UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended September 30, 2018
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☒     Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2020

☐     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-05707

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o ☐    No x☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o Act.Yes ☐    No x☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ☒    No o☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x ☒    No o☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by checkmarkcheck mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐    No x☒

The aggregate market value of shares of common stock held by non-affiliates of the registrant on March 31, 20182020 was 8,129,82611,997,724 x $2.64$0.36 = $21,462,741.$4,319,181.

The number of shares outstanding of the registrant’s common stock as of December 17, 201828, 2020 was 11,204,635.17,667,123.

TABLE OF CONTENTS

PART I

Forward Looking Statements

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has based these forward-looking statements on the Company’s current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us and the Company’s subsidiaries that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a material difference include, but are not limited to, those discussed elsewhere in this Annual Report, including the section entitled “Risk Factors” and the risks discussed in the Company’s other Securities and Exchange Commission filings. The following discussion should be read in conjunction with the Company’s audited Financial Statements and related Notes thereto included elsewhere in this report.

General

GEE Group Inc. (the "Company"“Company”, "us"“us”, "our"“our” or "we"“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.

The Company has several subsidiary corporations all of which are wholly owned and consolidated under GEE Group, Inc. The Company’s material operating subsidiaries include Access Data Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Logistics, Inc., and Triad Personnel Services, Inc. In addition, the Company and its operating subsidiaries own and operate under other trade names, including Ashley Ellis, Certes Financial Professionals, General Employment Enterprises and Omni One.

Recent Acquisitions

On October 4, 2015, the Company entered a Stock Purchase Agreement with William Daniel Dampier and Carol Lee Dampier (the “Access Sellers”) pursuant to which the Company acquired on October 4, 2015, 100% of the outstanding stock of Access Data Consulting Corporation., a Colorado corporation, for a purchase price equal to approximately $16,000,000 in consideration. The purchase price consisted of $8,000,000 in cash (subject to minimum working capital), the issuance to the Access Sellers 327,869 shares of Company common stock, a Promissory note in the aggregate of $3,000,000 and up to $2,000,000 of an “earnout”. On April 4, 2016, the Company issued approximately 123,000 of additional shares of common stock to the Sellers of Access Data Consulting Corporation. This was based on market value of the stock on April 4, 2016 being approximately $544,000 less than $2,000,000 six month guaranteed and based on the closing stock price of $4.44 per common share. The Company recognized a loss on change of contingent consideration of approximately $44,000 for the year ended September 30, 2016. The earnout was not achieved. In addition, the Company increased the original purchase price by approximately $600,000 related to a mutual tax election as described in the purchase agreement.

On January 1, 2016, the Company entered a Stock Purchase Agreement (the “Paladin Agreement”) with Enoch S. Timothy and Dorothy Timothy. 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 $1,750,000, minus the Circle Lending Loan Amount ( as defined in the Paladin Agreement) plus up to $1,000,000 in contingent promissory notes, minus the NWC Reduction Amount (as defined in the Paladin Agreement ) (if any) plus up to $1,250,000 of “earnouts”, for a total of approximately $2,625,000.

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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, (the “GEE Portfolio”), SNI Holdco Inc., a Delaware corporation (“SNI Holdco”), 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. As a result of the Merger, GEE Portfolio became the owner 100% of the outstanding capital stock of SNI Companies, a Delaware corporation and a wholly-owned subsidiary of SNI Holdco (“SNI Companies” and collectively with SNI Holdco, the “Acquired Companies”).

The aggregate consideration paid for the shares of SNI Holdco (the “Merger Consideration”) was $86 million minus the $20,220,710 of Long Term Debt (as defined in the Merger Agreement) of the Acquired Companies immediately before closing plus or minus the “NWC Adjustment Amount” or the difference in the book value of the Closing Net Working Capital (as defined in the 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 April 3, 2017, the Company paid to certain SNIH Stockholders as part of the Merger Consideration (i) an aggregate of approximately $18,550,000 in cash, (ii) an aggregate of $12.5 million in aggregate principal amount of its 9.5% Convertible Subordinated Notes and (iii) an aggregate of 5,926,000 shares of its Series B convertible preferred stock. The 9.5% Notes mature on October 3, 2021 . The 9.5% Notes are convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share. The Series B Convertible Preferred Stock has a liquidation preference of $4.86 per share. 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.

At 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.

Services Provided

The Company and its subsidiaries provide the following services: (a) professional placement services specializing in the placement of information technology, finance, accounting and office, engineering, and medical data entry assistants (medical scribes) who specialize in electronic medical records (EMR) services for emergency departments, specialty physician practices and clinics and accounting professionals for direct hire and contract staffing, and (b) temporary staffing services in light industrial staffing.

 

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Together with its subsidiaries, the Company provides staffing services through a network of branch offices located in several major metropolitan areas throughout the United States. The Company’s professional staffing services provideinvolve providing information technology, finance, accounting and office, engineering, and medical and accountingscribe professionals to clients on either a regular placement basis or a temporary contract basis. The Company’s industrial staffing business provides weekly temporary staffing for light industrial clients, primarily in Ohio.

The Company’s contract and placement services are principally provided under two operating divisions or segments: Professional Staffing Services and Industrial Staffing Services.

The Company’s operating subsidiaries and service verticalsvertical or end markets served under each of its operating divisions are as follows:

		Access Data Consulting provides higher-end IT consulting and IT contract staffing services including project management support to businesses regionally and throughout the U.S.
		Agile Resources delivers unique CIO advisory services and IT project support resources in the areas of application architecture and delivery, enterprise operations, information lifecycle management and project management all with flexible delivery options
		Ashley Ellis works with C-suite and senior executives to offer full cycle engineering and IT contract staffing services, with a focus on business intelligence, application development and network infrastructure, to clients throughout the U.S.
		General Employment Enterprises is the oldest brand and primarily provides direct hire placements for Accounting and Engineering, with an emphasis on mechanical, manufacturing and equipment maintenance, clients throughout the Midwest
		Omni One specializes in technical and professional direct-hire and contract staffing solutions, for manufacturing and engineering clients primarily spread-out through the Midwest
		Paladin Consulting provides IT, Accounting and Human Resource contract staffing through Resource Process Outsourcing (RPO), Managed Service Provider (MSP) and Vendor Management (VMS) capabilities
		Scribe Solutions provides Emergency Room and Physician Practices with highly trained medical scribes for personal assistant work in connection with electronic medical records (EMR)
		SNI Companies provides recruitment and both direct hire and contract staffing services, specializing in Admin,Finance, Accounting and Office, Finance, Banking, and IT, to fourteeneighteen major U.S. metropolitan markets
		Triad Staffing provides light industrial contract labor for all phases of manufacturing and assembly, warehousing, packing and shipping, custodial and general labor operations throughout Ohio

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Business Strategy

GEE Group Inc.’s business strategy is multi-dimensional and encompasses both organic growth and growth through strategic acquisitions. Since 2015, the Company has completed fivefour acquisitions, the most recent of which was SNI which to date has been its largest. The main tenants of the Company’s strategy are to:

	·	Provide innovative solutions for clients delivered through an enhanced menu of professional service offerings in the Company’s existing markets and comprised of multiple specialties, including IT, Finance and Accounting, Engineering, and Healthcare;
	·	Enter fastest growing markets by leveraging strategic customer relationships and through geographic footprint expansion with a complete menu of service offerings;
	·	Create national wholesale division for IT and aggressively pursue MSP & VMS accounts; and
	·	Capitalize on commercial opportunities following shortages of blue collar, office clerical and service workers, as the current economy returns to sustained growth and with a particular focus on logistics and E-Commerce.

The percentage of revenues derived from each of the Company’s direct hire and contract services lines are as follows:

Marketing

The Company markets its staffing services using its corporate and trade names in their respective vertical markets. As of September 30, 2018,2020, we operated thirty-fourthirty branch offices in downtown or suburban areas of major U.S. cities in thirteeneleven states. We have one office located in each of Arizona, Connecticut, Georgia, Minnesota, New Jersey, Virginia and Washington DC,Virginia, three offices in Colorado, two offices in Illinois and Illinois,Massachusetts, four offices in Massachusetts and Texas, sixseven offices each in Ohio and seven offices in Florida.

The Company markets its staffing services to prospective clients primarily through telephone marketing by its recruiting and sales consultants, and through mailing of employment bulletins which list candidates available for placement and contract employees available for assignment.

There was no customer that represented more than 10% of the Company’s consolidated revenue in fiscal 20182020 or fiscal 2017.2019.

Competition

The staffing industry is highly competitive. There are relatively few barriers to entry by firms offering placement services, while significant amounts of working capital typically are required for firms offering contract services. The Company’s competitors include many sole-proprietorship operations, as well as regional and national organizations. Many of them are large corporations with substantially greater resources than the Company.

The Company’s professional and industrial staffing services compete by providing highly qualified candidates who are well matched for the position, bydeveloping and maintaining outstanding client relationships, responding quickly to client requests, and by establishing offices in convenient locations. As part of its service, the Company provides professional reference checking, scrutiny of candidates’ work experience and optional background checks. In general, the Company believes pricing is secondary to quality of service as a competitive factor. During slow hiring periods, however, competition can put pressure on the Company’s pricing.

Recruiting

The success of the Company’s services is highly dependent on its ability to obtain qualified candidates. Prospective employment candidates are generally recruited over the telephone, by the Company’s employment consultants or through postings on the Internet. For Internet postings, the Company maintains its own web page at www.geegroup.com and uses other Internet job posting bulletin board services. The Company maintains database records of applicants’ skills to assist in matching them with job openings and contract assignments. The Company generally screens and interviews all applicants who are presented to its clients.

 

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Employees

As of September 30, 2018,2020, the Company had approximately 389258 regular employees and the number of contract service employees varied week to week from a minimum of approximately 2,7351,565 to a maximum of 3,539.2,631.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a), 14 and 15(d) of the Exchange Act. The public may obtain these filings at the Securities and Exchange Commission (the “SEC”) Public Reference Room at 100 F Street, NE, Washington DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http//www.sec.gov that contains reports, proxy and information statements and other information regarding the Company and other companies that file material with the SEC electronically. Copies of the Company’s reports can be obtained, free of charge, electronically through our internet website, http//www.geegroup.com. Information on the Company’s website is not incorporated in this report by the foregoing reference.

Item 1A.Risk Factors.

WE HAVE EXPERIENCED LOSSES FROM OPERATIONS AND MAY NOT BE PROFITABLE IN THE FUTURE.

The Company experienced net losses for the years ended September 30, 20182020 and 2017.2019. Among the consequences of the net losses experienced, the Company has been required to obtain amendments and waivers for missed covenants under its senior revolving credit, term loan and security agreement. Other possible consequences of recurring net losses include, but are not limited to, asset impairments, negative cash flows, asset impairments, defaults under the Company’s debt agreements, and possibly, the inability of the Company to continue operating as a going concern. Management has taken definitive actions to improve operations, reduce costs and improve operating profitability, and position the Company for future growth. The Company also is actively seeking replacement financing with a view towards reducing its borrowing costs.costs and improving its net cash flow and overall financial profile. However, there are no assurances that the Company will be able to generate sufficient revenue to meet its operating expenditures or operate profitably in the future.

THE TERMS OF OUR SENIOR CREDIT AGREEMENT PLACE RESTRICTIONS ON OUR OPERATING AND FINANCIAL FLEXIBILITY, AND FAILURE TO COMPLY WITH COVENANTS OR TO SATISFY CERTAIN CONDITIONS OF THE AGREEMENT MAY RESULT IN ACCELERATION OF OUR REPAYMENT OBLIGATIONS, WHICH COULD SIGNIFICANTLY HARM OUR LIQUIDITY, FINANCIAL CONDITION, OPERATING RESULTS, BUSINESS AND PROSPECTS AND CAUSE THE PRICE OF OUR SECURITIES TO DECLINE. THE COVENANTS CONTAINED IN OUR SENIOR CREDIT AGREEMENT ALSO INCLUDE THE REQUIREMENT THAT WE MAINTAIN SPECIFIC FINANCIAL RATIOS. IF WE CANNOT COMPLY WITH THESE COVENANTS, WE ALSO MAY BE IN DEFAULT UNDER THE CREDIT AGREEMENT.

We and our subsidiaries are parties to a Revolving Credit, Term Loan and Security Agreement dated as of March 31, 2017, as amended (the “Senior Credit Agreement”) with certain investment funds managed by MGG Investment Group LP. Initial funds were distributed on April 3, 2017 to repay existing indebtedness, pay fees and expenses relating to the Credit Agreement, and to pay a portion of the purchase price for the acquisition of the SNI Companies. Under the terms of the Senior Credit Agreement, we may borrow up to $73,800 consisting of a term loan in the principal amount of $48,800 and revolving loans in a maximum amount up to the lesser of (i) $25,000 or (ii) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of our eligible accounts receivable, as described in the Credit Agreement. The loans under the Credit Agreement mature on June 30, 2023. As of September 30, 2020, a total of approximately $54,474 was outstanding under the Senior Credit Agreement.

The Senior Credit Agreement contains restrictions and limitations on our ability to engage in activities and transactions that may be in our long-term best interests. The affirmative and negative covenants contained in the Credit Agreement that may adversely affect our ability to operate our business include covenants that limit and restrict, among other things, our ability to incur additional indebtedness, transfer or sell certain assets, issue stock of subsidiaries, pay dividends on, repurchase or make distributions with respect to our capital stock or make other restricted payments, incur or permit liens or other encumbrances on assets, make certain investments, loans and advances, acquire other businesses, merge, consolidate, sell or otherwise dispose of all or substantially all of our assets, enter into certain transactions with our affiliates and amend certain agreements.

The Credit Agreement also contains a fixed charge coverage ratio covenant, a senior leverage ratio covenant and a minimum EBITDA covenant. Events beyond our control could affect our ability to meet these and other covenants under the Senior Credit Agreement. The Senior Credit Agreement also contains customary events of default, including, among others, payment default, bankruptcy events, cross-default, breaches of covenants and representations and warranties, change of control and judgment defaults.

A breach of any of these covenants could result in default under our Credit Agreement, which could prompt the lenders to declare all amounts outstanding under the Credit Agreement to be immediately due and payable and terminate all commitments to extend further credit. In addition, a breach of the Credit Agreement would cause a cross-default of certain other indebtedness. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. If the lenders under the Credit Agreement accelerate the repayment of borrowings, we cannot ensure that we will have sufficient assets and funds to repay the borrowings under the Credit Agreement and our other indebtedness. An acceleration of our outstanding indebtedness could have serious consequences to our financial condition, operating results, and business, and could cause us to become insolvent or enter bankruptcy proceedings.

Since the date of the Credit Agreement, we have sought and been granted waivers and amendments with respect to certain provisions of the Credit Agreement on ten occasions. There can be no assurance that we will be able to continue to comply with the covenants set forth in the Credit Agreement in the future or, that any additional waivers with respect to these covenants would be granted by the lenders.

This indebtedness has important consequences for us and our shareholders, including the following:

RECENT GLOBAL SOCIOECONOMIC TRENDS, INCLUDING THE NEGATIVE EFFECTS OF THE CORONAVIRUS PANDEMIC OF 2020, AND TRENDS IN THE FINANCIAL MARKETS COULD ADVERSELY AFFECT OUR BUSINESS, LIQUIDITY AND FINANCIAL RESULTS.

Recent global economicsocioeconomic conditions, including the negative effects of the Coronavirus Pandemic of 2020 (“COVID-19”), and disruption of financial markets, could adversely affect our business and results of operations, primarily through limiting our access to credit or equity capital, our ability to refinance debt and disrupting our customers’ businesses, which are heavily dependent on retail and e-commerce transactions. Although we currently believe that we ultimately will be able to obtain the necessary financing in the future, there is no assurance that thesecredit institutions or other creditors or investors will be able or willing to loan us or invest the necessary capital, which could have a material adverse impact on our business. In addition, continuation or worsening of negative socioeconomic conditions, including COVID -19, and their negative effects on general market conditions in the United States economy important to our businesses may adversely affect our customers’ level of spending ability to obtain financing for acquisitions and ability to make timely payments to us for our services, which could require us to increase our allowance for doubtful accounts, negatively impact our days sales outstanding and adversely affect our results of operations.

The operations and liquidity of our operating subsidiaries have been negatively impacted by COVID-19, and as a result, we were able to obtain financial relief in the form of funds received in exchange for promissory notes issued by the U.S. Small Business Administration (“SBA”) and U.S. Treasury under the Payroll Protection Program of the CARES Act (“PPP loans”). The nine promissory notes have an aggregate face amount of $19,927, bear interest at 1% per annum and are unsecured. The CARES Act PPP loans and related accrued interest are eligible for forgiveness by the SBA, in whole or in part, based upon the usage of the proceeds for costs and expenses determined by the SBA to be allowable and eligible. Allowable costs and expenses, as defined by the SBA, broadly include payroll and certain payroll related expenses, lease costs, utilities, and interest on business mortgage loans. Allowable costs and expenses that are eligible for forgiveness include those incurred during the covered periods, as defined, after certain specified limitations and reductions based on changes in compensation and headcount levels during the covered periods, as defined.

The Company’s operating subsidiaries believe they qualify for, and therefore, intend to apply for 100% forgiveness of their outstanding PPP loans and related accrued interest. However, the decision to forgive the Company’s PPP loans will ultimately be made by the SBA, considering a number of factors in addition to use of the proceeds for allowable and eligible costs and expenses, including the SBA’s views regarding the need and necessity for the loans. Therefore, there can be no assurance that such forgiveness will be granted, in whole or in part. The PPP loans obtained by GEE Group Inc. and its operating subsidiaries, as a public company and affiliated group, have exceeded $2,000 audit threshold established by the SBA, and therefore, will be subject to audit by the SBA.

If the Company and its operating subsidiaries are unable to achieve forgiveness of their PPP loans from the SBA, in whole or in part, they will be required to repay the loans on an instalment basis over twenty-four (24) months beginning approximately ten (10) months after the end of their respective covered periods. If the companies are unable to repay the portions of their PPP loans that 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.

IF WE ARE UNABLE TO GENERATE OR BORROW SUFFICIENT CASH TO MAKE PAYMENTS ON OUR INDEBTEDNESS, INCLUDING OUR CARES ACT PPP LOANS, OUR FINANCIAL CONDITION WOULD BE MATERIALLY HARMED, OUR BUSINESS COULD FAIL AND OUR SHAREHOLDERS MAY LOSE ALL OF THEIR INVESTMENT.

Our ability to make scheduled payments on or to refinance our obligations will depend on our financial and operating performance, which will be affected by economic, financial, competitive, business, and other factors, some of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations to service our indebtedness or to fund our other liquidity needs. If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our indebtedness on or before maturity or sell certain of our assets. We cannot assure you that we will be able to restructure or refinance any of our indebtedness on commercially reasonable terms, if at all, which could cause us to default on our debt obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

We are currently seeking to refinance our outstanding indebtedness. However, there can be no assurance that we will be able to successfully refinance our indebtedness on terms that are favorable to us or at all.

THE COMPANY HAS MATERIAL INTANGIBLE ASSETS, INCLUDING GOODWILL, CUSTOMER LISTS, TRADEMARKS AND TRADENAMES. THESE ASSETS ARE SUBJECT TO IMPAIRMENT RISKS, WHICH COULD RESULT IN FUTURE MATERIAL IMPAIRMENT CHARGES TO INCOME AND NEGATIVELY IMPACTING THE FUTURE OPERATING RESULTS AND FINANCIAL POSITION OF THE COMPANY.

The Company is required to evaluate its goodwill annually or when one or more triggering events or circumstances indicate that assets might be impaired. The other long-lived assets, including definite-lived intangible assets, have to be tested for impairment only when triggering events occur or circumstances indicate that assets might be impaired. As a result, the Company has recognized significant impairments of its goodwill in fiscal 2020 and 2019. In testing for impairments, management applies one or more valuation techniques to estimate the fair values of the reporting units, individual assets or groups of individual assets, as required under the circumstances. These valuation techniques rely on assumptions and other factors, such as the estimated future cash flows, the discount rates used to determine the present value of associated cash flows, and the market comparable assumptions. Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of impairment.

The valuation techniques utilized by management, for impairment testing, including estimated future cash flows, fundamentally include the inherent underlying assumption that the economy, the markets served by the Company, and the Company itself, will continue to recover from the COVID-19 pandemic in fiscal 2021, 2022 and beyond. In the event the assumptions relied upon by management are not achieved, including assumed future growth rates, as a result of the prolonged impact of COVID-19 pandemic impairments of goodwill or other long-lived assets could be recorded and such amounts could be material to the financial statements. A reduction in the projected long-term operating performance of one or both of the Company’s reporting units or other long-lived assets, future market declines, changes in discount rates or other conditions also could result in material impairments in the future. Thus, there can be no assurance that the Company’s goodwill or other long-lived assets will not become impaired in the future.

WE DEPEND ON ATTRACTING, INTEGRATING, MANAGING, AND RETAINING QUALIFIED PERSONNEL.

Our success depends upon our ability to attract, integrate, manage and retain personnel who possess the skills and experience necessary to fulfill our clients’ needs. Our ability to hire and retain qualified personnel could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors or modifications to our total compensation philosophy or competitor hiring programs. If we cannot attract, hire and retain qualified personnel, our business, financial condition and results of operations would be negatively impacted. Our future success also depends upon our ability to manage the performance of our personnel. Failure to successfully manage the performance of our personnel could affect our profitability by causing operating inefficiencies that could increase operating expenses and reduce operating income.

 

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WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

Competition in the market for placement and staffing services is intense. The Company faces competition from many larger, more established companies. In addition, other companies could seek to introduce competing services and increased competition could result in a decrease in the price charged by the Company’s competitors for their services orand reduce demand for the Company’s products and services, which would have a material adverse effect on the Company’s business, operating results and financial condition. There can be no assurance that the Company will be able to compete successfully with its existing or potential competitors, which may have substantially greater financial, technical, and marketing resources, longer operating histories, greater name recognition or more established relationships in the industry than the Company. If any of these competitors provides competitive services to the marketplace in the future, the Company cannot be sure that it will have the resources or expertise to compete successfully.

CHANGES IN GOVERNMENT REGULATION COULD LIMIT OUR GROWTH OR RESULT IN ADDITIONAL COSTS OF DOING BUSINESS.

We are subject to the same federal, state, and local laws as other companies conducting placement and staffing services, which isare extensive. The adoption or modification of laws related tothat affect the placement and staffing industry, such asincluding but not limited to, Federal and state laws and regulations pertaining to labor and minimum wages, workplace standards and safety, workers compensation laws, independent contractor status, the Healthcare for America Plan,Family Medical Leave Act, Affordable Care Act, and others could harm our business, operating results, and financial condition by increasing our costs and administrative burdens.

INTERRUPTION OF THE COMPANY’S BUSINESS COULD RESULT FROM INCREASED SECURITY MEASURES IN RESPONSE TO TERRORISM.

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 potential activities. Any economic downturn could adversely impact the Company’s results of operations, impair the Company’s ability to raise capital or otherwise adversely affect the Company’s ability to grow the business. It is impossible to predict how this may affect the Company’s business or the economy in the U.S. and in the world. In the event of further threats or acts of terrorism, the Company’s business and operations may be severely and adversely affected.

SUBSTANTIAL ALTERATION OF THE COMPANY’S CURRENT BUSINESS AND REVENUE MODEL COULD HURT SHORT-TERM RESULTS.

The Company’s present business and revenue model represents the current view of the optimal business and revenue structure, which is to derive revenues and achieve profitability in the shortest period. There can be no assurance that current models will not be altered significantly or replaced with an alternative model that is driven by motivations other than near-term revenues and/or profitability (for example, building market share before the Company’s competitors). Any such alteration or replacement of the Company’s current business and revenue model may ultimately result in the deferring of certain revenues in favor of potentially establishing larger market share. The Company cannot assure that any adjustment or change in the business and revenue model would prove to be successful whether adopted in response to industry changes or for other reasons.

THE REQUIREMENTS OF BEING A PUBLIC COMPANY MAY STRAIN OUR RESOURCES AND DISTRACT MANAGEMENT.

As a public company, we are subject to the reporting requirements of 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.

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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.

FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS. IN ADDITION, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR STOCK PRICE.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time; we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.

We cannot provide assurance beyond the reasonable assurance standards established for internal controls, in general, as to the result of these efforts. We cannot be certain that any measures we take will ensure that we implement and maintain adequate internal controls in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.

A MORE ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP, AND THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY.

Although our common stock is listed on the NYSE MKT,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 stockholder'sstockholder’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"“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:

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The stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in our industry. The changes often appear to occur without regard to specific operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our Company and these fluctuations could materially reduce our stock price.

NO DIVIDENDS ANTICIPATED.

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.

WE MAY NOT BE ABLE TO OBTAIN THE NECESSARY ADDITIONAL FINANCING TO ACHIEVE OUR STRATEGIC GOALS.

There is no guarantee that we will be able to obtain any additional financing that may be required to continue to expand our business. Our continued viability depends on our ability to raise capital. Changes in economic, regulatory or competitive conditions may lead to cost increases. Management may also determine that it is in our best interest to expand more rapidly than currently intended, to expand marketing activities, to develop new or enhance existing services or products, to respond to competitive pressures or to acquire complementary services, businesses or technologies. In any such case or other change of circumstance, additional financing will be necessary. If any additional financing is required, there can be no assurances that we will be able to obtain such additional financing on terms acceptable to us and at times required by us, if at all. In such event, we may be required to materially alter our business plan or curtail all or a part of our expansion plans.

WE MAY NOT BE ABLE TO MANAGE EXPECTED GROWTH AND INTERNAL EXPANSION.

Our inability to manage growth could hurt our results of operations. Expansion of our operations will be required to address anticipated growth of our customer base and market opportunities. Expansion will place a significant strain on our management, operational and financial resources. We will need to improve existing procedures and controls as well as implement new transaction processing, operational and financial systems, procedures and controls to expand, train and manage our employee base. Our failure to manage growth effectively could have a damaging effect on our business, results of operations and financial condition.

WE COULD BE HARMED BY IMPROPER DISCLOSURE OR LOSS OF SENSITIVE OR CONFIDENTIAL COMPANY, EMPLOYEE, ASSOCIATE OR CLIENT DATA, INCLUDING PERSONAL DATA.DATA, BY EMPLOYEE ERROR AND/OR CYBER RISKS.

In connection with the operation of our business, we store, process and transmit a large amount of data, including personnel and payment information, about our employees, clients, associates and candidates, a portion of which is confidential and/or personally sensitive. In doing so, we rely on our own technology and systems, and those of third-party vendors we use for a variety of processes. We and our third-party vendors have established policies and procedures to help protect the security and privacy of this information. Unauthorized disclosure or loss of sensitive or confidential data may occur through a variety of methods. These include, but are not limited to, systems failure, employee negligence, fraud or misappropriation, or unauthorized access to or through our information systems, whether by our employees or third parties, including a cyberattack by computer programmers, hackers, members of organized crime and/or state-sponsored organizations, who may develop and deploy viruses, worms or other malicious software programs.

Such disclosure, loss or breach could harm our reputation and subject us to government sanctions and liability under our contracts and laws that protect sensitive or personal data and confidential information, resulting in increased costs or loss of revenues. It is possible that security controls over sensitive or confidential data and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. The potential risk of security breaches and cyberattacks may increase as we introduce new services and offerings, such as mobile technology. Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions in which we provide services. Any failure or perceived failure to successfully manage the collection, use, disclosure, or security of personal information or other privacy related matters, or any failure to comply with changing regulatory requirements in this area, could result in legal liability or impairment to our reputation in the marketplace.

 

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WE COULD BE ADVERSELY AFFECTED BY RISKS ASSOCIATED WITH ACQUISITIONS AND JOINT VENTURES.

We intend to expand our business through acquisitions of, or investments in joint ventures with, complementary businesses, technologies, services or products, subject to our business plans and management'smanagement’s ability to identify, acquire and develop suitable acquisition or investment targets in both new and existing service categories. In certain circumstances, acceptable acquisition or investment targets might not be available. Acquisitions involve a number of risks, including: (1) 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.

In addition, if we incur indebtedness to finance an acquisition, it may reduce our capacity to borrow additional amounts and requiring 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 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 CARRYFORWARDS 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.

 

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Item 1B.Unresolved Staff Comments. 

Not applicable.

The Company’s policy is to lease commercial office space for all of its offices. The Company’s headquarters are located in Jacksonville Florida, for which the applicable lease expires in 2020.2021.

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, Triad Personnel Services and Triad Staffing. As of September 30, 2018,2020, we operated thirty-fourthirty branch offices in downtown or suburban areas of major U.S. cities in thirteeneleven states. We have one office located in each of Arizona, Connecticut, Georgia, Minnesota, New Jersey, Virginia and Washington DC,Virginia, three offices in Colorado, two offices in Illinois and Illinois,Massachusetts, four offices in Massachusetts and Texas, sixseven offices in Ohio and seven offices in Florida.

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, 2018,2020, the Company was not a party to any material legal proceedings.

Not applicable.

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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.

Holders of Record

There were approximately 696717 holders of record of the Company’s common stock on September 30, 2018.2020.

Dividends

No dividends were declared or paid during the fiscal years ended September 30, 20182020 and September 30, 2017.2019. We do not anticipate paying any cash dividends for the foreseeable future.

During the fiscal years ended September 30, 20182020 and September 30, 2017,2019, no equity securities of the Company were repurchased by the Company.

Securities Authorized for Issuance under Equity Compensation Plans

As of September 30, 2018,2020, there were stock options outstanding under the Second Amended and Restated 1997 Stock Option Plan and the Company’s Amended and Restated 2013 Incentive Stock Plan. Both plans were approved by the shareholders. 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, 20182020 and September 30, 20172019 were non-qualified stock options, had exercise prices equal to the market price on the date of grant, and had expiration dates ten years from the date of grant. The maximum number of shares that may be granted under the 2013 Plan is 4,000,000.5,000. This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.

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(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			2,075			$	3.78				1,925	(1)
Equity compensation plans not approved by security holders			-				-				-
Total			2,075			$	3.78				1,925	(1)
_________________
(1) Includes only the number of securities that could be issuable under the 2013 Plan.

Not applicable.

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. Item 7 should be read in conjunction with the information contained in “Forward-Looking Statements” at the beginning of this report and with the Consolidated Financial Statements and Notes thereto included in Item 8. References such as the “Company,” “we,” “our” and “us” refer to GEE Group Inc. and its consolidated subsidiaries.

Overview

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. (“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 (including Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad Staffing. As of September 30, 2018,2020, we operated thirty-fourthirty branch offices in downtown or suburban areas of major U.S. cities in thirteeneleven states. We have one office located in each of Arizona, Connecticut, Georgia, Minnesota, New Jersey, Virginia and Washington DC,Virginia, three offices in Colorado, two offices each in Illinois and Illinois,Massachusetts, four offices each in Massachusetts and Texas, sixseven offices each in Ohio and seven offices in Florida.

Management has implemented a strategy which includes cost reduction effortsorganic and acquisition growth components. Management’s organic growth strategy includes seeking out and winning new client business, as well as expansion of existing client business and on-going cost reduction and productivity improvement efforts in operations. Management’s acquisition growth strategy includes identifying strategic 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.

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. These effects have been and continue to be felt across all businesses, with the most severe impacts being felt in the commercial (light industrial) and 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 and time to assess the impacts of the COVID-19. As explained above, our businesses have recovered to a significant extent in our final fiscal quarter ended September 30, 2020 as compared with the sequential prior quarter ended June 30, 2020. We expect a continuing, but perhaps, more gradual return to pre-COVID-19 levels for our business operations and customer demand for our services, however, the rate of such recovery may be delayed by continuing negative impacts of COVID-19 on the U.S. economy and the markets and clients we serve.

On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment, dated as of April 28, 2020 (the “Seventh Amendment”), to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). The Seventh Amendment represents the most significant loan modification of the Company’s Credit Agreement since inception.

As of 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. The Company also entered the Eighth Amendment, dated as of May 5, 2020 (the “Eighth Amendment”), to the Credit Agreement. The Eighth Amendment served as the conforming amendment under the Credit Agreement enabling the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement. The CARES Act PPP relief funds were the only source of financing available for our companies and businesses to help withstand the significant downturn and disruptions we have experienced and continue to experience and are 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 this continuing worldwide pandemic.

Management believes that the execution of the amendments to the Company’s senior Credit Agreement and the CARES Act PPP loans and related funding have been and continue to be essential in providing significant needed relief to the otherwise negative effects of the continuing Coronavirus Pandemic.

On June 30, 2020, the Company and its subsidiaries entered into Ninth Amendment, dated as of June 30, 2020 (the “Ninth Amendment”), to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”). Under the Ninth Amendment, the Company’s senior lender agreed to modify the earlier conversion condition of the Seventh Amendment and allow the Company to settle a significant portion of the subordinated debt and preferred stock with up to $5,083 million in cash, instead of by converting all of it into the Company’s common stock. As a result, the Company was able to negotiate and settle $46,900 in subordinated debt and preferred stock for $5,083 in cash and 1,811 shares of the Company’s common stock. These transactions resulted in recognition of a net gain on the extinguishment of debt of $12,316, and a net gain on redemption of preferred stock of $24,475, and smaller net loss and net income attributable to common shareholders of $(14,347) and $10,128, respectively, in fiscal 2020.

Results of Operations

Fiscal year ended September 30, 20182020 (“fiscal 2018”2020”), and fiscal year ended September 30, 20172019 (“fiscal 2017”2019”)

Net Revenues

Consolidated net revenues are comprised of the following:

		Fiscal
(in thousands)		2018				2017				$ Change				% Change
Professional contract services		$	120,580			$	95,396			$	25,184				26.4	%
Industrial contract services			21,648				24,851				(3,203	)			-12.9	%
Total professional and industrial contract services			142,228				120,247				21,981				18.3	%
Direct hire placement services			23,056				14,731				8,325				56.5	%
Consolidated net revenues		$	165,284			$	134,978			$	30,306				22.5	%

Contract staffing services contributed $142.2 million$114,526 or approximately 86%88% of consolidated revenue and direct hire placement services contributed $23.1 million$15,309 or approximately 14%12% of consolidated revenue for fiscal 2018.2020. This compares to contract staffing services revenue of $120.2 million,$133,143, or approximately 89%88% of consolidated revenue and direct hire placement revenue of $14.7 million$18,531 or approximately 11%12% of consolidated revenue, respectively, for fiscal 2017.2019.

The overall increasedecrease in contract staffing services revenue of $22.0 million,$18,617, or 18.3%14% for fiscal 20182020 compared to fiscal 20172019 was primarily attributable to the acquisitioncontinuous impact of SNI, which increased the direct hire placementCOVID-19 pandemic and professionalresulting mitigation efforts beginning in approximately mid-March 2020. This resulted in a decline in demand for our staffing services due to client closures, postponements in projects and related needs for our services at some clients, and corresponding decreases in the volume of contract services significantly in fiscal 2018. Offsettingbillable hours. The Company experienced the majority, but not all, of these increases were reductions corresponding with strategic actions instituted by management primarily in the professionalcontract staffing services division to reduce the number of unproductive or underperforming full time personnel including recruiters, account representatives, sales professionals and related administrative support staff and to a lesser extent, reductions in the temporary workforce requirements of a few key customers in the industrial services division. In addition, some of the decline in revenue was a natural result of certain office consolidationsits finance, accounting, and office closures that were undertaken by the Company to maximize productivity, reduce overall field costsprofessional end markets and improve profitability.in its light industrial segment.

Industrial contract services revenue decreased by $3.2 million for fiscal 2018 to $21.6 million from $24.8 million in fiscal 2017. To improve overall performance in the industrial services division, the Company has implemented an aggressive sales incentive program, streamlined branch operations and increased its focus on obtaining better pricing from new and existing accounts. Although revenues are lower for fiscal 2018 than for fiscal 2017, the Company believes that the aforementioned actions coupled with new and expanded services offered to customers have also contributed to the increased gross margins relative to revenues from that segment for fiscal 2018 as compared with fiscal 2017.

Direct hire placement revenue for fiscal 2018 increased2020 decreased by $8.3 million$3,222 or 17% over fiscal 20172019. The Company also has seen demand for its direct hire services drop significantly due to increased productivitythe continuous negative impacts related to the COVID-19 Pandemic.

With the onset of COVID-19, the Company’s business and revenues began to decrease significantly in approximately mid-March 2020. Consolidated net revenues for the fiscal quarter ended March 31, 2020 of $34,681 decreased by approximately $1,496, or 4%, as compared with consolidated net revenues for the fiscal quarter ended March 31, 2019 of $36,177, and decreased by approximately $2,876, or 8%, as compared with consolidated net revenues for the sequential fiscal quarter ended December 31, 2019 of $37,557.

Consolidated net revenues decreased further by approximately $8,087, or 23%, to $26,594 during the fiscal quarter ended June 30, 2020; however, have rebounded since resulting in an increase of approximately $4,410, or 17%, to $31,004 during this year’s final fiscal quarter ended September 30, 2020. Consolidated revenues on monthly basis bottomed during the month of May 2020 to a low of approximately $8,248 and steadily rose each month to a high of $12,216 during the month of October 2020. November 2020’s revenues were lower at $10,560 largely due to significant lower billing days than October, including the Thanksgiving holidays. Management believes that the trend towards recovery since May 2020 is the result of actions taken to adapt to COVID-19 and position the Company for recovery and, otherwise, is generally consistent with the recovery experienced in the overall U.S. economy so far.

The Company continues to observe, analyze, and make modifications and changes to its business operating model and practices on a daily basis in response to the on-going Coronavirus Pandemic and related health and safety concerns. With regard to revenue generation, the Company has expanded focus and priority towards sales and marketing of our placement and staffing services to clients that provide products or services considered essential during COVID-19, including principally, IT, financial services, and healthcare staffing in the professional segment, and in our light industrial segment, staffing for clients that manufacture and distribute PPE. In addition, we have implemented policies and procedures in observance of Federal, state and/or local guidelines regarding the coronavirus, including but not limited to, working from a smaller numberhome, use of dedicatedpersonal 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

Cost of contract services includes wages and related payroll taxes, 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 fiscal 2020 decreased by approximately 15% to $85,131 compared to fiscal 2019 of $99,653. The $14,522 decrease in cost of contract services for fiscal 2020 compared to fiscal 2019 is consistent with the decline in revenues, which is discussed further below.

The Company’s combined gross profit margin, including direct hire placement personnel. services (recorded at 100% gross margin) for fiscal 2020 was approximately 34.4% versus approximately 34.3% for the fiscal 2019.

In the professional contract staffing services segment, the gross margin excluding direct placement services was approximately 26.4% for fiscal 2020 compared to approximately 26.0% for fiscal 2019. The increase is primarily the result of increases in the amounts and mix of higher margin contract services business in IT end markets, including growth in several of the Company’s higher end IT brands during fiscal 2020, as compared with the prior fiscal year. This trend also is consistent with COVID-19 related declines in business, which weighed more heavily on the Company’s lower margin finance, accounting, and office (primarily, office) and light industrial end markets, resulting in a higher mix of higher margin business.

The Company’s industrial staffing services gross margin for fiscal 2020 was approximately 21.7% as compared with approximately 20.8% for fiscal 2019. The increase in industrial staffing services gross margin is due to a higher proportion of estimated amounts of return premiums, the Company’s light industrial business is eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively-rated insurance program.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include the following categories:

The Company’s SG&A for fiscal 2020, decreased by $2,338 as compared to fiscal 2019. SG&A for fiscal 2020, as a percentage of revenue was approximately 34.2% versus 30.8% for fiscal 2019. The increase in SG&A expenses as a percentage of revenue is primarily attributable to the corresponding significant reduction in revenues, which resulted in less coverage of our SG&A fixed or semi-variable expenses. SG&A expenses for fiscal 2020 decreased as the result of a decrease in employee related costs of $2,984 and a decrease in a stock compensation expense of $627. SG&A in fiscal 2020 also included increases in bad debt expense of $1,765 compared to fiscal 2019, including $1,653 associated with a single large customer of our light industrial segment that has declared bankruptcy.

SG&A also includes certain costs and expenses incurred related to acquisition, integration and restructuring and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations or may be expected not to recur in whole or in part on a going forward basis. These costs were $4,277 and $4,281 for fiscal 2020 and fiscal 2019, 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.

Depreciation Expense

Depreciation expense was $248 for fiscal 2020 and $349 for fiscal 2019. The net decrease in depreciation expense is primarily the result of Company fixed assets becoming fully depreciated exceeding new capital expenditures.

Amortization Expense

Amortization expense was $5,038, and 5,586 for fiscal 2020 and 2019. The decrease is due to amortization completion of SNI intangible asset related to non-compete agreements.

Goodwill Impairment

The Company performed annual goodwill impairment testing effective as of September 30, 2020, and allocates its goodwill among two reporting units, its Professional segment and its Commercial segment, for purposes of evaluation for impairments. As a result of the evaluation performed, the carrying value of the net assets exceeded the estimated fair value of the Company’s Professional segment as of September 30, 2020, while the estimated fair value of the Commercial segment exceeded its net carrying value. The outcome of this goodwill impairment test resulted in a non-cash charge for the impairment of goodwill applicable to the Professional segment of $8,850, which was recorded in the consolidated financial statements for fiscal 2020. For purposes of performing this goodwill impairment assessment, management applied valuation techniques and assumptions to its Professional and Commercial segments 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 Company’s reporting units.

Management also considered the Company’s market capitalization, as recently reported on the NYSE American exchange, in conducting its assessment, which has been lower than its consolidated net book value (consolidated stockholders’ equity). Management believes that the continuing declines 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 recent stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020. Management believes and expects that these conditions, including those impacting the Company, are improving and will continue to improve. However, there can be no assurance that the Company’s goodwill or other long-lived assets will not become impaired in the future.

Due to a previous sustained decline in the market capitalization of our common stock during the third quarter of 2019, we also performed a goodwill impairment test in accordance with the provisions of ASU 2017-04, and recognized a non-cash charge for the impairment of goodwill of $4,300 in fiscal 2019.

Loss from Operations

As the net result of the matters discussed regarding revenues and operating expenses above, loss from operations increased by $8,880, to a loss of $13,833 for fiscal 2020 from a loss of $4,953 for fiscal 2019. The increase in our loss from operations is directly attributable to the matters discussed regarding revenues and operating expenses above; including, notably, the negative impacts of the COVID-19 pandemic, increases in our bad debt expense of approximately $1,765, and an increase of approximately $4,550 in the amount of a non-cash goodwill impairment charge recognized in fiscal 2020, as compared with a similar non-cash goodwill impairment charge recognized during fiscal 2019.

Interest Expense

Interest expense for fiscal 2020, decreased by $207 compared to fiscal 2019. The decrease in interest expense is mostly attributable to a decrease in interest on Revolving Credit Facility and Term Loan of $1,107 during fiscal 2020 compared to fiscal 2019. This was mainly offset by increases in an amortization of the debt issue costs related to exit and restructuring fees originated under Seventh Amendment of $422 and interest expense for beneficial conversion feature associated with the former 8% Notes of $487 in fiscal 2020 compared to fiscal 2019.

Provision for Income Taxes

The Company recognized provisions for income tax expense of $597 and $370 in fiscal 2020 and 2019, respectively. The composition of the Company’s income tax provisions is relatively complex; however, the net increase in the provision for fiscal 2020 as compared with fiscal 2019 can be attributed to higher state and local taxes in certain jurisdictions.

Net Loss

The Company’s net loss was $14,347 and $17,763 for fiscal 2020 and 2019, respectively. The decrease in the net loss was principally the result of the gain recognized of $12,316 on an extinguishment of subordinated debt in fiscal 2020 that was offset by goodwill impairment of $8,850. As explained under the Overview section and Results of Operations sections above, the negative effects of the coronavirus pandemic during the later portion of fiscal 2020 also significantly impacted our business and contributed to our fiscal 2020 net loss.

Net Income (Loss) Attributable to Common Stockholders

Net Income (Loss) Attributable to Common Stockholders for fiscal 2020 increased by $27,891. The significant items contributing to this improvement were the gains resulting from extinguishments of the Company’s subordinated debt and outstanding preferred stock of $12,316 and $24,475, respectfully. These were offset, in part, by a non-cash goodwill impairment charge during fiscal 2020, which exceeded a similar non-cash charge in fiscal 2019 by approximately $4,550, increases in our bad debt expense of approximately $1,765, including $1,653 associated with a single large customer of our light industrial segment that has declared bankruptcy, and the negative effects of the COVID-19 pandemic and other matters discussed above.

The Company continues to closely manage costs and to pursue opportunities to selectively increase revenue producing headcount in key markets and industry verticals. The Company also seeks to organically grow its professional contract services revenue together with theand direct hire placement revenue, for the year includesincluding 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, including initiatives to increase services to existing customers, increasing its numbers of revenue producing core professionals, including primarily, business development managers and recruiters, changes to compensation, commission and bonus plans to better incentivize producers, and frequent interaction with the field 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, which represents approximately 86.9% (comprised of professional contract services and direct hire placement services) of total revenue for fiscal 2018.staffing.

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Cost of Contract Services

Cost of contract services includes wagesLiquidity and related payroll taxes, 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 fiscal 2018 increased by approximately 18.2% to $106.4 million compared to fiscal 2017 of $90.0 million. The $16.4 million increase in cost of contract services for fiscal 2018 compared to fiscal 2017 was primarily attributable to the acquisition of SNI and the associated increased billings noted above.

Gross Profit percentage by service:
		Fiscal
(in thousands)		2018				2017
Professional contract services			26.5	%			27	%
Industrial contract services			17.9	%			16.5	%
Consolidated professional and industrial services			25.2	%			25.2	%
Direct hire placement services			100.0	%			100.0	%
Combined gross profit margin %(1)			35.7	%			33.3	%

_____________

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

The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for fiscal 2018 was approximately 35.7% versus approximately 33.3%primary sources of liquidity for the fiscal 2017. The change inCompany are revenues earned and collected from its clients for the overall gross margin fromplacement of contractors and permanent employment candidates and borrowings available under the comparable prior fiscal year was dueSenior Credit Agreement. Uses of liquidity include primarily the costs and expenses necessary to an overall change in revenue mix for fiscal 2018, led by the significant increase in direct hire placement revenues attributable to SNI.

In the professional contract staffing services segment, the gross margin (excluding direct placement services) was approximately 26.5% for fiscal 2018 compared to approximately 27.4% for fiscal 2017. The change in professional contract staffing services gross margin was primarily due to increased revenue from Vendor Management Systems (“VMS”), Managed Service Providers (“MSP”), Master Service Agreements (“MSA”) and other volume corporate accounts that occurred in fiscal 2018 and allfund operations, including payment of which typically have lower gross margins. Other differences in the composition of revenues among the specialties served by the Company (information technology, engineering, healthcare, finance and accounting and others) also contributedcompensation to the change in the professionalCompany’s contract services gross profit and margin.

The Company’s industrial staffing services gross margin for fiscal 2018 was approximately 17.9% versus approximately 16.5% for fiscal 2017. As discussed under Net Revenues above, to improve overall performance in the industrial services division, the Company has implemented an aggressive sales incentive program, streamlined branch operationspermanent employees, operating costs and increased its focus on obtaining better pricing from newexpenses, and existing accounts. The Company believes that these actions coupled with new and expanded services offered to customers have also contributed to the increase in industrial contract services gross margins relative to revenues for fiscal 2018 as compared with fiscal 2018.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include the following categories:

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In addition to depreciation and amortization, which are broken out and reported separately in the consolidated income statements from other selling, general and administrative expenses (SG&A), GEE separately reports SG&A expenses incurred that are related to acquisition, integration and restructuring activities. These include expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, and other costs incurred related to acquisitions, including associated legal and professional costs. Management believes reporting these expenses separately from other SG&A provides useful information when comparing and considering GEE’s operating results and activities with other entities.

GEE’s SG&A for fiscal 2018 excluding depreciation, amortization and acquisition, integration and restructuring expenses, increased by approximately $7.9 million as compared to fiscal 2017 primarily as the result of the acquisition of SNI. SG&A for fiscal 2018, excluding depreciation, amortization and acquisition, integration and restructuring expenses, as a percentage of revenue decreased to approximately 28.7%, compared to approximately 29.3% of revenue for fiscal 2017. The net decrease in the ratio of SG&A, excluding depreciation, amortization and acquisition, integration and restructuring expenses, to revenue was the result of a combination of factors. These included strategic initiatives implemented by corporate and regional management to lower personnel costs by rightsizing the number of sales and recruitment full time employees (FTE’s) and related ancillary costs, resulting in a reduction in rent and other expenses, leverage from implementation of shared services, economies of scale gained from reduced pricing obtained from vendors; much of which was associated with the continued integration of the SNI acquisition and related streamlining of field operations and related expenses.

Acquisition, Integration and Restructuring Expenses

As discussed above, the Company classifies and reports costs incurred related to acquisition, integration and restructuring activities separately from other SG&A within its operating expenses. These costs, which were $3.1 million in fiscal 2018, increased by $0.2 million from $2.9 million in fiscal 2017, 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. For fiscal 2018 and fiscal 2017, such costs incurred were primarily associated with the SNI acquisition.

Depreciation Expense

Depreciation expense for fiscal 2018, decreased $36.0 thousand, or 8% compared with fiscal 2017, primarily as a result of strategic initiatives related to the consolidation of various office locations.

Amortization Expense

Amortization expense for fiscal 2018, increased $2.1 million, or 58% compared with the fiscal 2017, primarily as a result of the SNI acquisition and the related amortization of their identified intangible assets which included a full year of amortization in fiscal 2018 compared to a partial year in fiscal 2017.

Income (Loss) from Operations

Income (loss) from operations improved $3.9 million to income of $2.5 million in fiscal 2018 from a $(1.4) million loss in fiscal 2017. Before the effect of the $2.0 million net increase in depreciation and amortization combined, income from operations improved by $5.9 million from fiscal 2017 to fiscal 2018.

Change in Acquisition Deposit for Working Capital Guarantee

As of September 30, 2018, the SNI Merger Consideration held in the Working Capital Reserve Fund of $1.5 million was reduced by $0.6 million (“NWC Adjustment Amount”), following completion of the process provided for in the Merger Agreement, in which an independent accounting firm (the “firm”) was engaged to review related working capital-related claims made by the Company against such funds. As a result of the firm’s findings, the Company has recognized and reported a corresponding gain in its consolidated statement of operations for the fiscal year ended September 30, 2018.

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Loss on Extinguishment of Debt

There is no loss on extinguishment of debt for fiscal 2018. Loss on the extinguishment of debt for fiscal 2017, was $994.0 thousand, due to the change of the revolving credit facility and other subordinated debt during fiscal 2017.

Interest Expense

Interest expense for fiscal 2018, increased $5.5 million, or approximately 92% compared with fiscal 2017 primarily as a result of the newly obtained long-term debt in fiscal 2017, the interest expense for acquisition payments and higher average borrowings related to the new acquisitions.

Provision for Income Taxes

The Company recognized a tax benefit of approximately $0.8 million primarily associated with recognition of the newly adopted Tax Cuts and Jobs Act enacted in fiscal 2018. The Company recognized a tax benefit of approximately $6.0 million mostly due to realization of net operating loss and change in valuation allowance in fiscal 2017.

Net Loss

The Company incurred net losses for fiscal 2018 and fiscal 2017 of $7.6 million and $2.4 million, respectively. Also impacting 2018 results were increases of $2.0 million in depreciation and amortization and $5.5 million in interest expense, which by themselves, accounted for substantially the entire net loss in fiscal 2018.

Liquidity and Capital Resources

Overviewcapital expenditures.

The following table sets forth certain consolidated statements of cash flows data:

		Fiscal
(in thousands)		2018				2017
Cash flows provided by operating activities		$	1,507			$	222
Cash flows used in investing activities		$	(324	)		$	(25,606	)
Cash flows (used in) provided by financing activities		$	(755	)		$	25,641

At September 30, 2018,2020, the Company had $3.2 million$14,074 of cash which was an increase of approximately $0.4 million$10,019 from approximately $2.8 million$4,055 at September 30, 2017.2019. At September 30, 2018,2020, the Company had working capital of $13.1 million$13,351 compared to $9.5 million$8,534 of working capital at September 30, 2017. 2019.

The increaseNet cash used in net cash provided by operating activities for fiscal 2018 as compared with2020 and fiscal 2017,2019 was $2,247 and $394, respectively. The negative operating cash flow in the fiscal 2020 and 2019 corresponds with the increase innegative income from operations before depreciation and amortization offset by the increaseother net changes in interest expense on the Company’s senior debt during fiscal 2018 as compared with fiscal 2017.working capital.

The primary uses of cash for investing activities were for the acquisition of property and equipment in fiscal 20182020 and for the acquisition of SNI in fiscal 2017.2019.

Cash flow used in financing activities for fiscal 2018 was primarily for payments on our term loan offset by proceeds from the revolving credit facility. Cash flow provided by financing activities for fiscal 20172020 was primarily attributed to the net funds received from nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program (“PPP”) totaling $19,927 in order to provide needed relief for allowable expenses under the CARES Act PPP. Offsetting the effect of the new PPP funds received were payments required to pay down the Company’s Revolving Credit Facility resulting from the new term-loandecline in the Company’s business and net borrowingsaccounts receivable that serve as borrowing base collateral as a direct result of the Revolving Credit Facility.Coronavirus Pandemic and settlement payments on the extinguishment of subordinated notes and preferred stock.

Minimum debt service payments (principal) for the twelve-month period commencing after the close of business on September 30, 2018,2020, are approximately $3.1 million. All the Company’s office facilities are leased.$3,132. Minimum lease payments under all the Company’s lease agreements for the twelve-month period commencing after the close of business on September 30, 2018,2020, are approximately $2.2 million.$1,848. All the Company’s office facilities are leased.

The Company experienced significant net losses for the fiscal years ended September 30, 2020 and 2019, 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 and eliminating underperforming personnel, implemented strategic management changes, and intensified focus on stabilizing the business and restoring profitable growth. As a result, management believes the Company had begun to see its operations and business stabilize.

In recent years,approximately mid-March 2020, the Company has incurred significant net losses. Management has implemented a strategy which includes cost reduction efforts as well as identifying strategic acquisitions, financed primarily throughbegan to experience the issuance of equity and debt, to improve the overall profitability and cash flowssevere negative effects of the Company. Management currently expects thateconomic disruptions resulting from the combinationCoronavirus Pandemic (“COVID-19”). These have included abrupt reductions in demand for the Company’s primary sources of future cash flow from operationsrevenue, 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 availabilitysignificant disruptive impacts to many other aspects of borrowings undernormal operations. These effects have continued to be felt across all businesses, with the Revolving Credit Facility will provide sufficient liquidity formost severe impacts being felt in the next 12 months.commercial (light industrial) and finance, accounting and office clerical (FAO) end markets within the professional segment.

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RevolvingFollowing months of extensive negotiations, effective April 28, 2020, the Company entered into the Seventh Amendment to the Credit FacilityAgreement with its senior lenders. The Seventh Amendment (as defined below) is the most significant modification of the Company’s senior credit facilities since inception and Term Loan

On March 31, 2017,provides several important concessions and features, including extending the maturity by two years to June 30, 2023, and adjusting (reducing) cash debt service and thereby improving the Company’s ability to generate liquidity. Effective May 5, 2020 the Company entered into the Eighth Amendment to the Credit Agreement with its senior lenders (the “Eighth Amendment”) which allowed the Company and its subsidiaries as borrowers, entered into a Revolving Credit, Term Loanto obtain loans from BBVA USA (“BBVA”) pursuant to the Payroll Protection Plan (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Agreement (the “Credit Agreement”Act (“the CARES Act”) with PNC Bank National Associationand administered by the U.S. Small Business Administration (“PNC”SBA”),.

Between April 29 and certain investment funds managed by MGG Investment Group LPMay 7, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“MGG”PPP Loans”). Initial for each of its operating subsidiaries, in the aggregate amount of $19,927. These funds were distributed on April 3, 2017, the closing dateonly source of financing available to repayour companies and businesses and have been and continue to be absolutely critical to our ability to maintain operations, including the existing indebtedness, pay feesemployment of our temporary and expenses relatingfull-time employees, in order to produce and meet our foreseeable liquidity requirements in the Credit Agreement, and to pay a portionmidst of the purchase price for the acquisition of the SNI Companies.this continuing worldwide Coronavirus Pandemic.

UnderOn June 30, 2020, the Company completed a financial restructuring and eliminated $19,685 of its subordinated indebtedness and $27,695 of its convertible preferred stock as required pursuant to the terms of the Credit Agreement, the Company may borrow up to $73.8 million consistingSeventh Amendment, dated as of a four-year term loan in the principal amount of $48.8 million and revolving loans in a maximum amount up to the lesser of (i) $25.0 million 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 the closing date of the Credit Agreement, the Company borrowed $48.8 million from term loans and borrowed approximately $7.5 million from the Revolving Credit Facility for a total of $56.2 million, 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. Amounts borrowed under the Credit Agreement also may be used by the Company to partially fund capital expenditures, provide for on-going working capital needs and general corporate needs, and to fund future acquisitions subject to certain customary conditions of the lenders.

The Credit Agreement contains certain covenants applicable to both the Revolving Credit Facility and Term Loan. . In addition to the 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.

The Company did not meet its financial loan covenants at September 30, 2018 or at June 30, 2018 or March 31, 2018, previously. On May 15, 2018, the Company obtained a temporary waiver from its lenders for the missed financial covenants at March 31, 2018. On August 10, 2018, the Company and its subsidiaries, as Borrowers, entered into a third amendment and waiver (the “Third Amendment and Waiver”) to the Credit Agreement. Pursuant to the Third Amendment and Waiver, the Lenders agreed to modify the definition of EBITDA in the Credit Agreement to allow for the recognition and exclusion of certain additional acquisition, integration and restructuring expenses not previously specified and to provide a temporary waiver for any Defaults and Events of Default under the Credit Agreement that have solely arisen by reason of the Company failing to comply with the financial covenants of the Credit Agreement for the period ending June 30, 2018.

On December 27, 2018, the Company and its subsidiaries, as Borrowers, entered into a fourth amendment and waiver (the “Fourth Amendment and Waiver”)April 28, 2020, to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 20172017. The Company entered into a Repurchase Agreement for Preferred Stock and Subordinated Notes (the “Credit“Repurchase Agreement”). Under, dated as of June 30, 2020 with Ronald R. Smith (“Mr. Smith”), Thrivent Financial for Lutherans (“Thrivent”), Madison Capital Funding LLC (“Madison”), Maurice R. Harrison IV, Peter Langlois, Vincent Lombardo and Shane Parr (collectively with Smith, Thrivent and Madison, the Fourth Amendment and Waiver,“SNI Group Members” pursuant to which the Company and its Lenders have negotiated andSNI Group Members agreed to a temporary waiver for non-compliance with the financial covenants under the Credit Agreement as of September 30, 2018, and amendments to the financial covenants and to the remaining scheduled principal payments.

Management has taken definitive actions to improve operations, reduce costs and improve profitability, and position the Company for future growth. The Company also is seeking replacement financing with a view towards lowering its borrowing costs. Based on its current projections, management expects that the Company can meet its future debt service requirement and comply with its financial covenants and other commitments, as amended in the Fourth Amendment and Waiver. However, the Company’s projections are based on assumptions and estimates about future performance and events, which are subject to change or other unforeseen conditions or uncertainties. As such, there can be no assurance that the Company will not fall into non-compliance with its loan covenants or that its Lenders will continue to provide waivers or amendments to the Company in the event of future non-compliance with debt covenants or other possible events of default that could happen in the future.

Subordinated Debt – Convertible and Non-Convertible

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 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 ofallow the Company to the lenders parties to the Credit Agreement, pursuant to a Subordinationrepurchase 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.

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On October 4, 2015, the Company issued to the sellers of Access Data Consulting Corporation 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 andsettle all amounts of previously unpaid principal and accrued interest. The Credit Agreement requires this loan to be subordinated to PNC and MGG.

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 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% Convertible Subordinated 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.

Series B Convertible Preferred Stock

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(the “9.5% Notes”), Series B Convertible Preferred Stock, as part of the Merger Consideration. The no par value (“Series B Preferred Stock”), 8% Convertible Subordinated Notes (“8% Notes”) and Series C 8% Cumulative 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 distributionno par value (“Series C Preferred Stock”) held by each of assets upon liquidation, dissolution or winding upthem. All of the Company, whether voluntary or involuntary. Inoutstanding 9.5% Notes and all of 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 theoutstanding 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.were held by SNI Group Members.

NoneManagement believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future assuming the negative economic effects 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.COVID-19 do not worsen, and that economic recovery continues.

Off-Balance Sheet Arrangements

As of September 30, 2018,2020, and 2017,2019, and during the two fiscal years then ended, there were no transactions, agreements, or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.

Critical Accounting Policies and Estimates

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission.

Management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the consolidated financial statements, as well as the amounts of reported revenues and expenses during the periods presented. Those estimates and assumptions typically involve expectations about events to occur subsequent to the balance sheet date, and it is possible that actual results could ultimately differ from the estimates. If differences were to occur in a subsequent period, the Company would recognize those differences when they became known.

Significant accounting and disclosure matters requiring the use of estimates and assumptions include, but may not be limited to, revenue recognition, accounts receivable 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.

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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 light 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. Expected future falloffs and refunds are reflected in the consolidated balance sheet as a reduction of accounts receivable.

See Note 15 for disaggregated revenues by segment.

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.

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

Fair Value Measurement

The Company follows the provisions of the accounting standardFinancial 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.

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 basisbases 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.

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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 and group interest and penalties, related to unrecognized tax benefits on theif any, with income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2018,2020, no material accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

Goodwill

Goodwill represents the excess of cost over the fair value of the net assets acquired in the various acquisitions. The Company assessesevaluates 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. Testing Goodwill for impairment, which allows the Company to first assess qualitative factors to determine whether the existence ofannually and when one or more triggering events or circumstances leads to a determinationindicate that itthe goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is more likely than not thatperformed by comparing the estimated fair value of a reporting unit is less thanwith 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 becharge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to the extentexceed the carrying value of goodwill exceeds its implied fair value.goodwill.

Intangible AssetsThe Company performed annual goodwill impairment testing effective as of September 30, 2020, and allocates its goodwill among two reporting units, its Professional segment and its Commercial segment 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 on 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 our cash flows and the market multiples of comparable companies utilized. In applying our methods, we also use averages or medians to select assumptions derived from comparable companies or market data, 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.

CustomerAs a result of the evaluation performed, the carrying value of its net assets exceeded the estimated fair value of the Company’s Professional segment as of September 30, 2020, while the estimated fair value of the Commercial segment exceeded its net carrying value. The outcome of this goodwill impairment test resulted in a non-cash charge for the impairment of goodwill of $8,850, which was recorded in the consolidated financial statements for fiscal 2020. For purposes of performing this goodwill impairment assessment, management applied the valuation techniques and assumptions to its Professional and Commercial 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.

Management also considered the Company’s market capitalization, as recently reported on the NYSE American exchange, in conducting its assessment, which has been lower than its consolidated net book value (consolidated stockholders’ equity). Management believes that the continuing declines 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 recent stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020. Management believes and expects that these conditions, including those impacting the Company, are improving and will continue to improve. However, there can be no assurance that the Company’s goodwill or other long-lived assets will not become impaired in the future.

The Company adopted ASU 2017-04 in 2019. Due to a previous sustained decline in the market capitalization of our common stock during the third quarter of 2019, we also performed a goodwill impairment test in accordance with the provisions of ASU 2017-04, and recognized a non-cash charge for the impairment of goodwill of $4,300 in fiscal 2019.

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 recordsrecognizes an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the assetthese 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. TheIn the event the net carrying value of the Company’s long-lived assets are determined not to be recoverable, isthey are reduced to fair value, which is typically calculated using one or a combination of the undiscountedrelief 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 Commercial segments. The Company did not record any impairments to its long-lived assets during fiscal 2020 and 2019.

Beneficial Conversion Feature

The Company evaluates embedded conversion features within a convertible instrument under ASC 815 Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require treatment under ASC 815, the instrument is evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial feature.

The Company records a beneficial conversion feature (“BCF”) when the convertible instrument is issued with conversion features at fixed or adjustable rates that are below market value when issued. The BCF for convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the convertible security.

The BCF for the convertible instrument is recorded as a reduction, or discount, to the carrying amount of the convertible instrument equal to the fair value of the conversion feature. The discount is then amortized as interest or deemed dividends over the period from the date of the convertible instrument’s issuance to the earliest redemption date, provided that the convertible instrument is not currently redeemable but probable of becoming redeemable in the future.

Stock-Based Compensation

The Company accounts for stock-based awards to employees in accordance with applicable accounting principles,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"(“Black-Scholes”) pricing model. For all employee stock options, we recognize expense over the requisite service period on an accelerated basis over the employee'semployee’s requisite service period (generally the vesting period of the equity grant). The Company'sCompany’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.FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model.

 

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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.

Recent Accounting Pronouncements.

ForRecently Adopted Accounting Pronouncements

Lease Accounting. In February 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-02, Leases (“ASC 842”), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous ASC 840 guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. We adopted this guidance as of October 1, 2019 and elected the transition method provided under ASU 2018-11. This standard has a material effect on our consolidated balance sheets with the recognition of new right of use assets and lease liabilities for all operating leases, except for those leases where we elected the short-term lease recognition exemption, as these leases have a non-cancelable lease term of approximately one year or less. Adoption of the new standard did not have a material effect on the Company’s consolidated results of operations. As of the transition date, the ROU asset and total lease liability (current and long-term) were $5,900 and $6,341, respectively.

The Company elected the package of practical expedients available under the transition provisions of the new lease standard, including (i) not reassessing whether expired or existing contracts contain leases, (ii) lease classification, and (iii) not revaluing initial direct costs for existing leases. Also, the Company elected the practical expedient which allows aggregation of non-lease components with the related lease components when evaluating accounting treatment. Lastly, the Company applied the modified retrospective adoption method, utilizing the simplified transition option available in the ASC 842, which allows entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. See Note 5 for further discussion of leases.

Stock Compensation. In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (“ASC 718”), which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted (but no sooner than the adoption of Topic 606). The Company adopted the new guidance as of October 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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.

No other recent accounting pronouncements were issued by FASB and their potential effectthe SEC that are believed by management to have a material impact on our results of operations andthe Company’s present or future financial condition, refer to Note 3 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.statements.

Not applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of GEE Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of GEE Group, Inc. (the “Company”) as of September 30, 20182020 and 2017,2019, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two yeartwo-year period ended September 30, 2018,2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018,2020 and 2017,2019, and the results of its operations and its cash flows for each of the years in the two yeartwo-year period ended September 30, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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 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 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 financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Friedman LLP

We have served as the Company’s auditor since 2012

Marlton, New Jersey

December 27, 201829, 2020

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GEE GROUP INC. CONSOLIDATED BALANCE SHEETS

		September 30,
Amounts in thousands		2018				2017
ASSETS
CURRENT ASSETS:
Cash		$	3,213			$	2,785
Accounts receivable, less allowances ($302 and $1,712, respectively)			20,755				23,178
Prepaid expenses and other current assets			2,266				3,014
Total current assets			26,234				28,977
Property and equipment, net			891				914
Goodwill			76,593				76,593
Intangible assets, net			29,467				35,049
Other long-term assets			416				282
TOTAL ASSETS		$	133,601			$	141,815
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		$	2,523			$	3,243
Acquisition deposit for working capital guarantee			883				1,500
Accrued compensation			5,212				7,394
Short-term portion of subordinated debt			106				1,225
Short-term portion of term loan, net of discount			2,331				3,433
Other current liabilities			2,064				2,690
Total current liabilities			13,119				19,485
Deferred taxes			146				958
Revolving credit facility			11,925				7,904
Term loan, net of discounts			40,253				42,018
Subordinated debt			1,000				1,000
Subordinated convertible debt			16,685				16,685
Other long-term liabilities			583				369
Total long-term liabilities			70,592				68,934
Commitments and contingencies
MEZZANINE EQUITY
Preferred stock; no par value; authorized - 20,000 shares -
Preferred series A stock; authorized -160 shares; issued and outstanding - none			-				-
Preferred series B stock; authorized - 5,950 shares; issued and outstanding - 5,816 and 5,926 at September 30, 2018 and September 30, 2017, respectively; liquidation value of the preferred series B stock is approximately $28,255 and $28,800 at September 30, 2018 and September 30, 2017, respectively			28,788				29,333
SHAREHOLDERS' EQUITY
Common stock, no-par value; authorized - 200,000 shares; issued and outstanding - 10,783
shares at September 30, 2018 and 9,879 shares at September 30, 2017			-				-
Additional paid in capital			44,120				39,517
Accumulated deficit			(23,018	)			(15,454	)
Total shareholders' equity			21,102				24,063
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	133,601			$	141,815

The accompanying notes are an integral part of these consolidated financial statements.

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GEE GROUP INC. CONSOLIDATED STATEMENT OF OPERATIONS