GEE GROUP INC.
CONSOLIDATED BALANCE SHEETS
|
|
(in thousands)
|
|
September 30,
|
|
ASSETS
|
|
2021
|
|
|
2020
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
9,947
|
|
|
$
|
14,074
|
|
Accounts receivable, less allowances ($286 and $2,072, respectively)
|
|
|
23,070
|
|
|
|
16,047
|
|
Prepaid expenses and other current assets
|
|
|
668
|
|
|
|
1,393
|
|
Total current assets
|
|
|
33,685
|
|
|
|
31,514
|
|
Property and equipment, net
|
|
|
765
|
|
|
|
906
|
|
Goodwill
|
|
|
63,443
|
|
|
|
63,443
|
|
Intangible assets, net
|
|
|
14,754
|
|
|
|
18,843
|
|
Right-of-use assets
|
|
|
3,920
|
|
|
|
4,623
|
|
Other long-term assets
|
|
|
1,022
|
|
|
|
684
|
|
TOTAL ASSETS
|
|
$
|
117,589
|
|
|
$
|
120,013
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,257
|
|
|
$
|
2,051
|
|
Accrued compensation
|
|
|
6,413
|
|
|
|
5,506
|
|
Current Paycheck Protection Program Loans and accrued interest
|
|
|
16,741
|
|
|
|
2,243
|
|
Current operating lease liabilities
|
|
|
1,681
|
|
|
|
1,615
|
|
Other current liabilities
|
|
|
4,065
|
|
|
|
6,748
|
|
Total current liabilities
|
|
|
31,157
|
|
|
|
18,163
|
|
Deferred taxes
|
|
|
591
|
|
|
|
430
|
|
Paycheck Protection Program loans and accrued interest
|
|
|
-
|
|
|
|
17,779
|
|
Revolving credit facility
|
|
|
-
|
|
|
|
11,828
|
|
Term loan, net of discount
|
|
|
-
|
|
|
|
37,752
|
|
Noncurrent operating lease liabilities
|
|
|
3,006
|
|
|
|
3,927
|
|
Other long-term liabilities
|
|
|
2,066
|
|
|
|
2,756
|
|
Total long-term liabilities
|
|
|
5,663
|
|
|
|
74,472
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock; no par value; authorized - 20,000 shares, designated 160 shares of Series A,
|
|
|
|
|
|
|
|
|
5,950 shares of Series B, 3,000 shares of Series C, none issued
|
|
|
-
|
|
|
|
-
|
|
Total mezzanine equity
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Common stock, no-par value; authorized - 200,000 shares; issued and outstanding - 114,100 shares
|
|
|
|
|
|
|
|
|
at September 30, 2021 and 17,667 shares at September 30, 2020, respectively
|
|
|
-
|
|
|
|
-
|
|
Additional paid in capital
|
|
|
111,416
|
|
|
|
58,031
|
|
Accumulated deficit
|
|
|
(30,647
|
)
|
|
|
(30,653
|
)
|
Total shareholders' equity
|
|
|
80,769
|
|
|
|
27,378
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$
|
117,589
|
|
|
$
|
120,013
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
|
|
Year Ended September 30,
|
|
(in thousands except per share data)
|
|
2021
|
|
|
2020
|
|
NET REVENUES:
|
|
|
|
|
|
|
Contract staffing services
|
|
$
|
129,802
|
|
|
$
|
114,526
|
|
Direct hire placement services
|
|
|
19,078
|
|
|
|
15,309
|
|
NET REVENUES
|
|
|
148,880
|
|
|
|
129,835
|
|
|
|
|
|
|
|
|
|
|
Cost of contract services
|
|
|
96,339
|
|
|
|
85,131
|
|
GROSS PROFIT
|
|
|
52,541
|
|
|
|
44,704
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses (including noncash
|
|
|
|
|
|
|
|
|
stock-based compensation expense of $970 and $1,559 respectively)
|
|
|
41,651
|
|
|
|
44,401
|
|
Depreciation expense
|
|
|
311
|
|
|
|
248
|
|
Amortization of intangible assets
|
|
|
4,089
|
|
|
|
5,038
|
|
Goodwill impairment charge
|
|
|
-
|
|
|
|
8,850
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
|
6,490
|
|
|
|
(13,833
|
)
|
(Loss) gain on extinguishment of debt
|
|
|
(548
|
)
|
|
|
12,316
|
|
Interest expense
|
|
|
(5,878
|
)
|
|
|
(12,233
|
)
|
INCOME (LOSS) BEFORE INCOME TAX PROVISION
|
|
|
64
|
|
|
|
(13,750
|
)
|
Provision for income tax
|
|
|
(58
|
)
|
|
|
(597
|
)
|
NET INCOME (LOSS)
|
|
|
6
|
|
|
|
(14,347
|
)
|
Gain on redeemed preferred stock
|
|
|
-
|
|
|
|
24,475
|
|
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$
|
6
|
|
|
$
|
10,128
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$
|
0.00
|
|
|
$
|
0.67
|
|
DILUTED EARNINGS (LOSS) PER SHARE
|
|
$
|
0.00
|
|
|
$
|
(1.14
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
60,594
|
|
|
|
15,214
|
|
DILUTED
|
|
|
61,948
|
|
|
|
21,570
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Stock
|
|
|
Paid
|
|
|
Accumulated
|
|
|
Shareholders'
|
|
(in thousands)
|
|
Shares
|
|
|
In Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
|
12,538
|
|
|
$
|
49,990
|
|
|
$
|
(40,781
|
)
|
|
$
|
9,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
23
|
|
|
|
1,559
|
|
|
|
-
|
|
|
|
1,559
|
|
Issuance of stock for restricted stock
|
|
|
500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of stock for interest
|
|
|
2,795
|
|
|
|
1,204
|
|
|
|
-
|
|
|
|
1,204
|
|
Issuance of stock for debt conversion
|
|
|
1,718
|
|
|
|
5,185
|
|
|
|
-
|
|
|
|
5,185
|
|
Issuance of stock for preferred stock conversion
|
|
|
93
|
|
|
|
93
|
|
|
|
-
|
|
|
|
93
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,347
|
)
|
|
|
(14,347
|
)
|
Gain on redemption of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
24,475
|
|
|
|
24,475
|
|
Balance, September 30, 2020
|
|
|
17,667
|
|
|
$
|
58,031
|
|
|
$
|
(30,653
|
)
|
|
$
|
27,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
-
|
|
|
|
970
|
|
|
|
-
|
|
|
|
970
|
|
Issuance of stock for restricted stock
|
|
|
600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sale of common stock in public offering
|
|
|
95,833
|
|
|
|
52,415
|
|
|
|
-
|
|
|
|
52,415
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
Balance, September 30, 2021
|
|
|
114,100
|
|
|
$
|
111,416
|
|
|
$
|
(30,647
|
)
|
|
$
|
80,769
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
Year Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
|
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6
|
|
|
$
|
(14,347
|
)
|
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Loss (gain) on extingishment of debt
|
|
|
548
|
|
|
|
(12,316
|
)
|
Depreciation and amortization
|
|
|
4,400
|
|
|
|
5,286
|
|
Goodwill impairment charge
|
|
|
-
|
|
|
|
8,850
|
|
Non-cash lease expense
|
|
|
1,344
|
|
|
|
1,623
|
|
Stock compensation expense
|
|
|
970
|
|
|
|
1,559
|
|
(Decrease) increase in allowance for doubtful accounts
|
|
|
(546
|
)
|
|
|
1,557
|
|
Deferred income taxes
|
|
|
161
|
|
|
|
130
|
|
Amortization of debt discount
|
|
|
941
|
|
|
|
1,779
|
|
Interest expense paid with common and preferred stock
|
|
|
-
|
|
|
|
1,288
|
|
Paid in kind interest on term loan
|
|
|
1,210
|
|
|
|
1,242
|
|
Change in acquisition deposit for working capital guarantee
|
|
|
-
|
|
|
|
(783
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,477
|
)
|
|
|
3,222
|
|
Accrued interest
|
|
|
513
|
|
|
|
95
|
|
Accounts payable
|
|
|
206
|
|
|
|
(2,156
|
)
|
Accrued compensation
|
|
|
907
|
|
|
|
2,729
|
|
Change in other assets, net of change in other liabilities
|
|
|
(3,813
|
)
|
|
|
(2,005
|
)
|
Net cash provided by (used in) operating activities
|
|
|
370
|
|
|
|
(2,247
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
|
(126
|
)
|
|
|
(119
|
)
|
Net cash used in investing activities
|
|
|
(126
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments on term loan
|
|
|
(44,194
|
)
|
|
|
(500
|
)
|
Debt issue costs
|
|
|
(764
|
)
|
|
|
-
|
|
Proceeds from the sale of common stock in public offering
|
|
|
52,415
|
|
|
|
-
|
|
Net payments on subordinate debt
|
|
|
-
|
|
|
|
(1,724
|
)
|
Payments on preferred stock redemption
|
|
|
-
|
|
|
|
(2,931
|
)
|
Net proceeds from CARES Act Paycheck Protection Program Loans
|
|
|
-
|
|
|
|
19,927
|
|
Net payments on revolving credit
|
|
|
(11,828
|
)
|
|
|
(2,387
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(4,371
|
)
|
|
|
12,385
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(4,127
|
)
|
|
|
10,019
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of year
|
|
|
14,074
|
|
|
|
4,055
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
9,947
|
|
|
$
|
14,074
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,670
|
|
|
$
|
7,785
|
|
Cash paid for taxes
|
|
|
293
|
|
|
|
80
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Acquisition of equipment with finance lease
|
|
|
76
|
|
|
|
184
|
|
Conversion of 8% subordinated notes to common stock by related parties
|
|
|
-
|
|
|
|
1,000
|
|
Conversion of 10% subordinated notes to common stock
|
|
|
-
|
|
|
|
4,185
|
|
Conversion of series C preferred stock to common by related parties
|
|
|
-
|
|
|
|
93
|
|
Redemption of series B preferred stock
|
|
|
-
|
|
|
|
24,441
|
|
Redemption of series C preferred stock
|
|
|
-
|
|
|
|
34
|
|
Accrued fees on term loan
|
|
|
-
|
|
|
|
4,978
|
|
Right-of-use assets, net of deferred rent
|
|
|
656
|
|
|
|
6,246
|
|
Operating lease liability
|
|
|
656
|
|
|
|
6,687
|
|
Paycheck Protection Program loan forgiveness
|
|
|
3,456
|
|
|
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
1. Description of Business
GEE Group Inc. (the “Company”, “us”, “our” or “we”) was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. We are a provider of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, engineering, medical and accounting professionals for direct hire and contract staffing for our clients and provide temporary staffing services for our industrial clients.
The Company’s fiscal year begins on October 1 and ends on September 30 of each year. Fiscal 2021 and fiscal 2020 refer to the fiscal years ended September 30, 2021 and 2020, respectively.
2. Significant Accounting Policies and Estimates
Basis of Presentation
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission.
Liquidity
The primary sources of liquidity for the Company are revenues earned and collected from its clients for the placement of contractors and permanent employment candidates and borrowings available under the Senior Credit Agreement. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to the Company’s contract and permanent employees, payment of operating costs and expenses, payment of taxes, payment of interest and principal under its debt agreements, and capital expenditures.
On April 19, 2021, the Company completed the initial closing of a follow-on public offering of 83,333 shares of common stock at a public offering price of $0.60 per share. Gross proceeds of the offering totaled $50,000, which after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $45,478. On April 27, 2021, the underwriters of the Company’s follow-on public offering exercised, in full, their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering.
On April 20, 2021, as the result of the completion of the public offering, the Company repaid $56,022 in aggregate outstanding indebtedness under its former Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, including accrued interest, using the net proceeds of its recent underwritten public offering and available cash. The repaid debt was originally obtained from investors led by MGG Investment Group LP (“MGG”) on April 21, 2017 and had a maturity date of June 30, 2023. The MGG debt was comprised of a revolving credit facility with a principal balance on the date of repayment of approximately $11,828, which was subject to an annual interest rate comprised of the greater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and a term loan with a principal balance on the date of repayment of approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459 was paid in connection with the principal repayments.
Management believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future and for at least the next twelve months assuming the negative economic effects of COVID-19 do not worsen, and that economic recovery continues.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
As of September 30, 2021, the Company had cash of $9,947, which was a decrease of $4,127 from $14,074 as of September 30, 2020. Net working capital as of September 30, 2021 was $2,528 as compared to net working capital of $13,351 for September 30, 2020. The decrease in cash at September 30, 2021 from September 30, 2020 is mainly the culmination of financing activities during fiscal 2021, as further discussed below, including payment of fees in the amount of $4,978, related to the retirement of the Company’s former senior credit agreement.
Coronavirus (“COVID-19”) Pandemic, Paycheck Protection Program Loans and Deferral of Federal Payroll Taxes under the CARES Act
In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the Coronavirus Pandemic (“COVID-19”). These have included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects lessened in fiscal 2021 but have continued to be felt to an extent with the most significant impacts being felt in the industrial segment, and in the finance, accounting and office clerical (“FA&O”) end markets within the professional segment.
Between April 29 and May 7, 2020, the Company and eight of its operating subsidiaries obtained loans in the aggregate amount of $19,927 from BBVA USA (“BBVA”), as lender, pursuant to the Payroll Protection Plan (the “PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). These funds were the only source of financing available to our companies and businesses and have been and continue to be critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to provide our services and meet our foreseeable liquidity requirements in the midst of this continuing worldwide Coronavirus Pandemic. The Company accounted for the PPP loans as a debt (See Note 10 in accordance with Accounting Standards Codification (“ASC”) Topic 470 Debt. Accordingly, the PPP loans are recognized as current debt in the Company’s accompanying consolidated financial statements.
The Company and its operating subsidiaries have submitted applications for forgiveness of their respective outstanding PPP loans. During fiscal 2021, the Company’s subsidiaries Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, and Agile Resources, Inc. were each notified by the SBA that their total outstanding PPP loans and accrued interest were forgiven in the amounts of $279, $408, $79, $1,470, and $1,220 respectively. See Note 10 regarding the Companies’ PPP loans.
On December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest. The outstanding principal and accrued interest balances of these remaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the aggregate amount of $16,741, are included in the Company’s current liabilities as of September 30, 2021, in the accompanying consolidated balance sheet. The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the 2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income.
The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans. The Company, under the CARES Act, also was eligible to defer paying $3,692 of applicable payroll taxes as of September 30, 2021, which is included in long and short-term liabilities in the accompanying consolidated financial statements. The deferred deposits of the employer’s share of Social Security tax must be paid to be considered timely (and avoid a failure to deposit penalty) by December 31, 2021, fifty (50) percent of the eligible deferred amount, and the remaining amount by December 31, 2022.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
Financial Restructuring
On June 30, 2020, the Company completed a comprehensive financial restructuring and eliminated approximately $19,685 of its subordinated indebtedness and approximately $27,695 of its convertible preferred stock as required pursuant to the terms of the Seventh Amendment, dated as of April 28, 2020, to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017. As a result of the completion of these transactions the Company was able to repurchase, convert and eliminate obligations totaling $47,380, in exchange for $4,978 in cash and 1,811 shares of its common stock, resulting in net gains of $12,316 on the extinguishment of subordinated debt and $24,475 on the redemption of its Class B preferred stock. The cash available for the fundings for these transactions was facilitated by the Company’s senior lenders who agreed to significant liquidity concessions under the Former Senior Credit Agreement, including the deferral of payment of a comparable amount of fees.
Principles of Consolidation
The consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates
Management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the consolidated financial statements, as well as the amounts of reported revenues and expenses during the periods presented. Those estimates and assumptions typically involve expectations about events to occur subsequent to the balance sheet date, and it is possible that actual results could ultimately differ from the estimates.
Revenue Recognition
Revenues from contracts with customers are generated from direct hire placement services, temporary professional services staffing, and temporary industrial staffing. Revenues are recognized when promised services are performed for customers, and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Our revenues are recorded net of variable consideration such as sales adjustments or allowances.
Direct hire placement service revenues from contracts with customers are recognized when employment candidates accept offers of employment, less a provision for estimated credits or refunds to customers as the result of applicants not remaining employed for the entirety of the Company’s guarantee period (referred to as “falloffs”). The Company’s guarantee periods for permanently placed employees generally range from 60 to 90 days from the date of hire. Fees associated with candidate placement are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates.
Temporary staffing service revenues from contracts with customers are recognized in amounts the Company has the right to invoice as the services are rendered by the Company’s temporary employees. The Company records temporary staffing revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company controls the specified service before that service is performed for a customer. The Company has the risk of identifying and hiring qualified employees as Company employees (as opposed to client employees), has the discretion to select the employees and establish their price, and bears the risk for services that are not fully paid for by customers.
Falloffs and refunds during the period are reflected in the statements of operations as a reduction of placement service revenues and were approximately $1,598 in fiscal 2021 and $1,375 in fiscal 2020. Expected future falloffs and refunds are estimated and reflected in the consolidated balance sheet as a reduction of accounts receivable as described under Accounts Receivable, below.
See Note 16 for disaggregated revenues by segment.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
Payment terms in our contracts vary by the type and location of our customer and the services offered. The terms between invoicing and when payments are due are not significant.
Cost of Contract Staffing Services
The cost of contract services includes the wages and the related payroll taxes, employee benefits and certain other employee-related costs of the Company’s contract service employees while they work on contract assignments.
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. As of September 30, 2021, and September 30, 2020, there were no cash equivalents. Cash deposit accounts are maintained at financial institutions and, at times, balances may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation. We have never experienced any losses related to these balances.
Accounts Receivable
The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for doubtful accounts is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues. An allowance for placement falloffs also is recorded as a reduction of revenues for estimated losses due to applicants not remaining employed for the Company’s guarantee period. These allowances together reflect management’s estimate of the potential losses inherent in the accounts receivable balances, based on historical loss statistics and known factors impacting its customers. Management believes that the nature of the contract service business, wherein client companies are generally dependent on our contract employees in the same manner as permanent employees for their production cycles and the conduct of their respective businesses contributes to a relatively small accounts receivable allowance.
As of September 30, 2021 and September 30, 2020 allowance for doubtful accounts was $286 and $2,072, respectively. The Company charges off uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The allowance also includes permanent placement falloff reserves of $115 and $287 as of September 30, 2021 and September 30, 2020, respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is calculated on a straight-line basis over estimated useful lives of five years for computer equipment and two to ten years for office equipment, furniture and fixtures. The Company capitalizes computer software purchased or developed for internal use and amortizes it over an estimated useful life of five years. The carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If the carrying amount of an asset group is greater than its estimated future undiscounted cash flows, the carrying value is written down to the estimated fair value. There was no impairment of property and equipment for fiscal 2021 and fiscal 2020.
Leases
The Company determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All the Company’s real estate leases are classified as operating leases.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments included in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company estimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the present value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The operating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual value guarantees or restrictive covenants in its leases.
Fair Value Measurement
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement”, which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The carrying value of the Company’s long-term liabilities represents their fair value based on level 3 inputs. The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using a combination of level 2 and level 3 inputs, as discussed in Note 6.
Earnings and Loss per Share
Basic earnings and loss per share are computed by dividing net income or loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the vesting of restricted shares granted but unissued, exercise of stock options and warrants and the conversion of notes payable and preferred stock to common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method.
The weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares were 1,354 and 6,356 for fiscal 2021 and 2020, respectively. Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 1,536 and 1,689 for the fiscal 2021 and 2020, respectively.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
The following table contains the Company’s calculations of basic net income per share and diluted net income (loss) per share:
Basic net income (loss) per share computation:
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
Net Income/(Loss)
|
|
$
|
6
|
|
|
$
|
(14,347
|
)
|
Add: gain on redeemed preferred stock
|
|
|
-
|
|
|
|
24,475
|
|
Net income attributable to common stockholders
|
|
|
6
|
|
|
|
10,128
|
|
Weighted-average common shares outstanding
|
|
|
60,594
|
|
|
|
15,214
|
|
Basic net income per share
|
|
$
|
0.00
|
|
|
$
|
0.67
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share computation:
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
|
6
|
|
|
|
10,128
|
|
Less: gain on redeemed preferred stock
|
|
|
-
|
|
|
|
(24,475
|
)
|
Less: gain on extinguishment of convertible debt
|
|
|
-
|
|
|
|
(11,405
|
)
|
Add: interest expense on convertible note
|
|
|
-
|
|
|
|
1,204
|
|
Diluted income (loss) attributable to common stockholders
|
|
$
|
6
|
|
|
$
|
(24,548
|
)
|
Weighted average common shares outstanding
|
|
|
60,594
|
|
|
|
15,214
|
|
Incremental shares attributable to the assumed conversion of preferred stock, convertible debt, restricted stock and exercise of outstanding stock options and warrants
|
|
|
1,354
|
|
|
|
6,356
|
|
Total adjusted weighted-average shares
|
|
|
61,948
|
|
|
|
21,570
|
|
Diluted net income (loss) per share
|
|
$
|
0.00
|
|
|
$
|
(1.14
|
)
|
Advertising Expenses
The Company expenses the costs of print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. Advertising expense totaled $1,771 and $1,913 for fiscal 2021 and fiscal 2020, respectively.
Goodwill
The Company evaluates its goodwill for possible impairment as prescribed by ASU 2017-04, Intangibles — Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment at least annually and when one or more triggering events or circumstances indicate that the goodwill might be impaired. Under this guidance, annual or interim goodwill impairment testing is performed by comparing the estimated fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.
The Company performed annual goodwill impairment testing effective as of September 30, 2021, and allocates its goodwill among two reporting units: its professional reporting unit and its industrial reporting unit for purposes of evaluation for impairments. In determining the fair value of our two reporting units, we use one or a combination of commonly accepted valuation methodologies: 1) the income approach, which is based on the present value of discounted cash flows projected for the reporting unit or, in certain instances, capitalization of earnings, and 2) the market approach, which estimates a fair value based on an appropriate revenue and/or earnings multiple(s) derived from comparable companies. These valuation techniques rely upon assumptions and other factors, such as the estimated future cash flows of our reporting units, the discount rate used to determine the present value of future cash flows, and the market multiples of comparable companies utilized. In applying our methods, we consider and use averages and medians in the selection of assumptions derived from comparable companies or market data, where applicable, and in the application of the income and/or market approaches if we determine that this will provide a more appropriate estimated fair value or range of fair value estimates of the reporting units. Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of goodwill impairment.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
For purposes of performing its annual goodwill impairment assessment, the Company applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed above; and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Company’s reporting units.
As a result of the evaluation performed, the estimated fair value exceeded the carrying value of its net assets of the Company’s professional and industrial reporting units as of September 30, 2021.
The Company’s market capitalization, as recently reported on the NYSE American exchange, has been lower than its consolidated net book value (consolidated stockholders’ equity), as reported in its consolidated financial statements as of September 30, 2021. Management believes that this entire difference can be attributed to an implied control or acquisition premium inherent in the Company’s stock price, especially considering and taking into account volatility and other effects since the onset of the COVID-19 pandemic. At the same time, and while market control and acquisition premiums have risen in 2020 and 2021, relative to prior years, the Company expects its consolidated book value and the carrying values of its professional and industrial segment reporting units to continue to rise. There can be no assurance that this will occur. However, if this occurs and the Company’s market price and market capitalization do not respond adequately to reflect such increases, it is possible that this would result in a triggering event and require updated testing of goodwill resulting in a possible impairment charge.
In the process of preforming our required annual goodwill impairment testing, we recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020. Management believes that the impact in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that have negatively impacted the Company’s business and operating results also are a contributing factor to the Company’s stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020.
Intangible Assets
Separately identifiable intangible assets held in the form of customer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods.
Impairment of Long-lived Assets (other than Goodwill)
The Company recognizes an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that these assets might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. In the event the net carrying value of the Company’s long-lived assets are determined not to be recoverable, they are reduced to fair value, which is typically calculated using one or a combination of the relief from royalty method, the multiple of excess cash flow method, and/or other applicable adaptations of the discounted cash flow method. For purposes of testing the long-lived assets other than goodwill, long-lived assets are grouped and considered with other assets and liabilities within the Professional and Industrial reporting units. The Company did not record any impairments to its long-lived assets during fiscal 2021 and 2020.
Stock-Based Compensation
The Company accounts for stock-based awards to employees in accordance with FASB ASC 718, “Compensation-Stock Compensation”, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options. The grant date fair value is determined using the Black-Scholes-Merton (“Black-Scholes”) pricing model. For all employee stock options, we recognize expense on an accelerated basis over the employee’s requisite service period (generally the vesting period of the equity grant). The Company’s option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact stock-based compensation expense.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model.
See Note 12 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation. Upon the exercise of options, it is the Company’s policy to issue new shares rather than utilizing treasury shares.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.
Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2021 and 2020, 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 industrial staffing. The Company’s services can be divided into two reporting units: Industrial Staffing Services and Professional Staffing Services. Selling, general and administrative expenses are not entirely allocated among the Industrial and Professional Staffing Services reporting units. Operating results are regularly reviewed by the chief operating decision maker to make determinations about resources to be allocated to the segment and to assess its performance. Other factors, including type of business, type of employees, length of employment and revenue recognition are considered in determining the Company’s operating segments.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
3. Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
Current Expected Credit Losses Model. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The Company has not yet determined the impact of the new guidance on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted for public business entities for periods for which financial statements have not been issued. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period. We are still evaluating the impact of this ASU on the Company’s consolidated financial statements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning as of its date of effectiveness, March 12, 2020. The guidance is temporary and can be applied through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to provide supplemental guidance and to further clarify the scope of the amended guidance. The guidance has not impacted the consolidated financial statements to date. The Company will continue to monitor the impact of the ASU on our consolidated financial statements in the future.
No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company’s present or future financial statements.
4. Property and Equipment
Property and equipment, net, consisted of the following:
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
Computer software
|
|
$
|
462
|
|
|
$
|
1,535
|
|
Office equipment, furniture, fixtures and leasehold improvements
|
|
|
3,042
|
|
|
|
3,595
|
|
Total property and equipment, at cost
|
|
|
3,504
|
|
|
|
5,130
|
|
Accumulated depreciation and amortization
|
|
|
(2,739
|
)
|
|
|
(4,224
|
)
|
Property and equipment, net
|
|
$
|
765
|
|
|
$
|
906
|
|
Depreciation expense for fiscal 2021 and 2020 was $311 and $248, respectively.
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 2026. The leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities.
Operating lease expenses were $2,191 and $2,433 for fiscal 2021 and 2020, respectively.
Supplemental cash flow information related to leases consisted of the following:
|
|
Fiscal
2021
|
|
|
Fiscal
2020
|
|
Cash paid for operating lease liabilities
|
|
$
|
1,893
|
|
|
|
1,946
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
$
|
656
|
|
|
|
733
|
|
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
Supplemental balance sheet information related to leases consisted of the following:
|
|
Fiscal
2021
|
|
|
Fiscal
2020
|
|
Weighted average remaining lease term for operating leases
|
|
2.7 years
|
|
|
2.4 years
|
|
Weighted average discount rate for operating leases
|
|
|
5.9
|
%
|
|
|
6.0
|
%
|
The 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 consolidated balance sheet as of September 30, 2021, including certain closed offices are as follows:
Fiscal 2022
|
|
$
|
1,888
|
|
Fiscal 2023
|
|
|
1,365
|
|
Fiscal 2024
|
|
|
1,079
|
|
Fiscal 2025
|
|
|
572
|
|
Fiscal 2026
|
|
|
194
|
|
Thereafter
|
|
|
29
|
|
Less: Imputed interest
|
|
|
(440
|
)
|
Present value of operating lease liabilities (a)
|
|
$
|
4,687
|
|
|
(a)
|
Includes current portion of $1,681 for operating leases.
|
6. Goodwill and Intangible Assets
Goodwill
Goodwill assets as of September 30, 2021 and 2020, consisted of the following:
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Goodwill, beginning of fiscal year
|
|
$
|
63,443
|
|
|
$
|
72,293
|
|
Impairment charges
|
|
|
-
|
|
|
|
(8,850
|
)
|
Goodwill, end of fiscal year
|
|
$
|
63,443
|
|
|
$
|
63,443
|
|
For purposes of performing its annual goodwill impairment assessment as of September 30, 2021 and 2020, the Company applied the valuation techniques and assumptions to its professional and industrial segments as reporting units discussed in Note 2, above; and also considered recent trends in the Company’s stock price, implied control or acquisition premiums, earnings, and other possible factors and their effects on estimated fair value of the Company’s reporting units.
As a result of the evaluation performed, the estimated fair value exceeded the carrying value of its net assets of the Company’s professional and industrial reporting units as of September 30, 2021.
The Company’s market capitalization, as recently reported on the NYSE American exchange, has been lower than its consolidated net book value (consolidated stockholders’ equity), as reported in its consolidated financial statements as of September 30, 2021. Management believes that this entire difference can be attributed to an implied control or acquisition premium inherent in the Company’s stock price, especially considering and taking into account volatility and other effects since the onset of the COVID-19 pandemic. At the same time, and while market control and acquisition premiums have risen in 2020 and 2021, relative to prior years, the Company expects its consolidated book value and the carrying values of its professional and industrial segment reporting units to continue to rise. There can be no assurance that this will occur. However, if this occurs and the Company’s market price and market capitalization do not respond adequately to reflect such increases, it is possible that this would result in a triggering event and require updated testing of goodwill resulting in a possible impairment charge.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
In the process of preforming our required annual goodwill impairment testing, we recognized a non-cash charge for the impairment of goodwill of $8,850 in fiscal 2020. Management believes that the impact in global economic and labor market conditions and other disruptions caused by the COVID-19 pandemic that have negatively impacted the Company’s business and operating results also are a contributing factor to the Company’s stock prices, market capitalization, and potentially, the value of its goodwill resulting, in part, in the non-cash impairment charge recognized during fiscal 2020.
Intangible Assets
The following tables set forth the costs, accumulated amortization and net book value of the Company’s separately identifiable intangible assets as of September 30, 2021 and September 30, 2020 and estimated future amortization expense.
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
Customer relationships
|
|
$
|
29,070
|
|
|
$
|
15,844
|
|
|
$
|
13,226
|
|
|
$
|
29,070
|
|
|
$
|
13,188
|
|
|
$
|
15,882
|
|
Trade names
|
|
|
8,329
|
|
|
|
6,801
|
|
|
|
1,528
|
|
|
|
8,329
|
|
|
|
5,379
|
|
|
|
2,950
|
|
Non-Compete agreements
|
|
|
4,331
|
|
|
|
4,331
|
|
|
|
-
|
|
|
|
4,331
|
|
|
|
4,320
|
|
|
|
11
|
|
Total
|
|
$
|
41,730
|
|
|
$
|
26,976
|
|
|
$
|
14,754
|
|
|
$
|
41,730
|
|
|
$
|
22,887
|
|
|
$
|
18,843
|
|
Estimated Amortization Expense
Fiscal 2022
|
|
$
|
3,469
|
|
Fiscal 2023
|
|
|
2,879
|
|
Fiscal 2024
|
|
|
2,879
|
|
Fiscal 2025
|
|
|
2,741
|
|
Fiscal 2026
|
|
|
1,870
|
|
Thereafter
|
|
|
916
|
|
|
|
$
|
14,754
|
|
The trade names are amortized on a straight – line basis over the estimated useful life of between five and ten years. 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 non-compete agreements, which are typically five years in duration.
The amortization expense for intangible assets was $4,089 and $5,038 for fiscal 2021 and 2020, respectively.
7. 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.
8. Senior Bank Loan, Security and Guarantee Agreement
On May 14, 2021, GEE Group Inc. and its subsidiaries, Agile Resources, Inc., Access Data Consulting Corporation, BMCH, Inc., GEE Group Portfolio, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Personnel Services, Inc., and Triad Logistics, Inc. entered a Loan, Security and Guaranty Agreement for a $20 million asset-based senior secured revolving credit facility with CIT Bank, N.A. (the “CIT Facility”). The CIT Facility is collateralized by 100% of the assets of the Company and its subsidiaries who are co-borrowers and/or guarantors. The CIT Facility matures on the fifth anniversary of the closing date (May 14, 2026). Concurrent with the May 14, 2021 closing of the CIT Facility, the Company borrowed $5,326 and utilized these funds to pay all remaining unpaid Exit and Restructuring Fees due to its former senior lenders in the amount of $4,978, with the remainder going to direct fees and costs associated with the CIT Facility.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
As of September 30, 2021, the Company had $0 in outstanding borrowings and approximately $15,280 available for borrowing under the terms of the CIT Facility. As of September 30, 2021, the Company also had $713 in unamortized debt issue cost associated with the CIT Facility.
Under the CIT Facility, advances will be subject to a borrowing base formula that will be computed based on 85% of eligible accounts receivable of the Company and subsidiaries as defined in the CIT Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent. The CIT Facility is subject to usual and customary covenants and events of default for credit facilities of this type. The interest rate, at the Company’s election, will be based on either the Base Rate, as defined, plus the applicable margin; or the London Interbank Offering Rate (“LIBOR” or any successor thereto) for the applicable interest period, subject to a 1% floor, plus the applicable margin. The CIT Facility also contains provisions addressing the potential future replacement of LIBOR utilized and referenced in the loan agreement, in the event LIBOR becomes no longer available. In addition to interest costs on advances outstanding, the CIT Facility will provide for an unused line fee ranging from 0.375% to 0.50% depending on the amount of undrawn credit, original issue discount and certain fees for diligence, implementation, and administration.
9. Former Revolving Credit, Term Loan and Security Agreement
The Company and its subsidiaries, as co-borrowers, were parties to a 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 “Former Credit Agreement”) with certain investment funds managed by MGG Investment Group LP (“MGG”). The Revolving Credit Facility and Term Loan under the Former Credit Agreement, as amended, had maturity date on June 30, 2023.
On April 20, 2021, the Company fully repaid all outstanding indebtedness under its Former Credit Agreement, including accrued and unpaid interest and fees, using the net proceeds from its recent underwritten public offering and available cash. The outstanding debt was comprised of the former Revolving Credit Facility with a principal balance on the date of repayment of approximately $11,828, which was subject to an annual interest rate comprised of the greater of the London Interbank Offering Rate (“LIBOR”) or 1%, plus a 10% margin (approximately 11% per annum), and the former Term Loan with a principal balance on the date of repayment of approximately $43,735, which was subject to an annual interest rate of the greater of LIBOR or 1% plus a 10% margin. The term loan also had an annual payment-in-kind (“PIK”) interest rate of 5% in addition to its cash interest rate, which was being added to the term loan principal balance (cash and PIK interest rate combined of approximately 16% per annum). Accrued interest of approximately $459, in the aggregate, was paid in connection with the principal repayments along with $4,978 in remaining unpaid fees. The Company took a one time charge of $4,004 which represented unamortized debt issue costs associated with its former senior debt. The Former Credit Agreement has been terminated and the Company and its subsidiary co-borrowers have been released from their respective collateral and any and all other obligations under the former Credit Agreement.
Former Revolving Credit Facility
As of September 30, 2020, the Company had $11,828 in outstanding borrowings under the Former Revolving Credit Facility, which accrued interest at an annual effective rate of approximately 11%.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
Outstanding balances and corresponding amounts were available to be borrowed or required to be repaid under the former Revolving Credit Facility were determined under an agreed upon borrowing base calculation. The Company was generally allowed to borrow amounts of up to 85% of its eligible outstanding accounts receivable, excluding specified past due balances and further reduced for certain reserves and set asides under the Former Credit Agreement. In addition to the Company’s accounts receivable, the Former Revolving Credit Facility was secured by all the Company’s property and assets, whether real or personal, tangible or intangible.
Former Term Loan
The Company had outstanding balances under its Former Term Loan, as follows:
|
|
September 30,
2021
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
Term loan
|
|
$
|
-
|
|
|
$
|
42,646
|
|
Unamortized debt discount
|
|
|
-
|
|
|
|
(4,894
|
)
|
Term loan, net of discount
|
|
|
-
|
|
|
|
37,752
|
|
Short term portion of term loan, net of discounts
|
|
|
-
|
|
|
|
-
|
|
Long term portion of term loan, net of discounts
|
|
$
|
-
|
|
|
$
|
37,752
|
|
The Former Term Loan was payable in installments, subject to acceleration upon the occurrence of an Event of Default, as specified under the Former Credit Agreement, or payable in full upon termination. The Former Credit Agreement also provided that any and all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses would be due and payable in full on maturity as of June 30, 2023. The Former Credit Agreement also had provisions requiring prepayments upon the occurrence of certain conditions.
As of September 30, 2020, the Company had $42,646 in outstanding borrowings under the Former Term Loan Facility that was at an interest of approximately 11%, plus additional interest at an annual rate 5% in the form of PIK (noncash, paid-in-kind), which accrued and was added to the balance of the Term Loan on a monthly basis.
The Former Credit Agreement included financial and other restrictive covenants. Financial covenants included minimum fixed charge coverage ratios, minimum EBITDA, as defined under the Former Credit Agreement to include certain adjustments, and maximum senior leverage ratios. The Company was required to measure and certify these covenants quarterly. The financial covenants were measured on a trailing four quarter basis as of the end of each quarter. The Company met its financial covenants for the trailing four quarters ended September 30, 2020.
The Former Credit Agreement also permitted capital expenditures up to a certain level and contains customary default and acceleration provisions. The Former Credit Agreement also restricted, above certain levels, acquisitions, incurrence of additional indebtedness, and payment of dividends.
Seventh Amendment to Former Credit Agreement
On April 28, 2020, the Company and its subsidiaries entered into the Seventh Amendment, dated as of April 28, 2020 (the “Seventh Amendment”), to the Former Credit Agreement. The Seventh Amendment represented the most significant loan modification of the Former Credit Agreement since its inception. The Company 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 extended the maturity of the Former 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 per quarter to $446. The Company also had agreed to pay 5% PIK (non-cash, paid-in-kind) interest on the Former Term Loan only, which, thereafter, was accrued and added to the balance of the Former Term Loan, and to pay a restructuring fee of $3,478 and an exit fee of $1,500, which became fully earned upon the effective date, but were payable upon the occurrence of a triggering event. The triggering events included 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 was considered a triggering event. In addition, the Company had 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 would utilize its “Specified Excess Cash Flow Amount” (as defined in the Former Credit Agreement) to repay amounts outstanding under the Former Credit Agreement.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
Under the Seventh Amendment, the Company also agreed to the condition that it would 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. In the event the Company was able to meet the conversion conditions, it was to have then had the option to settle the restructuring fee, exit fee, and accumulated PIK balance, each when due, in cash or in shares of the Company’s common stock. In the case of the latter, the amount or number of shares distributable to the Senior Lenders would be determined using the most favorable conversion rate at which the holders of the Company’s subordinated indebtedness or preferred stock converted their securities to shares of common stock of the Company in their conversion transactions.
On June 30, 2020, the Company completed the transactions contemplated above, as planned, except that the Company was able to settle a significant portion of outstanding subordinated debt and preferred stock for cash and at very attractive terms, thereby eliminating the need to issue substantially more of its common stock and avoiding significant dilution to existing shareholders. (Refer to Ninth Amendment to Credit Agreement, below.)
Eighth Amendment to Former Credit Agreement and CARES Act Payroll Protection Program Loans
On May 5, 2020, the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program (“PPP”) and received net funds totaling $19,927 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP. On May 5, 2020, the Company also entered into the Eighth Amendment, dated as of May 5, 2020 (the “Eighth Amendment”) to the Former Credit Agreement. The Eighth Amendment served as the conforming amendment under the Former Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Former Credit Agreement.
Ninth Amendment to Former Credit Agreement
On June 30, 2020, the Company and its subsidiaries entered into the Ninth Amendment, dated as of June 30, 2020 (the “Ninth Amendment”), to the Former Credit Agreement. Under the Ninth Amendment, the Company’s senior lenders agreed to modify the earlier conversion condition of the Seventh Amendment and allow the Company to settle a significant portion of the subordinated debt and preferred stock with up to $5,100 in cash, instead of by converting all of it into the Company’s common stock. In exchange, the Company agreed to settle the exit and restructuring fees agreed to in the Seventh Amendment totaling $4,978, which were accrued as of September 30, 2020, in cash or in shares of the Company’s common stock, except under the Ninth Amendment, the determination of cash or stock would be at the Senior Lender’s discretion and no longer at the Company’s discretion as provided in the earlier Seventh Amendment.
On December 22, 2020, the Company and its subsidiaries entered into a letter amendment, dated as of December 22, 2020, to the Former Credit Agreement. Under the letter amendment, the Company’s senior lenders agreed to modify settlement date for the exit and restructuring fees to on or before June 30, 2021.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
10. CARES Act Payroll Protection Program Loans
Between April 29 and May 7, 2020, the Company obtained for each of its operating subsidiaries a loan from BBVA USA (“BBVA”) pursuant to the Payroll Protection Plan (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The PPP loans were necessary to support ongoing operations due to current economic hardship, uncertainty, and the significant negative effects on the business operations and activity levels of the applicants attributable to COVID-19 including the impact of lockdowns, quarantines and shut-downs. The PPP loans were used primarily to restore employee pay-cuts, recall furloughed or laid-off employees, support the payroll costs for existing employees, hire new employees, and for other allowable purposes including interest costs on certain business mortgage obligations, rent and utilities. Each of the Company’s subsidiaries executed a separate promissory note evidencing unsecured loans under the PPP. The following promissory notes were executed by the Company and its subsidiaries: GEE Group Inc., for $1,992 (the “GEE Group Note”), Scribe Solutions, Inc. for $277 (the “Scribe Note”), Agile Resources, Inc. is for $1,206 (the “Agile Note”), Access Data Consulting Corporation for $1,456 (the “Access Note”), Paladin Consulting, Inc. for $1,925 (the “Paladin Note”), SNI Companies, Inc. for $10,000 (the “SNI Note”), Triad Personnel Services, Inc. for $404 (the “Triad Personnel Note”), Triad Logistics, Inc. for $78 (the “Triad Logistics Note”), and BMCH, Inc. for $2,589 (the “BMCH Note”). The GEE Group Note, the Scribe Note, the Agile Note, the Access Note, the Paladin Note, the SNI Note, the Triad Personnel Note, the Triad Logistics Note, and the BMCH Note are referred to together as the “PPP Notes” and each individually as a “PPP Note”. The loans evidenced by the PPP Notes (the “PPP Loans”) are being made through BBVA as the lender.
The Company and its operating subsidiaries have submitted applications and required documentation for forgiveness of their respective outstanding PPP loans initially to their lender, BBVA USA, which in turn, reviewed, initially approved, and forwarded them on to the SBA. During fiscal 2021, the Company’s subsidiaries, Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., Access Data Consulting Corporation, and Agile Resources, Inc. were notified by the SBA that their total outstanding PPP loans and accrued interest were forgiven in the amounts of $279, $408, $79, $1,470, and $1,220, respectively. Applications for forgiveness of the outstanding PPP loans to GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc. and SNI Companies, Inc., in the aggregate amounts of $16,741, including accrued interest, remained at the SBA for review and approval as of September 30, 2021.
On December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest. The outstanding principal and accrued interest balances of these remaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the aggregate amount of $16,741, are included in the Company’s current liabilities as of September 30, 2021, in the accompanying consolidated balance sheet. The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the 2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income.
The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
11. Former Subordinated Debt – Convertible and Non-Convertible
The Company had outstanding balances under its Former Convertible and Non-Convertible Subordinated Debt agreements, in the aggregate amount of $19,685. On June 30, 2020, the Company entered into repurchase and conversion agreements with each of the holders of its former subordinated debt as described below. The Company generated gains, net of transaction costs, of approximately $12,316 on the extinguishments of its subordinated debt.
10% Convertible Subordinated Note
On June 30, 2020, the Company and Jax Legacy, the sole holder of the Company’s 10% Note, entered into a Note Conversion Agreement (the “Note Conversion Agreement”) whereby Jax Legacy agreed to immediately convert the $4,185 aggregate principal amount of the 10% Note to 718 shares of Common Stock at the $5.83 per share conversion rate stated in the 10% Notes. The conversion of the 10% Note was executed on June 30, 2020, and the Company issued 718 shares of Common Stock to Jax Legacy on that date.
Subordinated Promissory Note
On June 30, 2020, the Company and Enoch S. Timothy and Dorothy Timothy entered into a Note Settlement Agreement (the “Note Settlement Agreement”). Timothy agreed to accept an aggregate amount of $89 in cash consideration for the purchase by the Company of the $1,000 aggregate principal amount of the Subordinated Note dated January 20, 2017. The Subordinated Note was settled at a conversion rate of $5.83 per share (the agreed conversion price at which the Subordinated Note would be convertible to Common Stock) and purchased at $0.52 per share (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Timothy note settlement amount was paid to Timothy on June 30, 2020.
9.5% Convertible Subordinated Notes
On June 30, 2020, the holders of the 9.5% Notes agreed to accept an aggregate amount of $1,115 in cash in consideration for the purchase by the Company of the entire $12,500 aggregate principal amount of the 9.5% Notes. The 9.5% Notes were settled at a conversion rate of $5.83 (the price at which the 9.5% Notes were converted into shares of the Company’s common stock) and purchased by the Company at $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020). The payment was made to the note holders on June 30, 2020.
8% Convertible Subordinated Notes to Related Parties
Pursuant to the Repurchase Agreement, Mr. Ron Smith (SNI Sellers’ representative and a former member of the Company’s board of directors) agreed to accept an aggregate amount of $520 in cash (the “Smith Note Payment Amount”) in consideration for the purchase by the Company of the $1,000 aggregate principal amount of 8% Notes (the “Smith Note Amount”) held by him. The Smith Note Payment Amount was calculated based on the following formula: The Smith Note Amount, divided by $ 1.00 (the price at which the Smith Notes are convertible to Common Stock), times $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Smith Note Payment Amount was paid to Mr. Smith on June 30, 2020.
On June 30, 2020, the holders of the remaining $1,000 aggregate principal amount of the 8% Notes converted such 8% Notes to an aggregate of 1,000 shares of Series C 8% Cumulative Convertible Preferred Stock (“Series C Preferred Stock”), which were immediately and simultaneously converted into 1,000 shares of Common Stock at the $1.00 per share conversion price stated in the 8% Notes and in the Series C Preferred Stock. These holders also converted an aggregate of 93 additional shares of Series C Preferred Stock issued or issuable to them into a total of 93 shares of Common Stock at the $1.00 per share conversion price stated in the Series C Preferred Stock. The issuance of the 1,093 shares of Common Stock to these former holders of 8% Notes and Series C Preferred Stock was completed on June 30, 2020. These shares, along with those of the SNI Sellers that previously held the 9.5% Notes, also were included in the registration statement on SEC Form S-3 filed by the Company on July 31, 2020.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
12. Equity
On April 19, 2021, the Company completed the initial closing of follow-on public offering of 83,333 shares of common stock at a public offering price of $0.60 per share. Gross proceeds of the offering totaled $50,000 which, after deducting the underwriting discount, legal fees, and offering expenses, resulted in net proceeds of $45,478. As part of the offering, the Company granted the underwriters a 45-day option to purchase up to an additional 12,500 shares of the Company’s common stock to cover over-allotments, if any, at the public offering price, less the underwriting discount. ThinkEquity, a division of Fordham Financial Management, Inc., acted as sole book-running manager for the offering.
On or about April 19, 2021, six (6) directors and officers of the Company individually acquired shares of the Company’s common stock either by directly participating in the Company’s 2021 follow-on public offering of its common shares, as subscribers, or by purchasing Company common shares in the open market. These six officers and directors collectively acquired a total of 679 shares of the Company’s common stock at that time.
On April 27, 2021, the underwriters of the Company’s April 19, 2021, public offering exercised in full their 15% over–allotment option to purchase an additional 12,500 common shares (the “option shares”) of the Company at the public offering price of $0.60 per share. The Company closed the transaction on April 28, 2021 and received net proceeds from the sale of the option shares of approximately $6,937, after deducting the applicable underwriting discount.
On June 30, 2020, the Company issued 1,811 shares of common stock, in aggregate, for debt conversions of $1,000 aggregate principal amount of the former 8% Notes, related shares of Series C Preferred Stock that had been issued as payment-in-kind (“PIK”) interest on the former 8% notes, and of $4,185 aggregate principal amount of the Former 10% Note.
Amended and Restated 2013 Incentive Stock Plan
As of September 30, 2021, there were restricted stock shares and stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan (“Incentive Stock Plan”). During fiscal 2021, the Incentive Stock Plan was amended to increase the total shares available for restricted stock and stock options grants by 10,000 to a total of 15,000 (7,500 restricted stock shares and 7,500 stock option shares). During fiscal 2020, the Incentive Stock Plan was amended to increase the total shares available for restricted stock and stock options grants by 1,000 to a total of 5,000 (2,500 restricted stock shares and 2,500 stock option shares). The Incentive Stock Plan authorizes the Compensation Committee of the Board of Directors to grant either incentive or non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant. As of September 30, 2021, there were 10,786 shares available to be granted under the Plan (5,828 shares available for stock options grants and 4,958 shares available for restricted stock).
Restricted Stock
The Company granted 642 and 450 shares of restricted common stock available under its Amended and Restated 2013 Incentive Stock Plan in fiscal 2021 and 2020, respectively. The restricted shares are to be earned over a three-year period and cliff vest at the end of the third year from the date of grant. Stock-based compensation expense attributable to restricted stock was $525 and $1,150 in fiscal 2021 and fiscal 2020, respectively. As of September 30, 2021, there was $562 of unrecognized compensation expense related to restricted stock outstanding. On June 15, 2021, 600 shares of restricted common stock held by the Company’s chairman and chief executive officer became fully vested. On November 23, 2019, 500 shares of restricted common stock held by the Company’s former president became fully vested upon his passing. These shares were issued during fiscal 2020.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
A summary of restricted stock activity is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average Fair Value ($)
|
|
Non-vested restricted stock outstanding as of September 30, 2019
|
|
|
1,500
|
|
|
|
1.76
|
|
Granted
|
|
|
450
|
|
|
|
0.85
|
|
Issued
|
|
|
(500
|
)
|
|
|
2.21
|
|
Non-vested restricted stock outstanding as of September 30, 2020
|
|
|
1,450
|
|
|
|
1.32
|
|
Granted
|
|
|
642
|
|
|
|
0.46
|
|
Forfeited
|
|
|
(50
|
)
|
|
|
0.52
|
|
Issued
|
|
|
(600
|
)
|
|
|
2.21
|
|
Non-vested restricted stock outstanding as of September 30, 2021
|
|
|
1,442
|
|
|
|
0.60
|
|
Warrants
No warrants were granted or exercised during fiscal 2021 or fiscal 2020.
A summary of warrant activity is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average Exercise Price Per Share ($)
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Total Intrinsic Value of Warrants ($)
|
|
Warrants outstanding as of September 30, 2019
|
|
|
439
|
|
|
|
4.09
|
|
|
|
1.39
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(362
|
)
|
|
|
4.53
|
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding as of September 30, 2020
|
|
|
77
|
|
|
|
2.00
|
|
|
|
4.50
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding as of September 30, 2021
|
|
|
77
|
|
|
|
2.00
|
|
|
|
3.50
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable as of September 30, 2020
|
|
|
77
|
|
|
|
2.00
|
|
|
|
4.50
|
|
|
|
-
|
|
Warrants exercisable as of September 30, 2021
|
|
|
77
|
|
|
|
2.00
|
|
|
|
3.50
|
|
|
|
-
|
|
Stock Options
All stock options outstanding as of September 30, 2021 and September 30, 2020 were non-statutory stock options, had exercise prices set equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.
The Company granted 525 and 75 stock options available under the Company’s Amended and Restated 2013 Incentive Stock Plan in fiscal 2021 and 2020, respectively. The stock options generally vest on annual schedules during periods ranging from two to four years from the date of grant. Stock-based compensation expense attributable to stock options and warrants was $445 and $409 in fiscal 2021 and fiscal 2020, respectively. As of September 30, 2021, there was approximately $456 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 3.56 years.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
A summary of stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average Exercise Price per share ($)
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Total Intrinsic Value of Options ($)
|
|
Options outstanding as of September 30, 2019
|
|
|
1,734
|
|
|
|
3.22
|
|
|
|
7.84
|
|
|
|
-
|
|
Granted
|
|
|
75
|
|
|
|
0.54
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(555
|
)
|
|
|
3.68
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding as of September 30, 2020
|
|
|
1,254
|
|
|
|
2.85
|
|
|
|
7.34
|
|
|
|
-
|
|
Granted
|
|
|
525
|
|
|
|
0.57
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(107
|
)
|
|
|
2.79
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding as of September 30, 2021
|
|
|
1,672
|
|
|
|
2.14
|
|
|
|
7.35
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2020
|
|
|
749
|
|
|
|
3.43
|
|
|
|
6.78
|
|
|
|
-
|
|
Exercisable as of September 30, 2021
|
|
|
890
|
|
|
|
3.14
|
|
|
|
6.08
|
|
|
|
-
|
|
The fair value of stock options granted was made using the Black-Scholes option pricing model and the following assumptions:
|
|
2021
|
|
|
2020
|
|
Weighted average fair value of options
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
Weighted average risk-free interest rate
|
|
|
1.64
|
%
|
|
|
0.71
|
%
|
Weighted average volatility factor
|
|
|
114
|
%
|
|
|
108
|
%
|
Weighted average expected life (years)
|
|
|
7.35
|
|
|
|
7.34
|
|
13. Mezzanine Equity
Series A Convertible Preferred Stock
On April 3, 2017, the Company filed a Statement of Resolution Establishing its Series A Preferred Stock with the State of Illinois. (“the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 160 shares of its authorized preferred stock as Series A Preferred Stock. There are no shares issued and outstanding under this designation.
Series B Convertible Preferred Stock
On April 3, 2017, the Company issued an aggregate of approximately 5,900 shares of no-par value, Series B Convertible Preferred Stock to certain of the SNIH Stockholders as part of the SNIH acquisition. The no par value, Series B Convertible Preferred Stock has a liquidation preference equal to $4.86 per share and ranks senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.
On June 30, 2020, and pursuant to the Repurchase Agreement, the holders of the Series B Preferred Stock agreed to accept an aggregate amount of $2,894 in cash (the “Series B Preferred Stock Purchase Price”) in consideration for the purchase by the Company of all 5,566 then outstanding shares of Series B Preferred Stock (the “Series B Preferred Stock Amount”) held by them. The Series B Preferred Stock Purchase Price was paid to the SNI Group Members on June 30, 2020. A net gain attributable to common stockholders of $24,475 was recognized on the redemption of Series B Preferred Stock and Smith Series C Preferred Stock, discussed below, during fiscal 2020.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
Series C Convertible Preferred Stock
On May 17, 2019, the Company filed a Statement of Resolution Establishing its Series C Preferred Stock with the State of Illinois. (“the Resolution Establishing Series”). Pursuant to the Resolution Establishing Series, the Company designated 3,000 shares of its authorized preferred stock as “Series C 8% Cumulative Convertible Preferred Stock”, without par value. The Series C Preferred Stock has a Liquidation Value equal to $1.00 per share and ranks pari passu with the Company’s Series B Convertible Preferred Stock (“Series B Preferred Stock”) and senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Holders of shares of Series C Preferred Stock are entitled to receive an annual non-cash (“PIK”) dividend of 8% of the Liquidation Value per share. Such dividend shall be payable quarterly on June 30, September 30, December 31 and March 31 of each year commencing on June 30, 2019, in preference to any dividend paid on or declared and set aside for the Series B Preferred Stock or any Junior Securities and shall be paid-in-kind in additional shares of Series C Preferred Stock. Except as set forth in the Resolution Establishing Series or as may be required by Illinois law, the holders of the Series C Preferred Stock have no voting rights.
The Company issued 104 shares of Series C Preferred Stock to Investors related to interest of $104 on the 8% Notes during fiscal 2020, none were issued in fiscal 2021.
Pursuant to a Repurchase Agreement dated June 30, 2020, Mr. Smith also agreed to accept an aggregate amount equal to $37 in cash (the “Smith Series C Preferred Stock Purchase Price”) in consideration for the purchase by the Company of the 72 shares of Series C Preferred Stock (the “Series C Preferred Stock Amount”) held by him. The Smith Preferred Stock Purchase Price was calculated based on the following formula: the Smith Series C Preferred Stock Amount, divided by $1.00, times $0.52 (the closing price on the NYSE American for the Common Stock on June 16, 2020). The Smith Series C Preferred Stock Purchase Price was paid to Mr. Smith on June 30, 2020.
The remaining holders of Series C Preferred Stock converted an aggregate of 93 shares of Series C Preferred Stock into a total of 93 shares of Common Stock at the $1.00 per share conversion price stated in the Series C Preferred Stock. The conversion was completed on June 30, 2020.
14. Income Taxes
The components of the provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Current expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
(103
|
)
|
|
|
467
|
|
Total current expense (benefit):
|
|
$
|
(103
|
)
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
115
|
|
|
$
|
68
|
|
State
|
|
|
46
|
|
|
|
62
|
|
Total deferred expense (benefit):
|
|
$
|
161
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit):
|
|
$
|
58
|
|
|
$
|
597
|
|
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Income at US statutory rate
|
|
$
|
28
|
|
|
$
|
(2,888
|
)
|
State taxes, net of federal benefit
|
|
|
(468
|
)
|
|
|
930
|
|
Tax credits
|
|
|
(143
|
)
|
|
|
(88
|
)
|
Stock compensation
|
|
|
-
|
|
|
|
186
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
1,560
|
|
PPP related matters
|
|
|
(4,910
|
)
|
|
|
4,182
|
|
Valuation allowance
|
|
|
5,384
|
|
|
|
(3,466
|
)
|
Other
|
|
|
167
|
|
|
|
181
|
|
|
|
$
|
58
|
|
|
$
|
597
|
|
The net deferred income tax asset balance related to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net operating losses carryforwards
|
|
$
|
4,765
|
|
|
$
|
2,856
|
|
Stock options
|
|
|
1,728
|
|
|
|
1,564
|
|
Allowance for doubtful accounts
|
|
|
70
|
|
|
|
515
|
|
Accrued & prepaid expenses
|
|
|
968
|
|
|
|
339
|
|
Tax credit carryforwards
|
|
|
825
|
|
|
|
681
|
|
ROU liability
|
|
|
1,100
|
|
|
|
1,371
|
|
Interest
|
|
|
3,708
|
|
|
|
1,065
|
|
Other
|
|
|
6
|
|
|
|
7
|
|
Total deferred tax assets
|
|
$
|
13,170
|
|
|
$
|
8,398
|
|
Intangibles
|
|
$
|
(4,342
|
)
|
|
$
|
(4,479
|
)
|
ROU asset
|
|
|
(895
|
)
|
|
|
(1,145
|
)
|
Depreciation
|
|
|
(58
|
)
|
|
|
(122
|
)
|
Total deferred tax liability
|
|
$
|
(5,295
|
)
|
|
$
|
(5,746
|
)
|
Deferred tax asset
|
|
$
|
7,875
|
|
|
$
|
2,652
|
|
Valuation allowance
|
|
|
(8,466
|
)
|
|
|
(3,082
|
)
|
Net deferred tax liability
|
|
$
|
(591
|
)
|
|
$
|
(430
|
)
|
As of September 30, 2021, the Company had federal and state net operating loss carryforwards of approximately $19,800 and $17,700, respectively, which begin to expire in 2029 for federal and 2021 for state purposes. Of the $19,800 of federal net operating losses, $6,200 can be carried indefinitely. As of September 30, 2020, the Company had federal and state net operating loss carryforwards of approximately $11,500 and $13,300, respectively.
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of September 30, 2021 and 2020, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. Because long-term contracts are not a significant part of the Company’s business, future results cannot be reliably predicted by considering past trends or by extrapolating past results. Moreover, the Company’s earnings are influenced by national economic conditions and have been volatile in the past. Considering these factors, the Company determined that it was not possible to reasonably quantify future taxable income. The Company determined that it is more likely than not that all of the net deferred tax assets (deferred tax assets in excess of corresponding deferred tax liabilities) will not be realized. Accordingly, the Company maintained a valuation allowance as of September 30, 2021 and 2020.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
With the passage of time, the Company will continue to generate additional deferred tax assets and liabilities related to amortization of acquired intangible assets for tax purposes. As goodwill, an indefinite-lived intangible asset, will not be amortized for financial reporting purposes under current accounting standards, any tax amortization related goodwill claimed by the Company in future years will give rise to an increasing deferred tax liability, which will only reverse at the time of a future impairment under current accounting rules or ultimate sale of the underlying intangible assets. Due to the uncertain timing of this reversal, the temporary difference cannot be considered as a source of future taxable income, but for the amount of indefinite federal NOL carryforwards available due to the U.S. Tax Reform Act as noted above, for purposes of determining a valuation allowance against the Company’s other net deferred tax assets. As a result, the Company’s net deferred tax position at September 30, 2021 and 2020, represents the tax impact of the cumulative tax amortization of goodwill, which is primarily attributable to historical tax deductible goodwill from SNI.
Under Internal Revenue Code 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change”. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
We record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of September 30, 2021, and 2020 we have not recorded any uncertain tax positions in our financial statements.
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2021, and 2020, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from September 30, 2018, to the present. Earlier years may be examined to the extent that the net operating loss carryforwards form those earlier years are used in future periods. The resolution of tax matters is not expected to have a material effect on the Company’s consolidated financial statements.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
15. Commitment and Contingencies
Litigation and Claims
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.
16. Segment Data
The Company provides the following distinctive services: (a) direct hire placement services, (b) temporary professional services staffing in the fields of information technology, accounting, finance and office, engineering, and medical, and (c) temporary industrial staffing. These services can be divided into two reporting units: Industrial Staffing Services and Professional Staffing Services. Some selling, general and administrative expenses are not fully allocated among 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.
|
|
Year Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Industrial Staffing Services
|
|
|
|
|
|
|
Industrial services revenue
|
|
$
|
17,332
|
|
|
$
|
17,560
|
|
Industrial services gross margin1
|
|
|
22.3
|
%
|
|
|
21.7
|
%
|
Operating income (loss)
|
|
$
|
1,646
|
|
|
$
|
(70
|
)
|
Depreciation and amortization
|
|
|
77
|
|
|
|
274
|
|
Accounts receivable – net
|
|
|
2,546
|
|
|
|
2,470
|
|
Intangible assets
|
|
|
-
|
|
|
|
17
|
|
Goodwill
|
|
|
1,083
|
|
|
|
1,084
|
|
Total assets
|
|
$
|
3,917
|
|
|
$
|
5,060
|
|
|
|
|
|
|
|
|
|
|
Professional Staffing Services
|
|
|
|
|
|
|
|
|
Permanent placement revenue
|
|
$
|
19,078
|
|
|
$
|
15,309
|
|
Placement services gross margin
|
|
|
100
|
%
|
|
|
100
|
%
|
Professional services revenue
|
|
$
|
112,470
|
|
|
$
|
96,966
|
|
Professional services gross margin
|
|
|
26.3
|
%
|
|
|
26.4
|
%
|
Operating income (loss)
|
|
$
|
11,600
|
|
|
$
|
(3,480
|
)
|
Depreciation and amortization
|
|
|
4,323
|
|
|
|
5,012
|
|
Accounts receivable – net
|
|
|
20,524
|
|
|
|
13,577
|
|
Intangible assets
|
|
|
14,754
|
|
|
|
18,826
|
|
Goodwill
|
|
|
62,360
|
|
|
|
62,359
|
|
Total assets
|
|
$
|
113,672
|
|
|
$
|
114,953
|
|
|
|
|
|
|
|
|
|
|
Unallocated Expenses
|
|
|
|
|
|
|
|
|
Corporate administrative expenses2
|
|
$
|
5,280
|
|
|
$
|
8,312
|
|
Corporate facility expenses
|
|
|
370
|
|
|
|
377
|
|
Stock compensation expense
|
|
|
970
|
|
|
|
1,559
|
|
Board related expenses
|
|
|
136
|
|
|
|
35
|
|
Total unallocated expenses
|
|
$
|
6,756
|
|
|
$
|
10,283
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
148,880
|
|
|
$
|
129,835
|
|
Operating income (loss)
|
|
|
6,490
|
|
|
|
(13,833
|
)
|
Depreciation and amortization
|
|
|
4,400
|
|
|
|
5,286
|
|
Total accounts receivables – net
|
|
|
23,070
|
|
|
|
16,047
|
|
Intangible assets
|
|
|
14,754
|
|
|
|
18,843
|
|
Goodwill
|
|
|
63,443
|
|
|
|
63,443
|
|
Total assets
|
|
$
|
117,589
|
|
|
$
|
120,013
|
|
1 Includes $1,270 and $1,284 of annual premium refunds from the Ohio Bureau of Workers Compensation for the fiscal 2021 and 2020, respectively. The Industrial Services gross margins excluding the impact of these items were approximately 14.9% and 14.4% for the fiscal 2021 and 2020, respectively.
2 Includes certain costs and expenses incurred related to restructuring activities, including corporate legal and general expenses associated with capital markets activities and not directly associated with core business operations. These costs were $412 and $4,277 for fiscal 2021 and 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, costs incurred related to acquisitions and associated legal and professional costs.
GEE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Amounts in thousands except per share data, unless otherwise stated)
|
17. Subsequent Events
On December 14, 2021, the Company received formal notification that the remaining four (4) operating subsidiaries’ PPP loans were fully forgiven by the SBA, including 100% of their respective outstanding principal and interest. The outstanding principal and accrued interest balances of these remaining PPP loans, one each for GEE Group Inc., BMCH, Inc., Paladin Consulting, Inc., and SNI Companies, Inc., in the aggregate amount of $16,741, are included in the Company’s current liabilities as of September 30, 2021, in the accompanying consolidated balance sheet. The forgiveness of these four loans will be recorded in the Company’s first fiscal quarter of the 2022 fiscal year ending December 31, 2021, by eliminating them from the consolidated balance sheet with corresponding gains in income.
The PPP loans obtained by GEE Group Inc., as a public company, and some of its operating subsidiaries, together as an affiliated group, have exceeded the $2,000 audit threshold established by the SBA, and therefore, also will be subject to audit by the SBA in the future. If any of the nine forgiven PPP loans are reinstated in whole or in part as the result of a future audit, a charge or charges would be incurred, accordingly, and they would need to be repaid. If the companies are unable to repay the portions of their PPP loans that ultimately are not forgiven from available liquidity or operating cash flow, they may be required to raise additional equity or debt capital to repay the PPP loans.