What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-12-19 compared with 2023-12-18 · 150 added, 100 removed, 145 unchanged (63% of the section changed)

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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, 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.

As of September 30, 2024, we operated from locations in eleven (11) states, including twenty-three (23) branch offices in downtown or suburban areas of major U.S.

cities and three (3) additional U.S.

locations utilizing local staff members working remotely.

We have offices or serve markets remotely, as follows;

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

(ii) two offices each in Georgia and Massachusetts;

(iii) three offices in Colorado;

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

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

(ii) two offices each in Massachusetts and Colorado;

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

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

and (vi) seven offices in Ohio.

Management has implemented a strategy which includes organic and acquisition growth components.

Management has an on-going business strategy, which includes organic and acquisition growth components.

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

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

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

Results of Operations

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Summary and Outlook

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

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

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

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

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

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

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

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

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

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

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

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

We have incurred a net loss of $(24.1) million for the fiscal year ended September 30, 2024.

The net loss is primarily the result of non-cash impairment charges recognized in the fiscal third quarter ended June 30, 2024, in the aggregate pre-tax amount of $20.5 million, and related declines in business due mainly to negative economic and labor market conditions that began in 2023 and have continued into 2024.

These conditions have negatively impacted the number of job orders received and the numbers of qualified candidates available to fill orders for placements across all of our lines of business.

Likewise, the U.S.

Staffing Industry, as a whole, has experienced material declines in overall volume and financial performance and the industry outlook is mixed as to when these conditions may be expected to definitively subside.

On April 18, 2024, we announced that the Mergers and Acquisitions (“M&A”) committee of our Board of Directors had completed its review of strategic alternatives with the assistance of an outside investment banking firm.

Management is now in the process of executing on the Company’s plans and budgets as comprehended in the M&A Committee’s strategic recommendations, which are contemplated to include making prudent investments in both organic and M&A growth.

To effectively navigate this downturn and return to profitability as soon as possible, we implemented a comprehensive three-part strategic initiative aimed at fortifying our market position and driving sustainable growth.

This included (1) proactive measures to streamline operations and enhance growth opportunities and cost-efficiency, including significant cost reductions, (2) building upon past acquisitions by taking advantage of current conditions and further integrating and consolidating operations and systems for further efficiencies and cost saving opportunities, and (3) capitalizing on acquisition opportunities arising from the economic downturn by identifying and with the objective of acquiring businesses at reduced multiples and favorable valuations.

We estimate that the strategic actions we have taken so far will have the effect of reducing our future annualized selling, general and administrative (“SG&A”) expenses by approximately $3.0 million, pre-tax.

It should be noted, however, that due to other potential changes in our SG&A costs in the normal course of business, including the effects of inflation, changes in the volume of business, and others, these cost reductions alone will not necessarily translate into a corresponding equal net reduction in our total future year over year SG&A expenses.

Regarding the second initiative above, Management expects to spend between $500 thousand and $1.0 million on systems and software over the next 12 to 18 months.

Regarding the third initiative above, Management is moving forward with the Company’s M&A target list and is in talks with several entities at this stage.

In addition to these initiatives, the Company also acted timely and prudently in the face of the current downturn and reduced its intangible assets and goodwill through the corresponding recognition of non-cash pre-tax impairment charges of $20.5 million in its fiscal 2024 third quarter ended June 30, 2024.

Although these non-cash charges added significantly to our net loss and reduced the Company’s net book value, accordingly, they did not reduce the Company’s net cash position, tangible assets, or net tangible book value.

The impairment charges associated with intangible assets other than goodwill essentially serve to accelerate future amortization thereby reducing non-cash amortization expense in future periods.

The impairment charges in total also have the effect of reducing the level of intangible assets and goodwill and their associated risks in the Company’s consolidated balance sheet going forward.

The Company paused share repurchases on December 31, 2023, having purchased 6.1 million shares of the Company’s common stock, or just over 5% of our outstanding shares at the beginning of the program.

