GEE Group Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (unaudited) GEE GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Amounts in thousands) June 30, 2025 September 30, 2024 ASSETS CURRENT ASSETS: Cash $ 18,622 $ 20,735 Accounts receivable, less allowances ($ 117 and $ 144 , respectively) 11,752 12,751 Prepaid expenses and other current assets 1,304 762 Current assets of discontinued operations - 1,153 Total current assets 31,678 35,401 Property and equipment, net 401 546 Goodwill 24,762 46,008 Intangible assets, net 822 834 Deferred tax assets, net - 9,495 Right-of-use assets 2,759 3,115 Other long-term assets 142 295 Noncurrent assets of discontinued operations - 208 TOTAL ASSETS $ 60,564 $ 95,902 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,426 $ 1,960 Accrued compensation 3,992 5,026 Current operating lease liabilities 1,050 1,090 Current portion of notes payable 196 - Other current liabilities 902 899 Current liabilities of discontinued operations - 347 Total current liabilities 7,566 9,322 Deferred taxes, net 329 - Noncurrent operating lease liabilities 2,048 2,254 Notes payable 196 - Other long-term liabilities 30 82 Noncurrent liabilities of discontinued operations - 33 Total liabilities 10,169 11,691 Commitments and contingencies (Note 15) SHAREHOLDERS' EQUITY: Common stock, no-par value; authorized - 200,000 shares; 114,900 shares issued and 109,413 shares outstanding at June 30, 2025 and September 30, 2024 113,547 113,129 Accumulated deficit ( 59,966 ) ( 25,732 ) Treasury stock; at cost - 5,487 shares at June 30, 2025 and September 30, 2024 ( 3,186 ) ( 3,186 ) Total shareholders' equity 50,395 84,211 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 60,564 $ 95,902 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 Table of Contents GEE GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Amounts in thousands except per share data) Three Months Ended Nine Months Ended June 30, June 30, 2025 2024 2025 2024 NET REVENUES: Contract staffing services $ 21,301 $ 23,761 $ 64,310 $ 71,977 Direct hire placement services 3,222 3,287 8,733 8,797 NET REVENUES 24,523 27,048 73,043 80,774 Cost of contract services 15,842 17,819 48,076 53,816 GROSS PROFIT 8,681 9,229 24,967 26,958 Selling, general and administrative expenses 8,951 9,753 26,695 29,491 Depreciation expense 49 63 154 201 Amortization of intangible assets 225 720 655 2,159 Intangible assets impairment charges - 5,209 - 5,209 Goodwill impairment charges - 14,201 22,000 14,201 LOSS FROM OPERATIONS ( 544 ) ( 20,717 ) ( 24,537 ) ( 24,303 ) Interest expense ( 112 ) ( 113 ) ( 267 ) ( 247 ) Interest income 140 179 434 548 LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION ( 516 ) ( 20,651 ) ( 24,370 ) ( 24,002 ) Provision for income tax (expense) benefit attributable to continuing operations 115 2,546 ( 9,671 ) 3,461 LOSS FROM CONTINUING OPERATIONS ( 401 ) ( 18,105 ) ( 34,041 ) ( 20,541 ) Loss from discontinued operations, net of tax (Note 3) ( 22 ) ( 1,181 ) ( 193 ) ( 1,308 ) CONSOLIDATED NET LOSS $ ( 423 ) $ ( 19,286 ) $ ( 34,234 ) $ ( 21,849 ) WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 109,413 108,772 109,413 109,150 BASIC AND DILUTED LOSS PER SHARE From continuing operations $ ( 0.00 ) $ ( 0.17 ) $ ( 0.31 ) $ ( 0.19 ) From discontinued operations $ ( 0.00 ) $ ( 0.01 ) $ ( 0.00 ) $ ( 0.01 ) Consolidated net loss per share $ ( 0.00 ) $ ( 0.18 ) $ ( 0.31 ) $ ( 0.20 ) The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 Table of Contents GEE GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) (Amounts in thousands) Total Common Stock Treasury Stock Accumulated Shareholders' Shares Amount Shares Amount Deficit Equity Balance, September 30, 2024 114,900 $ 113,129 5,487 $ ( 3,186 ) $ ( 25,732 ) $ 84,211 Share-based compensation - 118 - - - 118 Net loss - - - - ( 692 ) ( 692 ) Balance, December 31, 2024 114,900 $ 113,247 5,487 $ ( 3,186 ) $ ( 26,424 ) $ 83,637 Share-based compensation - 123 - - - 123 Net loss - - - - ( 33,119 ) ( 33,119 ) Balance, March 31, 2025 114,900 $ 113,370 5,487 $ ( 3,186 ) $ ( 59,543 ) $ 50,641 Share-based compensation - 177 - - - 177 Net loss - - - - ( 423 ) ( 423 ) Balance, June 30, 2025 114,900 $ 113,547 5,487 $ ( 3,186 ) $ ( 59,966 ) $ 50,395 Total Common Stock Treasury Stock Accumulated Shareholders' Shares Amount Shares Amount Deficit Equity Balance, September 30, 2023 114,900 $ 112,915 3,412 $ ( 1,984 ) $ ( 1,630 ) $ 109,301 Purchase of treasury stock - - 2,717 ( 1,575 ) - ( 1,575 ) Share-based compensation - 153 - - - 153 Net loss - - - - ( 1,555 ) ( 1,555 ) Balance, December 31, 2023 114,900 $ 113,068 6,129 $ ( 3,559 ) $ ( 3,185 ) $ 106,324 Share-based compensation - 157 - - - 157 Net loss - - - - ( 1,008 ) ( 1,008 ) Balance, March 31, 2024 114,900 $ 113,225 6,129 $ ( 3,559 ) $ ( 4,193 ) $ 105,473 Share-based compensation - 149 - - - 149 Net loss - - - - ( 19,286 ) ( 19,286 ) Balance, June 30, 2024 114,900 $ 113,374 6,129 $ (3,559 ) $ ( 23,479 ) $ 86,336 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 6 Table of Contents GEE GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Amounts in thousands) Nine Months Ended June 30, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 34,234 ) $ ( 21,849 ) Adjustments to reconcile net loss to cash used in operating activities: Loss on disposal of assets 3 - Depreciation and amortization 814 2,394 Amortization of operating lease right-of-use assets 934 1,090 Intangible assets impairment charges - 5,209 Goodwill impairment charges 22,000 15,285 Share-based compensation 418 459 Provisions for (recoveries of) credit losses ( 1 ) 59 Gain on sale of Industrial Segment ( 133 ) - Deferred income taxes 9,671 ( 3,461 ) Amortization of debt issuance costs 115 115 Changes in operating assets and liabilities: Accounts receivable 2,024 3,764 Other assets ( 402 ) ( 312 ) Accounts payable ( 1,020 ) ( 396 ) Accrued compensation ( 1,231 ) ( 1,593 ) Operating lease liabilities ( 824 ) ( 1,156 ) Other liabilities ( 18 ) ( 725 ) Net cash used in operating activities ( 1,884 ) ( 1,117 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ( 16 ) ( 58 ) Business acquisition, net of cash acquired ( 968 ) - Proceeds from sale of Industrial Segment 712 - Net cash used in investing activities ( 272 ) ( 58 ) CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock - ( 1,575 ) Payments on finance leases ( 50 ) ( 126 ) Net cash used in financing activities ( 50 ) ( 1,701 ) Net change in cash ( 2,206 ) ( 2,876 ) Cash at beginning of period 20,828 22,471 Cash at end of period 18,622 19,595 Less cash from discontinued operations - ( 233 ) Cash from continuing operations at end of period $ 18,622 $ 19,362 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 152 $ 138 Cash paid for taxes 45 131 The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 7 Table of Contents GEE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine-month period ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending September 30, 2025. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2024 as filed on December 19, 2024. A discontinued operation is a component of an entity that has either been disposed of, or that is classified as held for sale, which represents a strategic shift that has an effect on an entity’s operation and financial results. In accordance with U.S. GAAP, the assets and liabilities of discontinued operations are presented separately on the Company’s unaudited condensed consolidated balance sheets for all periods presented. Net losses from discontinued operations are reported as a separate component of net loss on the unaudited condensed consolidated statements of operations. Cash flows from discontinued operations are not reported separately on the unaudited condensed consolidated statements of cash flows. All footnotes included herein present only continuing operations and exclude amounts related to discontinued operations for all periods presented, unless otherwise stated. Certain additional reclassifications have been made to the prior year’s condensed consolidated financial statements and/or related disclosures to conform to the current year’s presentation. 2. Business Acquisition On January 3, 2025, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Hornet Staffing, Inc., a Georgia corporation (“Hornet”) and its shareholders, and purchased 100 shares of its capital stock which represents 100 % of the ownership interest in Hornet. Hornet is an Atlanta-based provider of staff augmentation services with national service capability. Hornet provides staffing solutions to many markets serving large scale, "blue chip" companies in the information technology ("IT"), professional and customer service staffing verticals. The total consideration paid for the purchased shares was $ 1,500 , consisting of (i) a $ 1,100 cash payment, and (ii) the issuance to its former shareholders of subordinated and unsecured promissory notes (the "Promissory Notes") totaling an aggregate initial principal amount of $ 400 . Interest on the outstanding principal balances of the Promissory Notes is payable at a fixed rate of 5 % per annum. Payments on the Promissory Notes shall be made annually with the first payment due on the first anniversary of the issuance dates and the second and final payment due on the second anniversary of the issuance date. The Company also paid legal and professional fees of $ 111 related to the purchase during the nine months ended June 30, 2025, which are included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations. The Purchase Agreement also provides that for the initial two-year period after closing, Hornet is required to achieve an agreed upon minimum average gross profit measure equal to $ 720 for each of the two subsequent twelve-month periods (each twelve-month period being separately measured). If the average gross profit measure during either of the subsequent two years is less than the minimum required average gross profit, then the Company will reduce the remaining balance under the Promissory Notes proportionally by an amount equal to the amount of the shortfall; provided the Company may not deduct more than the amount due under the then current payment for the Promissory Notes and may not seek to claw back any previous payments made under the Notes. The Purchase Agreement contains certain representations and warranties customary and standard for this type of transaction. The assets and liabilities of Hornet were recorded at their estimated fair values as of the closing date of the Purchase Agreement. The Promissory Notes were recorded net of discounts of $8 at the acquisition date. The following table summarizes the preliminary balance sheet at January 3, 2025: 8 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) Assets purchased $ 612 Liabilities assumed (a) 517 Net assets purchased 95 Purchase consideration: Cash paid at closing 1,100 Promissory notes, net 392 Intangible assets from purchase $ 1,397 (a) Liabilities assumed includes a $ 155 deferred tax liability present at January 3, 2025 but recorded by the Company during the three months ended June 30, 2025 due to a post-closing tax election made during the quarter. An independent preliminary purchase price allocation and valuation has been performed to identify intangible assets acquired. The allocation to these intangible assets is as follows: Fair Value Useful Life Customer relationships $ 564 8 years Tradename 68 10 years Non-compete 11 2 years Goodwill (a) 754 Indefinite Total intangible assets acquired $ 1,397 (a) Goodwill increased by $ 155 as a result of the deferred tax liability recorded during the three months ended June 30, 2025, as noted above. The following table represents the unaudited consolidated pro forma results of operations for the three and nine-month periods ended June 30, 2025 and 2024 had the acquisition occurred on October 1, 2023, the first day of the most historic period reported in this Quarterly Report on Form 10-Q. This unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition occurred on October 1, 2023. This information is based on Hornet’s unaudited historical financial statements. Three Months Ended, June 30, Nine Months Ended, June 30, 2025 2024 2025 2024 Net revenues $ 24,523 $ 28,422 $ 74,631 $ 85,140 Cost of contract services 15,842 18,992 49,434 57,550 Gross profit 8,681 9,430 25,197 27,590 Selling, general and administrative expenses 8,951 9,876 26,847 29,952 Net loss ( 401 ) ( 18,026 ) ( 33,964 ) ( 20,368 ) Basic and diluted loss per share $ 0.00 $ ( 0.17 ) $ ( 0.31 ) $ ( 0.19 ) 3. Discontinued Operations On April 18, 2024, the Company’s Mergers and Acquisitions (“M&A”) committee of the Board of Directors completed its review of strategic alternatives recommended by an outside investment banking firm. This included recommendation of divesture of the Company’s Industrial Segment which was subsequently approved by the Company’s full Board of Directors on May 13, 2024. Management thereafter began the process of identifying and contacting potential buyers. As of March 31, 2025, the Company’s plan to sell its Industrial Segment met all the criteria for the first time to be reported as discontinued operations under U.S. GAAP, the final one being making the determination that the sale or other disposition would be completed within twelve months. 9 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) On June 2, 2025, the Company entered into an agreement for the sale of certain operating assets of its Industrial Segment, including those of BMCH, Inc., Triad Logistics, Inc., and its Triad Staffing brand. The Company received total cash consideration of $ 250 from the buyer at closing and is to receive an additional $ 788 payable during the first 90 days following closing. The Company has received $ 462 of the additional payments due as of June 30, 2025. The remaining receivable of $ 326 is included in prepaid expenses and other current assets in the unaudited condensed consolidated balance sheet as of June 30, 2025. A pre-tax net gain of $ 133 , including transaction costs of $ 97 , is included in discontinued operations for the three-month period ended June 30, 2025. The remaining assets of the Industrial Segment not sold were distributed to the Company. Assets and Liabilities of Discontinued Operations The balances of assets and liabilities under the Industrial Segment as of June 30, 2025 and September 30, 2024 consisted of the following: June 30, 2025 September 30, 2024 Assets of discontinued operations: Cash $ - $ 93 Accounts receivable, net - 996 Prepaid expenses and other current assets - 64 Property and equipment, net - 13 Right-of-use assets - 138 Other long-term assets - 57 Total assets of discontinued operations $ - $ 1,361 Liabilities of discontinued operations: Accounts payable $ - $ 27 Accrued compensation - 197 Current operating lease liabilities - 105 Other current liabilities - 18 Noncurrent operating lease liabilities - 33 Total liabilities of discontinued operations $ - $ 380 Net Loss from Discontinued Operations Results of the Industrial Segment for the three and nine-month periods ended June 30, 2025 and 2024, respectively, consisted of the following: Three Months Ended Nine Months Ended June 30, June 30, 2025 2024 2025 2024 Revenue $ 1,068 $ 2,408 $ 4,614 $ 7,363 Expenses: Cost of contract services 744 2,042 3,663 6,223 Selling, general and administrative expenses 479 450 1,273 1,324 Depreciation expense - 11 4 34 Goodwill impairment charge - 1,084 - 1,084 Interest expense - 2 - 6 Loss from discontinued operations before gain on sale and income taxes ( 155 ) ( 1,181 ) ( 326 ) ( 1,308 ) Gain on sale of Industrial Segment 133 - 133 - Provision for income tax expense attributable to discontinued operations - - - - Loss from discontinued operations, net of tax $ ( 22 ) $ ( 1,181 ) $ ( 193 ) $ ( 1,308 ) 10 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) Cash Flows from Discontinued Operations There were no capital expenditures or other significant cash flows under the Industrial Segment during the nine-month period ended June 30, 2024. The net cash flows of the Industrial Segment during the nine-month period ended June 30, 2025 included the cash proceeds of $712 received as consideration on the sale. 4. Recent Accounting Pronouncements Recently Adopted In June 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 nine-month period ended June 30, 2024, is applicable to the Company’s trade (accounts) receivable and did not have a material impact on its unaudited condensed consolidated financial statements taken as a whole. Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) , which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. The guidance also requires disclosure of the Chief Operating Decision Maker's (“CODM”) position for each segment and detail of how the CODM uses financial reporting to assess their segment’s performance. The new guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has not yet determined the potential impact of implementation of the new guidance on its condensed consolidated financial statements taken as a whole. 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 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. 5. Cash and Cash Equivalents, Customer Concentrations, and Allowances for Credit Losses Cash and Cash Equivalents Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of June 30, 2025 and September 30, 2024, there were no cash equivalents. 11 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) Cash deposit accounts are maintained at financial institutions and, at times, balances may exceed federally insured limits guaranteed by the FDIC. During 2023, the Company entered into enhanced deposit arrangements with two financial institutions 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 these accounts was $ 14,944 and $ 14,515 as of June 30, 2025 and September 30, 2024, respectively. The Company also holds funds in various other bank accounts that may exceed FDIC insured limits. These uninsured amounts, in aggregate, were $ 2,646 and $ 5,194 as of June 30, 2025 and September 30, 2024, respectively. We have never experienced any material losses related to cash on deposit with banks. Customer Concentrations The Company’s single largest customer made up approximately 10 % of the Company’s consolidated revenues for the three and nine-month periods ended June 30, 2025. The Company has two customers that, in aggregate, made up approximately 20 % and 27 % of the consolidated accounts receivable balance as of June 30, 2025 and September 30, 2024, respectively. 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 historically experienced any losses related to these two customers. Allowance for Credit Losses 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 the nine-month period ended June 30, 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 unaudited condensed consolidated balance sheet as a reduction of accounts receivable. The impact of the adoption of ASU 2016-13 was immaterial to the Company’s unaudited condensed consolidated financial statements. As of June 30, 2025 and September 30, 2024, the allowance for credit losses was $ 117 and $ 144 , respectively. A summary of changes in this account is as follows: Three Months Ended June 30, Nine Months Ended June 30, 2025 2024 2025 2024 Beginning balance $ 133 $ 147 $ 144 $ 118 Provisions for (recoveries of) credit losses ( 13 ) 11 ( 1 ) 84 Accounts receivable write-offs ( 3 ) ( 4 ) ( 26 ) ( 48 ) Ending balance $ 117 $ 154 $ 117 $ 154 Liabilities for Direct Hire Placement Falloffs Direct hire placement service revenues from contracts with customers are recognized when the Company has met each of the criteria under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) , 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. 12 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) 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. Liabilities for falloffs and refunds during the period are reflected in other current liabilities in the unaudited condensed consolidated balance sheets in the amounts of $ 66 and $ 102 , as of June 30, 2025, and September 30, 2024, respectively. The corresponding charges included in the unaudited condensed consolidated statements of operations as reductions of direct hire placement service revenues were approximately $ 152 and $ 8 for the three-month periods and $ 404 and $ 238 for the nine-month periods ended June 30, 2025 and 2024, respectively. 6. Advertising Expenses The Company expenses the costs of job boards used for identifying and recruiting candidates, print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. Advertising expenses totaled $ 489 and $ 520 for the three-month periods and $ 1,413 and $ 1,588 for the nine-month periods ended June 30, 2025 and 2024, respectively. 7. Earnings per Share Basic earnings per share are computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period, which is computed using shares issued and outstanding. Diluted earnings per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the vesting of restricted shares granted but unissued, exercise of stock options and warrants. The dilutive effect of the common stock equivalents is reflected in earnings per share by use of the treasury stock method. Due to the loss from continuing operations reported for the three and nine-month periods ended June 30, 2025 and 2024, there were no dilutive incremental shares considered in the calculation of dilutive shares. Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 5,001 and 4,336 for the three-month periods and 4,440 and 4,164 for the nine-month periods ended June 30, 2025 and 2024, respectively. 8. Property and Equipment Property and equipment, net consisted of the following: June 30, 2025 September 30, 2024 Computer software $ 121 $ 472 Computer equipment 1,170 2,102 Furniture and fixtures 630 941 Leasehold improvements 99 176 Total property and equipment, at cost 2,020 3,691 Accumulated depreciation ( 1,619 ) ( 3,145 ) Property and equipment, net $ 401 $ 546 9. Leases The Company occasionally acquires equipment under finance leases including hardware and software used by our IT department to improve security and capacity, and certain furniture for our offices. Terms for these leases generally range from two to six years. The assets obtained under finance leases are included in property and equipment, net, on the unaudited condensed consolidated balance sheets. 13 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) Finance lease expenses such as amortization of the lease assets and interest expense on the lease liabilities are included on the unaudited condensed consolidated statements of operations in depreciation expense and interest expense, respectively. Supplemental information related to these expenses consisted of the following: Three Months Ended, June 30, Nine Months Ended, June 30, 2025 2024 2025 2024 Amortization of finance lease assets $ 23 $ 23 $ 68 $ 71 Interest on finance lease liabilities 2 5 6 15 Supplemental balance sheet information related to finance leases consisted of the following: June 30, 2025 September 30, 2024 Net book value of finance leases $ 134 $ 202 Weighted average remaining lease term for finance leases 1.4 years 2.2 years Weighted average discount rate for finance leases 5.3 % 5.3 % The table below reconciles the undiscounted future minimum lease payments under non-cancelable finance lease agreements to the total finance lease liabilities recognized on the unaudited condensed consolidated balance sheets, included in other current liabilities and other long-term liabilities, as of June 30, 2025: Remainder of Fiscal 2025 $ 18 Fiscal 2026 73 Fiscal 2027 12 Less: Imputed interest ( 4 ) Present value of finance lease liabilities (a) $ 99 (a) Includes current portion of $ 69 for finance leases. The Company leases space for all its branch offices, which are generally located either in downtown or suburban business centers, and for its corporate headquarters. Branch offices are generally leased over periods ranging from three to five years. The corporate office lease expires in 2026. The Company’s leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities. Operating lease expenses included in selling, general, and administrative expenses on the unaudited condensed consolidated statements of operations were $ 410 and $ 526 for the three-month periods and $ 1,329 and $ 1,525 for the nine-month periods ended June 30, 2025 and 2024, respectively. Supplemental cash flow information related to operating leases consisted of the following: Nine Months Ended June 30, 2025 2024 Cash paid for operating lease liabilities $ 930 $ 1,193 Right-of-use assets obtained in exchange for new operating lease liabilities 488 87 Supplemental balance sheet information related to operating leases consisted of the following: June 30, 2025 September 30, 2024 Weighted average remaining lease term for operating leases 2.4 years 2.6 years Weighted average discount rate for operating leases 5.6 % 5.6 % 14 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (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 unaudited condensed consolidated balance sheet as of June 30, 2025, including certain closed offices are as follows: Remainder of Fiscal 2025 $ 325 Fiscal 2026 1,048 Fiscal 2027 893 Fiscal 2028 620 Fiscal 2029 316 Thereafter 123 Less: Imputed interest ( 227 ) Present value of operating lease liabilities (a) $ 3,098 (a) Includes current portion of $ 1,050 for operating leases. 10. Goodwill and Intangible Assets Goodwill The Company performs a goodwill impairment assessment at least annually but may perform interim assessments if a triggering event occurs that may indicate the fair value of a reporting unit decreased below its carrying value. The net loss experienced in the three and six-month periods ended March 31, 2025, and the negative trend in the Company’s stock price and market capitalization at that time, in management’s view, represented one or more triggering events that indicated the Company’s goodwill may have been impaired. The Company reevaluated its financial forecast for the March 2025 quarterly results and performed an interim impairment assessment of its goodwill using the updated information. The results of the interim assessment indicated the Company’s goodwill assigned to its Professional Services reporting unit was impaired. As a result, the Company reduced its goodwill by $ 22,000 with a corresponding non-cash impairment charge recognized in its unaudited condensed consolidated statements of operations for the nine-month period ended June 30, 2025. For purposes of performing its interim goodwill impairment assessment as of March 31, 2025, the Company applied generally accepted valuation methods and techniques in order to estimate the fair value of its Professional Services reporting unit 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 Professional Services reporting unit. Should industry conditions remain consistently negative, or worsen, or if assumptions such as control premiums, terminal 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. A summary of goodwill balances of the Company’s Professional Services reporting unit is presented as follows: Goodwill Accumulated Impairment Carrying Amount As of September 30, 2024 $ 75,510 $ ( 29,502 ) $ 46,008 Addition from business acquisition 754 - 754 Impairment adjustment - ( 22,000 ) ( 22,000 ) As of June 30, 2025 $ 76,264 $ ( 51,502 ) $ 24,762 15 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) Intangible Assets The following provides a summary of the Company’s separately identifiable intangible assets as of June 30, 2025 and September 30, 2024 and estimated future amortization expense: June 30, 2025 September 30, 2024 Cost Impairment Charges Accumulated Amortization Net Book Value Cost Impairment Charges Accumulated Amortization Net Book Value Customer relationships $ 27,521 $ ( 5,153 ) $ ( 21,671 ) $ 697 $ 26,957 $ ( 5,153 ) $ ( 21,147 ) $ 657 Trade names 8,397 ( 56 ) ( 8,224 ) 117 8,329 ( 56 ) ( 8,096 ) 177 Non-competes 4,342 - ( 4,334 ) 8 4,331 - ( 4,331 ) - Total $ 40,260 $ ( 5,209 ) $ ( 34,229 ) $ 822 $ 39,617 $ ( 5,209 ) $ ( 33,574 ) $ 834 Remainder of Fiscal 2025 $ 202 Fiscal 2026 122 Fiscal 2027 79 Fiscal 2028 77 Fiscal 2029 77 Thereafter 265 $ 822 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. Non-competes are amortized on a straight-line basis over their respective estimated useful lives of between two and five years. 11. Other Current Liabilities Other current liabilities consisted of the following: June 30, 2025 September 30, 2024 Accrued audit fees $ 49 $ 47 Accrued client rebates 199 340 Accrued severance - 45 Current finance leases payable 69 67 Reserve for falloffs 66 102 Other 519 298 Total other current liabilities $ 902 $ 899 12 . Senior Bank Loan, Security and Guarantee Agreement 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 June 30, 2025, the Company had no outstanding borrowings and $ 6,566 of unused capacity available for borrowing under the terms of the Facility. The Company had $ 140 and $ 255 in unamortized debt issuance costs associated with the Facility as of June 30, 2025 and September 30, 2024, respectively. Of these costs, $ 140 and $ 153 were reflected in other current assets on the unaudited condensed consolidated balance sheets as of June 30, 2025 and September 30, 2024, respectively, with the remainder being reflected in other long-term assets. The amortization expense of these debt costs totaled $ 39 for the three-month periods and $ 115 for the nine-month periods ended June 30, 2025 and 2024. The unused line fees incurred and included in interest expense totaled $ 25 for the three-month periods and $ 76 for the nine-month periods ended June 30, 2025 and 2024. 16 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) 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. On January 3, 2025, in connection with its acquisition of Hornet, the Company and FCB entered into Consent and Amendment No. 3 to the Facility (“Amendment No. 3”), pursuant to which, FCB consented to the Hornet acquisition and the Company and its subsidiaries, as co-borrowers, the guarantors and FCB made certain amendments to the Loan Agreement and related collateral agreements to add Hornet to the Facility, accordingly. 13. Shareholders’ Equity Share-based Compensation Amended and Restated 2013 Incentive Stock Plan, as amended As of June 30, 2025, 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”). 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 non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant. As of June 30, 2025, there were 6,817 shares available to be granted under the Plan ( 4,005 shares available for restricted stock grants and 2,812 shares available for non-qualified stock option grants). Restricted Stock The Company has an annual incentive compensation program (“AICP”) for its executives which is administered under the Company’s Incentive Stock Plan. The AICP includes a long-term incentive (“LTI”) compensation program in the form of restricted stock awards comprised of two components: one that vests based on future service only, and a second that vests based on future service and performance. Initial awards under both service-only and service plus performance-based components of the AICP LTI plan are determined based on financial performance measures for the immediately preceding fiscal year. The Company granted 48 shares of restricted stock under the AICP during the nine months ended June 30, 2025. Of the 48 shares granted, 8 were granted based on actual fiscal 2023 results and will cliff vest on December 1, 2026, the second anniversary from their date of grant, based on future service and performance. The remaining 40 future service and performance-based shares granted were based on fiscal 2022 results and will cliff vest on December 1, 2025, the first anniversary from their date of grant. These service plus performance-based restricted shares are subject to adjustment over their corresponding fiscal 2025 reporting period based on probability of achieving the fiscal 2025 financial targets set by the Company’s Board of Directors. The shares currently reported have been adjusted based on the probable outcome as compared to these financial targets. The final number of fiscal 2023 and 2022 service plus performance-based restricted shares granted will be determined once the actual financial performance of the Company is determined for fiscal 2025. Share-based compensation expense attributable to restricted stock was $ 53 and $ 78 for the three-month periods and $ 161 and $ 230 for the nine-month periods ended June 30, 2025 and 2024, respectively. As of June 30, 2025, there was approximately $ 143 of unrecognized compensation expense related to restricted stock outstanding and the weighted average remaining vesting period for those grants was 0.73 years. 17 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) A summary of restricted stock activity is presented as follows: Number of Shares Weighted Average Fair Value ($) Non-vested restricted stock outstanding as of September 30, 2024 906 0.71 Granted 48 0.25 Vested - - Non-vested restricted stock outstanding as of December 31, 2024 954 0.69 Granted - - Vested - - Non-vested restricted stock outstanding as of March 31, 2025 954 0.69 Granted - - Vested - - Non-vested restricted stock outstanding as of June 30, 2025 954 0.69 Warrants The Company had no warrants outstanding as of June 30, 2025. As of September 30, 2024, the Company had 77 warrants outstanding with a weighted average exercise price per share of $ 2 and a weighted average remaining contractual life of 0.5 years. All outstanding warrants expired during the nine months ended June 30, 2025. Stock Options All stock options outstanding as of June 30, 2025 and September 30, 2024 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 1,550 stock options during the nine months ended June 30, 2025. The Company’s stock options generally vest on annual schedules during periods ranging from two to four years, 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 $ 124 and $ 71 for the three-month periods and $ 257 and $ 229 for the nine-month periods ended June 30, 2025 and 2024, respectively. As of June 30, 2025, there was approximately $ 547 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average remaining vesting period for those options was 2.95 years. A summary of stock option activity is presented as follows: Number of Shares Weighted Average Exercise Price per share ($) Weighted Average Fair Value per share ($) Weighted Average Remaining Contractual Life (Years) Total Intrinsic Value of Options ($) Options outstanding as of September 30, 2024 3,351 1.17 0.93 7.08 - Granted - - - - - Forfeited ( 153 ) 0.72 1.10 - - Options outstanding as of December 31, 2024 3,198 1.19 0.95 6.78 - Granted 1,150 0.23 0.19 - - Forfeited ( 10 ) 0.59 0.49 - - Options outstanding as of March 31, 2025 4,338 0.93 0.75 7.41 - Granted 400 0.20 0.14 - - Forfeited ( 51 ) 1.09 0.97 - - Options outstanding as of June 30, 2025 4,687 0.87 0.69 7.40 - Exercisable as of September 30, 2024 2,293 1.43 1.13 6.38 - Exercisable as of June 30, 2025 3,000 1.15 0.91 6.53 - 18 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) 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 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. The Company repurchased 2,717 shares of its common stock under program during the nine-month period ended June 30, 2024, at a net cost of $ 1,575 . Upon conclusion of the share repurchase program, as of December 31, 2023, the Company repurchased 6,129 shares in aggregate (accounting for approximately 5.4 % of our issued and outstanding common shares immediately prior to the program). 14. Income Tax The following table presents the provision for income taxes and our effective tax rate for the three and nine-month periods ended June 30, 2025 and 2024: Three Months Ended, June 30, Nine Months Ended, June 30, 2025 2024 2025 2024 Provision for income tax expense (benefit) $ ( 115 ) $ ( 2,546 ) $ 9,671 $ ( 3,461 ) Effective tax rate 22 % 12 % - 40 % 14 % The effective income tax rates on operations are based upon the estimated income for the year, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies. The effective tax rate for the three months ended June 30, 2025 is higher than the statutory rate primarily due to the change in the valuation allowance between quarters. The incremental change in valuation allowance has a greater impact because of the smaller change in pre-tax book loss. The effective tax rates for the nine months ended June 30, 2025 and the three and nine-month periods ended June 30, 2024 are lower than the statutory rate mainly due to the effects of the non-cash impairment charges recognized for intangible assets and goodwill and the valuation allowance on the net deferred tax asset (“DTA”) position. Other than the deferred tax liability relating to indefinite lived assets, the Company is maintaining a full valuation allowance against the remaining net 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. In view of the significance of the Company’s recent pre-tax book losses and likelihood of continuing uncertainty in the industry and economy as a whole, management reduced projections of future income from its forecast of the reversal of its DTAs as of March 31, 2025. As a result, it was determined that the Company's net DTAs would not be realized as there is not sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets are realizable. The Company recorded an additional $ 12,426 valuation allowance, resulting in a total valuation allowance of $ 13,220 , during the nine months ended June 30, 2025, accordingly. Under Internal Revenue Code 382, if a corporation undergoes a specified change in ownership, the corporation’s ability to use its pre-change net operating loss (“NOL”) carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Such limitation may result in the expiration of the NOL carryforwards generated before 2018 prior to their utilization. The Company engaged outside tax experts to perform a comprehensive section 382 study to calculate the estimated limitation and evaluate the corporation’s ability to use its NOL carryforwards and other pre-change tax attributes. The study was finalized in the quarter ended March 31, 2025 and concluded that the Company’s pre-2018 NOL carryovers and other tax attributes are subject to limitation under section 382. However, due to the presence of the valuation allowance, the Company’s section 382 limitation has no net effect on the Company’s net deferred tax position. 19 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) The One Big Beautiful Bill of 2025 On July 4, 2025, H.R.1 - One Big Beautiful Bill was enacted, introducing a wide range of tax reforms for businesses. Due to the Company's loss position and limited exposure to affected provisions, the bill’s overall impact is not material. The Company has historically elected out of bonus depreciation for all classes of property under Section 168(k)(7) and depreciates assets under MACRS without accelerated expensing. The Company continues to monitor ongoing regulatory guidance related to the new law. 15. Commitments and Contingencies Litigation and Claims 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. 16. Related Party Transactions On January 3, 2025, the Company entered into an employment agreement with Lawrence Bruce, one of the former shareholders of Hornet. As part of the Purchase Agreement, the Company issued Promissory Notes to Lawrence Bruce and his spouse, Laurel Bruce, in the amounts of $ 160 and $ 240 , representing their respective portions of this purchase consideration based on their percentage of Hornet’s stock ownership prior to the acquisition. The Promissory Notes have certain contingencies as disclosed under Note 2. 20 Table of Contents G EE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Amounts in thousands except per share data, unless otherwise stated) 17. Segment Data The Company provides the following distinctive services: (a) direct hire placement services and (b) temporary professional services staffing in the fields of information technology, accounting, finance and office, engineering, and medical. These services make up the Company’s Professional Staffing Services reporting segment. As disclosed in Note 3, the Company’s Industrial Staffing Services reporting segment has been deemed a discontinued operation and, as such, is excluded from the below table which only reflects continuing operations. Some selling, general and administrative expenses are not fully allocated to the Professional Staffing Services segment. 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 Professional Staffing Services reporting segment, all corporate assets such as cash and other assets have been allocated to the Professional Staffing Services reporting segment. Three Months Ended Nine Months Ended June 30, June 30, 2025 2024 2025 2024 Professional Staffing Services Permanent placement revenue $ 3,222 $ 3,287 $ 8,733 $ 8,797 Permanent placement services gross margin 100 % 100 % 100 % 100 % Contract services revenue $ 21,301 $ 23,761 $ 64,310 $ 71,977 Contract services gross margin 25.6 % 25.0 % 25.2 % 25.2 % Depreciation and amortization $ 274 $ 783 $ 809 $ 2,360 Income (loss) from operations 1,014 ( 19,127 ) ( 19,948 ) ( 19,256 ) Accounts receivable, net 11,752 13,612 11,752 13,612 Intangible assets 822 1,038 822 1,038 Goodwill 24,762 46,008 24,762 46,008 Total assets 60,564 95,276 60,564 95,276 Unallocated Expenses Corporate administrative expenses $ 1,142 $ 1,199 $ 3,446 $ 3,872 Corporate facility expenses 121 125 389 372 Share-based compensation expense 177 149 418 459 Board related expenses 118 117 336 344 Total unallocated expenses $ 1,558 $ 1,590 $ 4,589 $ 5,047 Consolidated Total revenue $ 24,523 $ 27,048 $ 73,043 $ 80,774 Depreciation and amortization 274 783 809 2,360 Loss from operations ( 544 ) ( 20,717 ) ( 24,537 ) ( 24,303 ) Accounts receivable, net 11,752 13,612 11,752 13,612 Intangible assets 822 1,038 822 1,038 Goodwill 24,762 46,008 24,762 46,008 Total assets of continuing operations 60,564 95,276 60,564 95,276 21 Table of Contents