What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-12-23 compared with 2020-12-29 · 370 added, 291 removed, 522 unchanged (56% of the section changed)

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2020 and September 30, 2019

Consolidated Statements of Operations for the years ended September 30, 2020 and September 30, 2019

Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2020 and September 30, 2019

Consolidated Statements of Cash Flows for the years ended September 30, 2020 and September 30, 2019

Consolidated Balance Sheets as of September 30, 2021 and 2020

Consolidated Statements of Operations for the years ended September 30, 2021 and 2020

Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended September 30, 2021 and 2020

Notes to Consolidated Financial Statements

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Stockholders of GEE Group Inc.

Opinion on the Financial Statements

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of GEE Group Inc.

(the “Company”) as of September 30, 2020 and 2019, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2020, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

(the Company) as of September 30, 2021 and 2020, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment Evaluation of Goodwill and Long-lived Assets

As discussed in Note 2 to the consolidated financial statements, the Company reviews goodwill on an annual basis for impairment, or when events and circumstances indicate that the asset might be impaired.

Additionally, the Company reviews long-lived assets, such as property and equipment, intangible assets subject to amortization, and right-of-use assets on operating leases for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets.

If these assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value.

Fair value is generally determined using forecasted cash flows discounted using an estimated weighted average cost of capital.

As of September 30, 2021, the Company had goodwill of approximately $63.4 million.

Long-lived assets consisted of property and equipment, net, intangible assets subject to amortization, and right of use assets, net, totaling approximately $19.4 million.

We identified the evaluation of the impairment analysis of goodwill and long-lived assets as a critical audit matter.

There was a high degree of subjective auditor judgment in evaluating the earnings multiples, control premium, and the estimated undiscounted future cash flows used to test reporting units for recoverability and the determination of fair value of the relevant assets when required.

How We Addressed the Matter in Our Audit

The following are the primary procedures we performed to address this critical audit matter.

We obtained an understanding and evaluated the procedures over management’s impairment review process.

We evaluated management’s significant assumptions and tested data inputs utilized in fair value assessment of goodwill, including earnings multiples and the control premium.

We also evaluated management’s significant assumptions and data inputs utilized in the calculation of future undiscounted cash flows.

We evaluated management’s ability to accurately forecast future operating cash flows by comparing actual results to management’s historical forecasts.

/s/ Friedman LLP

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September 30,

CURRENT ASSETS:

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Accounts payable

Acquisition deposit for working capital guarantee

Accrued compensation

Short-term portion of term loan, net of discount

Subordinated debt

Current Paycheck Protection Program Loans and accrued interest

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Term loan, net of discount

Subordinated convertible debt (includes $0 and $1,269, net of discount, respectively, due to related parties)

Noncurrent operating lease liabilities

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no par value;

authorized - 20,000 shares -

Preferred series A stock;

authorized -160 shares;

issued and outstanding - none

Preferred series B stock;

authorized - 5,950 shares;

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

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

Preferred series C stock;

authorized - 3,000 shares;

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

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

authorized - 20,000 shares, designated 160 shares of Series A,

5,950 shares of Series B, 3,000 shares of Series C, none issued

Total mezzanine equity

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authorized - 200,000 shares;

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

issued and outstanding - 114,100 shares

at September 30, 2021 and 17,667 shares at September 30, 2020, respectively

Additional paid in capital

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Goodwill impairment charge

LOSS FROM OPERATIONS

Gain on extinguishment of debt

INCOME (LOSS) FROM OPERATIONS

(Loss) gain on extinguishment of debt

Interest expense

LOSS BEFORE INCOME TAX PROVISION

INCOME (LOSS) BEFORE INCOME TAX PROVISION

Provision for income tax

NET INCOME (LOSS)

Gain on redeemed preferred stock

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

BASIC EARNINGS (LOSS) PER SHARE

NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

BASIC EARNINGS PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

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Share-based compensation

Issuance of stock for interest

Conversion of preferred Series B to common stock

Beneficial conversion features on subordinated debt

Balance, September 30, 2019

Share-based compensation

Issuance of stock for restricted stock

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Balance, September 30, 2020

Share-based compensation

Issuance of stock for restricted stock

Sale of common stock in public offering

Balance, September 30, 2021

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

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CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to cash used in operating activities:

Gain on extingishment of debt

Net income (loss)

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

Loss (gain) on extingishment of debt

Depreciation and amortization

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Stock compensation expense

Provision for doubtful accounts

(Decrease) increase in allowance for doubtful accounts

Deferred income taxes

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Change in other assets, net of change in other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

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CASH FLOWS FROM FINANCING ACTIVITIES:

Payment on term loan

Net proceeds from (payments on) subordinated debt

Payment on preferred stock redemption

Payments on term loan

Debt issue costs

Proceeds from the sale of common stock in public offering

Net payments on subordinate debt

Payments on preferred stock redemption

Net proceeds from CARES Act Paycheck Protection Program Loans

Payments on capital lease

Net (payments on) proceeds from revolving credit

Net cash provided by financing activities

Net payments on revolving credit

Net cash (used in) provided by financing activities

Net change in cash

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Non-cash investing and financing activities

Conversion of series B convertible preferred stock to common stock

Beneficial conversion features on subordinated debt

Acquisition of equipment with finance lease

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Operating lease liability

Paycheck Protection Program loan forgiveness

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

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Description of Business

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We are a provider 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, engineering, medical and accounting professionals for direct hire and contract staffing for our clients and provide temporary staffing services for our commercial clients.

The Company’s fiscal year begins on October 1 and ends on September 30 of each year.

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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, and capital expenditures.

The Company experienced net losses in fiscal 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.

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

On April 19, 2021, the Company completed 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 follow-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 $ 56,022 in aggregate outstanding indebtedness under its former 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 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.

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

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of September 30, 2021, the Company had cash of $ 9,947 , which was a decrease of $ 4,127 from $ 14,074 as of September 30, 2020.

Net working capital as of September 30, 2021 was $ 2,528 as compared to net working capital of $ 13,351 for September 30, 2020.

The decrease in cash at September 30, 2021 from September 30, 2020 is mainly the culmination of financing activities during fiscal 2021, as further discussed below, including payment of fees in the amount of $ 4,978 , related to the retirement of the Company’s former senior credit agreement.

Coronavirus (“COVID-19”) Pandemic, 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 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.

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 required 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 continues.

As of September 30, 2020, the Company had cash of $14,074, which was an increase of $10,019 from $4,055 as of September 30, 2019.

Net working capital as of September 30, 2020 was $13,351, as compared to net working capital of $8,534 for September 30, 2019.

Paycheck Protection Program Loan

Between April 29 and May 7, 2020, the Company obtained loans in the aggregate amount of $19,927 for its operating subsidiaries from BBVA USA (“BBVA”), as lender, 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.

These effects lessened in fiscal 2021 but have continued to be felt to an extent with the most significant impacts being felt in the industrial segment, and in the finance, accounting and office clerical (“FA&O”) end markets within the professional segment.

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”), as lender, 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”).

These funds were the only source of financing available to our companies and businesses and have been and continue to be 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 Coronavirus Pandemic.

These funds were the only source of financing available to our companies and businesses and have been and continue to be 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 continuing worldwide Coronavirus Pandemic.

The Company accounted for the PPP loans as a debt (See Note 10 in accordance with Accounting Standards Codification (“ASC”) Topic 470 Debt.

Accordingly, the PPP loans were recognized as current and noncurrent debt in the Company’s consolidated financial statements.

The Company, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, deferred paying $2,435 of applicable payroll taxes as of September 30, 2020, which is included in long-term liability in the consolidated financial statements.

The deferred deposits of the employer’s share of Social Security tax must be paid to be considered timely (and avoid a failure to deposit penalty) by December 31, 2021, 50 percent of the eligible deferred amount, and the remaining amount by December 31, 2022.

Accordingly, the PPP loans are recognized as current debt in the Company’s accompanying consolidated financial statements.

The Company and its operating subsidiaries have submitted applications for forgiveness of their respective outstanding PPP loans.

During fiscal 2021, the Company’s subsidiaries Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, and Agile Resources, Inc.

were each notified by the SBA that their total outstanding PPP loans and accrued interest were forgiven in the amounts of $ 279 , $ 408 , $ 79 , $ 1,470 , and $ 1,220 respectively.

See Note 10 regarding the Companies’ PPP loans.

On December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest.

The outstanding principal and accrued interest balances of these remaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the aggregate amount of $ 16,741 , are included in the Company’s current liabilities as of September 30, 2021, in the accompanying consolidated balance sheet.

The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the 2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income.

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 are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans.

The Company, under the CARES Act, also was eligible to defer paying $ 3,692 of applicable payroll taxes as of September 30, 2021, which is included in long and short-term liabilities in the accompanying consolidated financial statements.

The deferred deposits of the employer’s share of Social Security tax must 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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Financial Restructuring

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

As a result of the completion of these transactions the Company was able to repurchase, convert and eliminate obligations totaling $ 47,380 , in exchange for $ 4,978 in cash and 1,811 shares of its common stock, resulting in net gains of $ 12,316 on the extinguishment of subordinated debt and $ 24,475 on the redemption of its Class B preferred stock.

The cash available for the fundings for these transactions was facilitated by the Company’s senior lenders who agreed to significant liquidity concessions under the Former Senior Credit Agreement, including the deferral of payment of a comparable amount of fees.

Principles of Consolidation

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Revenue Recognition

Revenues from contracts with customers are generated from direct hire placement services, temporary professional services staffing, and temporary light industrial staffing.

Revenues from contracts with customers are generated from direct hire placement services, temporary professional services staffing, and temporary industrial staffing.

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.

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See Note 16 for disaggregated revenues by segment.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Payment terms in our contracts vary by the type and location of our customer and the services offered.

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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.

An allowance for placement fall-offs also is recorded as a reduction of revenues for estimated losses due to applicants not remaining employed for the Company’s guarantee period.

An allowance for placement falloffs also is recorded as a reduction of revenues for estimated losses due to applicants not remaining employed for the Company’s guarantee period.

These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers.

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

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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.

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The carrying value of the Company’s long-term liabilities represents their fair value based on level 3 inputs.

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.

The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using a combination of level 2 and level 3 inputs, as discussed in Note 6.

Earnings and Loss per Share

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The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method.

The weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares were 6,356 for fiscal 2020.

The weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares were 1,354 and 6,356 for fiscal 2021 and 2020, respectively.

Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 1,536 and 1,689 for the fiscal 2021 and 2020, respectively.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table contains the Company’s calculations of basic net income per share and diluted net income (loss) per share:

Basic net income (loss) per share computation:

September 30, 2021

September 30, 2020

Basic net income (loss) per share computation:

Net Income/(Loss)

gain on redeemed preferred stock

Net income (loss) attributable to common stockholders

Net income attributable to common stockholders

Weighted-average common shares outstanding

Basic net income (loss) per share

Basic net income per share

Diluted net income per share computation:

Net income (loss) attributable to common stockholders

Net income attributable to common stockholders

gain on redeemed preferred stock

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interest expense on convertible note

Diluted loss attributable to common stockholders

Diluted income (loss) attributable to common stockholders

Weighted average common shares outstanding

Incremental shares attributable to the assumed conversion of preferred stock, convertible debt and exercise of outstanding stock options and warrants

Incremental shares attributable to the assumed conversion of preferred stock, convertible debt, restricted stock and exercise of outstanding stock options and warrants

Total adjusted weighted-average shares

Diluted net loss per share

For the fiscal 2019, in which net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation.

Diluted net income (loss) per share

Advertising Expenses

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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.

The Company performed annual goodwill impairment testing effective as of September 30, 2020, and allocates its goodwill among two reporting units, its Professional segment and its Commercial segment for purposes of evaluation for impairments.

The Company performed annual goodwill impairment testing effective as of September 30, 2021, and allocates its goodwill among two reporting units:

its professional reporting unit and its industrial reporting unit 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.

These valuation techniques on assumptions and other factors, such as the estimated future cash flows of our reporting units, the discount rate used to determine the present value of our cash flows and the market multiples of comparable companies utilized.

In applying our methods, we also use averages or medians to select assumptions derived from comparable companies or market data, and in the application of the income and/or market approaches if we determine that this will provide a more appropriate estimated fair value or range of fair value estimates of the reporting units.

These valuation techniques rely upon assumptions and other factors, such as the estimated future cash flows of our reporting units, the discount rate used to determine the present value of future cash flows, and the market multiples of comparable companies utilized.

In applying our methods, we consider and use averages and medians in the selection of assumptions derived from comparable companies or market data, where applicable, and in the application of the income and/or market approaches if we determine that this will provide a more appropriate estimated fair value or range of fair value estimates 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.

As a result of the evaluation performed, the carrying value of its net assets exceeded the estimated fair value of the Company’s Professional segment as of September 30, 2020, while the estimated fair value of the Commercial segment exceeded its net carrying value.

The outcome of this goodwill impairment test resulted in a non-cash charge for the impairment of goodwill of $8,850, which was recorded in the consolidated financial statements for fiscal 2020.

For purposes of performing this goodwill impairment assessment, management applied the valuation techniques and assumptions to its Professional and Commercial segments as reporting units discussed above and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, and other possible factors and their effects on estimated fair value of the Company’s reporting units.

Management also considered the Company’s market capitalization, as recently reported on the NYSE American exchange, in conducting its assessment, which has been lower than its consolidated net book value (consolidated stockholders’ equity).

Management believes that the continuing declines in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that have negatively impacted the Company’s business and operating results also are a contributing factor to the Company’s recent stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020.

Management believes and expects that these conditions, including those impacting the Company, are improving and will continue to improve.

However, there can be no assurance that the Company’s goodwill or other long-lived assets will not become impaired in the future.

The Company adopted ASU 2017-04 in 2019.

Due to a previous sustained decline in the market capitalization of our common stock during the third quarter of 2019, we also performed a goodwill impairment test in accordance with the provisions of ASU 2017-04, and recognized a non-cash charge for the impairment of goodwill of $4,300 in fiscal 2019.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For purposes of performing its annual goodwill impairment assessment, the Company applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed above;

and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Company’s reporting units.

As a result of the evaluation performed, the estimated fair value exceeded the carrying value of its net assets of the Company’s professional and industrial reporting units as of September 30, 2021.

The Company’s market capitalization, as recently reported on the NYSE American exchange, has been lower than its consolidated net book value (consolidated stockholders’ equity), as reported in its consolidated financial statements as of September 30, 2021.

Management believes that this entire difference can be attributed to an implied control or acquisition premium inherent in the Company’s stock price, especially considering and taking into account volatility and other effects since the onset of the COVID-19 pandemic.

At the same time, and while market control and acquisition premiums have risen in 2020 and 2021, relative to prior years, the Company expects its consolidated book value and the carrying values of its professional and industrial segment reporting units to continue to rise.

There can be no assurance that this will occur.

However, if this occurs and the Company’s market price and market capitalization do not respond adequately to reflect such increases, it is possible that this would result in a triggering event and require updated testing of goodwill resulting in a possible impairment charge.

In the process of preforming our required annual goodwill impairment testing, we recognized a non-cash charge for the impairment of goodwill of $ 8,850 in fiscal 2020.

Management believes that the impact in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that have negatively impacted the Company’s business and operating results also are a contributing factor to the Company’s stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020.

Intangible Assets

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In the event the net carrying value of the Company’s long-lived assets are determined not to be recoverable, they are reduced to fair value, which is typically calculated using one or a combination of the relief from royalty method, the multiple of excess cash flow method, and/or other applicable adaptations of the discounted cash flow method.

For purposes of testing the long-lived assets other than goodwill, long-lived assets are grouped and considered with other assets and liabilities within the Professional and Commercial segments.

For purposes of testing the long-lived assets other than goodwill, long-lived assets are grouped and considered with other assets and liabilities within the Professional and Industrial reporting units.

The Company did not record any impairments to its long-lived assets during fiscal 2021 and 2020.

Beneficial Conversion Feature

The Company evaluates embedded conversion features within a convertible instrument under ASC 815 Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.

If the conversion feature does not require treatment under ASC 815, the instrument is evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial feature.

The Company records a beneficial conversion feature (“BCF”) when the convertible instrument is issued with conversion features at fixed or adjustable rates that are below market value when issued.

The BCF for convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.

The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible.

If certain other securities are issued with the convertible security, the proceeds are allocated among the different components.

The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF.

The effective conversion price is used to compute the intrinsic value.

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

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 a gain was recognized from extinguishment of its convertible subordinated debt.

Stock-Based Compensation

4 unchanged sentences

Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”.

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Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares.

We account for income taxes under the asset and liability method, 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 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.

Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis 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.

3 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 September 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.

Reclassification

Certain reclassifications have been made to the financial statements as of and for the years ended September 30, 2020 to conform to the current year presentation with no effect on total expenses or net loss.

We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations.

As of September 30, 2021 and 2020, 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:

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

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

Selling, general and administrative expenses are not entirely allocated among the Industrial and Professional Staffing Services segments.

Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance.

The Company’s services can be divided into two reporting units:

Industrial Staffing Services and Professional Staffing Services.

Selling, general and administrative expenses are not entirely allocated among the Industrial and Professional Staffing Services reporting units.

Operating results are regularly reviewed by the chief operating decision maker to make determinations about resources to be allocated to the segment and to assess its performance.

Other factors, including type of business, type of employees, length of employment and revenue recognition are considered in determining the Company’s operating segments.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Lease Accounting.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASC 842”), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous ASC 840 guidance.

The original guidance required application on a modified retrospective basis with the earliest period presented.

In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition.

We adopted this guidance as of October 1, 2019 and elected the transition method provided under ASU 2018-11.

This standard has a material effect on our consolidated balance sheets with the recognition of new right of use assets and lease liabilities for all operating leases, except for those leases where we elected the short-term lease recognition exemption, as these leases have a non-cancelable lease term of approximately one year or less.

Adoption of the new standard did not have a material effect on the Company’s results of operations.

As of the transition date, the ROU asset and total lease liability (current and long-term) were $5,900 and $6,341, respectively.

The Company elected the package of practical expedients available under the transition provisions of the new lease standard, including (i) not reassessing whether expired or existing contracts contain leases, (ii) lease classification, and (iii) not revaluing initial direct costs for existing leases.

Also, the Company elected the practical expedient which allows aggregation of non-lease components with the related lease components when evaluating accounting treatment.

Lastly, the Company applied the modified retrospective adoption method, utilizing the simplified transition option available in the ASC 842, which allows entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption.

See Note 5 for further discussion of leases.

Stock Compensation.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (“ASC 718”), which simplifies the accounting for nonemployee share-based payment transactions.

The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted (but no sooner than the adoption of Topic 606).

The Company adopted the new guidance as of October 1, 2019.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

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The Company has not yet determined the impact of the new guidance on its 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 intraperiod 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.

Early adoption is permitted for public business entities for periods for which financial statements have not been issued.

An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period.

Additionally, an entity that elects early adoption should adopt all the amendments in the same period.

We are still evaluating the impact of this ASU on the Company’s consolidated financial statements

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 GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“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 consolidated financial statements to date.

The Company will continue to monitor the impact of the ASU on our consolidated financial statements in the future.

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.

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

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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Present value of operating lease liabilities (a)

(a) Includes current portion of $1,615 for operating leases.

Disclosures related to periods prior to adoption of ASU 2016-02

The Company adopted ASU 2016-02 using a modified retrospective adoption method at October 1, 2019 as noted in Note 3.

As of September 30, 2019, future minimum lease payments due under non-cancelable lease agreements having initial terms in excess of one year, including certain closed offices are as follows:

Includes current portion of $ 1,681 for operating leases.

Goodwill and Intangible Assets

Goodwill asset for fiscal 2020 and fiscal 2019 was $63,443 and $72,293, respectively.

The outcome of this goodwill impairment test resulted in a non-cash charge for the impairment of goodwill of $8,850, which was recorded in the consolidated financial statements for fiscal 2020.

For purposes of performing this goodwill impairment assessment, management mainly considered recent trends in the Company’s stock price, estimated control or acquisition premium, earnings and other possible factors and their effects on estimated fair value of the Company’s reporting units.

Goodwill assets as of September 30, 2021 and 2020, consisted of the following:

September 30,

Goodwill, beginning of fiscal year

Impairment charges

Goodwill, end of fiscal year

For purposes of performing its annual goodwill impairment assessment as of September 30, 2021 and 2020, the Company applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed in Note 2, above;

There can be no assurance that this will occur.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In the process of preforming our required annual goodwill impairment testing, we recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020.

Intangible Assets

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

Revolving Credit Facility and Term Loan

Revolving Credit, Term Loan and Security Agreement

The Company and its subsidiaries, as borrowers, are parties to a Revolving Credit, Term Loan and Security Agreement (the “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, mature on June 30, 2023.

Revolving Credit Facility

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

Outstanding balances and corresponding amounts available to be borrowed or required to be repaid under the Revolving Credit Facility are determined using an agreed upon borrowing base calculation, which allows the Company to borrow amounts of up to 85% of its eligible outstanding accounts receivable, excluding specified past due balances and which amounts are further reduced for certain reserves and set asides under the Credit Agreement.

As of September 30, 2020, the Company had $1,592 then currently available for borrowing under the terms of the Revolving Credit Facility.

In addition to the Company’s accounts receivable, 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.

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

Senior Bank Loan, Security and Guarantee 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 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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of September 30, 2021, the Company had $ 0 in outstanding borrowings and approximately $ 15,280 available for borrowing under the terms of the CIT Facility.

As of September 30, 2021, the Company also had $ 713 in unamortized debt issue cost associated with the CIT Facility.

Under the CIT Facility, advances will be subject to a borrowing base formula that will be 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.

Former Revolving Credit, Term Loan and Security Agreement

The Company and its subsidiaries, as co-borrowers, were parties to a 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 “Former Credit Agreement”) with certain investment funds managed by MGG Investment Group LP (“MGG”).

The Revolving Credit Facility and Term Loan under the Former Credit Agreement, as amended, had maturity date on June 30, 2023.

On April 20, 2021, the Company fully repaid all outstanding indebtedness under its Former Credit Agreement, including accrued and unpaid interest and fees, using the net proceeds from its recent underwritten public offering and available cash.

The outstanding debt was comprised of the former 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 the former 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.

Accrued interest of approximately $ 459 , in the aggregate, was paid in connection with the principal repayments along with $ 4,978 in remaining unpaid fees.

The Company took a one time charge of $ 4,004 which represented unamortized debt issue costs associated with its former senior debt .

The Former Credit Agreement has been terminated and the Company and its subsidiary co-borrowers have been released from their respective collateral and any and all other obligations under the former Credit Agreement.

Former Revolving Credit Facility

As of September 30, 2020, the Company had $ 11,828 in outstanding borrowings under the Former Revolving Credit Facility, which accrued interest at an annual effective rate of approximately 11 %.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Outstanding balances and corresponding amounts were available to be borrowed or required to be repaid under the former Revolving Credit Facility were determined under an agreed upon borrowing base calculation.

The Company was generally allowed to borrow amounts of up to 85% of its eligible outstanding accounts receivable, excluding specified past due balances and further reduced for certain reserves and set asides under the Former Credit Agreement.

In addition to the Company’s accounts receivable, the Former Revolving Credit Facility was secured by all the Company’s property and assets, whether real or personal, tangible or intangible.

Former Term Loan

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

September 30,

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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 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 and accrued interest payments are required as follows:

fiscal 2021- $889, fiscal 2022 – $1,778, and fiscal 2023 - $39,979.

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.

As of September 30, 2020, the Company had $42,646 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 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 Former Term Loan was payable in installments, subject to acceleration upon the occurrence of an Event of Default, as specified under the Former Credit Agreement, or payable in full upon termination.

The Former Credit Agreement also provided that any and all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses would be due and payable in full on maturity as of June 30, 2023.

The Former Credit Agreement also had provisions requiring prepayments upon the occurrence of certain conditions.

As of September 30, 2020, the Company had $ 42,646 in outstanding borrowings under the Former 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 accrued and was added to the balance of the Term Loan on a monthly basis.

The Former Credit Agreement included financial and other restrictive covenants.

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

The Company was required to measure and certify these covenants quarterly.

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

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

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

The Credit Agreement also restricts, above certain levels, acquisitions, incurrence of additional indebtedness, and payment of dividends.

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

The Former Credit Agreement also restricted, above certain levels, acquisitions, incurrence of additional indebtedness, and payment of dividends.

Seventh Amendment to Former Credit Agreement

On April 28, 2020, the Company and its subsidiaries entered into the Seventh Amendment, dated as of April 28, 2020 (the “Seventh Amendment”), to the Former Credit Agreement.

The Seventh Amendment represented the most significant loan modification of the Former Credit Agreement since its inception.

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.

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 per quarter to $446.

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.

The Seventh Amendment extended the maturity of the Former 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 per quarter to $446 .

The Company also had agreed to pay 5% PIK (non-cash, paid-in-kind) interest on the Former Term Loan only, which, thereafter, was accrued and added to the balance of the Former 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 were payable upon the occurrence of a triggering event.

The triggering events included 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 was considered a triggering event.

In addition, the Company had 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 would utilize its “Specified Excess Cash Flow Amount” (as defined in the Former Credit Agreement) to repay amounts outstanding under the Former Credit Agreement.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Under the Seventh Amendment, the Company also agreed to the condition that it would 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, it was to 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.

1 unchanged sentence

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

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

Eighth Amendment to Former 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 $ 19,927 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP.

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 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 $5,100 in cash, instead of by converting all of it into the Company’s common stock.

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

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

Ninth Amendment to Former Credit Agreement

On June 30, 2020, the Company and its subsidiaries entered into the Ninth Amendment, dated as of June 30, 2020 (the “Ninth Amendment”), to the Former Credit Agreement.

Under the Ninth Amendment, the Company’s senior lenders 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 $ 5,100 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 , which were accrued as of September 30, 2020, 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.

On December 22, 2020, the Company and its subsidiaries entered into a letter amendment, dated as of December 22, 2020, 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 letter amendment, the Company’s senior lender agreed to modify settlement date for the exit and restructuring fees, which are now due to be settled on or before June 30, 2021.

On December 22, 2020, the Company and its subsidiaries entered into a letter amendment, dated as of December 22, 2020, to the Former Credit Agreement.

Under the letter amendment, the Company’s senior lenders agreed to modify settlement date for the exit and restructuring fees to on or before June 30, 2021.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

CARES Act Payroll Protection Program Loans

1 unchanged sentence

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”.

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 mortgage and other obligations, rent and utilities.

Each of the Company’s subsidiary executed a separate promissory note evidencing unsecured loans under the PPP.

Each of the Company’s subsidiaries executed a separate promissory note evidencing unsecured loans under the PPP.

The following promissory notes were executed by the Company and its subsidiaries:

9 unchanged sentences

The loans evidenced by the PPP Notes (the “PPP Loans”) are being made through BBVA as the lender.

Principal and accrued interest payments are due and payable as follows:

fiscal 2021- $2,243, and fiscal 2022 – $17,779.

The PPP Loans have two-year terms and bear interest at a rate of 1.00% per annum.

Monthly principal and interest payments under the PPP Loans are 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 end of the borrower’s loan forgiveness covered period.

The PPP Loans may be prepaid at any time prior to maturity with no prepayment penalties.

Subordinated Debt – Convertible and Non - Convertible

The Company had outstanding balances under its Convertible and Non-Convertible Subordinated Debt agreements, as follows:

September 30,

10% Convertible Subordinated Note

Subordinated Promissary Note

9.5% Convertible Subordinated Note

8% Convertible Subordinated Notes, net of discount, due to related parties

Total subordinated debt, convertible and non-convertible

Short term portion of subordinated debt, convertible and non-convertible

Long term portion of subordinated debt, convertible and non-convertible

The Company and its operating subsidiaries have submitted applications and required documentation for forgiveness of their respective outstanding PPP loans initially to their lender, BBVA USA, which in turn, reviewed, initially approved, and forwarded them on to the SBA.

During fiscal 2021, the Company’s subsidiaries, Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, and Agile Resources, Inc.

were notified by the SBA that their total outstanding PPP loans and accrued interest were forgiven in the amounts of $ 279 , $ 408 , $ 79 , $ 1,470 , and $ 1,220 , respectively.

Applications for forgiveness of the outstanding PPP loans to GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc.

and SNI Companies, Inc., in the aggregate amounts of $16,741, including accrued interest, remained at the SBA for review and approval as of September 30, 2021.

On December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100 % of their respective outstanding principal and interest.

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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Former Subordinated Debt – Convertible and Non-Convertible

The Company had outstanding balances under its Former Convertible and Non-Convertible Subordinated Debt agreements, in the aggregate amount of $19,685.

On June 30, 2020, the Company entered into repurchase and conversion agreements with each of the holders of its former subordinated debt as described below.

The Company generated gains, net of transaction costs, of approximately $ 12,316 on the extinguishments of its subordinated debt.

10% Convertible Subordinated Note

The Company had a Subordinated Note payable to JAX Legacy – Investment 1, LLC (“JAX Legacy”), pursuant to a Subscription Agreement dated October 2, 2015, in the amount of $4,185.

On April 3, 2017, the Company and JAX Legacy amended and restated the Subordinated Note in its entirety in the form of a 10% Convertible Subordinated Note (the “10% Note”) in the aggregate principal amount of $4,185.

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

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.

During fiscal 2020 and 2019, the Company issued approximately 756 and 408 shares of common stock to Jax Legacy as payment-in-kind interest of approximately $314 and $419, respectively, on the 10% Note.

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.

1 unchanged sentence

Subordinated Promissory Note

On January 20, 2017, the Company entered into Addendum No.

1 (the “Addendum”) to the Stock Purchase Agreement dated as of January 1, 2016 (the “Paladin Agreement”) by and among the Company and Enoch S.

Timothy and Dorothy Timothy (collectively, the “Sellers”).

Pursuant to the terms of the Addendum, the Company and the Sellers agreed (a) that the conditions to the “Earnouts” (as defined in the Paladin Agreement) had been satisfied or waived and (b) that the amounts payable to the Sellers in connection with the Earnouts shall be amended and restructured as follows:

(i) the Company paid $250 in cash to the Sellers prior to January 31, 2017 (the “Earnout Cash Payment”) and (ii) the Company issued to the Sellers a subordinated promissory note in the principal amount of $1,000 (the “Subordinated Note”).

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

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 agreed to amend Subordinated Note to change maturity date to January 20, 2022.

On June 30, 2020, the Company and Enoch S.

4 unchanged sentences

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 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.

During the fiscal 2020 and 2019 the Company issued approximately 2,039 shares and 1,096 shares of common stock to the SNI Sellers as payment-in-kind interest of approximately $890 and $1,188, respectively, on the 9.5% Notes.

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.

1 unchanged sentence

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 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 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 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”.

The Company issued 104 and 60 shares of Series C Preferred Stock to Investors related to interest of $104 and $60 on the 8% Notes for fiscal 2020 and fiscal 2019, respectively.

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.

During fiscal 2020 and 2019, the Company amortized approximately $731 and $110 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.

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:

2 unchanged sentences

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.

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.

1 unchanged sentence

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 10).

During fiscal 2019 the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock (See Note 12).

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On April 19, 2021, the Company completed the initial closing of 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 .

As part of the offering, the Company 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 or about April 19, 2021, six (6) directors and officers of the Company individually acquired shares of the Company’s common stock either by directly participating in the Company’s 2021 follow-on public offering of its common shares, as subscribers, or by purchasing Company common shares in the open market.

These six officers and directors collectively acquired a total of 679 shares of the Company’s common stock at that time.

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 1,811 shares of common stock, in aggregate, for debt conversions of $ 1,000 aggregate principal amount of the former 8 % Notes, related shares of Series C Preferred Stock that had been issued as payment-in-kind (“PIK”) interest on the former 8% notes, and of $ 4,185 aggregate principal amount of the Former 10% Note.

Amended and Restated 2013 Incentive Stock Plan

As of September 30, 2021, there were restricted stock shares and stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan (“Incentive Stock Plan”).

During fiscal 2021, the 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).

During fiscal 2020, the Incentive Stock Plan was amended to increase the total shares available for restricted stock and stock options grants by 1,000 to a total of 5,000 (2,500 restricted stock shares and 2,500 stock option shares).

The Incentive Stock 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 September 30, 2021, there were 10,786 shares available to be granted under the Plan ( 5,828 shares available for stock options grants and 4,958 shares available for restricted stock).

Restricted Stock

The Company granted 450 and 400 shares of restricted common stock in fiscal 2020 and 2019, respectively.

The Company granted 642 and 450 shares of restricted common stock available under its Amended and Restated 2013 Incentive Stock Plan in fiscal 2021 and 2020, respectively.

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.

1 unchanged sentence

As of September 30, 2021, there was $ 562 of unrecognized compensation expense related to restricted stock outstanding.

On June 15, 2021, 600 shares of restricted common stock held by the Company’s chairman and chief executive officer became fully vested.

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 fiscal 2020.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of restricted stock activity is presented as follows:

Weighted Average Fair Value ($)

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

3 unchanged sentences

A summary of warrant activity is presented as follows:

Remaining Contractual Life

Total Intrinsic Value of

Weighted Average Exercise Price Per Share ($)

Weighted Average Remaining Contractual Life

Total Intrinsic Value of Warrants ($)

Warrants outstanding as of September 30, 2019

4 unchanged sentences

Stock Options

As of September 30, 2020, 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.

The plan granted specified numbers of options to non-employee directors, and they authorized 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.

All stock options outstanding as of September 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.

All stock options outstanding as of September 30, 2021 and September 30, 2020 were non-statutory stock options, had exercise prices set equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.

The Company granted 525 and 75 stock options available under the Company’s Amended and Restated 2013 Incentive Stock Plan in fiscal 2021 and 2020, respectively.

The stock options generally vest on annual schedules during periods ranging from two to four years from the date of grant.

Stock-based compensation expense attributable to stock options and warrants was $ 445 and $ 409 in fiscal 2021 and fiscal 2020, respectively.

As of September 30, 2021, there was approximately $ 456 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.56 years.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of stock option activity is as follows:

Remaining Contractual

Weighted Average Exercise Price per share ($)

Weighted Average Remaining Contractual Life (Years)

Total Intrinsic Value of Options ($)

Options outstanding as of September 30, 2019

17 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.

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.

Except as set forth in the Resolution Establishing Series or as may be required by Illinois law, the holders of the no par value, Series B Convertible Preferred Stock have no voting rights.

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).

Pursuant to a Repurchase Agreement dated June 30, 2020, 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:

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).

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 5,566 then 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 during fiscal 2020.

During fiscal 2019 the Company issued 250 shares of common stock for the conversion of 250 shares of Series B Convertible Preferred Stock.

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, during fiscal 2020.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Series C Convertible Preferred Stock

6 unchanged sentences

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 have no voting rights.

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 Series C 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 superior to the Series C Preferred Stock in relative rights, preferences or privileges (including with respect to dividends, liquidation or voting).

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.

The Company issued 104 and 60 shares of Series C Preferred Stock to Investors related to interest of $104 and $60 on the 8% Notes during fiscal 2020 and fiscal 2019, respectively.

The Company issued 104 shares of Series C Preferred Stock to Investors related to interest of $ 104 on the 8 % Notes during fiscal 2020, none were issued in fiscal 2021.

Pursuant to a Repurchase Agreement dated June 30, 2020, Mr.

13 unchanged sentences

Total income tax expense (benefit):

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows:

2 unchanged sentences

State taxes, net of federal benefit

Nondeductible Expenses

Stock compensation

Goodwill impairment

PPP related matters

Valuation allowance

24 unchanged sentences

Accordingly, the Company maintained a valuation allowance as of September 30, 2021 and 2020.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

With the passage of time, the Company will continue to generate additional deferred tax assets and liabilities related to amortization of acquired intangible assets for tax purposes.

21 unchanged sentences

The resolution of tax matters is not expected to have a material effect on the Company’s consolidated financial statements.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Commitment and Contingencies

3 unchanged sentences

The Company provides the following distinctive services:

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

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.

These services can be divided into two reporting units:

Industrial Staffing Services and Professional Staffing Services.

Some selling, general and administrative expenses are not fully 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.

3 unchanged sentences

Industrial services gross margin 1

Operating (loss) income

Operating income (loss)

Depreciation and amortization

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Professional services gross margin

Operating income

Operating income (loss)

Depreciation and amortization

8 unchanged sentences

Total revenue

Operating loss

Operating income (loss)

Depreciation and amortization

2 unchanged sentences

1 Includes $ 1,270 and $ 1,284 of annual premium refunds from the Ohio Bureau of Workers Compensation for the fiscal 2021 and 2020, respectively.

The Industrial Services gross margins normalized for the effects of these items were approximately 14% for the fiscal 2020 and 2019, respectively.

The Industrial Services gross margins excluding the impact of these items were approximately 14.9 % and 14.4 % for the fiscal 2021 and 2020, respectively.

2 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 $ 412 and $ 4,277 for fiscal 2021 and 2020, 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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Subsequent Events

On December 14, 2021, the Company received formal notification that the remaining four ( 4 ) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100 % of their respective outstanding principal and interest.

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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data