What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-18 compared with 2022-12-20 · 100 added, 158 removed, 145 unchanged (64% of the section changed)

7 unchanged sentences

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

(collectively referred to as the “Company”, “us”, “our”, or “we”) are providers of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities.

We specialize in the placement of information technology, accounting, finance, office, and engineering professionals for direct hire and contract staffing for our clients, data entry assistants (medical scribes) who specialize in 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.

are providers of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities.

We specialize in the placement of information technology, accounting, finance, office, and engineering professionals for direct hire and contract staffing for our clients, data entry assistants (medical scribes) who specialize in electronic medical records (EMR) services for emergency departments, specialty physician practices and clinics, and provide temporary staffing services for our industrial clients.

The acquisitions of Scribe Solutions, Inc., a Florida corporation (“Scribe”) in April 2015, Agile Resources, Inc., a Georgia corporation (“Agile”) in July 2015, Access Data Consulting Corporation, a Colorado corporation (“Access”) in October 2015, Paladin Consulting Inc.

(“Paladin”) in January 2016, and SNI Companies, Inc., a Delaware corporation (“SNI”) in April 2017, expanded our geographical footprint within the professional placement and contract staffing verticals or end markets of information technology, accounting, finance, office, engineering professionals, and medical scribes.

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, 2022, we operated from locations in eleven (11) states, including twenty-eight (28) branch offices in downtown or suburban areas of major U.S.

As of September 30, 2023, we operated from locations in eleven (11) states, including twenty-six (26) branch offices in downtown or suburban areas of major U.S.

cities and four (4) additional U.S.

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We have offices or serve markets remotely, as follows;

(i) one office in each of Connecticut, Georgia, Minnesota, and New Jersey, and one remote local market presence in Virginia;

(ii) two offices each in Illinois and Massachusetts;

(i) one office in each of Connecticut, Illinois, Minnesota, and New Jersey, and one remote local market presence in Virginia;

(ii) two offices each in Georgia and Massachusetts;

(iii) three offices in Colorado;

(iv) four offices and two additional local market presences in Texas;

(iv) two offices and two additional local market presences in Texas;

(v) six offices and one additional local market presence in Florida;

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Management’s organic growth strategy includes seeking out and winning new client business, as well as expansion of existing client business and on-going cost reduction and productivity improvement efforts in operations.

Management’s acquisition growth strategy includes identifying strategic acquisitions, financed primarily through a combination of cash and the issuance of equity and/or debt to improve the overall profitability and cash flows of the Company.

Management’s acquisition growth strategy includes identifying strategic, accretive acquisitions, financed primarily through a combination of cash and debt, including seller financing, the issuance of equity in appropriate circumstances, and the use of earn-outs where efficient 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:

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We believe our current segments and array of businesses and brands within our segments complement one another and position us for future growth.

Network Security Incident and Risk

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

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

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

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

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

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

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

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.

Coronavirus Pandemic (“COVID-19”)

Our businesses have recovered to a significant extent from COVID-19 during the fiscal years ended September 30, 2022 and 2021.

While we have experienced significant recovery and, in fiscal 2022, returned to or exceeded pre-COVID-19 levels of results and performance, the rate of future growth might still be affected by potential resurgences and negative impacts of COVID-19 and its variants.

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

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Fiscal year ended September 30, 2023 (“fiscal 2023”), and fiscal year ended September 30, 2022 (“fiscal 2022”)

Summary and Outlook

Fiscal 2023 results declined from those of fiscal 2022, as expected, primarily as the result of economic and labor market uncertainties and instability, which negatively impacted the numbers of orders and candidates available to fill orders across our businesses.

Fiscal 2022 also was an above average year in terms of performance, and while fiscal 2023 results were lower overall, the Company once again was profitable and generated positive cash flow from operations, as it has consistently done since completion of the significant deleveraging initiatives and a follow-on offering during the quarter ended June 30, 2021.

We also believe our top line performance was in line with our industry peers and above average in regards to our IT brands.

Our lowest performing businesses continued to be those serving light industrial and office clerical markets.

We are cautiously optimistic about our ability to return to growth once again, and especially in our largest professional services businesses, led by IT, as uncertainties and unknowns about the economy and labor environments lessen.

We experienced twelve quarters of cumulative pre-tax income during our fiscal third quarter ended June 30, 2023, for purposes of evaluation of our deferred income tax valuation allowance, which had been set at 100% of our net deferred tax assets.

As a result of this and our evaluations of other positive and negative evidence, we have recognized a net deferred tax benefit of $7,249 for the fiscal year ended September 30, 2023, which accounted for approximately $0.06 of this period’s earnings per share.

The reversal of this allowance during fiscal 2023 represented a significant milestone and indication of our progress.

We also implemented a $20 million share repurchase program during fiscal 2023, providing a means to return excess capital to our shareholders from our growing cash balances.

As of September 30, 2023, we had repurchased 3,411 shares.

As of December 15, 2023, the Company has repurchased 5,808 shares (accounting for approximately 5.1% of our issued and outstanding common shares immediately prior to the program).

The Company has conducted repurchases consistently since the program’s implementation and intends to continue to take advantage of the present attractive market prices for its common shares.

Consolidated net revenues are comprised of the following:

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This compares to contract staffing services revenue of $138,507, or approximately 84%, of consolidated revenue and direct hire placement revenue of $26,605, or approximately 16%, of consolidated revenue for fiscal 2022.

The overall increase in contract staffing services revenue of $8,705, or 7% for fiscal 2022 compared to fiscal 2021 was primarily attributable to increased demand for employment in our professional contract services markets, resulting in an increase in revenues of $10,092, or 9%, as the U.S.

economy and workforce have continued to improve toward pre-COVID-19 conditions.

Industrial staffing services revenues decreased by $1,387, or 8%, due mainly to reoccurrence of adverse conditions associated with COVID-19 variants, which caused significant disruptions in the industrial markets we serve and resulting in a decrease in demand for our industrial staffing services during the first half of fiscal 2022.

Management believes this trend is the result of post-COVID-19 recovery of the U.S.

economy, as well as actions taken by the Company to take advantage of post-COVID-19 opportunities and trends and position the Company for growth.

Industrial contract services revenues decreased mainly due to resurgence of adverse conditions associated with COVID-19 variants, which caused significant disruptions in the industrial markets we serve and a decrease in demand during the first half of fiscal 2022.

Additionally, lingering workforce shortages that have continued in the local markets served by our industrial segment, have prevented our industrial contract services revenue for fiscal 2022 from fully recovering to pre-COVID-19 levels.

These labor shortages limited the Company’s ability to fill all its contract orders in its industrial segment as well as some orders in the professional segment.

Workforce volatility and shortages are believed to be attributable, at least in part, to plentiful economic stimulus and unemployment benefits.

Direct hire placement revenue for fiscal 2022 increased by $7,527 or 39% over fiscal 2021, driven by a substantial increase in the demand for permanent placements.

The large increase in direct hire revenues appears to be driven, in part, by continued volatility in the workforce leading some companies to staff harder to fill positions with permanent employees, rather than contract employees.

It also is believed that the larger proportion of fully remote workers in the workforce today is causing some employers to favor permanent hires over contractors so that they may maintain direct access and control for purposes of security over their networks and other assets.

In particular, the Company has been successful in growing direct hire revenues across its information technology brands, in addition to its finance, accounting and office brands.

As a result of the economic headwinds encountered during fiscal 2023, including persistent inflation and threats of recession, consolidated contract staffing services revenues for fiscal 2023 were down only $5,456, or 4%, when compared to fiscal 2022.

Professional contract services revenue decreased by $2,516, or 2%, which can be attributed to completion of certain discreet (non-recurring) projects in fiscal 2022, including professional staffing support provided to former COVID-19 response vaccination and testing facilities.

These discreet projects generated $3,152 in revenue during fiscal 2022.

Excluding the effects of these discreet projects, professional contract services revenues would have increased $636, or 0.5%, during fiscal 2023.

Industrial staffing services revenues decreased by $2,940, or 18%, mainly due to a decrease in orders from clients.

Our industrial staffing markets in Ohio, as well as office clerical markets in various locations, continue to be affected by workforce volatility following COVID-19, resulting in more competition for orders and temporary labor to fill orders.

According to a U.S.

Staffing Industry Forecast report published in September 2023 by Staffing Industry Analysts, U.S.

staffing industry revenues are expected to decline 10% over the 2023 calendar year.

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

Management believes that the significant net growth in revenues during fiscal 2022, compared to fiscal 2021, is generally in line with trends being experienced in the overall U.S.

The Company also continues to observe, analyze and, where considered appropriate, make modifications and changes to its business model and practices in response to the COVID-19 pandemic and related health and safety concerns, including those associated with its variants.

These include, but are not limited to, implementation of preventative policies and procedures in observance of Federal, state and/or local guidelines or recommendations with regard to COVID-19 and its variants, use of personal protective equipment (principally, protective masks), and others.

The Company also continues to take advantage of flexible and hybrid work-from-home employment arrangements and has adopted the strategy of converting certain of its branch office locations to virtual locations where efficiencies are available.

Direct hire placement revenue for fiscal 2023 decreased by $7,213, or 27%, over fiscal 2022.

Direct hire opportunities tend to be highly cyclical and demand dependent, tending to rise during economic recovery and decline during downturns.

Demand for the Company’s direct hire services in fiscal 2022 was extraordinarily high driven by post-COVID employment recovery trends, and is down in 2023 on the presence of economic uncertainties .

Management believes that the Company’s direct hire performance during fiscal 2023 was on par with larger employment and industry trends.

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 2022 increased by approximately 7% to $103,434 compared to $96,339 for fiscal 2021.

The $7,095 increase in cost of contract services is consistent with the increase in revenues as discussed above.

Cost of contract services for fiscal 2023 decreased by approximately 4% to $99,571 compared to $103,434 for fiscal 2022.

The $3,863 decrease in cost of contract services is consistent with the decrease in revenues as discussed above.

Gross Profit percentage by service:

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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 for fiscal 2022 was approximately 37.4% versus approximately 35.3% for fiscal 2021.

The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for fiscal 2023 was approximately 34.7% versus approximately 37.4% for fiscal 2022.

The substantial portion of the decline in fiscal 2023 compared with fiscal 2022, is due to the corresponding declines in the volume and mix of direct hire placement revenues in fiscal 2023.

In the professional contract staffing services segment, the gross margin excluding direct placement services was approximately 26.1% for fiscal 2023 compared to approximately 26.6% for fiscal 2022.

The year-over-year improvement in our consolidated gross margin is mainly the result of the increase in mix of permanent placement business with 100% gross margins for fiscal 2022, from 13% to 16% of our consolidated revenues, or by approximately 3%, or 300 basis points.

This decrease is due in part to increases in contractor pay associated with the recent rise in inflation resulting in some margin compression.

The Company stepped-up counter-inflationary measures during the second half of fiscal 2023, including seeking increases in bill rates and spreads, where possible, to address margin compression.

The Company’s industrial staffing services gross margin for fiscal 2023 was approximately 16.5% as compared with approximately 15.4% for fiscal 2022.

The decrease in industrial contract services gross margin is due to a decrease 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 services gross margin excluding the impact of these items was level at approximately 14.9% for both fiscal 2022 and 2021.

This increase is mainly attributable to price increases enacted to offset increases in contractor payroll and achieve higher spreads in the Industrial segment.

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

Selling, General and Administrative Expenses

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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;

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

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

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

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

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

The Company’s SG&A for fiscal 2022 increased by $10,262 as compared to fiscal 2021.

The Company’s SG&A for fiscal 2023 decreased by $4,336 as compared to fiscal 2022.

SG&A for fiscal 2023 as a percentage of revenue was approximately 31.2% versus 31.4% for fiscal 2022.

This increase in SG&A is mainly the result the significant growth of our revenues and improvements in our operating performance resulting in additional incentive compensation and bonuses.

Wage increases and a recent spike in inflation also caused our SG&A expenses to increase in fiscal 2022.

In addition, the increases in our SG&A expenses and ratio for fiscal 2022 were affected by an increase of $413 in bad debt expense associated with one of the Company’s industrial customers, a legal settlement of $975, and charges associated with severance agreements totaling $838.

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 $2,060 and $412 for fiscal 2022 and fiscal 2021, respectively, and include the legal settlement and severance agreements described above in addition to expenses associated with former closed and consolidated locations.

Depreciation Expense

The decrease in SG&A relative to revenue, despite the effects of inflation on compensation and other operating costs, is largely a result of certain cost reductions implemented by the Company during the second quarter of fiscal 2023.

These cost reductions were expected to provide annual savings of approximately $4.0 million.

The Company monitors operating costs including the impacts of inflation with a view towards identifying and taking advantage of potential cost reductions on a routine basis.

SG&A includes certain non-cash costs and expenses incurred related to acquisition, integration and restructuring and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations or have been eliminated on a going forward basis.

These costs were $838 and $2,060 for fiscal 2023 and 2022, respectively, and include mainly expenses associated with former closed and consolidated locations, legal fees and a settlement, and personnel costs associated with eliminated positions.

Depreciation and Amortization Expense

Depreciation expense was $383 and $371 for fiscal 2023 and 2022, respectively.

The increase in depreciation expense is due to fixed asset additions.

Amortization Expense

The increase in depreciation expense is due to recent net additions to fixed assets.

Amortization expense was $2,879, and $3,469 for fiscal 2023 and 2022, respectively.

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The Company completed its most recent annual goodwill impairment assessment as of September 30, 2023 and determined that its goodwill was not impaired.

During the first fiscal quarter of 2022, the amount of discount inherent in the Company’s market capitalization as reported on the NYSE American exchange when compared with consolidated stockholders’ equity, or net book value, had increased since the annual goodwill impairment assessment as of September 30, 2021;

therefore, the Company performed an interim assessment of its goodwill for impairment as of December 31, 2021.

During fiscal 2022, as of December 31, 2021, an interim assessment was performed as the amount of discount inherent in the Company’s market capitalization as reported on the NYSE American exchange when compared with consolidated stockholders’ equity, or net book value, had increased since the annual goodwill impairment assessment as of September 30, 2021.

The estimated fair values of its Professional Services and Industrial Services reporting units were adjusted based on qualitative and quantitative analysis so that they reconciled more precisely with the Company’s market capitalization as of December 31, 2021, plus an assumed control premium.

As a result, the Company recognized a non-cash impairment charge of $2,150 during the first quarter of fiscal 2022.

Upon completion of the prior annual goodwill impairment assessment as of September 30, 2021, it was determined that the Company’s goodwill was not impaired.

Upon completion of the annual goodwill impairment assessment as of September 30, 2022, it was determined that the Company’s goodwill was not impaired.

Income from Operations

As the net result of the matters discussed regarding revenues and operating expenses above, income from operations decreased by $2,715 to $3,775 for fiscal 2022 from $6,490 for fiscal 2021.

The decrease is due to factors described above, including notably, increases of $413 in bad debt expense associated with one of the Company’s light industrial customers, a legal settlement of $975, and charges associated with severance agreements totaling $838 during fiscal 2022.

Additionally, the non-cash goodwill impairment charge of $2,150 taken during fiscal 2022 offset increases in income from operations during the period.

Income from operations was $2,033 and $3,775 for fiscal 2023 and 2022, respectively.

This decrease of $1,742 is consistent with the decrease in revenues, mainly in direct hire placements, as discussed above, and taking into account the goodwill impairment charge of $2,150 included in fiscal 2022 income from operations.

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

Gain/Loss on Debt Extinguishment

The company recorded a gain of $16,773 in fiscal 2022 related to forgiveness and extinguishment of its remaining PPP loans.

Net losses on debt extinguishment of $(548) in fiscal 2021 were recorded due to a one-time non-cash charge of $4,004 which represents unamortized debt issue costs associated with its Former Credit Agreement.

This was offset in part by forgiveness and extinguishment of multiple of the company’s outstanding PPP loans in fiscal 2021 leading to a gain of $3,456.

Interest Expense

Interest expense decreased by $41 to $336 for fiscal 2023 from $377 for fiscal 2022.

This decrease is mainly attributable to the elimination of interest related to the Former Credit Agreement that contributed $4,684 in interest expense for fiscal 2021.

On April 20, 2021, the Company retired and fully repaid its remaining principal and accrued interest balances under its Former Credit Agreement

Interest Income

The Company began holding excess cash in interest bearing accounts in August 2022 on which interest income earned was $472 and $16 in fiscal 2023 and 2022, respectively.

Provision for Income Taxes

The Company recognized provisions for income tax expense of $588 and $58 in fiscal 2022 and 2021, respectively.

Our effective tax rate for fiscals 2022 and 2021 is lower than the statutory rate primarily due to the effect of the valuation allowance on the net deferred tax asset position.

The Company recognized income tax benefits (expense) of $7,249 and $(588) for fiscal 2023 and 2022, respectively.

Our effective tax rates for fiscal years ended September 30, 2023 and 2022 are lower than the statutory rate primarily due to the effect of the change in valuation allowance on the net deferred tax asset (“DTA”) position.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of June 30, 2023, in part due to the fact that in the current year we achieved three years of cumulative pretax income, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the deferred taxes are realizable.

As a result, the Company released $7,581 of the valuation allowance accordingly during fiscal 2023.

The Company’s net income was $9,418 and $19,599 for fiscal 2023 and 2022, respectively.

In addition to the changes in income from operations as outlined above, the increase is primarily due to gains of $16,773 from forgiveness and extinguishment of the Company’s remaining PPP loans during fiscal 2022 and the decrease in interest expense of $5,501 year over year.

In addition to the changes in income from operations as outlined above, the decrease is primarily due to gains of $16,773 recorded in fiscal 2022 from forgiveness and extinguishment of the Company’s remaining PPP loans, offset by the deferred tax benefit of $7,249 during fiscal 2023.

Liquidity and Capital Resources

The primary sources of liquidity for the Company are revenues earned and collected from its clients for the placement of contract employees 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 primary sources of liquidity for the Company are revenues earned and collected from its clients and borrowings available under its asset-based senior secured revolving credit facility.

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, employment-related expenses, operating costs and expenses, taxes and capital expenditures.

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

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As of September 30, 2023, the Company had $22,471 of cash which was an increase of $3,623 from $18,848 as of September 30, 2022.

The significant increase in cash flows from operating activities is primarily the result of the elimination of cash interest associated with the Company’s former high-cost Senior Credit Agreement, which was fully repaid and retired on April 20, 2021.

As of September 30, 2022, the Company had working capital of $26,643 compared to $2,528 of working capital as of September 30, 2021.

The substantial increase in working capital is mainly attributable to the generation of free cash flow of $8,901, and the forgiveness of the Company’s last remaining PPP loans and interest during fiscal 2022, which were reflected in current liabilities in the aggregate amount of $16,741 as of September 30, 2021.

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

Net cash provided by operating activities for fiscal 2022 and fiscal 2021 was $9,229 and $370, respectively.

The revenue growth and other improvements in operating results, including the significant reduction in interest expense, described in management’s discussion and analysis above contributed the cash from operations for fiscal 2022.

Cash flows used in investing activities for fiscal 2022 and fiscal 2021 was $328 and $126, respectively.

The use of cash for investing activities was for the acquisition of property and equipment in fiscal 2022 and fiscal 2021.

Cash flows used in financing activities for fiscal 2021 totaled $4,371.

This activity was primarily attributable to the net effect of the transactions described below, including the net proceeds from a follow-on securities offering and a new credit facility and payments on the Former Credit Agreement.

There were no cash flows used in financing activities during fiscal 2022.

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.

On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022 in aggregate outstanding indebtedness under the Former Credit Agreement, including accrued interest, using the net proceeds of its 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 Credit Agreement.

On May 14, 2021, GEE Group Inc.

and its subsidiaries, Agile Resources, Inc., Access Data Consulting Corporation, BMCH, Inc., GEE Group Portfolio, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Personnel Services, Inc., and Triad Logistics, Inc.

entered a Loan, Security and Guaranty Agreement for a $20 million asset-based senior secured revolving credit facility with CIT Bank, N.A.

(the “CIT Facility”).

The CIT Facility is collateralized by 100% of the assets of the Company and its subsidiaries who are co-borrowers and/or guarantors.

The CIT Facility matures on the fifth anniversary of the closing date (May 14, 2026).

Concurrent with the May 14, 2021 closing of the CIT Facility, the Company initially borrowed $5,326 and utilized these funds to pay all remaining unpaid Exit and Restructuring Fees due to its former senior lenders in the amount of $4,978, with the remainder going to direct fees and costs associated with the CIT Facility.

Under the CIT Facility, advances will be subject to a borrowing base formula that is computed based on 85% of eligible accounts receivable of the Company and subsidiaries as defined in the CIT Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent.

The CIT Facility is subject to usual and customary covenants and events of default for credit facilities of this type.

The interest rate, at the Company’s election, will be based on either the Base Rate, as defined, plus the applicable margin;

or the London Interbank Offering Rate (“LIBOR” or any successor thereto) for the applicable interest period, subject to a 1% floor, plus the applicable margin.

The CIT Facility also contains provisions addressing the potential future replacement of LIBOR utilized and referenced in the loan agreement, in the event LIBOR becomes no longer available.

In addition to interest costs on advances outstanding, the CIT Facility will provide for an unused line fee ranging from 0.375% to 0.50% depending on the amount of undrawn credit, original issue discount and certain fees for diligence, implementation, and administration.

The Company reported $5,890 and $9,396 in cash flow from operations for the fiscal years ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, the Company had working capital of $30,290 compared to $26,643 as of September 30, 2022.

The increase in working capital is mainly attributable to positive cash flow from operations less purchases of treasury stock during fiscal 2023.

Cash flows were reduced by installment payments of deferred payroll taxes under the CARES Act from fiscal 2020, of $1,847 each, during the fiscal years ended September 30, 2023 and 2022.

The primary uses of cash for investing activities were for the acquisition of property and equipment, principally information technology equipment, during fiscal 2023 and 2022.

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

The Company had approximately $15,352 in availability for borrowings as of September 30, 2022.

The cash flows used in financing activities were for purchases of treasury stock during fiscal 2023, and payments made on finance leases during fiscal 2023 and 2022.

The Company had approximately $11,251 in availability for borrowings under its CIT facility as of September 30, 2023.

There were no outstanding borrowings on the CIT Facility as of September 30, 2023, or September 30, 2022, except for certain accrued carrying fees and costs, which are included in other current liabilities in the accompanying consolidated balance sheets.

On April 27, 2023, the Company’s Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $20 million of the Company’s currently outstanding shares of common stock.

The share repurchase program will continue through December 31, 2023, may be suspended or discontinued at any time and does not obligate the Company to repurchase any number of shares of common stock.

The share repurchase program is to be conducted in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

Subject to applicable rules and regulations, the shares of common stock may be purchased from time to time in the open market transactions and in amounts as the Company deems appropriate, based on factors such as market conditions, legal requirements, and other business considerations.

During fiscal 2023, the Company repurchased 3,411 shares of its common stock at a total cost of $1,984.

As of December 15, 2023, the Company has repurchased 5,808 shares (accounting for approximately 5.1% of our issued and outstanding common shares immediately prior to the program).

All the Company’s office facilities are leased.

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There are no minimum debt service principal payments due during the twelve-month period commencing after the close of business on September 30, 2023.

Management believes that the Company has adequate cash and working capital and can generate adequate liquidity to meet its obligations for the foreseeable future and at least for one year after the date this Annual Report on Form 10-K is filed.

Management believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future and at least for the next twelve months after the date this Annual Report on Form 10-K is filed.

Off-Balance Sheet Arrangements

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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.

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, income tax provisions and benefits, including deferred income tax valuation allowances, accounting for asset impairments, and accounting for share-based compensation.

Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.

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

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.

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The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire.

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

Falloffs and refunds during the period, including estimates for future falloffs associated with revenues that have been recognized, are reflected in the consolidated statements of operations as a reduction of placement service revenues and in the consolidated balance sheet, in combination with allowance for uncollectible accounts, as a reduction of accounts receivable.

Falloffs and refunds during the period, including estimates for future falloffs associated with revenues that have been recognized, are reflected in the consolidated statements of operations as a reduction of placement service revenues and in the consolidated balance sheets, in combination with allowance for uncollectible accounts, as a reduction of accounts receivable.

Estimated future falloffs are determined by analyzing recent historical trends of actual falloffs and applying a formula comprised of average numbers of falloffs, average falloff amounts, and average cycle times between billing and fall off dates to derive an allowance for falloffs.

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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:

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

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

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The fair value hierarchy gives the lowest priority to Level 3 inputs.

The Company accounts for income taxes under the asset and liability method, FASB ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.

Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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

The Company recognizes deferred tax assets to the extent that it is believed these assets are more likely than not to be realized.

In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

In the event it is determined that the Company would be able to realize deferred tax assets in the future in excess of the net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process in which (1) determines 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, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Interest and penalties related to unrecognized tax benefits are recognized on the income tax expense line in the accompanying consolidated statement of operations.

In the event it is determined that the Company would not be able to realize the entire amount of recorded deferred tax assets in the future, an adjustment would be made to the deferred tax asset valuation allowance, which would increase the provision for income taxes.

The Company records 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, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Interest and penalties related to uncertain tax benefits are recognized on the income tax expense line in the accompanying consolidated statement of operations.

As of September 30, 2023 and 2022, no accrued interest or penalties are included on the related tax liability line in the accompanying consolidated balance sheet.

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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, 2022, and allocates its goodwill among two reporting units:

The Company performed annual goodwill impairment testing effective as of September 30, 2023, and allocated its goodwill among two reporting units:

its professional reporting unit and its industrial reporting unit for purposes of evaluation for impairments.

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

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

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;

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As a result of the evaluation performed, the estimated fair values exceeded the carrying values of its net assets of the Company’s professional and industrial reporting units as of September 30, 2023.

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

therefore, the Company performed an interim assessment of its goodwill for impairment as of December 31, 2021.

The estimated fair values of its Professional Services and Industrial Services reporting units were adjusted based on qualitative and quantitative analysis so that they reconcile more precisely with the Company’s market capitalization as of December 31, 2021, plus an assumed control premium.

As a result, the Company recognized a non-cash impairment charge of $2,150 during fiscal 2022.

Upon completion of the prior annual goodwill impairment assessment as of September 30, 2021, it was determined that the Company’s goodwill was not impaired.

Intangible Assets

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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.

The Company recognizes an impairment of long-lived intangible 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.

The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using 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.

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Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

Not Yet Adopte d

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) , which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments.

The guidance also requires disclosure of the Chief Operating Decision Maker's (“CODM”) position for each segment and detail of how the CODM uses financial reporting to assess their segment’s performance.

The new guidance is effective for fiscal years beginning after December 15, 2023.

The Company does not expect implementation of the new guidance to have a material impact on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses , 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.

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The new guidance is effective for fiscal years 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.

(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 intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income;

transactions with a government that result in a step up in the tax basis of goodwill;

separate financial statements of legal entities that are not subject to tax;

and enacted changes in tax laws in interim periods.

The ASU is effective for public business entities for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years.

ASU 2019-12 became effective as of October 1, 2021 and had no material impact on our 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.

The Company is still evaluating the impact of this guidance on its consolidated financial statements but does not expect implementation of the new guidance to have a material impact on its consolidated financial statements and related disclosures.

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.

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 7. Management’s Discussion and Analysis