GEE Group Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future performance. However, future performance involves risks and uncertainties which may cause actual results to differ materially from those expressed in the forward-looking statements. Item 7 should be read in conjunction with the information contained in “Forward-Looking Statements” at the beginning of this report and with the Consolidated Financial Statements and Notes thereto included in Item 8. References such as the “Company,” “we,” “our” and “us” refer to GEE Group Inc. and its consolidated subsidiaries. Overview We specialize in the placement of information technology, accounting, finance, office, and engineering professionals for direct hire and contract staffing for our clients, data entry assistants (medical scribes) who specialize in electronic medical records (EMR) services for emergency departments, specialty physician practices and clinics and provide temporary staffing services for our industrial clients. The acquisitions of Agile Resources, Inc., a Georgia corporation (“Agile”), Access Data Consulting Corporation, a Colorado corporation (“Access”), Paladin Consulting Inc. (“Paladin”) and SNI Companies, Inc., a Delaware corporation (“SNI”) expanded our geographical footprint within the placement and contract staffing verticals or end markets of information technology, accounting, finance, office and engineering professionals. The Company markets its services using the trade names General Employment Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies (including Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad Staffing. As of September 30, 2021, we operated twenty-six (26) branch offices in downtown or suburban areas of major U.S cities in eleven (11) states and additional local staff members working remotely serving four additional U.S. locations. We have offices or serve markets remotely, as follows; (i) one office in each of Connecticut, Georgia, Minnesota, New Jersey, and Virginia; (ii) two offices each in Illinois and Massachusetts; (iii) three offices in Colorado; (iv) two offices and two additional local market presences in Texas; (v) five offices and two additional local market presences in Florida; and (vi) seven offices in Ohio. Management has implemented a strategy which includes organic and acquisition growth components. Management’s organic growth strategy includes seeking out and winning new client business, as well as expansion of existing client business and on-going cost reduction and productivity improvement efforts in operations. Management’s acquisition growth strategy includes identifying strategic acquisitions, financed primarily through the issuance of equity and debt to improve the overall profitability and cash flows of the Company. The Company’s contract and placement services are principally provided under two operating divisions or segments: Professional Staffing Services and Industrial Staffing Services. We believe our current segments and array of businesses and brands within our segments complement one another and position us for future growth. 27 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the COVID-19 pandemic. 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. These effects have been, and continue to be felt to an extent, across our businesses, with the most severe impacts being felt in the industrial segment and in the finance, accounting, and office clerical (“FA&O”) end markets within the professional segment. In response to the crisis, in April 2020 we took a series of proactive actions including a 10% pay cut for full-time salaried employees, temporary furloughing and redeployment of some employees, reduction of discretionary expenses and projects, and obtaining funds under CARES Act Payroll Protection Program (“PPP”). These actions allowed us to generate cost savings, liquidity and time with which to mitigate the impacts of the COVID-19 pandemic on our businesses and brands. Our businesses have continued to recover to a significant extent during fiscal 2021, as compared to fiscal 2020. While we have experienced significant recovery towards pre-COVID-19 levels of results and performance, the rate of future recovery and growth is still somewhat uncertain as potential resurgences and negative impacts of COVID-19 or variants thereof have continued to have negative impacts on the U.S. economy so far in 2021, including in some cases, certain markets and clients we serve. Results of Operations Fiscal year ended September 30, 2021 (“fiscal 2021”), and fiscal year ended September 30, 2020 (“fiscal 2020”) Net Revenues Consolidated net revenues are comprised of the following: Fiscal 2021 2020 $ Change % Change Professional contract services $ 112,470 $ 96,966 $ 15,504 16% Industrial contract services 17,332 17,560 (228 ) -1% Total professional and industrial contract services 129,802 114,526 15,276 13% Direct hire placement services 19,078 15,309 3,769 25% Consolidated net revenues $ 148,880 $ 129,835 $ 19,045 15% Contract staffing services contributed $129,802, or approximately 87%, of consolidated revenue and direct hire placement services contributed $19,078, or approximately 13%, of consolidated revenue for fiscal 2021. This compares to contract staffing services revenue of $114,526, or approximately 88%, of consolidated revenue and direct hire placement revenue of $15,309, or approximately 12%, of consolidated revenue for fiscal 2020. The overall increase in contract staffing services revenue of $15,276, or 13% for fiscal 2021 compared to fiscal 2020 was primarily attributable to recovery and improvement in professional contract services markets from the negative effects of the COVID-19 pandemic beginning approximately in the month of June 2020. The onset of COVID-19 resulted in a near immediate decline in demand for our staffing services due to client closures, postponements in projects and related needs for our services at some clients, significant travel restrictions, and corresponding decreases in the volume of contract services billable hours. Professional contract services have experienced consistent recovery through this fiscal year resulting in the revenue increase of $15,504 for fiscal 2021 as compared fiscal 2020. Management believes this trend is the result of U.S. economic recovery, as well as actions taken by the Company to adapt to COVID-19, hire top talent, and position the Company for recovery and growth. Industrial contract services revenue experienced improvement in the second half of fiscal 2021, compared with the second half of fiscal 2020, also consistent with continuing recovery and improvement from negative impacts related to COVID-19. However, due to a lingering workforce shortage that has been felt across the U.S., including in the local markets served by our industrial segment, industrial contract services revenue for fiscal 2021 did not fully recover to its fiscal 2020 level. These labor shortages have limited the Company’s ability to fully fill all of its contract orders in its industrial segment as well as some orders in the professional segment and are widely believed to be attributable to recent plentiful economic stimulus and unemployment benefits, as well as school and business shutdowns and disruptions. 28 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Direct hire placement revenue for fiscal 2021 increased by $3,769 or 25% over fiscal 2020, driven by an increase in the number of placements. Demand for the Company’s direct hire services also increased due to the continuing recovery and significant improvement from the negative effects of the COVID-19 pandemic beginning in approximately June 2020. Management believes that the underlying trends toward recovery since May 2020 are generally consistent with the recovery experienced in the overall U.S. economy so far and, therefore, may be expected to continue, accordingly. The Company continues to observe, analyze and make modifications and changes to its business model and practices on a routine basis in response to the on-going COVID-19 pandemic and related health and safety concerns. These include, but are not limited to, implementation of policies and procedures in observance of federal, state and/or local guidelines regarding the coronavirus, including matters ranging from working from home, use of personal protective equipment (principally, protective masks), social distancing, personal hygiene and sanitary practices, and other preventative and responsive measures, impacting both our core human resources, as well as our contract laborers serving clients. Cost of Contract Services Cost of contract services includes wages and related payroll taxes, employee benefits of the Company’s contract services employees, and certain other employee-related costs, while they work on contract assignments. Cost of contract services for fiscal 2021 increased by approximately 13% to $96,339 compared to fiscal 2020 of $85,131. The $11,208 increase in cost of contract services for fiscal 2021 compared to fiscal 2020 is consistent with the increase in revenues, which is discussed further below. Gross Profit percentage by service: Fiscal 2021 2020 Professional contract services 26.3 % 26.4% Industrial contract services 22.3 % 21.7% Consolidated professional and industrial services 25.8 % 25.7% Direct hire placement services 100.0 % 100.0% Combined gross profit margin % (1) 35.3 % 34.4% (1) Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses. The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for fiscal 2021 was approximately 35.3% versus approximately 34.4% for the fiscal 2020. In the professional contract staffing services segment, the gross margin excluding direct placement services was approximately 26.3% for fiscal 2021 compared to approximately 26.4% for fiscal 2020. The year-over-year improvement in our consolidated gross margin is consistent with the increase in mix of permanent placement business for fiscal 2021 by approximately 1.0%, or 100 basis points, offset by a 0.1%, or 10 basis points, decrease in professional contract services gross margin. The small decrease in the professional services gross margin is consistent with the increase in the mix of lower margin office clerical placements, which were initially among the hardest hit by the COVID-19 pandemic and also among the last to recover fully. The Company’s industrial staffing services gross margin for fiscal 2021 was approximately 22.3% as compared with approximately 21.7% for fiscal 2020. The increase in industrial contract services gross margin is due to an increase in the amount of premium refunds the Company’s industrial business is eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively rated insurance program. The industrial contract services gross margins excluding the impact of these items were approximately 14.9% and 14.4% for the fiscal 2021 and fiscal 2020, respectively. 29 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Selling, General and Administrative Expenses Selling, general and administrative expenses include the following categories: · Compensation and benefits in the operating divisions, which includes salaries, wages and commissions earned by the Company’s employment consultants, recruiters and branch managers on permanent and temporary placements; · Administrative compensation, which includes salaries, wages, payroll taxes and employee benefits associated with general management and the operation of corporate functions, including principally, finance, legal, human resources and information technology functions; · Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses; · Recruitment advertising, which includes the cost of identifying and tracking job applicants; and · Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services and other corporate-level expenses such as business insurance and taxes. The Company’s SG&A for fiscal 2021, decreased by $2,750 as compared to fiscal 2020. SG&A for fiscal 2021 as a percentage of revenue was approximately 28% versus 34% for fiscal 2020. The decrease in SG&A expenses as a percentage of revenue is primarily attributable to the significant recovery and improvement in revenues discussed earlier and the Company’s mitigating efforts to reduce and manage costs to position the Company for recovery and profitable growth. Additionally, SG&A in fiscal 2020 included a charge to bad debt expense of $1,653 related to a key customer in our industrial segment that filed for bankruptcy protection in fiscal 2020. In fiscal 2021, a settlement with this customer lead to bad debt recovery of $413. SG&A also includes certain non-cash costs, expenses incurred related to acquisition, integration and restructuring, non-recurring items, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations, and other items that have been eliminated on a going forward basis or are of an isolated, non-recurring nature. These costs were $412 and $4,277 for fiscal 2021 and fiscal 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions. The significant reduction in the amount of these items in fiscal 2021, as compared with fiscal 2020, is primarily associated with the significant actions undertaken and completed in fiscal 2020 to mitigate the negative impacts of the COVID-19 pandemic. Depreciation Expense Depreciation expense was $311 and $248 for fiscal 2021 and 2020, respectively. The increase in depreciation expense is due to fixed asset additions. Amortization Expense Amortization expense was $4,089, and $5,038 for fiscal 2021 and 2020, respectively. The decrease is due to amortization completion of certain SNI intangible assets related to non-compete agreements that were fully amortized as of March 31, 2020. Goodwill Impairment 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. As a result of the evaluation performed, the estimated fair value of the Company’s Professional reporting unit and Industrial reporting unit exceeded the carrying value of the net assets as of September 30, 2021. For purposes of performing this goodwill impairment assessment, management applied valuation techniques and assumptions to its Professional and Industrial reporting units as reporting units 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. 30 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Due to a previous sustained decline in the market capitalization of our common stock during fiscal 2020, we also performed a goodwill impairment assessment in accordance with the provisions of ASU 2017-04 and recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020. Management also considered the Company’s market capitalization, reported on the NYSE American exchange, in conducting its assessment, which was lower than its consolidated net book value (consolidated stockholders’ equity). Management believed that the declines in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that had negatively impacted the Company’s business and operating results also was 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. Income (Loss) from Operations As the net result of the matters discussed regarding revenues and operating expenses above, income from operations increased by $20,323 to $6,490 for fiscal 2021 from $(13,833) for fiscal 2020. The increase is due to the factors described above including a significant improvement and recovery in revenues and the Company’s mitigating efforts beginning in approximately mid-March 2020 to restore and grow revenues, and to manage costs effectively to adapt to the COVID-19 pandemic and position the Company for recovery. Other significant factors include the decrease in bad debt expense of $2,205 in fiscal 2021 compared to fiscal 2020. Fiscal 2020 also had a goodwill impairment non-cash charge of $8,850. Interest Expense Interest expense decreased by $6,355 to $5,878 for fiscal 2021 from $12,233 for fiscal 2020. This decrease is mostly attributable to the interest expense related to the former Senior Credit Agreement, 9.5% Notes, and 10% Notes that were included in the fiscal 2020. The Company’s former Senior Credit Agreement contributed $4,684 and $8,962 in interest expense for fiscal 2021 and fiscal 2020, respectively. On April 20, 2021, the Company retired and fully repaid its remaining principal and accrued interest balances under its former Senior Credit Agreement. Provision for Income Taxes The Company recognized provisions for income tax expense of $58 and $597 in fiscal 2021 and 2020, respectively. The composition of the Company’s income tax provisions is relatively complex; however, the net decrease in the provision for fiscal 2021 as compared with fiscal 2020 can be attributed to lower state and local taxes in certain jurisdictions. Net Income (Loss) The Company’s net income (loss) was $6 and $(14,347) for fiscal 2021 and 2020, respectively. In addition to the changes in income (loss) from operations as outlined above, including notably, the decrease in interest expense of $6,355 from fiscal 2020 to fiscal 2021, and the goodwill impairment charge of $8,850 recognized in fiscal 2020, which did not recur in fiscal 2021. Net Income Attributable to Common Stockholders Net Income Attributable to Common Stockholders decreased by $10,122 to $6 for fiscal 2021 from $10,128 for fiscal 2020. The significant contributing item in fiscal 2020 was the net gain of $24,475, resulting from extinguishment of the Company’s outstanding preferred stock on June 30, 2020. The Company continues to seek opportunities to increase revenue and closely manage costs, including opportunities to selectively add revenue producing resources in key markets and industry verticals. The Company also seeks to organically grow its professional contract services revenue and direct hire placement revenue, including business from staff augmentation, permanent placement, statement of work (SOW) and other human resource solutions in the information technology, engineering, healthcare and finance and accounting higher margin staffing specialties. The Company’s strategic plans to achieve this goal involve setting aggressive new business growth targets, initiatives to increase services to existing customers, increasing its numbers of revenue producing core professionals, including primarily, business development managers and recruiters, and assessments of the effectiveness of compensation, commission and bonus plans to identify enhancements to incentivize producers. Senior management also has frequent interaction with the field and facilitates collaboration among brands and locations to identify and share growth opportunities, and to monitor and motivate growth. The Company’s strategic plan contains both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing. 31 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Liquidity and Capital Resources The primary sources of liquidity for the Company are revenues earned and collected from its clients for the placement of contractors and permanent employment candidates and borrowings available under its current and former asset-based senior secured revolving credit facilities. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to the Company’s contract and permanent employees and employment-related expenses, operating costs and expenses, taxes and capital expenditures. The following table sets forth certain consolidated statements of cash flows data: Fiscal 2021 2020 Cash flows provided by (used in) operating activities $ 370 $ (2,247 ) Cash flows used in investing activities $ (126 ) $ (119 ) Cash flows (used in) provided by financing activities $ (4,371 ) $ 12,385 At September 30, 2021, the Company had $9,947 of cash which was a decrease of $4,127 from $14,074 at September 30, 2020. At September 30, 2021, the Company had working capital of $2,528 compared to $13,351 of working capital at 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. Net cash provided by (used in) operating activities for fiscal 2021 and fiscal 2020 was $370 and $(2,247), respectively. The revenue growth and other improvements in operating results, including the significant reduction in interest expense and other cost savings, described in management’s discussion and analysis, above, contributed the cash from operations for fiscal 2021. Cash flows used in investing activities for fiscal 2021 and fiscal 2020 was $126 and $119, respectively. The primary use of cash for these activities was for the acquisition of property and equipment in fiscal 2021 and fiscal 2020. Cash flows (used in) provided by financing activities for the fiscal 2021 and fiscal 2020 were $(4,371) and $12,385, respectively. The net cash used in financing activities during fiscal 2021 was primarily attributable to the full repayment and retirement of the Company’s former high-cost senior revolving credit facility and term loan on April 20, 2021, using the net proceeds received from the Company’s follow-on public offering initially closed on April 19, 2021, and followed by additional net proceeds from exercise of an over-allotment option by the underwriters. In addition, the Company incurred direct costs and expenses associated with its new senior bank asset backed loan facility. No significant amounts due were outstanding on the new credit facility and the Company estimates that it has borrowing availability of approximately $15,280 at September 30, 2021. The net cash provided by financing activities during fiscal 2020 was due to net proceeds received from CARES Act PPP Loans, offset by scheduled or required debt repayments and settlements, including the conversions and retirement of the Company’s former subordinated debt and mezzanine preferred stock. Minimum debt service payments, including principal and interest, for the twelve-month period commencing after the close of business on September 30, 2021, were approximately $16,741. Monthly principal and interest payments under the Company’s PPP loans are to be deferred to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender, or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The Company has filed applications for forgiveness of all nine of its PPP loans. Five have been fully forgiven by the SBA and the remaining four have been approved by BBVA, the Company’s PPP lender, and were at the SBA awaiting completion of their review as of September 30, 2021. 32 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) 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. Minimum lease payments under all the Company’s lease agreements for the twelve-month period commencing after the close of business on September 30, 2021, are approximately $1,888. All the Company’s office facilities are leased. The Company experienced net losses for fiscal 2020 and in recent prior fiscal years, which also negatively impacted the Company’s ability to generate liquidity. During much of this period, the Company significantly restructured its operations, made significant cost reductions, including closing and consolidating unprofitable locations, eliminating underperforming personnel while pursuing top talent, implemented strategic management changes, and intensified focus on stabilizing the business and restoring profitable growth. As a result of these actions, management believes the Company had begun to see its operations and business stabilize. In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the COVID-19. These included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects have continued to be felt to an extent across all businesses, with the most significant impacts being felt in the industrial segment and finance, accounting and office clerical end markets within the professional segment. Between April 29 and May 7, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $19,927. These funds were the only source of financing available to our companies and businesses and were absolutely critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to produce and meet our foreseeable liquidity requirements in the midst of the worldwide COVID-19 pandemic. 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. As discussed above, 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. 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. 33 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) 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. 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 April 19, 2021, public offering exercised in full their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering. On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022 in aggregate outstanding indebtedness under its existing Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, including accrued interest, using the net proceeds of its recent underwritten public offering and available cash. The repaid debt was originally obtained from investors led by MGG Investment Group LP (“MGG”) on April 21, 2017 and had a maturity date of June 30, 2023. The MGG debt was comprised of a revolving credit facility with a principal balance on the date of repayment of approximately $11,828, which was subject to an annual interest rate comprised of the greater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and a term loan with a principal balance on the date of repayment of approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459 was paid in connection with the principal repayments. The Company took a one-time charge of $4,004 which represents unamortized debt issue costs associated with its former senior debt. 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. 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. 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. 34 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Off-Balance Sheet Arrangements As of September 30, 2021, and 2020, and during the two fiscal years then ended, there were no transactions, agreements, or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity. Critical Accounting Policies and Estimates The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission. Management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the consolidated financial statements, as well as the amounts of reported revenues and expenses during the periods presented. Those estimates and assumptions typically involve expectations about events to occur subsequent to the balance sheet date, and it is possible that actual results could ultimately differ from the estimates. If differences were to occur in a subsequent period, the Company would recognize those differences when they became known. Significant accounting and disclosure matters requiring the use of estimates and assumptions include, but may not be limited to, revenue recognition, accounts receivable allowances, determining fair values of financial assets and liabilities, deferred income tax valuation allowances, accounting for asset impairments, and accounting for derivative liabilities and beneficial conversion features. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made. The following accounting policies are considered by management to be “critical” because of the judgments and uncertainties involved, and because different amounts would be reported under different conditions or using different assumptions. Revenue Recognition Revenues from contracts with customers are generated through the following services: 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. Our revenues are recorded net of variable consideration such as sales adjustments or allowances. Direct hire placement service revenues from contracts with customers are recognized when employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company’s guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates. Temporary staffing service revenues from contracts with customers are recognized in amounts for which the Company has a right to invoice, as the services are rendered by the Company’s temporary employees. The Company records temporary staffing revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company controls the specified service before that service is performed for a customer. The Company has the risk of identifying and hiring qualified employees, has the discretion to select the employees and establish their price, and bears the risk for services that are not fully paid for by customers. Falloffs and refunds during the period are reflected in the consolidated statements of operations as a reduction of placement service revenues. Expected future falloffs and refunds are reflected in the consolidated balance sheet as a reduction of accounts receivable. See Note 16 for disaggregated revenues by segment. Payment terms in our contracts vary by the type and location of our customer and the services offered. The terms between invoicing and when payments are due are not significant. 35 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Accounts Receivable The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for 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 falloffs 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. Management believes that the nature of the contract service business, wherein client companies are generally dependent on our contract employees in the same manner as permanent employees for their production cycles and the conduct of their respective businesses contributes to a relatively small accounts receivable allowance. Fair Value Measurement The Company follows the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement”, which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. Income Taxes 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 consolidated financial statements. 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. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. 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. 36 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) 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 accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet. Goodwill The Company evaluates its goodwill for possible impairment as prescribed by ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, at least annually and on an interim basis when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. 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, 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 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. For purposes of performing this goodwill impairment assessment, management 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. 37 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Intangible Assets Separately identifiable intangible assets held in the form of customer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods. Impairment of Long-lived Assets (other than Goodwill) The Company recognizes an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that these assets might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. 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 industrial reporting units. The Company did not record any impairments to its long-lived assets during fiscal 2021 and 2020. Stock-Based Compensation The Company accounts for stock-based awards to employees in accordance with FASB ASC 718, “Compensation-Stock Compensation”, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, we recognize expense on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. 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”. Such options are valued using the Black-Scholes option pricing model. Recent Accounting Pronouncements Recently Issued Accounting Pronouncements Not Yet Adopted Current Expected Credit Losses Model. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company has not yet determined the impact of the new guidance on its consolidated financial statements and related disclosures. 38 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. 39 Table of Contents