GEE Group Inc

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. was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data Consulting Corporation, Agile Resources, Inc., BMCH, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., Triad Logistics, Inc., and Triad Personnel Services, Inc. (collectively referred to as the “Company,” “us,” “our” or “we”) are providers of permanent and temporary professional and industrial staffing and placement services in and near several major U.S cities. We specialize in the placement of information technology, accounting, finance, office, engineering, and medical professionals for direct hire and contract staffing for our professional clients and provide temporary staffing services for our industrial clients.

The Company markets its services using the trade names General Employment Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies (including Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad Staffing. As of September 30, 2024, we operated from locations in eleven (11) states, including twenty-three (23) branch offices in downtown or suburban areas of major U.S. cities and three (3) additional U.S. locations utilizing local staff members working remotely.

The Company’s fiscal year begins on October 1 and ends on September 30 of each year. Fiscal 2024 and fiscal 2023 refer to the fiscal years ended September 30, 2024 and 2023, respectively.

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 its asset-based senior secured revolving credit facility. 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 to lessors, payment of taxes, payment of interest, fees and principal under its debt agreements, if any, purchases of treasury stock, and capital expenditures.

Management believes that the Company has adequate cash and working capital and can generate adequate liquidity to meet its obligations for the foreseeable future and at least for one year after the date that these consolidated financial statements are issued.

2. Significant Accounting Policies and Estimates

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and with the instructions to Article 8 of Regulation S-X. Certain reclassifications have been made to the prior year’s consolidated financial statements and/or related disclosures to conform to the current year’s presentation.

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

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

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, 2024, and September 30, 2023, 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 FDIC. During 2023, the Company entered into enhanced deposit arrangements with two financial institution in which monies are deposited through a brokerage account and are further placed on deposit by the broker amongst U.S. banks pre-screened by the broker in amounts per bank that do not exceed the individual $250 FDIC per depositor limit. The aggregate amount of all funds on deposit under these accounts was $14,515 and $13,298 as of September 30, 2024 and 2023, respectively. The Company also holds funds in various other bank accounts that may exceed FDIC insured limits. These uninsured amounts, in aggregate, were $5,194 as of September 30, 2024. We have never experienced any material losses related to cash on deposit with banks.

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 credit losses is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues. The Company adopted the methodology under ASU 2016-13,Financial Instruments-Credit Losses (Topic 326), during fiscal 2024. The amendments in ASU 2016-13 replace the probable incurred loss impairment methodology underlying our previous allowance for doubtful accounts with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under ASU 2016-13, an allowance is recorded with a corresponding charge to bad debt expense for expected credit losses in our accounts receivable including consideration of the effects of past, present and future conditions that may reasonably be expected to impact credit losses. The Company charges off uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The allowance for credit losses is reflected in the consolidated balance sheets as a reduction of accounts receivable. The impact of the adoption of ASU 2016-13 was immaterial to the Company’s consolidated financial statements.

As of September 30, 2024 and September 30, 2023 the allowance for credit losses was $568 and $562, respectively.

A summary of changes in this account is as follows:

The Company’s has two customers that, in aggregate, made up approximately 25% of the consolidated accounts receivable balance as of both September 30, 2024 and 2023. These two customers are offered extended payment terms due to the frequency and volume of our services that they utilize. Each maintains excellent creditworthiness and the Company has not experienced any losses related to these two customers historically.

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. Depreciation expense for leasehold improvements is also calculated on a straight-line basis over the lesser of the useful life of the asset or the corresponding lease terms, which generally range from three to five years. 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 2024 and 2023.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

Leases

The Company determines if a contractual arrangement is a lease at inception and evaluates and classifies leases as operating or finance leases for financial reporting purposes. 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 sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the Company’s consolidated balance sheets. The lease classification is determined 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 would result in an economic penalty. All the Company’s real estate leases are classified as operating leases. Also, the Company elected the practical expedient which allows aggregation of non-lease components with the related lease components when evaluating accounting treatment.

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.

The Company evaluates its goodwill for possible impairment as prescribed by FASB ASC 350,*Intangibles — Goodwill and Other: Goodwill,*at least annually, and more frequently 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. The Company allocates its goodwill among two reporting units: its Professional Services reporting unit and its Industrial Services reporting unit for purposes of evaluation for impairments. An impairment charge is recognized for the amount by which the carrying amount exceeds a reporting unit’s estimated fair value, not to exceed the carrying value of goodwill.

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)

The Company performed an interim goodwill impairment assessment as of June 30, 2024, which indicated the Company’s goodwill assigned to both its Professional and Industrial Services reporting units was impaired. As a result, the Company reduced its goodwill associated with its Professional and Industrial Services reporting units by $14,202 and $1,083, respectively, with corresponding non-cash impairment charges recognized in its consolidated statements of operations for fiscal 2024. This resulted in all goodwill previously allocated to the Industrial Services reporting unit being impaired and written off as of that date. The Company performed its annual goodwill impairment assessment for its Professional Services reporting unit as of September 30, 2024, and found its goodwill was not further impaired. The Company performed its prior goodwill impairment assessment as of September 30, 2023, and found that its goodwill was not impaired at that time.

Separately identifiable intangible assets held in the form of customer relationships and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from five to ten years using the straight-line method.

Impairment of Long-lived Assets (other than Goodwill)

The Company recognizes an impairment of long-lived intangible assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. 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 Services reporting units.

An evaluation performed as of June 30, 2024, determined that certain asset groups associated with the Company’s intangible assets were producing negative or sufficiently low gross cash flows and that their estimated future discounted cash flows indicated impairments. As a result, the Company recorded a non-cash impairment charge of $5,209 on intangible assets during fiscal 2024.

Fair Value Measurement

The Company follows the provisions of FASB 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 when observable inputs are not available. 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.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

The fair values of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The carrying value disclosures of the Company’s long-term liabilities approximate their respective fair values based on current yield for debt instruments with similar terms. The Company has no assets or liabilities which are measured at fair value on a recurring basis. Fair value measurements utilized in evaluating the Company’s goodwill and other intangible assets for impairments are measured at fair value on a non-recurring basis using a combination of Level 2 and Level 3 inputs.

Earnings per Share

Basic earnings per share are computed by dividing net income attributable to common stockholders by the weighted average common shares outstanding for the period, which is computed using shares issued and outstanding. 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. The dilutive effect of the common stock equivalents is reflected in earnings per share by use of the treasury stock method.

Due to the net loss reported for fiscal 2024, there were no dilutive incremental shares considered in the calculation of dilutive shares. The weighted average dilutive incremental shares, or common stock equivalents, included in the calculations of dilutive shares for fiscal 2023 were 694. Common stock equivalents, which are excluded because their effect is anti-dilutive, were approximately 4,206 and 3,786 for fiscal 2024 and 2023, respectively.

Revenue Recognition

Revenues from contracts with customers are generated from direct hire placement services, professional contract services, and industrial contract services. Revenues are recognized when all placement obligations entitling the company to payment have been met. Our revenues are recorded net of variable consideration such as sales adjustments or allowances. 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.

Direct hire placement service revenues from contracts with customers are recognized when the Company has met each of the criteria under ASC Topic 606,Revenue from Contracts with Customers, including its performance obligations under the contracts. This generally occurs when the employment candidates accept offers of employment and have started their newly placed positions, 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. The Company records direct hire placement services revenues on a net basis as the Company acts as an agent for the customer and does not directly contract with or employ the direct hire candidates it places. No fees for permanent placement services are charged to direct hire employment candidates.

Charges for expected future falloffs are recorded as reductions of revenues for estimated losses due to applicants not remaining employed for the Company’s guarantee period. In connection with the adoption of ASU 2016-13, the Company reclassified its allowance for falloffs from being combined with the former allowance for doubtful accounts, a contra-asset, to other current liabilities. Estimated future falloffs are determined by analyzing recent historical trends of actual falloffs and applying a formula comprised of average numbers of falloffs, average falloff amounts, and average cycle times between billing and fall off dates to derive an allowance for falloffs. Thus, the estimated allowance is derived from observed trends in actual historical falloffs and assumes that historical trends are indicative of future falloff activity. Liabilities for falloffs during the period are reflected in the consolidated balance sheets in the amounts of $102 and $118, as of September 30, 2024 and 2023, respectively. Falloffs during the period are reflected in the consolidated statements of operations as a reduction of placement service revenues and were approximately $401 in fiscal 2024 and $943 in fiscal 2023.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

Temporary staffing service revenues from contracts with customers are recognized in amounts for which the Company has a right to invoice, as the services are rendered by the Company’s temporary employees. The Company records temporary staffing revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company controls the specified service before that service is performed for a customer. The Company has the risk of identifying and hiring qualified employees, has the discretion to select the employees and establish their price, and bears the risk for services that are not fully paid for by customers.

There was no customer that represented 10% or more of the Company’s consolidated revenue in fiscal 2024 or 2023. See Note 13 for disaggregated revenues by segment.

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. All costs associated with direct hire placements are recorded as selling, general and administrative expenses as the Company acts as an agent for the customer, only recognizing revenue for the net fees earned. Accordingly, none of the Company’s costs associated with direct hire placement services are reportable as costs of services.

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 $2,118 and $2,224 for fiscal 2024 and 2023, respectively.

Share-Based Compensation

The Company accounts for share-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 consolidated financial statements based on a determination of the fair value of the stock options or restricted stock grants. The grant date fair value of stock options is determined using the Black-Scholes-Merton ("Black-Scholes") pricing model. For all employee stock options and restricted stock grants, the Company recognizes expense over the employee's requisite service period (generally the vesting period of the equity grant) and records an estimate for forfeitures. The Company's option pricing model requires the input of subjective assumptions, including the expected stock price volatility, and expected term. Any changes in these subjective assumptions significantly impact our share-based compensation expense.

See Note 9 for the assumptions used to calculate the fair value of share-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

The Company accounts for income taxes under the asset and liability method, FASB ASC 740,Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it is believed these assets are more likely than not to be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event it is determined that the Company would be able to realize the deferred tax assets in the future in excess of their recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

The Company records uncertain tax positions on the basis of a two-step process in which (1) determines 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, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Interest and penalties related to uncertain tax benefits are recognized on the income tax expense line in the accompanying consolidated statement of operations. As of September 30, 2024 and 2023, no accrued interest or penalties are included on the related tax liability line in the accompanying consolidated balance sheets.

3. Recent Accounting Pronouncements

Recently Adopted

In June 2016, the FASB issued ASU 2016-13,Financial Instruments-Credit Losses (Topic 326), which contains 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 was effective for fiscal years beginning after December 15, 2022. ASU 2016-13 became effective for the Company on October 1, 2023. The new guidance was implemented during the quarter ended December 31, 2023, is applicable to the Company’s trade (accounts) receivable and did not have a material impact on its consolidated financial statements taken as a whole.

Not Yet Adopte**d

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280), which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. The guidance also requires disclosure of the Chief Operating Decision Maker's (“CODM”) position for each segment and detail of how the CODM uses financial reporting to assess their segment’s performance. The new guidance is effective for fiscal years beginning after December 15, 2023, and for interim periods during fiscal years beginning after December 15, 2024. The Company has not yet determined the effects of the implementation of the new guidance on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740), which expands income tax disclosure requirements in part by requiring entities to disclose a reconciliation of their effective tax rates to statutory rates and provide disaggregation of taxes paid. The guidance also eliminates existing disclosure requirements related to anticipated changes in unrecognized tax benefits and temporary differences related to unrecorded deferred tax liabilities. The new guidance is effective for fiscal years beginning after December 15, 2024. The Company does not expect implementation of the new guidance to have a material impact on its consolidated financial statements and disclosures.

In November 2024, the FASB issued ASU 2024-03,Disaggregation of Income Statement Expenses (Subtopic 220-40), which expands expense disclosure requirements in part by requiring entities to provide tabular disclosure of the nature of expenses making up relevant captions on the face of the income statement. The guidance requires disclosure of the amounts making up each caption in categories such as inventory purchases, employee compensation, depreciation, intangible asset amortization, and depletion. The guidance also requires qualitative descriptions of other amounts included in each caption that are not separately disaggregated. The new guidance is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. The Company does not expect implementation of the new guidance to have a material impact on its consolidated financial statements and disclosures.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

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:

5. Leases

The Company occasionally acquires equipment under finance leases including hardware and software used by our IT department to improve security and capacity, vehicles used by our Industrial Segment, and certain furniture for our offices. Terms for these leases generally range from two to six years. The assets obtained under finance leases are included in property and equipment, net, on the consolidated balance sheets.

Finance lease expenses such as amortization of the lease assets and interest expense on the lease liabilities are included on the consolidated statements of operations in depreciation expense and interest expense, respectively. Supplemental information related to these expenses consisted of the following:

Supplemental balance sheet information related to finance leases consisted of the following:

The table below reconciles the undiscounted future minimum lease payments under non-cancelable finance lease agreements to the total finance lease liabilities recognized on the consolidated balance sheets, included in other current liabilities and other long-term liabilities, as of September 30, 2024:

(a) Includes current portion of $67 for finance leases.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

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 Company’s leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities.

Operating lease expenses included in selling, general, and administrative expenses on the consolidated statements of operations were $2,239 and $2,219 for fiscal 2024 and 2023, respectively.

Supplemental cash flow information related to operating leases consisted of the following:

Supplemental balance sheet information related to operating leases consisted of the following:

The table below reconciles the undiscounted future minimum lease payments under non-cancelable operating 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, 2024, including certain closed offices are as follows:

(a) Includes current portion of $1,195 for operating leases.

6**. Goodwill and Intangible Assets**

For purposes of performing its annual goodwill impairment assessments as of September 30, 2024 and 2023, 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.

The Company completed its annual goodwill impairment assessments, as of September 30, 2024 and 2023, and determined that its goodwill was not impaired. Due to the presence of one or more triggering events, including the presence of negative macroeconomic conditions impacting U.S. staffing firms, including ours, and related reductions to the Company’s forecasts of future results, an interim assessment was performed as of June 30, 2024, which indicated the Company’s goodwill assigned to both its Professional and Industrial Services reporting units was impaired. As a result, the Company reduced its goodwill associated with its Professional and Industrial Services reporting units by $14,202 and $1,083, respectively, with corresponding non-cash impairment charges recognized in its consolidated statements of operations for fiscal 2024. This resulted in all goodwill previously allocated to the Industrial Services reporting unit being impaired and written off as of that date.

A summary of goodwill balances is presented as follows:

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

The estimated fair value of the Professional Services reporting unit resulting from the September 30, 2024 assessment exceeded the reporting unit’s adjusted carrying value, net of the impairment recorded during the June 30, 2024 interim assessment, by approximately 10%, or approximately $5.5 million. Should industry conditions remain consistently negative, or worsen, or if assumptions such as control premiums, revenue growth projections, cost of capital or discount rates or business enterprise value multiples change such conditions could result in a deficit of the fair value of the Company’s Professional Services reporting unit as compared to its remaining carrying value, leading to an impairment in the future.

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, 2024 and September 30, 2023 and estimated future amortization expense.

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. Trade names are amortized on a straight-line basis over their respective estimated useful lives of between five and ten years.

Due to the presence of negative macroeconomic conditions impacting U.S. staffing firms, including ours, and related reductions to the Company’s forecasts of future results, the Company performed an evaluation of its intangible assets as of June 30, 2024, using the undiscounted cash flows method. In performing this evaluation, it was determined that certain asset groups associated with the Company’s intangible assets were producing negative or sufficiently low gross cash flows and that their estimated future discounted cash flows indicated impairments of the remaining unamortized balances. As a result, the Company recorded a non-cash impairment charge of $5,209 on intangible assets during fiscal 2024.

7. Other Current Liabilities

Other current liabilities consisted of the following:

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

8. Senior Bank Loan, Security and Guarantee Agreement

The Company and its subsidiaries have a Loan, Security and Guaranty Agreement for a $20 million asset-based senior secured revolving credit facility (the “Facility”) with First Citizens Bank (“FCB”) (formerly CIT Bank, N.A.). The Facility is collateralized by 100% of the assets of the Company and its subsidiaries who are co-borrowers and/or guarantors. The Facility matures on the fifth anniversary of the closing date (May 14, 2026).

As of September 30, 2024, the Company had no outstanding borrowings and $8,139 of unused capacity available for borrowing under the terms of the Facility. The Company had $255 and $408 in unamortized debt issuance costs associated with the Facility as of September 30, 2024 and 2023, respectively. Of these costs, $153 is reflected in other current assets on the consolidated balance sheets as of both September 30, 2024, and September 30, 2023 with the remainder being reflected in other long term assets. The amortization expense of these debt costs included in interest expense on the consolidated statements of operations was $153 in both fiscal 2024 and 2023.

Under the Facility, advances are subject to a borrowing base formula that is computed based on 85% of eligible accounts receivable of the Company and subsidiaries as defined in the Facility, and subject to certain other criteria, conditions, and applicable reserves, including any additional eligibility requirements as determined by the administrative agent. The Facility is subject to usual and customary covenants and events of default for credit facilities of this type but is not subject to any financial covenants. The interest rate, at the Company’s election, was based on either the Base Rate, as defined, plus the applicable margin; or the London Interbank Offered Rate (“LIBOR”), or any successor thereto, for the applicable interest period, subject to a 1% floor, plus the applicable margin. In addition to interest costs on advances outstanding, the Facility will provide 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. The unused line fees incurred and included in interest expense totaled $101 in both fiscal 2024 and 2023.

On May 18, 2023, the Company entered into a Consent and Amendment No. 1 to the Loan and Security and Guarantee Agreement (“Amendment No. 1”), by and among the Company, certain subsidiaries of the Company as Borrowers, the Guarantors, the financial institutions party to the agreement from time to time as the Lenders, and FCB, as Agent for the Lenders. Pursuant to the terms of Amendment No. 1 and subject to the terms and conditions set forth in Amendment No. 1, FCB and Lenders consented to the Company’s previously announced 2023 Stock Repurchase Program (as defined in Amendment No. 1), which continued through December 31, 2023; provided that (i)the aggregate amount paid for all such repurchase transactions did not exceed $20 million, and (ii) no Default or Event of Default (as defined in Amendment No. 1) exists or would exist after giving effect to each repurchase transaction consummated thereunder. In addition, effective as of the date of Amendment No. 1, LIBOR is no longer used as a benchmark rate or otherwise operative within Amendment No. 1 and was replaced with the Secured Overnight Financing Rate (“SOFR”) as well as other conforming changes.

On December 15, 2023, the Company and FCB entered into Amendment No. 2 to the Facility (“Amendment No. 2”), which provides for an increase in the Facility’s concentration limits for certain large clients at the discretion of FCB.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

**9.Shareholders’ Equity(Share-based Compensation and Share Repurchase Program)

Preferred Stock

The Company has authorized 20,000 shares of preferred stock of which 1,000 shares have been designated Series A Preferred Stock, and no shares were issued or are outstanding;5,950 shares have been designated Series B Preferred Stock, of which 5,926 shares were issued and none remain outstanding, and 3,000 shares have been designated Series C Preferred Stock, of which 2,093 shares were issued and none remained outstanding as of September 30, 2024 and 2023. Based on the terms of the Series B Convertible Preferred Stock, if certain fundamental transactions were to occur, the Series B Convertible Preferred Stock would require redemption, which would preclude permanent equity classification on the accompanying consolidated balance sheets. The Series C Convertible 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 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.

Amended and Restated 2013 Incentive Stock Plan, as amended

As of September 30, 2024, there were vested and unvested shares of restricted stock and stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan, as amended (“Incentive Stock Plan”). The Incentive Stock Plan, as amended, provides for total shares available for restricted stock and stock options of 15,000 (7,500 restricted stock shares and 7,500 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, 2024, there were 8,200 shares available to be granted under the Plan (4,052 shares available for restricted stock grants and 4,148 shares available for non-qualified stock option grants).

Restricted Stock

The Company granted 164 and 742 shares of restricted stock during fiscal 2024 and 2023, respectively. Of the restricted shares granted during fiscal 2023,150 were granted to new members of the Board of Directors upon their election in fiscal 2023.

On September 27, 2022, the Company adopted a new annual incentive compensation program (“AICP”) for its executives to be administered under the Company’s Incentive Stock Plan, under which all shares granted in fiscal 2024 and the remaining 592 shares granted in fiscal 2023 were awarded. The AICP includes a long-term incentive (“LTI”) compensation plan in the form of restricted stock awards comprised of two components: one that vests based on future service only, and a second that vests based on future service and performance. Initial awards under both service-only and service plus performance-based components of the AICP LTI plan are determined based on financial performance measures for the immediately preceding fiscal year.

The Company granted 164 shares of restricted stock under the AICP during fiscal 2024 all of which were based on actual fiscal 2023 results and will cliff vest on December 1, 2026, based on future service only. No service plus performance-based restricted shares were granted in fiscal 2024 upon determination that financial targets set by the Company’s Board of Directors were not met for fiscal 2024.

During fiscal 2023, 551 of the 592 restricted shares granted under the AICP were granted based on actual results for fiscal 2022, as measured against corresponding financial targets for that year, and will cliff vest as of December 2, 2025. The remaining 41 of the 592 restricted shares granted represent the earned portion of the initial performance-based shares granted based on fiscal 2022 results, as adjusted for the outcome with regard to the financial targets applicable to those shares set by the Company’s Board of Directors for fiscal 2023.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

Under the AICP LTI, the service plus performance-based awards for each fiscal year are scheduled in annual tranches to be granted over three subsequent years. The schedule for these is as follows:

Share-based compensation expense attributable to restricted stock was $292 and $318 in fiscal 2024 and 2023, respectively. As of September 30, 2024, there was approximately $304 of unrecognized compensation expense related to restricted stock currently outstanding and the weighted average remaining vesting period for those grants was 1.48 years.

Warrants

The Company had 77 warrants outstanding as of September 30, 2024 and September 30, 2023 with a weighted average exercise price per share of $2. The outstanding warrants had a weighted average remaining contractual life of 0.50 and 1.50 as of September 30, 2024 and 2023, respectively. No warrants were granted or expired during fiscal 2024 and 2023.

Stock Options

All stock options outstanding as of September 30, 2024 and September 30, 2023 were non-qualified stock options, had exercise prices equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

The Company did not grant stock options in fiscal 2024, however, did grant 1,720 stock options in fiscal 2023. The Company’s stock options generally vest on annual schedules during periods ranging from two to four years from the date of grant, although some options are fully vested upon grant. Share-based compensation expense attributable to stock options is recognized over their estimated remaining lives and was $295 and $546 in fiscal 2024 and 2023, respectively. As of September 30, 2024, there was approximately $577 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average remaining vesting period for those options was 2.58 years.

The fair value of stock options granted was made using the Black-Scholes option pricing model and the following assumptions:

Share Repurchase Program

On April 27, 2023, the Company’s Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $20 million of the Company’s currently outstanding shares of common stock. The share repurchase program continued through December 31, 2023. The repurchase program did not obligate the Company to repurchase any number of shares of common stock. The share repurchase program was conducted in accordance with Rules 10b-5 and 10b-18 of the Securities Exchange Act of 1934, as amended. Subject to applicable rules and regulations, shares of common stock were purchased from time to time in the open market transactions and in amounts the Company deemed appropriate, based on factors such as market conditions, legal requirements, and other business considerations.

During fiscal 2024, the Company repurchased 2,717 shares of its common stock at a net cost of $1,575. During fiscal 2023, the Company repurchased 3,412 shares of its common stock at a net cost of $1,984. Upon conclusion of the share repurchase program, as of December 31, 2023, the Company had repurchased 6,129 shares in aggregate (accounting for approximately 5.4% of our issued and outstanding shares of common stock immediately prior to the program).

On August 13, 2024, the Company re-issued 642 of its treasury shares to fulfill commitments for the issuance of previously granted restricted share awards that became fully vested and unrestricted. The treasury shares were reissued in lieu of issuing 642 new shares of our common stock, therefore, while the Company’s total number of outstanding shares of common stock increased by 642, its total number of issued shares of common stock did not increase as a result of the reissuance of treasury shares instead.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

10. Income Taxes

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

As of September 30, 2024, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $24.0 million and $29.2 million, respectively, which begin to expire in tax years 2034 for federal and 2025 for state purposes. Of the $24.0 million of federal net operating losses, $6.6 million can be carried indefinitely.

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. Each year, the Company performs an evaluation to determine whether a valuation allowance is needed. As of September 30, 2024, 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. As of September 30, 2024, management determined that there is sufficient evidence to conclude that it is more likely than not that the federal portion of its deferred tax assets are realizable. Additionally, management determined that certain state NOLs are more likely than not to expire before utilization as they do not have an unlimited carryforward. Accordingly, the Company recorded a valuation allowance against all of its state NOLs during fiscal 2024. Prior to this, as of September 30, 2023, management determined that there was sufficient positive evidence to conclude that it was more likely than not that all deferred taxes were realizable. The Company therefore fully released the former valuation allowance during fiscal 2023.

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. As of the filing date, the Company has not completed a formal study to assess whether one or more ownership changes have occurred that would result in limitations on the usage of its NOLs for Federal or state income tax purposes under Section 382. However, the Company has performed internal analysis and estimates of potential exposure to Section 382 limitations on usage of its NOLs and, as a result, believes that such limitations would not materially restrict its ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income. A key factor in its analysis and conclusion is the presence of significant net unrealized built-in gains available to the Company. 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. Also, ownership changes that have occurred or may occur in the future, could impact utilization of the NOL carryforwards or other tax attributes because of future events and circumstances, which could result in an increase of the Company’s future tax liability.

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 and local tax jurisdictions 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, 2024, and 2023 we have not recorded any material uncertain tax positions in our consolidated financial statements.

We recognize interest and penalties related to uncertain tax benefits on the income tax expense line in the accompanying consolidated statements of operations. As of September 30, 2024, and 2023, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheets.

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, 2021, to the present. Earlier years may be examined to the extent that the net operating loss carryforwards from 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)

11. Commitments and Contingencies

Litigation and Claims

The Company and its subsidiaries are involved in 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.

Indemnification Agreements

On April 27, 2023, the Company entered into Indemnification Agreements with certain of its officers and members of the Board to provide for indemnification of each individual in their respective capacities as officers and members of the Board of the Company to the fullest extent permitted under the Company’s Amended and Restated Articles of Incorporation, Amended and Restated Bylaws, and the Illinois Business Corporation Act. The Company carries directors and officers liability insurance, which is intended to provide protection for potential claims against the Company’s directors and officers. Management is not aware of any matters or circumstances under which potential liability arising from these agreements would be material to the consolidated financial statements.

12. Defined Contribution Plan

The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible core and field personnel, including those assigned to provide staffing services for clients. The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations. The Company matches 10% of each participant’s contributions on the first 10% of contributions from their wages. The Company match under the 401(k) Plan totaled $260 and $94 for fiscal 2024 and 2023, respectively.

GEE GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share data, unless otherwise stated)

13. 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 reportable segments: Professional Staffing Services and Industrial Staffing Services.

Some selling, general and administrative expenses are not fully allocated among these segments. Unallocated corporate expenses primarily include certain executive and administrative salaries and related expenses, corporate legal expenses, share-based compensation expenses, consulting expenses, audit fees, corporate rent and facility costs, board related fees, acquisition, integration and restructuring expenses, and interest expense.** **For purposes of determining total assets of the reportable segments, all corporate assets such as cash, prepaid expenses, and deferred tax assets have been allocated among these segments.