What changed in this filing

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Item 1A. Risk Factors

2022-12-20 compared with 2021-12-23 · 61 added, 36 removed, 372 unchanged (21% of the section changed)

Risk Factors.

WE HAVE EXPERIENCED LOSSES FROM OPERATIONS IN THE PAST AND MAY NOT BE PROFITABLE IN THE FUTURE.

The Company has experienced net losses in certain of its recent fiscal years.

Possible consequences of recurring net losses include, but are not limited to, negative cash flows, asset impairments, defaults under the Company’s debt agreements, and possibly, the inability of the Company to continue operating as a going concern.

Among the consequences of the net losses experienced, the Company was required to obtain amendments and waivers for missed covenants under its former senior revolving credit, term loan and security agreement.

Management has taken definitive actions to improve operations, reduce costs, improve operating profitability, and position the Company for future growth.

As of September 30, 2021, the Company had extinguished all of its former senior and subordinated debt and mezzanine preferred stock financing totaling over $100 million, in aggregate, reduced its interest expense and fees by approximately $12 million annually, and thereby improved its net cash flow and overall financial profile.

However, other risk factors, including those described elsewhere herein and which include some risks that are outside the Company’s control, could also cause the Company to experience net losses in the future.

ECONOMY CURRENTLY IS BEING NEGATIVELY IMPACTED BY HISTORICALLY SIGNIFICANT INFLATION, A LOOMING RESCESSION, AND DISRUPTIONS IN SUPPLY AND THE WORKFORCE;

RECENT GLOBAL SOCIOECONOMIC TRENDS, INCLUDING THE WAR IN UKRAINE AND U.S.

RELATIONS WITH CERTAIN FOREIGN POWERS MAY HAVE A FURTHER ADVERSE EFFECT ON THE U.S.

ECONOMY AND OUR BUSINESS.

and larger global economies are experiencing historically high inflation during 2022.

The Federal Reserve and other Central Banks already have raised interest rates more aggressively and to their highest levels in the last four to five decades.

As a result, the prospect for a recession is high and considered by many to be likely.

Some sources have declared that the U.S.

already is in a recession.

Consumer prices, including basic costs of food, fuel, utilities, healthcare, mortgage and personal loan rates, and other non-discretionary and discretionary consumer items are up by high single digits.

Wages are up, however, increases in wages lag price inflation resulting in a net decline in real personal incomes relative to consumer spending.

Volatility continues to exist in the workforce making it more difficult and costly for employers to recruit, hire and/or retain workers.

unemployment remains relatively low, however the labor utilization rate and ratio of workers to the total population also remain low.

Shortages in the workforce are a significant factor in supply shortages relative to demand and also help fuel inflation.

On the global stage, the invasion of Ukraine by Russia and escalation of overtures by China over Taiwan and the South China Sea, also add instability to the uncertainty driving socioeconomic forces, which in turn, impact the Company’s and its subsidiaries’ operations.

The present conditions and state of our U.S and global economies make it difficult to predict whether and/or when and to what extent a recession has occurred or will occur in the near future.

In the event of an occurring or worsening recession, as the case may be, in which the U.S.

economy contracts, we expect that our business would be negatively impacted, accordingly.

The Company has taken significant actions to shore up its resources and means in order to weather a potential downturn in the economy;

however, should a recession occur, or one already exists and worsens in the future, one may expect either scenario to have an adverse effect on the business of the Company and its subsidiaries.

THE NEGATIVE EFFECTS OF THE CORONAVIRUS PANDEMIC, CARES ACT REQUIREMENTS, AND TRENDS IN THE FINANCIAL MARKETS COULD ADVERSELY AFFECT OUR BUSINESS, LIQUIDITY AND FINANCIAL RESULTS.

Recent global socioeconomic conditions, including the negative effects of the Coronavirus Pandemic (“COVID-19”), and disruption of financial markets, severely affected our business and results of operations during fiscal 2020 and, although to a lesser extent, fiscal 2021.

The negative effects initially limited our access to credit or equity capital, our ability to refinance debt and disrupted ours and our clients’ businesses.

In fiscal 2021 and 2022, we were able to regain reasonable access to credit and equity capital markets, but also have continued to experience some lingering negative effects on our business operations in certain markets.

The operations and liquidity of our operating subsidiaries were severely impacted by COVID-19.

As a result and out of necessity, in fiscal 2020, we applied for and obtained financial relief in the form of funds received in exchange for promissory notes issued by the U.S.

Small Business Administration (“SBA”) and U.S.

Treasury under the Payroll Protection Program of the CARES Act (“PPP loans”).

The Company and eight of its operating subsidiaries received PPP loans, totaling $19,927 thousand, and have since applied for and received forgiveness of their respective PPP loans from the SBA.

The forgiveness of these loans, including their respective accrued and unpaid interest amounts, have been recognized by eliminating them from the Company’s consolidated balance sheet with corresponding gains in consolidated income in fiscal 2021 and 2022.

The former PPP loans obtained by GEE Group Inc., and its operating subsidiaries together as an affiliated group, exceeded the $2 million audit threshold established by the SBA, and therefore, will be subject to audit by the SBA in the future.

If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid.

If the companies are unable to repay the portions of their PPP loans that ultimately may be reinstated from available liquidity or operating cash flow, we may be required to raise additional equity or debt capital to repay the PPP loans.

THE TERMS OF OUR SENIOR BANK ASSET BACKED LOAN AGREEMENT MAY PLACE SOME RESTRICTIONS ON OUR OPERATING AND FINANCIAL FLEXIBILITY, AND FAILURE TO COMPLY WITH COVENANTS OR TO SATISFY CERTAIN CONDITIONS OF THE AGREEMENT MAY RESULT IN ACCELERATION OF OUR REPAYMENT OBLIGATIONS, WHICH COULD HARM OUR LIQUIDITY, FINANCIAL CONDITION, OPERATING RESULTS, BUSINESS AND PROSPECTS AND CAUSE THE PRICE OF OUR SECURITIES TO DECLINE.

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An acceleration of our outstanding indebtedness could have serious consequences to our financial condition, operating results, and business, and could cause us to become insolvent or enter bankruptcy proceedings.

RECENT GLOBAL SOCIOECONOMIC TRENDS, INCLUDING THE NEGATIVE EFFECTS OF THE CORONAVIRUS PANDEMIC, CARES ACT REQUIREMENTS, AND TRENDS IN THE FINANCIAL MARKETS COULD ADVERSELY AFFECT OUR BUSINESS, LIQUIDITY AND FINANCIAL RESULTS.

The negative effects initially limited our access to credit or equity capital, our ability to refinance debt and disrupted ours and our clients’ businesses.

In fiscal 2021, we were able to regain reasonable access to credit and equity capital markets, but did continue to experience some disruptions in our business operations in certain markets.

Due to these disruptions, the operations and liquidity of our operating subsidiaries were negatively impacted by COVID-19, and as a result and out of necessity, in fiscal 2020, we were able to obtain financial relief in the form of funds received in exchange for promissory notes issued by the U.S.

Small Business Administration (“SBA”) and U.S.

Treasury under the Payroll Protection Program of the CARES Act (“PPP loans”).

The nine (9) promissory notes had an aggregate face amount of $19.9 million, with interest at 1% per annum and are unsecured.

The CARES Act PPP loans and related accrued interest are eligible for forgiveness by the SBA, in whole or in part, based upon the usage of the proceeds for costs and expenses determined by the SBA to be allowable and eligible.

Allowable costs and expenses, as defined by the SBA, broadly include payroll and certain payroll related expenses, lease costs, utilities, and interest on business mortgage loans.

Allowable costs and expenses that are eligible for forgiveness include those incurred during the covered periods, as defined, after certain specified limitations and reductions based on changes in compensation and headcount levels during the covered periods, as defined.

All nine of the Company’s operating subsidiaries (the Company and 8 of its operating subsidiaries) applied for forgiveness of their respective PPP loans having incurred adequate allowable expenses eligible for the use of loan proceeds and forgiveness, accordingly.

Five (5) of the Company’s operating subsidiaries:

Scribe Solutions, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, Agile Resources, Inc., and Triad Personnel Services, Inc.

had been fully forgiven by the SBA through 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 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 $16.7 million, 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 million 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 might be reinstated from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans.

IF WE ARE UNABLE TO GENERATE OR BORROW SUFFICIENT CASH TO MAKE PAYMENTS ON OUR INDEBTEDNESS OUR FINANCIAL CONDITION WOULD BE MATERIALLY HARMED, OUR BUSINESS COULD FAIL AND OUR SHAREHOLDERS MAY LOSE ALL OF THEIR INVESTMENT.

Our ability to make scheduled payments on or to refinance our obligations will depend on our financial and operating performance, which will be affected by economic, financial, competitive, business, and other factors, some of which are beyond our control.

Our ability to make scheduled payments on or to refinance our obligations is dependent upon our financial and operating performance, which is affected by economic, financial, competitive, business, and other factors, some of which are beyond our control.

While we believe we will be able to meet our liquidity requirements for the foreseeable future and for at least the next twelve months, we cannot assure you that our business will generate sufficient cash flow from operations to service our indebtedness or to fund our other liquidity needs.

6 unchanged sentences

The other long-lived assets, including definite-lived intangible assets, have to be tested for impairment only when triggering events occur or circumstances indicate that these assets might be impaired.

As a result, the Company recognized a significant impairment of its goodwill in fiscal 2020.

The Company has recognized impairments of its goodwill, including most recently during the first quarter of its fiscal year ended September 30, 2022.

In testing for impairments, management applies one or more valuation techniques to estimate the fair values of the reporting units, individual assets or groups of individual assets, as required under the circumstances.

These valuation techniques rely on assumptions and other factors, such as the estimated future cash flows, the discount rates used to determine the present value of associated cash flows, and the market comparable assumptions.

These assumptions and factors require significant judgement by the Company in their development.

Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of impairment.

The valuation techniques utilized by management, for impairment testing, including estimated future cash flows, fundamentally include the inherent underlying assumption that the economy, the markets served by the Company, and the Company itself, will continue to recover from the COVID-19 pandemic in fiscal 2022 and beyond.

In the event the assumptions relied upon by management are not achieved, including assumed future growth rates as a result of the prolonged impact of COVID-19 pandemic, impairments of goodwill or other long-lived assets could be recorded and such amounts could be material to the financial statements.

In the event the assumptions relied upon by management are not achieved, including assumed future growth rates, impairments of goodwill or other long-lived assets could be recorded and such amounts could be material to the consolidated financial statements.

A reduction in the projected long-term operating performance of one or both of the Company’s reporting units or other long-lived assets, future market declines, changes in discount rates or other conditions also could result in material impairments in the future.

3 unchanged sentences

We often have high receivables from our customers, and as a staffing company, we are prone to cash flow imbalances because we have to fund payroll payments to temporary workers before receiving payments from clients for our services.

Cash flow imbalances also occur because we must pay temporary workers even when we have not been paid by our customers.

If we experience a significant and sustained drop in operating profits, or if there are unanticipated reductions in cash inflows or increases in cash outlays, we may be subject to cash shortfalls.

If such a shortfall were to occur for even a brief period of time, it may have a significant adverse effect on our business.

In particular, we use working capital to pay expenses relating to our temporary workers and to satisfy our workers’ compensation liabilities.

If a sustained shortfall were to occur, it could have an adverse effect on our business.

In particular, we use working capital to fund expenses relating to our temporary workers and our other operating expenses and liabilities.

As a result, we must maintain sufficient cash availability to pay temporary workers and fund related tax liabilities prior to receiving payment from customers.

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To avoid large placement agency fees, large companies may use in-house personnel staff, current employee referrals, or human resources consulting companies to find and hire new personnel.

Because placement agencies typically charges fees as a mark-up to the hourly pay rate or based on a percentage of the first year’s salary of a new worker, companies with many jobs to fill have a large financial incentive to avoid agencies.

Because placement agencies typically charge fees as a mark-up to the hourly pay rate or based on a percentage of the first year’s salary of a new worker, companies with many jobs to fill may have a large financial incentive to avoid agencies.

Our business is also significantly affected by our customers’ hiring needs and their views of their future prospects.

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Any failure or perceived failure to successfully manage the collection, use, disclosure, or security of personal information or other privacy related matters, or any failure to comply with changing regulatory requirements in this area, could result in legal liability or impairment to our reputation in the marketplace.

WE RECENTLY EXPERIENCED A NETWORK SECURITY INCIDENT AFFECTING OUR IT NETWORK, INFORMATION SYSTEMS AND STORED INFORMATION.

NETWORK SECURITY INCIDENTS AFFECTING OUR SYSTEMS AND INFORMATION TECHNOLOGY SUCH AS THIS ONE OR OTHERS COULD ADVERSELY IMPACT OUR ABILITY TO OPERATE AND HAVE WIDER-REACHING MATERIAL ADVERSE EFFECTS ON OUR BUSINESS AND FINANCIAL POSITION AND RESULTS.

On February 1, 2022, the Company detected and stopped a network security incident.

An unauthorized third party gained access into our network, encrypted various systems, and demanded money to decrypt the affected systems and to delete and not publicly release stolen information.

The Company’s IT professionals immediately disconnected and isolated the affected systems to prevent any further compromise.

The senior executive management team was immediately notified who in turn reported the network security incident to the Company’s Audit Committee chairman who has board oversight authority for these types of matters.

The Company’s audit committee and board of directors were fully briefed and a special committee of the board of directors was appointed to assist and oversee management in the investigations, response and full remediation of the incident.

The Company engaged third party cyber security experts to assist its internal IT professionals and conducted a comprehensive investigation to determine the extent of the unauthorized activity.

The Company also notified law enforcement and its cyber liability insurance carrier about the incident.

The Company’s investigation determined that the unauthorized third party acquired a relatively small amount of data maintained on the encrypted servers, to include in some cases, individual personal information such as names, social security numbers, passport and driver license information.

Our forensic investigation has been concluded and we believe we have reasonably determined the scope of the incident.

Individuals affected by this incident are in the process of being notified in accordance with applicable state and federal laws.

The cost of investigating and resolving the incident has been immaterial.

Based on what management and the Company’s third-party cyber security experts have determined in their investigation, the Company also does not foresee this incident having any future material detrimental effect on our business or financial position.

The Company has in place cyber liability insurance coverage, subject to certain policy limitations and deductibles.

The Company had also immediately notified the cyber insurance carrier of the network security incident, who worked with management and the Company’s third-party cyber security experts on this matter.

The Company’s network environment is fully operational and additional security measures have been added and/or are being evaluated to prevent further intrusions.

The Company has not observed any additional malicious activity on the network to date.

The Company’s operations were only minimally impacted by the incident, and we were able to serve our clients and other stakeholders without issue throughout.

OUR STRATEGY OF GROWING THROUGH ACQUISITIONS MAY BE IMPEDED BY A LACK OF FINANCIAL RESOURCES AND IMPACT OUR BUSINESS IN UNEXPECTED WAYS.

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A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

While we believe that we have remediated this material weakness, we cannot assure you that additional material weaknesses will not be identified in the future.

Any failure to implement or maintain required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our consolidated financial statements.

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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 1A. Risk Factors