| · | difficulty in integrating the operations, technologies, products and personnel of an acquired business, including consolidating redundant facilities and infrastructure; (2) potential disruption of our ongoing business and the distraction of management from our day-to-day operations; (3) difficulty entering markets in which we have limited or no prior experience and in which competitors have a stronger market position; (4) difficulty maintaining the quality of services that such acquired companies have historically provided; (5) potential legal and financial responsibility for liabilities of acquired businesses; (6) overpayment for the acquired company or assets or failure to achieve anticipated benefits, such as cost savings and revenue enhancements; (7) increased expenses associated with completing an acquisition and amortizing any acquired intangible assets; (8) challenges in implementing uniform standards, accounting policies, customs, controls, procedures and policies throughout an acquired business; (9) failure to retain, motivate and integrate key management and other employees of the acquired business; and (10) loss of customers and a failure to integrate customer bases. | 9 | | | | · | potential disruption of our ongoing business and the distraction of management from our day-to-day operations; | Table | | | | · | difficulty entering markets in which we have limited or no prior experience and in which competitors have a stronger market position; | | | | | · | difficulty maintaining the quality of Contentsservices that such acquired companies have historically provided; | | | | | · | impact of liabilities of the acquired businesses undiscovered or underestimated as part of the acquisition due diligence; | | | | | · | failure to realize anticipated growth opportunities from a combined business, because existing and potential clients may be unwilling to consolidate business with a single supplier or to stay with the acquirer post acquisition; | | | | | · | impacts of cash on hand and debt incurred to finance acquisitions, thus reducing liquidity for other significant strategic objectives; | | | | | · | internal controls, disclosure controls, corruption prevention policies, human resources and other key policies and practices of the acquired companies may be inadequate or ineffective; | | | | | · | overpayment for the acquired company or assets or failure to achieve anticipated benefits, such as cost savings and revenue enhancements; | | | | | · | increased expenses associated with completing an acquisition and amortizing any acquired intangible assets; | | | | | · | challenges in implementing uniform standards, accounting policies, customs, controls, procedures and policies throughout an acquired business; | | | | | · | failure to retain, motivate and integrate key management and other employees of the acquired business; and | | | | | · | loss of customers and a failure to integrate customer bases. |
In addition, if we incur indebtedness to finance an acquisition, it may reduce our capacity to borrow additional amounts and requirerequiring us to dedicate a greater percentage of our cash flow from operations to payments on our debt, thereby reducing the cash resources available to us to fund capital expenditures, pursue other acquisitions or investments in new business initiatives and meet general corporate and working capital needs. This increased indebtedness may also limit our flexibility in planning for, and reacting to, changes in or challenges relating to our business and industry. The use of our common stock or other securities (including those that might be convertible into or exchangeable or exercisable for our common stock) to finance any such acquisition may also result in dilution of our existing shareholders. The potential risks associated with recent and future acquisitions could disrupt our ongoing business, result in the loss of key customers or personnel, increase expenses and otherwise have a material adverse effect on our business, results of operations and financial condition. WE MAY BE EXPOSED TO EMPLOYMENT-RELATED CLAIMS AND LOSSES, INCLUDING CLASS ACTION LAWSUITS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. We employ people internally and in the workplaces of other businesses. Many of these individuals have access to client information systems and confidential information. The risks of these activities include possible claims relating to: | · | discrimination and harassment; | | | | | · | wrongful termination or denial of employment; | | | | | · | violations of employment rights related to employment screening or privacy issues; | | | | | · | classification of temporary workers; | | | | | · | assignment of illegal aliens; | | | | | · | violations of wage and hour requirements; | | | | | · | retroactive entitlement to temporary worker benefits; | | | | | · | errors and omissions by our temporary workers; | | | | | · | release, misuse or appropriation of client intellectual property, or other confidential or other property or proprietary information; | | | | | · | misappropriation of funds; | | | | | · | cybersecurity breaches affecting our clients and/or us; | | | | | · | damage to customer facilities due to negligence of temporary workers; and | | | | | · | criminal misconduct or illegal activity by our temporary workers. |
We may incur fines and other losses or negative publicity with respect to these problems and claims. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, payment by us of monetary damages or fines, or other material adverse effects on our business. In addition, these claims may give rise to litigation, which could be time-consuming and expensive. New employment and labor laws and regulations may be proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation. There can be no assurance that the corporate policies we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. There can also be no assurance that the insurance policies we have purchased to insure against certain risks will be adequate or that insurance coverage will remain available on reasonable terms or be sufficient in amount or scope of coverage. WE FACE SIGNIFICANT EMPLOYMENT-RELATED LEGAL RISK. We employ people internally and in the workplaces of other businesses. Many of these individuals have access to client information systems and confidential information. An inherent risk of such activity includes possible claims of errors and omissions; intentional misconduct; release, misuse or misappropriation of client intellectual property, confidential information, funds, or other property; cyber security breaches affecting our clients and/or us; discrimination and harassment claims; employment of illegal aliens; criminal activity; torts; or other claims. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, civil litigation, payment by us of monetary damages or fines, or other material adverse effects on our business. OUR ABILITY TO UTILIZE OUR NET OPERATING CARRYFOWARDSCARRYFORWARDS AND CERTAIN OTHER TAX ATTRIBUTES MAY BE LIMITED. Federal and state tax laws impose restrictions on the utilization of net operating loss (“NOL”) and tax credit carryforwards in the event of an “ownership change” as defined by section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”). Generally, an ownership change occurs if the percentage of the value of the stock that is owned by one or more direct or indirect “five percent shareholders” increases by more than 50% over their lowest ownership percentage at any time during the applicable testing period (typically, three years). Under Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change”. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us. THE MARKET PRICE OF SHARES OF OUR COMMON STOCK HAS BEEN VOLATILE, WHICH COULD CAUSE THE VALUE OF YOUR INVESTMENT TO DECLINE. A MORE ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP, AND THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY. The market price of our common stock has been highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. The securities markets have experienced significant volatility as a result of the COVID-19 pandemic. Market volatility, as well as general economic, market, or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance. Although our common stock is listed on the NYSE American, we cannot assure you that an active public market will develop for our common stock. There has been relatively limited trading volume in the market for our common stock, and a more active, liquid public trading market may not develop or may not be sustained. Limited liquidity in the trading market for our common stock may adversely affect a shareholder’s ability to sell its shares of common stock at the time it wishes to sell them or at a price that it considers acceptable. If a more active, liquid public trading market does not develop, we may be limited in our ability to raise capital by selling shares of common stock and our ability to acquire other companies or assets by using shares of our common stock as consideration. In addition, if there is a thin trading market or “float” for our stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large enough float, our common stock would be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. Furthermore, the stock market is subject to significant price and volume fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including: Item 1B. Unresolved Staff Comments.
| · | our quarterly or annual operating results and financial position; | | | | | · | adverse market reaction to our indebtedness; | | | | | · | the impact of the COVID-19 pandemic on our management, employees, partners, customers, and operating results; | | | | | · | announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures, or capital commitments; | | | | | · | litigation and government investigations; | | | | | · | pending or recently completed acquisitions; | | | | | · | investment recommendations by securities analysts following our business or our industry; | | | | | · | additions or departures of key personnel; | | | | | · | changes in the business, earnings estimates or market perceptions of our competitors; | | | | | · | our failure to achieve operating results consistent with securities analysts’ projections; | | | | | · | changes in industry, general market or economic conditions; and | | | | | · | changes or proposed changes in laws or regulations or differing interpretations or enforcement of laws or regulations affecting our business. |
In response, the market price of shares of our common stock could decrease significantly. You may be unable to resell your shares of common stock at or above the public offering price. Following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. OUR COMMON STOCK COULD BE DELISTED FROM THE NYSE AMERICAN IF WE DO NOT MEET ITS CONTINUED LISTING REQUIREMENTS. The NYSE American has established certain standards for the continued listing of a security on the NYSE American. There can be no assurance that we will be able to meet these standards in the future to maintain the listing of our common stock on the NYSE American. Factors that could have an impact on our ability to maintain the listing of our common stock on NYSE American include the status of the market for our common stock at the time, our reported results of operations in future periods, and general economic, market and industry conditions. If we are delisted from the NYSE American, our common stock may be eligible for trading on an over-the-counter market. In the event that we are not able to obtain a listing on another stock exchange or quotation service for our common stock, it may be extremely difficult or impossible for shareholders to sell their common stock. Moreover, if we are delisted from the NYSE American, but obtain a substitute listing for our common stock, it will likely be on a market with less liquidity, and therefore experience potentially more price volatility than experienced on the NYSE American. Shareholders may not be able to sell their common stock on any such substitute. market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market. As a result of these factors, if our common stock is delisted from Nasdaq, the price of our common stock is likely to decline. A delisting of our common stock from the NYSE American could also adversely affect our ability to obtain financing for our operations and/or result in a loss of confidence by investors, or employees.
WE HAVE NO CURRENT PLANS TO PAY CASH DIVIDENDS ON OUR COMMON STOCK; AS A RESULT, YOU MAY NOT RECEIVE ANY RETURN ON INVESTMENT UNLESS YOU SELL YOUR COMMON STOCK FOR A PRICE GREATER THAN THAT WHICH YOU PAID FOR IT. We intend to retain all future earnings for use in the development of our business and do not anticipate paying any cash dividends on our common stock in the near future. Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws. It will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, general business conditions, and other factors that our board of directors may deem relevant. In addition, our ability to pay cash dividends is restricted by the terms of our debt financing arrangements, and any future debt financing arrangement likely will contain terms restricting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, you may not receive any return on an investment in our common stock unless you sell your common stock for a price greater than that which you paid for it.
THERE MAY BE FUTURE SALES OF OUR SECURITIES OR OTHER DILUTION OF OUR EQUITY, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. We may need to raise additional capital in the future to finance our operations, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations. We have had recurring losses from operations, negative operating cash flow in the past and have an accumulated deficit. We have had to raise additional funds in order to continue financing our operations and may have to in the future. If additional capital is not available to us when needed or on acceptable terms, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely. Any additional capital raised through the sale of equity or equity-backed securities may dilute our shareholders’ ownership percentages and could also result in a decrease in the market value of our equity securities. The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding. If we are unable to secure additional funds when needed or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our operations, dispose of technology or assets, pursue an acquisition of our company by a third party at a price that may result in a loss on investment for our shareholders, file for bankruptcy or cease operations altogether. Any of these events could have a material adverse effect on our business, financial condition and results of operations. Moreover, if we are unable to obtain additional funds on a timely basis, there will be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and up to a total loss of investment by our shareholders.
PROVISIONS IN OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED, OUR AMENDED AND RESTATED BY-LAWS, AS AMENDED AND ILLINOIS LAW MIGHT DISCOURAGE, DELAY OR PREVENT A CHANGE IN CONTROL OF OUR COMPANY OR CHANGES IN OUR MANAGEMENT AND, THEREFORE, DEPRESS THE TRADING PRICE OF OUR COMMON STOCK. Provisions of our amended and restated articles of incorporation, as amended, our amended and restated by-laws, as amended, and Illinois law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our management, including transactions in which our shareholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of shareholders to approve transactions that they may deem to be in their best interests. These provisions include: | · | restrictions on the ability of shareholders to call special meetings of shareholders. Special meetings of our shareholders may be called only by the chairman of the board of directors, our president, a majority of the members of the board of directors, or by one or more shareholders holding shares in the aggregate entitled to cast not less than 20% of the votes at the special meeting; | | | | | · | the ability of our board of directors to designate the terms of and issue new series of preferred stock without shareholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors; and | | | | | · | restrictions pursuant to the Illinois Business Corporation Act (the “IBCA”) that prohibit a publicly held Illinois corporation from engaging in a “business combination” with an “interested shareholder” for a period of three years following the time the person became an interested shareholder, unless the business combination or the acquisition of shares that resulted in a shareholder becoming an interested shareholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested shareholder. Generally, an “interested shareholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested shareholder status did own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging attempts that might result in a premium over the market price for our stock. |
The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
IF SECURITIES OR INDUSTRY ANALYSTS DO NOT PUBLISH OR CEASE PUBLISHING RESEARCH OR REPORTS ABOUT US, OUR BUSINESS OR OUR MARKET, OR IF THEY CHANGE THEIR RECOMMENDATIONS REGARDING OUR STOCK ADVERSELY, OUR STOCK PRICE AND TRADING VOLUME COULD DECLINE. The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
A POSSIBLE “SHORT SQUEEZE” DUE TO A SUDDEN INCREASE IN DEMAND OF OUR COMMON STOCK THAT LARGELY EXCEEDS SUPPLY MAY LEAD TO FURTHER PRICE VOLATILITY IN OUR COMMON STOCK. Investors may purchase our common stock to hedge existing exposure in our common stock or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our common stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our common stock for delivery to lenders of our common stock. Those repurchases may in turn, dramatically increase the price of our common stock until investors with short exposure are able to purchase additional common shares to cover their short position. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our company and once investors purchase the shares of common stock necessary to cover their short position the price of our common stock may decline.
THE REQUIREMENTS OF BEING A PUBLIC COMPANY MAY STRAIN OUR FINANCIAL AND HUMAN RESOURCES AND DISTRACT MANAGEMENT. As a public company, we are subject to the reporting requirements of the Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. These applicable rules and regulations significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly than privately owned companies that are not SEC registrants. This also may divert management’s attention from other business concerns, which must be balanced so as not to cause material adverse effects on our business, financial condition and results of operations. We also believe compliance risks associated with these rules and regulations tend to make it more difficult and expensive to obtain director and officer liability insurance and could result in our need to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. Additionally, shareholder activism, the current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time consuming and costly.
WE MAY BE UNABLE TO IMPLEMENT AND MAINTAIN APPROPRIATE INTERNAL CONTROLS OVER FINANCIAL REPORTING. IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS AND CURRENT AND POTENTIAL SHAREHOLDERS MAY LOSE CONFIDENCE IN OUR FINANCIAL REPORTING. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and the Sarbanes-Oxley Act of 2002 and the SEC rules require that our management report annually on the effectiveness of our internal control over financial reporting and our disclosure controls and procedures. Among other things, our management must conduct an assessment of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Any failure to implement or maintain required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our consolidated financial statements. These misstatements could result in a restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
THERE ARE INHERENT LIMITATIONS IN ALL CONTROL SYSTEMS, AND MISSTATEMENTS DUE TO ERROR OR FRAUD MAY OCCUR AND NOT BE DETECTED. The ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 require us to identify material weaknesses in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Our management, including our Chief Executive Officer and Principal Financial Officer, does not expect that our internal controls and disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions, such as growth of the Company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In addition, discovery and disclosure of a material weakness, could have a material adverse impact on our consolidated financial statements. Such an occurrence could discourage certain customers or suppliers from doing business with us, cause downgrades in our future debt ratings leading to higher borrowing costs and affect how our stock trades. This could, in turn, negatively affect our ability to access public debt or equity markets for capital.
OUR OPERATIONS MAY BE AFFECTED BY DOMESTIC AND GLOBAL ECONOMIC FLUCTUATIONS. Customers’ demand for our services may fluctuate widely with changes in economic conditions in the markets in which we operate. Those conditions include slower employment growth or reductions in employment, which directly impact our service offerings. As a staffing company, our revenue depends on the number of jobs we fill, which in turn depends on economic growth. During economic slowdowns, many customer companies stop hiring altogether. For example, in prior economic downturns, many employers in our operating regions reduced their overall workforce to reflect the slowing demand for their products and services. We may face lower demand and increased pricing pressures during these periods, which this could have a material adverse effect on our business, financial condition and results of operations.
INTERRUPTION OF OUR BUSINESS COULD RESULT FROM INCREASED SECURITY MEASURES IN RESPONSE TO TERRORISM OR CIVIL UNREST. The continued threat of terrorism within the United States and the ongoing military action and heightened security measures in response to such threat has and may cause significant disruption to commerce. The U.S. economy in general is being adversely affected by terrorist activities and the potential activities for terrorist activities or other civil unrest. Any economic downturn could adversely impact our results of operations, impair our ability to raise capital or otherwise adversely affect our ability to grow the business. It is impossible to predict how this may affect our business or the economy in the U.S. and in the world. In the event of further threats or acts of terrorism or civil unrest, our business and operations may be severely and adversely affected.
OUR BUSINESS MAY BE IMPACTED BY POLITICAL EVENTS, WAR, PUBLIC HEALTH ISSUES, INCLEMENT WEATHER, NATURAL DISASTERS AND OTHER BUSINESS INTERRUPTIONS. War, geopolitical uncertainties, public health issues (such as the COVID-19 pandemic) and other business interruptions have caused and could cause damage or disruption to commerce and the economy, and thus could have a material adverse effect on us and our customers. Our business operations are subject to interruption by, among others, inclement weather, natural disasters, whether as a result of climate change or otherwise, fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks, civil unrest and other hostile acts, labor disputes, public health issues and other events beyond our control. Such events could decrease demand for our services.
OUR COMPLIANCE WITH COMPLICATED REGULATIONS CONCERNING CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE HAS RESULTED IN ADDITIONAL EXPENSES. We are faced with expensive, complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to corporate governance and public disclosure. New standards are developing concerning environmental, social and governance matters (“ESG”) and other emerging socioeconomic trends and matters. In addition, as a staffing company, we are regulated by the U.S. Department of Labor, the Equal Employment Opportunity Commission, and often by state authorities. New or changing laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing compliance work. Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Item 1B.Unresolved Staff Comments. Not applicable. Item 2.Properties. The Company’s policy is to lease commercial office space for all of its offices. The Company’s headquarters are locatedco-located with one of its branch locations in a building near Chicago, Illinois. The Company leases approximately 5,000 square feet of space at that location under aJacksonville Florida, for which the applicable lease that will expireexpires in 2018. 2026. The Company markets its services using the trade names General Employment Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies, Inc.Accounting Now, Staffing Now®, SNI Banking, SNI Certes®, SNI Energy®, SNI Financial®, SNI Technology®, Triad Personnel Services and Triad Staffing. As of September 30, 2017,2021, we operated forty-seventwenty-six (26) branch offices in downtown or suburban areas of major U.S.U.S cities in sixteen states.eleven (11) states and additional local staff members working remotely serving four additional U.S. locations. We have offices or serve markets remotely, as follows; (i) one office located in each of Arizona, Connecticut, Georgia, Iowa, Maryland, Minnesota, Pennsylvania, Washington DCNew Jersey, and Virginia,Virginia; (ii) two offices in New Jersey, four offices in Colorado and Massachusetts, five officeseach in Illinois and Texas,Massachusetts; (iii) three offices in Colorado; (iv) two offices and two additional local market presences in Texas; (v) five offices and two additional local market presences in Florida; and (vi) seven offices in Ohio and eleven offices in Florida.Ohio. Established offices are operated from leased space ranging from 800 to 7,500 square feet, generally for initial lease periods of one to fiveseven years, with cancellation clauses after certain periods of occupancy in some cases. Management believes that existing facilities are adequate for the Company’s current needs and that its leasing strategies provide the Company with sufficient flexibility to open or close offices to accommodate business needs. As of September 30, 2017,2021, the Company was not a party to any material legal proceedings. Not applicable. (Amounts in thousands except per share data, unless otherwise stated) PART II Market Information The Company’s common stock is listed on the NYSE MKTAmerican and is traded under the symbol “JOB.” The following table sets forth the quarterly high and low sales prices per share of the Company’s common stock on the consolidated market for each quarter within the last two fiscal years. | | Fourth Quarter | | | Third Quarter | | | Second Quarter | | | First Quarter | | Fiscal 2017: | | | | | | | | | | | | | High | | $ | 5.58 | | | $ | 7.00 | | | $ | 5.58 | | | $ | 5.27 | | Low | | | 2.81 | | | | 4.99 | | | | 4.06 | | | | 3.83 | | | | | | | | | | | | | | | | | | | Fiscal 2016: | | | | | | | | | | | | | | | | | High | | $ | 6.89 | | | $ | 4.60 | | | $ | 5.99 | | | $ | 7.70 | | Low | | | 3.61 | | | | 3.71 | | | | 3.56 | | | | 4.00 | |
Holders of Record There were approximately 624730 holders of record of the Company’s common stock on December 27, 2017.September 30, 2021. Dividends No dividends were declared or paid during the fiscal years ended September 30, 20172021 and September 30, 2016.2020. We do not anticipate paying any cash dividends for the foreseeable future. During the fiscal years ended September 30, 20172021 and 2016,2020, no equity securities of the Company were repurchased by the Company. Securities Authorized for Issuance under Equity Compensation Plans As of September 30, 2017,2021, there were stock options outstanding under the Company’s 1995 Stock Option Plan, Second Amended and Restated 19972013 Incentive Stock Option Plan, 1999 Stock Option Plan and the 2011 Company Incentive Plan. All four plans were approved by the shareholders. The 1995 Stock Option Plan and the 1999 Stock Option Plan have expired, and no further options may be granted under those plans. During fiscal 2009, the Second Amended and Restated 1997 Stock Option Plan was amended to make an additional 59,200 options available for granting and as of September 30, 2013, there were no shares available for issuance under the Amended and Restated 1997 Stock Option Plan. As of September 30, 2017, there were shares available for issuance under the 2011 Company Incentive Plan, however management does not anticipate issuing any shares under this plan. The plansplan granted specified numbers of options to non-employee directors, and they authorized the Compensation Committee of the Board of Directors to grant either incentive or non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant. All stock options outstanding as of September 30, 20172021 and September 30, 20162020 were non-statutorynon-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. On July 23, 2013, the Board of Directors approved the Company’s 2013 Incentive Stock Plan (the “2013 Plan”), and resolved to cease issuing securities under all prior Company equity compensation plans. The 2013 Plan was approved by the Company’s shareholders at the Annual Meeting of Stockholders on September 9, 2013. The purpose of the 2013 Plan is to provide additional incentives to select persons who can make, are making, and continue to make substantial contributions to the growth and success of the Company, to attract and retain the employment and services of such persons, and to encourage and reward such contributions, by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant of options or restricted stock. The 2013 Plan is administered by the Compensation Committee or such other committee as is appointed by the Board of Directors pursuant to the 2013 Plan (the “Committee”). The Committee has full authority to administer and interpret the provisions of the 2013 Plan including, but not limited to, the authority to make all determinations with regard to the terms and conditions of an award made under the 2013 Plan. The maximum number of shares that may be granted under the 2013 Plan is 4,000,000.15,000 (7,500 for restricted stock grants and 7,500 for stock option grants). This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.
(number of shares in thousands) | | | | | | | | | | Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | | | | | | | | | | | | Equity compensation plans approved by security holders | | | 908 | | | $ | 5.13 | | | | 3,075 | (1) | | | | | | | | | | | | | | Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | | | | | | | | | | | | | | | Total | | | 908 | | | $ | 5.13 | | | | 3,075 | (1) |
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(1) | Includes only the number of securities that could be issuable under the 2013 Plan. | (Amounts in thousands except per share data, unless otherwise stated) On December 12, 2017, the Company issued 135,655 shares of common stock, valued at approximately $595,000 for the conversion of the Jax legacy (“Jax”) note and the accrued interest through September 30, 2017. These shares issued to Jax were not registered under the Securities Act. Jax is an accredited investor. The issuance of these shares to Jax is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act.
Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | | Equity compensation plans approved by security holders | | | 1,750 | | | $ | 2.13 | | | | 10,786 | | Total | | | 1,750 | | | $ | 2.13 | | | | 10,786 | |
Not applicable. You should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this report. Management’s discussion and analysis 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. See “Forward-LookingItem 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 We specialize in the placement of information technology, engineering,accounting, finance, office, and accountingengineering professionals for direct hire and contract staffing for our clients, data entry assistants (medical scribes) who specialize in electronic medical records (EMR) services for emergency departments, specialty physician practices and clinics and provide temporary staffing services for our light industrial clients. The acquisitions of Agile Resources, Inc., a Georgia corporation (“Agile”), Access Data Consulting Corporation, a Colorado corporation (“Access”), Paladin Consulting Inc., a Texas corporation (“Paladin”) and SNI Companies, Inc., a Delaware corporation (“SNI”) expanded our geographical footprint within the placement and contract staffing verticals or end markets of information technology.technology, accounting, finance, office and engineering professionals. The Company markets its services using the trade names General Employment Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies Inc.(including Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad Staffing. As of September 30, 2017,2021, we operated forty-seventwenty-six (26) branch offices in downtown or suburban areas of major U.S.U.S cities in sixteen states.eleven (11) states and additional local staff members working remotely serving four additional U.S. locations. We have offices or serve markets remotely, as follows; (i) one office located in each of Arizona, Connecticut, Georgia, Iowa, Maryland, Minnesota, Pennsylvania, Washington DCNew Jersey, and Virginia,Virginia; (ii) two offices in New Jersey, four offices in Colorado and Massachusetts, five officeseach in Illinois and Texas,Massachusetts; (iii) three offices in Colorado; (iv) two offices and two additional local market presences in Texas; (v) five offices and two additional local market presences in Florida; and (vi) seven offices in Ohio and eleven offices in Florida. Ohio. Management has implemented a strategy which includedincludes 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 as well asin operations. Management’s acquisition growth strategy includes identifying strategic acquisitions, financed primarily through the issuance of equity and debt to improve the overall profitability and cash flows of the Company. The Company’s contract and placement services are principally provided under two operating divisions or segments: Professional Staffing Services and Industrial Staffing Services. We believe our current segments and array of businesses and brands within our segments complement one another and position us for future growth. (Amounts in thousands except per share data, unless otherwise stated) In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the COVID-19 pandemic. These have included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations. These effects have been, and continue to be felt to an extent, across our businesses, with the most severe impacts being felt in the industrial segment and in the finance, accounting, and office clerical (“FA&O”) end markets within the professional segment. In response to the crisis, in April 2020 we took a series of proactive actions including a 10% pay cut for full-time salaried employees, temporary furloughing and redeployment of some employees, reduction of discretionary expenses and projects, and obtaining funds under CARES Act Payroll Protection Program (“PPP”). These actions allowed us to generate cost savings, liquidity and time with which to mitigate the impacts of the COVID-19 pandemic on our businesses and brands. Our businesses have continued to recover to a significant extent during fiscal 2021, as compared to fiscal 2020. While we have experienced significant recovery towards pre-COVID-19 levels of results and performance, the rate of future recovery and growth is still somewhat uncertain as potential resurgences and negative impacts of COVID-19 or variants thereof have continued to have negative impacts on the U.S. economy so far in 2021, including in some cases, certain markets and clients we serve. Results of Operations
Fiscal year ended September 30, 2021 (“fiscal 2021”), and fiscal year ended September 30, 2020 (“fiscal 2020”) Net Revenues Consolidated net revenues are comprised of the following: | | Year Ended September 30, | | | Fiscal | | | | | | (In Thousands) | | 2017 | | 2016 | | | | | | | | | | 2021 | | | 2020 | | | $ Change | | | % Change | | Professional contract services | | | $ | 112,470 | | $ | 96,966 | | $ | 15,504 | | 16% | | Industrial contract services | | $ | 24,851 | | $ | 21,916 | | | 17,332 | | 17,560 | | (228 | ) | | -1% | | Professional contract services | | 95,396 | | 54,249 | | | Total professional and industrial contract services | | | | 129,802 | | | | 114,526 | | | | 15,276 | | | | 13% | | | | | | | | | | | | | Direct hire placement services | | | 14,731 | | | | 6,909 | | | | 19,078 | | | | 15,309 | | | | 3,769 | | | | 25% | | | | | | | | | Consolidated net revenues | | $ | 134,978 | | | $ | 83,074 | | | $ | 148,880 | | | $ | 129,835 | | | $ | 19,045 | | | | 15% | |
Consolidated net revenues increasedContract staffing services contributed $129,802, or approximately $51,904,000 or 62% compared with the same period last year. The Company acquired SNI as87%, of March 31, 2017, which increased the professional contract services by approximately $40,083,000consolidated revenue and increased direct hire placement services contributed $19,078, or approximately 13%, of consolidated revenue for fiscal 2021. This compares to contract staffing services revenue of $114,526, or approximately 88%, of consolidated revenue and direct hire placement revenue of $15,309, or approximately 12%, of consolidated revenue for fiscal 2020.
The overall increase in contract staffing services revenue of $15,276, or 13% for fiscal 2021 compared to fiscal 2020 was primarily attributable to recovery and improvement in professional contract services markets from the negative effects of the COVID-19 pandemic beginning approximately in the month of June 2020. The onset of COVID-19 resulted in a near immediate decline in demand for our staffing services due to client closures, postponements in projects and related needs for our services at some clients, significant travel restrictions, and corresponding decreases in the volume of contract services billable hours. Professional contract services have experienced consistent recovery through this fiscal year resulting in the revenue increase of $15,504 for fiscal 2021 as compared fiscal 2020. Management believes this trend is the result of U.S. economic recovery, as well as actions taken by approximately $9,627,000. the Company to adapt to COVID-19, hire top talent, and position the Company for recovery and growth. Industrial contract services revenue experienced improvement in the second half of fiscal 2021, compared with the second half of fiscal 2020, also consistent with continuing recovery and improvement from negative impacts related to COVID-19. However, due to a lingering workforce shortage that has been felt across the U.S., including in the local markets served by our industrial segment, industrial contract services revenue for fiscal 2021 did not fully recover to its fiscal 2020 level. These labor shortages have limited the Company’s ability to fully fill all of its contract orders in its industrial segment as well as some orders in the professional segment and are widely believed to be attributable to recent plentiful economic stimulus and unemployment benefits, as well as school and business shutdowns and disruptions. (Amounts in thousands except per share data, unless otherwise stated) Direct hire placement services excluding SNI is down asrevenue for fiscal 2021 increased by $3,769 or 25% over fiscal 2020, driven by an increase in the total number of recruiters and sales professionals are down inplacements. Demand for the Company. Industrial contractCompany’s direct hire services also increased due to a management effort to replace certain customers lostthe continuing recovery and significant improvement from the negative effects of the COVID-19 pandemic beginning in approximately June 2020. Management believes that the underlying trends toward recovery since May 2020 are generally consistent with the recovery experienced in the prior year. Executive management has startedoverall U.S. economy so far and, therefore, may be expected to hire additional national sales force that can be serviced bycontinue, accordingly. The Company continues to observe, analyze and make modifications and changes to its business model and practices on a routine basis in response to the expanded geographical service area.on-going COVID-19 pandemic and related health and safety concerns. These include, but are not limited to, implementation of policies and procedures in observance of federal, state and/or local guidelines regarding the coronavirus, including matters ranging from working from home, use of personal protective equipment (principally, protective masks), social distancing, personal hygiene and sanitary practices, and other preventative and responsive measures, impacting both our core human resources, as well as our contract laborers serving clients.
Cost of Contract Services Consolidated cost of contract services are comprised of the following:
| | Year Ended September 30, | | (In Thousands) | | 2017 | | | 2016 | | | | | | | | | Industrial contract services | | $ | 20,744 | | | $ | 19,037 | | Professional contract services | | | 69,259 | | | | 40,408 | | | | | | | | | | | Consolidated cost of contract services | | $ | 90,003 | | | $ | 59,445 | |
Cost of contract services includes wages and related payroll taxes, and employee benefits of the Company’s contract services employees, and certain other employee-related costs, while they work on contract assignments. Cost of contract services for the year ended September 30, 2017,fiscal 2021 increased by approximately 51%13% to approximately $90 million$96,339 compared with the prior yearto fiscal 2020 of approximately $59 million.$85,131. The $11,208 increase includes approximately $27 million in cost of contract services related to SNI. Cost of contract services, as a percentage of contract revenue, for the year ended September 30, 2017, decreased by approximately 5% to 67%fiscal 2021 compared to 72%fiscal 2020 is consistent with the increase in the prior year. The change in the contract revenue gross marginrevenues, which is related to several factors, including the increased permanent placement services from SNI, improved gross margins in industrial contract services and overall improved gross margins in the professional contract services. discussed further below. Gross Profit percentage by segment:
Gross Profit percentage by service: | | | | | | | | | Fiscal | | | | 2021 | | | 2020 | | Professional contract services | | | 26.3 | % | | | 26.4% | | Industrial contract services | | | 22.3 | % | | | 21.7% | | Consolidated professional and industrial services | | | 25.8 | % | | | 25.7% | | | | | | | | | | | Direct hire placement services | | | 100.0 | % | | | 100.0% | | Combined gross profit margin % (1) | | | 35.3 | % | | | 34.4% | |
Gross Profit Margin % | | Year Ended September 30, 2017 | | | Year Ended September 30, 2016 | | Direct hire placement services | | | 100 | % | | | 100 | % | Industrial contract services | | | 16.5 | % | | | 13.1 | % | Professional contract services | | | 27.4 | % | | | 25.5 | % | Combined Gross Profit Margin % (1) | | | 33.3 | % | | | 28.4 | % |
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(1) | (1) | Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses. |
The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for fiscal 2021 was approximately 35.3% versus approximately 34.4% for the fiscal 2020. In the professional contract staffing services segment, the gross margin excluding direct placement services was approximately 26.3% for fiscal 2021 compared to approximately 26.4% for fiscal 2020. The year-over-year improvement in our consolidated gross margin is consistent with the increase in mix of permanent placement business for fiscal 2021 by approximately 1.0%, or 100 basis points, offset by a 0.1%, or 10 basis points, decrease in professional contract services gross margin. The small decrease in the professional services gross margin is consistent with the increase in the mix of lower margin office clerical placements, which were initially among the hardest hit by the COVID-19 pandemic and also among the last to recover fully. The Company’s industrial staffing services gross margin for fiscal 2021 was approximately 22.3% as compared with approximately 21.7% for fiscal 2020. The increase in industrial contract services gross margin is due to an increase in the amount of premium refunds the Company’s industrial business is eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively rated insurance program. The industrial contract services gross margins excluding the impact of these items were approximately 14.9% and 14.4% for the fiscal 2021 and fiscal 2020, respectively. (Amounts in thousands except per share data, unless otherwise stated) Selling, General and Administrative Expenses Selling, general and administrative expenses include the following categories: · | · | Compensation and benefits in the operating divisions, which includes salaries, wages and commissions earned by the Company’s employment consultants, recruiters and branch managers on permanent and temporary placements.placements; | | | · | Administrative compensation, which includes salaries, wages, payroll taxes and employee benefits associated with general management and the operation of thecorporate functions, including principally, finance, legal, human resources and information technology functions.functions; | | | · | Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses.expenses; | | | · | Recruitment advertising, which includes the cost of identifying and tracking job applicants.applicants; and | | | · | Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services and administrativeother corporate-level expenses which includes travel, bad debt expense, fees for outside professional servicessuch as business insurance and other corporate-level expenses such as business insurance and taxes. |
The Company’s largest selling, general and administrative expense isSG&A for compensation in the operating divisions. Most of the Company’s sales agents and recruiters are paid on a commission basis and receive advances against future commissions. When commissions are earned, prior advances are applied against them and the sales agent or recruiter is paid the net amount. The Company recognizes the full amount as commission expense, and advance expense is reducedfiscal 2021, decreased by the amount recovered. Thus, the Company’s advance expense represents the net amount of advances paid, less amounts applied against commissions, plus commission accruals for billed but uncollected revenue. Selling, general and administrative expenses for the year ended September 30, 2017, increased by approximately $19.6 million to approximately $39.5 million$2,750 as compared to the prior yearfiscal 2020. SG&A for fiscal 2021 as a percentage of revenue was approximately $19.9 million.28% versus 34% for fiscal 2020. The increase wasdecrease in SG&A expenses as a percentage of revenue is primarily relatedattributable to the inclusion of approximately $21.4 million of selling, generalsignificant recovery and administrative expenses of SNI followingimprovement in revenues discussed earlier and the acquisition by the Company. Management continuesCompany’s mitigating efforts to reduce general and administrative expenses asmanage costs to position the Company consolidates the back officefor recovery and can capitalize on the Company’sprofitable growth. Additionally, SG&A in fiscal 2020 included a charge to bad debt expense of $1,653 related to a key customer in our industrial segment that filed for bankruptcy protection in fiscal 2020. In fiscal 2021, a settlement with this customer lead to bad debt recovery of $413.
Acquisition, Integration and Restructuring Charges
Acquisition, integration and restructuring charges are legalSG&A also includes certain non-cash costs, expenses travel expenses, finder’s fees, severance agreements and other expenses that the Company has expensed as incurred and are related to various acquisition transactions the Company has executed. The Company expects to have these expenses each quarter while we continue our growth strategy, however these expenses would not necessarily be incurred by the Company on a recurring basis in normal operations, without acquisitions.
The acquisition, integration and restructuring, chargesnon-recurring items, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations, and other items that have been eliminated on a going forward basis or are of an isolated, non-recurring nature. These costs were $412 and $4,277 for fiscal 2021 and fiscal 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions. The significant reduction in the year ended September 30, 2017 was $2,925,000, an increaseamount of approximately $2,223,000 or 317%these items in fiscal 2021, as compared with fiscal 2020, is primarily associated with the significant actions undertaken and completed in fiscal 2020 to approximately $702,000 formitigate the year ended September 30, 2016. The increase was primarily related to the evaluation of more potential acquisitions, due diligence performed on several options and the completionnegative impacts of the SNI acquisition.COVID-19 pandemic.
Depreciation Expense Depreciation expense was $311 and $248 for the year endedfiscal 2021 and 2020, respectively. The increase in depreciation expense is due to fixed asset additions. Amortization Expense Amortization expense was $4,089, and $5,038 for fiscal 2021 and 2020, respectively. The decrease is due to amortization completion of certain SNI intangible assets related to non-compete agreements that were fully amortized as of March 31, 2020. Goodwill Impairment The Company performed annual goodwill impairment testing effective as of September 30, 2017, increased $95,000, or 29% compared with the prior year, primarily as2021, and allocates its goodwill among two reporting units, its Professional reporting unit and its Industrial reporting unit, for purposes of evaluation for impairments. As a result of the evaluation performed, the estimated fair value of the Company’s Professional reporting unit and Industrial reporting unit exceeded the carrying value of the net assets as of September 30, 2021. For purposes of performing this goodwill impairment assessment, management applied valuation techniques and assumptions to its Professional and Industrial reporting units as reporting units 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 depreciation of their property and equipment.Company’s reporting units. (Amounts in thousands except per share data, unless otherwise stated) Amortization ExpenseDue to a previous sustained decline in the market capitalization of our common stock during fiscal 2020, we also performed a goodwill impairment assessment in accordance with the provisions of ASU 2017-04 and recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020. Management also considered the Company’s market capitalization, reported on the NYSE American exchange, in conducting its assessment, which was lower than its consolidated net book value (consolidated stockholders’ equity). Management believed that the declines in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that had negatively impacted the Company’s business and operating results also was a contributing factor to the Company’s stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020.
Amortization expense forIncome (Loss) from Operations
As the year ended September 30, 2017, increased $1,991,000, or 130% compared with the prior year, primarily as anet result of the acquisitionmatters discussed regarding revenues and operating expenses above, income from operations increased by $20,323 to $6,490 for fiscal 2021 from $(13,833) for fiscal 2020. The increase is due to the factors described above including a significant improvement and recovery in revenues and the related amortizationCompany’s mitigating efforts beginning in approximately mid-March 2020 to restore and grow revenues, and to manage costs effectively to adapt to the COVID-19 pandemic and position the Company for recovery. Other significant factors include the decrease in bad debt expense of their identified intangible assets.$2,205 in fiscal 2021 compared to fiscal 2020. Fiscal 2020 also had a goodwill impairment non-cash charge of $8,850. Change in Contingent ConsiderationInterest Expense
AtInterest expense decreased by $6,355 to $5,878 for fiscal 2021 from $12,233 for fiscal 2020. This decrease is mostly attributable to the timeinterest expense related to the former Senior Credit Agreement, 9.5% Notes, and 10% Notes that were included in the fiscal 2020. The Company’s former Senior Credit Agreement contributed $4,684 and $8,962 in interest expense for fiscal 2021 and fiscal 2020, respectively. On April 20, 2021, the Company makes anretired and fully repaid its remaining principal and accrued interest balances under its former Senior Credit Agreement.
Provision for Income Taxes The Company recognized provisions for income tax expense of $58 and $597 in fiscal 2021 and 2020, respectively. The composition of the Company’s income tax provisions is relatively complex; however, the net decrease in the provision for fiscal 2021 as compared with fiscal 2020 can be attributed to lower state and local taxes in certain jurisdictions. Net Income (Loss) The Company’s net income (loss) was $6 and $(14,347) for fiscal 2021 and 2020, respectively. In addition to the changes in income (loss) from operations as outlined above, including notably, the decrease in interest expense of $6,355 from fiscal 2020 to fiscal 2021, and the goodwill impairment charge of $8,850 recognized in fiscal 2020, which did not recur in fiscal 2021. Net Income Attributable to Common Stockholders Net Income Attributable to Common Stockholders decreased by $10,122 to $6 for fiscal 2021 from $10,128 for fiscal 2020. The significant contributing item in fiscal 2020 was the net gain of $24,475, resulting from extinguishment of the Company’s outstanding preferred stock on June 30, 2020. The Company continues to seek opportunities to increase revenue and closely manage costs, including opportunities to selectively add revenue producing resources in key markets and industry verticals. The Company also seeks to organically grow its professional contract services revenue and direct hire placement revenue, including business from staff augmentation, permanent placement, statement of work (SOW) and other human resource solutions in the information technology, engineering, healthcare and finance and accounting higher margin staffing specialties. The Company’s strategic plans to achieve this goal involve setting aggressive new business growth targets, initiatives to increase services to existing customers, increasing its numbers of revenue producing core professionals, including primarily, business development managers and recruiters, and assessments of the effectiveness of compensation, commission and bonus plans to identify enhancements to incentivize producers. Senior management also has frequent interaction with the field and facilitates collaboration among brands and locations to identify and share growth opportunities, and to monitor and motivate growth. The Company’s strategic plan contains both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing. (Amounts in thousands except per share data, unless otherwise stated) Liquidity and Capital Resources The primary sources of liquidity for the Company estimates contingent consideration, such as earn-outs or other guarantees that could affectare revenues earned and collected from its clients for the purchase price whenplacement of contractors and permanent employment candidates and borrowings available under its current and former asset-based senior secured revolving credit facilities. Uses of liquidity include primarily the contingency is resolved. Contingent consideration is evaluated by management each quarter or when the contingency is resolved. The change in contingent consideration with respectcosts and expenses necessary to fund operations, including payment of compensation to the Company’s acquisitions was approximately $1,581,000 during the year ended September 30, 2016. In the prior year, the Company recognized a $1,956,000 gain from the reduction in Access contingent consideration as a result of a decrease in expected EBITDA, offset by a $375,000 loss recognized for the increase in Paladin expected contingent consideration as a result of an increase in their expected EBITDA. In the current year, the Company did not recognize or change any contingent. Loss on Extinguishment of Debt
Loss on the extinguishment of debt for the year ended September 30, 2017, increased $994,000, compared with the prior year as the debt was converted during the current year, which includes the change of the revolving credit facilitycontract and other subordinated debt.
Interest Expense
Interest expense for the year ended September 30, 2017, increased $4,393,000, or 274% compared with the prior year primarily as a result of the newly obtained long-term debt, the interest expense for acquisition paymentspermanent employees and higher average borrowings related to the new acquisitions.
Liquidityemployment-related expenses, operating costs and Capital Resourcesexpenses, taxes and capital expenditures.
The following table sets forth certain consolidated statements of cash flows data (in thousands):data: | | For the year ended September 30, 2017 | | | For the year ended September 30, 2016 | | Cash flows provided by operating activities | | $ | 222 | | | $ | 723 | | Cash flows used in investing activities | | $ | (25,606 | ) | | $ | (9,515 | ) | Cash flows provided by financing activities | | $ | 25,641 | | | $ | 5,388 | |
| | Fiscal | | | | 2021 | | | 2020 | | Cash flows provided by (used in) operating activities | | $ | 370 | | | $ | (2,247 | ) | Cash flows used in investing activities | | $ | (126 | ) | | $ | (119 | ) | Cash flows (used in) provided by financing activities | | $ | (4,371 | ) | | $ | 12,385 | |
As ofAt September 30, 2017,2021, the Company had cash$9,947 of approximately $2,785,000,cash which was an increasea decrease of approximately $257,000$4,127 from approximately $2,528,000$14,074 at September 30, 2016. Working2020. At September 30, 2021, the Company had working capital of $2,528 compared to $13,351 of working capital at September 30, 2017 was approximately $1,588,000 as compared to negative working capital of approximately $597,000 for2020. The decrease in cash at September 30, 2016. The Company’s current ratio was approximately 106%, an increase of approximately 10%2021 from the prior year. Shareholders’ equity as of September 30, 2017, was approximately $24,063,000 which represented approximately 17%2020 is mainly the culmination of total assets. Atfinancing activities during fiscal 2021, as further discussed below, including payment of fees in the Company’s option, approximately $1,200,000amount of its current liabilities$4,978, related to the acquisitions can be paid in stock at market price, insteadretirement of cash. The net loss for the year ended September 30, 2017, was approximately $(2,372,000). Company’s former senior credit agreement. Net cash provided by (used in) operating activities for the years ended September 30, 2017fiscal 2021 and 2016fiscal 2020 was approximately $222,000$370 and $723,000$(2,247), respectively. The fluctuation is due torevenue growth and other improvements in operating results, including the significant lossreduction in interest expense and other cost savings, described in management’s discussion and analysis, above, contributed the cash from operations the increase in allowance for doubtful accounts, increase in accrued interest, increase in accrued deposit, increase in accounts payable, decrease in accrued compensation, account receivable and increase in other current assets for the year ended September 30, 2017 and offset by non-cash related expense for depreciation, amortization and stock compensation, in addition to the non-cash tax provision benefit from the acquisition.fiscal 2021. Net cashCash flows used in investing activities for the years ended September 30, 2017fiscal 2021 and 2016fiscal 2020 was approximately $(25,606,000)$126 and approximately $(9,515,000)$119, respectively. The primary use of cash for these activities was for the acquisitionsacquisition of SNI for the year ended September 30, 2017property and Accessequipment in fiscal 2021 and Paladin during the year ended September 30, 2016.fiscal 2020.
Net cash flowCash flows (used in) provided by financing activities for the years ended September 30, 2017fiscal 2021 and 2016 was approximately $25,641,000fiscal 2020 were $(4,371) and $5,388,000,$12,385, respectively. FluctuationsThe net cash used in financing activities areduring fiscal 2021 was primarily attributable to the full repayment and retirement of the Company’s former high-cost senior revolving credit facility and term loan on April 20, 2021, using the net proceeds received from the Company’s follow-on public offering initially closed on April 19, 2021, and followed by additional net proceeds from exercise of an over-allotment option by the underwriters. In addition, the Company incurred direct costs and expenses associated with its new term-loansenior bank asset backed loan facility. No significant amounts due were outstanding on the new credit facility and the levelCompany estimates that it has borrowing availability of approximately $15,280 at September 30, 2021. The net borrowingscash provided by financing activities during fiscal 2020 was due to net proceeds received from CARES Act PPP Loans, offset by scheduled or required debt repayments and settlements, including the conversions and retirement of the Revolving Credit Facility.Company’s former subordinated debt and mezzanine preferred stock.
Minimum debt service payments, including principal and interest, for the twelve-month period commencing after the close of business on September 30, 2021, were approximately $16,741. Monthly principal and interest payments under the Company’s PPP loans are to be deferred to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender, or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The Company has filed applications for forgiveness of all nine of its PPP loans. Five have been fully forgiven by the SBA and the remaining four have been approved by BBVA, the Company’s PPP lender, and were at the SBA awaiting completion of their review as of September 30, 2021. (Amounts in thousands except per share data, unless otherwise stated) On December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest. The outstanding principal and accrued interest balances of these remaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the aggregate amount of $16,741, are included in the Company’s current liabilities as of September 30, 2021, in the accompanying consolidated balance sheet. The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the 2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income. Minimum lease payments under all the Company’s lease agreements for the twelve-month period commencing after the close of business on September 30, 2021, are approximately $1,888. All of the Company’s office facilities are leased. The Company experienced net losses for fiscal 2020 and in recent prior fiscal years, which also negatively impacted the Company’s ability to generate liquidity. During much of this period, the Company significantly restructured its operations, made significant cost reductions, including closing and consolidating unprofitable locations, eliminating underperforming personnel while pursuing top talent, implemented strategic management changes, and intensified focus on stabilizing the business and restoring profitable growth. As a result of these actions, management believes the Company had begun to see its operations and business stabilize. In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the COVID-19. These included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects have continued to be felt to an extent across all businesses, with the most significant impacts being felt in the industrial segment and finance, accounting and office clerical end markets within the professional segment. Between April 29 and May 7, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $19,927. These funds were the only source of financing available to our companies and businesses and were absolutely critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to produce and meet our foreseeable liquidity requirements in the midst of the worldwide COVID-19 pandemic. The Company and its operating subsidiaries have submitted applications and required documentation for forgiveness of their respective outstanding PPP loans initially to their lender, BBVA USA, which in turn, reviewed, initially approved, and forwarded them on to the SBA. During fiscal 2021, the Company’s subsidiaries, Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, and Agile Resources, Inc. were notified by the SBA that their total outstanding PPP loans and accrued interest were forgiven in the amounts of $279, $408, $79, $1,470, and $1,220, respectively. Applications for forgiveness of the outstanding PPP loans to GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc. and SNI Companies, Inc., in the aggregate amounts of $16,741, including accrued interest, remained at the SBA for review and approval as of September 30, 2017,2021. As discussed above, on December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest. The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future minimum lease payments under non-cancelable lease commitments having initial termsaudit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans. (Amounts in excess of one year, including closed offices, totaled approximately $7,100,000.thousands except per share data, unless otherwise stated) On March 31, 2017,June 30, 2020, the Company completed a comprehensive financial restructuring and eliminated approximately $19,685 of its subsidiaries,subordinated indebtedness and approximately $27,695 of its convertible preferred stock as borrowers, entered into a Revolving Credit, Term Loan and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association (“PNC”), and certain investment funds managed by MGG Investment Group LP (“MGG”). Underrequired pursuant to the terms of the Credit Agreement, the Company may borrow up to $73,750,000 consisting of a four-year term loan in the principal amount of $48,750,000 and revolving loans in a maximum amount up to the lesser of (i) $25,000,000 or (ii) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of the Company’s eligible accounts receivable, as described in the Credit Agreement. The loans under the Credit Agreement mature on March 31, 2021.
Amounts borrowed under the Credit Agreement may be used by the Company to repay existing indebtedness, to partially fund capital expenditures, to fund a portion of the purchase price for the acquisition of all of the issued and outstanding stock of SNI Holdco Inc. pursuant to that certain Agreement and Plan of MergerSeventh Amendment, dated March 31, 2017 (the “Merger Agreement”), to provide for on-going working capital needs and general corporate needs, and to fund future acquisitions subject to certain customary conditions of the lenders. On the closing date of the Credit Agreement, the Company borrowed $48,750,000 from term-loans and borrowed approximately $7,476,316 from the Revolving Credit Facility for a total of $56,226,316 which was used by the Company to repay existing indebtedness, to pay fees and expenses relating to the Credit Agreement, and to pay a portion of the purchase price for the acquisition of all of the outstanding stock of SNI Holdco Inc. pursuant to the Merger Agreement.
The loans under the Credit Agreement will bear interest at rates at the Company’s option of LIBOR rate plus 10% or PNC’s floating base rate plus 9%. The Term Loans may consist of Domestic Rate Loans or LIBOR Rate Loans, or a combination thereof. At September 30, 2017 the interest rate was approximately 13%.
The Credit Agreement is secured by all of the Company’s property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title or interests.
The Term Loans were advanced on April 3, 2017 and are, with respect to principal, payable as follows, subject to acceleration upon the occurrence of an Event of Default under the Credit Agreement or termination of the Credit Agreement and provided that all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses shall be due and payable in full on March 31, 2021. Principal payments are required pursuant to the credit agreement, as amended, as follows: Fiscal year 2018 – $3,636,000, Fiscal year 2019 – $7,728,000, Fiscal year 2020 – $8,337,000 and Fiscal year 2021 - $28,440,000.
The Credit Agreement contains certain covenants including the following:
Fixed Charge Coverage Ratio. The Company shall cause to be maintained as of the last day of each fiscal quarter, a Fixed Charge Coverage Ratio for itself and its subsidiaries on a Consolidated Basis of not less the amount set forth in the Credit Agreement, which is 1.25 to 1.0.
Minimum EBITDA. The Company shall cause to be maintained as of the last day of each fiscal quarter, EBITDA for itself and its subsidiaries on a Consolidated Basis of not less than the amount set forth in the Credit Agreement for each fiscal quarter specified therein, in each case, measured on a trailing four (4) quarter basis as set in the Credit Agreement, which ranges from $11,000,000 to $14,000,000 over the term of the Credit Agreement.
Senior Leverage Ratio. The Company shall cause to be maintained as of the last day of each fiscal quarter, a Senior Leverage Ratio for itself and its subsidiaries on a Consolidated Basis of not greater than the amount set forth in the Credit Agreement for each fiscal quarter, in each case, measured on a trailing four (4) quarter basis as set in the agreement, which ranges from 5.25 to 1.0 to 2.0 to 1.0 over the term of the Credit Agreement.
In addition to these financial covenants, the Credit Agreement includes other restrictive covenants. The Credit Agreement permits capital expenditures up to a certain level, and contains customary default and acceleration provisions. The Credit Agreement also restricts, above certain levels, acquisitions, incurrence of additional indebtedness, and payment of dividends.
On August 31, 2017, the Company entered into a Consent to Extension of Waiver to Revolving Credit, Term Loan and Security Agreement (the “Waiver”). Under the terms of the Waiver, the Lenders and the Agents agreed to extend to October 3, 2017 the deadline by which the Borrowers must deliver to the Agents and the Lenders, (i) updated financial information and projections of the Loan Parties in form and substance satisfactory to the Agents and the Lenders to amend the financial covenant levels set forth in Section 6.5 to the Loan Agreement in a manner acceptable to the Agents and the Lenders in their sole discretion, and (ii) a fully executed amendment to the Loan Agreement that amends the financial covenant levels set forth in Section 6.5 of the Loan Agreement in a manner acceptable to the Agents and the Lenders and any other terms and conditions required by the Agents and the Lenders in their sole discretion. Additionally, the Borrowers paid a $73,500 consent fee to the Agents for the pro rata benefit of the Lenders, in connection with the Waiver.
In addition, on August 31, 2017, the Company received a waiver (“Additional Waiver”) madeApril 28, 2020, to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the “Credit Agreement”), by and among2017. As a result of the completion of these transactions the Company was able to repurchase, convert and eliminate obligations totaling $47,380, in exchange for $4,978 in cash and 1,811 shares of its common stock, resulting in net gains of $12,316 on the Loan Parties, Administrative Agentextinguishment of subordinated debt and $24,475 on the Term Loan Agent, pursuantredemption of its Class B preferred stock. The cash available for the fundings for these transactions was facilitated by the Company’s senior lenders who agreed to whichsignificant liquidity concessions under the Administrative Agent agreed, and the Administrative Agent has been advised that the Term Loan Agent has agreed, that notwithstanding the terms of Section 6.17(d) of theFormer Senior Credit Agreement, including the due date for the Borrowers to deliver to the Agents the Subordination Agreement (Dampier) (as defined in the Credit Agreement) and an amended Subordinated Note (Dampier) (as defined in the Credit Agreement), in each case duly executed by the Persons party thereto and in form and substance satisfactory to the Agents, shall be extended from August 31, 2017 to October 3, 2017.deferral of payment of a comparable amount of fees.
On October 2, 2017,April 19, 2021, the Company completed the other borrower entitiesinitial closing of a follow-on public offering of 83,333 shares of common stock at a public offering price of $0.60 per share. Gross proceeds of the offering totaled $50,000, which after deducting the underwriting discount, legal fees, and guarantor entities named therein (collectively,offering expenses, resulted in net proceeds of $45,478. On April 27, 2021, the “Loan Parties”underwriters of the Company’s April 19, 2021, public offering exercised in full their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., PNC Bank, National Association (“PNC”), and certain investment funds managed by MGG Investment Group LP (“MGG”) (collectivelyacted as sole book-running manager for the (“Lenders”) entered into a First Amendment and Waiver (the “Amendment”) tooffering. On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022 in aggregate outstanding indebtedness under its existing Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, (the “Credit Agreement”including accrued interest, using the net proceeds of its recent underwritten public offering and available cash. The repaid debt was originally obtained from investors led by MGG Investment Group LP (“MGG”) byon April 21, 2017 and amonghad a maturity date of June 30, 2023. The MGG debt was comprised of a revolving credit facility with a principal balance on the Loan Parties, and the Lenders. The Amendment,date of repayment of approximately $11,828, which was effective assubject to an annual interest rate comprised of October 2, 2017, modified the requiredgreater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and a term loan with a principal balance on the date of repayment schedule with respectof approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the Term Loans.term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459 was paid in connection with the principal repayments. The Amendment also modified the abilityCompany took a one-time charge of the Loan Parties to repay or make other payments$4,004 which represents unamortized debt issue costs associated with respect to certain other loans that are subordinated in right of payment to the indebtedness under the Credit Agreement.
Pursuant to the Amendment the Lenders also waived any Event of Default arising out of the Loan Parties’ failure to deliver, on or before October 3, 2017, the materials satisfying the requirements of clauses (i) and (ii) of Section 5 of the Waiver to Revolving Credit, Term Loan and Security Agreement, dated as of August 14, 2017, as amended.its former senior debt.
On NovemberMay 14, 2017,2021, GEE Group Inc. and its subsidiaries, Agile Resources, Inc., Access Data Consulting Corporation, BMCH, Inc., GEE Group Portfolio, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Personnel Services, Inc., and Triad Logistics, Inc. entered a Loan, Security and Guaranty Agreement for a $20 million asset-based senior secured revolving credit facility with CIT Bank, N.A. (the “CIT Facility”). The CIT Facility is collateralized by 100% of the assets of the Company and its subsidiaries as Borrowers, each subsidiarywho are co-borrowers and/or guarantors. The CIT Facility matures on the fifth anniversary of the closing date (May 14, 2026). Concurrent with the May 14, 2021 closing of the CIT Facility, the Company borrowed $5,326 and utilized these funds to pay all remaining unpaid Exit and Restructuring Fees due to its former senior lenders in the amount of $4,978, with the remainder going to direct fees and costs associated with the CIT Facility. Under the CIT Facility, advances will be subject to a borrowing base formula that will be computed based on 85% of eligible accounts receivable of the Company listed as a “Guarantor” on the signature pages thereto (together with each other Person joined thereto as a guarantor from time to time, collectively, the “Guarantors”, and each a “Guarantor”, and together with the Borrowers, collectively, the “Loan Parties” and each a “Loan Party”), certain lenders which now are or which thereafter become a party thereto that make Revolving Advances thereunder (together with their respective successors and assigns, collectively, the “Revolving Lenders” and each a “Revolving Lender”), the lenders which now are or which thereafter become a party thereto that made or acquire an interest in the Term Loans (together with their respective successors and assigns, collectively, the “Term Loan Lenders” and each a “Term Loan Lender”, and together with the Revolving Lenders, collectively, the “Lenders” and each a “Lender”), MGG Investment Group LP (“MGG”), as administrative agent for the Lenders (together with its successors and assigns, in such capacity, the “Administrative Agent”), as collateral agent for the Lenders (together with its successors and assigns, in such capacity, the “Collateral Agent”), and as term loan agent (together with its successors and assigns, in such capacity, the “Term Loan Agent” and together with the Administrative Agent and the Collateral Agent, each an “Agent” and, collectively, the “Agents”), entered into a second amendment (the “Second Amendment”) to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the “Credit Agreement”). Pursuant to the Second Amendment the Borrowers agreed, among other things, to use commercially reasonable efforts to prepay, or cause to be prepaid, $10,000,000 in principal amount of Advances (as defined in the Credit Agreement) outstanding, which amount shall be applied to prepay the Term Loans in accordance with the applicable terms of the Credit Agreement. Any prepayment to the term loan is contingent upon a future financing, non-operational cash flow or excess cash flowsubsidiaries as defined in the agreement.CIT Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent. The Borrowers also agreedCIT Facility is subject to amend (i)usual and customary covenants and events of default for credit facilities of this type. The interest rate, at the Company’s election, will be based on either the Base Rate, as defined, plus the applicable minimum Fixed Charge Coverage Ratios requiredmargin; or the London Interbank Offering Rate (“LIBOR” or any successor thereto) for the applicable interest period, subject to be maintained bya 1% floor, plus the applicable margin. The CIT Facility also contains provisions addressing the potential future replacement of LIBOR utilized and referenced in the loan agreement, in the event LIBOR becomes no longer available. In addition to interest costs on advances outstanding, the CIT Facility will provide for an unused line fee ranging from 0.375% to 0.50% depending on the amount of undrawn credit, original issue discount and certain fees for diligence, implementation, and administration.
Management believes that the Company as set forth in the Second Amendment, (ii) the minimum EBITDA requiredcan generate adequate liquidity to be maintained by the Company, as set forth in the Second Amendment and (iii) the maximum senior leverage ratios required to be maintained by the Company, as set forth in the Second Amendment. The Borrowers agreed to pay to the Administrative Agentmeet its obligations for the accountforeseeable future assuming the negative economic effects of the Revolving Lenders, an amendment fee of $364,140, in connection with their executionCOVID-19 do not worsen, and delivery of the Second Amendment. Such fee is payable on the earlier of (a) June 30, 2018 and (b) the first date on which all of the Obligations (as defined in the Credit Agreement) are paid in full in cash and the Total Commitment (as defined in the Credit Agreement) of the Lenders is terminated. For the period ended September 30, 2017 there were no financial covenants required under the new amendment.that economic recovery continues.
The Company believes that its current cash on hand and the borrowing availability under the new PNC Credit Agreement will be adequate to fund its working capital needs and provide sufficient cash for the next twelve months from the date of this report.
On October 2, 2015, the Company issued and sold a Subordinated Note in the aggregate principal amount of $4,185,000 to JAX Legacy – Investment 1, LLC (“Jax”) pursuant to a Subscription Agreement dated October 2, 2015 between the Company and Jax. On April 3, 2017, the Company and Jax amended and restated the Subordinated Note in its entirety in the form of the 10% Convertible Subordinated Note (the “10% Note”) in the aggregate principal amount of $4,185,000. The 10% Note matures on October 3, 2021 (the “Maturity Date”). The 10% Note is convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share (subject to adjustment as provided in the 10% Note upon any stock dividend, stock combination or stock split or upon the consummation of certain fundamental transactions) (the “Conversion Price”). The 10% Note is subordinated in payment to the obligations of the Company to the lenders parties to the Credit Agreement, pursuant to a Subordination and Intercreditor Agreements, dated as of March 31, 2017 by and among the Company, the Borrowers, the Agent and Jax. The 10% Note issued to Jax is not registered under the Securities Act of 1933, as amended (the “Securities Act”). Jax is an accredited investor. The issuance of the 10% Note to Jax is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act.
On October 4, 2015, the Company issued to the sellers of Access Data Consulting Corporation (see note 13) a Promissory Note. Interest on the outstanding principal balance of the Promissory Note is payable at the rate of 5.5% per annum. The principal and interest amount of the Promissory Note is payable as follows: (i) for the first twelve months commencing on November 4, 2015 and ending on October 4, 2016, a monthly payment of approximately $57,000 in principal and interest, (ii) on October 4, 2016 a balloon payment of principal of $1,000,000, (iii) for the next twelve months commencing on November 4, 2016 and ending on October 4, 2017, a monthly payment of approximately $28,000 in principal and interest, (iv) on October 4, 2017 a balloon payment of principal of $1,202,000 and (v) on October 4, 2017 any and all amounts of previously unpaid principal and accrued interest. The Credit Agreement requires this loan to be subordinated to PNC and MGG, however the sellers of Access Data Consulting Corporation have not agreed to the subordination.
(Amounts in thousands except per share data, unless otherwise stated) On October 4, 2017, the Company executed an Amended and Restated Non-Negotiable Promissory Note in favor of William Daniel Dampier and Carol Lee Dampier in the amount of $1,202,405 (the “Note”). This Note amends and, as so amended, restates in its entirety and replaces that certain Subordinated Nonnegotiable Promissory Note dated October 4, 2015, issued by the Company to William Daniel Dampier and Carol Lee Dampier in the original principal amount of $3,000,000. The Company agreed to pay William Daniel Dampier and Carol Lee Dampier 12 equal installments of $107,675, commencing on November 4, 2017 and ending on October 4, 2018.
On January 20, 2017, the Company entered into Addendum No. 1 (the “Addendum”) to the Paladin Agreement Pursuant to the terms of the Addendum, the Company and the Sellers agreed (a) that the conditions to the “Earnouts” (as defined in the Paladin Agreement) had been satisfied or waived and (b) that the amounts payable to the Sellers in connection with the Earnouts shall be amended and restructured as follows: (i) the Company shall pay $250,000 in cash to the Sellers on or prior to January 31, 2017 (the “Earnout Cash Payment”) and (ii) the Company shall issue to the Sellers a subordinated promissory note in the principal amount of $1,000,000 (the “Subordinated Note”), The Subordinated Note shall bear interest at the rate of 5.5% per annum. Interest on the Subordinated Note shall be payable monthly. The Subordinated Note shall have a term of three years and may be prepaid without penalty. The principal of and interest on the Subordinated Note may be paid, at the option of the Company, either in cash or in shares of common stock of the Company or in any combination of cash and common stock. The Sellers have agreed that all payments and obligations under the Subordinated Note shall be subordinate and junior in right of payment to any “Senior Indebtedness” (as defined in the Paladin Agreement) now or hereafter existing to “Senior Lenders” (current or future) (as defined in the Paladin Agreement). The Company has paid the $250,000 cash payment to the Sellers.
On April 3, 2017, the Company agreed to issue to certain SNIH Stockholders upon receipt of duly executed letters of transmittal as part of the Merger Consideration, an aggregate of approximately 5,926,000 shares of its Series B Convertible Preferred Stock as part of the Merger Consideration. The Series B Convertible Preferred Stock has a liquidation preference equal to $4.86 per share and ranks senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. In the event that the Company declares or pays a dividend or distribution on its Common Stock, whether such dividend or distribution is payable in cash, securities or other property, including the purchase or redemption by the Company or any of its subsidiaries of shares of Common Stock for cash, securities or property, the Company is required to simultaneously declare and pay a dividend on the Series B Convertible Preferred Stock on a pro rata basis with the Common Stock determined on an as-converted basis assuming all Shares had been converted as of immediately prior to the record date of the applicable dividend or distribution. On April 3, 2017, the Company filed a Statement of Resolution Establishing its Series B Convertible Preferred Stock with the State of Illinois. (the “Resolution Establishing Series”). Except as set forth in the Resolution Establishing Series, the holders of the Series B Convertible Preferred Stock have no voting rights. Pursuant to the Resolution Establishing Series, without the prior written consent of holders of not less than a majority of the then total outstanding Shares of Series B Convertible Preferred Stock, voting separately as a single class, the Company shall not create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company) that ranks pari passu with or superior to the Series B Convertible Preferred Stock in relative rights, preferences or privileges (including with respect to dividends, liquidation or voting). Each share of Series B Convertible Preferred Stock is convertible at the option of the holder thereof into one share of Common Stock at an initial conversion price equal to $4.86 per share, each as subject to adjustment in the event of stock splits, stock combinations, capital reorganizations, reclassifications, consolidations, mergers or sales, as set forth in the Resolution Establishing Series.
None of the shares of Series B Preferred Stock issued to the SNIH Stockholders are registered under the Securities Act. Each of the SNIH Stockholders who received shares of Series B Preferred Stock is an accredited investor. The issuance of the shares of Series B Preferred Stock to such SNIH Stockholders is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act.
On April 3, 2017, the Company issued and paid to certain SNIH Stockholders as part of the Merger Consideration (see note 10) an aggregate of $12.5 million in aggregate principal amount of its 9.5% Notes. The 9.5% Notes mature on October 3, 2021 (the “Maturity Date”). The 9.5% Notes are convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share. Interest on the 9.5% Notes accrues at the rate of 9.5% per annum and shall be paid quarterly in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2017, on each conversion date with respect to the 9.5% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”). At the option of the Company, interest may be paid on an Interest Payment Date either in cash or in shares of Common Stock of the Company, which Common Stock shall be valued based on the terms of the agreement, subject to certain limitations defined in the loan agreement. Each of the 9.5% Notes is subordinated in payment to the obligations of the Company to the lenders parties to the Credit Agreement, pursuant to those certain Subordination and Intercreditor Agreements, each dated as of March 31, 2017 by and among the Company, the other borrowers under the Credit Agreement, the Agent under the Credit Agreement and each of the holders of the 9.5% Notes.
In recent years, the Company has incurred significant losses and negative cash flows from operations. Management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions, financed primarily through the issuance of common stock, to improve the overall profitability and cash flows of the Company. Management believes with the availability under the Credit Agreement and its current cash, the Company will have sufficient liquidity for the next 12 months.
Off-Balance Sheet Arrangements As of September 30, 2017,2021, and 2016,2020, 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. 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.
Estimates and Assumptions
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 allowances, determining fair values of financial assets and liabilities, deferred income tax valuation allowances, accounts receivable allowances, accounting for acquisitions,asset impairments, and accounting for derivative liabilities and evaluation of impairment.beneficial conversion features. 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. Revenue Recognition Revenues from contracts with customers are generated through the following services: direct hire placement services, temporary professional services staffing, and temporary industrial staffing. Revenues are recognized when promised services are performed for customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Our revenues are recorded net of variable consideration such as sales adjustments or allowances. Direct hire placement service revenues from contracts with customers are recognized when applicantsemployment candidates accept offers of employment, less a provision for estimated losses duecredits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company’s guarantee period. Contractperiod (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates. Temporary staffing service revenues from contracts with customers are recognized whenin amounts for which the Company has a right to invoice, as the services are rendered.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. Falloffs and refunds during the period are reflected in the consolidated statements of operations as a reduction of placement service revenues and were approximately $1,495,000 in fiscal 2017 and $470,000 in fiscal 2016.revenues. Expected future falloffs and refunds are reflected in the consolidated balance sheet as a reduction of accounts receivablereceivable. See Note 16 for disaggregated revenues by segment. Payment terms in our contracts vary by the type and were approximately $997,000location of our customer and $60,000 as of September 30, 2017the services offered. The terms between invoicing and September 30, 2016, respectively.when payments are due are not significant. (Amounts in thousands except per share data, unless otherwise stated) Cost of Contract Staffing ServicesAccounts Receivable
The costCompany extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. An allowance for placement falloffs is recorded, as a reduction of revenues, for estimated losses due to applicants not remaining employed for the Company’s guarantee period. These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. Management believes that the nature of the contract services includesservice business, wherein client companies are generally dependent on our contract employees in the wagessame manner as permanent employees for their production cycles and the related payroll taxesconduct of their respective businesses contributes to a relatively small accounts receivable allowance. Fair Value Measurement The Company follows the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement”, which defines fair value, establishes a framework for measuring fair value and employee benefitsenhances 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 employees while they workassumptions about the assumptions market participants would use in pricing the asset or liability developed based on contract assignments.the best information available in the circumstances. 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. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis 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. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record 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, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. (Amounts in thousands except per share data, unless otherwise stated) We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2021 and 2020, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet. Goodwill The Company evaluates its goodwill for possible impairment as prescribed by ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, at least annually and on an interim basis when one or more triggering events or circumstances indicate that the goodwill might be impaired. 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, 2021, and allocates its goodwill among two reporting units: its professional reporting unit and its industrial reporting unit for purposes of evaluation for impairments. In determining the fair value of our two reporting units, we use one or a combination of commonly accepted valuation methodologies: 1) the income approach, which is based on the present value of discounted cash flows projected for the reporting unit or, in certain instances, capitalization of earnings, and 2) the market approach, which estimates a fair value based on an appropriate revenue and/or earnings multiple(s) derived from comparable companies. These valuation techniques rely upon assumptions and other factors, such as the estimated future cash flows of our reporting units, the discount rate used to determine the present value of future cash flows, and the market multiples of comparable companies utilized. In applying our methods, we consider and use averages and medians in the selection of assumptions derived from comparable companies or market data, where applicable, and in the application of the income and/or market approaches if we determine that this will provide a more appropriate estimated fair value or range of fair value estimates of the reporting units. Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of goodwill impairment. For purposes of performing this goodwill impairment assessment, management applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed above; and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Company’s reporting units. As a result of the evaluation performed, the estimated fair value exceeded the carrying value of its net assets of the Company’s professional and industrial reporting units as of September 30, 2021. The Company’s market capitalization, as recently reported on the NYSE American exchange, has been lower than its consolidated net book value (consolidated stockholders’ equity), as reported in its consolidated financial statements as of September 30, 2021. Management believes that this entire difference can be attributed to an implied control or acquisition premium inherent in the Company’s stock price, especially considering and taking into account volatility and other effects since the onset of the COVID-19 pandemic. At the same time, and while market control and acquisition premiums have risen in 2020 and 2021, relative to prior years, the Company expects its consolidated book value and the carrying values of its professional and industrial segment reporting units to continue to rise. There can be no assurance that this will occur. However, if this occurs and the Company’s market price and market capitalization do not respond adequately to reflect such increases, it is possible that this would result in a triggering event and require updated testing of goodwill resulting in a possible impairment charge. In the process of preforming our required annual goodwill impairment testing, we recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020. Management believes that the impact in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that have negatively impacted the Company’s business and operating results also are a contributing factor to the Company’s stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020. (Amounts in thousands except per share data, unless otherwise stated) Intangible Assets Separately identifiable intangible assets held in the form of customer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods. Impairment of Long-lived Assets (other than Goodwill) The Company recognizes an impairment of long-lived 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. In the event the net carrying value of the Company’s long-lived assets are determined not to be recoverable, they are reduced to fair value, which is typically calculated using one or a combination of the relief from royalty method, the multiple of excess cash flow method, and/or other applicable adaptations of the discounted cash flow method. For purposes of testing the long-lived assets other than goodwill, long-lived assets are grouped and considered with other assets and liabilities within the professional and industrial reporting units. The Company did not record any impairments to its long-lived assets during fiscal 2021 and 2020. Stock-Based Compensation The Company accounts for stock-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 financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, we recognize expense on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model. Recent Accounting Pronouncements Recently Issued Accounting Pronouncements Not Yet Adopted Current Expected Credit Losses Model. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company has not yet determined the impact of the new guidance on its consolidated financial statements and related disclosures. (Amounts in thousands except per share data, unless otherwise stated) In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted for public business entities for periods for which financial statements have not been issued. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period. We are still evaluating the impact of this ASU on the Company’s consolidated financial statements In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning as of its date of effectiveness, March 12, 2020. The guidance is temporary and can be applied through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to provide supplemental guidance and to further clarify the scope of the amended guidance. The guidance has not impacted the consolidated financial statements to date. The Company will continue to monitor the impact of the ASU on our consolidated financial statements in the future. 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. Item 7A.Quantitative and Qualitative Disclosures About Market Risk. Not applicable. Item 8.Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of GEE Group Inc. Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of GEE Group Inc. (the Company) as of September 30, 2021 and 2020, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment Evaluation of Goodwill and Long-lived Assets As discussed in Note 2 to the consolidated financial statements, the Company reviews goodwill on an annual basis for impairment, or when events and circumstances indicate that the asset might be impaired. Additionally, the Company reviews long-lived assets, such as property and equipment, intangible assets subject to amortization, and right-of-use assets on operating leases for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. If these assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined using forecasted cash flows discounted using an estimated weighted average cost of capital. As of September 30, 2021, the Company had goodwill of approximately $63.4 million. Long-lived assets consisted of property and equipment, net, intangible assets subject to amortization, and right of use assets, net, totaling approximately $19.4 million. We identified the evaluation of the impairment analysis of goodwill and long-lived assets as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the earnings multiples, control premium, and the estimated undiscounted future cash flows used to test reporting units for recoverability and the determination of fair value of the relevant assets when required. How We Addressed the Matter in Our Audit The following are the primary procedures we performed to address this critical audit matter. We obtained an understanding and evaluated the procedures over management’s impairment review process. We evaluated management’s significant assumptions and tested data inputs utilized in fair value assessment of goodwill, including earnings multiples and the control premium. We also evaluated management’s significant assumptions and data inputs utilized in the calculation of future undiscounted cash flows. We evaluated management’s ability to accurately forecast future operating cash flows by comparing actual results to management’s historical forecasts. /s/ Friedman LLP We have served as the Company’s auditor since 2012. Marlton, New Jersey December 23, 2021 GEE GROUP INC. CONSOLIDATED BALANCE SHEETS | |
(in thousands) | | September 30, | | ASSETS | | 2021 | | | 2020 | | CURRENT ASSETS: | | | | | | | Cash | | $ | 9,947 | | | $ | 14,074 | | Accounts receivable, less allowances ($286 and $2,072, respectively) | | | 23,070 | | | | 16,047 | | Prepaid expenses and other current assets | | | 668 | | | | 1,393 | | Total current assets | | | 33,685 | | | | 31,514 | | Property and equipment, net | | | 765 | | | | 906 | | Goodwill | | | 63,443 | | | | 63,443 | | Intangible assets, net | | | 14,754 | | | | 18,843 | | Right-of-use assets | | | 3,920 | | | | 4,623 | | Other long-term assets | | | 1,022 | | | | 684 | | TOTAL ASSETS | | $ | 117,589 | | | $ | 120,013 | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | CURRENT LIABILITIES: | | | | | | | | | Accounts payable | | $ | 2,257 | | | $ | 2,051 | | Accrued compensation | | | 6,413 | | | | 5,506 | | Current Paycheck Protection Program Loans and accrued interest | | | 16,741 | | | | 2,243 | | Current operating lease liabilities | | | 1,681 | | | | 1,615 | | Other current liabilities | | | 4,065 | | | | 6,748 | | Total current liabilities | | | 31,157 | | | | 18,163 | | Deferred taxes | | | 591 | | | | 430 | | Paycheck Protection Program loans and accrued interest | | | 0 | | | | 17,779 | | Revolving credit facility | | | 0 | | | | 11,828 | | Term loan, net of discount | | | 0 | | | | 37,752 | | Noncurrent operating lease liabilities | | | 3,006 | | | | 3,927 | | Other long-term liabilities | | | 2,066 | | | | 2,756 | | Total long-term liabilities | | | 5,663 | | | | 74,472 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | MEZZANINE EQUITY | | | | | | | | | Preferred stock; no par value; authorized - 20,000 shares, designated 160 shares of Series A, | | | | | | | | | 5,950 shares of Series B, 3,000 shares of Series C, none issued | | | 0 | | | | 0 | | Total mezzanine equity | | | 0 | | | | 0 | | | | | | | | | | | SHAREHOLDERS' EQUITY | | | | | | | | | Common stock, no-par value; authorized - 200,000 shares; issued and outstanding - 114,100 shares | | | | | | | | | at September 30, 2021 and 17,667 shares at September 30, 2020, respectively | | | 0 | | | | 0 | | Additional paid in capital | | | 111,416 | | | | 58,031 | | Accumulated deficit | | | (30,647 | ) | | | (30,653 | ) | Total shareholders' equity | | | 80,769 | | | | 27,378 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 117,589 | | | $ | 120,013 | |
The accompanying notes are an integral part of these consolidated financial statements. GEE GROUP INC. CONSOLIDATED STATEMENT OF OPERATIONS | |
| | Year Ended September 30, | | (in thousands except per share data) | | 2021 | | | 2020 | | NET REVENUES: | | | | | | | Contract staffing services | | $ | 129,802 | | | $ | 114,526 | | Direct hire placement services | | | 19,078 | | | | 15,309 | | NET REVENUES | | | 148,880 | | | | 129,835 | | | | | | | | | | | Cost of contract services | | | 96,339 | | | | 85,131 | | GROSS PROFIT | | | 52,541 | | | | 44,704 | | | | | | | | | | | Selling, general and administrative expenses (including noncash | | | | | | | | | stock-based compensation expense of $970 and $1,559 respectively) | | | 41,651 | | | | 44,401 | | Depreciation expense | | | 311 | | | | 248 | | Amortization of intangible assets | | | 4,089 | | | | 5,038 | | Goodwill impairment charge | | | 0 | | | | 8,850 | | INCOME (LOSS) FROM OPERATIONS | | | 6,490 | | | | (13,833 | ) | (Loss) gain on extinguishment of debt | | | (548 | ) | | | 12,316 | | Interest expense | | | (5,878 | ) | | | (12,233 | ) | INCOME (LOSS) BEFORE INCOME TAX PROVISION | | | 64 | | | | (13,750 | ) | Provision for income tax | | | (58 | ) | | | (597 | ) | NET INCOME (LOSS) | | | 6 | | | | (14,347 | ) | Gain on redeemed preferred stock | | | 0 | | | | 24,475 | | NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | 6 | | | $ | 10,128 | | | | | | | | | | | BASIC EARNINGS PER SHARE | | $ | 0.00 | | | $ | 0.67 | | DILUTED EARNINGS (LOSS) PER SHARE | | $ | 0.00 | | | $ | (1.14 | ) | | | | | | | | | | WEIGHTED AVERAGE SHARES OUTSTANDING: | | | | | | | | | BASIC | | | 60,594 | | | | 15,214 | | DILUTED | | | 61,948 | | | | 21,570 | |
The accompanying notes are an integral part of these consolidated financial statements. GEE GROUP INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY | |
| | Common | | | Additional | | | | | | Total | | | | Stock | | | Paid | | | Accumulated | | | Shareholders' | | (in thousands) | | Shares | | | In Capital | | | Deficit | | | Equity | | | | | | | | | | | | | | | Balance, September 30, 2019 | | | 12,538 | | | $ | 49,990 | | | $ | (40,781 | ) | | $ | 9,209 | | | | | | | | | | | | | | | | | | | Share-based compensation | | | 23 | | | | 1,559 | | | | 0 | | | | 1,559 | | Issuance of stock for restricted stock | | | 500 | | | | 0 | | | | 0 | | | | 0 | | Issuance of stock for interest | | | 2,795 | | | | 1,204 | | | | 0 | | | | 1,204 | | Issuance of stock for debt conversion | | | 1,718 | | | | 5,185 | | | | 0 | | | | 5,185 | | Issuance of stock for preferred stock conversion | | | 93 | | | | 93 | | | | 0 | | | | 93 | | Net Loss | | | 0 | | | | 0 | | | | (14,347 | ) | | | (14,347 | ) | Gain on redemption of preferred stock | | | 0 | | | | 0 | | | | 24,475 | | | | 24,475 | | Balance, September 30, 2020 | | | 17,667 | | | $ | 58,031 | | | $ | (30,653 | ) | | $ | 27,378 | | | | | | | | | | | | | | | | | | | Share-based compensation | | | - | | | | 970 | | | | 0 | | | | 970 | | Issuance of stock for restricted stock | | | 600 | | | | 0 | | | | 0 | | | | 0 | | Sale of common stock in public offering | | | 95,833 | | | | 52,415 | | | | 0 | | | | 52,415 | | Net income | | | - | | | | 0 | | | | 6 | | | | 6 | | Balance, September 30, 2021 | | | 114,100 | | | $ | 111,416 | | | $ | (30,647 | ) | | $ | 80,769 | |
The accompanying notes are an integral part of these consolidated financial statements. GEE GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| | Year Ended September 30, | | (in thousands) | | 2021 | | | 2020 | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | Net income (loss) | | $ | 6 | | | $ | (14,347 | ) | Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | | | | | | | | | Loss (gain) on extingishment of debt | | | 548 | | | | (12,316 | ) | Depreciation and amortization | | | 4,400 | | | | 5,286 | | Goodwill impairment charge | | | 0 | | | | 8,850 | | Non-cash lease expense | | | 1,344 | | | | 1,623 | | Stock compensation expense | | | 970 | | | | 1,559 | | (Decrease) increase in allowance for doubtful accounts | | | (546 | ) | | | 1,557 | | Deferred income taxes | | | 161 | | | | 130 | | Amortization of debt discount | | | 941 | | | | 1,779 | | Interest expense paid with common and preferred stock | | | 0 | | | | 1,288 | | Paid in kind interest on term loan | | | 1,210 | | | | 1,242 | | Change in acquisition deposit for working capital guarantee | | | 0 | | | | (783 | ) | Changes in operating assets and liabilities: | | | | | | | | | Accounts receivable | | | (6,477 | ) | | | 3,222 | | Accrued interest | | | 513 | | | | 95 | | Accounts payable | | | 206 | | | | (2,156 | ) | Accrued compensation | | | 907 | | | | 2,729 | | Change in other assets, net of change in other liabilities | | | (3,813 | ) | | | (2,005 | ) | Net cash provided by (used in) operating activities | | | 370 | | | | (2,247 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | Acquisition of property and equipment | | | (126 | ) | | | (119 | ) | Net cash used in investing activities | | | (126 | ) | | | (119 | ) | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | Payments on term loan | | | (44,194 | ) | | | (500 | ) | Debt issue costs | | | (764 | ) | | | 0 | | Proceeds from the sale of common stock in public offering | | | 52,415 | | | | 0 | | Net payments on subordinate debt | | | 0 | | | | (1,724 | ) | Payments on preferred stock redemption | | | 0 | | | | (2,931 | ) | Net proceeds from CARES Act Paycheck Protection Program Loans | | | 0 | | | | 19,927 | | Net payments on revolving credit | | | (11,828 | ) | | | (2,387 | ) | Net cash (used in) provided by financing activities | | | (4,371 | ) | | | 12,385 | | | | | | | | | | | Net change in cash | | | (4,127 | ) | | | 10,019 | | | | | | | | | | | Cash at beginning of year | | | 14,074 | | | | 4,055 | | | | | | | | | | | Cash at end of year | | $ | 9,947 | | | $ | 14,074 | | | | | | | | | | | SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | | | Cash paid for interest | | $ | 3,670 | | | $ | 7,785 | | Cash paid for taxes | | | 293 | | | | 80 | | Non-cash investing and financing activities | | | | | | | | | Acquisition of equipment with finance lease | | | 76 | | | | 184 | | Conversion of 8% subordinated notes to common stock by related parties | | | 0 | | | | 1,000 | | Conversion of 10% subordinated notes to common stock | | | 0 | | | | 4,185 | | Conversion of series C preferred stock to common by related parties | | | 0 | | | | 93 | | Redemption of series B preferred stock | | | 0 | | | | 24,441 | | Redemption of series C preferred stock | | | 0 | | | | 34 | | Accrued fees on term loan | | | 0 | | | | 4,978 | | Right-of-use assets, net of deferred rent | | | 656 | | | | 6,246 | | Operating lease liability | | | 656 | | | | 6,687 | | Paycheck Protection Program loan forgiveness | | | 3,456 | | | | 0 | |
The accompanying notes are an integral part of these consolidated financial statements. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
1. Description of Business GEE Group Inc. (the “Company”, “us”, “our” or “we”) was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. We are a provider of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, engineering, medical and accounting professionals for direct hire and contract staffing for our clients and provide temporary staffing services for our industrial clients. The Company’s fiscal year begins on October 1 and ends on September 30 of each year. Fiscal 2021 and fiscal 2020 refer to the fiscal years ended September 30, 2021 and 2020, respectively.
2. Significant Accounting Policies and Estimates Basis of Presentation 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.
Liquidity The primary sources of liquidity for the Company are revenues earned and collected from its clients for the placement of contractors and permanent employment candidates and borrowings available under the Senior Credit Agreement. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to the Company’s contract and permanent employees, payment of operating costs and expenses, payment of taxes, payment of interest and principal under its debt agreements, and capital expenditures. On April 19, 2021, the Company completed the initial closing of a follow-on public offering of 83,333 shares of common stock at a public offering price of $0.60 per share. Gross proceeds of the offering totaled $50,000, which after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $45,478. On April 27, 2021, the underwriters of the Company’s follow-on public offering exercised, in full, their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering. On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022 in aggregate outstanding indebtedness under its former Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, including accrued interest, using the net proceeds of its recent underwritten public offering and available cash. The repaid debt was originally obtained from investors led by MGG Investment Group LP (“MGG”) on April 21, 2017 and had a maturity date of June 30, 2023. The MGG debt was comprised of a revolving credit facility with a principal balance on the date of repayment of approximately $11,828, which was subject to an annual interest rate comprised of the greater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and a term loan with a principal balance on the date of repayment of approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459 was paid in connection with the principal repayments. Management believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future and for at least the next twelve months assuming the negative economic effects of COVID-19 do not worsen, and that economic recovery continues. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
As of September 30, 2021, the Company had cash of $9,947, which was a decrease of $4,127 from $14,074 as of September 30, 2020. Net working capital as of September 30, 2021 was $2,528 as compared to net working capital of $13,351 for September 30, 2020. The decrease in cash at September 30, 2021 from September 30, 2020 is mainly the culmination of financing activities during fiscal 2021, as further discussed below, including payment of fees in the amount of $4,978, related to the retirement of the Company’s former senior credit agreement.
Coronavirus (“COVID-19”) Pandemic, Paycheck Protection Program Loans and Deferral of Federal Payroll Taxes under the CARES Act In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the Coronavirus Pandemic (“COVID-19”). These have included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects lessened in fiscal 2021 but have continued to be felt to an extent with the most significant impacts being felt in the industrial segment, and in the finance, accounting and office clerical (“FA&O”) end markets within the professional segment. Between April 29 and May 7, 2020, the Company and eight of its operating subsidiaries obtained loans in the aggregate amount of $19,927 from BBVA USA (“BBVA”), as lender, pursuant to the Payroll Protection Plan (the “PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). These funds were the only source of financing available to our companies and businesses and have been and continue to be critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to provide our services and meet our foreseeable liquidity requirements in the midst of this continuing worldwide Coronavirus Pandemic. The Company accounted for the PPP loans as a debt (See Note 10 in accordance with Accounting Standards Codification (“ASC”) Topic 470 Debt. Accordingly, the PPP loans are recognized as current debt in the Company’s accompanying consolidated financial statements. The Company and its operating subsidiaries have submitted applications for forgiveness of their respective outstanding PPP loans. During fiscal 2021, the Company’s subsidiaries Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, and Agile Resources, Inc. were each notified by the SBA that their total outstanding PPP loans and accrued interest were forgiven in the amounts of $279, $408, $79, $1,470, and $1,220 respectively. See Note 10 regarding the Companies’ PPP loans. On December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest. The outstanding principal and accrued interest balances of these remaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the aggregate amount of $16,741, are included in the Company’s current liabilities as of September 30, 2021, in the accompanying consolidated balance sheet. The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the 2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income. The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans. The Company, under the CARES Act, also was eligible to defer paying $3,692 of applicable payroll taxes as of September 30, 2021, which is included in long and short-term liabilities in the accompanying consolidated financial statements. The deferred deposits of the employer’s share of Social Security tax must be paid to be considered timely (and avoid a failure to deposit penalty) by December 31, 2021, fifty (50) percent of the eligible deferred amount, and the remaining amount by December 31, 2022. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
Financial Restructuring On June 30, 2020, the Company completed a comprehensive financial restructuring and eliminated approximately $19,685 of its subordinated indebtedness and approximately $27,695 of its convertible preferred stock as required pursuant to the terms of the Seventh Amendment, dated as of April 28, 2020, to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017. As a result of the completion of these transactions the Company was able to repurchase, convert and eliminate obligations totaling $47,380, in exchange for $4,978 in cash and 1,811 shares of its common stock, resulting in net gains of $12,316 on the extinguishment of subordinated debt and $24,475 on the redemption of its Class B preferred stock. The cash available for the fundings for these transactions was facilitated by the Company’s senior lenders who agreed to significant liquidity concessions under the Former Senior Credit Agreement, including the deferral of payment of a comparable amount of fees. Principles of Consolidation The consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation. Use of Estimates
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.
Revenue Recognition Revenues from contracts with customers are generated from direct hire placement services, temporary professional services staffing, and temporary industrial staffing. Revenues are recognized when promised services are performed for customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Our revenues are recorded net of variable consideration such as sales adjustments or allowances. Direct hire placement service revenues from contracts with customers are recognized when employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company’s guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates. Temporary staffing service revenues from contracts with customers are recognized in amounts the Company has the 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 as Company employees (as opposed to client 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. Falloffs and refunds during the period are reflected in the statements of operations as a reduction of placement service revenues and were approximately $1,598 in fiscal 2021 and $1,375 in fiscal 2020. Expected future falloffs and refunds are estimated and reflected in the consolidated balance sheet as a reduction of accounts receivable as described under Accounts Receivable, below. See Note 16 for disaggregated revenues by segment. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
Payment terms in our contracts vary by the type and location of our customer and the services offered. The terms between invoicing and when payments are due are not significant. Cost of Contract Staffing Services The cost of contract services includes the wages and the related payroll taxes, employee benefits and certain other employee-related costs of the Company’s contract service employees while they work on contract assignments. Cash and Cash Equivalents Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of September 30, 2021, and September 30, 2020, there were no cash equivalents. Cash deposit accounts are maintained at financial institutions and, at times, balances may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation. We have never experienced any losses related to these balances. Accounts Receivable The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for doubtful accounts is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues. An allowance for placement falloffs also is recorded as a reduction of revenues for estimated losses due to applicants not remaining employed for the Company’s guarantee period. These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. Management believes that the nature of the contract service business, wherein client companies are generally dependent on our contract employees in the same manner as permanent employees for their production cycles and the conduct of their respective businesses contributes to a relatively small accounts receivable allowance. As of September 30, 2021 and September 30, 2020 allowance for doubtful accounts was $286 and $2,072, respectively. The Company charges off uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The allowance also includes permanent placement falloff reserves of $115 and $287 as of September 30, 2021 and September 30, 2020, respectively. Property and Equipment Property and equipment are recorded at cost. Depreciation expense is calculated on a straight-line basis over estimated useful lives of five years for computer equipment and two to ten years for office equipment, furniture and fixtures. The Company capitalizes computer software purchased or developed for internal use and amortizes it over an estimated useful life of five years. The carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If the carrying amount of an asset group is greater than its estimated future undiscounted cash flows, the carrying value is written down to the estimated fair value. There was no impairment of property and equipment for fiscal 2021 and fiscal 2020. Leases The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All the Company’s real estate leases are classified as operating leases. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases. Fair Value Measurement The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement”, which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. 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. 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. The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The carrying value of the Company’s long-term liabilities represents their fair value based on level 3 inputs. The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using a combination of level 2 and level 3 inputs, as discussed in Note 6. Earnings and Loss per Share Basic earnings and loss per share are computed by dividing net income or loss attributable to common stockholders by the weighted average common shares outstanding for the period. 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 and the conversion of notes payable and preferred stock to common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method. The weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares were 1,354 and 6,356 for fiscal 2021 and 2020, respectively. Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 1,536 and 1,689 for the fiscal 2021 and 2020, respectively. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
The following table contains the Company’s calculations of basic net income per share and diluted net income (loss) per share: Basic net income (loss) per share computation: | | September 30, 2021 | | | September 30, 2020 | | Net Income/(Loss) | | $ | 6 | | | $ | (14,347 | ) | Add: gain on redeemed preferred stock | | | 0 | | | | 24,475 | | Net income attributable to common stockholders | | | 6 | | | | 10,128 | | Weighted-average common shares outstanding | | | 60,594 | | | | 15,214 | | Basic net income per share | | $ | 0.00 | | | $ | 0.67 | | | | | | | | | | | Diluted net income per share computation: | | | | | | | | | Net income attributable to common stockholders | | | 6 | | | | 10,128 | | Less: gain on redeemed preferred stock | | | 0 | | | | (24,475 | ) | Less: gain on extinguishment of convertible debt | | | 0 | | | | (11,405 | ) | Add: interest expense on convertible note | | | 0 | | | | 1,204 | | Diluted income (loss) attributable to common stockholders | | $ | 6 | | | $ | (24,548 | ) | Weighted average common shares outstanding | | | 60,594 | | | | 15,214 | | Incremental shares attributable to the assumed conversion of preferred stock, convertible debt, restricted stock and exercise of outstanding stock options and warrants | | | 1,354 | | | | 6,356 | | Total adjusted weighted-average shares | | | 61,948 | | | | 21,570 | | Diluted net income (loss) per share | | $ | 0.00 | | | $ | (1.14 | ) |
Advertising Expenses The Company expenses the costs of print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. Advertising expense totaled $1,771 and $1,913 for fiscal 2021 and fiscal 2020, respectively. Goodwill The Company evaluates its goodwill for possible impairment as prescribed by ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment at least annually and 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, 2021, and allocates its goodwill among two reporting units: its professional reporting unit and its industrial reporting unit for purposes of evaluation for impairments. In determining the fair value of our two reporting units, we use one or a combination of commonly accepted valuation methodologies: 1) the income approach, which is based on the present value of discounted cash flows projected for the reporting unit or, in certain instances, capitalization of earnings, and 2) the market approach, which estimates a fair value based on an appropriate revenue and/or earnings multiple(s) derived from comparable companies. These valuation techniques rely upon assumptions and other factors, such as the estimated future cash flows of our reporting units, the discount rate used to determine the present value of future cash flows, and the market multiples of comparable companies utilized. In applying our methods, we consider and use averages and medians in the selection of assumptions derived from comparable companies or market data, where applicable, and in the application of the income and/or market approaches if we determine that this will provide a more appropriate estimated fair value or range of fair value estimates of the reporting units. Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of goodwill impairment. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
For purposes of performing its annual goodwill impairment assessment, the Company applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed above; and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Company’s reporting units. As a result of the evaluation performed, the estimated fair value exceeded the carrying value of its net assets of the Company’s professional and industrial reporting units as of September 30, 2021. The Company’s market capitalization, as recently reported on the NYSE American exchange, has been lower than its consolidated net book value (consolidated stockholders’ equity), as reported in its consolidated financial statements as of September 30, 2021. Management believes that this entire difference can be attributed to an implied control or acquisition premium inherent in the Company’s stock price, especially considering and taking into account volatility and other effects since the onset of the COVID-19 pandemic. At the same time, and while market control and acquisition premiums have risen in 2020 and 2021, relative to prior years, the Company expects its consolidated book value and the carrying values of its professional and industrial segment reporting units to continue to rise. There can be no assurance that this will occur. However, if this occurs and the Company’s market price and market capitalization do not respond adequately to reflect such increases, it is possible that this would result in a triggering event and require updated testing of goodwill resulting in a possible impairment charge. In the process of preforming our required annual goodwill impairment testing, we recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020. Management believes that the impact in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that have negatively impacted the Company’s business and operating results also are a contributing factor to the Company’s stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020. Intangible Assets Separately identifiable intangible assets held in the form of customer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods. Impairment of Long-lived Assets (other than Goodwill) The Company recognizes an impairment of long-lived 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. In the event the net carrying value of the Company’s long-lived assets are determined not to be recoverable, they are reduced to fair value, which is typically calculated using one or a combination of the relief from royalty method, the multiple of excess cash flow method, and/or other applicable adaptations of the discounted cash flow method. For purposes of testing the long-lived assets other than goodwill, long-lived assets are grouped and considered with other assets and liabilities within the Professional and Industrial reporting units. The Company did not record any impairments to its long-lived assets during fiscal 2021 and 2020. Stock-Based Compensation The Company accounts for stock-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 financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, we recognize expense on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model. See Note 12 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis 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. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record 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, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2017,2021 and 2020, no material accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet. 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 placement fall-offs is recorded, as a reduction of revenues, for estimated losses due to applicants not remaining employed for the Company’s guarantee period. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a small accounts receivable allowance. Based on management’s review of accounts receivable, an allowance for doubtful accounts of approximately $1,712,000 and $191,000 is considered necessary as of September 30, 2017, and September 30, 2016, respectively. The Company charges uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The reserve includes the $997,000 and $60,000 reserve for permanent placement falloffs considered necessary as of September 30, 2017 and September 30, 2016, respectively.
Goodwill
Goodwill represents the excess of cost over the fair value of the net assets acquired in the various acquisitions. The Company assesses goodwill for impairment at least annually. Testing Goodwill for impairment, which allows the Company to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. An impairment loss would be recognized to the extent the carrying value of goodwill exceeds its implied fair value.
Fair Value Measurement
The Company follows the provisions of the accounting standard 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. 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.
The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The carrying value of the Company’s long-term liabilities represents their fair value based on level 3 inputs. The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using level 3 inputs, as discussed in Note 5.
Intangible Assets
Customer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods.
Impairment of Long-lived Assets
The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the undiscounted cash flow method. The Company did not record any impairment during the years ended September 30, 2017 and 2016.
Stock-Based Compensation
The Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, we recognize expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.
Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model.
See Note 11 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares.
Segment Data The Company provides the following distinctive services: (a) direct hire placement services, and (b) temporary professional contract services staffing in the fields of information technology, engineering, medical, and accounting, and (c) temporary lightcontract industrial staffing. These distinctThe Company’s services can be divided into two reportable segments, industrial staffing servicesreporting units: Industrial Staffing Services and professional staffing services.Professional Staffing Services. Selling, general and administrative expenses are not completely separatelyentirely allocated among light industrial servicesthe Industrial and professional staffing services. Professional Staffing Services reporting units. Operating results are regularly reviewed by the chief operating decision maker to make decisionsdeterminations about resources to be allocated to the segment and to assess its performance. Other factors, including type of business, type of employee,employees, length of employment and revenue recognition are considered in determining thesethe Company’s operating segments.
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
3. Recent Accounting Pronouncements.
Recently Issued Accounting Pronouncements Not Yet Adopted On May 28, 2014,Current Expected Credit Losses Model. In June 2016, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. This ASU permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on the Company’s consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has the Company determined the effect of the standard on the Company’s ongoing financial reporting.
In November 2015, the FASB issued2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance which changesamending how deferred taxes are classified on a company’s balance sheet. The new guidance eliminates the current requiremententities will measure credit losses for companies to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, companies will be required to classify all deferred taxmost financial assets and liabilities as noncurrent.certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. Except for balance sheet classification requirements related to deferred tax assets and liabilities, the Company does not expect this guidance to have an effect on its financial statements.2022. The Company is in the process of evaluatinghas not yet determined the impact of adoption of thisthe new guidance on its financial statements.
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2016-09 on itsconsolidated financial statements and related disclosures.
In February 2016,December 2019, the FASB issued authoritativeASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance whichfor franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees will be required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term.in tax laws in interim periods. The new guidanceASU is effective for annual and interim periods beginning after December 15, 2018. Early application is permitted for allpublic business entities upon issuance. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is in the process of evaluating the impact of adoption of this guidance on its financial statements. In August 2016, the FASB issued authoritative guidance designed to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, including: i) contingent consideration payments made after a business combination; ii) proceeds from the settlement of insurance claims; and iii) proceeds from the settlement of corporate-owned life insurance policies. The new guidance is effective for the Company for fiscal years beginning after December 15, 2017,2020, and interim periods within those fiscal years. Early adoption is permitted for public business entities for periods for which financial statements have not been issued. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim or annual period. The Company believesAdditionally, an entity that elects early adoption should adopt all the adoptionamendments in the same period. We are still evaluating the impact of this guidance will not have a material impactASU on itsthe Company’s consolidated financial statements.statements
In January 2017,March 2020, the FASB issued ASU 2017-01, Business Combinations2020-04, Reference Rate Reform (Topic 805)848): ClarifyingFacilitation of the DefinitionEffects of a Business, which clarifiesReference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the definition of a businessGAAP guidance on contract modifications and hedge accounting to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will beease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU is effective for the Company in the first quarterall entities beginning as of 2019. Early adoptionits date of effectiveness, March 12, 2020. The guidance is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements. temporary and can be applied through December 31, 2022. In January 2017,2021, the FASB issued ASU 2017-04, “Intangibles - Goodwill2021-01, Reference Rate Reform (Topic 848): Scope, to provide supplemental guidance and Other (Topic 350): Simplifyingto further clarify the Test for Goodwill Impairment”.scope of the amended guidance. The update simplifies how an entity is requiredguidance has not impacted the consolidated financial statements to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The new rules will be effective for the Company in the first quarter of 2021. Early adoption is permitted.date. The Company is currently evaluatingwill continue to monitor the impact of adopting thisthe ASU on itsour consolidated financial statements.statements in the future. 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.
Not applicable. 4. Property and Equipment REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMProperty and equipment, net, consisted of the following:
To the Board of Directors and Stockholders
GEE Group, Inc.
Naperville, Illinois
| | September 30, 2021 | | | September 30, 2020 | | | | | | | | | Computer software | | $ | 462 | | | $ | 1,535 | | Office equipment, furniture, fixtures and leasehold improvements | | | 3,042 | | | | 3,595 | | Total property and equipment, at cost | | | 3,504 | | | | 5,130 | | Accumulated depreciation and amortization | | | (2,739 | ) | | | (4,224 | ) | Property and equipment, net | | $ | 765 | | | $ | 906 | |
We have audited the accompanying consolidated balance sheets of GEE Group, Inc. as of September 30, 2017Depreciation expense for fiscal 2021 and 2016,2020 was $311 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.$248, respectively.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GEE Group, Inc. as of September 30, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Friedman LLP
Marlton, New Jersey
December 28, 2017
GEE GROUP INC. | | | | | | | CONSOLIDATED BALANCE SHEETS | | | | | | | (In Thousands) | | | | | | | | | | | | | | | | September 30, | | | September 30, | | | | 2017 | | | 2016 | | | | | | | | | ASSETS | | | | | | | CURRENT ASSETS: | | | | | | | Cash | | $ | 2,785 | | | $ | 2,528 | | Accounts receivable, less allowances ($1,712 and $191, respectively) | | | 23,178 | | | | 11,569 | | Other current assets | | | 3,014 | | | | 1,500 | | Total current assets | | | 28,977 | | | | 15,597 | | Property and equipment, net | | | 914 | | | | 611 | | Other long-term assets | | | 282 | | | | 34 | | Goodwill | | | 76,593 | | | | 18,590 | | Intangible assets, net | | | 35,049 | | | | 11,094 | | TOTAL ASSETS | | $ | 141,815 | | | $ | 45,926 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | CURRENT LIABILITIES: | | | | | | | | | Revolving credit facility | | $ | 7,904 | | | $ | 7,073 | | Acquisition deposit for working capital guarantee | | | 1,500 | | | | - | | Accrued interest | | | 2,175 | | | | 54 | | Accounts payable | | | 3,243 | | | | 2,224 | | Accrued compensation | | | 7,394 | | | | 3,116 | | Other current liabilities | | | 515 | | | | 692 | | Short-term portion of subordinated debt | | | 1,225 | | | | 1,285 | | Short-term portion of term-note, net of discount | | | 3,433 | | | | - | | Contingent consideration | | | - | | | | 1,750 | | Total current liabilities | | | 27,389 | | | | 16,194 | | Deferred rent | | | 334 | | | | 162 | | Deferred taxes | | | 958 | | | | - | | Term-loan, net of debt discounts | | | 42,018 | | | | - | | Subordinated debt | | | 1,000 | | | | 4,981 | | Subordinated convertible debt | | | 16,685 | | | | - | | Other long-term liabilities | | | 35 | | | | 56 | | Total long-term liabilities | | | 61,030 | | | | 5,199 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | MEZZANINE EQUITY | | | | | | | | | Preferred stock; no par value; authorized - 20,000 shares; issued and outstanding - 5,926 | | | | | | | | | Preferred series A stock, 160 authorized; issued and outstanding - none | | | - | | | | - | | Preferred series B stock - 5,950 authorized; issued and outstanding - 5,926 | | | | | | | | | Liquidation value of the preferred series B stock is approximately $28,800 | | | 29,333 | | | | - | | SHAREHOLDERS' EQUITY | | | | | | | | | Common stock, no-par value; authorized - 200,000 shares; issued and outstanding - 9,879 | | | | | | | | | shares at September 30, 2017 and 9,379 shares at September 30, 2016, respectively | | | - | | | | - | | Additional paid in capital | | | 39,517 | | | | 37,615 | | Accumulated deficit | | | (15,454 | ) | | | (13,082 | ) | Total shareholders' equity | | | 24,063 | | | | 24,533 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 141,815 | | | $ | 45,926 | |
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC. | | | | | | | CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | | (In Thousands, Except Per Share Data) | | | | | | | | | | | | | | | | Years Ended September 30, | | | | 2017 | | | 2016 | | | | | | | | | NET REVENUES: | | | | | | | Contract staffing services | | $ | 120,247 | | | $ | 76,165 | | Direct hire placement services | | | 14,731 | | | | 6,909 | | NET REVENUES | | | 134,978 | | | | 83,074 | | | | | | | | | | | Cost of contract services | | | 90,003 | | | | 59,445 | | GROSS PROFIT | | | 44,975 | | | | 23,629 | | | | | | | | | | | Selling, general and administrative expenses | | | 39,498 | | | | 19,863 | | Acquisition, integration and restructuring expenses | | | 2,925 | | | | 702 | | Depreciation expense | | | 426 | | | | 331 | | Amortization of intangible assets | | | 3,527 | | | | 1,536 | | INCOME (LOSS) FROM OPERATIONS | | | (1,401 | ) | | | 1,197 | | Change in contingent consideration | | | - | | | | 1,581 | | Loss on extinguishment of debt | | | (994 | ) | | | - | | Interest expense | | | (5,995 | ) | | | (1,602 | ) | INCOME (LOSS) BEFORE INCOME TAX PROVISION | | | (8,390 | ) | | | 1,176 | | (Provision) Benefit for income tax | | | 6,018 | | | | (3 | ) | NET INCOME (LOSS) | | $ | (2,372 | ) | | $ | 1,173 | | NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | | $ | (2,372 | ) | | $ | 1,173 | | | | | | | | | | | BASIC INCOME (LOSS) PER SHARE | | $ | (0.25 | ) | | $ | 0.13 | | WEIGHTED AVERAGE NUMBER OF SHARES - BASIC | | | 9,630 | | | | 9,313 | | DILUTED INCOME (LOSS) PER SHARE | | $ | (0.25 | ) | | $ | 0.12 | | WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED | | | 9,630 | | | | 9,891 | |
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC. | | | | | | | | | | | | | CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | | | | | | | | | | | (In Thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | Common Stock | | | Additional Paid | | | Accumulated | | | Shareholders' | | | | Shares | | | In Capital | | | Deficit | | | Equity | | | | | | | | | | | | | | | Balance, September 30, 2015 | | | 8,833 | | | $ | 33,492 | | | $ | (14,255 | ) | | $ | 19,237 | | | | | | | | | | | | | | | | | | | Shares issued for JAX Legacy debt | | | 95 | | | | 589 | | | | - | | | | 589 | | | | | | | | | | | | | | | | | | | Issuance of common stock for contingent consideration related to the acquisition of Access Data Consulting Corporation | | | 123 | | | | 544 | | | | - | | | | 544 | | | | | | | | | | | | | | | | | | | Amortization of stock option expense | | | - | | | | 793 | | | | - | | | | 793 | | | | | | | | | | | | | | | | | | | Issuance of common stock for acquisition of Access Data Consulting Corporation | | | 328 | | | | 2,197 | | | | - | | | | 2,197 | | | | | | | | | | | | | | | | | | | Net income | | | - | | | | - | | | | 1,173 | | | | 1,173 | | | | | | | | | | | | | | | | | | | Balance, September 30, 2016 | | | 9,379 | | | $ | 37,615 | | | $ | (13,082 | ) | | $ | 24,533 | | | | | | | | | | | | | | | | | | | Amortization of stock option expense | | | - | | | | 902 | | | | - | | | | 902 | | | | | | | | | | | | | | | | | | | Exercise of stock warrants | | | 500 | | | | 1,000 | | | | - | | | | 1,000 | | | | | | | | | | | | | | | | | | | Net loss | | | - | | | | - | | | | (2,372 | ) | | | (2,372 | ) | | | | | | | | | | | | | | | | | | Balance, September 30, 2017 | | | 9,879 | | | $ | 39,517 | | | $ | (15,454 | ) | | $ | 24,063 | |
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC. | | | | | | | CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | (In Thousands) | | | | | | | | | | | | | | | | Years Ended September 30, | | | | 2017 | | | 2016 | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | Net (loss) income | | $ | (2,372 | ) | | $ | 1,173 | | Adjustments to reconcile (net loss) net income to cash provided by operating activities: | | | | | | | | | Depreciation and amortization | | | 3,953 | | | | 1,867 | | Stock option expense | | | 902 | | | | 793 | | Provision for doubtful accounts | | | 1,521 | | | | (44 | ) | Tax provision benefit, non cash | | | (6,012 | ) | | | - | | Amortization of debt discount and non cash extinguishment of debt | | | 1,198 | | | | 215 | | Change in contingent consideration | | | - | | | | (1,581 | ) | Changes in operating assets and liabilities - | | | | | | | | | Accounts receivable | | | (2,393 | ) | | | (100 | ) | Acquisition deposit | | | 1,500 | | | | - | | Accrued interest | | | 2,121 | | | | - | | Accounts payable | | | 446 | | | | 343 | | Accrued compensation | | | 214 | | | | (871 | ) | Other current items, net | | | (881 | ) | | | (1,086 | ) | Long-term liabilities | | | 25 | | | | 14 | | Net cash provided by operating activities | | | 222 | | | | 723 | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | Acquisition of property and equipment | | | (250 | ) | | | (120 | ) | Acquisition payments, net of cash acquired | | | (25,356 | ) | | | (9,395 | ) | Net cash used in investing activities | | | (25,606 | ) | | | (9,515 | ) | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | Proceeds from subordinated debt | | | - | | | | 4,107 | | Payment on SNI debt | | | (19,951 | ) | | | - | | Payments on the debt related to acquisitions | | | (1,285 | ) | | | (492 | ) | Payments on senior debt | | | (609 | ) | | | - | | Proceeds from exercise of stock warrants | | | 1,000 | | | | - | | Payments on capital lease | | | (21 | ) | | | (66 | ) | Net proceeds from debt | | | 45,676 | | | | - | | Net proceeds from short-term debt | | | 831 | | | | 1,839 | | Net cash provided by financing activities | | | 25,641 | | | | 5,388 | | | | | | | | | | | Net change in cash | | | 257 | | | | (3,404 | ) | | | | | | | | | | Cash at beginning of period | | | 2,528 | | | | 5,932 | | | | | | | | | | | Cash at end of period | | $ | 2,785 | | | $ | 2,528 | | | | | | | | | | | SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | | | Cash paid for interest | | $ | 3,383 | | | $ | 1,070 | | Cash paid for taxes | | $ | 247 | | | $ | 3 | | Non-cash financing activities | | | | | | | | | Stock paid for prepaid interest on subordinated note | | $ | - | | | $ | 566 | | Stock paid for fees in connection with subordinated note | | $ | - | | | $ | 23 | | Issuance of common stock for acquisition | | $ | - | | | $ | 2,197 | | Note issued in connection with acquisition | | $ | - | | | $ | 3,000 | | Earn-out liability, contingent consideration, and other liabilities incurred in connection with acquisition | | $ | - | | | $ | 4,246 | | Payment of contingent consideration with common shares | | $ | - | | | $ | 544 | | Issuance of preferred stock for acquisition | | $ | 29,333 | | | $ | - | | Issuance of note payable for acquisition | | $ | 12,500 | | | $ | - | | Issuance of stock for extinguishment of debt | | $ | 385 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
GEE Group Inc. (the “Company”, “us”, “our” or “we”) was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. We are a provider of permanent and temporary professional, industrial and physician assistant staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, engineering, medical and accounting professionals for direct hire and contract staffing for our clients, and provide temporary staffing services for our commercial clients.
2. Significant Accounting Policies and Estimates
Basis of Presentation
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.
Liquidity5. Leases
The Company has experienced significant lossesleases space for all its branch offices, which are generally located either in downtown or suburban business centers, and negativefor its corporate headquarters. Branch offices are generally leased over periods ranging from three to five years. The corporate office lease expires in 2026. The leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities. Operating lease expenses were $2,191 and $2,433 for fiscal 2021 and 2020, respectively. Supplemental cash flows from operations in the past. Management has implemented a strategy which included cost reduction efforts, consolidation of certain back office activitiesflow information related to gain efficiencies as well as identifying strategic acquisitions, financed primarily through the issuance of preferred and common stock and convertible debt, to improve the overall profitability and cash flowsleases consisted of the Company.following: After the close of business on March 31, 2017, the Company and its subsidiaries, as borrowers, entered into a Revolving Credit, Term Loan and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association (“PNC”), and certain investment funds managed by MGG Investment Group LP (“MGG”). All funds were distributed on April 3, 2017 (the “Closing Date”).
| | Fiscal 2021 | | | Fiscal 2020 | | Cash paid for operating lease liabilities | | $ | 1,893 | | | | 1,946 | | Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | 656 | | | | 733 | |
Under the terms of the Credit Agreement, the Company may borrow up to $73,750,000 consisting of a four-year term loan in the principal amount of $48,750,000 and revolving loans in a maximum amount up to the lesser of (i) $25,000,000 or (ii) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of the Company’s eligible accounts receivable, as described in the Credit Agreement. The loans under the Credit Agreement mature on March 31, 2021.
On October 2, 2017, the Company, the other borrower entities and guarantor entities named therein (collectively, the “Loan Parties”), PNC, and certain investment funds managed by MGG (collectively the (“Lenders”) entered into a First Amendment and Waiver (the “Amendment”) to the Revolving Credit, Term Loan and Security Agreement dated as of March 31, 2017 (the “Credit Agreement”) by and among the Loan Parties, and the Lenders.
The Amendment, which was effective as of October 2, 2017, modified the required principal repayment schedule with respect to the Term Loans. The Amendment also modified the ability of the Loan Parties to repay or make other payments with respect to certain other loans that are subordinated in right of payment to the indebtedness under the Credit Agreement.
Pursuant to the Amendment the Lenders also waived any Event of Default arising out of the Loan Parties’ failure to deliver, on or before October 3, 2017, the materials satisfying the requirements of clauses (i) and (ii) of Section 5 of the Waiver to Revolving Credit, Term Loan and Security Agreement, dated as of August 14, 2017, as amended.
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
Supplemental balance sheet information related to leases consisted of the following: On November 14, 2017, the Company and its subsidiaries, as Borrowers, each subsidiary of the Company listed as a “Guarantor” on the signature pages thereto (together with each other Person joined thereto as a guarantor from time to time, collectively, the “Guarantors”, and each a “Guarantor”, and together with the Borrowers, collectively, the “Loan Parties” and each a “Loan Party”), certain lenders which now are or which thereafter become a party thereto that make Revolving Advances thereunder (together with their respective successors and assigns, collectively, the “Revolving Lenders” and each a “Revolving Lender”), the lenders which now are or which thereafter become a party thereto that made or acquire an interest in the Term Loans (together with their respective successors and assigns, collectively, the “Term Loan Lenders” and each a “Term Loan Lender”, and together with the Revolving Lenders, collectively, the “Lenders” and each a “Lender”), MGG, as administrative agent for the Lenders (together with its successors and assigns, in such capacity, the “Administrative Agent”), as collateral agent for the Lenders (together with its successors and assigns, in such capacity, the “Collateral Agent”), and as term loan agent (together with its successors and assigns, in such capacity, the “Term Loan Agent” and together with the Administrative Agent and the Collateral Agent, each an “Agent” and, collectively, the “Agents”), entered into a second amendment (the “Second Amendment”) to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the “Credit Agreement”).
Pursuant to the Second Amendment the Borrowers agreed, among other things, to use commercially reasonable efforts to prepay, or cause to be prepaid, $10,000,000 in principal amount of Advances (as defined in the Credit Agreement) outstanding, which amount shall be applied to prepay the Term Loans in accordance with the applicable terms of the Credit Agreement. Any prepayment to the term loan is contingent upon a future financing, non-operational cash flow or excess cash flow as defined in the agreement. The Borrowers also agreed to amend (i) the applicable minimum Fixed Charge Coverage Ratios required to be maintained by the Company as set forth in the Second Amendment, (ii) the minimum EBITDA required to be maintained by the Company, as set forth in the Second Amendment and (iii) the maximum senior leverage ratios required to be maintained by the Company, as set forth in the Second Amendment. The Borrowers agreed to pay to the Administrative Agent for the account of the Revolving Lenders, an amendment fee of $364,140, in connection with their execution and delivery of the Second Amendment. Such fee is payable on the earlier of (a) June 30, 2018 and (b) the first date on which all of the Obligations (as defined in the Credit Agreement) are paid in full in cash and the Total Commitment (as defined in the Credit Agreement) of the Lenders is terminated.
| | Fiscal 2021 | | | Fiscal 2020 | | Weighted average remaining lease term for operating leases | | 2.7 years | | | 2.4 years | | Weighted average discount rate for operating leases | | | 5.9 | % | | | 6.0 | % |
The loanstable below reconciles the undiscounted future minimum lease payments under the credit agreement for the period commencing on the Amendment No. 2 Effective Date up to and including May 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 3.75 to 1.00, an amount equal to 9.75% for Advances consistingnon-cancelable lease agreements having initial terms in excess of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.75 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans. The loans under the credit agreement for the period commencing on June 1, 2018 up to and including August 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 4.00 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 4.00 to 1.00, an amount equal to 9.75% for Advances consisting of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans. For the period ended September 30, 2017 there were no financial covenants required under the new amendment.
The loans under the credit agreement for the period commencing on September 1, 2018 through the remainder of the Term, (i) so long as the Senior Leverage Ratio is equal to or greater than 3.50 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.50 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans.
At September 30, 2017, approximately $6,000,000 of the Revolving Credit facility was fixed for a three-month period at an interest of approximately 11.3%.
Although the Company did not have financial covenants for the period ended September 30, 2017, the Company was in compliance with non-financial covenants of this loan and management expects to be in compliance with the newly amended financial covenants for December 31, 2017, the first measurement date under the Amendment.
Management believes that the future cash flow from operations and the availability under the Revolving Credit Facility will have sufficient liquidity for the next 12 months.
Principles of Consolidation
The consolidated financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.
Estimates and Assumptions
Management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the condensed 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 subsequentone year 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 matters requiring the use of estimates and assumptions include, but may not be limited to, deferred income tax valuation allowances, accounts receivable allowances, accounting for acquisitions, accounting for derivatives and evaluation of impairment. Management believes that its estimates and assumptions are reasonable, basedtotal operating lease liabilities recognized on information that is available at the time they are made.
Revenue Recognition
Direct hire placement service revenues are recognized when applicants accept offers of employment, less a provision for estimated losses due to applicants not remaining employed for the Company’s guarantee period. Contract staffing service revenues are recognized when services are rendered.
Falloffs and refunds during the period are reflected in the consolidated statements of operations as a reduction of placement service revenues and were approximately $1,495,000 in fiscal 2017 and $470,000 in fiscal 2016. Expected future falloffs and refunds are reflected in the consolidated balance sheet as a reduction of accounts receivableSeptember 30, 2021, including certain closed offices are as follows:
Fiscal 2022 | | $ | 1,888 | | Fiscal 2023 | | | 1,365 | | Fiscal 2024 | | | 1,079 | | Fiscal 2025 | | | 572 | | Fiscal 2026 | | | 194 | | Thereafter | | | 29 | | Less: Imputed interest | | | (440 | ) | Present value of operating lease liabilities (a) | | $ | 4,687 | |
| (a) | Includes current portion of $1,681 for operating leases. |
6. Goodwill and were approximately $997,000 and $60,000Intangible Assets Goodwill
Goodwill assets as of September 30, 20172021 and September 30, 2016, respectively.2020, consisted of the following: Cost of Contract Staffing Services
| | September 30, | | | | 2021 | | | 2020 | | Goodwill, beginning of fiscal year | | $ | 63,443 | | | $ | 72,293 | | Impairment charges | | | 0 | | | | (8,850 | ) | Goodwill, end of fiscal year | | $ | 63,443 | | | $ | 63,443 | |
The costFor purposes of contract services includes the wages and the related payroll taxes and employee benefits of the Company’s employees while they work on contract assignments.
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. At September 30, 2017 and September 30, 2016, there were no cash equivalents. The Company maintains deposits in financial institutions in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances.
Accounts Receivable
The Company extends credit toperforming 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 placement fall-offs is recorded, as a reduction of revenues, for estimated losses due to applicants not remaining employed for the Company’s guarantee period. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a small accounts receivable allowance. Based on management’s review of accounts receivable, an allowance for doubtful accounts of approximately $1,712,000 and $191,000 is considered necessaryannual goodwill impairment assessment as of September 30, 2017,2021 and September 30, 2016, respectively. The2020, the Company charges uncollectible accounts againstapplied the allowance once the invoices are deemed unlikelyvaluation techniques and assumptions to be collectible. The reserve includes the $997,000its professional and $60,000 reserve for permanent placement falloffsindustrial segments as reporting units discussed in Note 2, above; and also considered necessary as of September 30, 2017 and September 30, 2016, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is calculated on a straight-line basis over estimated useful lives of five years for computer equipment and two to ten years for office equipment, furniture and fixtures. The Company capitalizes computer software purchased or developed for internal use and amortizes it over an estimated useful life of five years. The carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If the carrying amount of an asset group is greater than its estimated future undiscounted cash flows, the carrying value is written down to the estimated fair value. There was no impairment of property and equipment for the years ended September 30, 2017 and 2016.
Goodwill
Goodwill represents the excess of cost over the fair value of the net assets acquiredrecent trends in the various acquisitions. The Company assesses goodwill for impairment at least annually. Testing goodwill for impairment allows the Company to first assess qualitativeCompany’s stock price, implied control or acquisition premiums, earnings, and other possible factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. An impairment loss would be recognized to the extent the carrying value of goodwill exceeds its implied fair value.
Fair Value Measurement
The Company follows the provisions of the accounting standard 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 usetheir effects on 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. 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.
Theestimated fair value of the Company’s currentreporting units.
As a result of the evaluation performed, the estimated fair value exceeded the carrying value of its net assets of the Company’s professional and current liabilities approximate theirindustrial reporting units as of September 30, 2021. The Company’s market capitalization, as recently reported on the NYSE American exchange, has been lower than its consolidated net book value (consolidated stockholders’ equity), as reported in its consolidated financial statements as of September 30, 2021. Management believes that this entire difference can be attributed to an implied control or acquisition premium inherent in the Company’s stock price, especially considering and taking into account volatility and other effects since the onset of the COVID-19 pandemic. At the same time, and while market control and acquisition premiums have risen in 2020 and 2021, relative to prior years, the Company expects its consolidated book value and the carrying values dueof its professional and industrial segment reporting units to their short-term nature. continue to rise. There can be no assurance that this will occur. However, if this occurs and the Company’s market price and market capitalization do not respond adequately to reflect such increases, it is possible that this would result in a triggering event and require updated testing of goodwill resulting in a possible impairment charge. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
In the process of preforming our required annual goodwill impairment testing, we recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020. Management believes that the impact in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that have negatively impacted the Company’s business and operating results also are a contributing factor to the Company’s stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020. Intangible Assets The carryingfollowing tables set forth the costs, accumulated amortization and net book value of the Company’s long-term liabilities represents their fair value based on level 3 inputs. The Company’s goodwill and otherseparately identifiable intangible assets are measured at fair value on a non-recurring basis using level 3 inputs, as discussed in Note 5. Earnings and Loss per Share
Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. Common share equivalents of approximately 577,000 was included in the computation of diluted earnings per share for the year ended September 30, 2016. There were approximately 10,120,958 and 413,000 of common stock equivalents excluded for the year ended September 30, 20172021 and September 30, 2016, respectively because their effect is anti-dilutive.
Advertising Expenses
Most of the Company’s advertising expense budget is used to support the Company’s business. Most of the advertisements are in print or internet media, with expenses recorded as they are incurred. For the years ended September 30, 20172020 and 2016, included in selling, general and administrative expenses was advertising expense totaling approximately $1,710,000 and $834,000, respectively.
Intangible Assets
Customer lists, non-compete agreements, customer relationships and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods.
Impairment of Long-lived Assets
The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not record any impairment during the years ended September 30, 2017 and 2016.
Stock-Based Compensation
The Company accounts for stock-based awards to employees in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, we recognize expense over the requisite service period on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensationfuture amortization expense.
Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with applicable accounting principles. Such options are valued using the Black-Scholes option pricing model.
| | September 30, 2021 | | | September 30, 2020 | | | | Cost | | | Accumulated Amortization | | | Net Book Value | | | Cost | | | Accumulated Amortization | | | Net Book Value | | Customer relationships | | $ | 29,070 | | | $ | 15,844 | | | $ | 13,226 | | | $ | 29,070 | | | $ | 13,188 | | | $ | 15,882 | | Trade names | | | 8,329 | | | | 6,801 | | | | 1,528 | | | | 8,329 | | | | 5,379 | | | | 2,950 | | Non-Compete agreements | | | 4,331 | | | | 4,331 | | | | 0 | | | | 4,331 | | | | 4,320 | | | | 11 | | Total | | $ | 41,730 | | | $ | 26,976 | | | $ | 14,754 | | | $ | 41,730 | | | $ | 22,887 | | | $ | 18,843 | |
See Note 11 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares.Estimated Amortization Expense
Income Taxes
We account for income taxes under the asset and liability method, 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, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis 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.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record 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, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2017, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.
Reclassification
Certain reclassifications have been made to the financial statements as of and for the years ended September 30, 2016 to conform to the current year presentation. There is no effect on assets, liabilities, equity or net income.
Segment Data
The Company provides the following distinctive services: (a) direct hire placement services, (b) temporary professional services staffing in the fields of information technology, engineering, medical, and accounting, and (c) temporary light industrial staffing. These distinct services can be divided into two reportable segments, Industrial Staffing Services and Professional Staffing Services. Selling, general and administrative expenses are not completely separately allocated among light industrial services and professional staffing services. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including type of business, type of employee, length of employment and revenue recognition are considered in determining these operating segments.
3. Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. This ASU permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on the Company’s consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has the Company determined the effect of the standard on the Company’s ongoing financial reporting.
In November 2015, the FASB issued authoritative guidance which changes how deferred taxes are classified on a company’s balance sheet. The new guidance eliminates the current requirement for companies to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, companies will be required to classify all deferred tax assets and liabilities as noncurrent. The new guidance is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. Except for balance sheet classification requirements related to deferred tax assets and liabilities, the Company does not expect this guidance to have an effect on its financial statements. The Company is in the process of evaluating the impact of adoption of this guidance on its financial statements.
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2016-09 on its financial statements and related disclosures.
In February 2016, the FASB issued authoritative guidance which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees will be required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The new guidance is effective for annual and interim periods beginning after December 15, 2018. Early application is permitted for all entities upon issuance. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is in the process of evaluating the impact of adoption of this guidance on its financial statements.
In August 2016, the FASB issued authoritative guidance designed to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, including: i) contingent consideration payments made after a business combination; ii) proceeds from the settlement of insurance claims; and iii) proceeds from the settlement of corporate-owned life insurance policies. The new guidance is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The Company believes the adoption of this guidance will not have a material impact on its financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will be effective for the Company in the first quarter of 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The new rules will be effective for the Company in the first quarter of 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.
No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future financial statements.
4. Property and Equipment
Property and equipment consisted of the following as of September 30:
| | | | | | | | | (In thousands) | | Useful Lives | | 2017 | | | 2016 | | | | | | | | | | | Computer software | | 5 years | | $ | 1,447 | | | $ | 1,447 | | Office equipment, furniture and fixtures and leasehold improvements | | 2 to 10 years | | | 3,243 | | | | 2,514 | | Total property and equipment, at cost | | | | | 4,690 | | | | 3,961 | | Accumulated depreciation and amortization | | | | | (3,776 | ) | | | (3,350 | ) | Property and equipment, net | | | | $ | 914 | | | $ | 611 | |
Leasehold improvements are amortized over the term of the lease.
Depreciation expense for the year ended September 30, 2017 and 2016 was approximately $426,000 and $331,000, respectively.
5. Goodwill and Intangible Assets
Goodwill
The following table sets forth activity in goodwill from September 30, 2015 through September 30, 2017. See Note 13 for details of acquisitions that occurred during the year ended September 30, 2016 and 2017. (thousands)
Goodwill as of September 30, 2015 | | $ | 8,220 | | Acquisition of Access | | | 8,316 | | Acquisition of Paladin | | | 2,054 | | Goodwill as of September 30, 2016 | | $ | 18,590 | | Acquisition of SNI Companies | | | 58,003 | | Goodwill as of September 30, 2017 | | $ | 76,593 | |
During the year ended September 30, 2017 and the year ended September 30, 2016 the Company did not record any impairment of goodwill.
Intangible Assets
As of September 30, 2017
(In Thousands) | | Cost | | | Accumulated Amortization | | | Net Book Value | | | | | | | | | | | | Customer relationships | | $ | 29,070 | | | $ | 4,601 | | | $ | 24,469 | | Trade name | | | 8,329 | | | | 1,115 | | | | 7,214 | | Non-compete agreements | | | 4,331 | | | | 965 | | | | 3,366 | | | | | | | | | | | | | | | | | $ | 41,730 | | | $ | 6,681 | | | $ | 35,049 | |
As of September 30, 2016
(In Thousands) | | Cost | | | Accumulated Amortization | | | Net Book Value | | | | | | | | | | | | Customer relationships | | $ | 10,758 | | | $ | 2,662 | | | $ | 8,096 | | Trade name | | | 2,429 | | | | 285 | | | | 2,144 | | Non-compete agreements | | | 1,061 | | | | 207 | | | | 854 | | | | | | | | | | | | | | | | | $ | 14,248 | | | $ | 3,154 | | | $ | 11,094 | |
The amortization expense attributable to the amortization of identifiable intangible assets was approximately $3,527,000 and $1,536,000 for the years ended September 30, 2017 and 2016, respectively.
Fiscal 2022 | | $ | 3,469 | | Fiscal 2023 | | | 2,879 | | Fiscal 2024 | | | 2,879 | | Fiscal 2025 | | | 2,741 | | Fiscal 2026 | | | 1,870 | | Thereafter | | | 916 | | | | $ | 14,754 | |
The trade names are amortized on a straight – line basis over the estimated useful life of between five and ten years. CustomerIntangible assets that represent customer relationships are amortized based 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. Non-compete agreements are amortized based on a straight-line basis over the term of the respective non-compete agreement,agreements, which are typically five years. Over the next five years and thereafter, annualin duration. The amortization expense for these finite life intangible assets will total approximately $35,049,000, as follows: fiscal 2018 - $5,582,000, fiscal 2019 - $5,586,000, fiscal 2020 - $5,005,000,was $4,089 and $5,038 for fiscal 2021 – $4,148,000, fiscal 2022 – $3,469,000 and thereafter - $11,259,000.2020, respectively.
7. Accrued Compensation Long-lived assets, such as purchased intangibles subject to amortization, are reviewed for impairment when events or changes in circumstances indicate thatAccrued Compensation is comprised of accrued wages, the carrying amount of an asset may not be recoverable. The Company regularly evaluates whether events and circumstances have occurred that indicate possible impairment and relies on a number of factors, including operating results, business plans, economic projections, and anticipated future cash flows. The Company uses an estimaterelated payroll taxes, employee benefits of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether the assets are recoverable.Company’s employees, including those working on contract assignments, commissions earned and not yet paid and estimated commissions and bonuses payable.
6. Revolving Credit Facility8. Senior Bank Loan, Security and Guarantee Agreement
On September 27, 2013, the Company (“Borrower”)May 14, 2021, GEE Group Inc. and its subsidiaries, Agile Resources, Inc., Access Data Consulting Corporation, BMCH, Inc., GEE Group Portfolio, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Personnel Services, Inc., and Triad Logistics, Inc. entered into agreements with ACF FINCO I LP (successor-in-interest to Keltic Financial Partners II, LP) (“ACF”) (“Lender”), that provided the Company with long term financing through a sixLoan, Security and Guaranty Agreement for a $20 million dollar ($6,000,000)asset-based senior secured revolving notecredit facility with CIT Bank, N.A. (the “Note”“CIT Facility”). The Note had a term of three years and has no amortization prior to maturity. The interest rate for the Note was a fluctuating rate that, when annualized,CIT Facility is equal to the greatest of (A) the Prime Rate plus three and one quarter percent (3.25%), (B) the LIBOR Rate plus six and one quarter percent (6.25%), and (C) six and one-half percent (6.50%), with the interest paid on a monthly basis. Loan advances pursuant to the Note are based on the accounts receivable balance and other assets. The Note was securedcollateralized by all100% of the Company’s property and assets whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title or interests. On January 1, 2016, the Company entered into an eighth Amendment and Waiver to the Loan and Security Agreement with ACF to increase the maximum amount of revolving credit under the Amended Loan Agreement from $6,000,000 to $10,000,000. On September 27, 2016, the Company entered into a ninth Amendment and Waiver to the Loan and Security Agreement with ACF. Pursuant to the Amendment, the Lender agreed (i) to decrease the annual Facility Fee (as defined in the Credit Agreement) payable by Borrower on the total Revolving Credit Limit (as defined in the Loan Agreement) to 0.75% , (ii) to allow the Borrower to make certain prepayments of amounts owed under the Amended Loan Agreement and the other loan documents on or prior to September 27, 2018, (iii) to amend the provision regarding liquidated damages payable by Borrower in the event of any early termination of the revolving credit line under the Amended Credit Agreement such that Borrower shall pay liquidated damages to Lender in an amount equal to the Revolving Credit Limit multiplied by (X) two percent (2.00%) if such prepayment, repayment, demand or acceleration occurs prior to September 28, 2017, and (Y) one percent (1.00%) if such prepayment, repayment, demand or acceleration occurs on or after September 28, 2017, (iv) to change the minimum EBITDA (as defined in the Amended Credit Agreement) thresholds required to be maintained by the Company as outlined below (v) to extend the Revolving Credit Termination Date to the earliest to occur of (a) September 27, 2018, (b) the date Lender terminates the Revolving Credit pursuant to the terms of the Amended Credit Agreement, and (c) the date on which repayment of the Revolving Credit, or any portion thereof, becomes immediately due and payable pursuant to the terms of the Amended Loan Agreement, (vi) to amend the definition of EBITDA and (vii) to change the Revolving Credit Rate to a fluctuating rate that, when annualized, is equal to the greatest of (A) the Prime Rate plus one and one half percent (1.50%), (B) the LIBOR Rate plus four and one half percent (4.50%), and (C) four and three quarters percent (4.75%). There were several subsequent amendments to the loan. At September 30, 2016, the interest rate was 4.75%. This loan was repaid and closed as of April 3, 2017, with the proceeds from the PNC Revolving Credit Facility, as noted below. The Company paid approximately $288,000 in fees and are included in the loss on the extinguishment of debt.
After the close of business on March 31, 2017, the Company and its subsidiaries who are co-borrowers and/or guarantors. The CIT Facility matures on the fifth anniversary of the closing date (May 14, 2026). Concurrent with the May 14, 2021 closing of the CIT Facility, the Company borrowed $5,326 and utilized these funds to pay all remaining unpaid Exit and Restructuring Fees due to its former senior lenders in the amount of $4,978, with the remainder going to direct fees and costs associated with the CIT Facility.
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
As of September 30, 2021, the Company had $0 in outstanding borrowings and approximately $15,280 available for borrowing under the terms of the CIT Facility. As of September 30, 2021, the Company also had $713 in unamortized debt issue cost associated with the CIT Facility. Under the CIT Facility, advances will be subject to a borrowing base formula that will be computed based on 85% of eligible accounts receivable of the Company and subsidiaries as borrowers, entered intodefined in the CIT Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent. The CIT Facility is subject to usual and customary covenants and events of default for credit facilities of this type. The interest rate, at the Company’s election, will be based on either the Base Rate, as defined, plus the applicable margin; or the London Interbank Offering Rate (“LIBOR” or any successor thereto) for the applicable interest period, subject to a 1% floor, plus the applicable margin. The CIT Facility also contains provisions addressing the potential future replacement of LIBOR utilized and referenced in the loan agreement, in the event LIBOR becomes no longer available. In addition to interest costs on advances outstanding, the CIT Facility will provide for an unused line fee ranging from 0.375% to 0.50% depending on the amount of undrawn credit, original issue discount and certain fees for diligence, implementation, and administration. 9. Former Revolving Credit, Term Loan and Security Agreement (the “Credit Agreement”) with PNC, and certain investment funds managed by MGG. All funds were distributed on April 3, 2017 (the “Closing Date”). Under the terms of the Credit Agreement, theThe Company may borrow upand its subsidiaries, as co-borrowers, were parties to $73,750,000 consisting of a four-year term loan in the principal amount of $48,750,000 and revolving loans in a maximum amount up to the lesser of (i) $25,000,000 or (ii) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of the Company’s eligible accounts receivable, as described in the Credit Agreement. The loans under the Credit Agreement mature on March 31, 2021.
On October 2, 2017, the Company, the other borrower entities and guarantor entities named therein (collectively, the “Loan Parties”), PNC, and certain investment funds managed by MGG (collectively the (“Lenders”) entered into a First Amendment and Waiver (the “Amendment”) to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the “Credit(as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the “Former Credit Agreement”) with certain investment funds managed by MGG Investment Group LP (“MGG”). The Revolving Credit Facility and amongTerm Loan under the Loan Parties, and the Lenders.Former Credit Agreement, as amended, had maturity date on June 30, 2023.
On April 20, 2021, the Company fully repaid all outstanding indebtedness under its Former Credit Agreement, including accrued and unpaid interest and fees, using the net proceeds from its recent underwritten public offering and available cash. The Amendment,outstanding debt was comprised of the former Revolving Credit Facility with a principal balance on the date of repayment of approximately $11,828, which was effective as of October 2, 2017, modified the required principal repayment schedule with respectsubject to the Term Loans. The Amendment also modified the abilityan annual interest rate comprised of the Loan Parties to repay or make other payments with respect to certain other loans that are subordinated in right of payment to the indebtedness under the Credit Agreement. Pursuant to the Amendment the Lenders also waived any Event of Default arising outgreater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and the former Term Loan Parties’ failurewith a principal balance on the date of repayment of approximately $43,735, which was subject to deliver, on or before October 3, 2017, the materials satisfying the requirements of clauses (i) and (ii) of Section 5an annual interest rate of the Waivergreater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to Revolving Credit, Term Loan and Security Agreement, dated as of August 14, 2017, as amended.
Pursuant to the Second Amendment the Borrowers agreed, among other things, to use commercially reasonable efforts to prepay, or cause to be prepaid, $10,000,000 in principal amount of Advances (as defined in the Credit Agreement) outstanding,its cash interest rate, which amount shall be applied to prepay the Term Loans in accordance with the applicable terms of the Credit Agreement. Any prepaymentwas being added to the term loan is contingent upon a future financing, non-operational cash flow or excess cash flow as definedprincipal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459, in the agreement.aggregate, was paid in connection with the principal repayments along with $4,978 in remaining unpaid fees. The Borrowers also agreedCompany took a one time charge of $4,004 which represented unamortized debt issue costs associated with its former senior debt. The Former Credit Agreement has been terminated and the Company and its subsidiary co-borrowers have been released from their respective collateral and any and all other obligations under the former Credit Agreement.
Former Revolving Credit Facility As of September 30, 2020, the Company had $11,828 in outstanding borrowings under the Former Revolving Credit Facility, which accrued interest at an annual effective rate of approximately 11%. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
Outstanding balances and corresponding amounts were available to amend (i) the applicable minimum Fixed Charge Coverage Ratiosbe borrowed or required to be maintained by the Company as set forth in the Second Amendment, (ii) the minimum EBITA required to be maintained by the Company, as set forth in the Second Amendment and (iii) the maximum senior leverage ratios required to be maintained by the Company, as set forth in the Second Amendment. The Borrowers agreed to pay to the Administrative Agent for the account of the Revolving Lenders, an amendment fee of $364,140, in connection with their execution and delivery of the Second Amendment. Such fee is payable on the earlier of (a) June 30, 2018 and (b) the first date on which all of the Obligations (as defined in the Credit Agreement) are paid in full in cash and the Total Commitment (as defined in the Credit Agreement) of the Lenders is terminated. The loansrepaid under the credit agreement for the period commencing on the Amendment No. 2 Effective Date up to and including May 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 3.75 to 1.00, an amount equal to 9.75% for Advances consisting of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.75 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans.
The loans under the credit agreement for the period commencing on June 1, 2018 up to and including August 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 4.00 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 4.00 to 1.00, an amount equal to 9.75% for Advances consisting of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans.
The loans under the credit agreement for the period commencing on September 1, 2018 through the remainder of the Term, (i) so long as the Senior Leverage Ratio is equal to or greater than 3.50 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.50 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans.
At September 30, 2017, approximately $6,000,000 of the Revolving Credit facility was fixed for a three-month period at an interest of approximately 11.3%.
Theformer Revolving Credit Facility iswere determined under an agreed upon borrowing base calculation. The Company was generally allowed to borrow amounts of up to 85% of its eligible outstanding accounts receivable, excluding specified past due balances and further reduced for certain reserves and set asides under the Former Credit Agreement. In addition to the Company’s accounts receivable, the Former Revolving Credit Facility was secured by all of the Company’s property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title or interests.intangible.
Former Term Loan The Revolving Credit Facility has the same covenantsCompany had outstanding balances under its Former Term Loan, as the Term-loan (See note 7).follows: 7. Term-loan
After the close of business on March 31, 2017, the Company and its subsidiaries, as borrowers, entered into a Revolving Credit, Term Loan and Security Agreement (the “Credit Agreement”) with PNC, and certain investment funds managed by MGG. All funds were distributed on April 3, 2017 (the “Closing Date”).
Under the terms of the Credit Agreement, the Company may borrow up to $73,750,000 consisting of a four-year term loan in the principal amount of $48,750,000 and revolving loans in a maximum amount up to the lesser of (i) $25,000,000 or (ii) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of the Company’s eligible accounts receivable, as described in the Credit Agreement. The loans under the Credit Agreement mature on March 31, 2021.
Amounts borrowed under the Credit Agreement may be used by the Company to repay existing indebtedness, to partially fund capital expenditures, to fund a portion of the purchase price for the acquisition of all of the issued and outstanding stock of SNI Holdco Inc. pursuant to that certain Agreement and Plan of Merger dated March 31, 2017 (the “Merger Agreement”) (see note 10), to provide for on-going working capital needs and general corporate needs, and to fund future acquisitions subject to certain customary conditions of the lenders. On the closing date of the Credit Agreement, the Company borrowed $48,750,000 from term-loans and borrowed approximately $7,476,316 from the Revolving Credit Facility for a total of $56,226,316 which was used by the Company to repay existing indebtedness, to pay fees and expenses relating to the Credit Agreement, and to pay a portion of the purchase price for the acquisition of all of the outstanding stock of SNI Holdco Inc. pursuant to the Merger Agreement.
On November 14, 2017, the Company and its subsidiaries, as Borrowers, each subsidiary of the Company listed as a “Guarantor” on the signature pages thereto (together with each other Person joined thereto as a guarantor from time to time, collectively, the “Guarantors”, and each a “Guarantor”, and together with the Borrowers, collectively, the “Loan Parties” and each a “Loan Party”), certain lenders which now are or which thereafter become a party thereto that make Revolving Advances thereunder (together with their respective successors and assigns, collectively, the “Revolving Lenders” and each a “Revolving Lender”), the lenders which now are or which thereafter become a party thereto that made or acquire an interest in the Term Loans (together with their respective successors and assigns, collectively, the “Term Loan Lenders” and each a “Term Loan Lender”, and together with the Revolving Lenders, collectively, the “Lenders” and each a “Lender”), MGG, as administrative agent for the Lenders (together with its successors and assigns, in such capacity, the “Administrative Agent”), as collateral agent for the Lenders (together with its successors and assigns, in such capacity, the “Collateral Agent”), and as term loan agent (together with its successors and assigns, in such capacity, the “Term Loan Agent” and together with the Administrative Agent and the Collateral Agent, each an “Agent” and, collectively, the “Agents”), entered into a second amendment (the “Second Amendment”) to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the “Credit Agreement”).
Pursuant to the Second Amendment the Borrowers agreed, among other things, to use commercially reasonable efforts to prepay, or cause to be prepaid, $10,000,000 in principal amount of Advances (as defined in the Credit Agreement) outstanding, which amount shall be applied to prepay the Term Loans in accordance with the applicable terms of the Credit Agreement. Any prepayment to the term loan is contingent upon a future financing, non-operational cash flow or excess cash flow as defined in the agreement. The Borrowers also agreed to amend (i) the applicable minimum Fixed Charge Coverage Ratios required to be maintained by the Company as set forth in the Second Amendment, (ii) the minimum EBITA required to be maintained by the Company, as set forth in the Second Amendment and (iii) the maximum senior leverage ratios required to be maintained by the Company, as set forth in the Second Amendment. The Borrowers agreed to pay to the Administrative Agent for the account of the Revolving Lenders, an amendment fee of $364,140, in connection with their execution and delivery of the Second Amendment. Such fee is payable on the earlier of (a) June 30, 2018 and (b) the first date on which all of the Obligations (as defined in the Credit Agreement) are paid in full in cash and the Total Commitment (as defined in the Credit Agreement) of the Lenders is terminated.
| | September 30, 2021 | | | September 30, 2020 | | | | | | | | | Term loan | | $ | 0 | | | $ | 42,646 | | Unamortized debt discount | | | 0 | | | | (4,894 | ) | Term loan, net of discount | | | 0 | | | | 37,752 | | Short term portion of term loan, net of discounts | | | 0 | | | | 0 | | Long term portion of term loan, net of discounts | | $ | 0 | | | $ | 37,752 | |
The loans under the credit agreement for the period commencing on the Amendment No. 2 Effective Date up to and including May 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 3.75 to 1.00, an amount equal to 9.75% for Advances consisting of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.75 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans. The loans under the credit agreement for the period commencing on June 1, 2018 up to and including August 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 4.00 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 4.00 to 1.00, an amount equal to 9.75% for Advances consisting of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans.
The loans under the credit agreement for the period commencing on September 1, 2018 through the remainder of theFormer Term (i) so long as the Senior Leverage Ratio is equal to or greater than 3.50 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.50 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans.
The Credit Agreement is secured by all of the Company’s property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, orLoan was payable in which it now has or at any time in the future may acquire any right, title or interests.
The Term Loans were advanced on the Closing Date and are, with respect to principal, payable as follows,installments, subject to acceleration upon the occurrence of an Event of Default, as specified under the Former Credit Agreement, or termination of thepayable in full upon termination. The Former Credit Agreement andalso provided that any and all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses shallwould be due and payable in full on March 31, 2021. Principal payments are requiredmaturity as follows: Fiscal year 2018 – $3,636,000, Fiscal year 2019 – $7,728,000, Fiscal yearof June 30, 2023. The Former Credit Agreement also had provisions requiring prepayments upon the occurrence of certain conditions.
As of September 30, 2020, – $8,337,000the Company had $42,646 in outstanding borrowings under the Former Term Loan Facility that was at an interest of approximately 11%, plus additional interest at an annual rate 5% in the form of PIK (noncash, paid-in-kind), which accrued and Fiscal year 2021 - $28,440,000. was added to the balance of the Term Loan on a monthly basis. The Company shall prepay the outstanding amount of the Term-loans in an amount equal to the Specified Excess Cash Flow Amount (as defined in the agreement) for the immediately preceding fiscal year, commencing with the fiscal year ending September 30, 2018, payable following the delivery to the Agents of the financial statements referred to in the Agreement for such fiscal year but in any event not later than one hundred five (105) days after the end of each such fiscal year (the “Excess Cash Flow Prepayment Date”); provided that (i) if the Specified Term-loan Prepayment Conditions shall not be satisfied on any Excess Cash Flow Prepayment Date, Borrowers shall (A) on the Excess Cash Flow Prepayment Date, pay such portion of the Specified Excess Cash Flow Amount then due for such period that does not cause Borrowers to breach the Specified Term Loan Prepayment Conditions, (B) on the date on which the next Borrowing Base Certificate is due to be delivered to Agents pursuant to the Agreement (the “Borrowing Base Reference Date”), pay the remaining portion of such Specified Excess Cash Flow Amount (or such portion thereof that does not cause Borrowers to breach the Specified Term Loan Prepayment Conditions) and (C) if any Specified Excess Cash Flow Amount for such period remains due and owing after payment of the amount described in preceding clause (ii), on the next Borrowing Base Reference Date and each Borrowing Base Reference Date thereafter, pay such portion of the unpaid Specified Excess Cash Flow Amount that does not cause Borrowers to breach the Specified Term Loan Prepayment Conditions until such Specified Excess Flow Amount then due for such period is paid in full, and (ii) the failure of the Borrowers to make a prepayment of all or any portion of the Specified Excess Cash Flow Amount pursuant the Agreement solely as a result of Borrowers’ failure to satisfy the Specified Term Loan Prepayment Conditions shall not constitute an Event of Default. The amendedFormer Credit Agreement containsincluded financial and other restrictive covenants. Financial covenants included minimum fixed charge coverage ratios, minimum EBITDA, as defined under the Former Credit Agreement to include certain covenants including the following:
Fixed Charge Coverage Ratio.adjustments, and maximum senior leverage ratios. The Company shall causewas required to be maintained as of the last day of each fiscal quarter, a Fixed Charge Coverage Ratio for itselfmeasure and its subsidiaries on a Consolidated Basis of not less the amount set forth in the Credit Agreement of 1.25 to 1.0.
Minimum EBITDA.certify these covenants quarterly. The Company shall cause to be maintained as of the last day of each fiscal quarter, EBITDA for itself and its subsidiaries on a Consolidated Basis of not less than the amount set forth in the Credit Agreement for each fiscal quarter specified therein, in each case,financial covenants were measured on a trailing four (4) quarter basis as set inof the end of each quarter. The Company met its financial covenants for the trailing four quarters ended September 30, 2020.
The Former Credit Agreement which ranges from $11,000,000 to $14,000,000 over the term of the Credit Agreement. Senior Leverage Ratio. The Company shall cause to be maintained as of the last day of each fiscal quarter, a Senior Leverage Ratio for itself and its subsidiaries on a Consolidated Basis of not greater than the amount set forth in the Credit Agreement for each fiscal quarter, in each case, measured on a trailing four (4) quarter basis as set in the agreement, which ranges from 5.25 to 1.0 to 2.5 to 1.0 over the term of the Credit Agreement.
In addition to these financial covenants, the Credit Agreement includes other restrictive covenants. The Credit Agreement permitsalso permitted capital expenditures up to a certain level and contains customary default and acceleration provisions. The Former Credit Agreement also restricts,restricted, above certain levels, acquisitions, incurrence of additional indebtedness, and payment of dividends.
At September 30, 2017, based onSeventh Amendment to Former Credit Agreement
On April 28, 2020, the new amendment, there was no financial covenants.Company and its subsidiaries entered into the Seventh Amendment, dated as of April 28, 2020 (the “Seventh Amendment”), to the Former Credit Agreement. The Seventh Amendment represented the most significant loan modification of the Former Credit Agreement since its inception. The Company wasand its senior lenders previously entered into the Sixth Amendment on February 12, 2020, while negotiating and in compliance with other non-financial covenants. Balance of: | | September 30, 2017 | | Term loan | | $ | 48,141,000 | | Unamortized debt discount | | | (2,690,000 | ) | | | | 45,451,000 | | Short term portion of term loan | | | (3,433,000 | ) | Term loan | | $ | 42,018,000 | |
contemplation of the larger loan modification contained in Seventh Amendment. In connection with this bothThe Seventh Amendment extended the maturity of the Former Credit Agreement (the Revolving Credit Facilityfrom June 30, 2021 to June 30, 2023, lowered cash interest approximately 500 basis points (5%) per annum, postponed quarterly principal payments to recommence beginning June 30, 2021, and reduced the Term-loan),amounts of quarterly principal payments from the current $500 per quarter to $446. The Company also had agreed to pay an original discount5% PIK (non-cash, paid-in-kind) interest on the Former Term Loan only, which, thereafter, was accrued and added to the balance of the Former Term Loan, and to pay a restructuring fee of approximately $901,300, a closing fee for the term loan of approximately $75,000, a finder’s$3,478 and an exit fee of approximately $1,597,000 and$1,500, which became fully earned upon the effective date, but were payable upon the occurrence of a closing fee for the revolving credit facility of approximately $500,000.triggering event. The totaltriggering events included a change in control, refinancing, maturity, or other termination of the loan fees paid is approximately $3,073,300. The Company has recorded this as a reductionsenior loans, and in the case of the term-loan and amortized as interest expense of the term of the loans. During the year ended, September 30, 2017,restructuring fee, an acquisition by the Company amortized approximately $492,000 of the debt discount.
8. Accrued Compensation
Accrued Compensation includes accrued wages, the related payroll taxes, employee benefits of the Company’s employees while they work on contract assignments, commissions earned and not yet paid and estimated commission payable.
9. Subordinated Debt – Convertible and Non - Convertible
On October 2, 2015, the Company issued and sold the Subordinated Note to JAX Legacy – Investment 1, LLC (the “Jax”, “Investor”) pursuant toalso was considered a Subscription Agreement dated October 2, 2015 between the Company and the Investor (the “Subscription Agreement”) in the amount of $4,185,000. The Subordinated Note was due on October 2, 2018. The Company paid fees of approximately $25,000 and 3,000 shares of common stock to the Investor, valued at approximately $23,000.triggering event. In addition, the Company had approximately $33,000 of legal fees relatedagreed that for each six-month period commencing with the period ending on March 31, 2021 and for each fiscal year commencing with the fiscal year ending on September 30, 2021, it would utilize its “Specified Excess Cash Flow Amount” (as defined in the Former Credit Agreement) to repay amounts outstanding under the Former Credit Agreement.
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
Under the Seventh Amendment, the Company also agreed to the transaction. Total discount recorded at issuance was approximately $647,000. Total amortizationcondition that it would pursue, negotiate, and execute conversions of all of the Company’s outstanding subordinated debt discount for the year ended September 30, 2017 was approximately $107,000, and the remaining $322,000 was written off to loss on extinguishment of debt. On April 3, 2017, the Company and Jax amended and restated the Subordinated Note in its entirety in the form of a 10% Convertible Subordinated Note (the “10% Note”) in the aggregate principal amount of $4,185,000. The 10% Note matures on October 3, 2021 (the “Maturity Date”). The 10% Note is convertiblepreferred stock into shares of the Company’s Common Stockcommon stock. In the event the Company was able to meet the conversion conditions, it was to have then had the option to settle the restructuring fee, exit fee, and accumulated PIK balance, each when due, in cash or in shares of the Company’s common stock. In the case of the latter, the amount or number of shares distributable to the Senior Lenders would be determined using the most favorable conversion rate at which the holders of the Company’s subordinated indebtedness or preferred stock converted their securities to shares of common stock of the Company in their conversion transactions.
On June 30, 2020, the Company completed the transactions contemplated above, as planned, except that the Company was able to settle a significant portion of outstanding subordinated debt and preferred stock for cash and at very attractive terms, thereby eliminating the need to issue substantially more of its common stock and avoiding significant dilution to existing shareholders. (Refer to Ninth Amendment to Credit Agreement, below.) Eighth Amendment to Former Credit Agreement and CARES Act Payroll Protection Program Loans On May 5, 2020, the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program (“PPP”) and received net funds totaling $19,927 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP. On May 5, 2020, the Company also entered into the Eighth Amendment, dated as of May 5, 2020 (the “Eighth Amendment”) to the Former Credit Agreement. The Eighth Amendment served as the conforming amendment under the Former Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Former Credit Agreement. Ninth Amendment to Former Credit Agreement On June 30, 2020, the Company and its subsidiaries entered into the Ninth Amendment, dated as of June 30, 2020 (the “Ninth Amendment”), to the Former Credit Agreement. Under the Ninth Amendment, the Company’s senior lenders agreed to modify the earlier conversion price equalcondition of the Seventh Amendment and allow the Company to $5.83 per share. All or anysettle a significant portion of the 10% Note maysubordinated debt and preferred stock with up to $5,100 in cash, instead of by converting all of it into the Company’s common stock. In exchange, the Company agreed to settle the exit and restructuring fees agreed to in the Seventh Amendment totaling $4,978, which were accrued as of September 30, 2020, in cash or in shares of the Company’s common stock, except under the Ninth Amendment, the determination of cash or stock would be redeemedat the Senior Lender’s discretion and no longer at the Company’s discretion as provided in the earlier Seventh Amendment. On December 22, 2020, the Company and its subsidiaries entered into a letter amendment, dated as of December 22, 2020, to the Former Credit Agreement. Under the letter amendment, the Company’s senior lenders agreed to modify settlement date for the exit and restructuring fees to on or before June 30, 2021.
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
10. CARES Act Payroll Protection Program Loans Between April 29 and May 7, 2020, the Company obtained for each of its operating subsidiaries a loan from BBVA USA (“BBVA”) pursuant to the Payroll Protection Plan (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The PPP loans were necessary to support ongoing operations due to current economic hardship, uncertainty, and the significant negative effects on the business operations and activity levels of the applicants attributable to COVID-19 including the impact of lockdowns, quarantines and shut-downs. The PPP loans were used primarily to restore employee pay-cuts, recall furloughed or laid-off employees, support the payroll costs for existing employees, hire new employees, and for other allowable purposes including interest costs on certain business mortgage obligations, rent and utilities. Each of the Company’s subsidiaries executed a separate promissory note evidencing unsecured loans under the PPP. The following promissory notes were executed by the Company and its subsidiaries: GEE Group Inc., for cash$1,992 (the “GEE Group Note”), Scribe Solutions, Inc. for $277 (the “Scribe Note”), Agile Resources, Inc. is for $1,206 (the “Agile Note”), Access Data Consulting Corporation for $1,456 (the “Access Note”), Paladin Consulting, Inc. for $1,925 (the “Paladin Note”), SNI Companies, Inc. for $10,000 (the “SNI Note”), Triad Personnel Services, Inc. for $404 (the “Triad Personnel Note”), Triad Logistics, Inc. for $78 (the “Triad Logistics Note”), and BMCH, Inc. for $2,589 (the “BMCH Note”). The GEE Group Note, the Scribe Note, the Agile Note, the Access Note, the Paladin Note, the SNI Note, the Triad Personnel Note, the Triad Logistics Note, and the BMCH Note are referred to together as the “PPP Notes” and each individually as a “PPP Note”. The loans evidenced by the PPP Notes (the “PPP Loans”) are being made through BBVA as the lender. The Company and its operating subsidiaries have submitted applications and required documentation for forgiveness of their respective outstanding PPP loans initially to their lender, BBVA USA, which in turn, reviewed, initially approved, and forwarded them on to the SBA. During fiscal 2021, the Company’s subsidiaries, Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, and Agile Resources, Inc. were notified by the SBA that their total outstanding PPP loans and accrued interest were forgiven in the amounts of $279, $408, $79, $1,470, and $1,220, respectively. Applications for forgiveness of the outstanding PPP loans to GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc. and SNI Companies, Inc., in the aggregate amounts of $16,741, including accrued interest, remained at any time on or after April 3, 2018the SBA for review and approval as of September 30, 2021. On December 14, 2021, the Company received formal notification that the average daily VWAPremaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest. The outstanding principal and accrued interest balances of these remaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the aggregate amount of $16,741, are included in the Company’s current liabilities as of September 30, 2021, in the accompanying consolidated balance sheet. The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the 2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income. The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
11. Former Subordinated Debt – Convertible and Non-Convertible The Company had outstanding balances under its Former Convertible and Non-Convertible Subordinated Debt agreements, in the aggregate amount of $19,685. On June 30, 2020, the Company entered into repurchase and conversion agreements with each of the holders of its former subordinated debt as described below. The Company generated gains, net of transaction costs, of approximately $12,316 on the extinguishments of its subordinated debt.
10% Convertible Subordinated Note On June 30, 2020, the Company and Jax Legacy, the sole holder of the Company’s Common Stock reported on10% Note, entered into a Note Conversion Agreement (the “Note Conversion Agreement”) whereby Jax Legacy agreed to immediately convert the principal trading market for the Common Stock exceeds the then applicable Conversion Price for a period of 20 trading days. The redemption price shall be an amount equal to 100% of the then outstanding$4,185 aggregate principal amount of the 10% Note being redeemed, plus accrued and unpaid interest thereon. The Company agreed to issue to the investors in Jax approximately 77,775718 shares of common stock,Common Stock at a valuethe $5.83 per share conversion rate stated in the 10% Notes. The conversion of approximately $385,000 whichthe 10% Note was expensed as lossexecuted on the extinguishment of debt during the year ended SeptemberJune 30, 2017. On December 13, 20172020, and the Company issued 133,655718 shares of common stock for both the conversion and paid in kind interest through September 30, 2017.Common Stock to Jax Legacy on that date.
Subordinated Promissory Note On October 4, 2015, the Company issued to the sellers of Access Data Consulting Corporation (see note 13) a Promissory Note. Interest on the outstanding principal balance of the Promissory Note is payable at the rate of 5.5% per annum. The principal and interest amount of the Promissory Note is payable as follows: (i) for the first twelve months commencing on November 4, 2015 and ending on October 4, 2016, a monthly payment of approximately $57,000 in principal and interest, (ii) on October 4, 2016 a balloon payment of principal of $1,000,000, (iii) for the next twelve months commencing on November 4, 2016 and ending on October 4, 2017, a monthly payment of approximately $28,000 in principal and interest, (iv) on October 4, 2017 a balloon payment of principal of $1,202,000 and (v) on October 4, 2017 any and all amounts of previously unpaid principal and accrued interest. The Credit Agreement requires this loan to be subordinated to PNC and MGG, however the sellers of Access Data Consulting Corporation have not agreed to the subordination. On October 4, 2017, the Company executed an Amended and Restated Non-Negotiable Promissory Note in favor of William Daniel Dampier and Carol Lee Dampier in the amount of $1,202,405 (the “Note”). This Note amends and, as so amended, restates in its entirety and replaces that certain Subordinated Nonnegotiable Promissory Note dated October 4, 2015, issued by the Company to William Daniel Dampier and Carol Lee Dampier in the original principal amount of $3,000,000. The Company agreed to pay William Daniel Dampier and Carol Lee Dampier 12 equal installments of $107,675, commencing on November 4, 2017 and ending on October 4, 2018. The entire loan is classified as current and subordinate to the senior debt.
On January 20, 2017, the Company entered into Addendum No. 1 (the “Addendum”) to the Stock Purchase Agreement dated as of January 1, 2016 (the “Paladin Agreement”) by and amongJune 30, 2020, the Company and Enoch S. Timothy and Dorothy Timothy (collectively,entered into a Note Settlement Agreement (the “Note Settlement Agreement”). Timothy agreed to accept an aggregate amount of $89 in cash consideration for the “Sellers”). Pursuant topurchase by the termsCompany of the Addendum, the Company and the Sellers agreed (a) that the conditions to the “Earnouts” (as defined in the Paladin Agreement) had been satisfied or waived and (b) that the amounts payable to the Sellers in connection with the Earnouts shall be amended and restructured as follows: (i) the Company paid $250,000 in cash to the Sellers prior to January 31, 2017 (the “Earnout Cash Payment”) and (ii) the Company shall issue to the Sellers a subordinated promissory note in the principal amount of $1,000,000 (the “Subordinated Note”), The Subordinated Note shall bear interest at the rate of 5.5% per annum. Interest on the Subordinated Note shall be payable monthly, principle can only be paid in stock until the term-loan and Revolving Credit Facility are repaid. The Subordinated Note shall have a term of three years and may be prepaid without penalty. The principal of and interest on the Subordinated Note may be paid, at the option of the Company, either in cash or in shares of common stock of the Company or in any combination of cash and common stock. The Sellers have agreed that all payments and obligations under the Subordinated Note shall be subordinate and junior in right of payment to any “Senior Indebtedness” (as defined in the Paladin Agreement) now or hereafter existing to “Senior Lenders” (current or future) (as defined in the Paladin Agreement).
On April 3, 2017, the Company issued and paid to certain SNIH Stockholders as part of the Merger Consideration (see note 10) an aggregate of $12.5 million in$1,000 aggregate principal amount of itsthe Subordinated Note dated January 20, 2017. The Subordinated Note was settled at a conversion rate of $5.83 per share (the agreed conversion price at which the Subordinated Note would be convertible to Common Stock) and purchased at $0.52 per share (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Timothy note settlement amount was paid to Timothy on June 30, 2020.
9.5% Convertible Subordinated Notes On June 30, 2020, the holders of the 9.5% Notes agreed to accept an aggregate amount of $1,115 in cash in consideration for the purchase by the Company of the entire $12,500 aggregate principal amount of the 9.5% Notes. The 9.5% Notes mature on October 3, 2021were settled at a conversion rate of $5.83 (the “Maturity Date”). Theprice at which the 9.5% Notes are convertiblewere converted into shares of the Company’s common stock) and purchased by the Company at $0.52 (the closing price on the NYSE American for the Common Stock at a conversion price equalon June 16, 2020). The payment was made to $5.83 per share. Interest on the 9.5% Notes accrues at the rate of 9.5% per annum and shall be paid quarterly in arrearsnote holders on June 30, September 30, December 312020. 8% Convertible Subordinated Notes to Related Parties Pursuant to the Repurchase Agreement, Mr. Ron Smith (SNI Sellers’ representative and March 31, beginninga former member of the Company’s board of directors) agreed to accept an aggregate amount of $520 in cash (the “Smith Note Payment Amount”) in consideration for the purchase by the Company of the $1,000 aggregate principal amount of 8% Notes (the “Smith Note Amount”) held by him. The Smith Note Payment Amount was calculated based on the following formula: The Smith Note Amount, divided by $ 1.00 (the price at which the Smith Notes are convertible to Common Stock), times $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Smith Note Payment Amount was paid to Mr. Smith on June 30, 2017, on each conversion date with respect to2020. On June 30, 2020, the 9.5% Notes (as to thatholders of the remaining $1,000 aggregate principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”). At the option of the Company, interest may be paid on8% Notes converted such 8% Notes to an Interest Payment Date either in cash or inaggregate of 1,000 shares of Series C 8% Cumulative Convertible Preferred Stock (“Series C Preferred Stock”), which were immediately and simultaneously converted into 1,000 shares of Common Stock at the $1.00 per share conversion price stated in the 8% Notes and in the Series C Preferred Stock. These holders also converted an aggregate of the Company, which93 additional shares of Series C Preferred Stock issued or issuable to them into a total of 93 shares of Common Stock shall be valued based onat the terms of the agreement, subject to certain limitations defined$1.00 per share conversion price stated in the loan agreement. Each of the 9.5% Notes is subordinated in payment to the obligations of the Company to the lenders parties to that certain Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 by and among the Company, the Company’s subsidiaries named as borrowers therein (collectively with the Company, the “Borrowers”), the senior lenders named therein and PNC Bank, National Association, as administrative agent and collateral agent (the “Agent”) for the senior lenders (the “Senior Credit Agreement”), pursuant to those certain Subordination and Intercreditor Agreements, each dated as of March 31, 2017 by and among the Company, the Borrowers, the Agent and each of the holders of the 9.5% Notes. None of the 9.5% Notes issued to the SNIH Stockholders are registered under the Securities Act of 1933, as amended (the “Securities Act”). Each of the SNIH Stockholders who received 9.5% Notes is an accredited investor.Series C Preferred Stock. The issuance of the 1,093 shares of Common Stock to these former holders of 8% Notes and Series C Preferred Stock was completed on June 30, 2020. These shares, along with those of the SNI Sellers that previously held the 9.5% Notes, to such SNIH Stockholders is exempt fromalso were included in the registration requirements ofstatement on SEC Form S-3 filed by the Act in relianceCompany on an exemption from registration provided by Section 4(2) of the Act.July 31, 2020.
Balance as of: | | September 30, 2017 | | | September 30, 2016 | | JAX Legacy debt | | $ | 4,185 | | | $ | 4,185 | | Access Data debt | | | 1,225 | | | | 2,510 | | Paladin debt | | | 1,000 | | | | - | | 9.5% convertible debt | | | 12,500 | | | | - | | JAX Legacy debt discount | | | - | | | | (429 | ) | | | | | | | | | | Total subordinated debt, convertible and non-convertible | | | 18,910 | | | | 6,266 | | | | | | | | | | | Short-term portion of subordinated debt, convertible and non-convertible | | | (1,225 | ) | | | (1,285 | ) | | | | | | | | | | Long-term portion of subordinated debt, convertible and non-convertible | | $ | 17,685 | | | $ | 4,981 | |
Future minimum payments of subordinated debt will total approximately $18,910,000 as follows: fiscal 2018 - $1,225,000, fiscal 2019 - $0, fiscal 2020 - $1,000,000, fiscal 2021- $0 and fiscal 2022 - $16,685,000.
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
10.12. Equity
On October 2, 2015,April 19, 2021, the Company issued approximately 95,000completed the initial closing of follow-on public offering of 83,333 shares of common stock to JAX Legacy related toat a public offering price of $0.60 per share. Gross proceeds of the subordinated note. The stock was valued at approximately $589,000. On October 4, 2015,offering totaled $50,000 which, after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $45,478. As part of the offering, the Company issued approximately 328,000granted the underwriters a 45-day option to purchase up to an additional 12,500 shares of common stock to the sellers of Access Data Consulting Corporation. The Company also agreed if the closing price of the Company’s common stock onto cover over-allotments, if any, at the trading day immediately precedingpublic offering price, less the day on whichunderwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the Issued Shares are first freely salable under Rule 144 (the “Rule 144 Date”) is less than 90%offering.
On or about April 19, 2021, six (6) directors and officers of the Issue Price, thenCompany individually acquired shares of the Company shall make a one-time adjustment and shall promptly pay to the Sellers, inCompany’s common stock either by directly participating in the formCompany’s 2021 follow-on public offering of additionalits common shares, as subscribers, or by purchasing Company common shares in the open market. These six officers and directors collectively acquired a total of 679 shares of the Company’s common stock at that time. On April 27, 2021, the underwriters of the Company’s April 19, 2021, public offering exercised in full their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the market valuepublic offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the Rule 144 Date, the difference between the aggregate valuesale of the Issued Shares atoption shares of approximately $6,937, after deducting the Issue Price and the aggregate value of the Issued Shares at the closing price on the Rule 144 Date.applicable underwriting discount. On April 4, 2016,June 30, 2020, the Company issued approximately 123,0001,811 shares of common stock, to the sellersin aggregate, for debt conversions of Access Data Consulting Corporation related to the guarantee, discussed above. This was based on market value$1,000 aggregate principal amount of the stock on April 4, 2016 being approximately $544,000 less than the $2,000,000 six-month guarantee provided in the Access Data Agreement and basedformer 8% Notes, related shares of Series C Preferred Stock that had been issued as payment-in-kind (“PIK”) interest on the closing stock priceformer 8% notes, and of $4.44 per common share.$4,185 aggregate principal amount of the Former 10% Note. On March 31, 2017, the Company issued approximately 500,000 shares of common stock upon exercise of warrants by two officersAmended and received cash of $1,000,000.
Restated 2013 Incentive Stock Options The Company has recognized compensation expense in the amount of approximately $902,000 and $793,000 during the years ended September 30, 2017 and 2016, respectively, related to the issuance of stock options.
During the year ended September 30, 2017, there were options granted to purchase 382,000 shares of common stock with a weighted average price of between $4.02 and $5.94 per common share. This estimated value was made using the Black-Scholes option pricing model and approximated $1,864,000. The stock options vest over a three to five-year period. The average expected life (years) of the options were 10, the estimated stock price volatility was 104% and the risk-free interest rate was 2.2%. At September 30, 2017, there was approximately $2,178,000 of unamortized compensation.
At September 30, 2017, there were exercisable options granted to purchase approximately 408,000 shares of common stock and exercisable warrants to purchase approximately 497,000 shares of common stock.
Warrants
(Number of Warrants in Thousands) | | Number of Shares | | | Exercise Price | | | Expiration | | Outstanding at September 30, 2016 | | | 997 | | | $ | 2.92 | | | | | Warrants exercised | | | (500 | ) | | | 2.00 | | | | | Warrants granted | | | - | | | | - | | | | | Outstanding at September 30, 2017 | | | 497 | | | $ | 3.84 | | | | |
The weighted average exercise price of outstanding warrants was $3.84 at September 30, 2017 and 2.92 at September 30, 2016, with expiration dates ranging from February 7, 2020 to April 1, 2025.
11. Stock Option PlansPlan
As of September 30, 2017,2021, there were restricted stock shares and stock options outstanding under the Company’s 1995 Stock Option Plan, Second Amended and Restated 19972013 Incentive Stock Option Plan 1999(“Incentive Stock Option Plan and the 2011 Company Incentive Plan. All four plans were approved by the shareholders. The 1995 Stock Option Plan and the 1999 Stock Option Plan have expired, and no further options may be granted under those plans.Plan”). During fiscal 2009,2021, the Second Amended and Restated 1997Incentive Stock Option Plan was amended to make an additional 592,000 options available for granting and as of September 30, 2013 there were noincrease the total shares available for issuance underrestricted stock and stock options grants by 10,000 to a total of 15,000 (7,500 restricted stock shares and 7,500 stock option shares). During fiscal 2020, the Amended and Restated 1997Incentive Stock Option Plan. As of September 30, 2017, there were noPlan was amended to increase the total shares available for issuance under the 2011 Companyrestricted stock and stock options grants by 1,000 to a total of 5,000 (2,500 restricted stock shares and 2,500 stock option shares). The Incentive Plan. The plans granted specified numbers of options to non-employee directors, and they authorizedStock Plan authorizes the Compensation Committee of the Board of Directors to grant either incentive or non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant. As of September 30, 2021, there were 10,786 shares available to be granted under the Plan (5,828 shares available for stock options grants and 4,958 shares available for restricted stock). Restricted Stock The Company granted 642 and 450 shares of restricted common stock available under its Amended and Restated 2013 Incentive Stock Plan in fiscal 2021 and 2020, respectively. The restricted shares are to be earned over a three-year period and cliff vest at the end of the third year from the date of grant. Stock-based compensation expense attributable to restricted stock was $525 and $1,150 in fiscal 2021 and fiscal 2020, respectively. As of September 30, 2021, there was $562 of unrecognized compensation expense related to restricted stock outstanding. On June 15, 2021, 600 shares of restricted common stock held by the Company’s chairman and chief executive officer became fully vested. On November 23, 2019, 500 shares of restricted common stock held by the Company’s former president became fully vested upon his passing. These shares were issued during fiscal 2020. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
A summary of restricted stock activity is presented as follows: | | | | | | | | | | | | | | | | Number of Shares | | | Weighted Average Fair Value ($) | | Non-vested restricted stock outstanding as of September 30, 2019 | | | 1,500 | | | | 1.76 | | Granted | | | 450 | | | | 0.85 | | Issued | | | (500 | ) | | | 2.21 | | Non-vested restricted stock outstanding as of September 30, 2020 | | | 1,450 | | | | 1.32 | | Granted | | | 642 | | | | 0.46 | | Forfeited | | | (50 | ) | | | 0.52 | | Issued | | | (600 | ) | | | 2.21 | | Non-vested restricted stock outstanding as of September 30, 2021 | | | 1,442 | | | | 0.60 | |
Warrants No warrants were granted or exercised during fiscal 2021 or fiscal 2020. A summary of warrant activity is presented as follows: | | | | | | | | | | | | | Number of Shares | | | Weighted Average Exercise Price Per Share ($) | | | Weighted Average Remaining Contractual Life | | | Total Intrinsic Value of Warrants ($) | | Warrants outstanding as of September 30, 2019 | | | 439 | | | | 4.09 | | | | 1.39 | | | | 0 | | Granted | | | - | | | | - | | | | - | | | | - | | Expired | | | (362 | ) | | | 4.53 | | | | - | | | | - | | Warrants outstanding as of September 30, 2020 | | | 77 | | | | 2.00 | | | | 4.50 | | | | 0 | | Granted | | | - | | | | - | | | | - | | | | - | | Expired | | | - | | | | - | | | | - | | | | - | | Warrants outstanding as of September 30, 2021 | | | 77 | | | | 2.00 | | | | 3.50 | | | | 0 | | | | | | | | | | | | | | | | | | | Warrants exercisable as of September 30, 2020 | | | 77 | | | | 2.00 | | | | 4.50 | | | | 0 | | Warrants exercisable as of September 30, 2021 | | | 77 | | | | 2.00 | | | | 3.50 | | | | 0 | |
Stock Options All stock options outstanding as of September 30, 20172021 and September 30, 20162020 were non-statutory stock options, had exercise prices set equal to the market price on the date of grant, and had expiration dates ten years from the date of grant. On July 23, 2013,The Company granted 525 and 75 stock options available under the Board of Directors approved the Company’s Amended and Restated 2013 Incentive Stock Plan (the “2013 Plan”),in fiscal 2021 and resolved to cease issuing securities under all prior Company equity compensation plans.2020, respectively. The 2013 Plan was approved by the Company’s shareholders at the Annual Meeting of Stockholders on September 9, 2013. The purpose of the 2013 Plan is to provide additional incentives to select persons who can make, are making, and continue to make substantial contributions to the growth and success of the Company, to attract and retain the employment and services of such persons, and to encourage and reward such contributions, by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant of options or restricted stock. The 2013 Plan is administered by the Compensation Committee or such other committee as is appointed by the Board of Directors pursuant to the 2013 Plan (the “Committee”). The Committee has full authority to administer and interpret the provisions of the 2013 Plan including, but not limited to, the authority to make all determinations with regard to the terms and conditions of an award made under the 2013 Plan. The maximum number of shares that may be granted under the 2013 Plan is 1,000,000. This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.
On August 16, 2017 the Stockholders approved an amendment to the Company’s 2013 Incentive Stock Plan to increase the number of shares available for issuance pursuant to awards granted under the Plan from 1,000,000 shares to 4,000,000 shares.
A summary of stock option activity is as follows:
| | Year Ended September 30, | | (Number of Options in Thousands) | | 2017 | | | 2016 | | | | | | | | | Number of options outstanding: | | | | | | | Beginning of year | | | 568 | | | | 414 | | Granted | | | 382 | | | | 163 | | Exercised | | | - | | | | - | | Terminated | | | (42 | ) | | | (9 | ) | | | | | | | | | | End of year | | | 908 | | | | 568 | | | | | | | | | | | Number of options exercisable at end of year | | | 408 | | | | 230 | | Number of options available for grant at end of year | | | 3,075 | | | | 470 | | | | | | | | | | | Weighted average option prices per share: | | | | | | | | | Granted during the year | | $ | 5.15 | | | $ | 5.17 | | Exercised during the year | | | - | | | | - | | Terminated during the year | | | 4.38 | | | | 5.99 | | Outstanding at end of year | | | 5.11 | | | | 5.09 | | Exercisable at end of year | | | 4.79 | | | | 4.39 | |
Stock options outstanding as of September 30, 2017 were as follows (number of options in thousands):
Range of Exercise Prices | | Number Outstanding | | | Weighted Average Price | | | Number Exercisable | | | Weighted Average Price | | | Average Remaining Life (Years) | | | | | | | | | | | | | | | | | | Under $5.00 | | | 476 | | | $ | 4.00 | | | | 214 | | | $ | 3.31 | | | | 8.1 | | 5.01 to 10.00 | | | 432 | | | $ | 6.37 | | | | 154 | | | $ | 6.77 | | | | 8.0 | |
As of September 30, 2017, the aggregate intrinsic value of outstanding stock options and exercisable stock options was approximately $461,000 and $303,000, respectively.
The average fair valuegenerally vest on annual schedules during periods ranging from two to four years from the date of stock options granted was estimated to be $4.63 per share in fiscal 2017 and $7.00 per share in fiscal 2017 and 2016, respectively. This estimate was made using the Black-Scholes option pricing model and the following weighted average assumptions:
| | 2017 | | | 2016 | | | | | | | | | Expected option life (years) | | | 10 | | | | 10 | | Expected stock price volatility | | | 104 | % | | | 125 | % | Expected dividend yield | | | — | % | | | — | % | Risk-free interest rate | | | 2.20 | % | | | 2.20 | % |
grant. Stock-based compensation expense attributable to stock options and warrants was $902,000$445 and $793,000$409 in 2017fiscal 2021 and 2016,fiscal 2020, respectively. As of September 30, 2017,2021, there was approximately $2,178,000$456 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.53.56 years. 12. Income Taxes
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
A summary of stock option activity is as follows: | | | | | | | | | | | | | | | | | | | | | | | | Number of Shares | | | Weighted Average Exercise Price per share ($) | | | Weighted Average Remaining Contractual Life (Years) | | | Total Intrinsic Value of Options ($) | | Options outstanding as of September 30, 2019 | | | 1,734 | | | | 3.22 | | | | 7.84 | | | | 0 | | Granted | | | 75 | | | | 0.54 | | | | - | | | | - | | Forfeited | | | (555 | ) | | | 3.68 | | | | - | | | | - | | Options outstanding as of September 30, 2020 | | | 1,254 | | | | 2.85 | | | | 7.34 | | | | 0 | | Granted | | | 525 | | | | 0.57 | | | | - | | | | - | | Forfeited | | | (107 | ) | | | 2.79 | | | | - | | | | - | | Options outstanding as of September 30, 2021 | | | 1,672 | | | | 2.14 | | | | 7.35 | | | | 0 | | | | | | | | | | | | | | | | | | | Exercisable as of September 30, 2020 | | | 749 | | | | 3.43 | | | | 6.78 | | | | - | | Exercisable as of September 30, 2021 | | | 890 | | | | 3.14 | | | | 6.08 | | | | - | |
The fair value of stock options granted was made using the Black-Scholes option pricing model and the following assumptions:
| | 2021 | | | 2020 | | Weighted average fair value of options | | $ | 0.53 | | | $ | 0.49 | | Weighted average risk-free interest rate | | | 1.64 | % | | | 0.71 | % | Weighted average volatility factor | | | 114 | % | | | 108 | % | Weighted average expected life (years) | | | 7.35 | | | | 7.34 | |
13. Mezzanine Equity Series A Convertible Preferred Stock On April 3, 2017, the Company filed a Statement of Resolution Establishing its Series A Preferred Stock with the State of Illinois. (“the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 160 shares of its authorized preferred stock as Series A Preferred Stock. There are no shares issued and outstanding under this designation. Series B Convertible Preferred Stock On April 3, 2017, the Company issued an aggregate of approximately 5,900 shares of no-par value, Series B Convertible Preferred Stock to certain of the SNIH Stockholders as part of the SNIH acquisition. The no par value, Series B Convertible Preferred Stock has a liquidation preference equal to $4.86 per share and ranks senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. On June 30, 2020, and pursuant to the Repurchase Agreement, the holders of the Series B Preferred Stock agreed to accept an aggregate amount of $2,894 in cash (the “Series B Preferred Stock Purchase Price”) in consideration for the purchase by the Company of all 5,566 then outstanding shares of Series B Preferred Stock (the “Series B Preferred Stock Amount”) held by them. The Series B Preferred Stock Purchase Price was paid to the SNI Group Members on June 30, 2020. A net gain attributable to common stockholders of $24,475 was recognized on the redemption of Series B Preferred Stock and Smith Series C Preferred Stock, discussed below, during fiscal 2020. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
Series C Convertible Preferred Stock On May 17, 2019, the Company filed a Statement of Resolution Establishing its Series C Preferred Stock with the State of Illinois. (“the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 3,000 shares of its authorized preferred stock as “Series C 8% Cumulative Convertible Preferred Stock”, without par value. The Series C Preferred Stock has a Liquidation Value equal to $1.00 per share and ranks pari passu with the Company’s Series B Convertible Preferred Stock (“Series B Preferred Stock”) and senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Holders of shares of Series C Preferred Stock are entitled to receive an annual non-cash (“PIK”) dividend of 8% of the Liquidation Value per share. Such dividend shall be payable quarterly on June 30, September 30, December 31 and March 31 of each year commencing on June 30, 2019, in preference to any dividend paid on or declared and set aside for the Series B Preferred Stock or any Junior Securities and shall be paid-in-kind in additional shares of Series C Preferred Stock. Except as set forth in the Resolution Establishing Series or as may be required by Illinois law, the holders of the Series C Preferred Stock have no voting rights. The componentsCompany issued 104 shares of Series C Preferred Stock to Investors related to interest of $104 on the 8% Notes during fiscal 2020, none were issued in fiscal 2021. Pursuant to a Repurchase Agreement dated June 30, 2020, Mr. Smith also agreed to accept an aggregate amount equal to $37 in cash (the “Smith Series C Preferred Stock Purchase Price”) in consideration for the purchase by the Company of the provision72 shares of Series C Preferred Stock (the “Series C Preferred Stock Amount”) held by him. The Smith Preferred Stock Purchase Price was calculated based on the following formula: the Smith Series C Preferred Stock Amount, divided by $1.00, times $0.52 (the closing price on the NYSE American for income taxes are as follows:the Common Stock on June 16, 2020). The Smith Series C Preferred Stock Purchase Price was paid to Mr. Smith on June 30, 2020. | | Year Ended September 30, | | (In Thousands) | | 2017 | | | 2016 | | Current expense (benefit): | | | | | | | Federal | | $ | - | | | $ | - | | State | | | 126 | | | | 3 | | Total current expense (benefit): | | $ | 126 | | | $ | 3 | | | | | | | | | | | Deferred expense (benefit): | | | | | | | | | Federal | | $ | (5,549 | ) | | $ | - | | State | | | (595 | ) | | | - | | Total deferred expense (benefit): | | $ | (6,144 | ) | | $ | - | | | | | | | | | | | Total income tax expense (benefit): | | $ | (6,018 | ) | | $ | 3 | |
The remaining holders of Series C Preferred Stock converted an aggregate of 93 shares of Series C Preferred Stock into a total of 93 shares of Common Stock at the $1.00 per share conversion price stated in the Series C Preferred Stock. The conversion was completed on June 30, 2020. 14. Income Taxes The components of the provision for income taxes is as follows: | | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2021 | | | 2020 | | Current expense (benefit): | | | | | | | Federal | | $ | 0 | | | $ | 0 | | State | | | (103 | ) | | | 467 | | Total current expense (benefit): | | $ | (103 | ) | | $ | 467 | | | | | | | | | | | Deferred expense (benefit): | | | | | | | | | Federal | | $ | 115 | | | $ | 68 | | State | | | 46 | | | | 62 | | Total deferred expense (benefit): | | $ | 161 | | | $ | 130 | | | | | | | | | | | Total income tax expense (benefit): | | $ | 58 | | | $ | 597 | |
A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows:
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
| | Year Ended September 30, | | (In Thousands) | | 2017 | | | 2016 | | Income at US Statutory Rate | | $ | (2,853 | ) | | $ | 400 | | State Taxes, net of Federal benefit | | | (633 | ) | | | 56 | | Tax Credits | | | (99 | ) | | | | | Acquisition Related Costs | | | 476 | | | | | | Statutory Rate Changes | | | (571 | ) | | | | | Valuation Allowance | | | (2,370 | ) | | | (456 | ) | Other | | | 32 | | | | | | | | $ | (6,018 | ) | | $ | - | |
A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows: | | | | | Year Ended September 30, | | | | 2021 | | | 2020 | | Income at US statutory rate | | $ | 28 | | | $ | (2,888 | ) | State taxes, net of federal benefit | | | (468 | ) | | | 930 | | Tax credits | | | (143 | ) | | | (88 | ) | Stock compensation | | | 0 | | | | 186 | | Goodwill impairment | | | 0 | | | | 1,560 | | PPP related matters | | | (4,910 | ) | | | 4,182 | | Valuation allowance | | | 5,384 | | | | (3,466 | ) | Other | | | 167 | | | | 181 | | | | $ | 58 | | | $ | 597 | |
The net deferred income tax asset balance related to the following:
| | Year Ended September 30, | | (In Thousands) | | 2017 | | | 2016 | | | | | | | | | Net Operating Losses | | $ | 8,177 | | | $ | 5,272 | | Stock Options | | | 881 | | | | 512 | | Allowance for Doubtful Accounts | | | 958 | | | | 67 | | Accrued & Prepaid Expenses | | | 911 | | | | 48 | | TaxCredit Carryforwards | | | 171 | | | | | | Other | | | - | | | | 61 | | Total Deferred tax assets | | $ | 11,098 | | | $ | 5,960 | | Intangibles | | $ | (10,308 | ) | | $ | (1,952 | ) | Depreciation | | | (110 | ) | | | - | | Total deferred tax liability | | $ | (10,418 | ) | | $ | (1,952 | ) | Deferred tax asset (liability) | | $ | 680 | | | $ | 4,008 | | Valuation allowance | | | (1,638 | ) | | | (4,008 | ) | Net deferred tax asset (liability) | | $ | (958 | ) | | $ | - | |
The net deferred income tax asset balance related to the following: | | | | | | | | | | | | | | | | Year Ended September 30, | | | | 2021 | | | 2020 | | Net operating losses carryforwards | | $ | 4,765 | | | $ | 2,856 | | Stock options | | | 1,728 | | | | 1,564 | | Allowance for doubtful accounts | | | 70 | | | | 515 | | Accrued & prepaid expenses | | | 968 | | | | 339 | | Tax credit carryforwards | | | 825 | | | | 681 | | ROU liability | | | 1,100 | | | | 1,371 | | Interest | | | 3,708 | | | | 1,065 | | Other | | | 6 | | | | 7 | | Total deferred tax assets | | $ | 13,170 | | | $ | 8,398 | | Intangibles | | $ | (4,342 | ) | | $ | (4,479 | ) | ROU asset | | | (895 | ) | | | (1,145 | ) | Depreciation | | | (58 | ) | | | (122 | ) | Total deferred tax liability | | $ | (5,295 | ) | | $ | (5,746 | ) | Deferred tax asset | | $ | 7,875 | | | $ | 2,652 | | Valuation allowance | | | (8,466 | ) | | | (3,082 | ) | Net deferred tax liability | | $ | (591 | ) | | $ | (430 | ) |
As of September 30, 2017,2021, the Company had federal and state net operating loss carryforwards of approximately $21,633,000$19,800 and $22,949,000,$17,700, respectively, which begin to expire in 20282029 for federal and 20222021 for state purposes. Of the $19,800 of federal net operating losses, $6,200 can be carried indefinitely. As of September 30, 2020, the Company had federal and state net operating loss carryforwards of approximately $11,500 and $13,300, respectively. Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of September 30, 2017,2021 and 2016,2020, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. Because long-term contracts are not a significant part of the Company’s business, future results cannot be reliably predicted by considering past trends or by extrapolating past results. Moreover, the Company’s earnings are strongly influenced by national economic conditions and have been volatile in the past. Considering these factors, the Company determined that it was not possible to reasonably quantify future taxable income. The Company determined that it is more likely than not that all of the net deferred tax assets (deferred tax assets in excess of corresponding deferred tax liabilities) will not be realized. Accordingly, the Company maintained a full valuation allowance as of September 30, 20172021 and 2016.2020. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
With the passage of time, the Company will continue to generate additional deferred tax assets and liabilities related to amortization of acquired intangible assets for tax purposes. As goodwill, an indefinite-lived intangible asset, will not be amortized for financial reporting purposes under current accounting standards, any tax amortization related goodwill claimed by the Company in future years will give rise to an increasing deferred tax liability, which will only reverse at the time of a future impairment under current accounting rules or ultimate sale of the underlying intangible assets. Due to the uncertain timing of this reversal, the temporary difference cannot be considered as a source of future taxable income, but for the amount of indefinite federal NOL carryforwards available due to the U.S. Tax Reform Act as noted above, for purposes of determining a valuation allowance against the Company’s other net deferred tax assets. As a result, the Company’s net deferred tax position at September 30, 20162021 and 2017,2020, represents the tax impact of the cumulative tax amortization of goodwill, which is primarily attributable to historical tax deductible goodwill from SNI. Under Internal Revenue Code 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change”. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. We record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of September 30, 2016,2021, and 20172020 we have not recorded any uncertain tax positions in our financial statements. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2016,2021, and 2017,2020, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from September 30, 2014,2018, to the present. Earlier years may be examined to the extent that the net operating loss carryforwards form those earlier years are used in future periods. The resolution of tax matters is not expected to have a material effect on the Company’s consolidated financial statements. 13. Acquisitions
Access
On October 4, 2015, the Company entered into a Stock Purchase Agreement (the “Access Data Agreement”) with William Daniel Dampier and Carol Lee Dampier (collectively, the “Sellers”). Pursuant to the terms of the Access Data Agreement the Company acquired on October 4, 2015, 100% of the outstanding stock of Access Data Consulting Corporation., a Colorado corporation (“Access Data”), for a purchase price (the “Purchase Price”) equal to approximately $16,168,000, which includes $600,000 related to a mutual tax election of which $350,000 was paid during the year ended September 30, 2017 and the remaining $150,000 is included in current liabilities.
Paladin
The Company entered into a Stock Purchase Agreement dated as of January 1, 2016 (the “Paladin Agreement”) with Enoch S. Timothy and Dorothy Timothy (collectively, the “Sellers”). Pursuant to the terms of the Paladin Agreement the Company acquired on January 1, 2016, 100% of the outstanding stock of Paladin Consulting Inc., a Texas corporation (“Paladin”), for a purchase price (the “Purchase Price”) equal to approximately $2,625,000.
SNI
The Company entered into an Agreement and Plan of Merger dated as of March 31, 2017 (the “Merger Agreement”) by and among the Company, GEE Group Portfolio, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, (“GEE Portfolio”), SNI Holdco Inc., a Delaware corporation (“SNIH”), Smith Holdings, LLC a Delaware limited liability company, Thrivent Financial for Lutherans, a Wisconsin corporation, organized as a fraternal benefits society (“Thrivent”), Madison Capital Funding, LLC, a Delaware limited liability company (“Madison”) and Ronald R. Smith, in his capacity as a stockholder (“Mr. Smith” and collectively with Smith Holdings, LLC, Thrivent and Madison, the “Principal Stockholders”) and Ronald R. Smith in his capacity as the representative of the SNIH Stockholders (“Stockholders’ Representative”). The Merger Agreement provided for the merger subject to the terms and conditions set forth in the Merger Agreement of SNI Holdco with and into GEE Portfolio pursuant to which GEE Portfolio would be the surviving corporation (the “Merger”). The Merger was consummated on April 3, 2017 (the “Closing”) and did not require stockholder approval in order to be completed. As a result of the merger, GEE Portfolio became the owner of 100% of the outstanding capital stock of SNI Companies, Inc., a Delaware corporation and a wholly-owned subsidiary of SNI Holdco (“SNI Companies” and collectively with SNI Holdco, the “Acquired Companies”).
SNI Companies, led by co-founder and then current Chairman and CEO Ron Smith, is a premier provider of recruitment and staffing services specializing in administrative, finance, accounting, banking, technology, and legal professions. Through its Staffing Now ®, Accounting Now ®, SNI Technology ®, SNI Financial ®, Legal Now ®, SNI Energy ® and SNI Certes ® divisions, SNI Companies delivers staffing solutions on a temporary/contract, temp/contract-to hire, full time and direct hire basis, across a wide range of disciplines and industries including finance, accounting, banking, technical, software, tax, human resources, legal, engineering, construction, manufacturing, natural resources, energy and administrative professional. SNI Companies has offices in Colorado, Connecticut, Washington DC, Georgia, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, New Jersey, Pennsylvania, Texas and Virginia.
Merger Consideration and Closing Payments
The aggregate consideration paid for the shares of SNI Holdco (the “Merger Consideration”) was approximately $66,300,000, plus or minus the “NWC Adjustment Amount” or the difference in the book value of the Closing Net Working Capital (as defined in Merger Agreement) of the Acquired Companies as compared to the Benchmark Net Working Capital (as defined in the Merger Agreement) of the Acquired Companies of $9.2 million.
On the date of the Closing the Company made the following payments:
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| Cash Payment to Stockholders of SNIH (the “SNIH Stockholders”) or as directed by SNIH Stockholders. At the Closing, the Company paid approximately an aggregate of $23,000,000 in cash to the SNIH Stockholders.
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| Issuance of 9.5% Convertible Subordinated Notes. At the Closing, the Company issued and paid to certain SNIH Stockholders an aggregate of $12,500,000 in aggregate principal amount of its 9.5% Notes.
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| Issuance of Series B Convertible Preferred Stock. At the Closing, the Company agreed to issue to certain SNIH Stockholders upon receipt of duly executed letters of transmittal an aggregate of approximately 5,926,000 shares of its Series B Convertible Preferred Stock (with an approximate value of $29,300,000 based on the closing stock price of GEE Group, Inc. common stock of $4.95 on March 31, 2017).
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| Working Capital Reserve Fund. At the Closing, $1.5 million of the cash of the Merger Consideration was retained by the Company (the “Working Capital Reserve Fund”) and is subject to payment and adjustment as follows. The Merger Consideration will be adjusted (positively or negatively) based upon the difference in the book value of the Closing Net Working Capital (as defined in the Merger Agreement) as compared to the Benchmark Net Working Capital (as defined in the Merger Agreement) of $9.2 million (such difference to be called the “NWC Adjustment Amount”). If the NWC Adjustment Amount is positive, the Merger Consideration will be increased by the NWC Adjustment Amount. If the NWC Adjustment Amount is negative, the Merger Consideration will be decreased by the NWC Adjustment Amount. If the Merger Consideration increases, then the Company will pay the Stockholders’ Representative account for payment to SNIH Stockholders the amount of the increase plus the Working Capital Reserve Fund in immediately available funds within three (3) business days of a final determination thereof. If the Merger Consideration decreases, then SNIH Stockholders will pay the amount of the decrease to the Company within three (3) business days of a final determination thereof, which first shall be funded from the Working Capital Reserve Fund (which shall be credited to the SNIH Stockholders). If the amount of the Merger Consideration decrease exceeds the Working Capital Reserve Fund, then the SNIH Stockholders, will pay the difference to the Company, severally, not jointly, in accordance with their SNIH Ownership Proportion (as defined in the Merger Agreement), in immediately available funds within twenty (20) days of a final determination. If the Working Capital Reserve Fund exceeds the payment due from SNIH Stockholders then the remaining balance of those funds after the payment to the Company shall be paid to the Stockholders’ Representative’s account for payment to the SNIH Stockholders in immediately available funds.
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The intangibles were recorded, based on the Company’s estimate of fair value, which consist primarily of customer lists with an estimated life of five to ten years and goodwill. The Company has not finalized the purchase price allocation at September 30, 2017 and subject to change based on the working capital contingency.
(in Thousands)
$ | 12,989 | | | Assets Purchased | | 32,174 | | | Liabilities Assumed | | 19,185 | | | Net Liabilities Assumed | | 66,300 | | | Purchase Price | $ | 85,485 | | | Intangible Asset from Purchase |
Intangible asset detail
$ | 18,312 | | | Intangible asset customer list | | 5,900 | | | Intangible asset trade name | | 3,270 | | | Intangible asset non-compete agreement | | 58,003 | | | Goodwill | $ | 85,485 | | | Intangible Asset from Purchase |
All goodwill and intangibles related to the acquisition of SNI companies will not be deductible for tax purposes.
Consolidated pro-forma unaudited financial statements
The following unaudited pro forma combined financial information is based on the historical financial statements of the Company, SNI Companies, Inc. and Paladin Consulting, Inc., after giving effect to the Company’s acquisition as if the acquisitions occurred on October 1, 2015.
The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisitions occurred on October 1, 2015, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the years ended September 30, 2017 and September 30, 2016 as if the acquisition occurred on October 1, 2015. The pro forma results of operations for the years ended September 30, 2016 only include three months of Paladin and twelve months of SNI Companies, as all other acquisitions either occurred prior to October 1, 2015 or had an immaterial effect on pro forma balances. Operating expenses have been increased for the amortization expense associated with the estimated fair value adjustment as of each acquisition during the respective period for the expected definite lived intangible assets. Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of approximately $4,100,000 and $107,000 for the years ended September 30, 2016 for the Paladin and SNI acquisitions, respectively. Operating expenses have been increased for the amortization expense associated with the fair value adjustment of definite lived intangible assets of approximately $2,100,000 for the year ended September 30, 2017 for the SNI acquisition.
(in Thousands, except per share data)
Pro Forma, unaudited | | Year Ended September 30, 2017 | | | Year Ended September 30, 2016 | | | | | | | | | Net sales | | $ | 189,149 | | | $ | 201,433 | | Cost of sales | | $ | 119,817 | | | $ | 126,708 | | Operating expenses | | $ | 68,794 | | | $ | 66,390 | | Net income | | $ | (2,670 | ) | | $ | 2,679 | | Basic income per common share | | $ | (0.28 | ) | | $ | 0.29 | | Dilutive income per common share | | $ | (0.28 | ) | | $ | 0.28 | |
The proforma results of operations for the years ended September 30, 2017 and September 30, 2016, included approximately $54,170,000 and $113,460,000 of sales, respectively, and approximately $2,606,000 and $1,227,000 of net income, respectively of SNI Companies. The year ended September 30, 2016 included approximately, $4,785,000 of sales and approximately $842,000 of a net income of Paladin.
The Company’s consolidated financial statements for the year ended September 30, 2017 include the actual results of SNI Companies since the date of acquisition and include sales of approximately $49,710,000 and net income of approximately $741,000 for the year ended September 30, 2017. The consolidated financial statements for the years ended September 30, 2017 and September 30, 2016 included sale of approximately $17,572,000 of $14,697,000 of sales and approximately $403,000 and $842,000 of net income.
14. Commitment and Contingencies
Lease
The Company leases space for all of its branch offices, which are located either in downtown or suburban business centers, and for its corporate headquarters. Branch offices are generally leased over periods from three to five years. The corporate office lease expires in 2018. The leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities.
Rent expense was approximately $2,600,000 and $1,114,000 for the years ended September 30, 2017 and 2016, respectively. As of September 30, 2017, future minimum lease payments due under non-cancelable lease agreements having initial terms in excess of one year, including certain closed offices, totaled approximately $7,079,000 as follows: fiscal 2018 - $2,950,000, fiscal 2019 - $2,313,000, fiscal 2020 - $1,219,000, fiscal 2021 - $341,000 fiscal 2022 - $203,000 and thereafter - $53,000.
Working Capital Deposit
The Company retained approximately $1,500,000 of the purchase price, in cash, as a guarantee from the sellers that the SNI Companies would provide a minimum of $9,200,000 of working capital, as defined in the purchase agreement. As of September 30, 2017, the Company and the sellers of the SNI Companies have not agreed to the provided working capital and the amount continues to be retained by the Company.
15. Mezzanine Equity
On April 3, 2017, the Company agreed to issue to certain SNIH Stockholders upon receipt of duly executed letters of transmittal as part of the Merger Consideration, an aggregate of approximately 5,926,000 shares of its no par value, Series B Convertible Preferred Stock to certain of the SNIH Stockholders as part of the Merger Consideration. The no par value, Series B Convertible Preferred Stock has a liquidation preference equal to $4.86 per share and ranks senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. In the event that the Company declares or pays a dividend or distribution on its Common Stock, whether such dividend or distribution is payable in cash, securities or other property, including the purchase or redemption by the Company or any of its subsidiaries of shares of Common Stock for cash, securities or property, the Company is required to simultaneously declare and pay a dividend on the no par value, Series B Convertible Preferred Stock on a pro rata basis with the Common Stock determined on an as-converted basis assuming all shares had been converted as of immediately prior to the record date of the applicable dividend or distribution. Except as set forth in the Resolution Establishing Series (as defined below) as may be required by Illinois law, the holders of the no par value, Series B Convertible Preferred Stock have no voting rights. Pursuant to the Resolution Establishing Series, without the prior written consent of holders of not less than a majority of the then total outstanding Shares of no par value, Series B Convertible Preferred Stock, voting separately as a single class, the Company shall not create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company) that ranks pari passu with or superior to the no par value, Series B Convertible Preferred Stock in relative rights, preferences or privileges (including with respect to dividends, liquidation or voting). Each share of Series B Convertible Preferred Stock shall be convertible at the option of the holder thereof into one share of Common Stock at an initial conversion price equal to $4.86 per share, each as subject to adjustment in the event of stock splits, stock combinations, capital reorganizations, reclassifications, consolidations, mergers or sales, as set forth in the Resolution Establishing Series.
GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
15. Commitment and Contingencies
Litigation and Claims NoneThe Company and its subsidiaries are involved in various litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the shares of no par value, Series B Preferred Stock issued toCompany is a party for which management believes the SNIH Stockholders are registered underultimate outcome would have a material adverse effect on the Securities Act. Each of the SNIH Stockholders who received shares of Series B Preferred Stock is an accredited investor. The issuance of the shares of no par value, Series B Preferred Stock to such SNIH Stockholders is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act.Company’s financial position.
Based on the terms of the Series B Convertible Preferred Stock, if certain fundamental transactions were to occur, the Series B Convertible Preferred Stock would require redemption, which precludes permanent equity classification on the accompanying consolidated Balance Sheet.
16. Segment Data The Company provides the following distinctive services: (a) direct hire placement services, (b) temporary professional services staffing in the fields of information technology, accounting, finance and office, engineering, medical, and accounting,medical, and (c) temporary light industrial staffing. These distinct services can be divided into two reportable segments,reporting units: Industrial Staffing Services and Professional Staffing Services. Selling,Some selling, general and administrative expenses are not completely separatelyfully allocated among light industrial servicesIndustrial Services and professional staffing services.Professional Staffing Services. Unallocated Corporatecorporate expenses primarily include certain executive compensation expenses and salaries, certain administrative salaries, corporate legal expenses, stock amortizationcompensation expenses, consulting expenses, audit fees, corporate rent and facility costs, board fees, acquisition, integration and restructuring expenses, and interest expense. | | Fiscal Year Ended | | | Year Ended September 30, | | | | September 30, | | | (In Thousands) | | 2017 | | 2016 | | | | | | | | | | 2021 | | | 2020 | | Industrial Staffing Services | | | | | | | | | | | Industrial services revenue | | $ | 24,851 | | $ | 21,916 | | | $ | 17,332 | | $ | 17,560 | | Industrial services gross margin | | 16.5 | % | | 13.1 | % | | Operating income | | $ | 1,625 | | $ | 539 | | | Depreciation & amortization | | 268 | | 280 | | | Industrial services gross margin1 | | | 22.3 | % | | 21.7 | % | Operating income (loss) | | | $ | 1,646 | | $ | (70 | ) | Depreciation and amortization | | | 77 | | 274 | | Accounts receivable – net | | 3,959 | | 3,145 | | | 2,546 | | 2,470 | | Intangible assets | | 691 | | 908 | | | 0 | | 17 | | Goodwill | | 1,084 | | 1,083 | | | 1,083 | | 1,084 | | Total assets | | $ | 9,271 | | | $ | 7,448 | | | $ | 3,917 | | $ | 5,060 | | | | | | | | | | | | | Professional Staffing Services | | | | | | | | | | | Permanent placement revenue | | $ | 14,731 | | $ | 6,909 | | | $ | 19,078 | | $ | 15,309 | | Placement services gross margin | | 100 | % | | 100 | % | | 100 | % | | 100 | % | Professional services revenue | | $ | 95,396 | | $ | 54,249 | | | $ | 112,470 | | $ | 96,966 | | Professional services gross margin | | 27.4 | % | | 25.5 | % | | 26.3 | % | | 26.4 | % | Operating income | | $ | 4,275 | | $ | 4,407 | | | Operating income (loss) | | | $ | 11,600 | | $ | (3,480 | ) | Depreciation and amortization | | 3,685 | | 1,587 | | | 4,323 | | 5,012 | | Accounts receivable – net | | 19,219 | | 8,424 | | | 20,524 | | 13,577 | | Intangible assets | | 34,358 | | 10,186 | | | 14,754 | | 18,826 | | Goodwill | | 75,509 | | 17,507 | | | 62,360 | | 62,359 | | Total assets | | $ | 132,544 | | | $ | 38,478 | | | $ | 113,672 | | $ | 114,953 | | | | | | | | | | | | | Unallocated Expenses | | | | | | | | | | | Corporate administrative expenses | | $ | 3,285 | | $ | 1,997 | | | Corporate administrative expenses2 | | | $ | 5,280 | | $ | 8,312 | | Corporate facility expenses | | 301 | | 239 | | | 370 | | 377 | | Stock option amortization expense | | 902 | | 792 | | | Stock compensation expense | | | 970 | | 1,559 | | Board related expenses | | 38 | | 19 | | | | 136 | | | | 35 | | Acquisition, integration and restructuring expenses | | | 2,775 | | | | 702 | | | Total unallocated expenses | | $ | 7,301 | | | $ | 3,749 | | | $ | 6,756 | | | $ | 10,283 | | | | | | | | | | | | | Consolidated | | | | | | | | | | | Total revenue | | $ | 134,978 | | $ | 83,074 | | | $ | 148,880 | | $ | 129,835 | | Operating (loss) income | | (1,401 | ) | | 1,197 | | | Operating income (loss) | | | 6,490 | | (13,833 | ) | Depreciation and amortization | | 3,953 | | 1,867 | | | 4,400 | | 5,286 | | Total accounts receivables – net | | 23,178 | | 11,569 | | | 23,070 | | 16,047 | | Intangible assets | | 35,049 | | 11,094 | | | 14,754 | | 18,843 | | Goodwill | | | 76,593 | | | | 18,590 | | | 63,443 | | 63,443 | | Total assets | | $ | 141,815 | | | $ | 45,926 | | | $ | 117,589 | | $ | 120,013 | |
1 Includes $1,270 and $1,284 of annual premium refunds from the Ohio Bureau of Workers Compensation for the fiscal 2021 and 2020, respectively. The Industrial Services gross margins excluding the impact of these items were approximately 14.9% and 14.4% for the fiscal 2021 and 2020, respectively. 2 Includes certain costs and expenses incurred related to restructuring activities, including corporate legal and general expenses associated with capital markets activities and not directly associated with core business operations. These costs were $412 and $4,277 for fiscal 2021 and 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, costs incurred related to acquisitions and associated legal and professional costs. GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | (Amounts in thousands except per share data, unless otherwise stated) |
17. Subsequent Events On December 12, 2017,14, 2021, the Company issued 135,655 sharesreceived formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of common stock, valued at approximately $595,000 as an inducement to change the loan agreement with Jax legacy (“Jax”) notetheir respective outstanding principal and theinterest. The outstanding principal and accrued interest through September 30, 2017. These shares issued to Jax were not registered under the Securities Act. Jax is an accredited investor. The issuancebalances of these shares to Jax is exempt fromremaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the registration requirementsaggregate amount of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act. On December 26, 2017, The Company and Mr. Bajalia entered into a written employment agreement with respect to Mr. Bajalia’s service as President of the Company. The Company and Mr. Bajalia have agreed to an initial term of five years and that Mr. Bajalia shall receive a base salary of $270,000 per year, subject to increase, but not decrease, at the discretion of the Board. In addition, the Company and Mr. Bajalia have agreed that (i) Mr. Bajalia shall be eligible to receive an annual bonus of up to 100% of his base salary based on his meeting certain performance based targets and (ii) Mr. Bajalia shall also receive a total of 500,000 shares of restricted stock under the Company’s 2013 Stock Incentive Plan. These shares shall cliff vest 20% per year of service. Mr. Bajalia shall also be eligible to participate$16,741, are included in the Company’s employee benefit planscurrent liabilities as of September 30, 2021, in effect from time to time on the same basis as generally made available to other senior executivesaccompanying consolidated balance sheet. The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the Company2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income.
The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have other benefits providedexceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to executivesaudit by the SBA in the future. If any of the Company.nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans. None. We carried out an evaluation required by Rule 13a-15 of the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Annual Report. The evaluation of the Company’s disclosure controls and procedures and internal control over financial reporting included a review of our objectives and processes, implementation by us and the effect on the information generated for use in this Annual Report. In the course of this evaluation and in accordance with Section 302 of the Sarbanes Oxley Act, we sought to identify material weaknesses in our controls, to determine whether we had identified any acts of fraud involving personnel who have a significant role in our internal control over financial reporting that would have a material effect on our consolidated financial statements, and to confirm that any necessary corrective action, including process improvements, were being undertaken. Our evaluation of our disclosure controls and procedures is done quarterly and management reports the effectiveness of our controls and procedures in our periodic reports filed with the Securities and Exchange Commission. Our internal control over financial reporting is also evaluated on an ongoing basis by our executive management and by other individuals in our organization. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and internal control over financial reporting, and to make modifications as necessary. We periodically evaluate our processes and procedures and make improvements as required. Because of inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management applies its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Disclosure Controls and Procedures Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and (ii) information is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Based on their evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2017.2021. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and ChiefPrincipal Accounting and Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Based on the foregoing evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2017.2021. There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended September 30, 2017,fiscal 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management excluded the SNI Acquisition from its assessment of internal control over financial reporting as of September 30, 2017 because it was acquired by the Company in fiscal 2017. SNI acquisition is a wholly-owned subsidiary of the Company and represents $99,240,000, $49,710,000 and $741,000 of the Company's consolidated total assets, total revenue and net income (loss) as of and for the year ended September 30, 2017. Item 9B. Other Information.
None. On December 26, 2017, The Company and Mr. Bajalia entered into a written employment agreement with respect to Mr. Bajalia’s service as President of the Company. The Company and Mr. Bajalia have agreed to an initial term of five years and that Mr. Bajalia shall receive a base salary of $270,000 per year, subject to increase, but not decrease, at the discretion of the Board. In addition, the Company and Mr. Bajalia have agreed that (i) Mr. Bajalia shall be eligible to receive an annual bonus of up to 100% of his base salary based on his meeting certain performance based targets and (ii) Mr. Bajalia shall also receive a total of 500,000 shares of restricted stock under the Company’s 2013 Stock Incentive Plan. These shares shall cliff vest 20% per year of service. Mr. Bajalia shall also be eligible to participate in the Company’s employee benefit plans as in effect from time to time on the same basis as generally made available to other senior executives of the Company and have other benefits provided to executives of the Company.
PART III PART IIIItem 10.Directors, Executive Officers and Corporate Governance.
DIRECTORS AND EXECUTIVE OFFICERS Executive Officers The named executive officers and directors of the Company as of December 19, 2017 are as follows: Name | | Age | | | Position | | Derek E. Dewan (4) | | 62
| 66 | | | Chief Executive Officer, Chairman of the Board | | Alex Stuckey | | 51
| 55 | | | Chief Administrative Officer | | Andrew J. NorstrudKim Thorpe
| | 44
| 66 | | | Senior Vice President and Chief Financial Officer | | George A. BajaliaPeter J. Tanous (1)(2)(5)
| | | 83 | | | Director | | Darla D. Moore (1)(2)(3) | | | 66 | | | Director | | William Isaac (1)(3)(4)(5) | | | 77 | | | Director | | Carl Camden | | | 66 | | | Director | | Matthew Gormly (1) | | | 62 | | | Director | | Thomas Vetrano (2) | | | 60 | | President and Director
| William M. Isaac (1)(3)
| | 73
| | Director | |
Dr. Arthur B. Laffer (1)(2)(3)
| | 77
| | DirectorMember of the Audit Committee.
| Peter J. Tanous (1)(2)
| | 79
| | DirectorMember of the Compensation Committee.
| Thomas C. Williams (1)(2)(3)
| | 58
| | DirectorMember of the Nominating Committee.
| Ronald R. Smith(4)
| Member of the Mergers & Acquisition Committee. | (5) | 65
| | DirectorMember of the Corporate Governance Committee.
|
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
Derek Dewan – Chief Executive Officer, Chairman of the Board Mr. Dewan, former Chairman and Chief Executive Officer (CEO) of Scribe Solutions, Inc. was elected Chairman of the Board of Directors and CEO of the Company effective April 1, 2015. Mr. Dewan was previously Chairman and CEO of MPS Group, Inc. In January 1994, Mr. Dewan joined AccuStaff Incorporated, MPS Group’s predecessor, as President and Chief Executive Officer, and took that company public in August 1994. Under Mr. Dewan’s leadership the company became a Fortune 1000 world-class, global multi-billion-dollar staffing services provider through significant organic growth and strategic acquisitions. MPS Group grew to include a vast network of offices in the United States, Canada, the United Kingdom, Continental Europe, Asia and Australia. MPS Group experienced many years of continued success during Mr. Dewan’s tenure, and he ledincluding having completed successful secondary stock offerings of $110 million and $370 million. The company wasmillion, being featured on the Wall Street Journal’s “top performing stock list” for three consecutive years and being included in the Standard and Poor’s (S&P) Mid-Cap 400. In 2009,2010, Mr. Dewan was instrumental in the sale of MPS Group to the largest staffing company in the world, Adecco Group, for $1.3 billion. Alex Stuckey -– Chief Administrative Officer Mr. Stuckey became the Company’s Chief Administrative Officer on April 6,10, 2017. Mr. StuckeyHe joined the Company in April 2015 as its Chief Operating Officer and President and served in those positions until April 10, 2017. Prior to its acquisition by the Company, Mr. Stuckey was the President and Chief Operating Officer of Scribe Solutions, Inc. Prior to joining Scribe, Mr. Stuckey was the founder and Chief Executive Officer of Fire Fighters Equipment Co. Mr. StuckeyHe led that company from a start up to a multi-million-dollar enterprise with substantial net profits through both organic growth and acquisition growth.growth through acquisition. At Fire Fighters, Mr. Stuckey developed unique marketing strategies, which were revolutionary to the industry. His efforts led to a successful stock sale of Fire Fighters to Cintas. Mr. Stuckey also has extensive experience in banking and finance, which he obtained after a successful career at Barnett Bank as a special assets officer. Mr. Stuckey graduated from Florida State University with a bachelor’s in Entrepreneurship and Business Enterprises. Andrew J. NorstrudKim Thorpe – Senior Vice President and Chief Financial Officer
Mr. NorstrudThorpe joined the Company in Marchas the Vice President of Finance on May 1, 2018, and was appointed as the Company’s Senior Vice President and Chief Financial Officer effective June 15, 2018. Since February 2013, as CFO andMr. Thorpe also has served as CEOManaging Principal of FRUS Capital LLC and from March 7, 2014 until April 1, 2015.November 2013 through May 2017, Mr. Norstrud served as a director of the Company from March 7, 2014 until August 16, 2017. Prior to joining the Company, Mr. Norstrud was a consultant with Norco Accounting and Consulting from October 2011 until March 2013. From October 2005 to October 2011, Mr. NorstrudThorpe served as the Chief Financial Officer for Jagged Peak. Prior to his role at Jagged Peak, Mr. Norstrud was theof Delta Company of Insurance Services, Inc. and as a director and Chief Financial Officer of Segmentz, Inc. (XPO Logistics), and played an instrumental roleNeuLife Neurological Services LLC. From May 2006 to February 2013, Mr. Thorpe served in the company achieving its strategic goals by pursuing and attaining growth initiatives, buildingsenior executive positions in a financial team, completing and integrating strategic acquisitions and implementing the structure required of public companies. Previously, Mr. Norstrud worked for Grant Thornton LLP and PricewaterhouseCoopers LLP and has extensive experience with young, rapid growth public companies. Mr. Norstrud earned a BA in Business and Accounting from Western State Collegeprivately-owned insurance organization and a Masterspecialty real estate lender. From November 1999 to March 2006, Mr. Thorpe served as Executive Vice President and Chief Financial Officer of Accounting withFPIC Insurance Group, Inc., a systems emphasispublic company formerly listed on Nasdaq Global Select Market under the symbol “FPIC”. Mr. Thorpe also served as Senior Vice President and Chief Financial Officer of a large insurance and financial services business unit of GE Capital from March 1998 to November 1999. From October 1993 to February 1998, Mr. Thorpe was a partner of the international accounting firm, Coopers & Lybrand (a predecessor firm to PricewaterhouseCoopers LLP). Mr. Thorpe holds a BSBA in Accounting from the University of Florida. Mr. NorstrudFlorida and is a Florida licensed Certified Public Accountant. George A. Bajalia – President and Director
Mr. Bajalia became the Company’s President on April 6, 2017. Mr. Bajalia joined the Company as a director in January 2015. Mr. Bajalia has over 30 years of business experience, with financial, operational and management expertise in many industries including the staffing industry. Since 2001, Bajalia has provided consulting, advisory and interim management services to executive management, boards, business owners and private equity firms. He has assisted them with implementing their growth and working capital strategies, turnarounds, recapitalizations and strategic objectives.
Mr. Bajalia started his career as a certified public accountant (CPA) at KPMG Peat Marwick in 1980. From 1984 to 1991, Bajalia worked in all areas of finance and as a portfolio company manager for an investment holding company based in Florida. In 1991 he became the chief financial officer (CFO) of one of the public company portfolio investments, Wickes Inc. The company was a leading multi-state distributor of building materials and manufacturer of building components in the US with approximately $1 billion in revenue. During his tenure with Wickes, Mr. Bajalia led the development and implementation of a turnaround and strategic business plan and a $300 million recapitalization including a public stock and bond offering.
From 1998 to 2001 Mr. Bajalia served as chief executive officer (CEO) and chief operating officer (COO) of the professional services division of MPS Group, Inc. (MPS), a publicly traded staffing company. This division had offices throughout the United States and the United Kingdom, and over $650 million in revenue and $80 million in pretax profits. Mr. Bajalia’s achievements with MPS included the integration of five specialty business units, which led to increased organic revenue growth of $200 million and pretax profits of $40 million within two years. He also served as a director of MPS.
Mr. Bajalia’s leadership and communication skills have earned him the reputation as a results-oriented manager. He received his B.S. in Accounting from Florida State University, is a licensed CPA and real estate broker, and is a member of several professional associations.
William M. Isaac – Director Mr. Isaac joined the Company as a director in June 2015. A2015 and is a senior managing director of FTI Consulting, Inc. (“FTI”) and serves as Global Head of FTI’s Financial Institutions practice. Mr. Isaac also is a former Chairman of the United States Federal Deposit Insurance Corporation (“FDIC”), he. He has significant experience as a director on the boards of directors of several public and private companies, including having served as a director of publicly traded (NYSE) staffing giant MPS Group, Inc. (NYSE: MPS), which was one of the largest staffing companies in the U.S. and was sold to the largest staffing firm in the world, Adecco Group for $1.3 billion in 2009. Mr. Isaac is presently a senior managing director of FTI Consulting, Inc. (“FTI”).2010. Mr. Isaac has extensive experience in business, finance, and governance. In 1986, he founded The Secura Group, a leading financial institutionsinstitution consulting firm and operated the business until it was acquired by FTI in 2011. Prior to forming Secura, Mr. Isaac headedserved as a Chairman of the FDIC during the banking crisis of the 1980s, serving under Presidents Carter and Reagan from 1978 through 1985. Mr. Isaac currently serves as a member of the board of TSYS, a leading worldwide payments system processing company, and is the former Chairman of Fifth Third Bancorp, one of the nation’s leading banking companies. Also, Isaac is a former member of the boards of Trans Union Corporation; The Associates prior to its sale to Citigroup and Amex Centurion Bank. He is involved extensively in thought leadership relating to the financial services industry. Mr. Isaac is the author of Senseless Panic: How Washington Failed America with a foreword by legendary former Federal Reserve Chairman Paul Volcker. Senseless Panic provides an inside account of the banking and S&L crises of the 1980s and compares that period to the financial crisis of 2008-2009. Mr. Isaac’s articles are published in the Wall StreetJournal, Washington Post, New York Times, American Banker, Forbes, Financial Times, Washington Times, and other leading publications. He also appears regularly on television and radio, testifies before Congress, and is a frequent speaker before audiences throughout the world. Mr. Isaac served as chairman of the FDIC during one of the most tumultuous periods in US banking history. Some 3,000 banks and thrifts failed during the 1980s, including Continental Illinois and nine of the ten largest banks in Texas. The President appointed Mr. Isaac to the board of the FDIC at the age of 34, making him the youngest FDIC board member and chairman in history. Mr. Isaac also served as chairman of the Federal Financial Institutions Examination Council (1983-85), as a member of the Depository Institutions Deregulation Committee (1981–85), and as a member of the Vice President’s Task Group on Regulation of Financial Services (1984). Mr. Isaac currently serves as a member of the board of TSYS, a leading worldwide payments system processing company, and is the former Chairman of Fifth Third Bancorp, one of the nation’s leading banking companies. Also, Mr. Isaac is a former member of the boards of Trans Union Corporation: The Associates prior to its sale to Citigroup and Amex Centurion Bank. He is involved extensively in thought leadership relating to the financial services industry. Mr. Isaac is the author of Senseless Panic: How Washington Failed America with a foreword by legendary former Federal Reserve Chairman Paul Volcker. Senseless Panic provides an inside account of the banking and S&L crises of the 1980s and compares that period to the financial crisis of 2008-2009. Mr. Isaac’s articles are published in the Wall StreetJournal, Washington Post, New York Times, American Banker, Forbes, Financial Times, Washington Times, and other leading publications. He also appears regularly on television and radio, testifies before Congress, and is a frequent speaker before audiences throughout the world. Mr. Isaac began his career as an attorney with Foley & Lardner and was a senior partner with Arnold & Porter. He holds a JD, summa cum laude, College of Law, The Ohio State University (“OSU”) and a B.SB.S. in economics and LLD (“honorary”) from Miami University, Oxford, Ohio. He received a “Distinguished Achievement Medal” in 1995 from Miami University and a “Distinguished Alumnus Award” in 2013 from OSU. Mr. Isaac is involved with several charitable and not for profit organizations including current and past service on the OSU Foundation Board, member of the OSU “Presidents Club”, former Trustee of the Miami University Foundation Board and a member the University’s “Business Advisory Council”, Goodwill Industries and the Community Foundation of Sarasota, Fl. Bill received a “Distinguished Achievement Medal” in 1995 from Miami University and a “Distinguished Alumnus Award” in 2013 from OSU.FL.
Dr. Arthur B. LafferDarla Moore – Director
Dr. LafferMs. Moore joined the Company as a director in January 2015. Dr. Arthur LafferJune 2018. Ms. Moore is the Founder and Chair of the Palmetto Institute, a nonprofit think-tank aimed at bolstering per capita income in South Carolina. Until 2012, Ms. Moore was the Vice President of Rainwater, Inc., a private investment company. Ms. Moore is also the founder and chairmanchair of Laffer Associates, an economic researchthe Charleston Parks Conservancy, a foundation focused on enhancing the parks and consulting firm. A former memberpublic spaces of President Reagan’s Economic Policy Advisory Board during the 1980s, Dr. Laffer’s economic acumenCity of Charleston. Ms. Moore is the first woman to be profiled on the cover of Fortune magazine and influence have earned himhas been named to the distinctionlist of the Top 50 Most Powerful Women in many publications as “The Father of Supply-Side Economics”. HeAmerican Business. Ms. Moore has served on severalnumerous corporate and philanthropic boards, including Hospital Corporation of directors of public and private companies, including staffing giantAmerica (HCA), Martha Stewart Living Omnimedia, The South Financial Group, MPS Group, Inc., which was sold to Adecco Groupthe National Advisory Board of JP Morgan, the National Teach for $1.3 billion in 2009. Dr. Laffer was previously a consultant to SecretaryAmerica Board of Directors, the Board of Trustees of the Treasury William Simon, Secretary of Defense Donald Rumsfeld,New York University Medical School and Secretary of the Treasury George Shultz. In the early 1970s, Dr. Laffer was the first to hold the title of Chief Economist at the Office of ManagementHospital and Budget (OMB) under Mr. Shultz.
Additionally, Dr. Laffer was formerly the Distinguished University Professor at Pepperdine University and a member of the Pepperdine Board of Directors. He also served as Charles B. Thornton Professor of Business Economics at the University of Southern CaliforniaSouth Carolina Board of Trustees. Ms. Moore was formerly a managing director of Chemical Bank (now a part of JP Morgan Chase) and currently serves on the Culture Shed Board. The University of South Carolina’s business school is named in her honor, the first business school in America named for a woman. Ms. Moore is a recipient of the Business Person of the Year Award from the South Carolina Chamber of Commerce and was inducted into the South Carolina Business Hall of Fame. Currently, she serves as Associate ProfessorChairman of Business Economics atthe Darla Moore and Richard Rainwater Foundation. Ms. Moore is a graduate of the University of Chicago.
Laffer is credited with advancing the concept of supply-side economics when he drew a curve on the back of a napkin at a dinner meeting, showing that government tax receipts can sometimes increase when federal income tax rates are lowered. The Laffer CurveSouth Carolina and supply–side economics served as the foundation for Reaganomics in the 1980s when Dr. Laffer served on the President’s Economic Policy Advisory Boardholds an M.B.A. from 1981 to 1989. Dr. Laffer has been recognized for his achievements in economics, having been featured in Time Magazine’s 1999 cover story, “The Century’s Greatest Minds”, for inventing the Laffer Curve, which Time deemed “one of a few of the advances that powered this extraordinary century”. Bloomberg BusinessWeek recently featured the Laffer Curve as part of “The 85 Most Disruptive Ideas in Our History”. A video is available on their website which features a re-creation of the famous drawing of the Laffer Curve with Donald Rumsfeld and Dick Cheney.
Dr. Laffer has received multiple awards for his economic work, including two Graham and Dodd Awards from the Financial Analyst Federation; the Distinguished Service Award by the National Association of Investment Clubs; the Adam Smith Award for his insights and contributions to the Wealth of Nations; and the Daniel Webster Award for public speaking by the International Platform Association. Dr. Laffer received a B.A. in economics from Yale University and an MBA and Ph.D. in economics from StanfordGeorge Washington University.
Peter J. Tanous – Director Mr. Tanous joined the Company as a director in May 2015. He has served on several boards of directors of public and private companies, including staffing giant and publicly traded (NYSE) MPS Group, Inc. (“MPS”), which was sold to the largest staffing company in the world, Adecco Group for $1.3 billion in 2009. Mr. Tanous is Chairman of Lynx Investment Advisory of Washington D.C., an SEC registered investment advisory firm.firm, and an accomplished author on the topics of economics and investments. He has served on several boards of directors of public and private companies, including MPS Group, Inc. In prior years, Mr. Tanous was International Regional Director with Smith Barney and a member of the executive committee of Smith Barney International, Inc. He served for ten years as executive vice president and a director of Bank Audi (USA) in New York and was earlier chairman of Petra Capital Corporation in New York. A graduate of Georgetown University, he serves on the university’s investment committee and as a member of the Georgetown University Library Board. Mr. Tanous’ book, Investment Gurus, published by Prentice Hall in 1997, received wide critical acclaim in financial circles and was chosen as a main selection of The Money Book Club. His subsequent book, The Wealth Equation, was also chosen as a Money Book Club main selection. Investment Visionaries, was published in August 2003 by Penguin Putnam and Kiplinger’s Build a Winning Portfolio, was published by Kaplan Press in January 2008. Tanous co-authored (with Dr. Arthur Laffer, the “Father of Supply Side Economics” and Stephen Moore, former Wall Street Journal writer and editorial board member) “The End of Prosperity,” published by Simon & Schuster in October 2008. His most recent book, Debt, Deficits and the Demise of the American Economy, co-authored with Jeff Cox, finance editor at CNBC, was published by Wiley in May 2011. In addition to Georgetown University, Tanous serves on several investment committees including:including St. Jude Children’s Research Hospital and Lebanese American University. Mr. Tanous’ experience as a corporate director also includes having served on corporate boards is extensive.the board of directors of MPS Group. At MPS Group, (“MPS”), he served as chairman of the audit committee and on several other committees over many years. Heyears where he gained significant staffing industry knowledge and experience as MPS was one of the largest companiesstaffing organizations in the U.S. in the field of professional staffing with specialization in accounting, engineering, health care and legal services including a significant concentration on information technology delivered through its “Modis” brand. Also, Mr. Tanous has also served on the board of Cedars Bank, Los Angeles, a California state commercial bank with branches in Orange County and San Francisco, and as a director at WorldcareWorldCare Ltd., Cambridge, Mass, a company in the field of health care services and telemedicine diagnostics. Thomas C. WilliamsCarl Camden – Director
Mr. Williams has servedCamden joined the Company as a director ofin March 2020. He is the Company since July 2009. Since 2005, Mr. Williams has served as acting Vice Chairman of Capital Management of Bermuda (previously Travelers of Bermuda), a company providing pension benefits for expatriates who have worked outside the U.S.former President and accrued benefits towards their retirement which are not covered by their domestic pension plans. Additionally, Mr. Williams has served as the Chief Executive Officer and a former director of Innova Insurance Ltd.,global staffing giant Kelly Services® (NASDAQ: KELYA, KELYB) (“Kelly”) and served in these roles from February 2006 to May 2017. Mr. Camden is a Bermuda based insurer, which provides extension risk torecognized leader in the Capital Marketsuse of contingent on-demand labor, talent management, and the concept of how companies can adapt and succeed in the “gig economy”. He is currently President of IPSE – The Association of Independent Professionals and the Self-Employed. Mr. Camden serves on life insurance related assets from 2005 to 2009 when it was acquired. Mr. Williamsthe Board of Trustees of The Conference Board and is ChairmanCo-Chair of the NominatingPolicy and Impact Committee and is a member offor the Audit and Compensation Committees. The Company believes that Mr. Williams is qualified to sitCommittee for Economic Development. He also serves on the Board of Directors becauseof TopBuild, a leading installer and distributor of insulation products in the U.S. construction industry. Previously, Mr. Camden has served on the Board of Directors for a regional branch of the Federal Reserve Bank of Chicago, the Labor Advisory Council for the Federal Reserve Bank, the Advisory Committee on Employee Welfare and Pension Benefits (ERISA Advisory Council), and the Board of Visitors of Duke University Fuqua School of Business. He is also a former member of the Board of Trustees for the University of Detroit Mercy, the Detroit Medical Center Board, and the Detroit Chamber Board. Mr. Camden has served on the American Staffing Association’s Board of Directors and received awards from international workforce agencies for his significant contributions to improving the workforce development system. He has been featured in Business Week, the New York Times, Bloomberg, CNBC, and numerous other media on topics ranging from labor force dynamics to healthcare reform. Mr. Camden has a bachelor’s degree and a PhD. Matthew Gormly – Director Mr. Gormly joined the Company as a director in March 2020. He is a Founder and Managing Partner of Reynolds Gormly & Co., LLC (“Reynolds Gormly”), where he is responsible for origination and capital market opportunities and the firm’s general management. Prior to Reynolds Gormly, Mr. Gormly played a leadership role in the growth and evolution of Wicks Capital Partners (“Wicks”), as a Managing Partner for seventeen years before departing the firm in 2016. At Wicks, Mr. Gormly focused his energy on originating, acquiring, managing, growing, and divesting its portfolio of control buyout investments. Mr. Gormly has extensive experience in all aspects of the investment process including developing investment theses, origination, acquisitions, strategic planning, and divestitures. Additionally, Mr. Gormly was responsible for originating new investments, arranging financing for transactions, and managing those investments through the sale processes. Mr. Gormly has been on the board of directors of over 25 companies, spanning a 30-year period, and has been responsible for over $1.5 billion in financings for acquisitions, leveraged recapitalizations, and re-financings over the course of his significant management experience.career. Mr. Gormly holds a B.A. and an M.B.A. Ronald Smith -Thomas Vetrano – Director
Mr SmithMr. Vetrano joined the Company as a director in March 2020. From 2004 through 2014, Mr. Vetrano served as Principal, Chief Operating Officer, and Secretary of ENVIRON Holdings, Inc. Under his executive leadership ENVIRON tripled revenues to over $300 million and grew from 300 employees in the US and UK to over 1,600 employees in 25 countries, with consistent top-quartile industry growth and profitability. After leading the sale of ENVIRON to Ramboll in 2014, Mr. Vetrano served as President and Managing Director of Ramboll Environment and Health (“REH”), one of the ten largest global environmental and health consultancies. Mr. Vetrano was responsible for all REH global operations, including financial performance; finance and accounting; strategic planning; risk management; human resources; information technology; marketing and communications; sustainability, equality, diversity, and inclusion; and employee health, safety and security.
Mr. Vetrano has over 35 years of international business experience assisting corporations, private equity, financial institutions, and their legal counsel in identifying and resolving complex environmental, health, safety, and sustainability (“EHSS”) issues. He has directed EHSS due diligence in support of over 500 global transactions across a wide range of industries and sectors, served as Chairman or speaker at over 50 professional, technical and industry conferences and seminars, and authored/co-authored numerous publications on EHSS issues. Mr. Vetrano served as a director since August 16, 2017.for ENVIRON and REH from 2000 through 2019 and is currently also a director for several privately-held companies and charitable organizations. During his board tenures, Mr. Smith co-founded SNIVetrano has chaired or served on ethics, equity, executive compensation, finance, governance and was the Chairmanvaluation committees. Mr. Vetrano holds a bachelor’s degree and CEO until March 31, 2017. Mr. Smith is a seasoned staffing executive with over 40 years’ experience in the industry. Smith previously worked for a large international staffing and recruiting firm where he ultimately owned six franchises. After selling his franchises to a large international staffing and recruiting firm in 1988, Smith was promoted to Regional Manager and integrated 20 locations for a large international staffing and recruiting firm.master’s degree. All executive officers are elected annually by the Board of Directors at the first meeting of the Board of Directors held following each Annual Meeting of Shareholders, and they hold office until their successors are elected and qualified. There are no family relationships among any of the directors or executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Company’s directors and officers, and persons who own more than 10% of a registered class of its equity securities, to file reports of ownership and changes in ownership (typically, Forms 3, 4 and/or 5) of such equity securities with the SEC. Such entities are also required by SEC regulations to furnish the Company with copies of all such Section 16(a) reports. BasedTo our knowledge, based solely on a review of Forms 3 and 4 and amendments theretothe copies of such reports furnished to us regarding the Company and written representationsfiling of required reports, we believe that no Form 5 or amendments thereto were required, the Company believes that during the fiscal year ended September 30, 2017 and 2016, its directors and officers, and greater than 10% beneficial owners, other than Mr. Smith, have complied with all Section 16(a) filing. reports applicable to our directors, executive officers, and greater-than-ten-percent beneficial owners with respect to fiscal 2021 were filed. Board of Directors Leadership Structure and Role in Risk Oversight Our Board has no policy regarding the separation of the offices of Chairman of the Board and Chief Executive Officer. WeOfficer, and we currently combinebestow the roleroles and responsibilities of Chairman of the Board and Chief Executive Officer.Officer with Mr. Dewan. The Board believes that Mr. Dewan’s service as both Chairman of the Board and Chief Executive Officer is in the best interests of the Company and its shareholders. Mr. Dewan possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and its business and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its strategy clearly and consistently to the Company’s shareholders, employees, and customers. Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight, and expertise from outside the company and industry, while the management brings company-specific experience and expertise. The Board of Directors believes that a board of directors combined with independent board members and management is in the best interest of shareholders because it promotes strategy development and execution and facilitates information flow between management and the Board of Directors, which are essential to effective governance. The Board of Directors does not have a lead independent director. The Board of Directors provides overall risk oversight for the Company as part of its normal, ongoing responsibilities. It receives reports from Mr. Dewan, Mr. BajaliaThorpe, and other members of senior management on a periodic basis on areas of risk facing the Company. In addition, Board of Directors committees oversee specific elements of risk or potential risk. Director Independence The Board of Directors has determined that each director, other than Mr. Dewan, Mr. Smith and Mr. Bajalia, is an independent director under the listing standards of the NYSE MKT.American. In addition, the Board of Directors has determined that each current member of the Audit Committee meets the additional independence criteria required for audit committee membership under the listing standards of the NYSE MKTAmerican and Rule 10A-3 of the Exchange Act and possesses the experience and expertise required to be considered a “financial expert” as defined under the Sarbanes-Oxley Act. Board of Directors and Committee Meetings The Board of Directors meets on a regularly scheduled basis to review significant developments affecting the Company and to act on matters requiring Board of Directors approval. It also holds special meetings when an important matter requires Board of Directors action or attention between scheduled meetings. The Board of Directors held 6seven meetings during the last fiscal year.2021. No director of the Company attended less than 75% of the total meetings of the Board of Directors and Committees on which such Board of Directors members served during this period. The members of the Board of Directors are expected to attend the Company’s Annual Meeting of Shareholders. There are threefive standing committees of the Board of Directors, which areDirectors: the Nominating Committee, the Audit Committee, the Corporate Governance Committee, the Mergers and Acquisitions Committee, and the Compensation Committee. Nominating Committee The functions of the Nominating Committee are to assist the Board of Directors in identifying, interviewing, and recommending to the Board of Directors qualified candidates to fill positions on the Board of Directors. The Nominating Committee met one time during fiscal 2017. The Company does not have a policy regarding the consideration of diversity, however defined, in identifying nominees for director. Instead, in evaluating candidates to serve on the Company’s Board of Directors, consideration is given to the level of experience, financial literacy, and business acumen of the candidate. In addition, qualified candidates for director are those who, in the judgment of the Nominating Committee, have significant decision-making responsibility, with business, legal or academic experience. The Nominating Committee will consider recommendations for Board of Directors candidates that are received from various sources, including directors and officers of the Company, other business associates and shareholders, and all candidates will be considered on an equal basis, regardless of source. their gender, race, ethnicity, religious beliefs, or other such criteria. Shareholders may contact the Nominating Committee to make such recommendations by writing in care of the Secretary of the Company, at 184 Shuman Blvd.,7751 Belfort Road, Suite 420, Naperville, Illinois 60563.150, Jacksonville, FL 32256. Submissions must be in accordance with the Company’s By-Laws and include:include; (a) a statement that the writer is a shareholder and is proposing a candidate for consideration by the Nominating Committee;Committee, (b) the name, address and number of shares beneficially owned by the shareholder;shareholder, (c) the name, address and contact information of the candidate being recommended;recommended, (d) a description of the qualifications and business experience of the candidate;candidate, (e) a statement detailing any relationships between the candidate and the Company and any relationships or understandings between the candidate and the proposing shareholder;shareholder, and (f) the written consent of the candidate that the candidate is willing to serve as a director if nominated and elected. The Nominating Committee is presently composed of threetwo non-employee, independent directors: Thomas C. Williams (Chairman), Dr. Arthur B. Laffer,Darla Moore (Chairwoman) and William Issac.Isaac. The Board of Directors has adopted a written charter for the Nominating Committee. The Nominating Committee Charter is available on the Company’s website. A copy of the Nominating Committee Charter was attached as an appendix to the proxy statement prepared in connection with the January 21, 2011, Annual Meeting of Shareholders. Audit Committee The Audit Committee is primarily concerned with the effectiveness of the Company’s accounting policies and practices, its financial reporting, and its internal accounting controls. In addition, the Audit Committee reviews and approves the scope of the annual audit of the Company’s books, reviews the findings and recommendations of the independent registered public accounting firm at the completion of their audit, and approves annual audit fees and the selection of an auditing firm. The Audit Committee also considers the relationships among the independent auditors, management and board members to ascertain the audit firm’s independence from management and board members. The Audit Committee met fourfive times during fiscal 2017.2021. The Audit Committee is presently composed of four non-employee, independent directors: Peter J. Tanous (Chairman), Dr. Arthur B. Laffer, Thomas C. WilliamDarla Moore, Matthew Gormly and William M. Isaac. Peter J. Tanous was appointed by the Board of Directors as the Chairman of the Audit Committee in July of 2016. The Board of Directors has determined that Mr. Williams, Dr. Laffer,Tanous, Ms. Moore, Mr. TanousGormly and Mr. Isaac are alleach considered an “audit committee financiala “financial expert” as defined by rules of the SEC.Sarbanes-Oxley Act. The Board of Directors has determined that each audit committee financial expert meets the additional independence criteria required under the listing standards of the NYSE MKTAmerican and Rule 10A-3 of the Exchange Act. The Board of Directors has adopted a written charter for the Audit Committee. The Audit Committee Charter is available on the Company’s website. A copy of the Audit Committee Charter is attached to the form 10-Q filed with the SEC on February 16, 2016. Compensation Committee The Compensation Committee has the sole responsibility for approving and evaluating the director and officer compensation plans, policies and programs. It may not delegate this authority. It meets as often as necessary to carry out its responsibilities. The Compensation Committee has the authority to retain compensation consultants but has not done so.so to date. The Compensation Committee met one timetwo times during fiscal 2017.2021. In the past, theThe Compensation Committee has met each Septembermeets at least annually to consider the compensation of the Company’s executive officers, including the establishment of base salaries and performance targets for the succeeding year, and the consideration of restricted common stock and stock option awards. Management provides the Compensation Committee with such information as may be requested by the Compensation Committee,chairman or its members, which in the past has included historical compensation information of the executive officers, tally sheets, internal pay equity statistics, and market survey data. Under the guidelines of the NYSE MKT,American, the Chief Executive Officer may not be present during the Compensation Committee’s deliberations regarding his compensation. If requested by the Committee, the Chief Executive Officer may provide recommendations regarding the compensation of the other officers.
The Compensation Committee also has the responsibility to make recommendations to the Board of Directors regarding the compensation of directors. The Compensation Committee is presently composed of three non-employee, independent directors: Dr. Arthur B. LafferThomas Vetrano (Chairman), Peter Tanous and Thomas C. Williams. Darla Moore. The Board of Directors has adopted a written charter for the Compensation Committee. The Compensation Committee Charter is not available on the Company’s website. A copy the Compensation Committee Charter was attached as an appendix to the proxy statement prepared in connection with the January 28, 2010, Annual Meeting of Shareholders. Mergers and Acquisition Committee The Mergers and Acquisition Committee has the responsibility for evaluating acquisitions and the necessary financing to complete the acquisitions that are determined by management to meet the minimum criteria for evaluation. The Mergers and Acquisitions Committee has the responsibility to keep the entire board informed of managementsthe Company’s proposed acquisitions and, only after the Committee has determined an acquisition qualifies, is the acquisition presented to the entire board for approval. The Mergers and Acquisition Committee has the authority to retain compensation consultants but has not done so.so to date. The Mergers and Acquisition Committee met twicedid not meet during fiscal 2017.2021. The Mergers and Acquisition Committee is presently composed of threeone employee and one non-employee, independent directors: George A. Bajaliadirector: Derek E. Dewan (Chairman), Dr. Arthur B. Laffer, and William M. Isaac. Corporate Governance Committee The Corporate Governance Committee has responsibilities and duties ranging from Board and committee structure and organization to assisting the Board in evaluating whether the Board and its committees are functioning effectively and consistently in accordance with and subject to applicable law and rules and regulations promulgated by the SEC, the NYSE and any other applicable regulatory authority. The Corporate Governance Committee also monitors and recommends the functions of the various committees of the Board. The Corporate Governance Committee is responsible for developing director qualifications and an annual evaluation process for the Board, its committees and individual directors and for overseeing the execution of such annual evaluations, including the Committee’s own evaluation. The Corporate Governance Committee is tasked with the responsibility to review the outside activities of Senior Executives and, if warranted, report and/or make recommendations concerning such activities to the Board of Directors. The Corporate Governance Committee also regularly reviews the Company’s and subsidiaries’ Certificates of Incorporation, Bylaws and Policies, Committee Charters and other Company documents and recommend revisions to be acted upon by the Board of Directors. The Corporate Governance Committee also coordinates with Human Resources to review any reports of discrimination or sexual harassment and recommend any actions deemed appropriate, review whistleblower reports and recommend any actions deemed appropriate. The Corporate Governance Committee monitors emerging corporate governance trends and oversees and evaluates corporate governance policies and programs and recommends to the Board such changes as the Committee believes appropriate. When applicable, the Corporate Governance Committee will review shareholder proposals and recommend proposed Company responses for inclusion in the Company’s proxy statement, or otherwise, to the Board. The Corporate Governance Committee reviews at least annually, or more frequently if deemed appropriate under the circumstances, the Company’s Standards for Director Independence and enhanced independence requirements issued by the NYSE and by other applicable regulators and advisory services and recommends to the Board any modifications to the Company’s standards that the Committee deems desirable. The Committee provides to the Board its assessment of which directors should be deemed independent directors under applicable rules, policies and regulations. This review also contemplates the requirements of a “financial expert” under applicable rules of the SEC and NYSE, thereby assessing which directors should be deemed financial experts and recommends to the Board the determination that such directors are “financial experts” within the applicable definitions established by the SEC and NYSE. The Committee reviews on a periodic basis and makes recommendations, accordingly, regarding continuing education programs for directors and an orientation program for new directors. Finally, the Corporate Governance Committee obtains annual independence and conflict of interest statements from all directors and senior management members and reviews and makes recommendations to the Board regarding questions of potential conflicts of interest and with regard to any transactions among the Company and related parties as defined in Item 404 of Regulation S-K. The Committee is required to be comprised of three or more directors as determined by the Board, each of whom the Board has determined meets the independence requirements of the Company’s Standards for Director Independence, the New York Stock Exchange (“NYSE”) and the Securities and Exchange Commission (the “SEC”). The members of the Committee are appointed by the Board and serve until their successors are duly appointed or until their retirement, resignation, death or removal by the Board. As of September 30, 2021, the Committee had one vacancy. The Corporate Governance Committee is presently composed of two non-employee, independent directors: William M. Isaac (Chairman) and Peter Tanous. The Corporate Governance Committee did not meet during fiscal 2021. Shareholder Communications The Board of Directors has established a procedure by which shareholders of the Company can communicate with the Board of Directors. Shareholders interested in communicating with the Board of Directors as a group or with individual directors may do so, in writing. Correspondence to the directors should be sent by regular mail c/o the Secretary, General Employment Enterprises,GEE Group Inc., 184 Shuman Blvd,7751 Belfort Road, Suite 420, Naperville, Illinois 60563.150, Jacksonville, Florida 32256. Any such correspondence will be reviewed by the Secretary, who will then forward it to the appropriate parties. Communications that are solicitations or deemed to be irrelevant to the Board of Directors’ responsibilities may be discarded, at the discretion of the Secretary. Corporate Code of Ethics We have a Code of Ethics that applies to all directors and employees, including our senior management team. The Code of Ethics is designed to deter wrongdoing, to promote the honest and ethical conduct of all employees and to promote compliance with applicable governmental laws, rules, and regulations. We intend to satisfy the disclosure requirements under applicable SEC rules relating to amendments to the Code of Ethics or waivers from any provision thereof applicable to our principal executive officer, our principal financial officer and principal accounting officer by posting such information on our website pursuant to SEC rules. Our Code of Ethics was attached as an exhibit to our Form 10-K filed with the SEC on March 29, 2013. In addition, you may obtain a printed copy of the Code of Ethics, without charge, by sending a request to: General Employment Enterprises,GEE Group Inc., 184 Shuman Blvd.,7751 Belfort Road, Suite 420, Naperville, Illinois 60563,150, Jacksonville, FL 32256, Attn.: Secretary. Item 11. Executive Compensation. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION
Summary Compensation Information The following table summarizes alltotal compensation awarded to earned by or paid to all individuals serving as the Company’snamed executive officers including principal executive officer, its two most highly compensated executive officers other than the principal executivefinancial and accounting officer, and up to two additional individuals who were serving as executive officers atprincipal administrative officer. Throughout this section, the end of the last completed fiscal year, for each of the last two completed fiscal years. These individuals are referred to throughout this proxy statement as theterm “named executive officers.officers” is intended to refer to the individuals listed in “Summary Compensation Table.” Summary Compensation Table
Name and Principal Position | | Fiscal Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | NonEquity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derek Dewan Chief Executive Officer | | 2021 | | | 308,172 | | | | 112,500 | | | | 115,000 | | | | - | | | | - | | | | - | | | | - | | | | 535,672 | | | 2020 | | | 300,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 300,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Alex Stuckey Chief Administrative Officer | | 2021 | | | 225,095 | | | | 82,500 | | | | 84,333 | | | | - | | | | - | | | | - | | | | - | | | | 391,928 | | | 2020 | | | 220,000 | | | | - | | | | | | | | - | | | | - | | | | - | | | | - | | | | 220,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kim Thorpe Chief Financial Officer and Senior Vice President | | 2021 | | | 253,557 | | | | 93,750 | | | | 95,833 | | | | - | | | | - | | | | - | | | | - | | | | 443,140 | | | 2020 | | | 205,000 | | | | 25,000 | | | | 303,000 | | | | - | | | | - | | | | - | | | | - | | | | 533,000 | |
_____________ Name and Principal Position | | Fiscal Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | NonEquity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total ($) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derek Dewan (1) Chief Executive Officer | | 2017 | | | 300,000 | | | | | | | | | | | | | | | | | | | | 300,000 | | | | 2016 | | | 130,000 | | | | | | | | | | | | | | | | | | | | 130,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Alex Stuckey (2) Chief Administrative Officer | | 2017 | | | 184,000 | | | | 10,000 | | | | | | | | | | | | | | | | | 194,000 | | | | 2016 | | | 174,000 | | | | | | | | | | | | | | | | | | | | | 174,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | George Bajalia (4) President | | 2017 | | | 145,000 | | | | | | | | | | | | | | | | | | | | | 135,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Andrew Norstrud (3) | | 2017 | | | 250,000 | | | | 100,000 | | | | –– | | | | –– | | | | –– | | | | | | | | 350,000 | | Chief Financial Officer and Treasurer | | 2016 | | | 246,000 | | | | 0 | | | | | | | | | | | | | | | | | | | | 246,000 | |
(1) Mr. Dewan was appointed as Chairman of the Board of Directors and the Chief Executive Officer of the Company on April 1, 2015.
(2) Mr. Stuckey became the President and Chief Operating Officer on April 1, 2015, resigned these positions and accepted the appointment to Chief Administrative Officer as of April 10, 2017.
(3) Mr. Norstrud has served as Chief Financial Officer of the Company since March 2013.
(4) Mr. Bajalia was appointed as President as of April 10, 2017.
Employment and Change in Control Agreements Andrew Norstrud: On August 13, 2013, the Company entered an employment agreement with Andrew J. Norstrud (the “Norstrud Employment Agreement”). The Norstrud Employment Agreement provided for a three-year term ending on March 29, 2016, unless employment is earlier terminated in accordance with the provisions thereof. Mr. Norstrud received a starting base salary at the rate of $200,000 per year which was adjusted by the Compensation Committee to $250,000 per year. Mr. Norstrud received options to purchase 20,000 shares of the Company’s common stock in connection with his execution of the Norstrud Employment Agreement, and is also entitled to receive an annual bonus based on criteria to be agreed to by Mr. Norstrud and the Compensation Committee. Mr. Norstrud was granted an additional option to purchase 100,000 and 20,000 shares of the Company’s common stock in connection with his employment with the Company. The Norstrud Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions. On July 24, 2015, the Company entered into an amendment to the Norstrud Employment Agreement pursuant to which Mr. Norstrud’s term of employment was extended to March 29, 2017. Additionally, the term will automatically extend for successive one year periods unless written notice is given by either party no later than 90 days prior to the expiration of the initial term.
Derek Dewan:Dewan, Chairman and Chief Executive Officer: On August 12, 2016, the Company entered an employment agreement with Derek Dewan (the “Dewan Employment Agreement”). The Dewan Employment Agreement provides for a five-year term ending on August 15, 2021, unless employment is earlier terminated in accordance with the provisions thereof and after the initial term has a standard 1 year1-year automatic extension clause if there is no notice by the Company of termination. Mr. Dewan had received a starting base salary at the rate of $300,000 per year which can be adjusted by the Compensation Committee. Mr. Dewan’s employment agreement was amended in fiscal 2021 to increase his base salary to $350,000 per year, and to extend the term of the agreement so that it ends on September 30, 2024. Mr. Dewan is entitled to receive an annual bonus based on criteria to be agreed to by Mr. Dewan and the Compensation Committee. The Dewan Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions. On June 15, 2021, 600,000 restricted shares of common stock previously granted to Mr. Dewan became fully vested. On August 13, 2021, the Company granted 250,000 restricted shares of common stock to Mr. Dewan. The restricted shares are to be earned over a three-year period and cliff vest at the end of the third year from the date of grant. George Bajalia: TheKim Thorpe, Senior Vice President and Chief Financial Officer: On June 15, 2018, the Company appointed Kim Thorpe as the Company’s new Chief Financial Officer. On February 13, 2019, the Company and Mr. Bajalia haveThorpe entered into a written employment agreement with respect to Mr. Bajalia’sThorpe’s service as Senior Vice President and Chief Financial Officer of the Company.Company (the “Thorpe Employment Agreement”). The Company and Mr. Bajalia haveThorpe agreed to an initial term of five years and that Mr. Bajalia shallThorpe will receive a base salary of $270,000$200,000 per year, subject to increase, but not decrease, at the discretion of the Board. In addition,Chief Executive Officer. Mr. Thorpe’s employment agreement was amended in fiscal 2020 to increase his base salary to $250,000 per year, and again in fiscal 2021 to increase his base salary to $270,000 per year, and to extend the Company andterm of the agreement so that it ends on September 30, 2024. Mr. Bajalia have agreed that (i) Mr. Bajalia shall be eligibleThorpe is entitled to receive an annual bonus of up to 100% of his base salary based on his meeting certain performance based targets and (ii)criteria to be agreed to by Chief Executive Officer. Mr. Bajalia shallThorpe is also receive a total of 500,000 shares of restricted stock under the Company’s 2013 Stock Incentive Plan. These shares shall cliff vest 20% per year of service. Mr. Bajalia shall also be eligible to participate in the Company’s employee benefit plans as in effect from time to time on the same basis as generally made available to other senior executives of the Company and havein addition to other benefits provided to executives of the Company. The Thorpe Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions. On August 13, 2021, the Company forgranted 208,333 restricted shares of common stock to Mr. Thorpe. The restricted shares are to be earned over a three-year period and cliff vest at the end of the third year ended September 30, 2017 there was no bonus or shares owed or earned.from the date of grant.
Alex Stuckey, Chief Administrative Officer: On June 1, 2018, the Company and Mr. Stuckey entered into a written employment agreement with respect to Mr. Stuckey’s service as Chief Administrative Officer of the Company (the “Stuckey Employment Agreement”). The Company and Mr. Stuckey agreed to an initial term of five years and that Mr. Stuckey will receive a base salary of $220,000 per year, subject to increase, but not decrease, at the discretion of the Board. In addition, the Company and Mr. Stuckey have agreed that Mr. Stuckey shall be eligible to receive Incentive Compensation that shall be determined by the Chief Executive Officer or the Board. Mr. Stuckey is also eligible to participate in the Company’s employee benefit plans as in effect from time to time on the same basis as generally made available to other senior executives of the Company in addition to other benefits provided to executives of the Company. The Stuckey Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions. On August 13, 2021, the Company granted 183,333 restricted shares of common stock to Mr. Stuckey. The restricted shares are to be earned over a three-year period and cliff vest at the end of the third year from the date of grant. Option Awards The option awards column represents the fair value of the stock options as measured on the grant date. The methods and assumptions used to determine the fair value of stock options granted are disclosed in “Note 10 - Stock Option Plans”Note 12 in the notes to consolidated financial statements contained elsewhere herein. All stock options awarded to the named executive officers or others during fiscal 2017 and 20162021 were at option prices that were equal to the market price on the date of grant, had vesting dates threefive years or less after the date of grant, and had expiration dates ten years after the date of grant. Outstanding Equity Awards at Fiscal Year-End Outstanding Equity Awards at Fiscal Year- End Table
The following table summarizes equity awards granted to Named Executive Officers and directors that were outstanding as of September 30, 2017:2021: | | Option Awards | | Stock Awards | | | Option Awards | | Option Awards | | Stock Awards | | Name | | Number of Securities Underlying Unexercised Options: # Exercisable | | Number of Securities Underlying Unexercised Options: # Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unearned and Unexercisable Options: | | Option Exercise Price $ | | Option Expiration Date | | # of Shares or Units of Stock That Have Not Vested # | | Market Value of Shares or Units of Stock That Have Not Vested $ | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested # | | Equity Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested $ | | | Number of Securities Underlying Unexercised Options: # Exercisable | | | Number of Securities Underlying Unexercised Options: # Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unearned and Unexercisable Options: | | | Option Exercise Price $ | | | Option Expiration Date | | | # of Shares or Units of Stock That Have Not Vested # | | | Market Value of Shares or Units of Stock That Have Not Vested $ | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested # | | | Equity Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derek Dewan, Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | - | | - | | - | | - | | - | | 250,000 | | 115,000 | | 250,000 | | 115,000 | | | | | | | | | | | | | | | | | | | | | | | Alex Stuckey, Chief Administrative Officer | | | | | | | | | | | | | | | | | | | | | - | | - | | - | | - | | - | | 283,333 | | 136,333 | | 283,333 | | 136,333 | | Andrew Norstrud, | | 20,000 | | - | | 2.50 | | 1/27/2024 | | - | | - | | - | | - | | | Chief Financial Officer and Treasurer | | 100,000 | | | | | | 3.50 | | 3/04/2024 | | | | | | | | | | | | | 20,000 | | 10,000 | | | | 7.00 | | 7/24/2025 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kim Thorpe, Chief Financial Officer and Senior Vice President | | | 20,000 | | 30,000 | | - | | 2.21 | | | 06/15/28 | | 608,333 | | 450,833 | | 608,333 | | 450,833 | |
Retirement Benefits
The Company does not maintain a tax-qualified defined benefit retirement plan for any of its executive officers or employees. The Company has a 401(k)-retirement plan in which all full-time employees may participate after one year of service. DIRECTOR COMPENSATION DIRECTOR COMPENSATIONCompensation of Directors
Compensation of Directors
Under the Company’s standard compensation arrangements that were in effect during fiscal 2015, each non-employee director received a monthly retainer of $2,000. This was discontinued as of April 18, 2015 and theBeginning July 2020, members of the Board of Directors have only received stock optionsare paid cash compensation each quarter in the amount of $5,000 for their servicesattendance/participation. Also, non-executive Committee Chairpersons receive an additional $1,000 per quarter for their committee meeting. Employees serving as board members. Employeesdirectors of the Company did not receive any additional compensation for service on the Board of Directors.
The following table sets forth information concerning the compensation paid to each of the non-employee directors during fiscal 2017:2021: Director Compensation
Name | | Fees Earned or Paid in Cash ($) | | | Stock Option Awards ($) | | | Stock Awards ($) | | | Total ($) | | William M. Issac | | | 24,000 | | | | 12,604 | | | | - | | | | 36,604 | | Peter J. Tanous | | | 24,000 | | | | 12,604 | | | | - | | | | 36,604 | | Darla D. Moore | | | 24,000 | | | | 12,604 | | | | - | | | | 36,604 | | Carl Camden | | | 20,000 | | | | 12,604 | | | | - | | | | 32,604 | | Matthew Gormly | | | 20,000 | | | | 12,604 | | | | - | | | | 32,604 | | Thomas Vetrano | | | 24,000 | | | | 12,604 | | | | - | | | | 36,604 | |
Name | | Fees Earned or Paid in Cash ($) | | | Option Awards (1) ($) | | | Total ($) | | | | | | | | | | | | George Bajalia | | $ | 37,500 | | | | - | | | | - | |
Option Awards
The option awards column represents the fair value of the stock options as measured on the grant date. The methods and assumptions used to determine the fair value of stock options granted are disclosed in “Note 10 - Stock Option Plans”Note 12 in the notes to consolidated financial statements in the Company’s Annual Report for fiscal 2017. 2021. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information concerning the beneficial ownership of our voting securities as of December 28, 201722, 2021 by (i) each person who is known by us, based solely on a review of public filings, to be the beneficial owner of more than 5% of any class of our outstanding voting securities, (ii) each director, (iii) each executive officer named in the Summary Compensation Table and (iv) all executive officers and directors as a group. Under applicable SEC rules, a person is deemed to be the “beneficial owner” of a voting security if such person has (or shares) either investment power or voting power over such security or has (or shares) the right to acquire such security within 60 days by any of a number of means, including upon the exercise of options or warrants or the conversion of convertible securities. A beneficial owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are held by the beneficial owner, but not those held by any other person, and which are exercisable or convertible within 60 days, have been exercised or converted. Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all voting securities shown as being owned by them. Unless otherwise indicated, the address of each beneficial owner in the table below is care of GEE Group inc.184 Shuman Blvd,Inc., 7751 Belfort Parkway, Suite 420, Naperville, Illinois 60563.150, Jacksonville, Florida 32256. Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | | Percent of Class(1) | | Directors and Executive Officers | | | | | | | Derek Dewan | | | 443,266 | (2) | | | 4.41 | % | Andrew J. Norstrud | | | 145,000 | (3) | | | 1.43 | % | Dr. Arthur Laffer | | | 93,571 | (4) | | 0.93 | % | Thomas Williams | | | 55,000 | (5) | | 0.55 | % | Peter Tanous | | | 14,000 | (6) | | 0.14 | % | William Isaac | | | 42,500 | (7) | | 0.42 | % | George A. Bajalia | | | 48,571 | (8) | | 0.48 | % | Ronald Smith | | | 4,434,169 | (10) | | | 44.28 | % | Alex Stuckey | | | 1,808,936 | (9) | | | 18.00 | % | Current directors and executive officers as a group (9 individuals) | | | 7,085,013 | | | | 68.60 | % | 5% or Greater Holders | | | | | | | | | Brittany M. Dewan as Trustee of the Derek E. Dewan Irrevocable Living Trust II dated the 27th of July 2010 | | | 655,042 | (11) | | | 6.54 | % |
Name and Address of Beneficial Owner, Directors and Executive Officers | | Amount and Nature of Beneficial Ownership | | Percent of Class (1) | | | | | | | | | Derek Dewan | | | 2,091,017 | (2) | | | 1.83 | % | Darla Moore | | | 403,920 | (3) | | * | | Peter Tanous | | | 384,820 | (4) | | * | | William Isaac | | | 383,987 | (5) | | * | | Alex Stuckey | | | 1,566,624 | (6) | | | 1.37 | % | Kim Thorpe | | | 222,657 | (7) | | * | | Carl Camden | | - | (8) | | * | | Matthew Gormly | | | 175,000 | (9) | | * | | Thomas Vetrano | | | 18,000 | (10) | | * | | Current directors and executive officers as a group (9 individuals) | | | 5,246,025 | | | | 4.60 | % | | | | | | | | | | 5% or Greater Holders: | | | | | | | | | Sabby Volatility Warrant Master Fund, Ltd., | | | 10,000,000 | (11) | | | 8.76 | % | Lind Global Macro Fund LP | | | 7,500,000 | (12) | | | 6.57 | % | Altium Capital Management LP | | | 10,000,000 | (13) | | | 8.76 | % | Kazazian Asset Management LLC | | | 10,000,000 | (14) | | | 8.76 | % |
* | Represents less than 1%. |
(1) | Based on 10,012,847 shares114,100,455 Common Stock issued and outstanding as of December 28, 2017.22, 2021. |
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Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.