Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Mar. 31, 2020 | May 11, 2020 | |
Document And Entity Information | ||
Entity Registrant Name | GEE Group Inc. | |
Entity Central Index Key | 0000040570 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Current Reporting Status | Yes | |
Document Period End Date | Mar. 31, 2020 | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2020 | |
Entity Common Stock Shares Outstanding | 15,833,038 | |
Entity Interactive Data Current | Yes |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2020 | Sep. 30, 2019 |
CURRENT ASSETS: | ||
Cash | $ 2,379 | $ 4,055 |
Accounts receivable, less allowances ($2,250 and $515, respectively) | 17,262 | 20,826 |
Prepaid expenses and other current assets | 1,583 | 2,221 |
Total current assets | 21,224 | 27,102 |
Property and equipment, net | 812 | 852 |
Goodwill | 72,293 | 72,293 |
Intangible assets, net | 21,086 | 23,881 |
Right-of-use assets | 5,497 | |
Other long-term assets | 286 | 353 |
TOTAL ASSETS | 121,198 | 124,481 |
CURRENT LIABILITIES: | ||
Accounts payable | 2,459 | 3,733 |
Acquisition deposit for working capital guarantee | 183 | 783 |
Accrued compensation | 5,820 | 5,212 |
Short-term portion of term loan, net of discount | 4,668 | |
Subordinated debt | 1,000 | |
Current operating lease liabilities | 1,616 | |
Other current liabilities | 1,629 | 3,172 |
Total current liabilities | 11,707 | 18,568 |
Deferred taxes | 367 | 300 |
Revolving credit facility | 15,015 | 14,215 |
Term loan, net of discount | 40,772 | 36,029 |
Subordinated debt | 1,000 | |
Subordinated convertible debt (includes $1,428 and $1,269, net of discount, respectively, due to related parties) | 18,113 | 17,954 |
Noncurrent operating lease liabilities | 4,396 | |
Other long-term liabilities | 159 | 595 |
Total long-term liabilities | 79,822 | 69,093 |
Commitments and contingencies | ||
MEZZANINE EQUITY | ||
Preferred stock value | ||
Total mezzanine equity | 27,695 | 27,611 |
SHAREHOLDERS' EQUITY | ||
Common stock, no-par value; authorized - 200,000 shares; issued and outstanding - 14,557 shares at March 31, 2020 and 12,538 shares at September 30, 2019, respectively | ||
Additional paid in capital | 51,746 | 49,990 |
Accumulated deficit | (49,772) | (40,781) |
Total shareholders' equity | 1,974 | 9,209 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 121,198 | 124,481 |
Series A Preferred Stock [Member] | ||
MEZZANINE EQUITY | ||
Preferred stock value | ||
Series B Preferred Stock [Member] | ||
MEZZANINE EQUITY | ||
Preferred stock value | 27,551 | 27,551 |
Series C Preferred Stock [Member] | ||
MEZZANINE EQUITY | ||
Preferred stock value | $ 144 | $ 60 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Mar. 01, 2020 | Sep. 30, 2019 |
CURRENT ASSETS: | ||
Accounts receivable, allowances | $ 2,250 | $ 515 |
CURRENT LIABILITIES: | ||
Subordinated debt discount | $ 1,428 | $ 1,269 |
SHAREHOLDERS' EQUITY | ||
Preferred stock, par value | $ 0 | $ 0 |
Preferred stock, share authorized | 20,000 | 20,000 |
Common stock, par value | $ 0 | $ 0 |
Common stock, shares authorized | 200,000 | 200,000 |
Common stock, shares issued | 14,557 | 12,538 |
Common stock, shares outstanding | 14,557 | 12,538 |
Series A Preferred Stock [Member] | ||
SHAREHOLDERS' EQUITY | ||
Preferred stock, share authorized | 160 | 160 |
Preferred stock, share issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Series B Preferred Stock [Member] | ||
SHAREHOLDERS' EQUITY | ||
Preferred stock, share authorized | 5,950 | 5,950 |
Preferred stock, share issued | 5,566 | 5,566 |
Preferred stock, outstanding | 5,566 | 5,566 |
Liquidation value | $ 27,050 | $ 27,050 |
Series C Preferred Stock [Member] | ||
SHAREHOLDERS' EQUITY | ||
Preferred stock, share authorized | 3,000 | 3,000 |
Preferred stock, share issued | 144 | 60 |
Preferred stock, outstanding | 144 | 60 |
Liquidation value | $ 144 | $ 60 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
NET REVENUES: | ||||
Contract staffing services | $ 30,265 | $ 31,827 | $ 63,342 | $ 65,840 |
Direct hire placement services | 4,416 | 4,350 | 8,895 | 8,880 |
NET REVENUES | 34,681 | 36,177 | 72,237 | 74,720 |
Cost of contract services | 22,767 | 24,459 | 47,729 | 50,271 |
GROSS PROFIT | 11,914 | 11,718 | 24,508 | 24,449 |
Selling, general and administrative expenses (including noncash stock-based compensation expense of $356 and $549, and $953 and $1,130 respectively) | 12,800 | 11,041 | 24,091 | 22,279 |
Depreciation expense | 69 | 101 | 148 | 180 |
Amortization of intangible assets | 1,398 | 1,397 | 2,795 | 2,793 |
LOSS FROM OPERATIONS | (2,353) | (821) | (2,527) | (803) |
Interest expense | (3,065) | (3,085) | (6,284) | (6,033) |
LOSS BEFORE INCOME TAX PROVISION | (5,418) | (3,906) | (8,811) | (6,836) |
Provision for income tax | (10) | 16 | (181) | (506) |
NET LOSS | (5,428) | (3,890) | (8,991) | (7,342) |
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ (5,428) | $ (3,890) | $ (8,992) | $ (7,342) |
BASIC AND DILUTED LOSS PER SHARE | $ (0.38) | $ (0.34) | $ (0.66) | $ (0.66) |
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC AND DILUTED | 14,262 | 11,414 | 13,661 | 11,047 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (unaudited) - USD ($) $ in Thousands | Total | Common Stock | Additional Paid In Capital | Accumulated Deficit |
Balance, shares at Sep. 30, 2018 | 10,783 | |||
Balance, amount at Sep. 30, 2018 | $ 21,102 | $ 44,120 | $ (23,018) | |
Share-based compensation | 581 | 581 | ||
Issuance of stock for interest, shares | 171 | |||
Issuance of stock for interest, amount | 401 | 401 | ||
Conversion of preferred Series B to common stock, shares | 250 | |||
Conversion of preferred Series B to common stock, amount | 1,238 | 1,238 | ||
Net loss | (3,452) | (3,452) | ||
Balance, shares at Dec. 31, 2018 | 11,204 | |||
Balance, amount at Dec. 31, 2018 | 19,870 | 46,340 | (26,470) | |
Share-based compensation | 549 | 549 | ||
Issuance of stock for interest, shares | 517 | |||
Issuance of stock for interest, amount | 402 | 402 | ||
Net loss | (3,890) | (3,890) | ||
Balance, shares at Mar. 31, 2019 | 11,721 | |||
Balance, amount at Mar. 31, 2019 | 16,931 | 47,291 | (30,360) | |
Balance, shares at Sep. 30, 2019 | 12,538 | |||
Balance, amount at Sep. 30, 2019 | 9,209 | 49,990 | (40,871) | |
Share-based compensation | 597 | 597 | ||
Issuance of stock for interest, shares | 552 | |||
Issuance of stock for interest, amount | 402 | 402 | ||
Net loss | (3,563) | (3,563) | ||
Balance, shares at Dec. 31, 2019 | 13,090 | |||
Balance, amount at Dec. 31, 2019 | 6,645 | 50,989 | (44,344) | |
Share-based compensation | 356 | 356 | ||
Issuance of stock for interest, shares | 967 | |||
Issuance of stock for interest, amount | 401 | 401 | ||
Net loss | (5,428) | (5,428) | ||
Issuance of stock for restricted stock, shares | 500 | |||
Balance, shares at Mar. 31, 2020 | 14,557 | |||
Balance, amount at Mar. 31, 2020 | $ 1,974 | $ 51,746 | $ (49,772) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands | 6 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (8,991) | $ (7,342) |
Adjustments to reconcile net loss to cash (used in) provided by operating activities: | ||
Depreciation and amortization | 2,943 | 2,973 |
Non-cash lease expense | 874 | |
Stock Compensation expense | 953 | 1,130 |
Provision for doubtful accounts | 1,735 | |
Deferred income taxes | 67 | 502 |
Amortization of debt discount | 561 | 398 |
Interest expense paid with common and preferred stock | 886 | 803 |
Change in acquisition deposit for working capital guarantee | (600) | |
Changes in operating assets and liabilities: | ||
Accounts receivable | 1,829 | 763 |
Accounts payable | (1,304) | 1,374 |
Accrued compensation | 608 | (376) |
Change in other assets, net of change in other liabilities | (1,627) | 2 |
Net cash (used in) provided by operating activities | (2,066) | 227 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Acquisition of property and equipment | (83) | (83) |
Net cash used in investing activities | (83) | (83) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Payments on term loan | (327) | (1,687) |
Net proceeds from subordinated debt | (107) | |
Payments on finance leases | (24) | |
Net proceeds from revolving credit | 800 | 1,222 |
Net cash provided by (used in) financing activities | 473 | (596) |
Net change in cash | (1,676) | (452) |
Cash at beginning of period | 4,055 | 3,213 |
Cash at end of period | 2,379 | 2,761 |
SUPPLEMENTAL CASH FLOW INFORMATION: | ||
Cash paid for interest | 4,836 | 4,848 |
Cash paid for taxes | 29 | 95 |
Non-cash investing and financing activities | ||
Conversion of series B convertible preferred stock to common stock | 1,238 | |
Right-of-use assets, net of deferred rent | 6,371 | |
Operating lease liability | 6,813 | |
Acquisition of equipment with finance lease | $ 37 | $ 49 |
Description of Business
Description of Business | 6 Months Ended |
Mar. 31, 2020 | |
Description of Business | |
1. Description of Business | GEE Group Inc. was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Triad Logistics, Inc., and Triad Personnel Services, Inc. (collectively referred to as the "Company", "us", "our", or "we") are providers of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, accounting, finance, office, engineering, and medical professionals for direct hire and contract staffing for our clients and provide temporary staffing services for our commercial clients. |
Significant Accounting Policies
Significant Accounting Policies and Estimates | 6 Months Ended |
Mar. 31, 2020 | |
Significant Accounting Policies and Estimates | |
2. Significant Accounting Policies and Estimates | Basis of Presentation 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 notes 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 six-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2019 as filed on December 23, 2019. Liquidity The Company experienced significant net losses for the six-month periods ended March 31, 2020 and 2019, and for its most recent fiscal years ended September 30, 2019 and 2018, which also have 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 has begun to see its operations and business stabilize. Effective April 28, 2020, the Company successfully negotiated and entered into the Seventh Amendment to the Credit Agreement 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 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 to 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 Act (“the CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). 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 primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects have 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. Between April 29 and May 4, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $19,926. These funds are the only source of financing available to our companies and businesses 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 Company can generate adequate liquidity to meet its obligations for the foreseeable future assuming the negative economic effects of COVID-19 do not worsen, and that economic recovery occurs. As of March 31, 2020, the Company had cash of approximately $2,379, which was a decrease of approximately $1,676 from approximately $4,055 at September 30, 2019. Working capital at March 31, 2020 was approximately $9,517, as compared to working capital of approximately $8,534 for September 30, 2019. 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. Use of Estimates 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. In March 2020, the World Health Organization announced that a novel strain of coronavirus (“COVID-19”) had become pandemic. COVID-19 had a significant impact on global economies as a result of Federal and Local orders and business closures designed to stop the spread of the virus. We are continuing to monitor developments related to COVID-19 pandemic and related risks including risks related to efforts to mitigate the disease’s spread. The rapid development and fluidity of recent events related to the pandemic creates uncertainty regarding to the ultimate impact on the Company’s results of operations, financial condition, and liquidity. Due to uncertainties related to duration and severity of COVID-19, we may make changes in the judgments and estimates needed to apply the Company’s significant accounting policies that could result in significant impacts on the Company’s financial statements in future periods. Actual results and outcomes may differ from management’s estimates and 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 employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company's guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates. Temporary staffing service revenues from contracts with customers are recognized in amounts for which the Company has a right to invoice, as the services are rendered by the Company’s temporary employees. The Company records temporary staffing revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company controls the specified service before that service is performed for a customer. The Company has the risk of identifying and hiring qualified employees, has the discretion to select the employees and establish their price, and bears the risk for services that are not fully paid for by customers. 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 $400 and $700, and $600 and $1,300 for the three and six-month periods ended March 31, 2020 and 2019, 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 14 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. Cost of Contract Staffing Services The cost of contract services includes the wages and the related payroll taxes, employee benefits and certain other employee-related costs of the Company’s contract service employees, while they work on contract assignments. Cash and Cash Equivalents Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of March 31, 2020 and September 30, 2019, there were no cash equivalents. The Company maintains deposits in 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’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for placement fall-offs is recorded, as a reduction of revenues, for estimated losses due to applicants not remaining employed for the Company’s guarantee period. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a relatively small accounts receivable allowance. As of March 31, 2020, and September 30, 2019, the allowance for doubtful accounts was $2,250 and $515, respectively. The Company charges off uncollectible accounts once the invoices are deemed unlikely to be collectible. The allowance also includes permanent placement falloffs of $287 and $197 as of March 31, 2020 and September 30, 2019. 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 six-month periods ended March 31, 2020 and 2019. Leases The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s unaudited condensed consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All the Company’s real estate leases are classified as operating leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases. Goodwill In 2019, the Company adopted ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill. Due to the recent decline in global economic and labor market conditions caused by the global outbreak of the COVID-19 pandemic, the Company considered and reviewed the recoverability of its goodwill and determined, during the three-month period ended March 31, 2020, that no impairment charge was necessary. There were no other events or circumstances that have changed since the last annual test that could more likely than not reduce the fair value of the Company’s reporting segments below its carrying values. Fair Value Measurement The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement”, which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The fair value disclosures of the Company’s long-term liabilities approximates the fair value based on 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 Level 3 inputs, as discussed in Note 6. 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 stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 13,263 and 13,632, and 11,713 and 11,737 for the three and six-month periods ended March 31, 2020 and 2019, respectively. Advertising Expenses The Company expenses the costs of print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. For the three and six-month periods ended March 31, 2020 and 2019, advertising expense totaled $553 and $1,037, and $576 and $1,148 respectively. 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 The Company recognizes 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 impairments of long-lived assets used in operations during the six-month periods ended March 31, 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 FASB ASC 718, “Compensation-Stock Compensation”, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton ("Black-Scholes") pricing model. For all employee stock options, we recognize expense on an accelerated basis over the employee's requisite service period (generally the vesting period of the equity grant). The Company's option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model. See Note 10 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. We recognize and group interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations. As of March 31, 2020, and September 30, 2019, no material accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet. 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. The Company’s services can be divided into two reportable segments, Industrial Staffing Services and Professional Staffing Services. Selling, general and administrative expenses are not entirely allocated among Industrial 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 the Company’s operating segments. Reclassifications Certain amounts in the prior period presentation have been reclassified to conform with the current presentation. |
New Accounting Pronouncements
New Accounting Pronouncements | 6 Months Ended |
Mar. 31, 2020 | |
New Accounting Pronouncements | |
3. New Accounting Pronouncements | Recently Adopted Accounting Pronouncements Lease Accounting 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 Recently Issued Accounting Pronouncements Not Yet Adopted Current Expected Credit Losses Model. 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. |
Property and Equipment
Property and Equipment | 6 Months Ended |
Mar. 31, 2020 | |
Property and Equipment | |
4. Property and Equipment | Property and equipment, net consisted of the following: March 31, 2020 September 30, 2019 Computer software $ 1,497 $ 1,497 Office equipment, furniture, fixtures and leasehold improvements 3,687 3,599 Total property and equipment, at cost 5,184 5,096 Accumulated depreciation and amortization (4,372 ) (4,244 ) Property and equipment, net $ 812 $ 852 Depreciation expense for each three and six-month periods ended March 31, 2020 and 2019 was approximately $69 and $148, and $101 and $180 respectively. |
Leases
Leases | 6 Months Ended |
Mar. 31, 2020 | |
Leases | |
5. Leases | The Company leases space for all its branch offices, which are generally located either in downtown or suburban business centers, and for its corporate headquarters. Branch offices are generally leased over periods ranging from three to five years. The corporate office lease expires in 2020. The leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities. Operating lease expenses was approximately $611 and $1,270, and $700 and $1,500 for the three and six-month periods ended March 31, 2020 and 2019, respectively. Supplemental cash flow information related to leases consisted of the following: Three Months Ended March 31, 2020 Cash paid for operating lease liabilities $ 489 Right-of-use assets obtained in exchange for new operating lease liabilities $ 471 Supplemental balance sheet information related to leases consisted of the following: March 31, 2020 Weighted average remaining lease term for operating leases 2.8 years Weighted average discount rate for operating leases 6.0 % The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms in excess of one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of March 31, 2020, including certain closed offices are as follows: Remainder of Fiscal 2020 $ 1,029 Fiscal 2021 1,744 Fiscal 2022 1,620 Fiscal 2023 1,095 Fiscal 2024 831 Thereafter 449 Less: Imputed interest (756 ) Present value of operating lease liabilities (a) $ 6,012 (a) Includes current portion of $1,616 for operating leases. |
Intangible Assets
Intangible Assets | 6 Months Ended |
Mar. 31, 2020 | |
Intangible Assets | |
6. Intangible Assets | The following tables set forth the costs, accumulated amortization and net book value of the Company’s separately identifiable intangible assets as of March 31, 2020 and September 30, 2019 and estimated future amortization expense. March 31, 2020 September 30, 2019 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value Customer relationships $ 29,070 $ 11,754 $ 17,316 $ 29,070 $ 10,321 $ 18,749 Trade names 8,329 4,669 3,660 8,329 3,958 4,371 Non-Compete agreements 4,331 4,221 110 4,331 3,570 761 Total $ 41,730 $ 20,644 $ 21,086 $ 41,730 $ 17,849 $ 23,881 Estimated Amortization Expense Remaining Fiscal 2020 $ 2,243 Fiscal 2021 4,088 Fiscal 2022 3,469 Fiscal 2023 2,879 Fiscal 2024 2,879 Thereafter 5,528 $ 21,086 The trade names are amortized on a straight – line basis over the estimated useful life of between five and ten years. Intangible assets that represent customer relationships are amortized on the basis of estimated future undiscounted cash flows or using the straight – line basis over estimated remaining useful lives of five to ten years. Non-compete agreements are amortized based on a straight-line basis over the term of the respective noncompete agreements, which are typically five years in duration. The amortization expense for intangible assets was approximately $1,398 and $2,795, and $1,397 and $2,793 for three and six-month periods ended March 31, 2020 and 2019, respectively. |
Revolving Credit Facility and T
Revolving Credit Facility and Term Loan | 6 Months Ended |
Mar. 31, 2020 | |
Revolving Credit Facility and Term Loan | |
7. Revolving Credit Facility and Term Loan | Revolving Credit, Term Loan and Security Agreement The Company and its subsidiaries, as borrowers, are parties to a Revolving Credit, Term Loan and Security Agreement (the “Credit Agreement”) with certain investment funds managed by MGG Investment Group LP ("MGG"). The Revolving Credit Facility and Term Loan under the Credit Agreement, as amended, mature on June 30, 2023. Revolving Credit Facility As of March 31, 2020, the Company had $15,015 in outstanding borrowings under the Revolving Credit Facility, of which approximately $14,958 was at an interest rate of approximately 11%, and approximately $57 was at an interest rate of approximately 17.25%. As of March 31, 2020, the Company had approximately $100 available on the Revolving Credit facility. The Revolving Credit Facility is secured by all the Company’s property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title or interests. Term Loan The Company had outstanding balances under its Term Loan, as follows: March 31, 2020 September 30, 2019 Term loan $ 41,578 $ 41,905 Unamortized debt discount (806 ) (1,208 ) Term loan, net of discount 40,772 40,697 Short term portion of term loan, net of discounts - 4,668 Long term portion of term loan, net of discounts $ 40,772 $ 36,029 The Term Loan is payable as follows, subject to acceleration upon the occurrence of an Event of Default under the Credit Agreement or termination of the Credit Agreement and provided that all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses shall be due and payable in full on June 30, 2023. Principal payments are required as follows: fiscal 2020 – $0, fiscal 2021- $889, fiscal 2022 – $1,779, and fiscal 2023 - $38,910. The Company also was required to prepay the outstanding amount of the Term Loan in an amount equal to the Specified Excess Cash Flow Amount (as defined in the agreement) for the immediately preceding fiscal year, commencing with the fiscal year ending September 30, 2019 (refer to Seventh Amendment to Credit Agreement As of March 31, 2020, the Company had $41,578 in outstanding borrowings under the Term Loan that have an annual cash interest rate of approximately 11%, plus additional interest at an annual rate of 5% in the form of PIK (noncash, paid-in-kind), which accrues and is added to the balance of the Term Loan on a monthly basis. The Credit Agreement includes financial and other restrictive covenants. Financial covenants include minimum fixed charge coverage ratios, minimum EBITDA, as defined under the Credit Agreement to include certain adjustments, and a maximum senior leverage ratios. The Company measures and certifies these covenants quarterly. The financial covenants are measured on a trailing four quarter basis as of the end of each quarter. The Company did not meet its financial covenants for the trailing four quarters ended March 31, 2020. The Company received a waiver for missing the March 31, 2020 covenants and its future financial covenants have been reset under the Seventh and Eighth Amendments of the Credit Agreement (refer to Seventh Amendment to Credit Agreement The Credit Agreement also 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. Seventh Amendment to Credit Agreement 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. The Company and its senior lenders previously entered into the Sixth Amendment on February 12, 2020, while negotiating and in contemplation of the larger loan modification contained in Seventh Amendment. (See Note 15. Subsequent Events.) Eighth Amendment to Credit Agreement and CARES Act Payroll Protection Program Loans On May 5, 2020 the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program (“PPP”) and received net funds totaling $19,926 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP. (See Note 15. Subsequent Events.). On May 5, 2020, the Company also entered into 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 to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement. (See Note 15. Subsequent Events.) |
Accrued Compensation
Accrued Compensation | 6 Months Ended |
Mar. 31, 2020 | |
Accrued Compensation | |
8. Accrued Compensation | Accrued Compensation, is comprised of accrued wages, the related payroll taxes, employee benefits of the Company's employees, including those working on contract assignments, commissions earned and not yet paid and estimated commissions and bonuses payable. |
Subordinated Debt - Convertible
Subordinated Debt - Convertible and Non-Convertible | 6 Months Ended |
Mar. 31, 2020 | |
Subordinated Debt - Convertible and Non-Convertible | |
9. Subordinated Debt - Convertible and Non-Convertible | The Company had outstanding balances under its Convertible and Non-Convertible Subordinated Debt agreements, as follows: March 31, September 30, 2020 2019 10% Convertible Subordinated Note $ 4,185 $ 4,185 Subordinated Promissory Note 1,000 1,000 9.5% Convertible Subordinated Note 12,500 12,500 8% Convertible Subordinated Notes, net of discount, due to related parties 1,428 1,269 Total subordinated debt, convertible and non-convertible 19,113 18,954 Short term portion of subordinated debt, convertible and non-convertible - (1,000 ) Long term portion of subordinated debt, convertible and non-convertible $ 19,113 $ 17,954 10% Convertible Subordinated Note The Company had a Subordinated Note payable to JAX Legacy – Investment 1, LLC (“JAX Legacy”), pursuant to a Subscription Agreement dated October 2, 2015, in the amount of $4,185. On April 3, 2017, the Company and JAX Legacy amended and restated the Subordinated Note in its entirety in the form of a 10% Convertible Subordinated Note (the “10% Note”) in the aggregate principal amount of $4,185. The 10% Note matures on October 3, 2021 (the “Maturity Date”). The 10% Note is convertible into shares of the Company’s Common Stock at a conversion price equal to $5.83 per share. All or any portion of the 10% Note may be redeemed by the Company for cash at any time on or after April 3, 2018 that the average daily VWAP of the Company’s Common Stock reported on the principal trading market for the Common Stock exceeds the then applicable Conversion Price for a period of 20 trading days. The redemption price shall be an amount equal to 100% of the then outstanding principal amount of the 10% Note being redeemed, plus accrued and unpaid interest thereon. The Company agreed to issue to the investors in JAX Legacy approximately 77,775 shares of common stock, at a value of approximately $400 which was expensed as loss on the extinguishment of debt during the year ended September 30, 2017. Total discount recorded at issuance of the original JAX Legacy subordinated note payable was approximately $600. Total amortization of debt discount for the year ended September 30, 2017 was approximately $100, and the remaining $300 was written off to loss on extinguishment of debt upon amendment and restatement resulting in the 10% Note. The Company issued shares of common stock to JAX Legacy related to the conversion of the subordinated note and the interest of approximately 261 and 410 for the three and six-month periods ended March 31, 2020 and 149 and 189 for the three and six-month periods ended March 31, 2019, respectively. The stock was valued at approximately $105 and $210 for each three and six-month periods ended March 31, 2020 and March 31, 2019. On April 3, 2020 the Company issued 345 shares of common stock to JAX Legacy related to interest of $105 on the 10% Note. Subordinated Promissory Note On January 20, 2017, the Company entered into Addendum No. 1 (the “Addendum”) to the Stock Purchase Agreement dated as of January 1, 2016 (the “Paladin Agreement”) by and among the Company and Enoch S. Timothy and Dorothy Timothy (collectively, the “Sellers”). 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 paid $250 in cash to the Sellers prior to January 31, 2017 (the “Earnout Cash Payment”) and (ii) the Company issued to the Sellers a subordinated promissory note in the principal amount of $1,000 (the “Subordinated Note”). The Subordinated Note originally bore interest at the rate of 5.5% per annum. Interest on the Subordinated Note is payable monthly and principal can only be paid in stock until the term loan and Revolving Credit Facility are repaid. The Subordinated Note may be prepaid without penalty. The principal of and interest on the Subordinated Note may be paid, at the option of the Company, either in cash or in shares of common stock of the Company or in any combination of cash and common stock. The Sellers have agreed that all payments and obligations under the Subordinated Note shall be subordinate and junior in right of payment to any “Senior Indebtedness” (as defined in the Paladin Agreement) now or hereafter existing to “Senior Lenders” (current or future) (as defined in the Paladin Agreement). On February 8, 2020, the Company and its subsidiaries, as Borrowers, entered into a first amendment (the “First Amendment”) to the Subordinated Note, dated as of January 20, 2017 (the “Subordinated Note”). Under the First Amendment, the Company and its lender have negotiated and agreed to amend Subordinated Note to change maturity date to January 20, 2022. 9.5% Convertible Subordinated Notes On April 3, 2017, the Company issued and paid to certain SNIH Stockholders as part of the acquisition of SNIH an aggregate of $12,500 in the form of 9.5% Convertible Subordinated Notes (the “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 is payable quarterly in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2017, on each conversion date with respect to the 9.5% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”). At the option of the Company, interest may be paid on an Interest Payment Date either in cash or in shares of Common Stock of the Company, which Common Stock shall be valued based on the terms of the agreement, subject to certain limitations defined in the loan agreement. Each of the 9.5% Notes is subordinated in payment to the obligations of the Company under its Credit Agreement (see Note 6) pursuant to Subordination and Inter-creditor Agreements dated as of March 31, 2017 by and among the Company, the Credit Agreement lenders, and each of the holders of the 9.5% Notes. The Company issued shares of common stock to the SNI Sellers related to interest of $300 on the 9.5% Notes of approximately 706 and 1,108 for the three and six-month periods ended March 31, 2020 and 367 and 498 for the three and six-month periods ended March 31, 2019, respectively. The stock was valued at approximately $300 and $600 for each three and six-month periods ended March 31, 2020 and March 31, 2019. On April 3, 2020 the Company issued approximately 931 shares of common stock to the SNI Sellers related to interest of $300 on the 9.5% Notes. 8% Convertible Subordinated Notes to Related Parties On May 15, 2019, the Company issued and sold to members of its executive management and Board of Directors (the “Investors”) $2,000 in aggregate principal amount of its 8% Notes. The 8% Notes mature on October 3, 2021 (the “Maturity Date”). The 8% Notes are convertible into shares of the Company’s Series C 8% Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) at a conversion price equal to $1.00 per share (subject to adjustment as provided in the 8% Notes upon any stock dividend, stock combination or stock split or upon the consummation of certain fundamental transactions) (the “Conversion Price”). Interest on the 8% Notes accrues at the rate of 8% per annum and shall be paid quarterly in non-cash payments-in-kind (“PIK”) in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2019, on each conversion date with respect to the 8% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”). Interest shall be paid on an Interest Payment Date in shares of Series C Preferred Stock of the Company, which Series C Preferred Stock shall be valued at its liquidation value. All or any portion of the 8% Notes may be redeemed by the Company for cash at any time. The redemption price shall be an amount equal to 100% of the then outstanding principal amount of the 8% Notes being redeemed, plus accrued and unpaid PIK interest thereon. The Company may, at its option, prepay any portion of the principal amount of the 8% Notes without the prior consent of the holders thereof; provided, however, that any prepayments of the 8% Notes shall be made on a pro rata basis to all holders of 8% Notes based on the aggregate principal amount of 8% Notes held by such holders. The Company shall be required to prepay the 8% Notes together with accrued and unpaid PIK interest thereon upon the consummation by the Company of any Change of Control. For purposes of the 8% Notes, a Change of Control of the Company shall mean any of the following: (A) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions or (B) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any person or entity together with their affiliates, becomes the beneficial owner, directly or indirectly, of more than 50% of the Common Stock of the Company. Each of the 8% Notes is subordinated in payment to the obligations of the Company to the lenders parties to that certain Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, as amended, by and among the Company, the Company’s subsidiaries named as borrowers therein (collectively with the Company, the “Borrowers”), the senior lenders named therein and MGG Investment Group LP, as administrative agent and collateral agent (the “Agent”) for the senior lenders (the “Senior Credit Agreement”), pursuant to those certain Subordination and Intercreditor Agreements, each dated as of May 15, 2019 by and among the Company, the Borrowers, the Agent and each of the holders of the 8% Notes. The Company issued approximately 42 shares and 83 shares of Series C Preferred Stock to Investors related to interest of $42 and $83 on the 8% Notes for the three and six-month periods ended March 31, 2020, respectively. There were no shares issued for the three and six-month periods ended March 31, 2019. The BCF for the 8% Notes is recorded as a discount to their carrying value and is equal to the fair value of the conversion feature. The discount will be amortized as interest over the period from the date of issuance to maturity. The total BCF recorded was approximately $841. For the three and six-month periods ended March 31, 2020, the Company amortized approximately $80 and $160, and of debt discount, respectively. Future minimum payments of all subordinated debt will total approximately as follows: fiscal 2020 - $0, fiscal 2021- $0 and fiscal 2022 - $19,700. Seventh Amendment to Credit Agreement On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment to the Credit Agreement. Under the Seventh Amendment, the Company has agreed to the condition that it will pursue, negotiate and execute conversions of all of the Company’s outstanding subordinated debt and preferred stock into shares of the Company’s common stock. The Company has up to 60 days after the effective date of the Seventh Amendment (until June 27, 2020) to enter into definitive agreements with all parties to effect the conversions and up to 90 days thereafter (until September 25, 2020) to obtain required shareholder approvals and execute the conversions, with the provision that the Company may be granted another 30 days by Lenders at their discretion. In the event the Company is unable to satisfactorily meet the conversion condition within the specified time frames, an Event of Default under the Credit Agreement will be deemed to have occurred. (See Note 15. Subsequent Events.) |
Equity
Equity | 6 Months Ended |
Mar. 31, 2020 | |
Equity | |
10. Equity | During six-month period ended March 31, 2019, the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock, respectively (See Note 11). Restricted Stock The Company did not grant restricted stock during six-month periods ended March 31, 2020 and 2019. Stock-based compensation expense attributable to restricted stock was $130 and $885, and $200 and $400 during the three and six-month periods ended March 31, 2020 and 2019, respectively. As of March 31, 2020, there was approximately $700 of unrecognized compensation expense related to restricted stock outstanding. On November 23, 2019, 500 shares of restricted common stock held by the Company’s former president became fully vested upon his passing. These shares were issued during six-month period ended March 31, 2020. No shares were issued during the six-month period ended March 31, 2019. A summary of restricted stock activity is presented as follows: Number of Shares Weighted Average Fair Value ($) Non-vested restricted stock outstanding as of September 30, 2019 1,500 1.76 Issued (500 ) 2.21 Non-vested restricted stock outstanding as of March 31, 2020 1,000 1.53 Warrants No warrants were granted or exercised during the six-month period ended March 31, 2020. Number of Shares Weighted Average Exercise Price Per Share ($) Weighted Average Remaining Contractual Life Total Intrinsic Value of Warrants ($) Warrants outstanding as of September 30, 2019 439 4.09 1.39 - Granted - - Expired - - Warrants outstanding as of December 31, 2019 439 4.09 1.14 - Granted - - Expired (237 ) 2.50 Warrants outstanding as of March 31, 2020 202 5.95 2.11 - Warrants exercisable as of September 30, 2019 439 4.09 1.39 - Warrants exercisable as of March 31, 2020 202 5.95 2.11 - Stock Options As of March 31, 2020, there were stock options outstanding under the Company’s 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 plans 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 March 31, 2020 and September 30, 2019 were non-statutory 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. Stock-based compensation expense attributable to stock options and warrants was $226 and $68, and $300 and $700 for the three and six-month periods ended March 31, 2020 and 2019, respectively. As of March 31, 2020, there was approximately $960 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.96 years. A summary of stock option activity is as follows: Number of Shares Weighted Average Exercise Price per share ($) Weighted Average Remaining Contractual Life (Years) Total Intrinsic Value of Options ($) Options outstanding as of September 30, 2019 1,734 3.22 7.84 - Granted - - Forfeited/Expired (202 ) 2.79 Options outstanding as of December 31, 2019 1,532 3.27 7.80 - Granted - - Forfeited/Expired (42 ) 6.70 Options outstanding as of March 31, 2020 1,490 3.17 7.61 - Exercisable as of September 30, 2019 720 4.24 6.50 - Exercisable as of March 31, 2020 757 3.85 7.01 - |
Mezzanine Equity
Mezzanine Equity | 6 Months Ended |
Mar. 31, 2020 | |
Mezzanine Equity | |
11. Mezzanine Equity | Series A Convertible Preferred Stock On April 3, 2017, the Company filed a Statement of Resolution Establishing its Series A Preferred Stock with the State of Illinois. (the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 160 shares of its authorized preferred stock as Series A Preferred Stock. There are no shares issued and outstanding under this designation. Series B Convertible Preferred Stock On April 3, 2017, the Company issued an aggregate of approximately 5,900 shares of no-par value, Series B Convertible Preferred Stock to certain of the SNIH Stockholders as part of the SNIH acquisition. The no par value, Series B Convertible Preferred Stock has a liquidation preference equal to $4.86 per share and ranks senior to all "Junior Securities" (including the Company's Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. In the event that the Company declares or pays a dividend or distribution on its Common Stock, whether such dividend or distribution is payable in cash, securities or other property, including the purchase or redemption by the Company or any of its subsidiaries of shares of Common Stock for cash, securities or property, the Company is required to simultaneously declare and pay a dividend on the no par value, Series B Convertible Preferred Stock on a pro rata basis with the Common Stock determined on an as-converted basis assuming all shares had been converted as of immediately prior to the record date of the applicable dividend or distribution. Except as set forth in the Resolution Establishing Series or as may be required by Illinois law, the holders of the no par value, Series B Convertible Preferred Stock have no voting rights. Pursuant to the Resolution Establishing Series, without the prior written consent of holders of not less than a majority of the then total outstanding Shares of no par value, Series B Convertible Preferred Stock, voting separately as a single class, the Company shall not create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company) that ranks pari passu 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, which is subject to adjustment in the event of stock splits, stock combinations, capital reorganizations, reclassifications, consolidations, mergers or sales, as set forth in the Resolution Establishing Series. None of the shares of no par value, 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 no par value, Series B Preferred Stock to such SNIH Stockholders is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act. Based on the terms of the Series B Convertible Preferred Stock, if certain fundamental transactions were to occur, the Series B Convertible Preferred Stock would require redemption, which precludes permanent equity classification on the accompanying consolidated Balance Sheet. During six-month period ended March 31, 2019, the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock. Series C Convertible Preferred Stock On May 17, 2019, the Company filed a Statement of Resolution Establishing its Series C Preferred Stock with the State of Illinois. (the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 3,000 shares of its authorized preferred stock as “Series C 8% Cumulative Convertible Preferred Stock”, without par value. The Series C Preferred Stock has a Liquidation Value equal to $1.00 per share and ranks pari passu with the Company’s Series B Convertible Preferred Stock (“Series B Preferred Stock”) and senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Holders of shares of Series C Preferred Stock are entitled to receive an annual non-cash (“PIK”) dividend of 8% of the Liquidation Value per share. Such dividend shall be payable quarterly on June 30, September 30, December 31 and March 31 of each year commencing on June 30, 2019, in preference to any dividend paid on or declared and set aside for the Series B Preferred Stock or any Junior Securities and shall be paid-in-kind in additional shares of Series C Preferred Stock. Except as set forth in the Resolution Establishing Series or as may be required by Illinois law, the holders of the Series C Preferred Stock have no voting rights. 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 C 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 superior to the Series C Preferred Stock in relative rights, preferences or privileges (including with respect to dividends, liquidation or voting). Each share of Series C Preferred Stock shall be convertible at the option of the holder thereof into one share of Common Stock at an initial conversion price equal to $1.00 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. The Company issued approximately 42 shares and 83 shares of Series C Preferred Stock to Investors related to interest of $42 and $83 on the 8% Notes during three and six-month periods ending March 31, 2020, respectively. There were no shares issued for the three and six-month periods ended March 31, 2019. Seventh Amendment to Credit Agreement On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment to the Credit Agreement. Under the Seventh Amendment, the Company has agreed to the condition that it will pursue, negotiate and execute conversions of all of the Company’s outstanding subordinated debt and preferred stock into shares of the Company’s common stock. The Company has up to 60 days after the effective date of the Seventh Amendment (until June 27, 2020) to enter into definitive agreements with all parties to effect the conversions and up to 90 days thereafter (until September 25, 2020) to obtain required shareholder approvals and execute the conversions, with the provision that the Company may be granted another 30 days by Lenders at their discretion. In the event the Company is unable to satisfactorily meet the conversion condition within the specified time frames, an Event of Default under the Credit Agreement will be deemed to have occurred. (See Note 15. Subsequent Events.) |
Income Taxes
Income Taxes | 6 Months Ended |
Mar. 31, 2020 | |
Income Taxes | |
12. Income Taxes | The following table presents the provision for income taxes and our effective tax rate for the three-month periods ended March 31, 2020 and 2019: Three Months Ended, 2020 2019 Provision for Income Taxes 10 (16 ) Effective Tax Rate 0 % 1 % Our effective tax rate for the three-month period ended March 31, 2020, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a full valuation allowance against the remaining net DTA position. Our effective tax rate for the three-month period ended March 31, 2019 is lower than the statutory tax rate primarily due to a decrease in the deferred tax liability related to indefinite lived assets. Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a full valuation allowance against the remaining net DTA position. The following table presents the provision for income taxes and our effective tax rate for the six-month periods ended March 31, 2020 and 2019: Six Months Ended, 2020 2019 Provision for Income Taxes 181 506 Effective Tax Rate -2 % -7 % Our effective tax rate for the six-month period ended March 31, 2020 and 2019, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a full valuation allowance against the remaining net DTA position. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies | |
13. Commitments and Contingencies | Litigation and Claims The Company and its subsidiaries are involved in various litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position. |
Segment Data
Segment Data | 6 Months Ended |
Mar. 31, 2020 | |
14. Segment Data | The Company provides the following distinctive services: (a) direct hire placement services, (b) temporary professional services staffing in the fields of information technology, accounting, finance, office, engineering, and medical, and (c) temporary light industrial staffing. These Company’s services can be divided into two reportable segments, Industrial Staffing Services and Professional Staffing Services. Some selling, general and administrative expenses are not fully allocated among light industrial services and professional staffing services. Unallocated corporate expenses primarily include, certain executive compensation expenses and salaries, certain administrative salaries, corporate legal expenses, stock compensation expenses, consulting expenses, audit fees, corporate rent and facility costs, board fees, acquisition, integration and restructuring expenses, and interest expense. 2020 2019 2020 2019 Industrial Staffing Services Industrial services revenue $ 4,471 $ 5,095 $ 10,126 $ 10,715 Industrial services gross margin 14.1 % 13.6 % 15.0 % 13.7 % Operating (loss) income $ (1,616 ) $ 82 $ (1,335 ) $ 337 Depreciation & amortization $ 70 $ 66 $ 139 $ 130 Professional Staffing Services Permanent placement revenue $ 4,416 $ 4,350 $ 8,895 $ 8,880 Placement services gross margin 100 % 100 % 100 % 100 % Professional services revenue $ 25,794 $ 26,732 $ 53,216 $ 55,125 Professional services gross margin 26.6 % 25.0 % 26.5 % 25.6 % Operating income $ 2,126 $ 1,413 $ 3,688 $ 3,632 Depreciation and amortization $ 1,397 $ 1,432 $ 2,804 $ 2,843 Unallocated Expenses Corporate administrative expenses $ 2,415 $ 1,695 $ 3,744 $ 3,464 Corporate facility expenses 92 72 182 178 Stock Compensation expense 356 549 953 1,130 Total unallocated expenses $ 2,863 $ 2,316 $ 4,879 $ 4,772 Consolidated Total revenue $ 34,681 $ 36,177 $ 72,237 $ 74,720 Operating loss (2,353 ) (821 ) (2,526 ) (803 ) Depreciation and amortization 1,467 1,498 2,943 2,973 |
Subsequent Events
Subsequent Events | 6 Months Ended |
Mar. 31, 2020 | |
Subsequent Events | |
15. Subsequent Events | Seventh Amendment to Credit Agreement 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. The Company and its senior lenders previously entered into the Sixth Amendment on February 12, 2020, while negotiating and in contemplation of the larger loan modification contained in Seventh Amendment. The Seventh Amendment extends the maturity of the Credit Agreement from June 30, 2021 to June 30, 2023, lowered cash interest approximately 500 basis points (5%) per annum, postponed quarterly principal payments to recommence beginning June 30, 2021, and reduced the amounts of quarterly principal payments from the current $500,000 per quarter to $445,525. The Company has agreed to pay 5% PIK (non-cash, paid-in-kind) interest on the Term Loan only, which is accrued and added to the balance of the Term Loan and to pay a restructuring fee of $3,478 and an exit fee of $1,500, which became fully earned upon the effective date, but are payable upon the occurrence of a triggering event. The triggering events include a change in control, refinancing, maturity or other termination of the senior loans, and in the case of the restructuring fee, an acquisition by the Company also is considered a triggering event. In addition, the Company has agreed that for each six month period commencing with the period ending on March 31, 2021 and for each fiscal year commencing with the fiscal year ending on September 30, 2021, it shall utilize its “Specified Excess Cash Flow Amount” (as defined in the Credit Agreement) to repay amounts outstanding under the Credit Agreement. Under the Seventh Amendment, the Company also has agreed to the condition that it will pursue, negotiate and execute conversions of all of the Company’s outstanding subordinated debt and preferred stock into shares of the Company’s common stock. The Company has up to 60 days after the effective date of the Seventh Amendment (until June 27, 2020) to enter into definitive agreements with all parties to effect the conversions and up to 90 days thereafter (until September 25, 2020) to obtain required shareholder approvals and execute the conversions, with the provision that the Company may be granted another 30 days by Lenders at their discretion. In the event the Company meets the conversion condition of the agreement, it will then have the option to settle the restructuring fee, exit fee, and accumulated PIK balance, each when due, in cash or in shares of the Company’s common stock. In the case of the latter, the amount or number of shares distributable to the Senior Lenders are to be determined using the most favorable conversion rate at which the holders of the Company’s subordinated indebtedness or preferred stock have converted their securities to shares of common stock of the Company in their conversion transactions. In the event the Company is unable to satisfactorily meet the conversion condition within the specified time frames, an Event of Default under the Credit Agreement will be deemed to have occurred. Eighth Amendment to Credit Agreement and CARES Act Payroll Protection Program Loans On May 5, 2020 the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program (“PPP”) and received net funds totaling $19,926 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP. (See Note 15. Subsequent Events.). On May 5, 2020, the Company also entered into Eighth Amendment, dated as of May 5, 2020 (the "Eighth Amendment") to the Credit Agreement. The Eighth Amendment to the Credit Agreement serves as the conforming amendment under the Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement. |
Summary of Significant Accounti
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Mar. 31, 2020 | |
Significant Accounting Policies and Estimates | |
Basis of Presentation | 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 notes 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 six-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2019 as filed on December 23, 2019. |
Liquidity | The Company experienced significant net losses for the six-month periods ended March 31, 2020 and 2019, and for its most recent fiscal years ended September 30, 2019 and 2018, which also have 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 has begun to see its operations and business stabilize. Effective April 28, 2020, the Company successfully negotiated and entered into the Seventh Amendment to the Credit Agreement 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 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 to 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 Act (“the CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). 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 primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects have 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. Between April 29 and May 4, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $19,926. These funds are the only source of financing available to our companies and businesses 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 Company can generate adequate liquidity to meet its obligations for the foreseeable future assuming the negative economic effects of COVID-19 do not worsen, and that economic recovery occurs. As of March 31, 2020, the Company had cash of approximately $2,379, which was a decrease of approximately $1,676 from approximately $4,055 at September 30, 2019. Working capital at March 31, 2020 was approximately $9,517, as compared to working capital of approximately $8,534 for September 30, 2019. |
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. |
Use of Estimates | 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. In March 2020, the World Health Organization announced that a novel strain of coronavirus (“COVID-19”) had become pandemic. COVID-19 had a significant impact on global economies as a result of Federal and Local orders and business closures designed to stop the spread of the virus. We are continuing to monitor developments related to COVID-19 pandemic and related risks including risks related to efforts to mitigate the disease’s spread. The rapid development and fluidity of recent events related to the pandemic creates uncertainty regarding to the ultimate impact on the Company’s results of operations, financial condition, and liquidity. Due to uncertainties related to duration and severity of COVID-19, we may make changes in the judgments and estimates needed to apply the Company’s significant accounting policies that could result in significant impacts on the Company’s financial statements in future periods. Actual results and outcomes may differ from management’s estimates and 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 employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company's guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates. Temporary staffing service revenues from contracts with customers are recognized in amounts for which the Company has a right to invoice, as the services are rendered by the Company’s temporary employees. The Company records temporary staffing revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company controls the specified service before that service is performed for a customer. The Company has the risk of identifying and hiring qualified employees, has the discretion to select the employees and establish their price, and bears the risk for services that are not fully paid for by customers. 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 $400 and $700, and $600 and $1,300 for the three and six-month periods ended March 31, 2020 and 2019, 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 14 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. |
Cost of Contract Staffing Services | The cost of contract services includes the wages and the related payroll taxes, employee benefits and certain other employee-related costs of the Company’s contract service employees, while they work on contract assignments. |
Cash and Cash Equivalents | Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of March 31, 2020 and September 30, 2019, there were no cash equivalents. The Company maintains deposits in 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’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for placement fall-offs is recorded, as a reduction of revenues, for estimated losses due to applicants not remaining employed for the Company’s guarantee period. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a relatively small accounts receivable allowance. As of March 31, 2020, and September 30, 2019, the allowance for doubtful accounts was $2,250 and $515, respectively. The Company charges off uncollectible accounts once the invoices are deemed unlikely to be collectible. The allowance also includes permanent placement falloffs of $287 and $197 as of March 31, 2020 and September 30, 2019. |
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 six-month periods ended March 31, 2020 and 2019. |
Leases | The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s unaudited condensed consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All the Company’s real estate leases are classified as operating leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases. |
Goodwill | In 2019, the Company adopted ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill. Due to the recent decline in global economic and labor market conditions caused by the global outbreak of the COVID-19 pandemic, the Company considered and reviewed the recoverability of its goodwill and determined, during the three-month period ended March 31, 2020, that no impairment charge was necessary. There were no other events or circumstances that have changed since the last annual test that could more likely than not reduce the fair value of the Company’s reporting segments below its carrying values. |
Fair Value Measurement | The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement”, which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The fair value disclosures of the Company’s long-term liabilities approximates the fair value based on 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 Level 3 inputs, as discussed in Note 6. |
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 stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 13,263 and 13,632, and 11,713 and 11,737 for the three and six-month periods ended March 31, 2020 and 2019, respectively. |
Advertising Expenses | The Company expenses the costs of print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. For the three and six-month periods ended March 31, 2020 and 2019, advertising expense totaled $553 and $1,037, and $576 and $1,148 respectively. |
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 | The Company recognizes 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 impairments of long-lived assets used in operations during the six-month periods ended March 31, 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 FASB ASC 718, “Compensation-Stock Compensation”, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton ("Black-Scholes") pricing model. For all employee stock options, we recognize expense on an accelerated basis over the employee's requisite service period (generally the vesting period of the equity grant). The Company's option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense. Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model. See Note 10 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. We recognize and group interest and penalties, if any, with income tax expense in the accompanying consolidated statement of operations. As of March 31, 2020, and September 30, 2019, no material accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet. |
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. The Company’s services can be divided into two reportable segments, Industrial Staffing Services and Professional Staffing Services. Selling, general and administrative expenses are not entirely allocated among Industrial 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 the Company’s operating segments. |
Reclassifications | Certain amounts in the prior period presentation have been reclassified to conform with the current presentation. |
Property and Equipment (Tables)
Property and Equipment (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Property and Equipment | |
Schedule of Property and Equipment | March 31, 2020 September 30, 2019 Computer software $ 1,497 $ 1,497 Office equipment, furniture, fixtures and leasehold improvements 3,687 3,599 Total property and equipment, at cost 5,184 5,096 Accumulated depreciation and amortization (4,372 ) (4,244 ) Property and equipment, net $ 812 $ 852 |
Leases (Tables)
Leases (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Leases | |
Schedule of Supplemental cash flow information | Three Months Ended March 31, 2020 Cash paid for operating lease liabilities $ 489 Right-of-use assets obtained in exchange for new operating lease liabilities $ 471 |
Schedule of Supplemental balance sheet information | March 31, 2020 Weighted average remaining lease term for operating leases 2.8 years Weighted average discount rate for operating leases 6.0 % |
Schedule of undiscounted future minimum lease payments | Remainder of Fiscal 2020 $ 1,029 Fiscal 2021 1,744 Fiscal 2022 1,620 Fiscal 2023 1,095 Fiscal 2024 831 Thereafter 449 Less: Imputed interest (756 ) Present value of operating lease liabilities (a) $ 6,012 |
Intangible Assets (Tables)
Intangible Assets (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Intangible Assets | |
Schedule of Finite-Lived Intangible Assets | March 31, 2020 September 30, 2019 Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value Customer relationships $ 29,070 $ 11,754 $ 17,316 $ 29,070 $ 10,321 $ 18,749 Trade names 8,329 4,669 3,660 8,329 3,958 4,371 Non-Compete agreements 4,331 4,221 110 4,331 3,570 761 Total $ 41,730 $ 20,644 $ 21,086 $ 41,730 $ 17,849 $ 23,881 Estimated Amortization Expense Remaining Fiscal 2020 $ 2,243 Fiscal 2021 4,088 Fiscal 2022 3,469 Fiscal 2023 2,879 Fiscal 2024 2,879 Thereafter 5,528 $ 21,086 |
Revolving Credit Facility and_2
Revolving Credit Facility and Term Loan (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Revolving Credit Facility and Term Loan | |
Revolving Credit Facility and Term Loan | March 31, 2020 September 30, 2019 Term loan $ 41,578 $ 41,905 Unamortized debt discount (806 ) (1,208 ) Term loan, net of discount 40,772 40,697 Short term portion of term loan, net of discounts - 4,668 Long term portion of term loan, net of discounts $ 40,772 $ 36,029 |
Subordinated Debt - Convertib_2
Subordinated Debt - Convertible and Non - Convertible (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Subordinated Debt - Convertible and Non - Convertible (Tables) | |
Non-Convertible Subordinated Debt agreements, as follows | March 31, September 30, 2020 2019 10% Convertible Subordinated Note $ 4,185 $ 4,185 Subordinated Promissory Note 1,000 1,000 9.5% Convertible Subordinated Note 12,500 12,500 8% Convertible Subordinated Notes, net of discount, due to related parties 1,428 1,269 Total subordinated debt, convertible and non-convertible 19,113 18,954 Short term portion of subordinated debt, convertible and non-convertible - (1,000 ) Long term portion of subordinated debt, convertible and non-convertible $ 19,113 $ 17,954 |
Equity (Tables)
Equity (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Equity | |
Summary of restricted stock | Number of Shares Weighted Average Fair Value ($) Non-vested restricted stock outstanding as of September 30, 2019 1,500 1.76 Issued (500 ) 2.21 Non-vested restricted stock outstanding as of March 31, 2020 1,000 1.53 |
Warrants were granted or exercised | Number of Shares Weighted Average Exercise Price Per Share ($) Weighted Average Remaining Contractual Life Total Intrinsic Value of Warrants ($) Warrants outstanding as of September 30, 2019 439 4.09 1.39 - Granted - - Expired - - Warrants outstanding as of December 31, 2019 439 4.09 1.14 - Granted - - Expired (237 ) 2.50 Warrants outstanding as of March 31, 2020 202 5.95 2.11 - Warrants exercisable as of September 30, 2019 439 4.09 1.39 - Warrants exercisable as of March 31, 2020 202 5.95 2.11 - |
Summary of stock option activity | A summary of stock option activity is as follows: Number of Shares Weighted Average Exercise Price per share ($) Weighted Average Remaining Contractual Life (Years) Total Intrinsic Value of Options ($) Options outstanding as of September 30, 2019 1,734 3.22 7.84 - Granted - - Forfeited/Expired (202 ) 2.79 Options outstanding as of December 31, 2019 1,532 3.27 7.80 - Granted - - Forfeited/Expired (42 ) 6.70 Options outstanding as of March 31, 2020 1,490 3.17 7.61 - Exercisable as of September 30, 2019 720 4.24 6.50 - Exercisable as of March 31, 2020 757 3.85 7.01 - |
Income Tax (Tables)
Income Tax (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Income Taxes | |
Schedule of Provision for income taxes | Three Months Ended, 2020 2019 Provision for Income Taxes 10 (16 ) Effective Tax Rate 0 % 1 % |
Schedule of Provision for income taxes for six month | Six Months Ended, 2020 2019 Provision for Income Taxes 181 506 Effective Tax Rate -2 % -7 % |
Segment Data (Tables)
Segment Data (Tables) | 6 Months Ended |
Mar. 31, 2020 | |
Schedule of Segment Reporting Information | 2020 2019 2020 2019 Industrial Staffing Services Industrial services revenue $ 4,471 $ 5,095 $ 10,126 $ 10,715 Industrial services gross margin 14.1 % 13.6 % 15.0 % 13.7 % Operating (loss) income $ (1,616 ) $ 82 $ (1,335 ) $ 337 Depreciation & amortization $ 70 $ 66 $ 139 $ 130 Professional Staffing Services Permanent placement revenue $ 4,416 $ 4,350 $ 8,895 $ 8,880 Placement services gross margin 100 % 100 % 100 % 100 % Professional services revenue $ 25,794 $ 26,732 $ 53,216 $ 55,125 Professional services gross margin 26.6 % 25.0 % 26.5 % 25.6 % Operating income $ 2,126 $ 1,413 $ 3,688 $ 3,632 Depreciation and amortization $ 1,397 $ 1,432 $ 2,804 $ 2,843 Unallocated Expenses Corporate administrative expenses $ 2,415 $ 1,695 $ 3,744 $ 3,464 Corporate facility expenses 92 72 182 178 Stock Compensation expense 356 549 953 1,130 Total unallocated expenses $ 2,863 $ 2,316 $ 4,879 $ 4,772 Consolidated Total revenue $ 34,681 $ 36,177 $ 72,237 $ 74,720 Operating loss (2,353 ) (821 ) (2,526 ) (803 ) Depreciation and amortization 1,467 1,498 2,943 2,973 |
Description of Business (Detail
Description of Business (Details Narrative) | 6 Months Ended |
Mar. 31, 2020 | |
Description of Business | |
State of Incorporation | Illinois |
Year of incorporation | 1962 |
Significant Accounting Polici_2
Significant Accounting Policies and Estimates (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | May 05, 2020 | Sep. 30, 2019 | |
Goodwill impairment charge | ||||||
Reduction of placement service revenues | 400 | 600 | 700 | 1,300 | ||
Cash | 2,379 | 2,379 | $ 4,055 | |||
Net change in cash | (1,676) | (452) | ||||
Working capital | 9,517 | 9,517 | 8,534 | |||
Allowance for doubtful accounts | 2,250 | 2,250 | 515 | |||
Reserve for permanent placement falloffs | 287 | 287 | $ 197 | |||
Advertising expense | $ 553 | $ 576 | $ 1,037 | $ 1,148 | ||
Income taxes description | 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. | |||||
Common stock equivalents excluded from the computation of diluted earnings per share | 13,263 | 11,713 | 13,632 | 11,737 | ||
Maximum [Member] | ||||||
Estimated useful lives of intangible assets | 10 years | |||||
Minimum [Member] | ||||||
Estimated useful lives of intangible assets | 2 years | |||||
Computer software [Member] | ||||||
Estimated useful lives of property and equipment | 5 years | |||||
Office equipment, furniture, fixtures and leasehold improvements [Member] | Maximum [Member] | ||||||
Estimated useful lives of property and equipment | 10 years | |||||
Office equipment, furniture, fixtures and leasehold improvements [Member] | Minimum [Member] | ||||||
Estimated useful lives of property and equipment | 2 years | |||||
Computer Equipment [Member] | ||||||
Estimated useful lives of property and equipment | 5 years | |||||
Payroll Protection Program [Member] | Unsecured Promissory Notes [Member] | ||||||
Funds received | $ 19,926 |
New Accounting Pronouncements (
New Accounting Pronouncements (Details Narrative) $ in Thousands | Mar. 31, 2020USD ($) |
New Accounting Pronouncements | |
ROU asset and total lease liability, current | $ 5,900 |
ROU asset and total lease liability, noncurrent | $ 6,341 |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Sep. 30, 2019 |
Property and equipment, at cost | $ 5,184 | $ 5,096 |
Accumulated depreciation and amortization | (4,372) | (4,244) |
Property and equipment, net | 812 | 852 |
Office equipment, furniture, fixtures and leasehold improvements [Member] | ||
Property and equipment, at cost | 3,687 | 3,599 |
Computer software [Member] | ||
Property and equipment, at cost | $ 1,497 | $ 1,497 |
Property and Equipment (Detai_2
Property and Equipment (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Property and Equipment | ||||
Depreciation expense | $ 69 | $ 101 | $ 148 | $ 180 |
Leases (Details)
Leases (Details) $ in Thousands | 3 Months Ended |
Mar. 31, 2020USD ($) | |
Leases | |
Cash paid for operating lease liabilities | $ 489 |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ 471 |
Leases (Details 1)
Leases (Details 1) | Mar. 31, 2020 |
Leases | |
Weighted average remaining lease term for operating leases | 2 years 9 months 18 days |
Weighted average discount rate for operating leases | 6.00% |
Leases (Details 2)
Leases (Details 2) $ in Thousands | Mar. 31, 2020USD ($) |
Leases | |
Remainder of Fiscal 2020 | $ 1,029 |
Fiscal 2021 | 1,744 |
Fiscal 2022 | 1,620 |
Fiscal 2023 | 1,095 |
Fiscal 2024 | 831 |
Thereafter | 449 |
Less: Imputed interest | (756) |
Present value of operating lease liabilities (a) | $ 6,012 |
Leases (Details Narrative)
Leases (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Leases (Details Narrative) | ||||
Operating lease expenses | $ 611 | $ 700 | $ 1,270 | $ 1,500 |
Intangible Assets (Details)
Intangible Assets (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Sep. 30, 2019 |
Cost | $ 41,730 | $ 41,730 |
Accumulated Amortization | 20,644 | 17,849 |
Net Book Value | 21,086 | 23,881 |
Customer Relationships [Member] | ||
Cost | 29,070 | 29,070 |
Accumulated Amortization | 11,754 | 10,321 |
Net Book Value | 17,316 | 18,749 |
Trade Names [Member] | ||
Cost | 8,329 | 8,329 |
Accumulated Amortization | 4,669 | 3,958 |
Net Book Value | 3,660 | 4,371 |
Non-compete Agreements [Member] | ||
Cost | 4,331 | 4,331 |
Accumulated Amortization | 4,221 | 3,570 |
Net Book Value | $ 110 | $ 761 |
Intangible Assets (Details 1)
Intangible Assets (Details 1) - USD ($) $ in Thousands | Mar. 31, 2020 | Sep. 30, 2019 |
Estimated Amortization Expense | ||
Remaining Fiscal 2020 | $ 2,243 | |
Fiscal 2021 | 4,088 | |
Fiscal 2022 | 3,469 | |
Fiscal 2023 | 2,879 | |
Fiscal 2024 | 2,879 | |
Thereafter | 5,528 | |
Total | $ 21,086 | $ 23,881 |
Intangible Assets (Details Narr
Intangible Assets (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Intangible Assets | ||||
Amortization expense | $ 1,398 | $ 1,397 | $ 2,795 | $ 2,793 |
Revolving Credit Facility and_3
Revolving Credit Facility and Term Loan (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Sep. 30, 2019 |
Revolving Credit Facility and Term Loan | ||
Term loan | $ 41,578 | $ 41,905 |
Unamortized debt discount | (806) | (1,208) |
Term loan, net of discount | 40,772 | 40,697 |
Short-term portion of term loan, net of discounts | 4,668 | |
Long term portion of term loan, net of discounts | $ 40,772 | $ 36,029 |
Revolving Credit Facility and_4
Revolving Credit Facility and Term Loan (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2020 | May 05, 2020 | |
Outstanding borrowing | $ 41,578 | |
Interest rate | 11.00% | |
Interest rate on term loan | 5.00% | |
2020 | $ 0 | |
2021 | 0 | |
2022 | 19,700 | |
Credit agreement [Member] | Term Loans [Member] | ||
2020 | 0 | |
2021 | 889 | |
2022 | 1,779 | |
2023 | 38,910 | |
Payroll Protection Program [Member] | Unsecured Promissory Notes [Member] | ||
Funds received | $ 19,926 | |
Revolving Credit Facility Two [Member] | ||
Outstanding borrowing amount | $ 57 | |
Interest rate | 17.25% | |
Revolving Credit Facility One [Member] | ||
Outstanding borrowing amount | $ 14,958 | |
Interest rate | 11.00% | |
Revolving Credit Facility [Member] | ||
Outstanding borrowing amount | $ 15,015 | |
Revolving credit facility | $ 100 |
Subordinated Debt Convertible a
Subordinated Debt Convertible and NonConvertible (Details) - USD ($) $ in Thousands | Mar. 31, 2020 | Sep. 30, 2019 |
Total subordinated debt, convertible and non-convertible | $ 19,113 | $ 18,954 |
Short-term portion of subordinated debt, convertible and non-convertible | (1,000) | |
Long-term portion of subordinated debt, convertible and non-convertible | 19,113 | 17,954 |
10% Convertible Subordinated Note [Member] | ||
Total subordinated debt, convertible and non-convertible | 4,185 | 4,185 |
Subordinated Promissory Note [Member] | ||
Total subordinated debt, convertible and non-convertible | 1,000 | 1,000 |
9.5% Convertible Subordinated Note [Member] | ||
Total subordinated debt, convertible and non-convertible | 12,500 | 12,500 |
8% Convertible Subordinated Note [Member] | ||
Total subordinated debt, convertible and non-convertible | $ 1,428 | $ 1,269 |
Subordinated Debt Convertible_2
Subordinated Debt Convertible and NonConvertible (Details Narrative) | May 15, 2019USD ($)$ / shares | Apr. 03, 2017USD ($)integer$ / sharesshares | Apr. 28, 2020 | Jan. 20, 2017USD ($) | Mar. 31, 2020USD ($)shares | Mar. 31, 2019USD ($)shares | Mar. 31, 2020USD ($)shares | Mar. 31, 2019USD ($)shares | Sep. 30, 2017USD ($) | Mar. 01, 2020shares | Sep. 30, 2019shares | Oct. 02, 2015USD ($) |
Written off to loss on extinguishment of debt | $ 300,000 | |||||||||||
Future minimum payments of subordinated debt for 2020 | $ 0 | $ 0 | ||||||||||
Future minimum payments of subordinated debt for 2021 | 0 | 0 | ||||||||||
Future minimum payments of subordinated debt for 2022 | 19,700,000 | 19,700,000 | ||||||||||
Amortization of debt discount | 561,000 | $ 398,000 | ||||||||||
Common stock, shares issued | shares | 14,557 | 12,538 | ||||||||||
10% Convertible Subordinated Note [Member] | ||||||||||||
Redemption price | 100.00% | |||||||||||
Note issued | $ 4,185,000 | |||||||||||
Maturity date of note | Oct. 3, 2021 | |||||||||||
Common stock conversion price | $ / shares | $ 5.83 | |||||||||||
Convertible consecutive trading days | integer | 20 | |||||||||||
Redeemed principal amount | 10.00% | |||||||||||
Common stock, shares issued | shares | 77,775 | |||||||||||
Gain (Loss) on extinguishment of debt | 400,000 | |||||||||||
9.5% Convertible Subordinated Note [Member] | ||||||||||||
Note payable interest rate | 9.50% | |||||||||||
Note issued | $ 12,500,000 | |||||||||||
Maturity date of note | Oct. 3, 2021 | |||||||||||
Common stock conversion price | $ / shares | $ 5.83 | |||||||||||
Note interest description | Interest on the 9.5% Notes accrues and is payable quarterly in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2017, and 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”). | |||||||||||
Subscription Agreement [Member] | ||||||||||||
Note issued | $ 4,185,000 | |||||||||||
Amortization of debt discount | $ 100,000 | |||||||||||
Debt issuance discount | $ 600,000 | |||||||||||
Addendum [Member] | ||||||||||||
Original principal amount | $ 1,000,000 | |||||||||||
Cash paid to Sellers | $ 250,000 | |||||||||||
Interest rate | 5.50% | |||||||||||
JAX Legacy [Member] | ||||||||||||
Common stock shares issued, value | $ 105,000 | $ 105,000 | $ 210,000 | $ 210,000 | ||||||||
Common stock share issued, shares | shares | 261 | 149 | 410 | 189 | ||||||||
JAX Legacy [Member] | April 3, 2020 [Member] | ||||||||||||
Common stock shares issued, interest, shares | shares | 345 | |||||||||||
Common stock shares issued, interest, value | $ 105,000 | |||||||||||
9.5% Convertible Subordinated Note [Member] | Board of Directors [Member] | ||||||||||||
Note issued | $ 2,000,000 | |||||||||||
Maturity date of note | Oct. 3, 2021 | |||||||||||
Note interest description | Interest on the 8% Notes accrues at the rate of 8% per annum and shall be paid quarterly in non-cash payments-in-kind (“PIK”) in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2019, on each conversion date with respect to the 8% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an “Interest Payment Date”). | |||||||||||
9.5% Convertible Subordinated Note [Member] | Series C Preferred Stock | Investor [Member] | ||||||||||||
Common stock shares issued, interest, shares | shares | 42 | 83 | ||||||||||
Common stock shares issued, interest, value | $ 42,000 | $ 83,000 | ||||||||||
Convertible subordinated notes issued, percent | 8.00% | |||||||||||
Note payable interest rate | 8.00% | |||||||||||
Preferred stock conversion price | $ / shares | $ 1 | |||||||||||
Redemption price | 100.00% | |||||||||||
Temporary equity description | (A) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions or (B) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any person or entity together with their affiliates, becomes the beneficial owner, directly or indirectly, of more than 50% of the Common Stock of the Company. | |||||||||||
9.5% Convertible Subordinated Note [Member] | SNI Sellers [Member] | ||||||||||||
Common stock shares issued, value | $ 300,000 | $ 300,000 | $ 600,000 | $ 600,000 | ||||||||
Common stock share issued, shares | shares | 706 | 367 | 1,108 | 498 | ||||||||
Common stock shares issued, interest, value | $ 300 | |||||||||||
9.5% Convertible Subordinated Note [Member] | SNI Sellers [Member] | April 3, 2020 [Member] | ||||||||||||
Common stock shares issued, value | $ 300,000 | |||||||||||
Common stock share issued, shares | shares | 931 | |||||||||||
9.5% Convertible Subordinated Note [Member] | BCF [Member] | ||||||||||||
Amortization of debt discount | $ 80,000 | $ 160,000 | ||||||||||
Discount on issuance of note payable | $ 841,000 | $ 841,000 | ||||||||||
Subsequent Event [Member] | Seventh Amendment [Member] | ||||||||||||
Amendment description | The Seventh Amendment extends the maturity of the Credit Agreement from June 30, 2021 to June 30, 2023, lowered cash interest approximately 500 basis points (5%) per annum, postponed quarterly principal payments to recommence beginning June 30, 2021, and reduced the amounts of quarterly principal payments from the current $500,000 per quarter to $445,525. |
Equity (Details)
Equity (Details) - Restricted Stock [Member] | 6 Months Ended |
Mar. 31, 2020$ / sharesshares | |
Number of shares, non-vested, outstanding, beginning | shares | 1,500 |
Issued | shares | (500) |
Number of shares, non-vested, outstanding, ending | shares | 1,000 |
Weighted average fair value, non-vested, outstanding, beginning | $ / shares | $ 1.76 |
Weighted average fair value, Issued | $ / shares | 2.21 |
Weighted average fair value, non-vested, outstanding, ending | $ / shares | $ 1.53 |
Equity (Details 1)
Equity (Details 1) - Warrant [Member] - USD ($) | 3 Months Ended | 6 Months Ended |
Dec. 31, 2019 | Mar. 31, 2020 | |
Warrants outstanding, beginning balance | 439 | 439 |
Granted | ||
Expired | (237) | |
Warrants outstanding, ending balance | 439 | 202 |
Warrants exercisable, balance | 439 | 202 |
Weighted Average Exercise Price Per Share | ||
Weighted Average Exercise Price Per Share warrants outstanding, beginning balance | $ 4.09 | $ 4.09 |
Weighted Average Exercise Price Per Share Granted | ||
Weighted Average Exercise Price Per Share Exercised/Forfeited | 2.50 | |
Weighted Average Exercise Price Per Share Warrants outstanding, ending balance | 4.09 | 5.95 |
Weighted Average Exercise Price Per Share Warrants exercisable, balance | $ 4.09 | $ 5.95 |
Weighted Average Remaining Contractual Life | ||
Weighted Average Remaining Contractual Life Warrants outstanding, beginning balance | 1 year 4 months 20 days | 1 year 1 month 20 days |
Weighted Average Remaining Contractual Life, Granted | ||
Weighted Average Remaining Contractual Life, Exercised/Forfeited | ||
Weighted Average Remaining Contractual Life Warrants outstanding, ending balance | 1 year 1 month 20 days | 2 years 1 month 10 days |
Weighted Average Remaining Contractual Life Warrants exercisable, balance | 1 year 4 months 20 days | 2 years 1 month 10 days |
Total Intrinsic Value of Warrants | ||
Total Intrinsic Value of Warrants Warrants outstanding, beginning balance | ||
Total Intrinsic Value of Warrants, Granted | ||
Total Intrinsic Value of Warrants, Exercised/Forfeited | ||
Total Intrinsic Value of Warrants,Warrants outstanding, ending balance | ||
Total Intrinsic Value of Warrants Warrants exercisable, balance |
Equity (Details 2)
Equity (Details 2) - Stock Option [Member] - USD ($) | 3 Months Ended | 6 Months Ended |
Dec. 31, 2019 | Mar. 31, 2020 | |
Option outstanding, beginning balance | 1,734 | 1,532 |
Granted | ||
Forfeited/Expired | (202) | (42) |
Option outstanding, ending balance | 1,532 | 1,490 |
Exercisable, balance | 720 | 757 |
Weighted Average Exercise Price Per Shares | ||
Weighted Average Exercise Price Per Share Options outstanding, beginning balance | $ 3.32 | $ 3.27 |
Weighted Average Exercise Price Per Share granted | ||
Weighted Average Exercise Price Per Share Forfeited/Expired | 2.79 | 6.70 |
Weighted Average Exercise Price Per Share Optionss outstanding, ending balance | 3.27 | 3.17 |
Weighted Average Exercise Price Per Share, exercisable, balance | $ 4.24 | $ 3.85 |
Weighted Average Remaining Contractual Life (Years) | ||
Weighted Average Remaining Contractual Life Options outstanding, beginning balance | 7 years 10 months 2 days | 7 years 9 months 18 days |
Weighted Average Remaining Contractual Life Granted | ||
Weighted Average Remaining Contractual Life Forfeited/Expired | ||
Weighted Average Remaining Contractual Life Options outstanding, ending balance | 7 years 9 months 18 days | 7 years 7 months 10 days |
Weighted Average Remaining Contractual Life, exercisable, balance | 6 years 5 months 30 days | 7 years 4 days |
Total Intrinsic Value of Options | ||
Total Intrinsic Value of Options outstanding, beginning balance | ||
Total Intrinsic Value of Options Granted | ||
Total Intrinsic Value of Options Forfeited/Expired | ||
Total Intrinsic Value of Options,Options outstanding, ending balance | ||
Total Intrinsic Value of Options, exercisable, balance |
Equity (Details Narratives)
Equity (Details Narratives) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 6 Months Ended | ||
Nov. 23, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Stock-based compensation expense | $ 953 | $ 1,130 | |||
Restricted Stock [Member] | |||||
Stock-based compensation expense | $ 130 | $ 200 | 885 | 400 | |
Unrecognized compensation expense | 700 | ||||
Stock Options [Member] | Warrant [Member] | |||||
Stock-based compensation expense | $ 226 | $ 300 | 68 | 700 | |
Unrecognized compensation expense | $ 960 | ||||
Weighted average vesting period | 3 years 11 months 15 days | ||||
SNI Sellers [Member] | |||||
Number of preferred stock converted | 250 | ||||
Common stock shares issued upon conversion of series B preferred stock | 250 | ||||
President [Member] | |||||
Restricted stock shares issued | 500 |
Mezzanine Equity (Details Narra
Mezzanine Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||
Apr. 28, 2020 | Mar. 31, 2020 | Mar. 31, 2020 | Mar. 31, 2019 | May 17, 2019 | Apr. 03, 2017 | |
Series A Convertible Preferred Stock [Member] | ||||||
Authorized preferred stock, designated | 160 | |||||
Series B Convertible Preferred Stock [Member] | ||||||
Common stock shares issued upon conversion of series B preferred stock | 250 | |||||
Number of preferred stock converted | 250 | |||||
Series B Convertible Preferred Stock [Member] | SNI [Member] | ||||||
Preferred Stock, shares issued | 5,900 | |||||
Preferred stock, liquidation preference, price per share | $ 4.86 | |||||
Series C Convertible Preferred Stock [Member] | ||||||
Authorized preferred stock, designated | 3,000 | |||||
Preferred stock, liquidation preference, price per share | $ 1 | |||||
Common stock shares issued upon conversion of preferred stock | 42 | 83 | ||||
Interest rate | 8.00% | |||||
Investor related to interest | $ 42 | $ 83 | ||||
Subsequent Event [Member] | Seventh Amendment [Member] | ||||||
Amendment period description | The Company has up to 60 days after the effective date of the Seventh Amendment (until June 27, 2020) to enter into definitive agreements with all parties to effect the conversions and up to 90 days thereafter (until September 25, 2020) to obtain required shareholder approvals and execute the conversions, with the provision that the Company may be granted another 30 days by Lenders at their discretion. |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Income Taxes | ||||
Provision for Income Taxes | $ 10 | $ (16) | $ 181 | $ 506 |
Effective Tax Rate | 0.00% | 1.00% | (2.00%) | (7.00%) |
Segment Data (Details)
Segment Data (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Mar. 31, 2020 | Mar. 31, 2019 | |
Operating (loss) income | $ (2,353) | $ (821) | $ (2,527) | $ (803) |
Total revenue | 34,681 | 36,177 | 72,237 | 74,720 |
Industrial Staffing Services [Member] | ||||
Industrial services revenue | $ 4,471 | $ 5,095 | $ 10,126 | $ 10,715 |
Industrial services gross margin | 14.10% | 13.60% | 15.00% | 13.70% |
Operating (loss) income | $ (1,616) | $ 82 | $ (1,335) | $ 337 |
Depreciation and amortization | 70 | 66 | 139 | 130 |
Professional Staffing Services [Member] | ||||
Operating (loss) income | 2,126 | 1,413 | 3,688 | 3,632 |
Depreciation and amortization | 1,397 | 1,432 | 2,804 | 2,843 |
Permanent placement revenue | $ 4,416 | $ 4,350 | $ 8,895 | $ 8,880 |
Placement services gross margin | 100.00% | 100.00% | 100.00% | 100.00% |
Professional services revenue | $ 25,794 | $ 26,732 | $ 53,216 | $ 55,125 |
Professional services gross margin | 26.60% | 25.00% | 26.50% | 25.60% |
Unallocated Expenses [Member] | ||||
Corporate administrative expenses | $ 2,415 | $ 1,695 | $ 3,744 | $ 3,464 |
Corporate facility expenses | 92 | 72 | 182 | 178 |
Stock Compensation expense | 356 | 549 | 953 | 1,130 |
Total unallocated expenses | 2,863 | 2,316 | 4,879 | 4,772 |
Consolidated [Member] | ||||
Operating (loss) income | (2,353) | (821) | (2,526) | (803) |
Depreciation and amortization | 1,467 | 1,498 | 2,943 | 2,973 |
Total revenue | $ 34,681 | $ 36,177 | $ 72,237 | $ 74,720 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | |
Apr. 28, 2020 | Mar. 31, 2020 | May 05, 2020 | |
Interest rate on term loan | 5.00% | ||
Subsequent Event [Member] | Seventh Amendment [Member] | |||
Interest rate on term loan | 5.00% | ||
Restructuring fee | $ 3,478 | ||
Exit fee for term loan | |||
Amendment description | The Seventh Amendment extends the maturity of the Credit Agreement from June 30, 2021 to June 30, 2023, lowered cash interest approximately 500 basis points (5%) per annum, postponed quarterly principal payments to recommence beginning June 30, 2021, and reduced the amounts of quarterly principal payments from the current $500,000 per quarter to $445,525. | ||
Amendment period description | The Company has up to 60 days after the effective date of the Seventh Amendment (until June 27, 2020) to enter into definitive agreements with all parties to effect the conversions and up to 90 days thereafter (until September 25, 2020) to obtain required shareholder approvals and execute the conversions, with the provision that the Company may be granted another 30 days by Lenders at their discretion. | ||
Payroll Protection Program [Member] | Unsecured Promissory Notes [Member] | |||
Funds received | $ 19,926,000 |