GEE Group Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Management’s discussion and analysis (“MD&A”) contains forward-looking statements that are provided to assist in the understanding of anticipated future performance. However, future performance involves risks and uncertainties which may cause actual results to differ materially from those expressed in the forward-looking statements. Item 7 should be read in conjunction with the information contained in “Forward-Looking Statements” at the beginning of this report and with the consolidated financial statements and notes thereto included in Item 8. References such as the “Company,” “we,” “our” and “us” refer to GEE Group Inc. and its consolidated subsidiaries. Overview GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data Consulting Corporation, Agile Resources, Inc., Hornet Staffing, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., and Triad Personnel Services, Inc. are providers of permanent and temporary professional staffing and placement services in and near several major U.S. cities. We specialize in the placement of information technology, accounting, finance, office, and engineering professionals for direct hire and contract staffing for our clients, and data entry assistants (medical scribes) who specialize in electronic medical record services for emergency departments, specialty physician practices and clinics. GEE Group Inc.’s former wholly owned subsidiaries, BMCH, Inc. and Triad Logistics, Inc., provided temporary staffing services for our industrial clients until their operations were discontinued and assets were sold on June 2, 2025. The acquisitions of Scribe Solutions, Inc., a Florida corporation (“Scribe”) in April 2015, Agile Resources, Inc., a Georgia corporation (“Agile”) in July 2015, Access Data Consulting Corporation, a Colorado corporation (“Access”) in October 2015, Paladin Consulting Inc. (“Paladin”) in January 2016, and SNI Companies, Inc., a Delaware corporation (“SNI”) in April 2017, expanded our geographical footprint within the professional placement and contract staffing verticals or end markets of information technology, accounting, finance, office, engineering professionals, and medical scribes. The acquisition of Hornet Staffing, Inc., a Georgia corporation, (“Hornet”) in January 2025 broadened our footprint in the professional contract staffing market with a specialty in working with managed service providers (“MSP”) and vendor management systems (“VMS”) which streamline outsourced labor for large clients. We market our services using the trade names Access Data Consulting, Agile Resources, Ashley Ellis, GEE Group (Columbus), General Employment, Hornet Staffing, Omni One, Paladin Consulting, Scribe Solutions, SNI Companies, Accounting Now, Staffing Now®, SNI Banking, SNI Certes®, SNI Energy®, SNI Financial® and SNI Technology®. As of September 30, 2025, we operated from locations in ten (10) states, including nineteen (19) branch offices in downtown or suburban areas of major U.S. cities and four (4) additional U.S. locations utilizing local staff members working remotely. We have offices or serve markets remotely, as follows; (i) one office in each of Connecticut, Georgia, Illinois, and New Jersey, and one remote local market presence in each of Georgia and Virginia; (ii) two offices each in Massachusetts and Colorado; (iv) three offices and one additional local market presence in Texas; (v) six offices and one additional local market presence in Florida; and (vi) two offices in Ohio. Management has a long-term business strategy that includes organic and acquisition growth components. Management’s organic growth strategy includes seeking out and winning new client business, as well as expansion of existing client business and on-going cost reduction and productivity improvement efforts in operations. Management’s acquisition growth strategy includes identifying strategic, accretive acquisitions, financed primarily through a combination of cash and debt, including seller financing, the issuance of equity in appropriate circumstances, and the use of earn-outs where efficient to improve the overall profitability and our cash flows. Our contract and placement services are currently provided under our Professional Staffing Services operating division or segment. Our former Industrial Staffing Services segment was deemed a discontinued operation in fiscal 2025 and is excluded from results of continuing operations reported in this MD&A, unless otherwise stated. 31 Table of Contents Results of Operations Fiscal year ended September 30, 2025 (“fiscal 2025”) and fiscal year ended September 30, 2024 (“fiscal 2024”) Summary and Outlook We have incurred a net loss of $(34.7) million for fiscal 2025. Included in the fiscal 2025 net loss are $22 million in goodwill impairment charges and a $9.6 million provision for income tax expense. The provision for income tax expense includes $12.0 million in aggregate charges associated with changes in the valuation allowance associated with our deferred tax assets. The remaining net loss is primarily attributable to continuation of adverse trends and conditions in the U.S. labor markets that began in 2023, continued throughout 2024, and have persisted so far in 2025. These conditions have negatively impacted the number of job orders received and the numbers of qualified candidates available to fill orders for placements across all of our lines of business. Likewise, the U.S. Staffing Industry, as a whole, has experienced material declines in overall volume and financial performance and the industry outlook remains mixed as to when these conditions may be expected to definitively subside. The Company also learned at the end of fiscal 2025 that one of its larger accounts was acquired. As a result, our services were terminated as of October 1, 2025, and replaced by comparable services provided by an affiliate of the acquirer. This account produced revenues of $9.0 million and $10.0 million during fiscal 2025 and 2024, respectively. This account contributed approximately $1.0 million and $1.7 million, net of direct expenses, to pre-tax income (loss) from operations during fiscal 2025 and 2024, respectively. The Company believes other recent additions to our customer base will partially mitigate the loss of this account. Notwithstanding our fiscal 2025 results, we were able to reduce selling, general, and administrative expenses (“SG&A”) and our operating loss, accordingly, and generate cash flow from operations during fiscal 2025. Management reduced the Company’s annual SG&A by approximately $3.8 million during fiscal 2025 and remains committed and prepared to make additional cost cuts necessary to restore profitability. Artificial intelligence (“AI”) continues to gain momentum in the economy bringing with it the possibility of serving as a “disruptor” of traditional staffing and HR solutions markets or portions of them. We are responding by integrating AI into our operating business strategy, plans and systems; focusing on seeking, attracting and placing AI talent; and refocusing our other organic growth efforts towards verticals where we can leverage AI, and/or that are less likely to be significantly disrupted by AI. Our IT businesses, in particular, are focused on building AI expertise and on presenting themselves as thought leaders and knowledge resources in AI for our clients and potential new clients. On January 3, 2025, we acquired Hornet Staffing, Inc., an Atlanta-based provider of staff augmentation services with national service capability. Hornet provides staffing solutions to markets serving large scale, "blue chip" companies in the information technology, professional and customer service staffing verticals. The acquisition is expected to be accretive to earnings. Under the terms of the stock purchase agreement, we acquired 100% of the Hornet common stock for consideration including cash and seller financing. Larry Bruce, Hornet’s Managing Director and Founder, will continue in his current capacity at Hornet and join the GEE Group National Sales Team to work with our vertical leaders on new business development. We expect the Hornet acquisition to enhance our ability to compete more effectively and anticipate it helping us secure new business from Fortune 1000 and other large users of contingent and outsourced labor. Its workforce solutions include significant expertise in working with MSPs and VMSs. According to Staffing Industry Analysts’ (“SIA”) recent Workforce Solutions Buyer Survey, approximately 58% of companies with one thousand employees or more engage a third-party firm to manage their staffing providers. These large businesses spend for contingent labor is typically managed by MSP and VMS providers which are evolving rapidly, driven by the increasing complexity of workforce management and to achieve economies of scale in today's business environment. In 2023 according to SIA, the global MSP/VMS market accounted for approximately $222 billion of temporary staffing spend under management. 32 Table of Contents In light of the forgoing trends and in order to compete more efficiently and effectively on these and other engagements, staffing agencies are turning to offshore recruiting models which continue to gain momentum as an increasing number of organizations turn to MSP and VMS for managing their contract labor providers. According to SIA, offshore recruiting teams located in cost-effective regions of the world provide significant cost savings and can help reduce operational expenses by up to approximately 70%, without compromising on quality. Hornet has adopted this method of recruiting which we believe provides for faster hiring cycles tapping a vast, global talent pool; and, coupled with round-the-clock recruitment efforts, offshore recruiting can reduce hiring timelines by up to 40%, allowing staffing firms to attract top talent ahead of competitors. We plan to continue our on-shore relationship-based recruitment for select customers and leverage Hornet's offshore recruiting capability and technology across all of our staffing verticals on MSP, VMS and other large enterprise engagements. This is expected to give us additional flexibility and scalability to adjust hiring volumes based on project needs, ensuring efficiency without sacrificing quality. During fiscal 2025, we classified and reported our Industrial Segment as a discontinued operation. The decision to discontinue this division is in continuance with our long-term strategy and focus on the professional verticals within our business. The initiative to seek a buyer for the Industrial Segment was approved on April 18, 2024, as part of our plans and budgets comprehended in the M&A Committee’s strategic recommendations developed during a formal review of strategic alternatives last year. Other strategic recommendations stemming from the strategic alternatives review are on-going, including (1) proactive measures to streamline operations and enhance growth opportunities and cost-efficiency, including significant cost reductions, (2) building upon past acquisitions by taking advantage of current conditions and further integrating and consolidating operations and systems for further efficiencies and cost saving opportunities, and (3) capitalizing on acquisition opportunities arising from the economic downturn by identifying and with the objective of acquiring businesses at reduced multiples and favorable valuations. On June 2, 2025, we entered into an agreement for the sale of certain operating assets of the Industrial Segment, including those of BMCH, Inc., Triad Logistics, Inc., and our Triad Staffing brand. We received total cash consideration of $250 thousand from the buyer at closing and received an additional $788 thousand during the first 90 days following closing. A pre-tax net gain of $133 thousand, including transaction costs of $97 thousand, is included in discontinued operations for fiscal 2025. The remaining assets of the Industrial Segment not sold were distributed to the Company. 33 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Net Revenues Consolidated net revenues are comprised of the following: Fiscal 2025 2024 $ Change % Change Professional contract services $ 84,686 $ 94,753 $ (10,067 ) -11% Direct hire placement services 11,818 12,183 (365 ) -3% Consolidated net revenues $ 96,504 $ 106,936 $ (10,432 ) -10% Professional contract staffing services contributed $84,686 or approximately 88% of consolidated revenue and direct hire placement services contributed $11,818, or approximately 12%, of consolidated revenue for fiscal 2025. This compares to professional contract staffing services revenue of $94,753, or approximately 89%, of consolidated revenue and direct hire placement revenue of $12,183, or approximately 11%, of consolidated revenue for fiscal 2024. Economic uncertainties, including persistent inflation and high interest rates, continued to adversely affect trends and conditions in the U.S. labor markets, which in turn, have continued to negatively impact our results through fiscal 2025. In addition, the proliferation of AI applications and tools across industries is disrupting portions of our economy and impacting hiring plans as business plans and HR needs are reconsidered. As a result of these trends, professional contract staffing services revenues decreased $10,067, or 11%, as compared to fiscal 2024. Professional contract staffing services for fiscal 2025 includes $3,375 of revenues generated by Hornet, which was acquired by the Company effective January 3, 2025. The former Industrial Segment revenues of $4,609 and $9,547 for fiscal 2025 and 2024, respectively, have been reclassified as discontinued operations and are no longer included in continuing operations and contract staffing services revenues, accordingly. Direct hire placement revenue for fiscal 2025 decreased $365, or approximately 3%, as compared to fiscal 2024. Direct hire opportunities tend to be highly cyclical and demand dependent and may be expected to rise during times of economic recovery and decline during downturns and periods of uncertainty. Staffing Industry Analysts (“SIA”), a leading industry trade organization, recently published in its September 2025 U.S. Staffing Industry Forecast update, that the U.S. Staffing Industry as a whole is expected to decline by 3% in 2025. This follows a 12% decline already experienced in 2024. The SIA report cites that the forecasted 2025 decline is expected due to widespread client caution, a slow labor market, reduced employee churn and flat bill rates. While our businesses service clients of all sizes, a substantial number of our clients are small and medium-sized enterprises (SMEs), which have less financial flexibility to absorb rising costs and higher borrowing expenses, making them more likely to reduce or postpone usage of our services and contract employees. We believe this is a key reason why our 2025 revenue declines have exceeded those forecasted by SIA for the staffing industry overall. Cost of Contract Services Cost of contract services includes wages and related payroll taxes, employee benefits of the Company's contract services employees, and certain other contract employee-related costs, while working on contract assignments. Cost of contract services for fiscal 2025 decreased by approximately 11% to $63,132 compared to $70,794 for fiscal 2024. The $7,662 decrease in cost of contract services is consistent with the decrease in revenues as discussed above. Gross Profit percentage by service: Fiscal 2025 2024 Professional contract services 25.5% 25.3% Direct hire placement services 100.0% 100.0% Combined gross profit margin (a) 34.6% 33.8% (a) Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses. Unlike temporary contract staffing services, where we maintain primary responsibility for and control the staff members that we provide to perform services for our clients, direct hire placement revenues are only recognized for the net amount of fees we earned acting under an agency type of relationship. Accordingly, none of our costs associated with direct hire placement services are reportable as costs of services deducted from revenues to derive gross profit. 34 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Our combined gross profit margin, including direct hire placement services, for fiscal 2025 and 2024 were approximately 34.6% and 33.8%, respectively. Our professional contract staffing services gross margins for fiscal 2025 and 2024 were approximately 25.5% and 25.3%, respectively. The net increase in our combined gross margin is mainly attributable to an increase in the mix of direct hire placement revenues, which have a 100% gross margin. The slight increase in professional contract staffing services gross margin is attributable to net increases in prices and spreads on some of our professional contract services businesses. Selling, General and Administrative Expenses Selling, general and administrative expenses (“SG&A”) include the following categories: · Compensation and benefits in the operating divisions, which include salaries, wages and commissions earned by our employment consultants, recruiters and branch managers on permanent and temporary placements; · Administrative compensation, which includes salaries, wages, share-based compensation, payroll taxes and employee benefits associated with general management and the operation of corporate functions, including principally, finance, human resources, information technology and administrative functions; · Occupancy costs, which includes office rent, and other office operating expenses; · Recruitment advertising, which includes the cost of identifying and tracking job applicants; and · Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services and other corporate-level expenses such as business insurance and taxes. Our SG&A for fiscal 2025 decreased by $4,185 as compared to fiscal 2024. SG&A for fiscal 2025 as a percentage of revenues was approximately 36.9% versus 37.2% for fiscal 2024. The higher percentages of SG&A expenses to revenues, as compared with historical SG&A ratios in the low-to-mid 30% range, is mainly attributable to lower revenues in relation to fixed costs, including certain personnel, occupancy and costs associated with applicant tracking systems and job boards. In addition, higher incentive compensation on direct hire placement revenues, which remained relatively level over the current and prior fiscal years, as contrasted with lower professional contract revenues, contributed to the higher SG&A ratios. These items were offset by certain cost reductions and productivity improvements made during fiscal 2025. SG&A includes certain non-cash costs and non-operational costs and expenses incurred related to acquisition, integration, restructuring and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations or have been eliminated on a going forward basis. These costs were $474 and $1,120 for fiscal 2025 and 2024, respectively, and include mainly expenses associated with former closed and consolidated locations, legal expenses related to other than routine matters, and personnel costs associated with eliminated positions. Amortization and Depreciation Expense Amortization expense was $857 and $2,363 for fiscal 2025 and 2024, respectively. The decrease in amortization expense is mainly due to impairment charges recorded during fiscal 2024, which substantially reduced the remaining unamortized balances of our identifiable intangible assets and present amortization, accordingly. Depreciation expense was $201 and $261 for fiscal 2025 and 2024, respectively. 35 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Intangible Assets Impairment We performed an evaluation of our intangible assets as of June 30, 2024, and determined that certain asset groups associated with our intangible assets including certain customer lists and tradenames were producing negative or sufficiently low gross cash flows that their estimated future discounted cash flows indicated impairments of the remaining unamortized balances. As a result, we recorded a non-cash impairment charge of $5,209 on intangible assets during fiscal 2024. Goodwill Impairment The Company performs a goodwill impairment assessment at least annually but may perform interim assessments in the event of a triggering event that may indicate the fair value of a reporting unit decreased below its carrying value. The Company completed its most recent annual assessment as of September 30, 2025 and determined that its goodwill was not further impaired. Prior to this, as of March 31, 2025, an interim assessment was performed as the estimated fair value of the Professional Services reporting unit was determined to have decreased and indicated that the reporting unit’s carrying value exceeded its estimated fair value. As a result, a non-cash goodwill impairment charge of $22,000 was recognized during fiscal 2025, as determined by the interim evaluations made of our goodwill as of March 31, 2025. Our prior annual goodwill impairment assessment as of September 30, 2024 determined that the Company’s goodwill was not further impaired. However, an interim assessment was also performed due to the decline in operating results and market capitalization experienced during the year which, in management’s view, represented one or more triggering events that could indicate an impairment in the Company’s goodwill. The interim assessment was performed as of June 30, 2024 and indicated the goodwill assigned to the Professional Services reporting unit was impaired. A non-cash goodwill impairment charge of $14,201 was recognized during fiscal 2024, as determined by the interim evaluation made of our goodwill as of June 30, 2024. For purposes of performing our annual goodwill impairment assessments as of September 30, 2025 and 2024, and the interim testing performed as of March 31, 2025 and June 30, 2024, we applied generally accepted valuation methods and techniques in order to estimate the fair value of our Professional Services reporting unit and considered discounted cash flows, guideline public company results, guideline transactions, revenues and earnings, recent trends in our stock price, implied control or acquisition premiums, and other possible factors and their effects on estimated fair value of our reporting unit. The estimated fair value of the Professional Services reporting unit resulting from the September 30, 2025 assessment exceeded the reporting unit’s adjusted carrying value, net of the impairment recorded during the March 31, 2025 interim assessment, by approximately 39%, or approximately $12.7 million. Should industry conditions remain consistently negative, or worsen, or if assumptions such as control premiums, revenue growth projections, cost reduction 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 our Professional Services reporting unit as compared to its remaining carrying value, leading to an impairment in the future. Loss from Operations Loss from operations was $(25,310) and $(25,701) for fiscal 2025 and 2024, respectively. These losses are primarily the result of the non-cash impairment charges included in loss from operations for fiscal 2025 and 2024. Excluding these, the $2,981 improvement in fiscal 2025 was attributable to certain cost reductions made by the Company as well as the other matters discussed in the preceding paragraphs. 36 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Interest Expense Interest expense was $333 and $315 for fiscal 2025 and 2024, respectively, and was comprised mainly of fees associated with our Facility including unused capacity fees, administrative charges, and the amortization of related debt issuance costs. No advances were taken on our Facility during fiscal 2025 and 2024. Interest Income Interest income earned was $577 and $722 for fiscal 2025 and 2024, respectively. Interest income is earned on cash balances held in our two brokerage accounts. Provision for Income Taxes We recognized income tax (expense) benefit of $(9,588) and $2,619 for fiscal 2025 and 2024, respectively. Our effective tax rates for fiscal 2025 and 2024 are lower than the statutory rate primarily due to the effect of the valuation allowance on our net deferred tax asset (“DTA”) position and the differences in the U.S. GAAP and tax basis effects associated with goodwill impairments. 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 our recent pre-tax book losses and the likelihood of continuing uncertainty in the industry and economy as a whole, management excluded projections of future income from its forecast of the reversal of our DTAs as of September 30, 2025. As a result, it was determined that our net DTAs would not be realized as there is not sufficient positive evidence to conclude that it is more likely than not that the deferred taxes are realizable. We recorded an additional $11,964 valuation allowance during fiscal 2025, resulting in a total valuation allowance of $12,757 as of September 30, 2025, accordingly. Loss from Discontinued Operations As a result of our Industrial Segment being deemed a discontinued operation, the results of that segment have been reclassified to loss from discontinued operations in the accompanying consolidated statements of operations. On June 2, 2025, we entered into an agreement to sell certain operating assets of our Industrial Segment and recorded a net gain on sale of $133 during fiscal 2025. Loss from discontinued operations, including the net gain recorded upon sale, was $(93) and $(1,427) for fiscal 2025 and 2024, respectively. Consolidated Net Loss Our consolidated net loss was $(34,747) and $(24,102) for fiscal 2025 and 2024, respectively. The increase in consolidated net loss is primarily the result of the provision for income tax expense for fiscal 2025 including the valuation allowance recorded related to our net deferred tax assets, as explained in the preceding paragraphs. 37 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Liquidity and Capital Resources Our primary sources of liquidity are revenues earned and collected from our clients for the placement of contract employees and independent contractors on a temporary basis and permanent employment candidates and borrowings available under our asset-based senior secured revolving credit facility. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to our contract and permanent employees, and employment-related expenses, operating costs and expenses, taxes and capital expenditures. The following table sets forth certain consolidated statement of cash flows data, including cash flows from discontinued operations: Fiscal 2025 2024 Cash flows provided by operating activities $ 549 $ 202 Cash flows provided by (used in) investing activities 54 (58 ) Cash flows used in financing activities (67 ) (1,787 ) As of September 30, 2025, we had $21,364 of cash, an increase of $536 from $20,828 as of September 30, 2024. As of September 30, 2025, we had working capital of $23,993 compared to $26,079 as of September 30, 2024. The decrease in working capital is mainly attributable to the effects of lower overall business volume during fiscal 2025. The primary source of cash from investing activities during fiscal 2025 was $1,038 in cash received from the buyer of the Industrial Segment’s assets. The primary use of cash for investing activities during fiscal 2025 was for the acquisition of Hornet. We paid $1,100 of cash consideration at closing on January 3, 2025, and entered into two 5% uncollateralized subordinated promissory notes with the sellers in the aggregate amount of $400, each payable in two equal annual installments due at the end of the two subsequent years following closing. The purchase price and our obligations under the subordinated promissory notes are subject to reduction in the event Hornet Staffing does not achieve agreed upon profit metrics during the two years subsequent to closing on a dollar-for-dollar basis. The cash flows used in financing activities were primarily for purchases of treasury stock during fiscal 2024, and payments made on finance leases during fiscal 2025 and 2024. We had $4,828 in availability for borrowings under our Facility as of September 30, 2025. There were no outstanding borrowings on the Facility as of September 30, 2025, or September 30, 2024, except for certain accrued carrying fees and costs, which are included in other current liabilities in the accompanying consolidated balance sheets. No borrowings have been taken from the Facility during the years ended September 30, 2025 and 2024. On April 27, 2023, our Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $20 million of our currently outstanding shares of common stock. The share repurchase program continued through December 31, 2023. The repurchase program did not obligate us 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 we deemed appropriate, based on factors such as market conditions, legal requirements, and other business considerations. During fiscal 2024, we repurchased 2,717 shares of common stock at a total cost of $1,575. Upon conclusion of the share repurchase program, as of December 31, 2023, we repurchased 6,129 shares in aggregate (accounting for approximately 5.4% of our then issued and outstanding shares of common stock immediately prior to the program). On August 13, 2024, we 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. All of our office facilities are leased. Minimum lease payments under all our lease agreements for the twelve-month period commencing after the close of business on September 30, 2025, are approximately $1,048. There are no minimum debt service principal payments due during the twelve-month period commencing after the close of business on September 30, 2025. 38 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Management believes that we can generate adequate liquidity to meet our obligations for the foreseeable future and at least for the next twelve months after the date this Annual Report on Form 10-K is filed. Off-Balance Sheet Arrangements As of September 30, 2025 and 2024, and during the two fiscal years then ended, there were no transactions, agreements, or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity. Critical Accounting Policies and Estimates The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission. Management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the consolidated financial statements, as well as the amounts of reported revenues and expenses during the periods presented. Those estimates and assumptions typically involve expectations about events to occur subsequent to the balance sheet date, and it is possible that actual results could ultimately differ from the estimates. If differences were to occur in a subsequent period, the Company would recognize those differences when they became known. Significant accounting and disclosure matters requiring the use of estimates and assumptions include, but may not be limited to, revenue recognition, accounts receivable and allowances for credit losses, determining fair values of financial assets and liabilities, income tax provisions and benefits, including deferred income tax valuation allowances, accounting for asset impairments, and accounting for share-based compensation. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made. The following accounting policies are considered by management to be “critical” because of the judgments and uncertainties involved, and because different amounts would be reported under different conditions or using different assumptions. Accounts Receivable The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for credit losses is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues. The Company adopted the methodology under ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), during fiscal 2024. The amendments in ASU 2016-13 replace the probable incurred loss impairment methodology underlying our previous allowance for doubtful accounts with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. During fiscal 2025, the Company elected to use the practical expedient introduced by ASU 2025-05 which simplifies the calculation of these estimates by assuming that current conditions will continue through the forecast period. Under ASU 2016-13, an allowance is recorded with a corresponding charge to bad debt expense for expected credit losses in our accounts receivable including consideration of the effects of past, present and future conditions that may reasonably be expected to impact credit losses. The Company charges off uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The allowance for credit losses is reflected in the consolidated balance sheets as a reduction of accounts receivable. 39 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Revenue Recognition Our revenues are recognized when promised services are performed for customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Our revenues are recorded net of variable consideration such as sales discounts or allowances. Direct hire placement service revenues from contracts with customers are recognized when the Company has met each of the criteria under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, including its performance obligations under the contracts. This generally occurs when the employment candidates accept offers of employment and have started their newly placed positions, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company’s guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. 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. This allowance for falloffs is included in 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. 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. Fair Value Measurement The Company follows the provisions of Financial Accounting Standards Board (“FASB”), ASC 820, Fair Value Measurement , which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances when observable inputs are not available. The hierarchy is described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. 40 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Income Taxes The Company accounts for income taxes under the asset and liability method, FASB ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it is believed these assets are more likely than not to be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event it is determined that the Company would be able to realize the deferred tax assets in the future in excess of their recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Interest and penalties related to uncertain tax benefits are recognized on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2025 and 2024, no accrued interest or penalties are included on the related tax liability line in the accompanying consolidated balance sheets. Goodwill The Company evaluates its goodwill for possible impairment as prescribed by FASB ASC 350 , Intangibles — Goodwill and Other: Goodwill, at least annually and on an interim basis when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill. The Company performed annual goodwill impairment testing effective as of September 30, 2025 and determined that its goodwill was not further impaired. In determining the fair value of our Professional Services reporting unit, 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 unit, 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 unit. Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of goodwill impairment. For purposes of performing this goodwill impairment assessment, management applied the valuation techniques and assumptions to its Professional Services segment as a reporting unit discussed above; and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Professional Services reporting unit. The estimated fair value of the reporting unit is directly determined by, and therefore sensitive to, the underlying assumptions and methods used in deriving them, which are largely subjective in nature. 41 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) As a result of the evaluation performed, the estimated fair value of the Professional Services reporting unit exceeded the carrying value of its net assets as of September 30, 2025. Prior to this, as of March 31, 2025, an interim assessment was performed and indicated the Company’s goodwill assigned to its Professional Services reporting unit was impaired. An interim assessment performed during fiscal 2024, as of June 30, 2024, also indicated an impairment of the Company’s Professional Services reporting unit. As a result of these interim assessments, the Company reduced its goodwill by $22,000 and $14,201, with corresponding non-cash impairment charges being recognized in its consolidated statements of operations for fiscal 2025 and 2024, respectively. Intangible Assets Separately identifiable intangible assets held in the form of customer relationships, non-competes 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 the straight-line method. Impairment of Long-lived Assets (other than Goodwill) The Company recognizes an impairment of long-lived intangible assets used in operations, other than goodwill, when events or circumstances indicate that these assets might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. For purposes of testing the long-lived assets other than goodwill, long-lived assets are grouped and considered with other assets and liabilities within the Professional Services reporting unit. An evaluation as of June 30, 2024 determined that certain asset groups associated with the Company’s intangible assets were producing negative or sufficiently low gross cash flows and that their estimated future discounted cash flows indicated impairments. As a result, the Company recorded a non-cash impairment charge of $5,209 on intangible assets during fiscal 2024. Share-Based Compensation The Company accounts for share-based awards to employees in accordance with FASB ASC 718, Compensation-Stock Compensation , which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the consolidated financial statements based on a determination of the fair value of the stock options or restricted stock grants. The grant date fair value of stock options is determined using the Black-Scholes-Merton ("Black-Scholes") pricing model. For all employee stock options and restricted stock grants, the Company recognizes expense over the employee's requisite service period (generally the vesting period of the equity grant) and records an estimate for forfeitures. The Company's option pricing model requires the input of subjective assumptions, including the expected stock price volatility, and expected term. Any changes in these subjective assumptions significantly impact our share-based compensation expense. Upon the exercise of options, the Company may elect to utilize treasury shares instead of issuing new shares. 42 Table of Contents (Amounts in thousands except per share data, unless otherwise stated) Recent Accounting Pronouncements Recently Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) , which contains authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss (“CECL”) 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. 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 new guidance was implemented during the quarter ended September 30, 2025 and did not have a material effect on the Company’s consolidated financial statements and disclosures. In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326) , which introduces a practical expedient for estimating credit losses under CECL for current accounts receivable and contract assets arising from revenue transactions under ASC 606. If elected, this expedient allows entities to assume that current conditions at the balance sheet date will persist through the forecast period, simplifying the estimation process. The new guidance is effective for fiscal years and interim periods beginning after December 15, 2025. The Company elected to early adopt the expedient during the quarter ended September 30, 2025, which did not have a material impact on the Company’s consolidated financial statements. Not Yet Adopte d 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 has not yet determined the effects of the new guidance 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 has not yet determined the effects of the new guidance on its consolidated financial statements and disclosures. No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future financial statements.