For now, our Board and Management have determined that it is prudent to discontinue share repurchases at least until we are able to gain more clarity on when the market conditions for the staffing industry will improve.

If and when, we determine that a portion of our excess cash may be prudently utilized for share repurchases in the future, we will consider them once again, accordingly.

Share repurchases will continue to be considered among alternative uses of our excess capital.

However, in the context of our overall long-term growth strategy and goals it is not by itself a long-term growth strategy to achieve long-term growth goals of enterprise value, and therefore, shareholder value.

Evaluation of alternative uses of the Company's capital is an on-going priority and process and decisions always will be made with the objectives being optimizing growth in shareholder value and maximizing shareholder returns.

On August 13, 2024, the Company re-issued 641,666 of its treasury shares to fulfill commitments for the issuance of previously granted restricted share awards that became fully vested and unrestricted.

The treasury shares were reissued in lieu of issuing 641,666 new shares of our common stock, therefore, while the Company’s total number of outstanding shares of common stock increased by 641,666, its total number of issued shares of common stock did not increase as a result of the reissuance of treasury shares instead.

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

Consolidated net revenues are comprised of the following:

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This compares to contract staffing services revenue of $133,051, or approximately 87%, of consolidated revenue and direct hire placement revenue of $19,392, or approximately 13%, of consolidated revenue for fiscal 2023.

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

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

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

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

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

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

According to a U.S.

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

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

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

Economic weakness and uncertainties, including persistent inflation and the possibility of recession, negatively impacted the Company’s results throughout fiscal 2024.

These conditions have negatively impacted the number of job orders received and the numbers of qualified candidates available to fill orders for placements across all of our lines of business.

Professional contract services revenue decreased by $25,293, or 21%.

Industrial staffing services revenues decreased by $3,458, or 27%, mainly due to decreases in orders from clients and competition for orders and temporary labor to fill orders, accordingly.

Direct hire placement revenue for fiscal 2024 decreased by $7,209, or 37%, over fiscal 2023.

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

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

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

Direct hire opportunities tend to be highly cyclical and demand dependent, and may be expected to rise during times of economic recovery and decline during downturns.

Demand for the Company’s direct hire services was higher in fiscal 2023, following record highs in fiscal 2022, driven by post-COVID employment recovery trends at that time, and is down for fiscal 2024 as a result of lingering negative economic conditions.

Staffing Industry Analysts, a leading industry trade organization, recently published in its September 2024 U.S.

Staffing Industry Forecast update, that the U.S.

Staffing Industry is expected to decline by 10% in 2024.

This follows a 10% decline already experienced in 2023.

The SIA report cites that the forecasted 2024 decline is expected due to widespread client caution and project delays, a depressed manufacturing sector, falling bill rates in sectors such as healthcare, and employer and worker heightened preferences for permanent positions over temporary positions.

While our businesses service clients of all sizes, a substantial number of our clients are small and medium sized enterprises (SMEs), which have less financial flexibility to absorb rising costs and higher borrowing expenses, making them more likely to reduce or postpone usage of our services and contract employees.

We believe this is a key reason why our 2024 revenue declines have exceeded those forecasted by SIA for the staffing industry overall.

Cost of Contract Services

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The $20,734 decrease in cost of contract services is consistent with the decrease in revenues as discussed above.

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

Gross Profit percentage by service:

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Direct hire placement services

Combined gross profit margin (1)

Combined gross profit margin (a)

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses.

Unlike temporary contract staffing services, where the Company maintains primary responsibility for and controls the staff members that it provides to perform services for its clients, direct hire placement revenues are only recognized for the net amount of fees earned by the Company acting under an agency type of relationship.

Accordingly, none of the Company’s costs associated with direct hire placement services are reportable as costs of services deducted from revenues to derive gross profit.

The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for fiscal 2024 was approximately 32.3% versus approximately 34.7% for fiscal 2023.

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

The substantial portion of the decline in fiscal 2024 compared with fiscal 2023, is mainly due to the corresponding declines in the volume and mix of direct hire placement revenues in fiscal 2024, and lower numbers of job orders and tight labor market conditions on the contract services side, resulting in more competitive conditions and downward pressure on bill rates and spreads, accordingly .

In the professional contract staffing services segment, the gross margin excluding direct placement services was approximately 25.3% for fiscal 2024 compared to approximately 26.1% for fiscal 2023.

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

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

The decrease in professional contract staffing services gross margin is due, in part, to increases in contractor pay and other employment costs associated with the recent rise in inflation and competition for orders and candidates, accordingly, resulting in some spread compression.

The Company’s industrial staffing services gross margin for fiscal 2024 was approximately 15.8% as compared with approximately 16.5% for fiscal 2023.

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

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

The decrease is driven by competition in the labor market served by the Company’s Industrial segment, as discussed above, requiring the Company offer more competitive rates and contractor pay to win business.

Selling, General and Administrative Expenses

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

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

The Company’s SG&A for fiscal 2024 decreased by $6,032 as compared to fiscal 2023.

SG&A for fiscal 2024 as a percentage of revenue was approximately 35.7% versus 31.2% for fiscal 2023.

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

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

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

The increase in SG&A expenses as a percentage of revenues during the fiscal 2024 was primarily attributable to the declines in revenues in relation to the level of fixed SG&A expenses, including fixed personnel-related expenses, occupancy costs, job boards and applicant tracking systems, and to the presence of certain non-cash and/or non-operational and other expenses described below.

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

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

Depreciation and Amortization Expense

These costs were $1,106 and $838 for fiscal 2024 and 2023, respectively, and include mainly expenses associated with former closed and consolidated locations, legal expenses related to other than routine matters, and personnel costs associated with eliminated positions.

Amortization and Depreciation Expense

Depreciation expense was $301 and $383 for fiscal 2024 and 2023, respectively.

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

Amortization expense was $2,363 and $2,879 for fiscal 2024 and 2023, respectively.

The decrease is due to intangible assets related to certain non-compete agreements and trade names becoming fully amortized.

Intangible Assets Impairment

The Company performed an evaluation of its intangible assets as of June 30, 2024, and determined that certain asset groups associated with the Company’s intangible assets including certain customer lists and tradenames are currently producing negative or sufficiently low gross cash flows and that their estimated future discounted cash flows indicate impairments of the remaining unamortized balances.

As a result, the Company recorded a non-cash impairment charge of $5,209 on intangible assets during fiscal 2024.

Goodwill Impairment

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

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

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

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

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

Income from Operations

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

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

The Company performs a goodwill impairment assessment at least annually but may perform interim assessments in the event of a triggering event that may indicate the fair value of a reporting unit decreased below its carrying value.

The Company completed its most recent annual assessment as of September 30, 2024, and determined that its goodwill was not impaired.

Prior to this, as of June 30, 2024, an interim assessment was performed due to the decline in operating results and market capitalization experienced in the nine-month period ended June 30, 2024, which in management’s view, represented one or more triggering events that could indicate an impairment in the Company’s goodwill.

The results of this interim assessment indicated the Company’s goodwill assigned to both its Professional and Industrial Services reporting units was impaired.

As a result, the Company reduced its goodwill associated with the Professional and Industrial Services reporting units by $14,202 and $1,083, respectively, with corresponding non-cash impairment charges recognized in its consolidated statements of operations for fiscal 2024.

Upon completion of the prior annual goodwill impairment assessment as of September 30, 2023, it was determined that the Company’s goodwill was not impaired.

For purposes of performing its annual goodwill impairment assessments as of September 30, 2024 and 2023, and the interim testing performed as of June 30, 2024 and March 31, 2024 the Company applied generally accepted valuation methods and techniques in order to estimate the fair value of its Professional and Industrial Services reporting units and considered discounted cash flows, guideline public company results, guideline transactions, revenues and earnings, recent trends in the Company’s stock price, implied control or acquisition premiums, and other possible factors and their effects on estimated fair value of the Company’s reporting units.

The estimated fair value of the Professional Services reporting unit resulting from the September 30, 2024 assessment exceeded the reporting unit’s adjusted carrying value, net of the impairment recorded during the June 30, 2024 interim assessment, by approximately 10%, or approximately $5.5 million.

Should industry conditions remain consistently negative, or worsen, or if assumptions such as control premiums, revenue growth projections, cost of capital or discount rates or business enterprise value multiples change such conditions could result in a deficit of the fair value of the Company’s Professional Services reporting unit as compared to its remaining carrying value, leading to an impairment in the future.

Income (Loss) from Operations

Income (loss) from operations was $(27,057) and $2,033 for fiscal 2024 and 2023, respectively.

This decrease is mainly attributable to the non-cash impairment charges, the decrease in revenues, especially in direct hire placements, and other related items as explained in the preceding paragraphs.

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

Interest Expense

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

Interest expense was $322 and $336 for fiscal 2024 and 2023, respectively, and was comprised mainly of fees associated with the Company’s asset-backed credit facility including unused capacity fees, facility administrative charges, and the amortization of related debt issuance costs.

No advances were taken on the Company’s Facility during the fiscal years ended September 30, 2024 and 2023.

Interest Income

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

The Company holds a significant portion of its excess cash in interest bearing accounts on which interest income earned was $722 and $472 in aggregate in fiscal 2024 and 2023, respectively.

Provision for Income Taxes

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

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

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

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

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

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

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

The Company recognized income tax benefits of $2,555 and $7,249 for fiscal 2024 and 2023, respectively.

The effective tax rate for fiscal 2024 is lower than the statutory rate primarily due to the effect of permanent differences related to the goodwill impairment charge recorded in the third quarter of fiscal 2024 and the change in valuation allowance on the net deferred tax asset (“DTA”) position.

The effective tax rate for 2023 is lower than the statutory rate primarily due to the effect of the change in valuation allowance on the net DTA position.

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

As of September 30, 2024, management determined the results of operations for the current and preceding years, and the outlook for future years, may indicate that not all deferred taxes are realizable.

As a result, the Company recorded a partial valuation allowance of $920 during fiscal 2024.

Prior to this, during fiscal 2023, the Company’s previous valuation allowance was fully released in the amount of $7,581 as management determined that there was sufficient positive evidence at that time to conclude that the deferred tax assets were more likely than not to be realized.

Net Income (Loss)

The Company’s net income (loss) was $(24,102) and $9,418 for fiscal 2024 and 2023, respectively.

The decrease of $33,520 is primarily the result of the non-cash impairment charges during fiscal 2024, a substantial increase in net income during the fiscal 2023 as the result of the reduction of the deferred tax assets valuation allowance previously recognized, and decreases in revenues and related net results for fiscal 2024, compared with fiscal 2023, and other related items as explained in the preceding paragraphs.

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

Liquidity and Capital Resources

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Cash flows used in financing activities

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

As of September 30, 2024, the Company had $20,828 of cash which was a decrease of $1,643 from $22,471 as of September 30, 2023.

The Company reported $202 and $5,890 in cash flow from operations for the fiscal years ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, the Company had working capital of $26,079 compared to $30,290 as of September 30, 2023.

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

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

The decrease in working capital is mainly attributable to the use of cash to purchase treasury stock and the effects of lower business volume on other components of working capital during fiscal 2024.

Cash flows provided by operating activities during fiscal 2023 also included the second and final installment payment of deferred payroll taxes under the CARES Act from fiscal 2020 of $1,847.

The primary uses of cash for investing activities were for the acquisition of property and equipment, principally information technology equipment, during fiscal 2024 and 2023.

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

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

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

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

Investing activities represent capital expenditures and did not include any major or non-routine capital expenditures or capital improvements during either fiscal 2024 or 2023.

The cash flows used in financing activities were for purchases of treasury stock and payments made on finance leases during fiscal 2024 and 2023.

The Company had approximately $8,139 in availability for borrowings under its Facility as of September 30, 2024.

There were no outstanding borrowings on the Facility as of September 30, 2024, or September 30, 2023, except for certain accrued carrying fees and costs, which are included in other current liabilities in the accompanying consolidated balance sheets.

No borrowings have been taken from the Facility during the years ended September 30, 2024 and 2023.

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.

The share repurchase program continued through December 31, 2023.

The repurchase program did not obligate the Company to repurchase any number of shares of common stock.

The share repurchase program was conducted in accordance with Rules 10b-5 and 10b-18 of the Securities Exchange Act of 1934, as amended.

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

During fiscal 2024, the Company repurchased 2,717 shares of its common stock at a total cost of $1,575.

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

Upon conclusion of the share repurchase program, as of December 31, 2023, the Company had repurchased 6,129 shares in aggregate (accounting for approximately 5.4% of our issued and outstanding shares of common stock immediately prior to the program).

On August 13, 2024, the Company re-issued 642 of its treasury shares to fulfill commitments for the issuance of previously granted restricted share awards that became fully vested and unrestricted.

The treasury shares were reissued in lieu of issuing 642 new shares of our common stock, therefore, while the Company’s total number of outstanding shares of common stock increased by 642, its total number of issued shares of common stock did not increase as a result of the reissuance of treasury shares instead.

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

All the Company’s office facilities are leased.

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If differences were to occur in a subsequent period, the Company would recognize those differences when they became known.

Significant accounting and disclosure matters requiring the use of estimates and assumptions include, but may not be limited to, revenue recognition, accounts receivable allowances, determining fair values of financial assets and liabilities, income tax provisions and benefits, including deferred income tax valuation allowances, accounting for asset impairments, and accounting for share-based compensation.

Significant accounting and disclosure matters requiring the use of estimates and assumptions include, but may not be limited to, revenue recognition, accounts receivable and allowances for credit losses, determining fair values of financial assets and liabilities, income tax provisions and benefits, including deferred income tax valuation allowances, accounting for asset impairments, and accounting for share-based compensation.

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

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

The following accounting policies are considered by management to be “critical” because of the judgments and uncertainties involved, and because different amounts would be reported under different conditions or using different assumptions.

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 credit losses is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues.

The Company adopted the methodology under ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), during fiscal 2024.

The amendments in ASU 2016-13 replace the probable incurred loss impairment methodology underlying our previous allowance for doubtful accounts with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

Under ASU 2016-13, an allowance is recorded with a corresponding charge to bad debt expense for expected credit losses in our accounts receivable including consideration of the effects of past, present and future conditions that may reasonably be expected to impact credit losses.

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

The allowance for credit losses is reflected in the consolidated balance sheets as a reduction of accounts receivable.

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

Revenue Recognition

Our revenues are recognized when promised services are performed for customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

Our revenues are recorded net of variable consideration such as sales adjustments or allowances.

Direct hire placement service revenues from contracts with customers are recognized when employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company's guarantee period (referred to as “falloffs”).

Our revenues are recorded net of variable consideration such as sales discounts or allowances.

Direct hire placement service revenues from contracts with customers are recognized when the Company has met each of the criteria under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , including its performance obligations under the contracts.

This generally occurs when the employment candidates accept offers of employment and have started their newly placed positions, 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.

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

Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation.

The Company records direct hire placement services revenues on a net basis as the Company acts as an agent for the customer and does not directly contract with or employ the direct hire candidates it places.

No fees for permanent placement services are charged to direct hire employment candidates.

Charges for expected future falloffs are recorded as reductions of revenues for estimated losses due to applicants not remaining employed for the Company’s guarantee period.

In connection with the adoption of ASU 2016-13, the Company reclassified its allowance for falloffs from being combined with the former allowance for doubtful accounts, a contra-asset, to other current liabilities.

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

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The Company has the risk of identifying and hiring qualified employees, has the discretion to select the employees and establish their price, and bears the risk for services that are not fully paid for by customers.

Accounts Receivable

The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms.

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

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

These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers.

Management believes that the nature of the contract service business, wherein client companies are generally dependent on our contract employees in the same manner as permanent employees for their production cycles and the conduct of their respective businesses contributes to a relatively small accounts receivable allowance.

Fair Value Measurement

The Company follows the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) 820, Fair Value Measurement , which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure.

The Company follows the provisions of Financial Accounting Standards Board (“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.

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The hierarchy is described below:

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

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

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

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

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.

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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.

In the event it is determined that the Company would be able to realize the deferred tax assets in the future in excess of their 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 in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

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

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

As of September 30, 2024 and 2023, no accrued interest or penalties are included on the related tax liability line in the accompanying consolidated balance sheets.

The Company evaluates its goodwill for possible impairment as prescribed by FASB ASU 2017-04 , Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, at least annually and on an interim basis when one or more triggering events or circumstances indicate that the goodwill might be impaired.

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An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.

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

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

The Company performed annual goodwill impairment testing effective as of September 30, 2024, as of which time all of its goodwill is allocable to its Professional Services reporting unit for purposes of evaluation for impairment.

As a result of interim goodwill testing as of June 30, 2024, the entire goodwill formerly allocated to the Industrial Services reporting unit was impaired and written off as of that date.

In determining the fair value of our two reporting units, we use one or a combination of commonly accepted valuation methodologies:

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

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

For purposes of performing this goodwill impairment assessment, management applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed above;

and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Company’s reporting units.

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

The estimated fair values of the Company’s reporting units are directly determined by, therefore sensitive to, the underlying assumptions and methods used in deriving them, which are largely subjective in nature.

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

As a result of the evaluation performed, the estimated fair value exceeded the carrying value of its net assets of the Company’s Professional Services reporting unit as of September 30, 2024.

Prior to this, as of June 30, 2024, an interim assessment was performed and indicated the Company’s goodwill assigned to both its Professional and Industrial Services reporting units was impaired.

As a result, the Company reduced its goodwill associated with its Professional and Industrial Services reporting units by $14,202 and $1,083, respectively, with corresponding non-cash impairment charges recognized in its consolidated statements of operations for fiscal 2024.

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)

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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.

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 Services reporting units.

An evaluation as of June 30, 2024 determined that certain asset groups associated with the Company’s intangible assets were producing negative or sufficiently low gross cash flows and that their estimated future discounted cash flows indicated impairments.

As a result, the Company recorded a non-cash impairment charge of $5,209 on intangible assets during fiscal 2024.

Share-Based Compensation

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Upon the exercise of options, it is the Company's policy to issue new shares rather than utilizing treasury shares.

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

Recent Accounting Pronouncements

Recently Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) , which contains 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 was effective for fiscal years beginning after December 15, 2022.

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

The new guidance was implemented during the quarter ended December 31, 2023, is applicable to the Company’s trade (accounts) receivable and did not have a material impact on its consolidated financial statements taken as a whole.

Not Yet Adopte d

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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, and for interim periods during fiscal years beginning after December 15, 2024.

The Company has not yet determined the effects of the implementation of the new guidance on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) , which expands income tax disclosure requirements in part by requiring entities to disclose a reconciliation of their effective tax rates to statutory rates and provide disaggregation of taxes paid.

The guidance also eliminates existing disclosure requirements related to anticipated changes in unrecognized tax benefits and temporary differences related to unrecorded deferred tax liabilities.

The new guidance is effective for fiscal years beginning after December 15, 2024.

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.

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

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40) , which expands expense disclosure requirements in part by requiring entities to provide tabular disclosure of the nature of expenses making up relevant captions on the face of the income statement.

The guidance requires disclosure of the amounts making up each caption in categories such as inventory purchases, employee compensation, depreciation, intangible asset amortization, and depletion.

The guidance also requires qualitative descriptions of other amounts included in each caption that are not separately disaggregated.

The new guidance is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027.

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

No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future financial statements.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis