

100%

 

100%

 

100%

 

100%
Professional services revenue

 

$28,747

 

$20,595

 

$81,923

 

$73,810

 

 

$30,010

 

$27,040

 

$62,605

 

$53,177

 

Professional services gross margin

 

27%

 

27%

 

26%

 

27

 

 

26.9%

 

25.5%

 

27.0%

 

25.9%
Operating income

 

$3,589

 

$715

 

$7,613

 

$4,402

 

Income from operations

 

$2,606

 

$2,644

 

$4,851

 

$4,024

 

Depreciation and amortization

 

$1,076

 

$1,091

 

$3,240

 

$3,896

 

 

$1,094

 

$1,077

 

$2,178

 

$2,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate administrative expenses

 

$1,213

 

$2,539

 

$3,660

 

$6,283

 

 

$1,733

 

$1,266

 

$3,842

 

$2,449

 

Corporate facility expenses

 

101

 

116

 

274

 

298

 

 

90

 

91

 

184

 

173

 

Stock Compensation expense

 

231

 

337

 

835

 

1,290

 

Stock compensation expense

 

152

 

293

 

299

 

604

 

Board related expenses

 

 

35

 

 

 

0

 

 

 

136

 

 

 

0

 

 

 

34

 

 

 

68

 

 

 

68

 

 

 

102

 

Total unallocated expenses

 

$1,580

 

 

$2,992

 

 

$4,905

 

 

$7,871

 

 

$2,009

 

 

$1,718

 

 

$4,393

 

 

$3,328

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$38,068

 

$26,594

 

$107,429

 

$98,831

 

 

$39,629

 

$34,718

 

$82,476

 

$69,361

 

Operating income (loss)

 

1,620

 

(1,697)

 

4,233

 

(4,224)

Income from operations

 

$1,177

 

$637

 

$1,150

 

$2,614

 

Depreciation and amortization

 

$1,093

 

$1,158

 

$3,302

 

$4,102

 

 

$1,109

 

$1,092

 

$2,209

 

$2,209

 

 

1)

Includes $(19) and $(697) of(1)

Credits (charges) related to estimated and/or actual annual premium refund adjustments (credit to expense)refunds from the Ohio Bureau of Workers Compensation forCompensations totaling $19 and $(219) are included in the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively; and $(1,337)$37 and $(747)$1,318 for the ninesix months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The Industrial Services gross marginsmargin normalized by excluding directfor the effects of these items were approximately 15%14.2% and 13%14.2% for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively; and approximately 15%14.5% and 14%14.9% for the ninesix months ended June 30,March 31, 2022 and 2021, and 2020, respectively.

 

16. Subsequent Events15.  Defined Contribution Plan

 

On July 9, 2021,The Company provides a defined contribution plan (the “401(k) Plan”) for the Company’s subsidiary Agile Resources, Inc. was notified bybenefit of its eligible core and field personnel, including those assigned to provide staffing services for clients. The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations. The Company matches participants’ contributions with 10% of the SBA that its total outstanding PPP Loansfirst 10% of a participant’s contribution. The Company match contributed $28 and accrued interest in$37, and $20 and $30, respectively, from continuing operations to the amount of $1,220 was forgiven.401(k) Plan for the three-month and six-month periods ended March 31, 2022 and March 31, 2021.

 

 
2421

Table ofOf Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Logistics, Inc., and Triad Personnel Services, Inc. (collectively referred to as the “Company”, “us”, “our”, or “we”) are providers of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, accounting, finance, office, and engineering professionals for direct hire and contract staffing for our clients, data entry assistants (medical scribes) who specialize in electronic medical records (EMR) services for emergency departments, specialty physician practices and clinics, and provide temporary staffing services for our light industrial clients. The acquisitions of Agile Resources, Inc., a Georgia corporation (“Agile”), Access Data Consulting Corporation, a Colorado corporation (“Access”), Paladin Consulting Inc. (“Paladin”) and SNI Companies, Inc., a Delaware corporation (“SNI”) significantly expanded our geographical footprint within the placement and contract staffing verticals or end markets of information technology, accounting, finance, office and engineering professionals.

 

The Company markets its services using the trade names General Employment Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies Inc., (including Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad Staffing. As of June 30, 2021,March 31, 2022, we operated twenty-seventwenty-eight (28) branch offices in downtown or suburban areas of major U.SU.S. cities in eleven (11) states and serve four (4) additional U.S. locations utilizing local staff members working remotely serving four additional U.S. locations.remotely. We have offices or serve markets remotely, as follows; (i) one office in each of Connecticut, Georgia, Minnesota, and New Jersey, and Virginia,Jersey; (ii) two offices each in Illinois and Massachusetts,Massachusetts; (iii) three offices in Colorado, threeColorado; (iv) four offices and two additional local market presences in Texas, fiveTexas; (v) six offices and twoone additional local market presencespresence in Florida, andFlorida; (vi) seven offices in Ohio.Ohio; and (vii) one remote local market presence in Virginia.

  

Management has implemented a strategy which includes organic and acquisition growth components. Management’s organic growth strategy includes seeking out and winning new client business, as well as expansion of existing client business and on-going cost reduction and productivity improvement efforts in operations. Management’s acquisition growth strategy includes identifying strategic acquisitions, financed primarily through a combination of cash and the issuance of equity andand/or debt to improve the overall profitability and cash flows of the Company.

 

The Company’s contract and placement services are principally provided under two operating divisions or segments: Professional Staffing Services and Industrial Staffing Services. We believe our current segments and array of businesses and brands within our segments complement one another and position us for future growth.

 

Network Security Incident and Risk

On February 1, 2022, the Company detected and stopped a network security incident. An unauthorized third party gained access into our network, encrypted various systems, and demanded money to decrypt the affected systems and to delete and not publicly release stolen information. The Company’s IT professionals immediately disconnected and isolated the affected systems to prevent any further compromise. The senior executive management team was immediately notified who in turn reported the network security incident to the Company’s Audit Committee chairman who has board oversight authority for these types of matters. The Company’s audit committee and board of directors were fully briefed and a special committee of the board of directors was appointed to assist and oversee management in the investigations, response and full remediation of the incident. The Company engaged third party cyber security experts to assist its internal IT professionals and conducted a comprehensive investigation to determine the extent of the unauthorized activity. The Company also notified law enforcement and its cyber liability insurance carrier about the incident.

22

Table Of Contents

The Company’s investigation determined that the unauthorized third party acquired a relatively small amount of data maintained on the encrypted servers, to include in some cases, individual personal information such as names, social security numbers, passport and driver license information. Our forensic investigation has been concluded and we believe we have reasonably determined the scope of the incident. Individuals affected by this incident are in the process of being notified in accordance with applicable state and federal laws. The cost of investigating and resolving the incident thus far has been immaterial. Based on what management and the Company’s third-party cyber security experts have determined in their investigation, the Company also does not foresee this incident having any future material detrimental effect on our business or financial position. The Company has in place cyber liability insurance coverage, subject to certain policy limitations and deductibles. The Company had also immediately notified the cyber insurance carrier of the network security incident, who worked with management and the Company’s third-party cyber security experts on this matter.

The Company’s network environment is fully operational and additional security measures have been added and/or are being evaluated to prevent further intrusions. The Company has not observed any additional malicious activity on the network to date. The Company’s operations were only minimally impacted by the incident, and we were able to serve our clients and other stakeholders without issue throughout.

Coronavirus Pandemic (“COVID-19”)

In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the COVID-19 pandemic.Coronavirus Pandemic (“COVID-19”). These have included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, and lost productivity due to business closings both by clients and at the Company’s own operating locations. TheseSome effects have beenof COVID-19 and the subsequent variants of the virus continue to be felt across all businesses,to an extent, with the most severe impacts being felt in the industrial segment and, to a lesser extent, in the finance, accounting, and office clerical (“FA&O)FAO”) end markets within the professional segment. In response to the crisis, in April 2020 we took a series of proactive actions including a temporary 10% pay cut for full-time salaried employees, temporary furloughing and redeployment of some employees, reduction of discretionary expenses and projects, and obtaining funds under CARES Act PayrollPaycheck Protection Program (“PPP”). These actions allowed us to generate cost savings and time with which to mitigate the impacts of the COVID-19 pandemic on our businesses and brands. Our businesses have continued recovertheir recoveries to a significant extent during nine-month periodthe six months ended June 30, 2021, as compared with prior sequential quarters since the quarter ended June 30, 2020.March 31, 2022. While we remain optimistic about our prospects for continuinghave experienced significant recovery and in recent quarters returned to or exceeded pre-COVID-19 levels of results and performance, the rate of suchfuture recovery and growth is still somewhat uncertain and could be delayed, for example, byas potential resurgences and negative impacts of COVID-19 orand variants thereof have continued to have negative impacts on the U.S. economy in 2021 and the specific2022, including in some cases, certain markets and clients we serve in the future.serve.

 

 
2523

Table ofOf Contents

(Amounts in thousands except per share data, unless otherwise stated)

 

Results of Operations

 

Three Months Ended June 30, 2021March 31, 2022 Compared to the Three Months Ended June 30, 2020March 31, 2021

 

Net Revenues

 

Consolidated net revenues are comprised of the following:

 

 

Three Months

 

 

 

 

 

 

Three Months

 

 

 

 

 

Ended June 30,

 

 

 

 

 

 

Ended March 31,

 

 

 

 

 

(in thousands)

 

2021

 

2020

 

Change

 

Change

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

Professional contract services

 

$28,747

 

$20,595

 

$8,152

 

40%

 

$30,009

 

$27,040

 

$2,969

 

11%
Industrial contract services

 

 

3,792

 

 

 

2,898

 

 

 

894

 

 

 

31%

 

 

3,736

 

 

 

4,023

 

 

 

(287)

 

 

-7%
Total professional and industrial contract services

 

 

32,539

 

 

 

23,493

 

 

 

9,046

 

 

 

39%

 

 

33,745

 

 

 

31,063

 

 

 

2,682

 

 

 

9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct hire placement services

 

 

5,529

 

 

 

3,101

 

 

 

2,428

 

 

 

78%

 

 

5,884

 

 

 

3,655

 

 

 

2,229

 

 

 

61%
Consolidated net revenues

 

$38,068

 

 

$26,594

 

 

$11,474

 

 

 

43%

 

$39,629

 

 

$34,718

 

 

$4,911

 

 

 

14%

  

Contract staffing services contributed $32,539,$33,745, or approximately 85%, of consolidated revenuerevenues and increased by $9,046,direct hire placement services contributed $5,884, or approximately 39%15%, of consolidated revenues for the three-month period ended June 30, 2021, as compared with the comparable period ended June 30, 2020. Direct hire placementMarch 31, 2022. This compares to contract staffing services contributed $5,529,revenues of $31,063, or approximately 15%89%, of consolidated revenuerevenues and direct hire placement revenues of $3,655, or approximately 11%, of consolidated revenues for the three-month period ended June 30, 2021 and were up $2,428, or approximately 78%, as compared with the comparable three-month period ended June 30, 2020. Contract staffing services revenue was $23,493, or approximately 88%, of consolidated revenue and direct hire placement revenue was $3,101, or approximately 12%, of consolidated revenue for the three-month period ended June 30, 2020.March 31, 2021.

  

The overall increase in contract staffing services revenues of $9,046,$2,682, or 39%9%, for the three-month period ended June 30, 2021March 31, 2022 compared to the three-month period ended June 30, 2020March 31, 2021 was primarily attributable to recovery and improvementincreased demand for employment in our professional contract services markets, fromresulting in an increase in revenues of $2,969, or 11%, as the negative effects of COVID-19 lessen and the U.S. economy and workforce continue on recovery paths toward pre-COVID-19 conditions. Industrial staffing services for the quarter decreased by $287, or 7%, due mainly to reoccurrence of adverse conditions associated with COVID-19 pandemic beginning approximatelyvariants, which continued to cause some disruptions in the month of June 2020. The onset of COVID-19 resultedindustrial markets we serve resulting in a near immediate declinedecrease in demand for our industrial staffing services due to client closures, postponements in projects and related needs for our services at some clients, significant travel restrictions, and corresponding decreases in the volume of contract services billable hours. Professional contract services have experienced consistent recovery through this quarter resulting in the revenue increase of $8,152 for the three-month period ended June 30, 2021, as compared with the three-month period ended June 30, 2020. Management believes this trend is the result of U.S. economic recovery, as well as actions taken by the Company to adapt to COVID-19, hire top talent, and position the Company for recovery and growth. Industrial contract services revenue experienced improvement this quarter due to continuing recovery and improvement from negative impacts related to COVID-19, including most recently, a workforce shortage being felt across the U.S. and widely believed to be attributable to recent and plentiful economic stimulus and unemployment benefits, as well as school and other shutdowns.services.

 

Direct hire placement revenue for the three-month period ended June 30, 2021March 31, 2022 increased by $2,428,$2,229, or approximately 78%, over61% as compared to the three-month period ended June 30, 2020, driven by an increase in number of placements.March 31, 2021. Demand for the Company’s direct hire services increased due to the continuing recoveryincreased employment opportunities and significant improvement fromplacement orders in our professional services markets. In addition, as the negative effects of COVID-19 continue to lessen, the COVID-19 pandemic beginning in approximately June 2020.U.S. economy and workforce continues to trend closer to pre-COVID-19 conditions.

 

Management believes that the underlying trends toward significant recovery since May 2020 arenet growth in revenues during the three months ended March 31, 2022, compared to the three months ended March 31, 2021, is generally consistentin line with the recovery trends being experienced in the overall U.S. economy so far and, therefore, may be expected to continue, accordingly.economy. The Company continues to observe, analyze and, where considered appropriate, make modifications and changes to its business model and practices on a routine basis in response to the on-going COVID-19 pandemic and related health and safety concerns.concerns, including most recently, those associated with its variants. These include, but are not limited to, implementation of preventative policies and procedures in observance of Federal, state and/or local guidelines regarding the coronavirus, including matters such as working from home,with regard to COVID-19 and its variants, use of personal protective equipment (principally, protective masks), social distancing, personal hygiene and sanitary practices,others. The Company also continues to take advantage of flexible and other preventativehybrid work-from-home employment arrangements and responsive measures, impacting both our core human resources, as well as our contract laborers serving clients.has converted some of its former branch office locations to virtual locations.

 

 
2624

Table ofOf Contents

(Amounts in thousands except per share data, unless otherwise stated)

 

Cost of Contract Services

 

Cost of contract services includes wages and related payroll taxes and employee benefits of the Company'sCompany’s contract services employees, and certain other contract employee-related costs, while working on contract assignments. Cost of contract services for the three-month periodthree months ended June 30, 2021 increased by approximately 43% to $24,242March 31, 2022 totaled $25,115, as compared to $16,925$23,810 for the three-month periodthree months ended June 30, 2020. The $7,317 overallMarch 31, 2021. This increase in cost of contract services for$1,305, or approximately 5%, is consistent with the three-month period ended June 30, 2021 compared to the three-month period ended June 30, 2020 was attributable to the corresponding increase in contract service revenues.revenues as discussed further above.

 

Gross Profit percentage by service:

 

 

Three Months

 

 

 

Ended March 31,

 

 

 

2022

 

 

2021

 

Professional contract services

 

 

26.9%

 

 

25.5%

Industrial contract services

 

 

14.7%

 

 

8.8%

Professional and industrial services combined

 

 

25.6%

 

 

23.3%

 

 

 

 

 

 

 

 

 

Direct hire placement services

 

 

100.0%

 

 

100.0%

Combined gross profit margin % (1)

 

 

36.6%

 

 

31.4%

Gross Profit percentage by service:

 

 

Three Months

 

 

 

Ended June 30,

 

 

 

2021

 

 

2020

 

Professional contract services

 

 

27%

 

 

27%
Industrial contract services

 

 

15%

 

 

37%
Professional and industrial services combined

 

 

26%

 

 

28%

 

 

 

 

 

 

 

 

 

Direct hire placement services

 

 

100%

 

 

100%
Combined gross profit margin % (1)

 

 

36%

 

 

36%

____________ 

(1)

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses.

 

The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for the three-month periodperiods ended June 30,March 31, 2022 and 2021 were approximately 36.6% and 2020, was approximately 36% each. 31.4%, respectively. The overall improvement in the Company’s combined gross profit margin is largely due to the increase in and higher mix of direct hire revenues.

In the professional contract services segment, the gross margin (excluding direct hire placement services) was approximately 27%26.9% for three-month period ended June 30, 2021March 31, 2022 compared to approximately 25.5% for the three-month period ended March 31, 2021. This increase is primarily due to price increases associated with wage increases necessary to attract or retain contract services employees and 2020 each.the resulting increased spreads and margins for services performed in our Professional Services segment contract business. The Company’s gross margins also were impacted by shifts in the amounts and mix of business towards higher end markets in terms of billing rates and margins.

 

The Company’s industrial contract services gross margin for the three-month period ended June 30, 2021March 31, 2022 was approximately 15%14.7% versus approximately 37%8.8% for the three-month period ended June 30, 2020.March 31, 2021. The decrease inlow industrial contractstaffing services gross margin reported for the three months ended March 31, 2021 is due to a charge taken for a decrease in the estimated amount of premium refunds the Company’s industrial business is eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively-ratedretrospectively rated insurance program. The industrial contract services gross margins normalized for the effects of these items were consistent at approximately 15%14.2% and 13%14.2% for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The increase after adjustment to remove the effect of the workers compensation premium refunds is primarily attributable to increased bill rates and a decrease

25

Table Of Contents

(Amounts in premium charges related to workers compensation for the three-month period ended June 30, 2021.thousands except per share data, unless otherwise stated)

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (“SG&A”) include the following categories:

 

 

·

Compensation and benefits in the operating divisions, which includes salaries, wages, and commissions earned by the Company’s employment consultants, recruiters, and branch managers on permanent and temporary placements.placements;

 

 

 

 

·

Administrative compensation, which includes salaries, wages, payroll taxes and employee benefits associated with general management and the operation of thecorporate functions, including principally, finance, legal, human resources, and information technology functions.and administrative functions;

 

 

 

 

·

Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses.expenses;

 

 

 

 

·

Recruitment advertising, which includes the cost of identifying and tracking job applicants.applicants;

 

 

 

 

·

Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services, and other corporate-level expenses such as business insurance and taxes.

The Company’s SG&A for the three-month period ended March 31, 2022, increased by $3,049 as compared to the three-month period ended March 31, 2021. SG&A for the three-month period ended March 31, 2022, as a percentage of revenues, were approximately 31% compared to approximately 26% for the three-month period ended March 31, 2021. In addition to overall growth of the business, resulting in additional incentive compensation and bonuses, the increase in SG&A expenses and ratios were affected by an increase of $413 in bad debt expense associated with one of the Company’s light industrial customers and the settlement of a legal matter totaling $975. In addition, share-based compensation declined to $152 for the three-months ended March 31, 2022, as compared to $293 for the three-months ended March 31, 2021. This decline was attributable to awards being forfeited or becoming fully vested during fiscal 2021.

SG&A includes certain non-cash costs and expenses incurred related to acquisition, integration and restructuring, and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations or have been eliminated on a going forward basis. These costs were estimated to be $1,005 and $39 for the three-month periods ended March 31, 2022 and 2021, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions. The legal settlement described above contributed $975 to these costs for the three-month period ended March 31, 2022.

Depreciation Expense

Depreciation expense was $94 and $77 for the three-month periods ended March 31, 2022, and 2021, respectively. The increase in depreciation expense is due to fixed assets additions.

Amortization Expense

Amortization expense was $1,015 for both of the three-month periods ended March 31, 2022 and 2021, respectively.

Income from Operations

The income from operations increased by $540 for the three-month period ended March 31, 2022 compared to the three-month period ended March 31, 2021. The lower than proportional increase relative to increases in revenues, gross profit and gross margins is due to the factors described above, including notably, increases in bad debt expense of $413, a legal settlement of $975, and higher incentive compensation and bonuses.

26

Table Of Contents

(Amounts in thousands except per share data, unless otherwise stated)

Interest Expense

Interest expense was $98 for the three-month period ended March 31, 2022, which decreased by $2,436 compared to the three-month period ended March 31, 2021. The decrease in interest expense is mainly attributable to the interest expense incurred under the Former Credit Agreement included in the three-month period ended March 31, 2021. The Company’s Former Credit Agreement contributed $2,040 in cash interest and $445 in amortization of capitalized and other debt related costs during the three-month period ended March 31, 2021. On April 20, 2021, the Company retired and fully repaid its remaining principal and accrued interest and fee balances due and retired its Former Credit Agreement.

Provision for Income Taxes

The Company recognized a tax benefit of $8 for the three-month period ended March 31, 2022. Our effective tax rate for the three-month period ended March 31, 2022 and 2021 is lower than the statutory rate primarily due to the effect of the valuation allowance on the net DTA position. Other than the deferred tax liability relating to indefinite lived assets, the Company is maintaining a valuation allowance against the remaining net DTA position.

Net Income (Loss)

The Company’s net income (loss) was $1,087 and $(1,735) for the three-month periods ended March 31, 2022 and 2021, respectively. The lower than proportional improvement relative to the increases in revenue and gross profit and lower interest expense described above is largely due to factors described under SG&A above, including notably, increases in bad debt expense of $413, a legal settlement of $975, and higher incentive compensation and bonuses.

27

Table Of Contents

(Amounts in thousands except per share data, unless otherwise stated)

Six Months Ended March 31, 2022 Compared to the Six Months Ended March 31, 2021

Net Revenues

Consolidated net revenues are comprised of the following:

 

 

Six Months

 

 

 

 

 

 

 

 

Ended March 31,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

Change

 

Professional contract services

 

$62,605

 

 

$53,177

 

 

$9,428

 

 

 

18%

Industrial contract services

 

 

7,824

 

 

 

9,134

 

 

 

(1,310)

 

 

-14%

Total professional and industrial contract services

 

 

70,429

 

 

 

62,311

 

 

 

8,118

 

 

 

13%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct hire placement services

 

 

12,047

 

 

 

7,050

 

 

 

4,997

 

 

 

71%

Consolidated net revenues

 

$82,476

 

 

$69,361

 

 

$13,115

 

 

 

19%

Contract staffing services contributed $70,429, or approximately 85%, of consolidated revenue and direct hire placement services contributed $12,047, or approximately 15%, for the six-month period ended March 31, 2022. This compares to contract staffing services revenue of $62,311, or approximately 90%, of consolidated revenue and direct hire placement revenue of $7,050, or approximately 10%, of consolidated revenue for the three-month period ended March 31, 2021.

The overall increase in contract staffing services revenues of $8,118, or 13%, for the six-month period ended March 31, 2022 compared to the six-month period ended March 31, 2021 was primarily attributable to increased demand for employment in our professional contract services markets, resulting in an increase in revenues of $9,428, or 18%, as the negative effects of COVID-19 lessen and the U.S. economy and workforce continue on recovery paths toward pre-COVID-19 conditions. Revenues for the six-month period ended March 31, 2022 also include staffing support for vaccination and testing facilities and locations established to respond to COVID-19 and its variants. Industrial staffing services revenues decreased by $1,310, or 14%, due mainly to reoccurrence of adverse conditions associated with COVID-19 variants, which caused significant disruptions in the industrial markets we serve and resulting in a decrease in demand for our industrial staffing services.

Direct hire placement revenue for the six-month period ended March 31, 2022 increased by $4,997, or approximately 71%, over the six-month period ended March 31, 2021. Demand for the Company’s direct hire services also increased due to increased employment opportunities and placement orders in our professional services markets associated with the lessening negative effects of COVID-19 and as the U.S. economy and workforce continue to improve toward pre-COVID-19 conditions.

Management believes that the significant net growth in revenues during the six months ended March 31, 2022, compared to the six months ended March 31, 2021, is in line with the recovery trends being experienced in the overall U.S. economy.

Cost of Contract Services

Cost of contract services includes wages and related payroll taxes and employee benefits of the Company’s contract services employees, and certain other contract employee-related costs, while working on contract assignments. Cost of contract services for the six months ended March 31, 2022 totaled $52,380 as compared to $45,873 for the six months ended March 31, 2021. This increase of $6,507, or approximately 14%, is consistent with the increase in revenues as discussed further above.

28

Table Of Contents

(Amounts in thousands except per share data, unless otherwise stated)

Gross Profit percentage by service:

 

 

Six Months

 

 

 

Ended March 31,

 

 

 

2022

 

 

2021

 

Professional contract services

 

 

27.0%

 

 

25.9%

Industrial contract services

 

 

15.0%

 

 

29.3%

Professional and industrial services combined

 

 

25.6%

 

 

26.4%

 

 

 

 

 

 

 

 

 

Direct hire placement services

 

 

100.0%

 

 

100.0%

Combined gross profit margin % (1)

 

 

36.5%

 

 

33.9%

(1)

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses.

The Company’s combined gross profit margins, including direct hire placement services (recorded at 100% gross margin) for the six-month period ended March 31, 2022 and 2021 were approximately 36.5% and 33.9%, respectively.

In the professional contract services segment, the gross margin (excluding direct hire placement services) was approximately 27.0% for the six-month period ended March 31, 2022 compared to approximately 25.9% for the six-month period ended March 31, 2021. This increase is primarily due to price increases associated with wage increases necessary to attract or retain contract services employees and the resulting increased spreads and margins for services performed in our professional contract services segment. The Company’s gross margins also were impacted by shifts in the amounts and mix of business towards higher end markets in terms of billing rates and margins.

The Company’s industrial contract services gross margin for the six-month period ended March 31, 2022 was approximately 15% versus approximately 29.3% for the six-month period ended March 31, 2021. The decrease in industrial contract services gross margin is mainly due to the amount of additional premium refunds in the form of policy distributions the Company’s industrial business was eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively rated insurance program. Results for the six months ended March 31, 2022 and 2021 included $37 and $1,318 of such premium refunds, respectively. The Industrial Services gross margins excluding the effects of these refunds and distributions were approximately 14.5% and 14.9% for the six months ended March 31, 2022 and 2021, respectively. The decreases in industrial services revenues and gross margins, excluding the effects of the workers compensation premium refunds and distributions, is mainly attributable to the Industrial segment being more heavily affected by new COVID-19 variants in this year’s first fiscal quarter.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) include the following categories:

·

Compensation and benefits in the operating divisions, which includes salaries, wages, and commissions earned by the Company’s employment consultants, recruiters, and branch managers on permanent and temporary placements;

·

Administrative compensation, which includes salaries, wages, payroll taxes and employee benefits associated with general management and the operation of corporate functions, including principally, finance, human resources, information technology and administrative functions;

·

Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses;

·

Recruitment advertising, which includes the cost of identifying and tracking job applicants;

·

Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services, and other corporate-level expenses such as business insurance and taxes.

 

 
2729

Table ofOf Contents

(Amounts in thousands except per share data, unless otherwise stated)

 

The Company’s SG&A for the three-monthsix-month period ended June 30, 2021,March 31, 2022 increased by $905$5,922 as compared to the three-monthsix-month period ended June 30, 2020.March 31, 2021. SG&A for the three-monthsix-month period ended June 30, 2021,March 31, 2022, as a percentage of revenues, waswere approximately 29%30% compared to approximately 38%27% for the three-monthsix-month period ended June 30, 2020. The decreaseMarch 31, 2021. In addition to overall growth of the business, resulting in additional incentive compensation and bonuses, the increase in SG&A expenses and ratios were affected by an increase of $413 in bad debt expense associated with one of the Company’s light industrial customers, a legal settlement of $975, and a charge associated with a severance agreement of $509. In addition, share-based compensation declined to $299 for the six-months ended March 31, 2022, as a percentage of revenue is primarilycompared to $604 for the six-months ended March 31, 2021. This decline was attributable to the significant recovery and improvement in revenues discussed earlier and Company’s efforts to manage costs effectively.awards being forfeited or becoming fully vested during fiscal 2021.

 

SG&A also includes certain non-cash costs and expenses incurred related to acquisition, integration and restructuring and other non-recurring items,activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations and/or other items that have been eliminated on a going forward basis and/or are of an isolated, non-recurring nature.basis. These costs were estimated to be $159$1,531 and $1,557$181 for the three-monthsix-month periods ended June 30,March 31, 2022 and 2021, and 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, and former personnel costs associated with eliminated positions. The legal settlement and severance agreement described above contributed $975 and $509, respectively, to these costs for the six-month period ended March 31, 2022.

 

Depreciation Expense

 

Depreciation expense was $78$180 and $33$150 for the three-monthsix-month period ended June 30,March 31, 2022 and 2021, and 2020, respectively. The increase in depreciation expense is due to the fixed assets additions.

 

Amortization Expense

 

Amortization expense was $1,015$2,029 and $1,125$2,059 for the three-monthsix-month period ended June 30,March 31, 2022 and 2021, and 2020, respectively. The decrease is due to certain SNI intangible assets related to non-compete agreements that have becomebecoming fully amortized during fiscal 2021.

Goodwill Impairment

The Company completed its most recent annual goodwill impairment assessment, as of September 30, 2021, and determined that its goodwill was not impaired. The amount of discount inherent in the Company’s market capitalization reported on the NYSE American exchange when compared with consolidated stockholders’ equity, or net book value, had increased since September 30, 2021; therefore, the Company performed an interim assessment of its goodwill for impairment as of December 31, 2021. The estimated fair values of its Professional Services and Industrial Services reporting units were adjusted based on qualitative and quantitative analysis so that they reconcile more precisely with the Company’s market capitalization as of December 31, 2021, plus an assumed control premium. As a result, the Company recognized a non-cash impairment charge of $2,150 during the three-months ended December 31, 2021. The Company reassessed the qualitative and quantitative analysis at March 31, 2020.2022 and determined there was no additional impairment during the three-month period ended March 31, 2022.

30

Table Of Contents

(Amounts in thousands except per share data, unless otherwise stated)

 

Income from Operations

 

The income from operations increaseddecreased by $3,317$1,464 for the three-monthsix-month period ended June 30, 2021March 31, 2022 compared to the three-monthsix-month period ended June 30, 2020.March 31, 2021. The increasedecrease is due to the factors described above, including a significant improvement and recoverynotably, increases of $413 in revenues andbad debt expense associated with one of the Company’s mitigating efforts beginninglight industrial customers, a legal settlement of $975, and a charge associated with a severance agreement of $509. Additionally, the non-cash goodwill impairment charge of $2,150 taken during the six-month period ended March 31, 2022 offset increases in approximately mid-March 2020 to restore and grow revenues, and to manage costs effectively to adapt torevenue during the COVID-19 pandemic and position the Company for recovery.period.

 

Interest Expense

 

Interest expense was $539$205 for the three-monthsix-month period ended June 30, 2021,March 31, 2022, which decreased by $2,795$5,015 compared to the three-monthsix-month period ended June 30, 2020.March 31, 2021. The decrease in interest expense for the three-month period ended June 30, 2021 is mainly attributable to the interest expense related to the former SeniorFormer Credit Agreement 9.5% Notes, and 10% Notes that werewas included in the three-monthsix-month period ended June 30, 2020.March 31, 2021. The Company’s former SeniorFormer Credit Agreement contributed $459$4,225 in cash interest expense and $2,093$890 in amortization of capitalized and other debt related costs during the three-monthsix-month period ended June 30, 2021 and June 30, 2020, respectively.March 31, 2021. On April 20, 2021, the Company retired and fully repaid its remaining principal and accrued interest balances under its former SeniorFormer Credit Agreement.Agreement, after which time interest expense ceased to accrue.

 

Provision for Income Taxes

 

The Company recognized a tax benefit of $29$37 for the three-monthsix-month period ended June 30, 2021.March 31, 2022. Our effective tax rate for the three-month periodssix-month period ended June 30,March 31, 2022 and 2021 and 2020, wereis lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets.effect of the valuation allowance on the net DTA position. Other than the deferred tax liability relating to indefinite lived asset,assets, the Company is maintaining a valuation allowance against the remaining net DTA position.

 

28

Table of Contents

Net Income (Loss) Income

 

The Company’s net income (loss) income was $(937)$17,755 and $7,195$(2,050) for the three-monthsix-month periods ended June 30,March 31, 2022 and 2021, and 2020, respectively. The decrease in net incomeincrease is primarily attributabledue to gains recognized of $12,316 on$16,773 from forgiveness and extinguishment of subordinated debtthe Company’s remaining PPP loans during the three-monthsix-month period ended June 30, 2020. In addition toMarch 31, 2022 and the changesgrowth in revenues and gross profit discussed above gains of $1,957 on the extinguishment of PPP loansabove. These were offset to an extent by an increase in bad debt expense of $413, a loss in the formlegal settlement of $975, a charge offassociated with a severance agreement of unamortized debt costs on a debt extinguishment related to$509, and the term loan pay-off in amountnon-cash goodwill impairment charge of $4,004 during the three-month period ended June 30, 2021.

On April 19, 2021, the Company raised net proceeds of $45,487 of common equity capital and on April 20, 2021, repaid all its remaining outstanding principal and accrued interest balances of $56,022 under its former Senior Credit Agreement. The Company incurred $459 in interest expense in the accompanying unaudited condensed consolidated statement of operations for the three-month period ended June 30, 2021, which obligations have now ceased effective April 21, 2021..$2,150.

 

The Company continues to seek opportunities to increase revenue and closely manage costs, and to pursueincluding opportunities to selectively increaseadd revenue producing headcountresources in key markets and industry verticals. The Company also seeks to organically grow its professional contract services revenue and direct hire placement revenue, including business from staff augmentation, permanent placement, statement of work (SOW) and other human resource solutions in the information technology, engineering, healthcare and finance and accounting higher margin staffing specialties. The Company’s strategic plans to achieve this goal involve setting aggressive new business growth targets, including initiatives to increase services to existing customers, increasing its numbers of revenue producing core professionals, including primarily, business development managers and recruiters, changes toand assessments of the effectiveness of compensation, commission and bonus plans to betteridentify enhancements to incentivize producers, andproducers. Senior management also has frequent interaction with the field and facilitates collaboration among brands and locations to identify and share growth opportunities, and to monitor and motivate growth. The Company’s strategy entails both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing.

Nine Months Ended June 30, 2021 Compared to the Nine Months Ended June 30, 2020

Net Revenues

Consolidated net revenues are comprised of the following:

 

 

Nine Months

 

 

 

 

 

 

 

 

 

Ended June 30,

 

 

 

 

 

 

 

(in thousands)

 

2021

 

 

2020

 

 

Change

 

 

Change

 

Professional contract services

 

$81,923

 

 

$73,810

 

 

$8,113

 

 

 

11%
Industrial contract services

 

 

12,927

 

 

 

13,025

 

 

 

(98)

 

 

-1%
Total professional and industrial contract services

 

 

94,850

 

 

 

86,835

 

 

 

8,015

 

 

 

9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct hire placement services

 

 

12,579

 

 

 

11,996

 

 

 

583

 

 

 

5%
Consolidated net revenues

 

$107,429

 

 

$98,831

 

 

$8,598

 

 

 

9%

Contract staffing services contributed $94,850 or approximately 88% of consolidated revenue and were higher by $8,015 for the nine-month period ended June 30, 2021, as compared with the comparable period ended June 30, 2020. Direct hire placement services contributed $12,579, or approximately 12%, of consolidated revenue for the nine-month period ended June 30, 2021 and were up $583, or approximately 5%, as compared with the comparable period ended June 30, 2020. Contract staffing services revenue was $86,835, or approximately 88%, of consolidated revenue and direct hire placement revenue was $11,996, or approximately 12%, of consolidated revenue for the nine-month period ended June 30, 2020.

The overall increase in contract staffing services revenues of $8,015, or 9%, for the nine-month period ended June 30, 2021 compared to the nine-month period ended June 30, 2020 was primarily attributable to significant recovery and improvement in professional contract services markets from the negative effects of the COVID-19 pandemic beginning in approximately June 2020. The onset of COVID-19 resulted in a near immediate decline in demand for our staffing services due to client closures, postponements in projects and related needs for our services at some clients, significant travel restrictions, and corresponding decreases in the volume of contract services billable hours. Professional contract services significantly outperformed their historical trends and experienced consistent recovery since May 2020 through this quarter resulting in the revenue increase of $8,113 for the nine-month period ended June 30, 2021, as compared with the nine-month period ended June 30, 2020. Management believes this trend is the result of U.S. economic recovery, as well as actions taken by the Company to adapt to COVID-19, hire top talent, and position the Company for recovery and growth. Industrial contract services revenue experienced improvement due to continuing recovery and improvement from negative impacts related to COVID-19, including most recently, a workforce shortage being felt across the U.S. and widely believed to be attributable to recent and plentiful economic stimulus and unemployment benefits, as well as school and other shutdowns.

29

Table of Contents

Direct hire placement revenue for the nine-month period ended June 30, 2021 increased by $583, or approximately 5%, over the nine-month period ended June 30, 2020. Demand for the Company’s direct hire services increased due to the continuing recovery and significant improvement from the negative effects of the COVID-19 pandemic beginning in approximately June 2020.

Management believes that the underlying trends toward recovery since May 2020 are generally consistent with the recovery experienced in the overall U.S. economy so far and, therefore, may be expected to continue, accordingly. The Company continues to observe, analyze and make modifications and changes to its business model and practices on a routine basis in response to the on-going COVID-19 pandemic and related health and safety concerns. These include, but are not limited to, implementation of policies and procedures in observance of Federal, state and/or local guidelines regarding the coronavirus, including matters ranging working from home, use of personal protective equipment (principally, protective masks), social distancing, personal hygiene and sanitary practices, and other preventative and responsive measures, impacting both our core human resources, as well as our contract laborers serving clients.

Cost of Contract Services

Cost of contract services includes wages and related payroll taxes and employee benefits of the Company's contract services employees, and certain other contract employee-related costs, while working on contract assignments. Cost of contract services for the nine-month period ended June 30, 2021 increased by approximately 8% to $70,115 compared to $64,654 for the nine-month period ended June 30, 2020. The $5,461 overall increase in cost of contract services for the nine-month period ended June 30, 2021 compared to the nine-month period ended June 30, 2020 was primarily attributable to the corresponding increase in revenues, and an increase in additional premium refunds in the form of policyholder dividends from the Ohio Bureau of Workers’ Compensation related to the Company’s industrial business.

Gross Profit percentage by service:

 

 

Nine Months

 

 

 

Ended June 30,

 

 

 

2021

 

 

2020

 

Professional contract services

 

 

26%

 

 

27%
Industrial contract services

 

 

25%

 

 

20%
Professional and industrial services combined

 

 

26%

 

 

26%

 

 

 

 

 

 

 

 

 

Direct hire placement services

 

 

100%

 

 

100%
Combined gross profit margin % (1)

 

 

35%

 

 

35%

_______________ 

(1)

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses.

The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for the nine-month period ended June 30, 2021 and 2020 was approximately 35% each.

30

Table of Contents

In the professional contract staffing services segment, the gross margin (excluding direct placement services) was approximately 26% for nine-month period ended June 30, 2021 compared to approximately 27% for the nine-month period ended June 30, 2020. This decrease is generally due to shifts in the amounts and mix of business between end markets and higher and lower billing rates and margins. Contributing to this 0.3% (300 basis points) decrease is a disproportionate increase in the mix of lower margin office and clerical temporary staffing services within the overall COVID-19 business recovery taking place.

The Company’s industrial contract services gross margin for the nine-month period ended June 30, 2021 was approximately 25% versus approximately 20% for the nine-month period ended June 30, 2020. The increase in industrial contract services gross margin is due to the amount of additional premium refunds in the form of policyholder dividends the Company’s industrial business was eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively-rated insurance program. Results for the nine months ended June 30, 2021 includes $1,337 of such premium refunds. The industrial contract services gross margins excluding the effects of these items were approximately 15% and 14% for the nine months ended June 30, 2021 and 2020, respectively. The increase, adjusted to remove the effects of workers compensation premium refunds, is generally within a reasonable performance range for our Light Industrial segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include the following categories:

Compensation and benefits in the operating divisions, which includes salaries, wages, and commissions earned by the Company’s employment consultants and branch managers on permanent and temporary placements.

Administrative compensation, which includes salaries, wages, payroll taxes, and employee benefits associated with general management and the operation of the finance, legal, human resources and information technology functions.

Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses.

Recruitment advertising, which includes the cost of identifying job applicants.

Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services, and other corporate-level expenses such as business insurance and taxes.

The Company’s SG&A for the nine-month period ended June 30, 2021 decreased by $4,520 as compared to the nine-month period ended June 30, 2020. SG&A for the nine-month period ended June 30, 2021, as a percentage of revenues, was approximately 28% compared to approximately 35% for the nine-month period ended June 30, 2020. The decrease in SG&A expenses is primarily attributable to the Company’s mitigating efforts to reduce and manage costs to adopt to COVID-19 and position the Company for recovery and growth. In addition, a provision for doubtful accounts related to a key customer who filed for a bankruptcy protection of approximately $1,700, was taken in the form of a charge to income during March 2020.

SG&A also includes certain non-cash costs, expenses incurred related to acquisition, integration and restructuring, non-recurring items, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations, and/or other items that have been eliminated on a going forward basis and/or are of an isolated, non-recurring nature. These costs were estimated to be $340 and $3,247 for the nine-month periods ended June 30, 2021 and 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions.

31

Table of Contents

Depreciation Expense

Depreciation expense was $228 and $181 for the nine-month period ended June 30, 2021, and 2020, respectively. The increase is attributable to net fixed assets additions.

Amortization Expense

Amortization expense was $3,074 and $3,921 for the nine-month period ended June 30, 2021 and 2020, respectively. The decrease is due to certain SNI intangible assets related to non-compete agreements that have become fully amortized during March 31, 2020.

Income from Operations

The income from operations increased by $8,457 for the nine-month period ended June 30, 2021 compared to the nine-month period ended June 30, 2020. The increase is due to the factors described above including an increase in revenues, a decrease in amortization, recognition of provision for doubtful accounts related to a key customer who filed for a bankruptcy protection during March 2020, and the Company’s mitigating efforts beginning in approximately mid-March 2020 to restore and grow revenues, and to manage costs to adapt to the COVID-19 pandemic and position the Company for recovery and growth.

Interest Expense

Interest expense was $5,759 for the nine-month period ended June 30, 2021, which decreased by $3,859 compared to the nine-month period ended June 30, 2020. The decrease in interest expense for the nine-month period ended June 30, 2021 is mainly attributable to the interest expense related to the former Senior Credit Agreement, 9.5% Notes, and 10% Notes that were included in the nine-month period ended March 31, 2020. The Company’s former Senior Credit Agreement contributed $3,595 and $6,888 the nine-month period ended June 30, 2021 and June 30, 2020, respectively. On April 20, 2021, the Company repaid its remaining principal and accrued interest balances under its former Senior Credit Agreement, after which time interest expense ceased to accrue.

Provision for Income Taxes

The Company recognized a tax benefit of $307 for the nine-month period ended June 30, 2021. Our effective tax rate for the nine-month periods ended June 30, 2021 and 2020, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. In nine-month period ended June 30, 2021, the statutory changes regarding the deductibility of PPP loan expenses resulted in the recognition of a $352 discrete item. Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a valuation allowance against the remaining net DTA position.

Net Loss

The Company’s net loss was $(2,987) and $(1,797) for the nine-month periods ended June 30, 2021 and 2020, respectively. The increase in net loss for the nine-month periods ended June 30, 2021 is attributable to the factors described above including recognized gains of $12,316 on extinguishment of subordinated debt during the nine-month period ended June 30, 2020. In addition to the changes discussed above, gain of $2,236 on the extinguishment of PPP loans were offset by a loss in the form of a charge off of unamortized debt costs on a debt extinguishment related to the term loan pay-off in amount of $4,004 during the nine-month period ended June 30, 2021.

The Company continues to closely manage costs and to pursue opportunities to selectively increase revenue producing headcount in key markets and industry verticals. The Company also seeks to organically grow its professional contract services revenue and direct hire placement revenue, including business from staff augmentation, permanent placement, statement of work (SOW) and other human resource solutions in the information technology, engineering, healthcare and finance and accounting higher margin staffing specialties. The Company’s strategic plans to achieve this goal involve setting aggressive new business growth targets, including initiatives to increase services to existing customers, increasing its numbers of revenue producing core professionals, including primarily, business development managers and recruiters, changes to compensation, commission and bonus plans to better incentivize producers, and frequent interaction with the field to monitor and motivate growth. The Company’s strategy entailsplan contains both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing.

 

 
3231

Table ofOf Contents

(Amounts in thousands except per share data, unless otherwise stated)

 

Liquidity and Capital Resources

 

The primary sources of liquidity for the Company are revenues earned and collected from its clients for the placement of contractors and permanent employment candidates and borrowings available under its current and former asset-based senior secured revolving credit facilities. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to the Company’s contract and permanent employees and employment-related expenses, operating costs and expenses, payment of taxes payment of interest and principal under its debit agreements, and capital expenditures.

 

The following table sets forth certain consolidated statements of cash flows data:

 

 

 

Nine Months

 

 

 

Ended June 30,

 

(in thousands)

 

2021

 

 

2020

 

Cash flows (used in) provided by operating activities

 

$(2,276)

 

$245

 

Cash flows used in investing activities

 

$(68)

 

$(105)
Cash flows (used in) provided by financing activities

 

$(4,371)

 

$12,382

 

 

 

Six Months

 

 

 

Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows provided by operating activities

 

$4,383

 

 

$196

 

Cash flows used in investing activities

 

$(155)

 

$(12)

Cash flows provided by financing activities

 

$-

 

 

$-

 

 

As of June 30, 2021,March 31, 2022, the Company had $7,359$14,175 of cash, which was a decreasean increase of $6,715$4,228 from $14,074$9,947 as of September 30, 2020.2021. The significant increase in cash flows from operating activities is primarily the result of the elimination of cash interest expense on the Company’s high-cost Former Credit Facility, which was fully repaid and retired on April 20, 2021. As of June 30, 2021,March 31, 2022, the Company had working capital of $5,110$22,388 compared to $13,351$2,528 of working capital as of September 30, 2020.2021. The increase in working capital is mainly attributable to the forgiveness of the Company’s last remaining PPP loans and interest during the six-month period ended March 31, 2022, which were reflected in current liabilities in the aggregate amount of $16,741 as of September 30, 2021.

 

Net cash (used in) provided by operating activities for the nine-monthsix-month periods ended June 30,March 31, 2022 and 2021 was $4,383 and 2020 was $(2,276) and $245,$196, respectively. The negativepositive operating cash flow in the nine-monthsix-month period ended June 30, 2021March 31, 2022 corresponds with the increase in net income and other net changes in working capital.

 

The primary uses of cash for investing activities were for the acquisition of property and equipment in the nine-monthsix-month periods ended June 30, 2021March 31, 2022 and 2020.2021.

 

Cash flow (used in) provided byThere were no cash flows used in financing activities for the nine-monthsix-month period ended June 30, 2021March 31, 2022 and 2020 was $(4,371) and $12,382, respectively. The decrease during nine-month period ended June 30, 2021 was primarily attributable to the payment on former Senior Credit Agreement that was offset by the proceeds received from the public offering. The increase during nine-month period ended June 30, 2020 was primarily attributable to the net proceeds received from PPP Loans.2021.

 

Minimum debt service payments (principal) for the twelve-month period commencing after the close of business on June 30, 2021, are approximately $10,966. All the Company’s office facilities are leased. Minimum lease payments under all the Company’s lease agreements for the twelve-month period commencing after the close of business on June 30, 2021,March 31, 2022, are approximately $1,777.

The Company experienced net losses for$1,788. There are no minimum debt service principal payments due during the first nine monthstwelve-month period commencing after the close of its current fiscal year, and for its most recent fiscal years ended September 30, 2020 and 2019, which also negatively impacted the Company’s ability to generate liquidity. During much of this period, the Company significantly restructured its operations, made significant cost reductions, including closing and consolidating unprofitable locations, eliminating underperforming personnel and pursuing top talent, implemented strategic management changes, and intensified focusbusiness on stabilizing the business and restoring profitable growth. As a result, management believes the Company had begun to see its operations and business stabilize.

33

Table of Contents

In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the Coronavirus Pandemic (“COVID-19”). These have included abrupt reductions in demand for the Company primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects have continued to be felt across all businesses, with the most severe impacts being felt in the industrial and finance, accounting and office clerical (FAO) end markets within the professional segment.

Between April 29 and May 7, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $19,927. These funds were the only source of financing available to our companies and businesses and have been and continue to be absolutely critical to our ability to maintain operations, including the employment of our temporary and fulltime employees, in order to produce and meet our foreseeable liquidity requirements in the midst of this continuing worldwide Coronavirus Pandemic.March 31, 2022.

 

On April 19, 2021, the Company concluded itscompleted the initial closing of a follow-on public offering of 83,333 shares of common stock at a public offering price of $0.60 per share. Gross proceeds of the offering totaled $50,000, which after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $45,478. On April 27, 2021, the underwriters of the Company’s April 19, 2021, public offering exercised in full their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering.

32

Table Of Contents

(Amounts in thousands except per share data, unless otherwise stated)

 

On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022 in aggregate outstanding indebtedness under its then existing Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, as amended, including accrued interest, using the net proceeds of its recent underwritten public offering and available cash. The repaid debt was originally obtained from investors led by MGG Investment Group LP (“MGG”) on April 21, 2017 and had a maturity date of June 30, 2023. The MGG debt was comprised of a revolving credit facility with a principal balance on the date of repayment of approximately $11,828, which was subject to an annual interest rate comprised of the greater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and a term loan with a principal balance on the date of repayment of approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459 was paid in connection with the principal repayments. The Company took one timea one-time charge of $4,004 which represents unamortized debt issue costs associated with its former senior debt.Former Credit Agreement.

 

On May 14, 2021, GEE Group Inc. and its subsidiaries, Agile Resources, Inc., Access Data Consulting Corporation, BMCH, Inc., GEE Group Portfolio, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Personnel Services, Inc., and Triad Logistics, Inc. entered a Loan, Security and Guaranty Agreement for a $20 million asset-based senior secured revolving credit facility with CIT Bank, N.A. (the “CIT Facility”). The CIT Facility is collateralized by 100% of the assets of the Company and its subsidiaries who are co-borrowers and/or guarantors. The CIT Facility matures on the fifth anniversary of the closing date (May 14, 2026). Concurrent with the May 14, 2021 closing of the CIT Facility, the Company initially borrowed $5,326 and utilized these funds to pay all remaining unpaid Exit and Restructuring Fees due to its former senior lenders in the amount of $4,978, with the remainder going to direct fees and costs associated with the CIT Facility.

 

Under the CIT Facility, advances will be subject to a borrowing base formula that will beis computed based on 85% of eligible accounts receivable of the Company and subsidiaries as defined in the CIT Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent. The CIT Facility is subject to usual and customary covenants and events of default for credit facilities of this type. The interest rate, at the Company’s election, will be based on either the Base Rate, as defined, plus the applicable margin; or the London Interbank Offering Rate (“LIBOR” or any successor thereto) for the applicable interest period, subject to a 1% floor, plus the applicable margin. The CIT Facility also contains provisions addressing the potential future replacement of LIBOR utilized and referenced in the loan agreement, in the event LIBOR becomes no longer available. In addition to interest costs on advances outstanding, the CIT Facility will provide for an unused line fee ranging from 0.375% to 0.50% depending on the amount of undrawn credit, original issue discount and certain fees for diligence, implementation, and administration.

 

The Company had approximately $14,057 in availability for borrowings as of March 31, 2022. There were no outstanding borrowings outstanding on the CIT Facility as of March 31, 2022, or September 30, 2021, except for certain accrued carrying fees and costs, which are included in other current liabilities in the accompanying consolidated balance sheets.

Management believes that the Company has adequate cash and working capital and can generate adequate liquidity to meet its obligations for the foreseeable future orand at least for one year after the following twelve months assumingdate this Quarterly Report on Form 10-Q is filed.

Coronavirus Pandemic (“COVID-19”), Paycheck Protection Program Loans and Deferral of Federal Payroll Taxes under the CARES Act

In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from COVID-19. These included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. Some effects of COVID-19 do not worsen, and that economic recovery occurs.the subsequent variants of the virus continue to be felt, although to lesser extent, with the most severe impacts being felt in the commercial (Industrial) segment and, to a lesser extent, in the finance, accounting and office clerical (“FAO”) contract staffing services end markets within the professional segment.

 

 
3433

Table ofOf Contents

(Amounts in thousands except per share data, unless otherwise stated) 

Between April 29 and May 7, 2020, the Company and eight of its operating subsidiaries obtained loans in the aggregate amount of $19,927 from BBVA USA (now known as PNC Bank), as lender, pursuant to the Paycheck Protection Plan (the “PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). These funds were the only source of financing available to our companies and businesses and were critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to provide our services and meet our liquidity requirements in the midst of the worldwide Coronavirus Pandemic. The PPP loans were recognized as current debt in the Company’s accompanying unaudited condensed consolidated financial statements as of September 30, 2021.

The Company and its operating subsidiaries have been granted forgiveness of their respective outstanding PPP loans, including the Company’s last four remaining PPP loans and interest for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the amounts of $2,024, $2,630, $1,956, and $10,163, respectively, which were forgiven by the SBA in December 2021. The Company recognized net gains of $16,773, in aggregate, during the six months ended March 31, 2022 as a result of the forgiveness of its last four PPP loans.

The PPP loans obtained by GEE Group Inc., and its operating subsidiaries together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately may be reinstated from available liquidity or operating cash flow, we may be required to raise additional equity or debt capital to repay the PPP loans.

The Company and its subsidiaries, under the CARES Act, also were eligible to defer paying $3,654, in aggregate, of applicable payroll taxes incurred during fiscal 2020. The deferred deposits of the employer’s share of Social Security tax are required be paid to be considered timely (and avoid a failure to deposit penalty) by December 31, 2021, fifty (50) percent of the eligible deferred amount, and the remaining amount by December 31, 2022. During the six-month period ending March 31, 2022, the first payments on these deferred amounts were made totaling $1,827, in aggregate. The remaining deferred amounts are included in short-term liabilities on the accompanying unaudited condensed consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2021,March 31, 2022, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.

 

34

Table Of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

As of June 30, 2021,March 31, 2022, the Company'sCompany’s management evaluated, with the participation of its principal executive officer and its principal financial officer, the effectiveness of the Company'sCompany’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the(“the Exchange Act”). Based on that evaluation, the Company'sCompany’s principal executive officer and its principal financial officer concluded that the Company'sCompany’s disclosure controls and procedures were effective as of June 30, 2021.March 31, 2022.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company'sCompany’s internal control over financial reporting or in any other factors that could significantly affect these controls, during the Company's nine-monthCompany’s three-month period ended June 30, 2021,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.

Network Security Incident and Risks

On February 1, 2022, the Company detected and stopped a network security incident. The senior executive management team was immediately notified who in turn reported the network security incident to the audit committee chairman who has board oversight authority for these types of matters. The Company’s Audit Committee and Board of Directors have been fully briefed and a special committee of the board was appointed to assist and oversee management in the on-going investigations, response and full remediation of the incident. The cost of investigating and resolving the incident thus far has been immaterial. Based on what management and the Company’s third-party cyber security experts have determined in their investigation, the Company also does not foresee this incident having any future material detrimental effect on our business or financial position. No additional malicious activity has been observed on the network to date. The Company’s operations were minimally impacted, and we continue to serve our clients without issue.

The Company’s investigation and analysis of the incident are largely completed. The scope of investigation and analysis of the incident have included identification of vulnerabilities or weaknesses in our security and, also, the design and implementation of additional protective measures and controls to prevent future incidents such as this one.

Based on our current assessments, we also have not identified any material weaknesses in our internal controls, including our disclosure controls and procedures as a result of the incident.

 

 
35

Table ofOf Contents

 

PART II – OTHER INFORMATION.

 

Item 1. Legal Proceedings.

 

None.

Item 1A.Risk Factors.On March 23, 2022, the Company settled a legal matter involving two separate, but related lawsuits, filed by plaintiff Sands Brothers Venture Capital II, LLC. These two lawsuits and others in which the Company was not a named party, involved a dispute amongst certain former affiliate and non-affiliate entities, and certain former officers and directors of the Company, stemming from a series of transactions that allegedly occurred during the period 2008 through 2010. The Company was sued in 2014 and 2017, based on the allegation that it was a participant and aided and abetted in the fraudulent conveyance of funds. The plaintiff was a creditor of an unaffiliated now defunct entity whose assets the Company is alleged to have received. Given the facts and circumstances of the case, it has been the Company’s belief and assessment that the lawsuits were meritless and that the likelihood of a material adverse resolution was remote. GEE Group’s ongoing legal expenses including depositions, court filings, etc. incurred over the years to defend itself from the claims made by the plaintiff in the respective lawsuits, have, for the most part, been either paid directly to the law firms or reimbursed by insurance.  

 

The full extentCompany continues to believe that its defenses were meritorious and that the final results of litigation would, overall, have been favorable on the merits. However, given the age of the impactmatter, the potential future significant ongoing uninsured portions of COVID-19legal and other costs to be incurred, including the extraordinary expenses of flying and housing witnesses and experts for the trial, and the future time, attention and effort necessary by management to satisfactorily resolve the matter through the courts, the Company made the business decision to take advantage of an opportunity to settle the case. In this regard, the Company entered into a Confidential Settlement Agreement and Mutual Release, dated March 23, 2022, with the plaintiff for both lawsuits. Under the terms of the agreement and release, neither the plaintiff nor the Company have admitted or conceded to any wrongdoing, and the matter has been settled in its entirety for a one-time, payment to the plaintiff of approximately $1,175, of which the Company’s portion is $975 with insurance paying the balance. This payment was due and paid by April 8, 2022, and the expense has been recognized as a pre-tax charge in the Company’s condensed consolidated financial statements for the three-month period ended March 31, 2022.

The Company and its subsidiaries are involved in various other litigation that arises in the ordinary course of business. There are no other pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on our business, operations andthe Company’s financial results will depend on numerous evolving factors that we may not be able to accurately predict. position.

Item 1A.Risk Factors.

In evaluating us and our common stock, in addition to the risk factorfactors below, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A.1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 20202021 (“20202021 Form 10-K”) and filed with the SEC on December 29, 2020.23, 2021 and the risk factors disclosed in Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2021 filed with the SEC on February 14, 2022 (“Q1 Form 10-Q”). Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A.1A of Part I of our 20202021 Form 10-K, in Item 1A of our Q1 Form 10-Q, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.

 

We recently experienced a network security incident affecting our IT network, information systems and stored information. Network security incidents affecting our systems and information technology such as this one or others could adversely impact our ability to operate and have wider-reaching material adverse effects on our business and financial position and results.

Our business is highly dependent on communications and information systems. Any failure or interruption of our systems could cause delays or other problems in the delivery of our services or security of our proprietary and confidential information, which could have a material adverse effect on our operating results and negatively affect the market price of our common stock. We face threats to our computer systems of unauthorized access, computer hackers, computer viruses, malicious code, organized cyber-attacks and other security problems and system disruptions, including possible unauthorized access to our and our clients’ proprietary or classified information. We rely on industry-accepted security measures and technology to securely maintain all confidential and proprietary information on our information systems and to detect and isolate suspicious activity. While we devote significant resources to the security of our computer systems, we are still vulnerable to these threats. Our controls, therefore, include technology to detect and isolate suspicious activity and disclosure controls and procedures in place to communicate any such threats or activity detected to responsible personnel, including our senior officers and directors, for timely response.

36

Table Of Contents

On February 1, 2022, the Company detected and stopped a network security incident. An unauthorized third party gained access into our network, encrypted various systems, and demanded money to decrypt the affected systems and to delete and not publicly release stolen information. The Company’s IT professionals immediately disconnected and isolated the affected systems to prevent any further compromise. The senior executive management team was immediately notified who in turn reported the network security incident to the Company’s Audit Committee chairman who has board oversight authority for these types of matters. The Company’s audit committee and board of directors were fully briefed and a special committee of the board of directors was appointed to assist and oversee management in the investigations, response and full remediation of the incident. The Company engaged third party cyber security experts to assist its internal IT professionals and conducted a comprehensive investigation to determine the extent of the unauthorized activity. The Company also notified law enforcement and its cyber liability insurance carrier about the incident.

The Company’s investigation determined that the unauthorized third party acquired a relatively small amount of data maintained on the encrypted servers, to include in some cases, individual personal information such as names, social security numbers, passport and driver license information. Our forensic investigation has been concluded and we believe we have reasonably determined the scope of the incident. Individuals affected by this incident are in the process of being notified in accordance with applicable state and federal laws. The cost of investigating and resolving the incident thus far has been immaterial. Based on what management and the Company’s third-party cyber security experts have determined in their investigation, the Company also does not foresee this incident having any future material detrimental effect on our business or financial position. The Company has in place cyber liability insurance coverage, subject to certain policy limitations and deductibles. The Company had also immediately notified the cyber insurance carrier of the network security incident, who worked with management and the Company’s third-party cyber security experts on this matter.

The Company’s network environment is fully operational and additional security measures have been added and/or are being evaluated to prevent further intrusions. The Company has not observed any additional malicious activity on the network to date. The Company’s operations were only minimally impacted by the incident, and we were able to serve our clients and other stakeholders without issue throughout.

Unauthorized users who circumvent data security measures, including the threat actors involved in our recently experienced network security incident, may access and possibly misappropriate confidential or proprietary information, including information regarding us, our personnel and/or our clients, or cause interruptions or malfunctions in operations. As a result, we may be required to expend significant resources to protect against the threat of these system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches. Any of these events could possibly damage our reputation and potentially have a material adverse effect on our business, financial condition, results of operations and cash flows. Although the aggregate impact of the aforementioned incident on our operations and financial condition has not been material, it is reasonable to expect that the prevalence of cyber security threats and breaches of systems utilized by businesses will continue or even accelerate as the level of sophistication and knowledge of the perpetrators increases.

37

Table Of Contents

Our business, results of operations, and financial condition have been and may continue to be adversely impacted in material respects by the coronavirus pandemic, and future adverse impacts could be material and difficult to predict.

 

Our business, results of operations, and financial condition have been, and may continue to be, adversely impacted in material respects by COVID-19 and by related government actions (including declared states of emergency and quarantine, “shelter in place” orders, or similar orders), non-governmental organization recommendations, and public perceptions, all of which have led and may continue to lead to disruption in global economic and labor markets. These effects have had a significant impact on our business, including reduced demand for our services and workforce solutions, early terminations or reductions in projects, and hiring freezes, and a shift of a majorityportion of our workforce to remote operations, all of which have contributed to a decline in revenues and other significant adverse impacts on our financial results. Other potential impacts of COVID-19 maycould include continued or expandedfuture closures or reductions of operations with respect to our client partners’ operations or facilities, the possibility our client partners will not be able to pay for our services or workforce solutions, or that they will attempt to defer payments owed to us, either of which could materially impact our liquidity, the possibility that the uncertain nature of the pandemic may not yield the increase in certain of our workforce solutions that we have historically observed during periods of economic downturn, and the possibility that various government-sponsored programs to provide economic relief may be inadequate. Further, we may continue to experience adverse financial impacts, some of which may be material, if we cannot offset revenue declines with cost savings through expense-related initiatives, human capital management initiatives, or otherwise. As a result of these observed and potential developments, we expect that our business, results of operations, and financial condition tocould continue to be negatively affected.affected in the future.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not required.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.applicable.

 

Item 5. Other Information.

 

None.

 

 
3638

Table ofOf Contents

 

Item 6. Exhibits

 

The following exhibits are filed as a part of Part I of this report:

 

No.

Description of Exhibit

10.01

 

Amendment No. 1 to the Executive Employment Agreement, dated as of August 16, 2016, by and between GEE Group Inc., and Derek E. Dewan, executed August 13, 2021.

10.02

Amendment No. 2 to the Executive Employment Agreement, dated as of February 13, 2019, by and between GEE Group Inc., and Kim Thorpe, executed August 13, 2021.

31.01*

 

Certifications of the principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

31.02*

 

Certifications of the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

32.01**

 

Certifications of the principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act and Section 1350 of Title 18 of the United States Code.

32.02**

 

Certifications of the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act and Section 1350 of Title 18 of the United States Code.

101.INS

 

Inline XBRL Instance Document

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

*

 

Filed herewith

**

 

Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 
3739

Table ofOf Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

GEE GROUP INC.

 

(Registrant)

 

 

 

Date: AugustMay 16, 20212022

By:

/s/ Derek Dewan

 

 

Derek Dewan

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

By:

/s/ Kim Thorpe

 

 

Kim Thorpe

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 
3840