GEE Group Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. 38 Table of Contents Item 8. Consolidated Financial Statements and Supplementary Data. Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of September 30, 2023 and 2022 F-4 Consolidated Statements of Operations for the years ended September 30, 2023 and 2022 F-5 Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2023 and 2022 F-6 Consolidated Statements of Cash Flows for the years ended September 30, 2023 and 2022 F-7 Notes to Consolidated Financial Statements F-8 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders, Board of Directors, and Audit Committee GEE Group Inc. Opinion on the Consolidated Financial Statements 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 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 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. 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 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 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 The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents Goodwill Impairment Assessment 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. 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. We identified the goodwill impairment assessment as a critical audit matter. The principal considerations for our determination are the high degree of auditor judgment and subjectivity in evaluating management’s significant assumptions used in the impairment analyses, particularly as it relates to 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. The primary procedures we performed to address this critical audit matter included: · 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. · Utilized personnel with specialized knowledge and skills in valuation to assist in: (i) assessing the appropriateness of the fair value methodology and estimation process, (ii) evaluating the reasonableness of certain assumptions used including assessing the appropriateness of the discount rate, industry multiples, and the market comparable assumptions, and (iii) testing the mathematical accuracy and completeness of the discounted cash flow models and the impairment assessment analyses. /s/ FORVIS, LLP We have served as the Company’s auditor since 2022. Tampa, Florida December 18, 2023 F-3 Table of Contents GEE GROUP INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands) September 30, ASSETS 2023 2022 CURRENT ASSETS: Cash $ 22,471 $ 18,848 Accounts receivable, less allowances ($ 680 and $ 738 , respectively) 18,333 22,770 Prepaid expenses and other current assets 847 604 Total current assets 41,651 42,222 Property and equipment, net 846 1,140 Goodwill 61,293 61,293 Intangible assets, net 8,406 11,285 Deferred tax assets, net 7,064 - Right-of-use assets 3,637 2,830 Other long-term assets 596 784 TOTAL ASSETS $ 123,493 $ 119,554 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,762 $ 2,958 Accrued compensation 5,464 5,750 Current operating lease liabilities 1,475 1,333 Other current liabilities 1,660 5,538 Total current liabilities 11,361 15,579 Deferred tax liabilities, net - 528 Noncurrent operating lease liabilities 2,470 1,889 Other long-term liabilities 361 555 Total liabilities 14,192 18,551 Commitments and contingencies (Note 12) SHAREHOLDERS' EQUITY: Common stock, no-par value; authorized - 200,000 shares; 114,900 shares issued and 111,489 shares outstanding at September 30, 2023 and 114,450 shares issued and outstanding at September 30, 2022 112,915 112,051 Accumulated deficit ( 1,630 ) ( 11,048 ) Treasury stock; at cost - 3,411 shares at September 30, 2023 ( 1,984 ) - Total shareholders' equity 109,301 101,003 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 123,493 $ 119,554 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents GEE GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except basic and diluted earnings per share) Year Ended September 30, 2023 2022 NET REVENUES: Contract staffing services $ 133,051 $ 138,507 Direct hire placement services 19,392 26,605 NET REVENUES 152,443 165,112 Cost of contract services 99,571 103,434 GROSS PROFIT 52,872 61,678 Selling, general and administrative expenses 47,577 51,913 Depreciation expense 383 371 Amortization of intangible assets 2,879 3,469 Goodwill impairment charge - 2,150 INCOME FROM OPERATIONS 2,033 3,775 Gain on extinguishment of debt - 16,773 Interest expense ( 336 ) ( 377 ) Interest income 472 16 INCOME BEFORE INCOME TAX PROVISION 2,169 20,187 Provision for income tax benefit (expense) 7,249 ( 588 ) NET INCOME $ 9,418 $ 19,599 BASIC EARNINGS PER SHARE $ 0.08 $ 0.17 DILUTED EARNINGS PER SHARE $ 0.08 $ 0.17 WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 114,021 114,139 DILUTED 114,715 114,890 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents GEE GROUP INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Amounts in thousands) Common Total Stock Common Accumulated Treasury Shareholders' Shares Stock Deficit Stock Equity Balance, September 30, 2021 114,100 $ 111,416 $ ( 30,647 ) $ - $ 80,769 Share-based compensation - 635 - - 635 Issuance of stock for restricted stock 350 - - - - Net income - - 19,599 - 19,599 Balance, September 30, 2022 114,450 $ 112,051 $ ( 11,048 ) $ - $ 101,003 Purchase of treasury stock - - - ( 1,984 ) ( 1,984 ) Share-based compensation - 864 - - 864 Issuance of stock for restricted stock 450 - - - - Net income - - 9,418 - 9,418 Balance, September 30, 2023 114,900 $ 112,915 $ ( 1,630 ) $ ( 1,984 ) $ 109,301 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents GEE GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,418 $ 19,599 Adjustments to reconcile net income to cash provided by operating activities: Gain on extinguishment of debt - ( 16,773 ) Depreciation and amortization 3,262 3,840 Non-cash lease expense 1,399 1,384 Goodwill impairment charge - 2,150 Share-based compensation 864 635 Increase (decrease) in allowance for doubtful accounts ( 58 ) 452 Deferred income taxes ( 7,592 ) 10 Amortization of debt issuance costs 153 153 Changes in operating assets and liabilities: Accounts receivable 4,495 ( 152 ) Accounts payable ( 196 ) 701 Accrued compensation ( 286 ) ( 663 ) Other assets ( 243 ) 151 Other liabilities ( 5,326 ) ( 2,091 ) Net cash provided by operating activities 5,890 9,396 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ( 89 ) ( 328 ) Net cash used in investing activities ( 89 ) ( 328 ) CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock ( 1,984 ) - Payments on finance leases ( 194 ) ( 167 ) Net cash used in financing activities ( 2,178 ) ( 167 ) Net change in cash 3,623 8,901 Cash at beginning of year 18,848 9,947 Cash at end of year $ 22,471 18,848 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 183 $ 192 Cash paid for taxes 464 482 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 1. Description of Business GEE Group Inc. was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. GEE Group Inc. 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, engineering, and medical professionals for direct hire and contract staffing for our professional clients and provide temporary staffing services for our industrial clients. 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, 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. locations utilizing local staff members working remotely. The Company’s fiscal year begins on October 1 and ends on September 30 of each year. Fiscal 2023 and fiscal 2022 refer to the fiscal years ended September 30, 2023 and 2022, respectively. Liquidity 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. 2. Significant Accounting Policies and Estimates Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and with the instructions to Article 8 of Regulation S-X. 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 The consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-8 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) Revenue Recognition Revenues from contracts with customers are generated from direct hire placement services, professional contract services, and industrial contract services. Revenues are recognized when promised services are performed for customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Our revenues are recorded net of variable consideration such as sales adjustments or allowances. Payment terms in our contracts vary by the type and location of our customer and the services offered. The terms between invoicing and when payments are due are not significant. Direct hire placement service revenues from contracts with customers are recognized when employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company’s guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates. Temporary staffing service revenues from contracts with customers are recognized in amounts the Company has a right to invoice as the services are rendered by the Company’s temporary employees. The Company records temporary staffing revenue on a gross basis rather than on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company maintains primary responsibility for and controls the staff members that it provides to perform services for its clients. The Company has the risk of identifying and hiring qualified employees (as opposed to client employees), has the discretion to select the employees and establish their price, is responsible for compensating them, and bears the risk for services that are not fully paid for by customers. Falloffs and refunds during the period are reflected in the consolidated statements of operations as a reduction of placement service revenues 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 sheets as a reduction of accounts receivable as described under Accounts Receivable, below. See Note 14 for disaggregated revenues by segment. Cost of Contract Staffing Services The cost of contract services includes the wages and the related payroll taxes, employee benefits and certain other employee-related costs of the Company’s contract service employees while they work on contract assignments. Cash and Cash Equivalents Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. 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. F-9 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) Accounts Receivable The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for doubtful accounts is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues. 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, 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 Property and equipment are recorded at cost. 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. The carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If the carrying amount of an asset group is greater than its estimated future undiscounted cash flows, the carrying value is written down to the estimated fair value. There was no impairment of property and equipment for fiscal 2023 and fiscal 2022. Leases The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. 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. Also, the Company elected the practical expedient which allows aggregation of non-lease components with the related lease components when evaluating accounting treatment. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases. F-10 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) Goodwill The Company evaluates its goodwill for possible impairment as prescribed by FASB ASC 350, Intangibles — Goodwill and Other: Goodwill, at least annually, and more frequently when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. The Company allocates its goodwill among two reporting units: its Professional Services reporting unit and its Industrial Services reporting unit for purposes of evaluation for impairments. An impairment charge is recognized for the amount by which the carrying amount exceeds a reporting unit’s estimated fair value, not to exceed the carrying value of goodwill. In testing for impairments, management applies one or more valuation techniques to estimate the fair values of the reporting units, individual assets or groups of individual assets, as required under the circumstances. These valuation techniques rely on assumptions and other factors, such as 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. Intangible Assets Separately identifiable intangible assets held in the form of customer relationships and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods. Impairment of Long-lived Assets (other than Goodwill) The Company recognizes an impairment of long-lived intangible assets used in operations, other than goodwill, when events or circumstances indicate that the asset 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. The Company did not record any impairments to its long-lived assets during fiscal 2023 and 2022. Fair Value Measurement The Company follows the provisions of FASB ASC 820, Fair Value Measurement , which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances when observable inputs are not available. The hierarchy is described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. F-11 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 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. The Company has no assets or liabilities which are measured at fair value on a recurring basis. Fair value measurements utilized in evaluating the Company’s goodwill and other intangible assets for impairments are measured at fair value on a non-recurring basis using a combination of Level 2 and Level 3 inputs. 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, which is computed using shares issued and outstanding. Diluted earnings per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the vesting of restricted shares granted but unissued, exercise of stock options and warrants. The dilutive effect of the common stock equivalents is reflected in earnings per share by use of the treasury stock method. The weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares were 693 and 752 for fiscal 2023 and 2022, respectively. Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 3,786 and 942 for fiscal 2023 and 2022, respectively. Advertising Expenses The Company expenses the costs of print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. Advertising expense totaled $ 2,224 and $ 1,981 for fiscal 2023 and fiscal 2022, respectively. 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 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. For all employee stock options and restricted stock grants, the Company recognizes expense over the employee's requisite service period (generally the vesting period of the equity grant) and records an estimate for forfeitures. The Company's option pricing model requires the input of subjective assumptions, including the expected stock price volatility, and expected term. Any changes in these subjective assumptions significantly impact our share-based compensation expense. See Note 10 for the assumptions used to calculate the fair value of share-based employee and non-employee compensation. Upon the exercise of options, it is the Company's policy to issue new shares rather than utilizing treasury shares. Income Taxes 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 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. 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. F-12 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 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 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. 3. Recent Accounting Pronouncements 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. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for fiscal years beginning after December 15, 2022. 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. 4. Property and Equipment Property and equipment, net, consisted of the following: September 30, 2023 September 30, 2022 Computer software $ 481 $ 481 Office equipment, furniture, fixtures and leasehold improvements 3,828 3,739 Total property and equipment, at cost 4,309 4,220 Accumulated depreciation and amortization ( 3,463 ) ( 3,080 ) Property and equipment, net $ 846 $ 1,140 F-13 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 5. Leases 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. Terms for these leases generally range from two to six years. Supplemental cash flow information related to finance leases consisted of the following: Fiscal 2023 Fiscal 2022 Cash paid for finance lease liabilities $ 194 $ 168 Acquisition of equipment with finance lease - 420 Supplemental balance sheet information related to finance leases consisted of the following: Fiscal 2023 Fiscal 2022 Weighted average remaining lease term for finance leases 2.8 years 3.3 years Weighted average discount rate for finance leases 6.6 % 7.3 % The table below reconciles the undiscounted future minimum lease payments under non-cancelable finance lease agreements to the total finance lease liabilities recognized on the consolidated balance sheet as of September 30, 2023: Fiscal 2024 $ 166 Fiscal 2025 108 Fiscal 2026 105 Fiscal 2027 21 Less: Imputed interest ( 35 ) Present value of finance lease liabilities (a) $ 365 (a) Includes current portion of $ 148 for finance leases. 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. Branch offices are generally leased over periods ranging from three to five years. The corporate office lease expires in 2026. The Company’s leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities. Operating lease expenses were $ 2,219 and $ 2,163 for fiscal 2023 and 2022, respectively. Supplemental cash flow information related to operating leases consisted of the following: Fiscal 2023 Fiscal 2022 Cash paid for operating lease liabilities $ 1,764 $ 1,994 Right-of-use assets obtained in exchange for new operating lease liabilities 2,206 294 Supplemental balance sheet information related to operating leases consisted of the following: Fiscal 2023 Fiscal 2022 Weighted average remaining lease term for operating leases 2.2 years 1.8 years Weighted average discount rate for operating leases 5.7 % 5.9 % F-14 Table of Contents 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: Fiscal 2024 $ 1,669 Fiscal 2025 1,111 Fiscal 2026 699 Fiscal 2027 544 Fiscal 2028 302 Less: Imputed interest ( 380 ) Present value of operating lease liabilities (a) $ 3,945 (a) Includes current portion of $ 1,475 for operating leases. 6. Goodwill and Intangible Assets Goodwill 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; and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Company’s reporting units. 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 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. 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. Intangible Assets The following tables set forth the costs, accumulated amortization and net book value of the Company’s separately identifiable intangible assets as of September 30, 2023 and September 30, 2022 and estimated future amortization expense. September 30, 2023 September 30, 2022 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value Customer relationships $ 29,070 $ ( 21,120 ) $ 7,950 $ 29,070 $ ( 18,482 ) $ 10,588 Trade names 8,329 ( 7,873 ) 456 8,329 ( 7,632 ) 697 Total $ 37,399 $ ( 28,993 ) $ 8,406 $ 37,399 $ ( 26,114 ) $ 11,285 Fiscal 2024 $ 2,879 Fiscal 2025 2,741 Fiscal 2026 1,870 Fiscal 2027 916 $ 8,406 F-15 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) Intangible assets that represent customer relationships are amortized on the basis of estimated future undiscounted cash flows or using the straight-line basis over estimated remaining useful lives of five to ten years. Trade names are amortized on a straight-line basis over their respective estimated useful lives of between five and ten years. 7. Accrued Compensation 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. 8. Senior Bank Loan, Security and Guarantee Agreement On May 14, 2021, the Company and its subsidiaries 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 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 ). 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 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, 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. 2”). Amendment No. 2 provides for an increase in the CIT Facility’s concentration limits for certain large clients at the discretion of CIT Bank. F-16 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 9. 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 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 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. 10. 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 The Company has authorized 20,000 shares of preferred stock of which 1,000 shares have been designated Series A Preferred Stock, and no shares were issued or are outstanding; 5,950 shares have been designated Series B Preferred Stock, of which 5,926 shares were issued and none remain outstanding, and 3,000 shares have been designated Series C Preferred Stock, of which 2,093 shares were issued and none remained outstanding as of September 30, 2023 and 2021. Based on the terms of the Series B Convertible Preferred Stock, if certain fundamental transactions were to occur, the Series B Convertible Preferred Stock would require redemption, which would preclude permanent equity classification on the accompanying consolidated balance sheets. The Series C Convertible Preferred Stock has a Liquidation Value equal to $ 1.00 per share and ranks pari passu with the Company’s Series B Convertible Preferred Stock and senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. F-17 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 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, 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 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. F-18 Table of Contents 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. A summary of restricted stock activity is presented as follows: Number of Shares Weighted Average Fair Value ($) Non-vested restricted stock outstanding as of September 30, 2021 1,442 0.60 Granted 100 0.53 Vested ( 350 ) 0.52 Non-vested restricted stock outstanding as of September 30, 2022 1,192 0.61 Granted 742 0.79 Forfeited ( 100 ) 0.53 Vested ( 450 ) 0.85 Non-vested restricted stock outstanding as of September 30, 2023 1,384 0.62 Warrants The Company had 77 warrants outstanding as of September 30, 2023 and September 30, 2022 with a weighted average exercise price per share of $ 2 . The outstanding warrants had a weighted average remaining contractual life of 1.50 and 2.50 as of September 30, 2023 and 2022, respectively. No warrants were granted or expired during fiscal 2023 and 2022. Stock Options 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, 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. A summary of stock option activity is as follows: Number of Shares Weighted Average Exercise Price per share ($) Weighted Average Fair Value per share ($) Weighted Average Remaining Contractual Life (Years) Total Intrinsic Value of Options ($) Options outstanding as of September 30, 2021 1,672 2.14 1.73 7.35 4 Granted 940 0.59 0.55 - 3 Forfeited ( 185 ) 1.05 1.91 - 2 Options outstanding as of September 30, 2022 2,427 1.54 1.26 7.65 30 Granted 1,720 0.64 0.52 - - Forfeited ( 214 ) 0.94 0.86 - 3 Options outstanding as of September 30, 2023 3,933 1.18 0.96 7.96 27 Exercisable as of September 30, 2022 1,111 2.58 2.02 5.82 13 Exercisable as of September 30, 2023 2,190 1.64 1.31 6.80 23 F-19 Table of Contents 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: 2023 2022 Weighted average fair value of options $ 0.52 $ 0.55 Weighted average risk-free interest rate 4.3 % 2.8 % Weighted average volatility factor 106 % 112 % Weighted average expected life (years) 5.9 10.0 11. Income Taxes The components of the provision for income taxes is as follows: Year Ended September 30, 2023 2022 Current expense (benefit): Federal $ - $ - State 343 578 Total current expense (benefit): $ 343 $ 578 Deferred expense (benefit): Federal $ ( 6,268 ) $ 4 State ( 1,324 ) 6 Total deferred expense (benefit): $ ( 7,592 ) $ 10 Total income tax expense (benefit): $ ( 7,249 ) $ 588 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, 2023 2022 Income tax at US statutory rate $ 455 $ 4,239 State taxes, net of federal benefit ( 1,053 ) 490 Tax credits ( 111 ) ( 209 ) Stock compensation 37 270 Goodwill impairment - 342 PPP related matters - ( 3,522 ) Valuation allowance ( 6,615 ) ( 885 ) Other 38 ( 137 ) $ ( 7,249 ) $ 588 F-20 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) The net deferred income tax asset balance related to the following: Year Ended September 30, 2023 2022 Net operating loss carryforwards $ 4,368 $ 4,255 Stock options 1,795 1,566 Allowance for doubtful accounts 174 183 Accrued and prepaid expenses 417 730 Tax credit carryforwards 1,145 1,034 ROU liability 916 723 Interest 3,338 3,204 Other 7 8 Total deferred tax assets $ 12,160 $ 11,703 Intangibles $ ( 4,262 ) $ ( 4,002 ) ROU asset ( 827 ) ( 615 ) Depreciation ( 7 ) ( 33 ) Total deferred tax liability $ ( 5,096 ) $ ( 4,650 ) Deferred tax asset $ 7,064 $ 7,053 Valuation allowance - ( 7,581 ) Net deferred tax asset (liability) $ 7,064 $ ( 528 ) 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. Of the $ 17.7 million of federal net operating losses, $ 14.6 million can be carried indefinitely. Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of September 30, 2023, and 2022, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. 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. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change”. 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. F-21 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 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. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. 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, 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. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. 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 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. 12. Commitment and Contingencies Litigation and Claims 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. 13. 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. F-22 Table of Contents GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share data, unless otherwise stated) 14. Segment Data The Company provides the following distinctive services: (a) direct hire placement services, (b) temporary professional services staffing in the fields of information technology, accounting, finance and office, engineering, and medical, and (c) temporary industrial staffing. These services can be divided into two reportable segments: 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 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, 2023 2022 Industrial Staffing Services Contract services revenue $ 13,005 $ 15,945 Contract services gross margin 16.5 % 15.4 % Income from operations $ 83 $ 873 Depreciation and amortization 56 64 Accounts receivable – net 1,347 1,991 Intangible assets - - Goodwill 1,083 1,083 Total assets 2,986 3,817 Professional Staffing Services Permanent placement revenue $ 19,392 $ 26,605 Permanent placement services gross margin 100 % 100 % Contract services revenue $ 120,046 $ 122,562 Contract services gross margin 26.1 % 26.6 % Income from operations $ 9,041 $ 11,108 Depreciation and amortization 3,206 3,776 Accounts receivable – net 16,986 20,779 Intangible assets 8,406 11,285 Goodwill 60,210 60,210 Total assets 120,507 115,737 Unallocated Expenses Corporate administrative expenses $ 5,455 $ 7,049 Corporate facility expenses 443 379 Share-based compensation expense 864 635 Board related expenses 329 143 Total unallocated expenses $ 7,091 $ 8,206 Consolidated Total revenue $ 152,443 $ 165,112 Income from operations 2,033 3,775 Depreciation and amortization 3,262 3,840 Total accounts receivables – net 18,333 22,770 Intangible assets 8,406 11,285 Goodwill 61,293 61,293 Total assets 123,493 119,554 F-23 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.