What changed in this filing

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Item 1. Financial Statements

2020-08-14 compared with 2020-05-15 · 271 added, 219 removed, 480 unchanged (51% of the section changed)

19 unchanged sentences

Subordinated debt

Current Paycheck Protection Program Loans

Current operating lease liabilities

2 unchanged sentences

Deferred taxes

Paycheck Protection Program Loans

Revolving credit facility

Term loan, net of discount

Subordinated debt

Subordinated convertible debt

13 unchanged sentences

authorized - 5,950 shares;

issued and outstanding - 5,566 and 5,566 at March 31, 2020 and September 30, 2019, respectively;

liquidation value of the preferred series B stock is approximately $27,050 and $27,050 at March 31, 2020 and September 30, 2019, respectively

issued and outstanding - 0 and 5,566 at June 30, 2020 and September 30, 2019, respectively;

liquidation value of the preferred series B stock is approximately $0 and $27,050 at June 30, 2020 and September 30, 2019, respectively

Preferred series C stock;

authorized - 3,000 shares;

issued and outstanding - 144 and 60 at March 31, 2020 and September 30, 2019, respectively;

liquidation value of the preferred series C stock is approximately $144 and $60 at March 31, 2020 and September 30, 2019, respectively

issued and outstanding - 0 and 60 at June 30, 2020 and September 30, 2019, respectively;

liquidation value of the preferred series C stock is approximately $0 and $60 at June 30, 2020 and September 30, 2019, respectively

Total mezzanine equity

2 unchanged sentences

authorized - 200,000 shares;

issued and outstanding - 14,557 shares at March 31, 2020 and 12,538 shares at September 30, 2019, respectively

issued and outstanding - 17,667 shares at June 30, 2020 and 12,538 shares at September 30, 2019, respectively

Additional paid in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

NET REVENUES:

2 unchanged sentences

Cost of contract services

Selling, general and administrative expenses (including noncash stock-based compensation expense of $356 and $549, and $953 and $1,130 respectively)

Selling, general and administrative expenses

(including noncash stock-based compensation expense of $337 and $531, and $1,290 and $1,661 respectively)

Depreciation expense

Amortization of intangible assets

Goodwill impairment charge

LOSS FROM OPERATIONS

Gain on extinguishment of debt

Interest expense

LOSS BEFORE INCOME TAX PROVISION

Provision for income tax

NET LOSS ATTRIBUTABLE TO COMMON

BASIC AND DILUTED LOSS PER SHARE

WEIGHTED AVERAGE NUMBER OF

SHARES - BASIC AND DILUTED

INCOME (LOSS) BEFORE INCOME TAX PROVISION

Provision for income tax expense (benefit)

NET INCOME (LOSS)

Gain on redeemed preferred stock

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

BASIC EARNINGS (LOSS) PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

WEIGHTED AVERAGE SHARES OUTSTANDING:

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

11 unchanged sentences

Balance, March 31, 2020

Share-based compensation

Issuance of stock for interest

Issuance of stock for debt conversion

Issuance of stock for preferred stock conversion

Gain on redemption of preferred stock

Balance, June 30, 2020

Shareholders’

7 unchanged sentences

Balance, March 31, 2019

Share-based compensation

Issuance of stock for interest

Beneficial conversion features on subordinated debt

Balance, June 30, 2019

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

2 unchanged sentences

(In Thousands)

Six Months Ended

Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Gain on Extingishment of Debt

Depreciation and amortization

Goodwill impairment charge

Non-cash lease expense

4 unchanged sentences

Interest expense paid with common and preferred stock

Paid in kind interest on term loan

Change in acquisition deposit for working capital guarantee

4 unchanged sentences

Change in other assets, net of change in other liabilities

Net cash (used in) provided by operating activities

Cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

2 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on term loan

Net proceeds from subordinated debt

Payment on term loan

Net proceeds from (payments on) subordinated debt

Payment on preferred stock redemption

Net proceeds from CARES Act Paycheck Protection Program Loans

Payments on finance leases

Net proceeds from revolving credit

Net cash provided by (used in) financing activities

Net proceeds from (payments on) revolving credit

Net cash provided by financing activities

Net change in cash

5 unchanged sentences

Non-cash investing and financing activities

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

Conversion of 10% subordinated notes to common stock

Conversion of series C preferred stock to common by related parties

Redemption of series B preferred stock

Redemption of series C preferred stock

Conversion of series B convertible preferred stock to common stock

Beneficial conversion features on subordinated debt

Accrued fees on term loan

Right-of-use assets, net of deferred rent

9 unchanged sentences

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, Triad Logistics, Inc., and Triad Personnel Services, Inc.

and its wholly material operating subsidiaries, Access Data Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, 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.

5 unchanged sentences

In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

Operating results for the six-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020.

Operating results for the nine-month period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020.

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, 2019 as filed on December 23, 2019.

The Company experienced significant net losses for the six-month periods ended March 31, 2020 and 2019, and for its most recent fiscal years ended September 30, 2019 and 2018, which also have negatively impacted the Company’s ability to generate liquidity.

The Company experienced significant net losses for the first nine months of its current fiscal year, and for its most recent fiscal years ended September 30, 2019 and 2018, 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.

As a result, management believes the Company has begun to see its operations and business stabilize.

Effective April 28, 2020, the Company successfully negotiated and entered into the Seventh Amendment to the Credit Agreement with its senior lenders.

As a result, management believes the Company had begun to see its operations and business stabilize.

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’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 have continued to be felt across all businesses, with the most severe impacts being felt in the commercial (light industrial) and finance, accounting and office clerical (FAO) end markets within the professional segment.

Following months of extensive negotiations, effective April 28, 2020, the Company entered into the Seventh Amendment to the Credit Agreement with its senior lenders.

The Seventh Amendment (as defined below) is the most significant modification of the Company’s senior credit facilities since inception and provides several important concessions and features, including extending the maturity by two years to June 30, 2023, and adjusting (reducing) cash debt service and thereby improving the Company’s ability to generate liquidity.

1 unchanged sentence

Small Business Administration (“SBA”).

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 and continue to be felt across all businesses, with the most severe impacts being felt in the commercial (light industrial) and finance, accounting and office clerical (“FA&O) end markets within the professional segment.

Between April 29 and May 4, 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 $19,926.

These funds are the only source of financing available to our companies and businesses and are absolutely critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to produce and meet our foreseeable liquidity requirements in the midst of this continuing worldwide pandemic.

GEE GROUP INC.

1 unchanged sentence

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

On June 30, 2020, the Company completed a financial restructuring and eliminated approximately $19,685 of its subordinated indebtedness and approximately $27,695 of its convertible preferred stock as agreed pursuant to the terms of Seventh Amendment, dated as of April 28, 2020, to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017.

The Company entered into a Repurchase Agreement for Preferred Stock and Subordinated Notes (the “Repurchase Agreement”), dated as of June 30, 2020 with Ronald R.

Smith”), Thrivent Financial for Lutherans (“Thrivent”), Madison Capital Funding LLC (“Madison”), Maurice R.

Harrison IV (“Mr.

Harrison”), Peter Langlois (“Mr.

Langlois”), Vincent Lombardo (“Mr.

Lombardo”) and Shane Parr (Mr.

Parr, and collectively with Mr.

Smith, Thrivent, Madison, Mr.

Harrison, Mr.

Langlois, and Mr.

Lombardo), the “SNI Group Members” pursuant to which the SNI Group Members agreed to allow the Company to repurchase and settle all of the 9.5% Convertible Subordinated Notes (the “9.5% Notes”), Series B Convertible Preferred Stock, no par value (“Series B Preferred Stock”), 8% Convertible Subordinated Notes (“8% Notes”) and Series C 8% Cumulative Convertible Preferred Stock, no par value (“Series C Preferred Stock”) held by each of them as set forth below.

All of the outstanding 9.5% Notes and all of the outstanding Series B Preferred Stock were held by SNI Group Members.

Management believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future assuming the negative economic effects of COVID-19 do not worsen, and that economic recovery occurs.

As of March 31, 2020, the Company had cash of approximately $2,379, which was a decrease of approximately $1,676 from approximately $4,055 at September 30, 2019.

Working capital at March 31, 2020 was approximately $9,517, as compared to working capital of approximately $8,534 for September 30, 2019.

As of June 30, 2020, the Company had cash of approximately $16,577, which was an increase of approximately $12,522 from approximately $4,055 at September 30, 2019.

Working capital at June 30, 2020 was approximately $6,880, as compared to working capital of approximately $8,534 for September 30, 2019.

Principles of Consolidation

5 unchanged sentences

In March 2020, the World Health Organization announced that a novel strain of coronavirus (“COVID-19”) had become pandemic.

The COVID-19 had a significant impact on global economies as a result of Federal and Local orders and business closures designed to stop the spread of the virus.

COVID-19 had a significant impact on global economies as a result of Federal and Local orders and business closures designed to stop the spread of the virus.

We are continuing to monitor developments related to COVID-19 pandemic and related risks including risks related to efforts to mitigate the disease’s spread.

The rapid development and fluidity of recent events related to the pandemic creates uncertainty regarding to the ultimate impact on the Company’s results of operations, financial condition, and liquidity.

Due to uncertainties related to duration and severity of COVID-19, we may make changes in the judgments and estimates needed to apply the Company’s significant accounting policies that could result in significant impacts on the Company’s financial statements in future periods.

The rapid development and fluidity of recent events related to the pandemic creates uncertainty related to the ultimate impact on the Company’s results of operations, financial condition, and liquidity.

Due to uncertainties related to the duration and severity of COVID-19, we may make changes in the judgments and estimates needed to apply the Company’s significant accounting policies that could result in significant impacts on the Company’s financial statements in future periods.

Actual results and outcomes may differ from management’s estimates and assumptions.

4 unchanged sentences

Our revenues are recorded net of variable consideration such as sales adjustments or allowances.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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’s guarantee period (referred to as “falloffs”).

6 unchanged sentences

The Company has the risk of identifying and hiring qualified 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.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Falloffs and refunds during the period are reflected in the unaudited condensed consolidated statements of operations as a reduction of placement service revenues and were approximately $400 and $700, and $600 and $1,300 for the three and six-month periods ended March 31, 2020 and 2019, respectively.

Falloffs and refunds during the period are reflected in the unaudited condensed consolidated statements of operations as a reduction of placement service revenues and were approximately $338 and $1,130, and $552 and $1,858 for the three and nine-month periods ended June 30, 2020 and 2019, 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.

6 unchanged sentences

Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents.

As of March 31, 2020 and September 30, 2019, there were no cash equivalents.

As of June 30, 2020 and September 30, 2019, there were no cash equivalents.

The Company maintains deposits in financial institutions and, at times, balances may exceed federally insured limits.

6 unchanged sentences

The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a relatively small accounts receivable allowance.

As of March 31, 2020, and September 30, 2019, the allowance for doubtful accounts was $2,250 and $515, respectively.

As of June 30, 2020, and September 30, 2019, the allowance for doubtful accounts was $2,149 and $515, respectively.

The Company charges off uncollectible accounts once the invoices are deemed unlikely to be collectible.

The allowance also includes permanent placement falloffs of $287 and $197 as of March 31, 2020 and September 30, 2019.

The allowance also includes permanent placement falloffs of $287 and $197 as of June 30, 2020 and September 30, 2019.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Property and Equipment

4 unchanged sentences

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 six-month periods ended March 31, 2020 and 2019.

There was no impairment of property and equipment for the nine-month periods ended June 30, 2020 and 2019.

The Company determines if a contractual arrangement is a lease at inception.

3 unchanged sentences

All the Company’s real estate leases are classified as operating leases.

GEE 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.

10 unchanged sentences

An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.

Due to the recent decline in global economic and labor market conditions caused by the global outbreak of the COVID-19 pandemic, the Company considered and reviewed the recoverability of its goodwill and determined, during the three-month period ended March 31, 2020, that no impairment charge was necessary.

Due to the recent decline in global economic and labor market conditions caused by the global outbreak of the COVID-19 pandemic, the Company considered and reviewed the recoverability of its goodwill and determined, during the nine-month period ended June 30, 2020, and determined that no impairment charge was necessary.

There were no other events or circumstances that have changed since the last annual test that could more likely than not reduce the fair value of the Company’s reporting segments below its carrying values.

Due to a sustained decline in the market capitalization of our common stock during the third quarter of 2019, we performed goodwill impairment test in accordance with the provisions of ASU 2017-04.

The outcome of this goodwill impairment test resulted in a non-cash charge for the impairment of goodwill of $4.3 million, which was recorded in the consolidated unaudited condensed financial statements for the three and nine-month periods ended June 30, 2019.

Fair Value Measurement

1 unchanged sentence

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.

GEE 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.

10 unchanged sentences

The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using Level 3 inputs, as discussed in Note 6.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Earnings and Loss per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period.

Diluted loss per share is computed giving effect to all potentially dilutive common shares.

Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable and preferred stock to common stock.

In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation.

Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 13,263 and 13,632, and 11,713 and 11,737 for the three and six-month periods ended March 31, 2020 and 2019, respectively.

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 per share is 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, exercise of stock options and warrants and the conversion of notes payable and preferred stock to common stock.

For the three and nine-month periods ended June 30, 2020, the weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares were 1,013 and 1,005, respectively.

Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 1,761 and 9,675 for the three and nine-month periods ended June 30, 2020, and 13,696 and 12,390 for the three and nine-month periods ended June 30, 2019, respectively.

For the three and nine-month periods June 30, 2019, in which net loss has been 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 six-month periods ended March 31, 2020 and 2019, advertising expense totaled $553 and $1,037, and $576 and $1,148 respectively.

For the three and nine-month periods ended June 30, 2020 and 2019, advertising expense totaled $837 and $1,874, and $592 and $1,740, respectively.

Intangible Assets

3 unchanged sentences

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 six-month periods ended March 31, 2020 and 2019.

The Company did not recognize and record any impairments of long-lived assets used in operations during the nine-month periods ended June 30, 2020 and 2019.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Beneficial Conversion Feature

8 unchanged sentences

The value of the BCF is limited to the basis that is initially allocated to the convertible security.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

The BCF for the convertible instrument is recorded as a reduction, or discount, to the carrying amount of the convertible instrument equal to the fair value of the conversion feature.

The discount is then amortized as interest or deemed dividends over the period from the date of the convertible instrument’s issuance to the earliest redemption date, provided that the convertible instrument is not currently redeemable but probable of becoming redeemable in the future.

As a result of the settlement and conversion of the Company’s subordinated debt and preferred stock as of June 30, 2020, the Company charged off the remaining unamortized BCF associated with these instruments to interest expense and gain recognized from extinguishment of subordinated debt.

Stock-Based Compensation

11 unchanged sentences

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.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized.

2 unchanged sentences

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine 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 recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We recognize and group interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations.

As of March 31, 2020, and September 30, 2019, no material accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

We recognize and group interest and penalties, if any, with income tax expense in the accompanying unaudited condensed consolidated statement of operations.

As of June 30, 2020, and September 30, 2019, no material accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

The Company provides the following distinctive services:

20 unchanged sentences

See Note 5 for further discussion of leases.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Stock Compensation .

11 unchanged sentences

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

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Property and Equipment

6 unchanged sentences

Property and equipment, net

Depreciation expense for each three and six-month periods ended March 31, 2020 and 2019 was approximately $69 and $148, and $101 and $180 respectively.

Depreciation expense for each three and nine-month periods ended June 30, 2020 and 2019 was $33 and $181, and $89 and $269 respectively.

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.

2 unchanged sentences

The leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities.

Operating lease expenses was approximately $611 and $1,270, and $700 and $1,500 for the three and six-month periods ended March 31, 2020 and 2019, respectively.

Operating lease expenses was $575 and $1,844, and $734 and $2,201 for the three and nine-month periods ended June 30, 2020 and 2019, respectively.

GEE 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:

Three Months Ended

Nine Months Ended June 30, 2020

Cash paid for operating lease liabilities

1 unchanged sentence

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

June 30, 2020

Weighted average remaining lease term for operating leases

Weighted average discount rate for operating leases

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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 March 31, 2020, including certain closed offices are as follows:

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, 2020, including certain closed offices are as follows:

Remainder of Fiscal 2020

3 unchanged sentences

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 March 31, 2020 and September 30, 2019 and estimated future amortization expense.

March 31, 2020

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, 2020 and September 30, 2019 and estimated future amortization expense.

June 30, 2020

September 30, 2019

7 unchanged sentences

Remaining Fiscal 2020

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 – line basis over the estimated useful life 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 – 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 noncompete agreements, which are typically five years in duration.

The amortization expense for intangible assets was approximately $1,398 and $2,795, and $1,397 and $2,793 for three and six-month periods ended March 31, 2020 and 2019, respectively.

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 $1,125 and $3,921, and $1,396 and $4,189 for three and nine-month periods ended June 30, 2020 and 2019, respectively.

Revolving Credit Facility and Term Loan

2 unchanged sentences

The Revolving Credit Facility and Term Loan under the Credit Agreement, as amended, mature on June 30, 2023.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Revolving Credit Facility

As of March 31, 2020, the Company had $15,015 in outstanding borrowings under the Revolving Credit Facility, of which approximately $14,958 was at an interest rate of approximately 11%, and approximately $57 was at an interest rate of approximately 17.25%.

As of March 31, 2020, the Company had approximately $100 available on the Revolving Credit facility.

As of June 30, 2020, the Company had $11,828 in outstanding borrowings under the Revolving Credit Facility, which was at an interest rate of approximately 11%.

As of June 30, 2020, the Company had $697 then currently available for borrowing under the terms of the Revolving Credit Facility.

The Revolving Credit Facility is secured by all the Company’s property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title or interests.

5 unchanged sentences

Long term portion of term loan, net of discounts

The Term Loan is payable as follows, subject to acceleration upon the occurrence of an Event of Default under the Credit Agreement or termination of the Credit Agreement and provided that all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses shall be due and payable in full on June 30, 2023.

The Term Loan is payable as follows, subject to acceleration upon the occurrence of an Event of Default under the Credit Agreement or termination of the Credit Agreement and provided that any and all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses shall be due and payable in full on maturity as of June 30, 2023.

Principal payments are required as follows:

fiscal 2020 – $0, fiscal 2021- $889, fiscal 2022 – $1,778, and fiscal 2023 - $39,438.

The Company also was required to prepay the outstanding amount of the Term Loan in an amount equal to the Specified Excess Cash Flow Amount (as defined in the agreement) for the immediately preceding fiscal year, commencing with the fiscal year ending September 30, 2019 (refer to Seventh Amendment to Credit Agreement , below, and Note 15.

Subsequent Events.).

The Company does not owe any amount as of March 31, 2020.

As of March 31, 2020, the Company had $41,578 in outstanding borrowings under the Term Loan that have an annual cash interest rate of approximately 11%, plus additional interest at an annual rate of 5% in the form of PIK (noncash, paid-in-kind), which accrues and is added to the balance of the Term Loan on a monthly basis.

The Company also has been required to make prepayments on the Term Loan in amounts equal to the Specified Excess Cash Flow Amount (as defined in the agreement) for the immediately preceding fiscal year, commencing with the fiscal year ending September 30, 2019 (refer to Seventh Amendment to Credit Agreement, below, which includes certain modifications to this prepayment requirement).

To date, the Company has not been required to make any prepayments on the Term Loan.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

As of June 30, 2020, the Company had $42,105 in outstanding borrowings under the Term Loan Facility that was at an interest of approximately 11%, plus additional interest at an annual rate 5% in the form of PIK (noncash, paid-in-kind), which accrues and is added to the balance of the Term Loan on a monthly basis.

The Credit Agreement includes financial and other restrictive covenants.

Financial covenants include minimum fixed charge coverage ratios, minimum EBITDA, as defined under the Credit Agreement to include certain adjustments, and a maximum senior leverage ratios.

Financial covenants include minimum fixed charge coverage ratios, minimum EBITDA, as defined under the Credit Agreement to include certain adjustments, and maximum senior leverage ratios.

The Company measures and certifies these covenants quarterly.

The financial covenants are measured on a trailing four quarter basis as of the end of each quarter.

The Company did not meet its financial covenants for the trailing four quarters ended March 31, 2020.

The Company received a waiver for missing the March 31, 2020 covenants and its future financial covenants have been reset under the Seventh and Eighth Amendments of the Credit Agreement (refer to Seventh Amendment to Credit Agreement , below, and Note 15.

Subsequent Events.).

The Company met its financial covenants for the trailing four quarters ended June 30, 2020.

The Credit Agreement also permits capital expenditures up to a certain level and contains customary default and acceleration provisions.

4 unchanged sentences

The Company and its senior lenders previously entered into the Sixth Amendment on February 12, 2020, while negotiating and in contemplation of the larger loan modification contained in Seventh Amendment.

(See Note 15.

Subsequent Events.)

The Seventh Amendment extends the maturity of the Credit Agreement from June 30, 2021 to June 30, 2023, lowered cash interest approximately 500 basis points (5%) per annum, postponed quarterly principal payments to recommence beginning June 30, 2021, and reduced the amounts of quarterly principal payments from the current $500,000 per quarter to $445,525.

The Company has agreed to pay 5% PIK (non-cash, paid-in-kind) interest on the Term Loan only, which is accrued and added to the balance of the Term Loan, and to pay a restructuring fee of $3,478 and an exit fee of $1,500, which became fully earned upon the effective date, but are payable upon the occurrence of a triggering event.

The triggering events include a change in control, refinancing, maturity or other termination of the senior loans, and in the case of the restructuring fee, an acquisition by the Company also is considered a triggering event.

In addition, the Company has agreed that for each six month period commencing with the period ending on March 31, 2021 and for each fiscal year commencing with the fiscal year ending on September 30, 2021, it shall utilize its “Specified Excess Cash Flow Amount” (as defined in the Credit Agreement) to repay amounts outstanding under the Credit Agreement.

Under the Seventh Amendment, the Company also agreed to the condition that it will pursue, negotiate and execute conversions of all of the Company’s outstanding subordinated debt and preferred stock into shares of the Company’s common stock.

In the event the Company was able to meet the conversion conditions of the agreement, it would have then had the option to settle the restructuring fee, exit fee, and accumulated PIK balance, each when due, in cash or in shares of the Company’s common stock.

In the case of the latter, the amount or number of shares distributable to the Senior Lenders would be determined using the most favorable conversion rate at which the holders of the Company’s subordinated indebtedness or preferred stock converted their securities to shares of common stock of the Company in their conversion transactions.

On June 30, 2020, the Company completed the transactions contemplated above, as planned, except that the Company was able to settle a significant portion of outstanding subordinated debt and preferred stock for cash and at very attractive terms, thereby eliminating the need to issue substantially more of its common stock and avoiding significant dilution to existing shareholders.

(Refer to Ninth Amendment to Credit Agreement , below.)

GEE GROUP INC.

3 unchanged sentences

On May 5, 2020 the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program (“PPP”) and received net funds totaling $19,927 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP.

(See Note 15.

Subsequent Events.).

On May 5, 2020, the Company also entered into Eighth Amendment, dated as of May 5, 2020 (the “Eighth Amendment”) to the Credit Agreement.

The Eighth Amendment served as the conforming amendment under the Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement.

(See Note 15.

Subsequent Events.)

The Eighth Amendment to the Credit Agreement serves as the conforming amendment under the Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement.

Ninth Amendment to Credit Agreement

On June 30, 2020, the Company and its subsidiaries entered into Ninth Amendment, dated as of June 30, 2020 (the “Ninth Amendment”), to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).

Under the Ninth Amendment, the Company’s senior lender agreed to modify the earlier conversion condition of the Seventh Amendment and allow the Company to settle a significant portion of the subordinated debt and preferred stock with up to $5.1 million in cash, instead of by converting all of it into the Company’s common stock.

In exchange, the Company agreed to settle the Exit and Restructuring Fees agreed to in the Seventh Amendment totaling $4,978, by September 30, 2020, or by such other date if requested by the Company and agreed to by the Senior Lender, in cash or in shares of the Company’s common stock, except under the Ninth Amendment, the determination of cash or stock would be at the Senior Lender’s discretion and no longer at the Company’s discretion as provided in the earlier Seventh Amendment.

Accrued Compensation

14 unchanged sentences

The 10% Note matures on October 3, 2021 (the “Maturity Date”).

The 10% Note is convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share.

All or any portion of the 10% Note may be redeemed by the Company for cash at any time on or after April 3, 2018 that the average daily VWAP of the Company’s Common Stock reported on the principal trading market for the Common Stock exceeds the then applicable Conversion Price for a period of 20 trading days.

The redemption price shall be an amount equal to 100% of the then outstanding principal amount of the 10% Note being redeemed, plus accrued and unpaid interest thereon.

The Company agreed to issue to the investors in JAX Legacy approximately 77,775 shares of common stock, at a value of approximately $400 which was expensed as loss on the extinguishment of debt during the year ended September 30, 2017.

The 10% Note was convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share.

All or any portion of the 10% Note was redeemable by the Company for cash at any time on or after April 3, 2018 that the average daily VWAP of the Company’s Common Stock reported on the principal trading market for the Common Stock exceeded the then applicable Conversion Price for a period of 20 trading days.

The redemption price was an amount equal to 100% of the then outstanding principal amount of the 10% Note being redeemed, plus accrued and unpaid interest thereon.

GEE GROUP INC.

1 unchanged sentence

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

Total discount recorded at issuance of the original JAX Legacy subordinated note payable was approximately $600.

Total amortization of debt discount for the year ended September 30, 2017 was approximately $100, and the remaining $300 was written off to loss on extinguishment of debt upon amendment and restatement resulting in the 10% Note.

The Company issued shares of common stock to JAX Legacy related to the conversion of the subordinated note and the interest of approximately 261 and 410 for the three and six-month periods ended March 31, 2020 and 149 and 189 for the three and six-month periods ended March 31, 2019, respectively.

The stock was valued at approximately $105 and $210 for each three and six-month periods ended March 31, 2020 and March 31, 2019.

On April 3, 2020 the Company issued 345 shares of common stock to JAX Legacy related to interest of $105 on the 10% Note.

The Company issued shares of common stock related to JAX Legacy for the interest on the subordinated note of approximately 345 and 756 for the three and nine-month periods ended June 30, 2020 and 87 and 276 for the three and nine-month periods ended June 30, 2019, respectively.

The stock was valued at approximately $105 and $314 for each three and nine-month periods ended June 30, 2020 and June 30, 2019.

On June 30, 2020, the Company and Jax Legacy, the sole holder of the Company’s 10% Note entered into 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 $5.83 per share conversion rate stated in the 10% Notes.

The conversion of the 10% Note was executed on June 30, 2020 and the Company issued 718 shares of Common Stock to Jax Legacy on that date.

Subordinated Promissory Note

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The Subordinated Note originally bore interest at the rate of 5.5% per annum.

Interest on the Subordinated Note is payable monthly and principal can only be paid in stock until the term loan and Revolving Credit Facility are repaid.

The Subordinated Note may be prepaid without penalty.

The principal of and interest on the Subordinated Note may be paid, at the option of the Company, either in cash or in shares of common stock of the Company or in any combination of cash and common stock.

The Sellers have agreed that all payments and obligations under the Subordinated Note shall be subordinate and junior in right of payment to any “Senior Indebtedness” (as defined in the Paladin Agreement) now or hereafter existing to “Senior Lenders” (current or future) (as defined in the Paladin Agreement).

Interest on the Subordinated Note was payable monthly and principal could only be paid in stock until the term loan and Revolving Credit Facility was repaid.

On February 8, 2020, the Company and its subsidiaries, as Borrowers, entered into a first amendment (the “First Amendment”) to the Subordinated Note, dated as of January 20, 2017 (the “Subordinated Note”).

Under the First Amendment, the Company and its lender have negotiated and agreed to amend Subordinated Note to change maturity date to January 20, 2022.

Under the First Amendment, the Company and its lender agreed to amend Subordinated Note to change maturity date to January 20, 2022.

On June 30, 2020, the Company 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

On April 3, 2017, the Company issued and paid to certain SNIH Stockholders as part of the acquisition of SNIH an aggregate of $12,500 in the form of 9.5% Convertible Subordinated Notes (the “9.5% Notes”).

The 9.5% Notes mature on October 3, 2021 (the “Maturity Date”).

The 9.5% Notes are convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share.

Interest on the 9.5% Notes accrues at the rate of 9.5% per annum and is payable quarterly in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2017, on each conversion date with respect to the 9.5% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”).

At the option of the Company, interest may be paid on an Interest Payment Date either in cash or in shares of Common Stock of the Company, which Common Stock shall be valued based on the terms of the agreement, subject to certain limitations defined in the loan agreement.

Each of the 9.5% Notes is subordinated in payment to the obligations of the Company under its Credit Agreement (see Note 6) pursuant to Subordination and Inter-creditor Agreements dated as of March 31, 2017 by and among the Company, the Credit Agreement lenders, and each of the holders of the 9.5% Notes.

The Company issued shares of common stock to the SNI Sellers related to interest of $300 on the 9.5% Notes of approximately 706 and 1,108 for the three and six-month periods ended March 31, 2020 and 367 and 498 for the three and six-month periods ended March 31, 2019, respectively.

The stock was valued at approximately $300 and $600 for each three and six-month periods ended March 31, 2020 and March 31, 2019.

On April 3, 2020 the Company issued approximately 931 shares of common stock to the SNI Sellers related to interest of $300 on the 9.5% Notes.

The maturity date was October 3, 2021 (the “Maturity Date”).

The 9.5% Notes were convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share.

Interest on the 9.5% Notes accrued at the rate of 9.5% per annum and was payable quarterly in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2017, on each conversion date with respect to the 9.5% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”).

At the option of the Company, interest was payable on an Interest Payment Date either in cash or in shares of Common Stock of the Company, which Common Stock was valued based on the terms of the agreement, subject to certain limitations defined in the loan agreement.

Each of the 9.5% Notes was subordinated in payment to the obligations of the Company under its Credit Agreement pursuant to Subordination and Inter-creditor Agreements dated as of March 31, 2017 by and among the Company, the Credit Agreement lenders, and each of the holders of the 9.5% Notes.

GEE GROUP INC.

1 unchanged sentence

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

The Company issued shares of common stock to the holders of the 9.5% Notes related to interest of $300 on the 9.5% Notes of approximately 930 and 2,039 for the three and nine-month periods ended June 30, 2020, and 246 and 745 for the three and nine-month periods ended June 30, 2019, respectively.

The stock was valued at approximately $300 and $900 for each three and nine-month periods ended June 30, 2020 and June 30, 2019.

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.

Registration Rights Agreement

On June 30, 2020 the Company and the SNI Group Members entered into a Registration Rights Agreement dated as of June 30, 2020 (the “Registration Rights Agreement”).

Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to file on or prior to July 31, 2020, an initial registration statement with respect to the resale of shares of Common Stock currently owned by the SNI Group members that are “Registrable Securities” (as defined in the Registration Rights Agreement) on or prior to July 31, 2020.

In addition, the Company has agreed that it shall, on one occasion, on or after September 30, 2020 and upon the written request of the holders of 51% or more of the Registrable Securities, file a registration statement with respect to the Registrable Securities held by such holders.

The demanding holders may require, in connection with the registration, that the such demand registration take the form of an underwritten public offering of such Registrable Securities.

The Registration Rights Agreement also provides that for a period of three years after the closing date of the Restructuring, the holders of Registrable Securities shall have piggyback registration rights with respect to all registration statements filed by the Company (other than those on Form S-4 or Form S-8).

8% Convertible Subordinated Notes to Related Parties

On May 15, 2019, the Company issued and sold to members of its executive management and Board of Directors (the “Investors”) $2,000 in aggregate principal amount of its 8% Notes.

The 8% Notes mature on October 3, 2021 (the “Maturity Date”).

The 8% Notes are convertible into shares of the Company’s Series C 8% Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) at a conversion price equal to $1.00 per share (subject to adjustment as provided in the 8% Notes upon any stock dividend, stock combination or stock split or upon the consummation of certain fundamental transactions) (the “Conversion Price”).

Interest on the 8% Notes accrues at the rate of 8% per annum and shall be paid quarterly in non-cash payments-in-kind (“PIK”) in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2019, on each conversion date with respect to the 8% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”).

Interest shall be paid on an Interest Payment Date in shares of Series C Preferred Stock of the Company, which Series C Preferred Stock shall be valued at its liquidation value.

All or any portion of the 8% Notes may be redeemed by the Company for cash at any time.

The redemption price shall be an amount equal to 100% of the then outstanding principal amount of the 8% Notes being redeemed, plus accrued and unpaid PIK interest thereon.

The Company may, at its option, prepay any portion of the principal amount of the 8% Notes without the prior consent of the holders thereof;

The maturity date of the 8% Notes was on October 3, 2021 (the “Maturity Date”).

The 8% Notes were converted into shares of the Company’s Series C 8% Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) at a conversion price equal to $1.00 per share (subject to adjustment as provided in the 8% Notes upon any stock dividend, stock combination or stock split or upon the consummation of certain fundamental transactions) (the “Conversion Price”).

Interest on the 8% Notes accrued at the rate of 8% per annum and was payable quarterly in non-cash payments-in-kind (“PIK”) in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2019, on each conversion date with respect to the 8% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”).

Interest was payable on an Interest Payment Date in shares of Series C Preferred Stock of the Company, which Series C Preferred Stock was valued at its liquidation value.

All or any portion of the 8% Notes was redeemable by the Company for cash at any time.

The redemption price was an amount equal to 100% of the then outstanding principal amount of the 8% Notes being redeemed, plus accrued and unpaid PIK interest thereon.

The Company could, at its option, prepay any portion of the principal amount of the 8% Notes without the prior consent of the holders thereof;

provided, however, that any prepayments of the 8% Notes shall be made on a pro rata basis to all holders of 8% Notes based on the aggregate principal amount of 8% Notes held by such holders.

The Company shall be required to prepay the 8% Notes together with accrued and unpaid PIK interest thereon upon the consummation by the Company of any Change of Control.

The Company was required to prepay the 8% Notes together with accrued and unpaid PIK interest thereon upon the consummation by the Company of any “Change of Control” (as defined in the 8% Notes).

For purposes of the 8% Notes, a Change of Control of the Company shall mean any of the following:

(A) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions or (B) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any person or entity together with their affiliates, becomes the beneficial owner, directly or indirectly, of more than 50% of the Common Stock of the Company.

Each of the 8% Notes is subordinated in payment to the obligations of the Company to the lenders parties to that certain Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, as amended, by and among the Company, the Company’s subsidiaries named as borrowers therein (collectively with the Company, the “Borrowers”), the senior lenders named therein and MGG Investment Group LP, as administrative agent and collateral agent (the “Agent”) for the senior lenders (the “Senior Credit Agreement”), pursuant to those certain Subordination and Intercreditor Agreements, each dated as of May 15, 2019 by and among the Company, the Borrowers, the Agent and each of the holders of the 8% Notes.

The Company issued approximately 42 shares and 83 shares of Series C Preferred Stock to Investors related to interest of $42 and $83 on the 8% Notes for the three and six-month periods ended March 31, 2020, respectively.

There were no shares issued for the three and six-month periods ended March 31, 2019.

The BCF for the 8% Notes is recorded as a discount to their carrying value and is equal to the fair value of the conversion feature.

The discount will be amortized as interest over the period from the date of issuance to maturity.

The total BCF recorded was approximately $841.

For the three and six-month periods ended March 31, 2020, the Company amortized approximately $80 and $160, and of debt discount, respectively.

Future minimum payments of all subordinated debt will total approximately as follows:

fiscal 2020 - $0, fiscal 2021- $0 and fiscal 2022 - $19,700.

Seventh Amendment to Credit Agreement

On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment to the Credit Agreement.

Under the Seventh Amendment, the Company has agreed to the condition that it will pursue, negotiate and execute conversions of all of the Company’s outstanding subordinated debt and preferred stock into shares of the Company’s common stock.

The Company has up to 60 days after the effective date of the Seventh Amendment (until June 27, 2020) to enter into definitive agreements with all parties to effect the conversions and up to 90 days thereafter (until September 25, 2020) to obtain required shareholder approvals and execute the conversions, with the provision that the Company may be granted another 30 days by Lenders at their discretion.

In the event the Company is unable to satisfactorily meet the conversion condition within the specified time frames, an Event of Default under the Credit Agreement will be deemed to have occurred.

(See Note 15.

Subsequent Events.)

Each of the 8% Notes was subordinated in payment to the obligations of the Company to the lenders parties to that certain Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, as amended, by and among the Company, the Company’s subsidiaries named as borrowers therein (collectively with the Company, the “Borrowers”), the senior lenders named therein and MGG Investment Group LP, as administrative agent and collateral agent (the “Agent”) for the senior lenders (the “Senior Credit Agreement”), pursuant to those certain Subordination and Intercreditor Agreements, each dated as of May 15, 2019 by and among the Company, the Borrowers, the Agent and each of the holders of the 8% Notes.

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 for the three and nine-month periods ended June 30, 2020, respectively.

There were 20 shares issued of Series C Preferred Stock to Investors related to interest of $20 for the three and nine-month periods ended June 30, 2019.

GEE GROUP INC.

1 unchanged sentence

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

During six-month period ended March 31, 2019, the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock, respectively (See Note 11).

The BCF for the 8% Notes was recorded as a discount to their carrying value and was equal to the fair value of the conversion feature upon the date of issuance.

The discount was being amortized as interest over the period from the date of issuance to maturity.

The total BCF recorded was $841.

For the three and nine-month periods ended June 30, 2020 and 2019, the Company amortized $572 and $731, and $36 and $36 of debt discount, respectively.

Pursuant to the Repurchase Agreement, Mr.

Smith (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 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.

On June 30, 2020, the Company issued 1,718 shares of common stock for debt conversion of $1,000 aggregate principal amount of the 8% Notes, related shares of Series C Preferred Stock and 10% Note.

The Company also issued 93 shares of common stock for Series C Preferred Stock discussed above (Note 9).

During nine-month period ended June 30, 2019, the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock, respectively (See Note 11).

Restricted Stock

The Company did not grant restricted stock during six-month periods ended March 31, 2020 and 2019.

Stock-based compensation expense attributable to restricted stock was $130 and $885, and $200 and $400 during the three and six-month periods ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was approximately $700 of unrecognized compensation expense related to restricted stock outstanding.

The Company granted 150 restricted shares of common stock during nine-month period ended June 30, 2020.

The restricted shares are to be earned over a three-year period and cliff vest at the end of the third year from the date of grant.

The Company did not grant restricted stock during nine-month period ended June 30, 2019.

Stock-based compensation expense attributable to restricted stock was $130 and $1,015, and $203 and $608 during the three and nine-month periods ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, there was approximately $650 of unrecognized compensation expense related to restricted stock outstanding.

On November 23, 2019, 500 shares of restricted common stock held by the Company’s former president became fully vested upon his passing.

These shares were issued during six-month period ended March 31, 2020.

No shares were issued during the six-month period ended March 31, 2019.

These shares were issued during nine-month period ended June 30, 2020.

No shares were issued during the nine-month period ended June 30, 2019.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

A summary of restricted stock activity is presented as follows:

1 unchanged sentence

Non-vested restricted stock outstanding as of September 30, 2019

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

No warrants were granted or exercised during the six-month period ended March 31, 2020.

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

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

Weighted Average Exercise Price Per Share ($)

4 unchanged sentences

Warrants outstanding as of March 31, 2020

Warrants outstanding as of June 30, 2020

Warrants exercisable as of September 30, 2019

Warrants exercisable as of March 31, 2020

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Warrants exercisable as of June 30, 2020

Stock Options

As of March 31, 2020, there were stock options outstanding under the Company’s Second Amended and Restated 1997 Stock Option Plan and the Company’s Amended and Restated 2013 Incentive Stock Plan.

As of June 30, 2020, there were stock options outstanding under the Company’s Second Amended and Restated 1997 Stock Option Plan and the Company’s Amended and Restated 2013 Incentive Stock Plan.

Both plans were approved by the shareholders.

1 unchanged sentence

Vesting periods are established by the Compensation Committee at the time of grant.

All stock options outstanding as of March 31, 2020 and September 30, 2019 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-based compensation expense attributable to stock options and warrants was $226 and $68, and $300 and $700 for the three and six-month periods ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was approximately $960 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.96 years.

All stock options outstanding as of June 30, 2020 and September 30, 2019 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-based compensation expense attributable to stock options and warrants was $207 and $274 for the three and nine-month periods ended June 30, 2020, and $329 and $1,054 for the three and nine-month periods ended June 30, 2019, respectively.

As of June 30, 2020, there was approximately $787 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.96 years.

GEE 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:

7 unchanged sentences

Options outstanding as of March 31, 2020

Forfeited/Expired

Options outstanding as of June 30, 2020

Exercisable as of September 30, 2019

Exercisable as of March 31, 2020

Exercisable as of June 30, 2020

Mezzanine Equity

7 unchanged sentences

The no par value, Series B Convertible Preferred Stock has a liquidation preference equal to $4.86 per share and ranks 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.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

In the event that the Company declares or pays a dividend or distribution on its Common Stock, whether such dividend or distribution is payable in cash, securities or other property, including the purchase or redemption by the Company or any of its subsidiaries of shares of Common Stock for cash, securities or property, the Company is required to simultaneously declare and pay a dividend on the no par value, Series B Convertible Preferred Stock on a pro rata basis with the Common Stock determined on an as-converted basis assuming all shares had been converted as of immediately prior to the record date of the applicable dividend or distribution.

1 unchanged sentence

Pursuant to the Resolution Establishing Series, without the prior written consent of holders of not less than a majority of the then total outstanding Shares of no par value, Series B Convertible Preferred Stock, voting separately as a single class, the Company shall not create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company) that ranks pari passu with or superior to the no par value, Series B Convertible Preferred Stock in relative rights, preferences or privileges (including with respect to dividends, liquidation or voting).

Each share of Series B Convertible Preferred Stock is convertible at the option of the holder thereof into one share of Common Stock at an initial conversion price equal to $4.86 per share, which is 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.

None of the shares of no par value, Series B Preferred Stock issued to the SNIH Stockholders are registered under the Securities Act.

Each of the SNIH Stockholders who received shares of Series B Preferred Stock is an accredited investor.

The issuance of the shares of no par value, Series B Preferred Stock to such SNIH Stockholders is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act.

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 precludes permanent equity classification on the accompanying consolidated Balance Sheet.

During six-month period ended March 31, 2019, the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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 5,566 currently outstanding shares of Series B Preferred Stock (the “Series B Preferred Stock Amount”) held by them.

The Series B Preferred Stock Purchase Price was calculated based on the following formula:

the Series B Preferred Stock Amount, divided by $4.86 (the price at which the Series B Preferred Stock is convertible to Common Stock in the Statement of Resolution Establishing Series of the Series B Preferred Stock), times $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020).

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.

During nine-month period ended June 30, 2019, the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock.

Series C Convertible Preferred Stock

8 unchanged sentences

Each share of Series C Preferred Stock shall be 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.

There were 20 shares issued of Series C Preferred Stock to Investors related to interest of $20 for the three and nine-month periods ended June 30, 2019.

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.

GEE GROUP INC.

1 unchanged sentence

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

The Company issued approximately 42 shares and 83 shares of Series C Preferred Stock to Investors related to interest of $42 and $83 on the 8% Notes during three and six-month periods ending March 31, 2020, respectively.

There were no shares issued for the three and six-month periods ended March 31, 2019.

Seventh Amendment to Credit Agreement

On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment to the Credit Agreement.

In the event the Company is unable to satisfactorily meet the conversion condition within the specified time frames, an Event of Default under the Credit Agreement will be deemed to have occurred.

(See Note 15.

Subsequent Events.)

The following table presents the provision for income taxes and our effective tax rate for the three-month periods ended March 31, 2020 and 2019:

The following table presents the provision for income taxes and our effective tax rate for the three and nine-month periods ended June 30, 2020 and 2019:

Three Months Ended,

Provision for Income Taxes

Effective Tax Rate

Our effective tax rate for the three-month period ended March 31, 2020, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets.

Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a full valuation allowance against the remaining net DTA position.

Our effective tax rate for the three-month period ended March 31, 2019 is lower than the statutory tax rate primarily due to a decrease in the deferred tax liability related to indefinite lived assets.

Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a full valuation allowance against the remaining net DTA position.

The following table presents the provision for income taxes and our effective tax rate for the six-month periods ended March 31, 2020 and 2019:

Six Months Ended,

Nine Months Ended,

Provision for Income Taxes

Effective Tax Rate

Our effective tax rate for the six-month period ended March 31, 2020 and 2019, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets.

Our effective tax rate for the three and nine-month periods ended June 30, 2020 and 2019, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets.

Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a full valuation allowance against the remaining net DTA position.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Commitments and Contingencies

4 unchanged sentences

(a) direct hire placement services, (b) temporary professional services staffing in the fields of information technology, accounting, finance, office, engineering, and medical, and (c) temporary light industrial staffing.

These Company’s services can be divided into two reportable segments, Industrial Staffing Services and Professional Staffing Services.

These services can be divided into two reportable segments, Industrial Staffing Services and Professional Staffing Services.

Some selling, general and administrative expenses are not fully allocated among light industrial services and professional staffing services.

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

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

Industrial Staffing Services

8 unchanged sentences

Professional services gross margin

Operating income

Operating income (loss)

Depreciation and amortization

7 unchanged sentences

Depreciation and amortization

GEE GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

Subsequent Events

Seventh Amendment to Credit Agreement

On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment, dated as of April 28, 2020 (the "Seventh Amendment"), to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the "Credit Agreement").

The Seventh Amendment represents the most significant loan modification of the Company’s Credit Agreement since inception.

The Company has agreed to pay 5% PIK (non-cash, paid-in-kind) interest on the Term Loan only, which is accrued and added to the balance of the Term Loan and to pay a restructuring fee of $3,478 and an exit fee of $1,500, which became fully earned upon the effective date, but are payable upon the occurrence of a triggering event.

Under the Seventh Amendment, the Company also has agreed to the condition that it will pursue, negotiate and execute conversions of all of the Company’s outstanding subordinated debt and preferred stock into shares of the Company’s common stock.

In the event the Company meets the conversion condition of the agreement, it will then have the option to settle the restructuring fee, exit fee, and accumulated PIK balance, each when due, in cash or in shares of the Company’s common stock.

In the case of the latter, the amount or number of shares distributable to the Senior Lenders are to be determined using the most favorable conversion rate at which the holders of the Company’s subordinated indebtedness or preferred stock have converted their securities to shares of common stock of the Company in their conversion transactions.

In the event the Company is unable to satisfactorily meet the conversion condition within the specified time frames, an Event of Default under the Credit Agreement will be deemed to have occurred.

Eighth Amendment to Credit Agreement and CARES Act Payroll Protection Program Loans

On May 5, 2020 the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program (“PPP”) and received net funds totaling $19,926 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP.

(See Note 15.

Subsequent Events.).

On May 5, 2020, the Company also entered into Eighth Amendment, dated as of May 5, 2020 (the "Eighth Amendment") to the Credit Agreement.

Includes $697 and $658 of annual premium refunds from the Ohio Bureau of Workers Compensation for the three months ended June 30, 2020 and 2019, respectively;

and $747 and $1,357 for the nine months ended June 30, 2020 and 2019, respectively.

The Industrial Services gross margins normalized for the effects of these items were approximately 13% and 15% for the three months ended June 30, 2020 and 2019, respectively;

and approximately 14% and 14% for the nine months ended June 30, 2020 and 2019, respectively.

Includes certain costs and expenses incurred related to restructuring activities, including corporate legal and general expenses associated with capital markets activities and not directly associated with core business operations.

These costs were $1,557 and $564 for the three-month periods ended June 30, 2020 and 2019, respectively, and include mainly expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, costs incurred related to acquisitions and associated legal and professional costs.

These costs were $3,247 and $2,990 for the nine-month periods ended June 30, 2020 and 2019, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements