What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-12-19 compared with 2023-12-18 · 361 added, 217 removed, 410 unchanged (59% of the section changed)

2 unchanged sentences

Consolidated Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm for the year ended September 30, 2024

Report of Independent Registered Public Accounting Firm for the year ended September 30, 2023

Consolidated Balance Sheets as of September 30, 2024 and 2023

4 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

GEE Group Inc.

and Subsidiaries

Atlanta, Georgia

Opinion on the Consolidated Financial Statements

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

and Subsidiaries (collectively, the “Company”) as of September 30, 2024, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

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

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

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

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

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

Accordingly, we express no such opinion.

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

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

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

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated 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 consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment

Description of Matter

The Company’s consolidated goodwill balance was $46.0 million as of September 30, 2024.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The fair value of each reporting unit is estimated using the discounted cash flow and guideline public company methods, which requires the use of estimates and assumptions related to cash flow forecasts, discount rates, terminal values, and market multiples of comparable companies.

Management’s cash flow forecasts included significant judgments and assumptions relating to revenue growth rates and operating margins.

The fair values of the reporting units did not exceed their carrying values as of June 30, 2024;

therefore, an impairment charge of $15.3 million was recognized during the year ended September 30, 2024 related to the Company’s Professional Staffing and Industrial Staffing reporting units.

The impairment charge was recognized for the amount by which the carrying amounts exceeded the reporting units’ estimated fair values.

As more fully described in Note 6 to the consolidated financial statements, as of September 30, 2024, the fair values of the reporting units exceeded their carrying values.

Management made significant judgments when developing the fair value estimate of the reporting units.

As a result, a high degree of auditor judgment and effort was required, including involving the use of our valuation specialists, in performing audit procedures to evaluate the reasonableness of management’s cash flow forecasts and the significant assumptions identified above.

Significant uncertainty exists with these assumptions because they are sensitive to future market or economic conditions.

How We Addressed the Matter in Our Audit

Our audit procedures included the following:

· Obtained an understanding of the internal controls and processes in place over the Company’s goodwill impairment review process, including management’s review of the significant assumptions described above.

· Evaluated the reasonableness of management’s revenue, operating margins, and other forecasted amounts by comparing the forecasts to actual historical results.

· Evaluated the reasonableness of guideline public company valuation multiples.

· Evaluated management’s determination of reporting units and segments.

· With the assistance of our valuation specialists, evaluated the valuation methodologies and significant assumptions, including discount rates, and developed a range of independent estimates and compared those to the significant assumptions used by management.

· Tested the mathematical accuracy of the calculations.

/s/ Cherry Bekaert LLP

We have served as the Company’s auditor since 2024.

Atlanta, Georgia

December 19, 2024

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors, and Audit Committee

1 unchanged sentence

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.

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

(the “Company”) as of September 30, 2023, the related consolidated statements of operations, shareholders’ equity, and cash flows for the year 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 the results of its operations and its cash flows for the year 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.

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

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

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

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

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

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

2 unchanged sentences

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.

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

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.

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.

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

/s/ Forvis Mazars, LLP

We served as the Company’s auditor from 2022 to 2024.

We were dismissed in March 2024.

Tampa, Florida

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Total current liabilities

Deferred tax liabilities, net

Noncurrent operating lease liabilities

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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

114,900 shares issued and 109,413 shares outstanding at September 30, 2024 and 114,900 shares issued and 111,488 shares outstanding at September 30, 2023

Accumulated deficit

Treasury stock;

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

at cost - 5,487 shares at September 30, 2024 and 3,412 shares at September 30, 2023

Total shareholders' equity

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Amortization of intangible assets

Goodwill impairment charge

INCOME FROM OPERATIONS

Gain on extinguishment of debt

Intangible asset impairment charges

Goodwill impairment charges

INCOME (LOSS) FROM OPERATIONS

Interest expense

Interest income

INCOME BEFORE INCOME TAX PROVISION

Provision for income tax benefit (expense)

BASIC EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

INCOME (LOSS) BEFORE INCOME TAX PROVISION

Provision for income tax benefit

NET INCOME (LOSS)

BASIC EARNINGS (LOSS) PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

WEIGHTED AVERAGE SHARES OUTSTANDING:

3 unchanged sentences

(Amounts in thousands)

Treasury Stock

Shareholders'

Balance, September 30, 2022

Purchase of treasury stock

Share-based compensation

Issuance of stock for restricted stock

Issuance of shares under incentive stock plan

Balance, September 30, 2023

1 unchanged sentence

Share-based compensation

Issuance of stock for restricted stock

Issuance of shares under incentive stock plan

Balance, September 30, 2024

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CASH FLOWS FROM OPERATING ACTIVITIES:

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

Gain on extinguishment of debt

Net income (loss)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Gain on disposal of assets

Depreciation and amortization

Non-cash lease expense

Goodwill impairment charge

Amortization of operating lease right-of-use assets

Goodwill impairment charges

Intangible assets impairment charges

Share-based compensation

Increase (decrease) in allowance for doubtful accounts

Provisions for (recoveries of) credit losses

Deferred income taxes

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Accrued compensation

Operating lease liabilities

Other liabilities

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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.

18 unchanged sentences

(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

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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.

During 2023, the Company entered into enhanced deposit arrangements with two 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.

The aggregate amount of all funds on deposit under these accounts was $ 14,515 and $ 13,298 as of September 30, 2024 and 2023, respectively.

The Company also holds funds in various other bank accounts that may exceed FDIC insured limits.

These uninsured amounts, in aggregate, were $ 5,194 as of September 30, 2024.

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

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.

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.

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.

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

The impact of the adoption of ASU 2016-13 was immaterial to the Company’s consolidated financial statements.

As of September 30, 2024 and September 30, 2023 the allowance for credit losses was $ 568 and $ 562 , respectively.

A summary of changes in this account is as follows:

Allowance for credit losses as of September 30, 2023

Provisions for credit losses

Accounts receivable written-off

Allowance for credit losses as of September 30, 2024

The Company’s has two customers that, in aggregate, made up approximately 25 % of the consolidated accounts receivable balance as of both September 30, 2024 and 2023.

These two customers are offered extended payment terms due to the frequency and volume of our services that they utilize.

Each maintains excellent creditworthiness and the Company has not experienced any losses related to these two customers historically.

Property and Equipment

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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.

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.

There was no impairment of property and equipment for fiscal 2024 and 2023.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company determines if a contractual arrangement is a lease at inception and evaluates and classifies leases as operating or finance leases for financial reporting purposes.

Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the Company’s consolidated balance sheets.

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

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

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The Company does not currently have residual value guarantees or restrictive covenants in its leases.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company evaluates its goodwill for possible impairment as prescribed by FASB ASC 350, Intangibles — Goodwill and Other:

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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.

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

(1) the income approach, which is based on the present value of discounted cash flows projected for the reporting unit or, in certain instances, capitalization of earnings, and (2) the market approach, which estimates a fair value based on an appropriate revenue and/or earnings multiple(s) derived from comparable companies.

These valuation techniques rely upon assumptions and other factors, such as the estimated future cash flows of our reporting units, the discount rate used to determine the present value of future cash flows, and the market multiples of comparable companies utilized.

In applying our methods, we consider and use averages and medians in the selection of assumptions derived from comparable companies or market data, where applicable, and in the application of the income and/or market approaches if we determine that this will provide a more appropriate estimated fair value or range of fair value estimates of the reporting units.

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

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company performed an interim goodwill impairment assessment as of June 30, 2024, which 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 .

This resulted in all goodwill previously allocated to the Industrial Services reporting unit being impaired and written off as of that date.

The Company performed its annual goodwill impairment assessment for its Professional Services reporting unit as of September 30, 2024, and found its goodwill was not further impaired.

The Company performed its prior goodwill impairment assessment as of September 30, 2023, and found that its goodwill was not impaired at that time.

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 performed 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.

Fair Value Measurement

22 unchanged sentences

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.

Due to the net loss reported for fiscal 2024, there were no dilutive incremental shares considered in the calculation of dilutive shares.

The weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares for fiscal 2023 were 694 .

Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 4,206 and 3,786 for fiscal 2024 and 2023, respectively.

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 all placement obligations entitling the company to payment have been met.

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 the Company has met each of the criteria under 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.

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.

Thus, the estimated allowance is derived from observed trends in actual historical falloffs and assumes that historical trends are indicative of future falloff activity.

Liabilities for falloffs during the period are reflected in the consolidated balance sheets in the amounts of $ 102 and $ 118 , as of September 30, 2024 and 2023, respectively.

Falloffs during the period are reflected in the consolidated statements of operations as a reduction of placement service revenues and were approximately $ 401 in fiscal 2024 and $ 943 in fiscal 2023.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Temporary staffing service revenues from contracts with customers are recognized in amounts for which 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 as a principal versus 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 controls the specified service before that service is performed for a customer.

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.

There was no customer that represented 10% or more of the Company’s consolidated revenue in fiscal 2024 or 2023.

See Note 13 for disaggregated revenues by segment.

Cost of Contract Staffing Services

All costs associated with direct hire placements are recorded as selling, general and administrative expenses as the Company acts as an agent for the customer, only recognizing revenue for the net fees earned.

Accordingly, none of the Company’s costs associated with direct hire placement services are reportable as costs of services.

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.

Advertising expense totaled $ 2,118 and $ 2,224 for fiscal 2024 and 2023, respectively.

Share-Based Compensation

11 unchanged sentences

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.

GEE GROUP INC.

3 unchanged sentences

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.

Recent Accounting Pronouncements

Not Yet Adopted

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

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, 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.

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.

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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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Computer software

Office equipment, furniture, fixtures and leasehold improvements

Computer equipment

Furniture and fixtures

Leasehold improvements

Total property and equipment, at cost

Accumulated depreciation and amortization

Accumulated depreciation

Property and equipment, net

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Terms for these leases generally range from two to six years.

Supplemental cash flow information related to finance leases consisted of the following:

Cash paid for finance lease liabilities

Acquisition of equipment with finance lease

The assets obtained under finance leases are included in property and equipment, net, on the consolidated balance sheets.

Finance lease expenses such as amortization of the lease assets and interest expense on the lease liabilities are included on the consolidated statements of operations in depreciation expense and interest expense, respectively.

Supplemental information related to these expenses consisted of the following:

Amortization of finance lease assets

Interest on finance lease liabilities

Supplemental balance sheet information related to finance leases consisted of the following:

September 30,

Net book value of finance lease assets

Weighted average remaining lease term for finance leases

Weighted average discount rate for finance leases

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:

Imputed interest

Present value of finance lease liabilities (a)

Includes current portion of $ 148 for finance leases.

(a) Includes current portion of $ 67 for finance leases.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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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.

Operating lease expenses included in selling, general, and administrative expenses on the consolidated statements of operations were $ 2,239 and $ 2,219 for fiscal 2024 and 2023, respectively.

Supplemental cash flow information related to operating leases consisted of the following:

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Supplemental balance sheet information related to operating leases consisted of the following:

September 30,

Weighted average remaining lease term for operating leases

Weighted average discount rate for operating leases

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The table below reconciles the undiscounted future minimum lease payments under non-cancelable operating lease agreements having initial terms in excess of one year to the total operating lease liabilities recognized on the consolidated balance sheet as of September 30, 2024, including certain closed offices are as follows:

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Present value of operating lease liabilities (a)

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

(a) Includes current portion of $ 1,195 for operating leases.

Goodwill and Intangible Assets

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;

For purposes of performing its annual goodwill impairment assessments as of September 30, 2024 and 2023, 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.

The Company completed its annual goodwill impairment assessments, as of September 30, 2024 and 2023, and determined that its goodwill was not impaired.

Due to the presence of one or more triggering events, including the presence of negative macroeconomic conditions impacting U.S.

staffing firms, including ours, and related reductions to the Company’s forecasts of future results, an interim assessment was performed as of June 30, 2024, which 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.

This resulted in all goodwill previously allocated to the Industrial Services reporting unit being impaired and written off as of that date.

A summary of goodwill balances is presented as follows:

September 30, 2024

September 30, 2023

Accumulated Impairment Charges

Goodwill Carrying Amount

Accumulated Impairment Charges

Goodwill Carrying Amount

Professional Services reporting unit

Industrial Services reporting unit

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Intangible Assets

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September 30, 2023

Impairment Charges

Accumulated Amortization

Net Book Value

Accumulated Amortization

Net Book Value

Customer relationships

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.

Due to the presence of negative macroeconomic conditions impacting U.S.

staffing firms, including ours, and related reductions to the Company’s forecasts of future results, the Company performed an evaluation of its intangible assets as of June 30, 2024, using the undiscounted cash flows method.

In performing this evaluation, it was 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 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.

Other Current Liabilities

Other current liabilities consisted of the following:

September 30, 2024

September 30, 2023

Accrued audit fees

Accrued client rebates

Accrued legal fees

Accrued severance

Current finance leases payable

Reserve for falloffs

Total other current liabilities

GEE GROUP INC.

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

Trade names are amortized on a straight-line basis over their respective estimated useful lives of between five and ten years.

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.

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 Company and its subsidiaries have a Loan, Security and Guaranty Agreement for a $ 20 million asset-based senior secured revolving credit facility (the “Facility”) with First Citizens Bank (“FCB”) (formerly CIT Bank, N.A.).

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

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

As of September 30, 2024, the Company had no outstanding borrowings and $ 8,139 of unused capacity available for borrowing under the terms of the Facility.

The Company had $ 255 and $ 408 in unamortized debt issuance costs associated with the Facility as of September 30, 2024 and 2023, respectively.

Of these costs, $ 153 is reflected in other current assets on the consolidated balance sheets as of both September 30, 2024, and September 30, 2023 with the remainder being reflected in other long term assets.

The amortization expense of these debt costs included in interest expense on the consolidated statements of operations was $ 153 in both fiscal 2024 and 2023.

Under the Facility, advances are 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 Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent.

The Facility is subject to usual and customary covenants and events of default for credit facilities of this type but is not subject to any financial covenants.

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.

In addition to interest costs on advances outstanding, the Facility will provide an unused line fee ranging from 0.37 5% 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 2024 and 2023.

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

1), which continued through December 31, 2023;

provided that (i) the aggregate amount paid for all such repurchase transactions did 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.

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

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

2 to the CIT Facility (“Amendment No.

Amendment No.

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

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

2 to the Facility (“Amendment No.

2”), which provides for an increase in the Facility’s concentration limits for certain large clients at the discretion of FCB.

GEE GROUP INC.

1 unchanged sentence

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

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.

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.

Shareholders’ Equity (Share-based Compensation and Share Repurchase Program)

Preferred Stock

3 unchanged sentences

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.

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, 2024, 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, as amended, provides for total shares available for restricted stock and stock options 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.

2 unchanged sentences

Restricted Stock

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

The Company granted 164 and 742 shares of restricted stock during fiscal 2024 and 2023, 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.

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 all shares granted in fiscal 2024 and 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:

1 unchanged sentence

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.

The Company granted 164 shares of restricted stock under the AICP during fiscal 2024 all of which were based on actual fiscal 2023 results and will cliff vest on December 1, 2026, based on future service only.

No service plus performance-based restricted shares were granted in fiscal 2024 upon determination that financial targets set by the Company’s Board of Directors were not met for fiscal 2024.

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.

The remaining 41 of the 592 restricted shares granted 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.

GEE GROUP INC.

1 unchanged sentence

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

Under the AICP LTI, the service plus performance-based awards for each fiscal year are scheduled in annual tranches to be granted over three subsequent years.

The schedule for these is as follows:

Shares granted (b)

Maximum future shares eligible to be granted (c)

Grant Date (a)

Awards based on Fiscal 2022 performance:

December 2, 2022

December 2, 2025

December 1, 2023

December 2, 2025

November 29, 2024

December 2, 2025

Awards based on Fiscal 2023 performance:

December 1, 2023

December 1, 2026

November 29, 2024

December 1, 2026

November 28, 2025

December 1, 2026

Total shares granted or eligible to be granted in future

Future grant dates are estimates subject to change based on approval by the Company’s Board of Directors of the related financial targets for the fiscal year in which the grants are made.

Shares granted reflect the portions earned of each award, as adjusted for the performance of each respective fiscal year with regard to the applicable financial targets as set by the Board of Directors.

The maximum future shares eligible to be granted under each award will be further adjusted based on the outcome for each respective fiscal year with regard to the financial targets set by the Board of Directors.

Share-based compensation expense attributable to restricted stock was $ 292 and $ 318 in fiscal 2024 and 2023, 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.

As of September 30, 2024, there was approximately $ 304 of unrecognized compensation expense related to restricted stock currently outstanding and the weighted average remaining vesting period for those grants was 1.48 years.

A summary of restricted stock activity is presented as follows:

Number of Shares

Weighted Average

Fair Value ($)

Weighted Average Fair Value ($)

Non-vested restricted stock outstanding as of September 30, 2022

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All stock options outstanding as of September 30, 2024 and September 30, 2023 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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company did not grant stock options in fiscal 2024, however, did grant 1,720 stock options in fiscal 2023.

The Company’s 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 is recognized over their estimated remaining lives and was $ 295 and $ 546 in fiscal 2024 and 2023, respectively.

As of September 30, 2024, there was approximately $ 577 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average remaining vesting period for those options was 2.58 years.

A summary of stock option activity is as follows:

Number of Shares

Weighted Average Exercise Price

per share ($)

Weighted Average

per share ($)

Weighted Average Remaining

Total Intrinsic

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, 2022

3 unchanged sentences

Exercisable as of September 30, 2024

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:

3 unchanged sentences

Weighted average expected life (years)

Share Repurchase Program

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 net cost of $ 1,575 .

During fiscal 2023, the Company repurchased 3,412 shares of its common stock at a net cost of $ 1,984 .

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.

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The components of the provision for income taxes is as follows:

4 unchanged sentences

Total deferred expense (benefit):

Total income tax expense (benefit):

Change in valuation allowance:

Total change in valuation allowance:

Provision for income tax expense (benefit)

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

Year Ended September 30,

Income tax at US statutory rate

Income at US statutory rate

State taxes, net of federal benefit

1 unchanged sentence

Goodwill impairment

PPP related matters

Valuation allowance

3 unchanged sentences

The net deferred income tax asset balance related to the following:

Year Ended September 30,

September 30, 2024

September 30, 2023

Net operating loss carryforwards

Stock options

Allowance for doubtful accounts

Allowance for credit losses

Accrued and prepaid expenses

Tax credit carryforwards

ROU liability

Right-of-use liabilities

Total deferred tax assets

Total deferred tax liability

Deferred tax asset

Intangible assets

Right-of-use assets

Total deferred tax liabilities

Deferred tax assets

Valuation allowance

Net deferred tax asset (liability)

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

Deferred tax assets, net

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As of September 30, 2024, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $ 24.0 million and $ 29.2 million, respectively, which begin to expire in tax years 2034 for federal and 2025 for state purposes.

Of the $24.0 million of federal net operating losses, $ 6.6 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.

Each year, the Company performs an evaluation to determine whether a valuation allowance is needed.

As of September 30, 2024, 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.

As of September 30, 2024, management determined that there is sufficient evidence to conclude that it is more likely than not that the federal portion of its deferred tax assets are realizable.

Additionally, management determined that certain state NOLs are more likely than not to expire before utilization as they do not have an unlimited carryforward.

Accordingly, the Company recorded a valuation allowance against all of its state NOLs during fiscal 2024.

Prior to this, as of September 30, 2023, management determined that there was sufficient positive evidence to conclude that it was more likely than not that all deferred taxes were realizable.

The Company therefore fully released the former valuation allowance during fiscal 2023.

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.

As of the filing date, the Company has not completed a formal study to assess whether one or more ownership changes have occurred that would result in limitations on the usage of its NOLs for Federal or state income tax purposes under Section 382.

However, the Company has performed internal analysis and estimates of potential exposure to Section 382 limitations on usage of its NOLs and, as a result, believes that such limitations would not materially restrict its ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income.

A key factor in its analysis and conclusion is the presence of significant net unrealized built-in gains available to the Company.

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.

In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an ownership change.

Also, ownership changes that have occurred or may occur in the future, could impact utilization of the NOL carryforwards or other tax attributes because of future events and circumstances, which could result in an increase of the Company’s future tax liability.

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

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

GEE GROUP INC.

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.

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

Commitment and Contingencies

GEE GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Commitments 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.

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

There are no 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.

Indemnification Agreements

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

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

Defined Contribution Plan

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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.

For purposes of determining total assets of the reportable segments, all corporate assets such as cash, prepaid expenses, and deferred tax assets have been allocated among these segments.

Year Ended September 30,

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Contract services gross margin

Income from operations

Income (loss) from operations

Depreciation and amortization

Accounts receivable – net

Intangible assets

Professional Staffing Services

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Contract services gross margin

Income from operations

Income (loss) from operations

Depreciation and amortization

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Total revenue

Income from operations

Income (loss) from operations

Depreciation and amortization

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

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk