Common				Additional								Total
		Stock				Paid				Accumulated				Shareholders'
		Shares				In Capital				Deficit				Equity
Balance, September 30, 2018			10,783			$	44,120			$	(23,018	)		$	21,102
Share-based compensation			-				581				-				581
Issuance of stock for interest			171				401				-				401
Conversion of preferred Series B to common stock			250				1,238				-				1,238
Net loss			-				-				(3,452	)			(3,452	)
Balance, December 31, 2018			11,204			$	46,340			$	(26,470	)		$	19,870
Share-based compensation			-				549				-				549
Issuance of stock for interest			517				402				-				402
Net loss			-				-				(3,890	)			(3,890	)
Balance, March 31, 2019			11,721			$	47,291			$	(30,360	)		$	16,931
Share-based compensation			-				531				-				531
Issuance of stock for interest			333				401				-				401
Beneficial conversion features on subordinated debt			-				841				-				841
Net loss			-				-				(6,834	)			(6,834	)
Balance, June 30, 2019			12,054			$	49,064			$	(37,194	)		$	11,870

		Common				Additional								Total
		Stock				Paid				Accumulated				Shareholders'
		Shares				In Capital				Deficit				Equity
Balance, September 30, 2017			9,879			$	39,517			$	(15,454	)		$	24,063
Share-based compensation			-				293				-				293
Issuance of stock for interest			136				595				-				595
Net loss			-				-				(1,791	)			(1,791	)
Balance, December 31, 2017			10,015			$	40,405			$	(17,245	)		$	23,160
Share-based compensation			-				336				-				336
Issuance of stock for interest			321				999				-				999
Conversion of preferred Series B to common stock			110				545				-				545
Net loss			-				-				(2,878	)			(2,878	)
Balance, March 31, 2018			10,446			$	42,285			$	(20,123	)		$	22,162
Share-based compensation			-				399				-				399
Issuance of stock for interest			163				401				-				401
Net loss			-				-				(1,887	)			(1,887	)
Balance, June 30, 2018			10,609			$	43,085			$	(22,010	)		$	21,075

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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GEE GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In Thousands)

1. Description of Business

GEE Group Inc. (the “Company”, “us”, “our” or “we”) was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. We are a provider of permanent and temporary professional industrial and physician assistantindustrial staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, accounting, finance, office, engineering, medical and accountingmedical professionals for direct hire and contract staffing for our clients and provide temporary staffing services for our commercial clients.

2. Significant Accounting Policies and Estimates

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotesnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three-monththree and nine-month period ended December 31, 2017June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018.2019. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotesnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 20172018 as filed on December 28, 2017.27, 2018.

Liquidity

The Company has experienced significant net losses and negative cash flows from operations in the past. Management has implemented a strategy which includes cost reduction efforts, consolidation of certain back office activities to gain efficiencies as well as identifying strategic acquisitions, financed primarily through the issuance of preferred and common stock and convertible debt, to improve the overall profitability and cash flows of the Company.

After the close of business on March 31, 2017, the Company andfor its subsidiaries, as borrowers, entered into a Revolving Credit, Term Loan and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association (“PNC”), and certain investment funds managed by MGG Investment Group LP (“MGG”). All funds were distributed on April 3, 2017 (the “Closing Date”).

Under the terms of the Credit Agreement, the Company may borrow up to $73,750,000 consisting of a four-year term loan in the principal amount of $48,750,000 and revolving loans in a maximum amount up to the lesser of (i) $25,000,000 or (ii) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of the Company’s eligible accounts receivable, as described in the Credit Agreement. The loans under the Credit Agreement mature on March 31, 2021.

On October 2, 2017, the Company, the other borrower entities and guarantor entities named therein (collectively, the “Loan Parties”), PNC, and certain investment funds managed by MGG (collectively the “Lenders”) entered into a First Amendment and Waiver (the “Amendment”) to the Revolving Credit, Term Loan and Security Agreement dated as of March 31, 2017 (the “Credit Agreement”) by and among the Loan Parties and the Lenders.

The Amendment, which was effective as of October 2, 2017, modified the required principal repayment schedule with respect to the Term Loans. The Amendment also modified the ability of the Loan Parties to repay or make other payments with respect to certain other loans that are subordinated in right of payment to the indebtedness under the Credit Agreement.

Pursuant to the Amendment the Lenders also waived any Event of Default arising out of the Loan Parties’ failure to deliver, on or before October 3, 2017, the materials satisfying the requirements of clauses (i) and (ii) of Section 5 of the Waiver to Revolving Credit, Term Loan and Security Agreement, dated as of August 14, 2017, as amended.

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On November 14, 2017, the Company and its subsidiaries, as Borrowers, each subsidiary of the Company listed as a “Guarantor” on the signature pages thereto (together with each other Person joined thereto as a guarantor from time to time, collectively, the “Guarantors”, and each a “Guarantor”, and together with the Borrowers, collectively, the “Loan Parties” and each a “Loan Party”), certain lenders which now are or which thereafter become a party thereto that make Revolving Advances thereunder (together with their respective successors and assigns, collectively, the “Revolving Lenders” and each a “Revolving Lender”), the lenders which now are or which thereafter become a party thereto that made or acquire an interest in the Term Loans (together with their respective successors and assigns, collectively, the “Term Loan Lenders” and each a “Term Loan Lender”, and together with the Revolving Lenders, collectively, the “Lenders” and each a “Lender”), MGG, as administrative agent for the Lenders (together with its successors and assigns, in such capacity, the “Administrative Agent”), as collateral agent for the Lenders (together with its successors and assigns, in such capacity, the “Collateral Agent”), and as term loan agent (together with its successors and assigns, in such capacity, the “Term Loan Agent” and together with the Administrative Agent and the Collateral Agent, each an “Agent” and, collectively, the “Agents”), entered into a second amendment (the “Second Amendment”) to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the “Credit Agreement”).

Pursuant to the Second Amendment the Borrowers agreed, among other things, to use commercially reasonable efforts to prepay, or cause to be prepaid, $10,000,000 in principal amount of Advances (as defined in the Credit Agreement) outstanding, which amount shall be applied to prepay the Term Loans in accordance with the applicable terms of the Credit Agreement. Any prepayment to the term loan is contingent upon a future financing, non-operational cash flow or excess cash flow as defined in the agreement. The Borrowers also agreed to amend (i) the applicable minimum Fixed Charge Coverage Ratios required to be maintained by the Company as set forth in the Second Amendment, (ii) the minimum EBITDA required to be maintained by the Company, as set forth in the Second Amendment and (iii) the maximum senior leverage ratios required to be maintained by the Company, as set forth in the Second Amendment. The Borrowers agreed to pay to the Administrative Agent for the account of the Revolving Lenders, an amendment fee of $364,140, in connection with their execution and delivery of the Second Amendment. Such fee is payable on the earlier of (a) Junemost recent fiscal year ended September 30, 2018, and (b) the first date on which all of the Obligations (as defined in the Credit Agreement) are paid in full in cash and the Total Commitment (as defined in the Credit Agreement) of the Lenders is terminated.

The loans under the credit agreement for the nine-month period commencing on the Amendment No. 2 Effective Date up to and including May 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 3.75 to 1.00, an amount equal to 9.75% for Advances consisting of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.75 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans.

The loans under the credit agreement for the period commencing onended June 1, 2018 up to and including August 31, 2018, (i) so long as the Senior Leverage Ratio is equal to or greater than 4.00 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 4.00 to 1.00, an amount equal to 9.75% for Advances consisting of Domestic Rate Loans and 10.75% for Advances consisting of LIBOR Rate Loans.

The loans under the credit agreement for the period commencing on September 1, 2018 through the remainder of the Term, (i) so long as the Senior Leverage Ratio is equal to or greater than 3.50 to 1.00, an amount equal to 14.00% for Advances consisting of Domestic Rate Loans and 15.00% for Advances consisting of LIBOR Rate Loans and (ii) so long as the Senior Leverage Ratio is less than 3.50 to 1.00, an amount equal to 9.00% for Advances consisting of Domestic Rate Loans and 10.00% for Advances consisting of LIBOR Rate Loans.

At December 31, 2017, approximately $8,000,000 of the Revolving Credit facility was fixed for a three-month period at an interest of approximately 11.3%.

At December 31, 2017, the Company had approximately $5,800,000 available on the Revolving Credit facility.

The Company was in compliance with the newly amended financial covenants of the loan for December 31, 2017, the first measurement date under the Amendment.

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30, 2019.

As of December 31, 2017,June 30, 2019, the Company had cash of approximately $3,480,000,$4.2 million, which was an increase of approximately $695,000$1.0 million from approximately $2,785,000$3.2 million at September 30, 2017.2018. Working capital at December 31, 2017June 30, 2019 was approximately $630,000,$11.4 million, as compared to working capital of approximately $1,588,000$13.1 million for September 30, 2017. The net loss for the three months ended December 31, 2017, was approximately $1,791,000.

At December 31, 2017 there was approximately $999,000 of accrued interest that was payable with the Company’s common stock.

On January 4, 2018, the Company issued approximately 41,000 shares of common stock to JAX Legacy related to the accrued interest of approximately $105,000 on the subordinated note.

On January 4, 2018, the Company issued approximately 280,602 shares of common stock to the SNI Sellers related to accrued interest of approximately $894,000 on the subordinated note.2018.

Management believeshas taken definitive actions to improve operations, reduce costs and improve profitability, and position the Company for future growth. In addition, the Company’s senior lenders have worked with management in providing amendments and waivers to the Company’s senior credit facilities as management works towards improving the Company’s operations and restructuring its current debt and equity capitalization.

Based on its current projections, management expects that the Company can meet its future cash flowdebt service requirements and comply with its financial covenants and other commitments, as amended, and will continue to seek reasonable assistance from operationsthe Company’s senior lenders, as necessary. 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 availability underCompany will not fall into non-compliance with its loan covenants or that its Lenders will continue to provide waivers or amendments to the Revolving Credit Facility will have sufficient liquidity forCompany in the next 12 months.event of future non-compliance with debt covenants or other possible events of default that could happen in the future.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.

Estimates and Assumptions

Management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the unaudited condensed consolidated financial statements, as well as the amounts of reported revenues and expenses during the periods presented. Those estimates and assumptions typically involve expectations about events to occur 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 matters requiring the use of estimates and assumptions include, but may not be limited to, deferred income tax valuation allowances, accounts receivable allowances, accounting for acquisitions, accounting for derivatives and evaluation of impairment. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.

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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 unaudited condensed consolidated statements of operations as a reduction of placement service revenues and were approximately $625,000$0.5 million and $90,000$0.6 million, and $1.9 million and $1.6 million for the three-month periodthree and nine-month periods ended December 31, 2017June 30, 2019 and 20162018, respectively. Expected future falloffs and refunds are reflected in the unaudited condensed consolidated balance sheet as a reduction of accounts receivable as described under Accounts Receivable, below.

See Note 13 for disaggregated revenues by segment.

Payment terms in our contracts vary by the type and were approximately $911,000 aslocation of December 31, 2017our customer and $997,000 as of September 30, 2017, respectively.the services offered. The terms between invoicing and when payments are due are not significant.

Cost of Contract Staffing Services

The cost of contract services includes the wages and the related payroll taxes, and employee benefits and certain other employee-related costs of the Company'sCompany’s contract service employees, while they work on contract assignments.

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Cash and Cash Equivalents

Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. At December 31, 2017As of June 30, 2019 and September 30, 2017,2018, there were no cash equivalents. The Company maintains deposits in financial institutions in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances.

Accounts Receivable

The Company extends credit to its various customers based on evaluation of the customer'scustomer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for placement fall-offs is recorded, as a reduction of revenues, for estimated losses due to applicants not remaining employed for the Company'sCompany’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'smanagement’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a relatively small accounts receivable allowance. Based on management's reviewAs of accounts receivable, aneach of June 30, 2019, and September 30, 2018, the allowance for doubtful accounts of approximately $1,659,000 is considered necessary as of December 31, 2017 and $1,712,000 at September 30, 2017, respectively.was $0.3 million. The Company charges off uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The reserveallowance also includes the $911,000 reserve for permanent placement falloffs considered necessaryof $0.2 million as of December 31, 2017June 30, 2019 and $997,000 as of September 30, 2017, respectively.2018.

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Property and Equipment

Property and equipment are recorded at cost. Depreciation expense is calculated on a straight-line basis over estimated useful lives of five years for computer equipment and two to ten years for office equipment, furniture and fixtures. The Company capitalizes computer software purchased or developed for internal use and amortizes it over an estimated useful life of five years. The carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If the carrying amount of an asset group is greater than its estimated future undiscounted cash flows, the carrying value is written down to the estimated fair value. There was no impairment of property and equipment for the three-monthsnine-month period ended December 31, 2017June 30, 2019 and 2016.2018.

Goodwill

Goodwill represents the excess of cost over the fair value of the net assets acquired in the various acquisitions. The Company assesses goodwill for impairment at least annually. Testing goodwill for impairment allowsIn 2019, the Company to first assess qualitative factors to determine whetherearly adopted ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the existenceTest for Goodwill Impairment, which simplifies the subsequent measurement of eventsgoodwill by eliminating the second step from the quantitative goodwill impairment test. Under this guidance, annual or circumstances leads to a determination that itinterim goodwill impairment testing is more likely than not thatperformed by comparing the 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.

Due to a sustained decline in the market capitalization of our common stock during the third quarter of 2019, we performed an interim goodwill exceeds its impliedimpairment test in accordance with the provisions of ASU 2017-04. The outcome of this goodwill impairment test resulted in a non-cash charge for the impairment of goodwill of $4.3 million, which was recorded in the consolidated financial statements for the three and nine-month periods ended June 30, 2019. For purposes of performing this interim goodwill impairment assessment, management mainly considered recent trends in the Company’s stock price, estimated control or acquisition premium, and related matters, including other possible factors affecting the recent declines in the Company’s stock price and their effects on estimated fair value.value of the Company’s reporting units.

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"“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 onof 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'sCompany’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:

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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.

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The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The carryingfair value disclosures of the Company’s long-term liabilities represents theirapproximates the fair value based on level 3 inputs.current yield for debt instruments with similar terms. The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using levelLevel 3 inputs, as discussed in Note 5.

Earnings and Loss per Share

Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable and preferred stock to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation.

Common share equivalents of approximately 546,118 was included in the computation of diluted earnings per share for the three months ended December 31, 2016. There were approximately 10,274,000 and 475,100 of common stock equivalents, which are excluded for the three months ended December 31, 2017 and December 31, 2016, respectively because their effect is anti-dilutive.anti-dilutive, were 13.7 million and 12.4 million for the three and nine-month period ended June 30, 2019 and 10.5 million and 10.9 million for the three and nine-month period ended June 30, 2018, respectively.

Advertising Expenses

MostThe Company expenses the costs of the Company's advertising expense budget is used to support the Company's business. Most of the advertisements are in print orand internet media with expenses recordedadvertising and promotions as they are incurred. For the three months ended December 31, 2017incurred and 2016, includedreports these costs in selling, general and administrative expenses wasexpenses. For the three and nine-month periods ended June 30, 2019 and 2018, advertising expense totaling approximately $599,000totaled $0.6 and $288,000,$1.7 million each, respectively.

Intangible Assets

CustomerSeparately 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

The Company recordsrecognizes an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not recognize and record any impairmentimpairments of long-lived assets used in operations, other than goodwill during the three monthsnine-month period ended December 31, 2017June 30, 2019 and 2016.2018.

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.

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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.

 

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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.

See Note 9 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation. Upon the exercise of options, it is the Company's policy to issue new shares rather than utilizing treasury shares.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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.

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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 December 31, 2017June 30, 2019 and September 30, 2017,2018, no material accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

Reclassification

Certain reclassifications have been made to the financial statements as of and for the three months ended December 31, 2016 to conform to the current year presentation. There is no effect on assets, liabilities, equity or net income.

Segment Data

The Company provides the following distinctive services: (a) direct hire placement services, and (b) temporary professional contract services staffing in the fields of information technology, engineering, medical, and accounting, and (c) temporary contract light industrial staffing. These distinctThe Company’s services can be divided into two reportable segments, Industrial Staffing Services and Professional Staffing Services. Selling, general and administrative expenses are not completely separatelyentirely allocated among light industrial servicesIndustrial and professional staffing services.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 thesethe Company’s operating segments.

3. Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace mostsuperseded the existing revenue recognition guidance inunder U.S. GAAP when it becomes effective.GAAP. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. This ASU permits the use of either the retrospective or cumulative effect transition method. The new standard is effective forwas adopted by the Company beginningunder the modified retrospective approach effective October 1, 2018. The Company is in the process of evaluating the impact of adoption of this guidance on its financial statements.

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In November 2015, the FASB issued authoritative guidance which changes how deferred taxes are classified onstandard did not have a company’s balance sheet. The new guidance eliminates the current requirement for companies to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, companies will be required to classify all deferred tax assets and liabilities as noncurrent. The new guidance is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. Except for balance sheet classification requirements related to deferred tax assets and liabilities, the Company does not expect this guidance to have an effect on its financial statements. The adoption of this guidance had no material effectimpact on the Company as of December 31, 2017.Company’s financial statements.

In February 2016 the FASB issued authoritative guidance which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees will be required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The new guidance is effective for annual and interim periods beginning after December 15, 2018. Early application is permitted for all entities upon issuance. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is in the process of evaluating the impact of adoption of this guidance on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”)No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-09 simplifies several aspects of the2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted.largely unchanged. The adoption of this guidance had no effect on the Company as of December 31, 2017.

In August 2016, the FASB issued authoritative guidance designed to address diversity in how certain cash receipts and cash payments are presented and classifiedamendment in the statement of cash flows, including: i) contingent consideration payments made after a business combination; ii) proceeds from the settlement of insurance claims; and iii) proceeds from the settlement of corporate-owned life insurance policies. The new guidance isASU are effective for the Company for fiscal years beginning after December 15, 2017,2018 and interim periods within those fiscal years. Early adoptionapplication is permitted in any interimfor all entities. ASU 2016-02 requires a modified retrospective approach for all eases existing at, or annual period. The Company believesentered into after, the adoptiondate of this guidance will not have a material impact on its financial statements.

initial application, with an option to elect to use certain transition relief. In January 2017,July 2018, the FASB issued ASU 2017-01, Business CombinationsNo. 2018-10, “Codification of Improvement to Topic 842 Leases.” The amendments in ASU 2018-10 clarify, correct or remove inconsistencies in the guidance provided under ASU 2016-02 related to sixteen specific issues identified. Also, in July 2018, the FASB issued ASU No. 2018-11 “Leases (Topic 805)842): ClarifyingTargeted Improvement” which now allows entities the Definitionoption of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior period under previous lease accounting guidance. The effective date and transition requirement for these two ASUs are the same as the effective date and transition requirement as ASU 2016-02. While the Company continues to assess all potential impacts of the standard, the Company currently believes the most significant impact relates to recording right-to-use assets and related operating lease liabilities on the condensed consolidated balance sheets.

In June 2018, the FASB issued ASU 2018-07, 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 Business, which clarifies the definition ofgrantor acquires goods or services to be used or consumed in a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.grantor’s own operations by issuing share-based payment awards. The standard will be effective for the Company in the first quarter of 2019. Earlyfiscal year 2020, although early adoption is permitted.permitted (but no sooner than the adoption of Topic 606). The Company is currently evaluating the impacteffect the adoption of adopting this ASU on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The new rules will be effective for the Company in the first quarter of 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASUhave on its consolidated financial statements.

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

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4. Property and Equipment

Property and equipment, net consisted of the following:

Leasehold improvements are amortized over the term of the lease.

		June 30, 2019				September 30, 2018
(in thousands)
Computer software		$	1,447			$	1,447
Office equipment, furniture and fixtures and leasehold improvements			3,549				3,356
Total property and equipment, at cost			4,996				4,803
Accumulated depreciation and amortization			(4,164	)			(3,912	)
Property and equipment, net		$	832			$	891