What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-12-18 compared with 2022-12-20 · 171 added, 266 removed, 456 unchanged (49% of the section changed)

2 unchanged sentences

Consolidated Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm for the year ended September 30, 2022

Report of Independent Registered Public Accounting Firm for the year ended September 30, 2021

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2023 and 2022

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Opinion on the Consolidated Financial Statements

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

(the “Company”) as of September 30, 2022, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year ended September 30, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2022, and the results of its operations and its cash flows for the year ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

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

(the “Company”) as of September 30, 2023 and 2022, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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

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

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Accordingly, we express no such opinion.

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

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

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

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

We believe that our audit provides a reasonable basis for our opinion.

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

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

Critical Audit Matter

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Goodwill Impairment Assessment

At September 30, 2022, the Company’s goodwill was $61.29 million.

As of September 30, 2023, the Company’s goodwill was $61.3 million.

As discussed in Notes 2 and 6 of the financial statements, the Company evaluates goodwill for impairment at the reporting unit level annually, as of September 30, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

During the first quarter of fiscal 2022, the Company determined that there had been an increase in the amount of discount inherent in the Company’s market capitalization as reported on the NYSE American exchange, when compared to net book value, since its last 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 by comparing the fair value of each reporting unit to its respective carrying value and this resulted in an impairment charge of $2.15 million as of December 31, 2021.

The Step 1 analysis was updated as of September 30, 2022, for the Company’s annual impairment test, and the analysis noted no impairment of goodwill as of such date.

The Company performed a Step 1 analysis as of September 30, 2023, for the Company’s annual impairment test, and the analysis noted no impairment of goodwill as of such date.

The Company’s goodwill impairment analysis relies on assumptions and other factors, such as industry multiples applied to earnings, estimated future cash flows, the discount rates used to determine the present value of associated cash flows, and market comparable assumptions.

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

We identified the goodwill impairment assessment as a critical audit matter.

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The primary procedures we performed to address this critical audit matter included:

Obtained an understanding of management’s process for developing fair value estimates including:

Tested the completeness, accuracy, and relevance of underlying data used in the Company’s analysis, and

Obtained an understanding of management’s process for developing fair value estimates.

Tested the completeness, accuracy, and relevance of underlying data used in the Company’s analysis.

Evaluated the significant management assumptions utilized in the estimated future cash flows by comparing revenues and performance in management’s forecast to periods incurred to-date subsequent to September 30, 2023, and assessed the forecasts of revenues and expenses and the gross margin impact in future periods.

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December 18, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of GEE Group Inc.

Opinion on the Consolidated Financial Statements

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

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

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

Basis for Opinion

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

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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

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

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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

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

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

We believe that our audit provides a reasonable basis for our opinion.

/s/ Friedman LLP

We have served as the Company’s auditor from 2012 to 2022.

Marlton, New Jersey

December 23, 2021

GEE GROUP INC.

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Intangible assets, net

Deferred tax assets, net

Right-of-use assets

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Accrued compensation

Current Paycheck Protection Program loans

Current operating lease liabilities

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Total current liabilities

Deferred taxes

Deferred tax liabilities, net

Noncurrent operating lease liabilities

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authorized - 200,000 shares;

issued and outstanding - 114,450 shares at September 30, 2022 and 114,100 shares at September 30, 2021

114,900 shares issued and 111,489 shares outstanding at September 30, 2023 and 114,450 shares issued and outstanding at September 30, 2022

Accumulated deficit

Treasury stock;

at cost - 3,411 shares at September 30, 2023

Total shareholders' equity

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CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per share data)

(Amounts in thousands, except basic and diluted earnings per share)

Year Ended September 30,

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INCOME FROM OPERATIONS

Gain (loss) on extinguishment of debt

Interest income

Gain on extinguishment of debt

Interest expense

Interest income

INCOME BEFORE INCOME TAX PROVISION

Provision for income tax expense

Provision for income tax benefit (expense)

BASIC EARNINGS PER SHARE

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Issuance of stock for restricted stock

Sale of common stock in public offering, net of costs

Balance, September 30, 2022

Purchase of treasury stock

Share-based compensation

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Adjustments to reconcile net income to cash provided by operating activities:

(Gain) loss on extinguishment of debt

Gain on extinguishment of debt

Depreciation and amortization

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Amortization of debt issuance costs

Paid in kind interest on term loan

Changes in operating assets and liabilities:

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the sale of common stock in public offering

Payment on term loan

Net payments on revolving credit

Debt issue costs

Purchases of treasury stock

Payments on finance leases

Net cash used in financing activities

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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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Fiscal 2023 and fiscal 2022 refer to the fiscal years ended September 30, 2023 and 2022, respectively.

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, payment of operating costs and expenses, payment of taxes, payment of interest, fees and principal under its debt agreements, and capital expenditures.

On April 19, 2021, the Company completed the initial closing of a follow-on public offering of 83,333 shares of common stock at a public offering price of $ 0.60 per share.

Gross proceeds of the offering totaled $ 50,000 , which after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $ 45,478 .

On April 27, 2021, the underwriters of the Company’s follow-on public offering exercised, in full, their 15 % over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $ 0.60 per share.

The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $ 6,937 , after deducting the applicable underwriting discount.

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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On May 14, 2021, the Company 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”).

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.

Additional information regarding the CIT Facility is presented in Note 9.

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 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, payment of operating costs and expenses, payment to lessors, payment of taxes, payment of interest, fees and principal under its debt agreements, if any, purchases of treasury stock, and capital expenditures.

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 that these consolidated financial statements are issued.

Coronavirus Pandemic (“COVID-19”), Paycheck Protection Program Loans and Deferral of Federal Payroll Taxes under the CARES Act

In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from 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.

Some effects of COVID-19 and the subsequent variants of the virus continue to be felt, although to a lesser extent, with the most severe impacts being felt in the industrial segment and, to a lesser extent, in the professional segment including finance, accounting and office clerical (“FAO”) contract staffing service end markets.

Between April 29 and May 7, 2020, the Company and eight of its operating subsidiaries obtained loans in the aggregate amount of $ 19,927 from BBVA USA (now known as PNC Bank), as lender, pursuant to the Paycheck Protection Program (“PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S.

Small Business Administration (“SBA”).

These funds were the only source of financing available to our companies and businesses and were critical to our ability to maintain operations, including the employment of our temporary and full-time employees, to provide our services and meet our liquidity requirements in the midst of the worldwide Coronavirus Pandemic.

The PPP loans were used primarily to restore employee pay-cuts, recall furloughed or laid-off employees, support the payroll costs for existing employees, hire new employees, and for other allowable purposes including interest costs on certain business mortgage obligations, rent and utilities.

The Company received notice of forgiveness for some of these loans and their accrued interest during fiscal 2021 in the amount of $ 3,456 while the remaining loans were forgiven in fiscal 2022 totaling $ 16,773 (see Note 10).

The Company accounted for the remaining PPP loans as current debt in the Company’s accompanying consolidated financial statements as of September 30, 2021 in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt .

The Company and its subsidiaries, under the CARES Act, also were eligible to defer paying $ 3,654 , in aggregate, of applicable payroll taxes incurred during fiscal 2020.

One half of the deferred deposits of the employer’s share of Social Security tax were required to be paid on or before December 31, 2021 to be considered timely and avoid a failure to deposit penalty, and the remaining fifty percent (50%) of the eligible deferred amounts are required to be paid similarly by December 31, 2022.

The first half of the required deferred deposits payments totaling $ 1,827 , in aggregate, were paid prior to December 31, 2021, as required.

The remaining deferred amounts are included in other current liabilities on the accompanying consolidated financial statements as of September 31, 2022.

These amounts will be paid prior to their due date, December 31, 2022, as required.

Significant Accounting Policies and Estimates

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GAAP”) for financial information and with the instructions to Article 8 of Regulation S-X.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Certain reclassifications have been made to the prior year’s consolidated financial statements and/or related disclosures to conform to the current year’s presentation.

Principles of Consolidation

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Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Revenue Recognition

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Falloffs and refunds during the period are reflected in the consolidated statements of operations as a reduction of placement service revenues and were approximately $ 943 in fiscal 2023 and $ 2,297 in fiscal 2022.

Expected future falloffs and refunds are estimated and reflected in the consolidated balance sheet as a reduction of accounts receivable as described under Accounts Receivable, below.

Expected future falloffs and refunds are estimated and reflected in the consolidated balance sheets as a reduction of accounts receivable as described under Accounts Receivable, below.

See Note 14 for disaggregated revenues by segment.

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As of September 30, 2023, and September 30, 2022, there were no cash equivalents.

Cash deposit accounts are maintained at financial institutions and, at times, balances may exceed federally insured limits guaranteed by the FDIC.

During 2023, the Company entered into an enhanced deposit arrangement with a financial institution in which monies are deposited through a brokerage account and are further placed on deposit by the broker amongst U.S.

banks pre-screened by the broker in amounts per bank that do not exceed the individual $250 FDIC per depositor limit.

The aggregate amount of all funds on deposit under this program was $ 13,298 as of September 30, 2023.

We have never experienced any material losses related to cash on deposit with banks.

GEE GROUP INC.

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

Cash deposit accounts are maintained at financial institutions and, at times, balances may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation.

We have never experienced any losses related to these balances.

Accounts Receivable

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An allowance for doubtful accounts is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues.

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

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

An allowance for placement falloffs is also 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.

As of September 30, 2022 and September 30, 2021 allowance for doubtful accounts was $ 738 and $ 286 , respectively.

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

The allowance also includes permanent placement falloff reserves of $ 190 and $ 115 as of September 30, 2022 and September 30, 2021, respectively.

As of September 30, 2023 and September 30, 2022, the combined allowance for doubtful accounts and falloffs were $ 680 and $ 738 , respectively.

The allowance consists of $ 562 and $ 548 for doubtful accounts and $ 118 and $ 190 for falloffs as of September 30, 2023 and September 30, 2022, respectively.

Property and Equipment

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Depreciation expense is calculated on a straight-line basis over estimated useful lives of five years for computer equipment and two to ten years for office equipment, furniture and fixtures.

Depreciation expense for leasehold improvements is also calculated on a straight-line basis over the lesser of the useful life of the asset or the corresponding lease terms, which generally range from three to five years.

The Company capitalizes computer software purchased or developed for internal use and amortizes it over an estimated useful life of five years.

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The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes.

The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty.

The classification is determined at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty.

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

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

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

Intangible Assets

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

The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature.

The fair values of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature.

The carrying value disclosures of the Company’s long-term liabilities approximate their respective fair values based on current yield for debt instruments with similar terms.

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Earnings per Share

Basic earnings per share are computed by dividing net income attributable to common stockholders by the weighted average common shares outstanding for the period.

Basic earnings per share are computed by dividing net income attributable to common stockholders by the weighted average common shares outstanding for the period, which is computed using shares issued and outstanding.

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

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Share-Based Compensation

The Company accounts for share-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 or restricted stock grants.

The Company accounts for share-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 consolidated financial statements based on a determination of the fair value of the stock options or restricted stock grants.

The grant date fair value of stock options is determined using the Black-Scholes-Merton ("Black-Scholes") pricing model.

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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.

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 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.

GEE GROUP INC.

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(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 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.

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.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

Not Yet Adopted

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.

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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

ASU 2016-13 became effective for the Company on October 1, 2023.

The Company 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.

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Property and equipment, net

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company occasionally acquires equipment under finance leases including hardware and software used by our IT department to improve security and capacity, vehicles used by our Industrial Segment, and certain furniture for our offices.

10 unchanged sentences

Includes current portion of $ 148 for finance leases.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company leases space for all its branch offices, which are generally located either in downtown or suburban business centers, and for its corporate headquarters.

9 unchanged sentences

Weighted average discount rate for operating leases

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The table below reconciles the undiscounted future minimum lease payments under non-cancelable operating lease agreements having initial terms in excess of one year to the total operating lease liabilities recognized on the consolidated balance sheet as of September 30, 2023, including certain closed offices are as follows:

2 unchanged sentences

Includes current portion of $ 1,475 for operating leases.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Goodwill and Intangible Assets

Goodwill assets as of September 30, 2022 and 2021, consisted of the following:

September 30, 2022

September 30, 2021

Acquisition Value

Accumulated Impairment

Net Book Value

Acquisition Value

Accumulated Impairment

Net Book Value

For purposes of performing its annual goodwill impairment assessment as of September 30, 2023 and 2022, the Company applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed in Note 2, above;

1 unchanged sentence

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;

During the first quarter of fiscal 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.

1 unchanged sentence

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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Accumulated Amortization

Net Book Value

Accumulated Amortization

Net Book Value

Customer relationships

Estimated Amortization Expense

GEE GROUP INC.

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Accrued Compensation

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

Former Revolving Credit Facility and Term Loan

The Company and its subsidiaries, as borrowers, were parties to a Revolving Credit, Term Loan and Security Agreement (the “Former Credit Agreement”) with certain investment funds managed by MGG.

The principal and remaining unpaid accrued interest and fee balances under the Revolving Credit Facility and Term Loan balances outstanding under the Former Credit Agreement, as amended, were fully repaid and the Former Credit Agreement was retired on April 20, 2021.

Additional information regarding the repayment of the Former Credit Agreement is presented in Note 1.

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

Senior Bank Loan, Security and Guarantee Agreement

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As of September 30, 2023, the Company had no outstanding borrowings and $ 11,251 available for borrowing under the terms of the CIT Facility.

The Company also had $ 561 in unamortized debt issue cost associated with the CIT Facility.

The amortization expense of these debt costs totaled $ 153 and $ 51 for fiscal 2022 and 2021, respectively.

The Company had $ 408 and $ 561 in unamortized debt issuance costs associated with the CIT Facility as of September 30, 2023 and 2022, respectively.

The amortization expense of these debt costs totaled $ 153 in both fiscal 2023 and 2022.

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 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 unused line fees incurred and included in interest expense totaled $ 101 and $ 39 in fiscal 2022 and 2021, respectively.

CARES Act Payroll Protection Program Loans

Between April 29 and May 7, 2020, the Company obtained PPP loans for each of its operating subsidiaries.

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

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

GEE Group Inc.

for $ 1,992 ;

Scribe Solutions, Inc.

Agile Resources, Inc.

for $ 1,206 ;

Access Data Consulting Corporation for $ 1,456 ;

Paladin Consulting, Inc.

for $ 1,925 ;

SNI Companies, Inc.

for $ 10,000 ;

Triad Personnel Services, Inc.

Triad Logistics, Inc.

and BMCH, Inc.

for $ 2,589 .

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

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

In addition to interest costs on advances outstanding, the CIT Facility will provide 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 unused line fees incurred and included in interest expense totaled $ 101 in both fiscal 2023 and 2022.

On May 18, 2023, the Company entered into a Consent and Amendment No.

1 to the Loan and Security and Guarantee Agreement (“Amendment No.

1”), by and among the Company, certain subsidiaries of the Company as Borrowers, the Guarantors, the financial institutions party to the agreement from time to time as the Lenders, and CIT Bank, a division of First-Citizen Bank & Trust Company (successor by merger to CIT Bank, N.A.), as Agent for the Lenders.

Pursuant to the terms of Amendment No.

1 and subject to the terms and conditions set forth in Amendment No.

1, CIT and Lenders consented to the Company’s previously announced 2023 Stock Repurchase Program (as defined in Amendment No.

1), which will continue through December 31, 2023;

provided that (i) the aggregate amount paid for all such repurchase transactions shall not exceed $20 million , and (ii) no Default or Event of Default (as defined in Amendment No.

1) exists or would exist after giving effect to each repurchase transaction consummated thereunder.

In addition, effective as of the date of Amendment No.

1, LIBOR is no longer used as a benchmark rate or otherwise operative within Amendment No.

1 and was replaced with the Secured Overnight Financing Rate (“SOFR”) as well as other conforming changes.

On December 15, 2023, the Company and CIT Bank entered into Amendment No.

2 to the CIT Facility (“Amendment No.

Amendment No.

2 provides for an increase in the CIT Facility’s concentration limits for certain large clients at the discretion of CIT Bank.

GEE GROUP INC.

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

The Company and its operating subsidiaries have been granted forgiveness of their respective PPP loans by the SBA.

During fiscal 2021, the PPP loans and interest were forgiven for Access Data Consulting Corporation, Agile Resources, Inc., Scribe Solutions Inc., Triad Logistics, Inc., and Triad Personnel Services, Inc., in the amounts of $ 1,470 , $ 1,220 , $ 279 , $ 79 , and $ 408 , respectively.

The Company’s remaining four PPP loans and interest for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc.

were forgiven in fiscal 2022 in the amounts of $ 2,024 , $ 2,630 , $ 1,956 , and $ 10,163 , respectively.

As a result, the Company recognized aggregate gains of $ 16,773 and $ 3,456 during fiscal 2022 and 2021, respectively.

The former PPP loans obtained by GEE Group Inc., and its operating subsidiaries together as an affiliated group, exceeded the $ 2,000 audit threshold established by the SBA, and therefore, will be subject to audit by the SBA in the future.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Payroll Protection Program Loans

During April and May 2020, the Company obtained Payroll Protection Program loans (“PPP loans”) for each of its operating subsidiaries.

The Company and its operating subsidiaries were granted forgiveness of their respective PPP loans by the SBA during fiscal years 2021 and 2022.

The Company’s last remaining PPP loans and interest were forgiven in December 2021 and corresponding gains in the aggregate amount of $ 16,773 were recognized during fiscal 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.

On April 19, 2021, the Company completed the initial closing of follow-on public offering of 83,333 shares of common stock at a public offering price of $ 0.60 per share.

Gross proceeds of the offering totaled $ 50,000 which, after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $ 45,478 .

As part of the offering, the Company granted the underwriters a 45-day option to purchase up to an additional 12,500 shares of the Company's common stock to cover over-allotments, if any, at the public offering price, less the underwriting discount.

ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering.

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

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

On April 27, 2021, the underwriters of the Company’s April 19, 2021, public offering exercised in full their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $ 0.60 per share.

The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $ 6,937 , after deducting the applicable underwriting discount.

Shareholders’ Equity and Share-based Compensation

Share Repurchase Program

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 for $ 1,984 , including commissions and fees, at an average price of $ 0.56 per share excluding these associated costs.

Preferred Stock

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

Amended and Restated 2013 Incentive Stock Plan

As of September 30, 2022, there were restricted stock shares and stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan (“Incentive Stock Plan”).

During fiscal 2021, the Incentive Stock Plan was amended to increase the total shares available for restricted stock and stock options grants by 10,000 to a total of 15,000 ( 7,500 restricted stock shares and 7,500 stock option shares).

Amended and Restated 2013 Incentive Stock Plan, as amended

As of September 30, 2023, there were vested and unvested shares of restricted stock and stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan, as amended (“Incentive Stock Plan”).

During fiscal 2021, the Incentive Stock Plan was amended to increase the total shares available for restricted stock and stock options by 10,000 to a total of 15,000 ( 7,500 restricted stock shares and 7,500 stock option shares).

The Incentive Stock Plan authorizes the Compensation Committee of the Board of Directors to grant either incentive or non-statutory stock options to employees.

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

As of September 30, 2022, there were 9,931 shares remained available to be granted under the Plan ( 5,073 shares available for stock option grants and 4,858 shares available for restricted stock grants).

As of September 30, 2023, there were 7,782 shares available to be granted under the Plan ( 4,216 shares available for restricted stock grants and 3,566 shares available for non-qualified stock option grants).

Restricted Stock

The Company granted 100 and 642 shares of restricted common stock in fiscal 2022 and 2021, respectively.

The Company has granted 742 and 100 shares of restricted stock during fiscal 2023 and 2022, respectively.

Of the restricted shares granted during fiscal 2023, 150 were granted to new members of the Board of Directors upon their election in fiscal 2023.

During fiscal 2022, the Company granted 100 shares of restricted stock to a non-executive member of management.

On September 27, 2022, the Company adopted a new annual incentive compensation program (“AICP”) for its executives to be administered under the Company’s Incentive Stock Plan, under which the remaining 592 shares granted in fiscal 2023 were awarded.

The AICP includes a long-term incentive (“LTI”) compensation plan in the form of restricted stock awards comprised of two components:

one that vests based on future service only, and a second that vests based on future service and performance.

Initial awards under both service-only and service plus performance-based components of the AICP LTI plan are determined based on financial performance measures for the immediately preceding fiscal year.

During fiscal 2023, 551 of the 592 restricted shares granted under the AICP were granted based on actual results for fiscal 2022, as measured against corresponding financial targets for that year, and will cliff vest as of December 2, 2025.

The remaining 41 of the 592 restricted shares granted under the AICP during fiscal 2023, represent the earned portion of the initial performance-based shares granted based on fiscal 2022 results, as adjusted for the outcome with regard to the financial targets applicable to those shares set by the Company’s board of directors for fiscal 2023.

The final 41 restricted shares of the initial portion of the fiscal 2022 service plus performance-based restricted shares granted were determined based on the actual financial performance of the Company for fiscal 2023 and will cliff vest on December 2, 2025, the third anniversary from their date of grant.

Under the AICP LTI plan, the service plus performance-based grants of 41 restricted shares during fiscal 2023 represent the first tranche of a three-year schedule of awards.

The next two tranches of up to 262 shares each (up to an additional 524 restricted shares in total) are scheduled to become effective as the Company’s financial plans and targets are set by the board of directors prior to each anniversary date for each of the two subsequent fiscal years, respectively.

As the vesting of the two subsequent tranches will be based in part on performance conditions that have not yet been determined, the grant dates and fair values of these scheduled awards will be established in the future.

The end of the requisite service periods for the 592 restricted shares granted under the AICP during fiscal 2023, plus the additional 524 restricted shares eligible to be granted in the future, once the performance conditions are determined for fiscal 2024 and fiscal 2025, is December 2, 2025.

Therefore, the remaining two tranches of the fiscal 2022 service plus performance-based awards may be expected to have grant dates corresponding with the establishment of the fiscal 2024 and fiscal 2025 financial performance targets by the Company’s board of directors.

However, all final shares determined for each of the two subsequent annual tranches also will cliff vest on December 2, 2025.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Share-based compensation expense attributable to restricted stock was $ 318 and $ 293 in fiscal 2023 and 2022, respectively.

As of September 30, 2023, there was approximately $ 508 of unrecognized compensation expense related to restricted stock outstanding and the weighted average vesting period for those grants was 3.00 years.

On August 21, 2022, 350 shares of restricted common stock held by the Company’s executive officers and board of directors became fully vested.

On June 15, 2021, 600 shares of restricted common stock held by the Company’s Chairman and Chief Executive Officer became fully vested.

A summary of restricted stock activity is presented as follows:

Number of Shares

Weighted Average Fair Value ($)

Weighted Average

Fair Value ($)

Non-vested restricted stock outstanding as of September 30, 2021

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Stock Options

All stock options outstanding as of September 30, 2022 and September 30, 2021 were non-statutory stock options, had exercise prices equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.

All stock options outstanding as of September 30, 2023 and September 30, 2022 were non-qualified stock options, had exercise prices equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.

The Company granted 1,720 and 940 stock options in fiscal 2023 and 2022, respectively.

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

The stock options generally vest on annual schedules during periods ranging from two to four years from the date of grant, although some options are fully vested upon grant.

Share-based compensation expense attributable to stock options was $ 546 and $ 342 in fiscal 2023 and fiscal 2022, respectively.

As of September 30, 2023, there was approximately $ 859 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.97 years.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of stock option activity is as follows:

Weighted Average Exercise Price per share ($)

Weighted Average Remaining Contractual Life (Years)

Total Intrinsic Value of Options ($)

Number of Shares

Weighted Average Exercise Price

per share ($)

Weighted Average

per share ($)

Weighted Average Remaining

Total Intrinsic

Options outstanding as of September 30, 2021

3 unchanged sentences

Exercisable as of September 30, 2023

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The fair value of stock options granted was made using the Black-Scholes option pricing model and the following assumptions:

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Total current expense (benefit):

Deferred expense:

Total deferred expense:

Total income tax expense:

Deferred expense (benefit):

Total deferred expense (benefit):

Total income tax expense (benefit):

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

Year Ended September 30,

Income at US statutory rate

Income tax at US statutory rate

State taxes, net of federal benefit

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Allowance for doubtful accounts

Accrued & prepaid expenses

Accrued and prepaid expenses

Tax credit carryforwards

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Valuation allowance

Net deferred tax liability

Net deferred tax asset (liability)

As of September 30, 2023, the Company had federal and state net operating loss carryforwards of approximately $ 17.4 million and $ 22.9 million, respectively, which begin to expire in tax years 2031 for federal and 2023 for state purposes.

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The Company also considered whether there was any currently available information about future years.

Because long-term contracts are not a significant part of the Company’s business, future results cannot be reliably predicted by considering past trends or by extrapolating past results.

Moreover, the Company’s earnings are influenced by national economic conditions and have been volatile in the past.

Considering these factors, the Company determined that it was not possible to reasonably quantify future taxable income.

The Company determined that it is more likely than not that all of the net deferred tax assets (deferred tax assets in excess of corresponding deferred tax liabilities) will not be realized.

Accordingly, the Company maintained a valuation allowance as of September 30, 2022 and 2021.

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

As goodwill, an indefinite-lived intangible asset, will not be amortized for financial reporting purposes under current accounting standards, any tax amortization related goodwill claimed by the Company in future years will give rise to an increasing deferred tax liability, which will only reverse at the time of a future impairment under current accounting rules or ultimate sale of the underlying intangible assets.

Due to the uncertain timing of this reversal, the temporary difference cannot be considered as a source of future taxable income, but for the amount of indefinite federal NOL carryforwards available due to the U.S.

Tax Reform Act as noted above, for purposes of determining a valuation allowance against the Company’s other net deferred tax assets.

As a result, the Company’s net deferred tax position at September 30, 2022 and 2021, represents the tax impact of the cumulative tax amortization of goodwill, which is primarily attributable to historical tax deductible goodwill from SNI.

As of September 30, 2023, in part because 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.

It therefore released the valuation allowance accordingly.

Under Internal Revenue Code 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited.

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In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states and local tax jurisdictions in which we operate or do business in.

ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

GEE GROUP INC.

1 unchanged sentence

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

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in.

We record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available.

1 unchanged sentence

These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

As of September 30, 2022, and 2021 we have not recorded any uncertain tax positions in our financial statements.

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, 2022, and 2021, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

As of September 30, 2023, and 2022 we have not recorded any material uncertain tax positions in our consolidated financial statements.

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

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

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.

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The Company’s tax years are still open under statute from September 30, 2020, to the present.

Earlier years may be examined to the extent that the net operating loss carryforwards form those earlier years are used in future periods.

Earlier years may be examined to the extent that the net operating loss carryforwards from those earlier years are used in future periods.

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

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Litigation and Claims

On March 23, 2022, the Company settled a legal matter involving two separate, but related lawsuits, filed by plaintiff Sands Brothers Venture Capital II, LLC.

These two lawsuits and others in which the Company was not a named party, involved a dispute amongst certain former affiliate and non-affiliate entities, and certain former officers and directors of the Company, stemming from a series of transactions that allegedly occurred during the period 2008 through 2010.

The Company was sued in 2014 and 2017, based on the allegation that it was a participant and aided and abetted in the fraudulent conveyance of funds.

The plaintiff was a creditor of an unaffiliated now defunct entity whose assets the Company is alleged to have received.

Given the facts and circumstances of the case, it has been the Company’s belief and assessment that the lawsuits were meritless, and that the likelihood of a material adverse resolution was remote.

The Company’s ongoing legal expenses including depositions, court filings, etc.

incurred over the years to defend itself from the claims made by the plaintiff in the respective lawsuits, have, for the most part, been either paid directly to the law firms or reimbursed by insurance.

The Company continues to believe that its defenses were meritorious and that the final results of litigation would, overall, have been favorable on the merits.

However, given the age of the matter, the potential future significant ongoing uninsured portions of legal and other costs to be incurred, including the extraordinary expenses of flying and housing witnesses and experts for the trial, and the future time, attention and effort necessary by management to satisfactorily resolve the matter through the courts, the Company made the business decision to take advantage of an opportunity to settle the case.

In this regard, the Company entered into a Confidential Settlement Agreement and Mutual Release, dated March 23, 2022, with the plaintiff for both lawsuits.

Under the terms of the agreement and release, neither the plaintiff nor the Company have admitted or conceded to any wrongdoing, and the matter has been settled in its entirety for a one-time payment to the plaintiff of approximately $ 1,175 , of which the Company’s portion is $ 975 , with insurance paying the balance.

This payment was due and paid by April 8, 2022, and the expense has been recognized as a pre-tax charge in the Company’s consolidated financial statements for fiscal 2022.

The Company and its subsidiaries are involved in various other litigation that arises in the ordinary course of business.

As previously disclosed, on March 23, 2022, the Company settled the Sands Brothers Venture Capital II, LLC lawsuit.

Under the terms of the agreement and release, neither the plaintiff nor the Company admitted or conceded to any wrongdoing and the matter was settled in its entirety for a one-time payment to the plaintiff of approximately $ 1,175 , of which the Company’s portion was $ 975 , with insurance paying the balance.

This payment was due and paid by April 8, 2022, and recorded in selling, general, and administrative expenses as a pre-tax charge in the Company’s consolidated financial statements during fiscal 2022.

Indemnification Agreements \

On April 27, 2023, the Company entered into Indemnification Agreements with certain of its officers and members of the Board to provide for indemnification of each individual in their respective capacities as officers and members of the Board of the Company to the fullest extent permitted under the Company’s Amended and Restated Articles of Incorporation, Amended and Restated Bylaws, and the Illinois Business Corporation Act.

The Company carries directors and officers liability insurance, which is intended to provide protection for potential claims against the Company’s directors and officers.

Management is not aware of any matters or circumstances under which potential liability arising from these agreements would be material to the consolidated financial statements..

There are no other pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.

Defined Contribution Plan

The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible core and field personnel, including those assigned to provide staffing services for clients.

The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations.

The Company matches 10 % of each participant’s contributions on the first 10% of contributions from their wages.

The Company match under the 410(k) Plan totaled $ 94 and $ 92 for fiscal 2023 and 2022, respectively.

GEE GROUP INC.

1 unchanged sentence

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

The Company and its subsidiaries are involved in various other litigation that arises in the ordinary course of business.

The Company provides the following distinctive services:

1 unchanged sentence

These services can be divided into two reportable segments:

Industrial Staffing Services and Professional Staffing Services.

Professional Staffing Services and Industrial Staffing Services.

Some selling, general and administrative expenses are not fully allocated among these segments.

Unallocated corporate expenses primarily include certain executive compensation expenses and salaries, certain administrative salaries, corporate legal expenses, share-based compensation expenses, consulting expenses, audit fees, corporate rent and facility costs, board related fees, acquisition, integration and restructuring expenses, and interest expense.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Unallocated corporate expenses primarily include certain executive and administrative salaries and related expenses, corporate legal expenses, share-based compensation expenses, consulting expenses, audit fees, corporate rent and facility costs, board related fees, acquisition, integration and restructuring expenses, and interest expense.

Year Ended September 30,

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Permanent placement revenue

Placement services gross margin

Permanent placement services gross margin

Contract services revenue

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Intangible assets

1 Includes credits of $ 78 and $ 1,270 for annual premium refunds from the Ohio Bureau of Workers Compensation in fiscal 2022 and 2021, respectively.

The Industrial Services gross margin excluding the impact of these items was approximately 14.9 % for both fiscal 2022 and 2021.

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

These costs were $ 2,060 and $ 412 for fiscal 2022 and 2021, respectively, and include mainly expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, and legal and professional costs.

Defined Contribution Plan

The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible core and field personnel, including those assigned to provide staffing services for clients.

The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations.

The Company matches participants’ contributions with 10% of the first 10% of a participant’s contribution .

The Company match contributed $ 92 and $ 68 from continuing operations to the 401(k) Plan for fiscal 2022 and 2021, respectively.

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

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk