GEE Group Inc 10-Q for FY2021 Q3
GEE Group Inc. (JOB)
About this 10-Q
GEE Group Inc filed this 10-Q on August 16, 2021, covering the quarter ended June 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $38.07M
- up 43.1% from $26.59M a year earlier
- Net loss
- $937K
- compared with net income of $7.2M a year earlier
- Diluted EPS
- -$0.01
- compared with $1.88 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock as of August 10, 2021 was
GEE GROUP INC.
Form 10-Q
For the Quarter Ended June 30, 2021
INDEX
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
As a matter of policy, the Company does not provide forecasts of future financial performance. The statements made in this quarterly report on Form 10-Q which are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements often contain or are prefaced by words such as “believe”, “will” and “expect.” These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. As a result of a number of factors, our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause the Company's actual results to differ materially from those in the forward-looking statements include, without limitation, the negative effects of the Coronavirus Pandemic (“COVID-19”), including uncertainties regarding economic recovery and changed socioeconomic norms, general business conditions, the demand for the Company's services, competitive market pressures, the ability of the Company to attract and retain qualified personnel for regular full-time placement and contract assignments, the possibility of incurring liability for the Company's business activities, including the activities of its contract employees and events affecting its contract employees on client premises, and the ability to attract and retain qualified corporate and branch management, as well as those risks discussed in the Company's Annual Report on Form 10-K for the year ended September 30, 2020, and in other documents which we file with the Securities and Exchange Commission. Any forward-looking statements speak only as of the date on which they are made, and the Company is under no obligation to (and expressly disclaims any such obligation to) and does not intend to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
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| Table of Contents |
PART I -FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
GEE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In Thousands)
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| June 30, 2021 |
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| September 30, 2020 |
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ASSETS |
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CURRENT ASSETS: |
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Cash |
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Accounts receivable, less allowances ($ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Right-of-use assets |
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Other long-term assets |
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TOTAL ASSETS |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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Accrued compensation |
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Current Paycheck Protection Program Loans |
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Current operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Deferred taxes |
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Paycheck Protection Program loans and accrued interest |
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Revolving credit facility |
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Term loan, net of discount |
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Noncurrent operating lease liabilities |
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Other long-term liabilities |
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Total long-term liabilities |
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Commitments and contingencies |
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MEZZANINE EQUITY |
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Preferred stock; no par value; authorized - |
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Total mezzanine equity |
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SHAREHOLDERS' EQUITY |
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Common stock, no-par value; authorized - |
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Additional paid in capital |
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Accumulated deficit |
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Total shareholders' equity |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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| Table of Contents |
GEE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Thousands)
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| Three Months Ended |
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| Nine Months Ended |
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| June 30, |
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| June 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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NET REVENUES: |
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Contract staffing services |
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| $ |
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| $ |
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Direct hire placement services |
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NET REVENUES |
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Cost of contract services |
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GROSS PROFIT |
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Selling, general and administrative expenses (including noncash stock-based compensation expense of $231 and $337, and $835 and $1,290 respectively) |
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Depreciation expense |
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Amortization of intangible assets |
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INCOME (LOSS) FROM OPERATIONS |
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Net (loss) gain on extinguishment of debt |
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Interest expense |
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(LOSS) INCOME BEFORE INCOME TAX PROVISION |
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Provision for income tax (benefit) expense |
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NET (LOSS) INCOME |
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Net gain on redeemed preferred stock |
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NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS |
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BASIC (LOSS) EARNINGS PER SHARE |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
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DILUTED (LOSS) EARNINGS PER SHARE |
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WEIGHTED AVERAGE NUMBER OF SHARES: |
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BASIC |
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DILUTED |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 5 |
| Table of Contents |
GEE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)
(In Thousands)
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| Common |
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| Additional |
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| Total |
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| Stock |
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| Paid |
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| Accumulated |
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| Shareholders' |
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| Shares |
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| In Capital |
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| Deficit |
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| Equity |
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| Balance, September 30, 2020 |
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| $ |
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| $ | ( | ) |
| $ |
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| Share-based compensation |
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| - |
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| Net loss |
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| - |
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| Balance, December 31, 2020 |
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| $ |
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| $ | ( | ) |
| $ |
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| Share-based compensation |
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| - |
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| Net loss |
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| Balance, March 31, 2021 |
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| $ |
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| $ | ( | ) |
| $ |
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| Issuance of stock for restricted stock |
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| - |
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| - |
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| - |
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| Share-based compensation |
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| - |
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| - |
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| Sale of common stock in public offering |
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| Net loss |
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| - |
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| - |
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| Balance, June 30, 2021 |
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| $ |
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| $ | ( | ) |
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| Common |
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| Additional |
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| Total |
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| Stock |
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| Paid |
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| Accumulated |
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| Shareholders' |
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| Shares |
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| In Capital |
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| Deficit |
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| Equity |
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| Balance, September 30, 2019 |
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| $ |
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| $ | ( | ) |
| $ |
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| Share-based compensation |
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| - |
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| Issuance of stock for interest |
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| Net loss |
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| - |
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| Balance, December 31, 2019 |
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| $ |
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| $ | ( | ) |
| $ |
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| Share-based compensation |
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| - |
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| Issuance of stock for restricted stock |
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| Issuance of stock for interest |
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| Net loss |
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| - |
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| Balance, March 31, 2020 |
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| $ |
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| $ | ( | ) |
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| Share-based compensation |
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| Issuance of stock for interest |
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| Issuance of stock for debt conversion |
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| - |
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| Issuance of stock for preferred stock conversion |
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| 93 |
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| - |
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| Net income |
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| - |
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| - |
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| Gain on redemption of preferred stock |
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| - |
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| - |
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| Balance, June 30, 2020 |
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| $ |
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| $ | ( | ) |
| $ |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
GEE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In Thousands)
|
| Nine Months Ended |
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| June 30, |
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| 2021 |
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| 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
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Loss (gain) on extinguishment of debt |
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Depreciation and amortization |
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Non-cash lease expense |
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Stock Compensation expense |
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Increase/(decrease) in allowance for doubtful accounts |
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Deferred income taxes |
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Amortization of debt discount |
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Interest expense paid with common and preferred stock |
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Paid in kind interest on term loan |
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Change in acquisition deposit for working capital guarantee |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Accounts payable |
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Accrued compensation |
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Accrued Interest |
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Change in other assets, net of change in other liabilities |
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Cash (used in) provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Acquisition of property and equipment |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payment on term loan |
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Debt issue costs |
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Proceeds from the sale of common stock in public offering |
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Net payments on subordinated debt |
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Payment on preferred stock redemption |
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Net proceeds from CARES Act Paycheck Protection Program Loans |
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Net payments on revolving credit |
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Net cash provided by (used in) financing activities |
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Net change in cash |
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Cash at beginning of period |
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Cash at end of period |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ |
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| $ |
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Cash paid for taxes |
| $ |
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| $ |
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Non-cash investing and financing activities |
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Right-of-use assets |
| $ |
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| $ |
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Operating lease liability |
| $ |
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| $ |
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Acquisition of equipment with finance lease |
| $ |
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| $ |
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Conversion of 8% subordinated notes to common stock by related parties |
| $ |
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| $ |
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Conversion of 10% subordinated notes to common stock |
| $ |
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| $ |
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Conversion of series C preferred stock to common by related parties |
| $ |
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| $ |
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Redemption of series B preferred stock |
| $ |
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| $ |
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Redemption of series C preferred stock |
| $ |
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| $ |
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Accrued fees on term loan |
| $ |
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| $ |
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(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 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 clients and provide temporary staffing services for our commercial clients.
2. Significant Accounting Policies and Estimates
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2020 as filed on December 29, 2020.
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 current and former asset-based senior secured revolving credit facilities. 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.
The Company experienced net losses for the first nine months of its current fiscal year, and for its most recent fiscal years ended September 30, 2020, and 2019, which also negatively impacted the Company’s ability to generate liquidity. During much of this period, the Company significantly restructured its operations, made significant cost reductions, including closing and consolidating unprofitable locations and eliminating underperforming personnel, implemented strategic management changes, and intensified focus on stabilizing the business and restoring profitable growth.
In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from 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 continue to be felt, with the most severe impacts being felt in the industrial segment and the finance, accounting and office clerical (“FAO”) end markets within the professional segment.
Between April 29 and May 7, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
On April 19, 2021, the Company concluded its public offering of
On April 20, 2021, as the result of the completion of the public offering, the Company repaid $
As of June 30, 2021, the Company had cash of $
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.
Paycheck Protection Program Loan
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 8) in accordance with Accounting Standards Codification (“ASC”) Topic 470 Debt. Accordingly, the PPP loans are recognized as current and noncurrent debt in the Company’s accompanying unaudited condensed consolidated financial statements.
The Company and its operating subsidiaries have submitted applications for forgiveness of their respective outstanding PPP loans. During three-month period ended June 30, 2021, the Company’s subsidiaries, Triad Personnel Services, Inc., Triad Logistics, Inc., and Access Data Consulting Corporation were each notified by the SBA that their total outstanding PPP Loans and accrued interest were forgiven in the amounts of $
Management believes that the Company and its subsidiaries whose loans have not yet been forgiven also qualify and are eligible for forgiveness based on existing available guidance; however, there can be no assurance that these remaining outstanding PPP loans and accrued interest will ultimately achieve forgiveness in whole or in part. Accordingly, the Company and its operating subsidiaries with outstanding PPP loans and accrued interest that have not been forgiven continue to account for them as outstanding debt in the accompanying unaudited condensed consolidated financial statements. (See Note 16. Subsequent Event).
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
The Company, under the CARES Act, also was eligible to defer paying $
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 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 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 (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 unaudited condensed consolidated statements of operations as a reduction of placement service revenues and were approximately $
See Note 15 for disaggregated revenues by segment.
Payment terms in our contracts vary by the type and location of our customer and the services offered. The terms between invoicing and when payments are due are not significant.
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
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 June 30, 2021 and September 30, 2020, there were no cash equivalents. The Company maintains deposits in financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances.
Accounts Receivable
The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for placement falloffs is recorded as a reduction of revenues for estimated losses due to applicants not remaining employed during the Company’s guarantee period. An allowance for doubtful accounts is recorded as a charge to bad debt expense where collection is considered to be doubtful due to credit issues. These allowances taken together reflect management’s estimate of the potential losses inherent in the accounts receivable balances based on historical loss statistics and known factors impacting our clients. Management believes that the nature of the contract services 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 June 30, 2021, and September 30, 2020, the allowance for doubtful accounts was $
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is calculated on a straight-line basis over estimated useful lives of five years for computer equipment and two to ten years for office equipment, furniture and fixtures. The Company capitalizes computer software purchased or developed for internal use and amortizes it over an estimated useful life of five years. The carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If the carrying amount of an asset group is greater than its estimated future undiscounted cash flows, the carrying value is written down to the estimated fair value. There was no impairment of property and equipment for the nine-month periods ended June 30, 2021 and 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 unaudited condensed consolidated balance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All the Company’s real estate leases are classified as operating leases. Also, the Company elected the practical expedient which allows aggregation of non-lease components with the related lease components when evaluating accounting treatment.
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(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 also does not currently have residual value guarantees or restrictive covenants in its leases.
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. In testing for impairments, management applies one or more valuation techniques to estimate the fair values of the reporting units, individual assets or groups of individual assets, as required under the circumstances. These valuation techniques rely on assumptions and other factors, such as the estimated future cash flows, the discount rates used to determine the present value of associated cash flows, and the market comparable assumptions.
The Company allocates its goodwill among two reporting units, its Professional segment and its Industrial segment for purposes of evaluation for impairments. In determining the fair value of our two reporting units, we use one or a combination of commonly accepted valuation methodologies: 1) the income approach, which is based on the present value of discounted cash flows projected for the reporting unit or, in certain instances, capitalization of earnings, and 2) the market approach, which estimates a fair value based on an appropriate revenue and/or earnings multiple(s) derived from comparable companies. In applying our methods, we also use averages or medians to select assumptions derived from comparable companies or market data, and in the application of the income and/or market approaches if we determine that this will provide a more appropriate estimated fair value or range of fair value estimates of the reporting units. Changes to input assumptions and other factors used or considered in the analysis could result in materially different evaluations of goodwill impairment.
The Company considered and reviewed the recoverability of its goodwill during the nine-month period ended June 30, 2021 and 2020 and determined that no impairment charge was necessary. In reaching its conclusion, management determined that no triggering events or other circumstances have occurred or changed since the Company’s most recent annual evaluation as of September 30, 2020, that indicate the carrying values of the Company’s reporting segments are higher than their respective fair values. Management also considered the Company’s market capitalization as recently reported on the NYSE American exchange and determined that when adjusted for the assumption of a reasonable control premium over exchange pricing, exceeded its consolidated net book value (consolidated stockholders’ equity) as of June 30, 2021, and 2020.
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.
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
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.
The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short-term nature. The fair value disclosures of the Company’s long-term liabilities approximate their respective fair values based on current yield for debt instruments with similar terms. 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 principally Level 3 inputs.
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.
Common stock equivalents representing approximately
Advertising Expenses
The Company expenses the costs of print and internet media advertising and promotions as incurred and reports these costs in selling, general and administrative expenses. For the three and nine-month periods ended June 30, 2021, and 2020, advertising expense totaled $
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 the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not recognize and record any impairments of long-lived assets used in operations during the nine-month periods ended June 30, 2021, and 2020.
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
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 our stock-based compensation expense.
Options awarded to purchase shares of common stock issued to non-employees in exchange for services are accounted for as variable awards in accordance with FASB ASC 718, “Compensation-Stock Compensation”. Such options are valued using the Black-Scholes option pricing model.
See Note 11 for the assumptions used to calculate the fair value of stock-based employee and non-employee compensation. Upon the exercise of options, it is the Company's policy to issue new shares rather than utilizing treasury shares.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold,
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying unaudited condensed consolidated statement of operations. As of June 30, 2021 and September 30, 2020, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
Segment Data
The Company provides direct hire placement services and temporary professional contract staffing services in the fields of information technology, finance, accounting and office (“FA&O”), engineering, and medical within its Professional Services segment, and industrial contract services within its Industrial Services segment. The Company’s revenues, cost of services and a substantial portion of its operating costs and expenses can be divided into these two reportable segments. Selling, general and administrative (“SG&A”) expenses, including substantially all corporate expenses, are not entirely allocated among Industrial and Professional Staffing Services. Operating results are regularly reviewed by the chief operating decision makers at each segment who make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including type of business, type of employee, length of employment and revenue recognition are considered in determining the Company’s operating segments.
3. New 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.
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:
|
| June 30, 2021 |
|
| September 30, 2020 |
| ||
|
|
|
|
|
|
| ||
| Computer software |
| $ |
|
| $ |
| ||
| Office equipment, furniture, fixtures and leasehold improvements |
|
|
|
|
|
| ||
| Total property and equipment, at cost |
|
|
|
|
|
| ||
| Accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
| Property and equipment, net |
| $ |
|
| $ |
| ||
Depreciation expense for three and nine-month periods ended June 30, 2021, and 2020 was $
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 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 were $
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| Table of Contents |
GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
Supplemental cash flow information related to leases consisted of the following:
|
| 2021 |
|
| 2020 |
| ||
| Cash paid for operating lease liabilities |
| $ |
|
|
|
| ||
| Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ |
|
|
|
| ||
Supplemental balance sheet information related to leases consisted of the following:
|
| June 30, 2021 |
| |
| Weighted average remaining lease term for operating leases |
|
|
| |
| Weighted average discount rate for operating leases |
|
| % | |
The table below reconciles the undiscounted future minimum lease payments under non-cancelable lease agreements having initial terms in excess of one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheet as of June 30, 2021, including certain closed offices are as follows:
|
|
|
| |
Remainder of Fiscal 2021 |
| $ |
| |
Fiscal 2022 |
|
|
| |
Fiscal 2023 |
|
|
| |
Fiscal 2024 |
|
|
| |
Fiscal 2025 |
|
|
| |
Thereafter |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
Present value of operating lease liabilities (a) |
| $ |
| |
(a) Includes current portion of $1,580 for operating leases.
6. Intangible Assets
The following tables set forth the costs, accumulated amortization and net book value of the Company’s separately identifiable intangible assets as of June 30, 2021, and September 30, 2020, and estimated future amortization expense.
|
| June 30, 2021 |
|
| September 30, 2020 |
| ||||||||||||||||||
|
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
|
| Cost |
|
| Accumulated Amortization |
|
| Net Book Value |
| ||||||
| Customer relationships |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
| Trade names |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
| ||||||
| Non-Compete agreements |
|
|
|
|
|
|
|
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|
|
|
|
|
|
| ||||||
| Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Estimated Amortization Expense |
| |||
Remaining Fiscal 2021 |
| $ |
| |
Fiscal 2022 |
|
|
| |
Fiscal 2023 |
|
|
| |
Fiscal 2024 |
|
|
| |
Fiscal 2025 |
|
|
| |
Thereafter |
|
|
| |
|
| $ |
| |
The trade names are amortized on a straight – line basis over their respective estimated useful lives 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 $
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
7. Revolving Credit Facility and Term Loan
Revolving Credit, Term Loan and Security Agreement
The Company and its subsidiaries, as borrowers, were parties to a Revolving Credit, Term Loan and Security Agreement (the “Credit Agreement”) with certain investment funds managed by MGG Investment Group LP (“MGG”). The Revolving Credit Facility and Term Loan under the Credit Agreement, as amended, had maturity date on June 30, 2023. The principal and remaining unpaid accrued interest balances were fully repaid on April 20, 2021.
Term Loan
The Company had outstanding balances under its Term Loan, as follows:
|
| June 30, 2021 |
|
| September 30, 2020 |
| ||
|
|
|
|
|
|
| ||
| Term loan |
| $ |
|
| $ |
| ||
| Unamortized debt discount |
|
|
|
|
| ( | ) | |
| Term loan, net of discount |
|
|
|
|
|
| ||
| Short term portion of term loan, net of discounts |
|
|
|
|
|
| ||
| Long term portion of term loan, net of discounts |
| $ |
|
| $ |
| ||
On April 20, 2021, as the result of the completion of the public offering, the Company repaid $
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 $
As of June 30, 2021, the Company had $
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
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
8. 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 lock-downs, 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 subsidiary 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 $
The Company and its operating subsidiaries submitted applications for forgiveness of their respective outstanding PPP loans as their lender, BBVA USA, that provided access through its electronic portal allowing the Company to submit its applications and related documentation. During nine-month period ended June 30, 2021, the Company’s subsidiaries, Scribe Solutions, Inc., Triad Personnel Services, Inc., Triad Logistics, Inc., and Access Data Consulting Corporation were notified by the SBA that its total outstanding PPP Loans and accrued interest were forgiven in the amount of $
The Company and its operating subsidiaries have submitted applications for forgiveness of their respective outstanding PPP loans. During three-month period ended June 30, 2021, the Company’s subsidiaries, Triad Personnel Services, Inc., Triad Logistics, Inc., and Access Data Consulting Corporation were each notified by the SBA that their total outstanding PPP Loans and accrued interest were forgiven in the amounts of $408, $
Management believes that the Company and its subsidiaries whose loans have not yet been forgiven also qualify and are eligible for forgiveness based on existing available guidance; however, there can be no assurance that these remaining outstanding PPP loans and accrued interest will ultimately achieve forgiveness in whole or in part. Accordingly, the Company and its operating subsidiaries with outstanding PPP loans and accrued interest that have not been forgiven continue to account for them as outstanding debt in the accompanying unaudited condensed consolidated financial statements. (See Note 16. Subsequent Event).
The PPP Loans have two-year terms and bear interest at a rate of
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GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
9. 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.
10. Subordinated Debt – Convertible and Non-Convertible
The Company had outstanding balances under its Convertible and Non-Convertible Subordinated Debt agreements, as follows:
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 $
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 $
9.5% Convertible Subordinated Notes Payable to SNI Sellers
On June 30, 2020, the holders of the
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 $
On June 30, 2020, the holders of the remaining $
| 19 |
| Table of Contents |
GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
11. Equity
On April 19, 2021, the Company concluded its public offering of
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 $
On June 30, 2020, the Company issued
Restricted Stock
The Company did not grant restricted stock during the nine-month periods ended June 30, 2021. The Company granted 150 restricted shares of common stock during nine-month period ended June 30, 2020. Stock-based compensation expense attributable to restricted stock was $
A summary of restricted stock activity is presented as follows:
|
| Number of Shares |
|
| Weighted Average Fair Value ($) |
| ||
| Non-vested restricted stock outstanding as of September 30, 2020 |
|
|
|
|
|
| ||
| Granted |
|
| - |
|
|
| - |
|
| Issued |
|
| - |
|
|
| - |
|
| Non-vested restricted stock outstanding as of December 31, 2020 |
|
|
|
|
|
| ||
| Granted |
|
| - |
|
|
| - |
|
| Issued |
|
| - |
|
|
| - |
|
| Non-vested restricted stock outstanding as of March 31, 2021 |
|
|
|
|
|
| ||
| Granted |
|
| - |
|
|
| - |
|
| Vested |
|
| ( | ) |
|
|
| |
| Non-vested restricted stock outstanding as of June 30, 2021 |
|
|
|
|
|
| ||
| 20 |
| Table of Contents |
GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
Warrants
No warrants were granted or exercised during the nine-month periods ended June 30, 2021, and 2020.
|
| Number of Shares |
|
| Weighted Average Exercise Price Per Share ($) |
|
| Weighted Average Remaining Contractual Life |
|
| Total Intrinsic Value of Warrants ($) |
| ||||
| Warrants outstanding as of September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Warrants outstanding as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Warrants outstanding as of March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Warrants outstanding as of June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Warrants exercisable as of September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Warrants exercisable as of June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stock Options
As of June 30, 2021, there were stock options outstanding under the Company’s Amended and Restated
Stock-based compensation expense attributable to stock options and warrants was $
| 21 |
| Table of Contents |
GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(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, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Granted |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
| Forfeited |
|
| ( | ) |
|
|
|
|
| - |
|
|
| - |
| |
Options outstanding as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Granted |
|
| - |
|
|
|
|
|
|
|
|
|
|
| - |
|
| Forfeited |
|
| ( | ) |
|
|
|
|
| - |
|
|
| - |
| |
Options outstanding as of March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Granted |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
| Forfeited |
|
| ( | ) |
|
|
|
|
| - |
|
|
| - |
| |
Options outstanding as of June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Exercisable as of June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
12. 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
Series B Convertible Preferred Stock
On April 3, 2017, the Company issued an aggregate of approximately
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 $
| 22 |
| Table of Contents |
GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(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
The Company issued approximately
Pursuant to the Repurchase Agreement, Mr. Smith also agreed to accept an aggregate amount equal to $
The remaining holders of Series C Preferred Stock converted an aggregate of
13. Income Tax
The following table presents the provision for income taxes and our effective tax rate for the three and nine-month periods ended June 30, 2021, and 2020:
|
| Three Months Ended, |
|
| Nine Months Ended, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
| Provision for Income Taxes |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
| Effective Tax Rate |
|
| - | % |
|
| % |
|
| % |
|
| - | % | ||
The effective income tax rate on operations is based upon the estimated income for the year and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies.
Our effective tax rate for the three and nine-month period ended June 30, 2021, and 2020, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. In the three-month period ended December 31, 2020, the statutory changes regarding the deductibility of PPP loan expenses resulted in the recognition of a $
| 23 |
| Table of Contents |
GEE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Amounts in thousands except per share data, unless otherwise stated)
14. Commitments and Contingencies
Litigation and Claims
The Company and its subsidiaries are involved in various litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.
15. Segment Data
The Company provides direct hire placement services and temporary professional contract staffing services in the fields of information technology, finance, accounting and office (“FA&O”), engineering, and medical within its Professional Services segment, and industrial contract services within its Industrial Services segment. The Company’s revenues, cost of services and a substantial portion of its operating costs and expenses can be divided into these two reportable segments.
Selling, general and administrative (“SG&A”) expenses, including substantially all corporate expenses, are not entirely allocated among Industrial 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.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
| Industrial Staffing Services |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Industrial services revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Industrial services gross margin (1) |
|
| % |
|
| % |
|
| % |
|
|
| ||||
| Operating income (loss) |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) | ||
| Depreciation & amortization |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Professional Staffing Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Permanent placement revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Placement services gross margin |
|
| % |
|
| % |
|
| % |
|
|
| ||||
| Professional services revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Professional services gross margin |
|
| % |
|
| % |
|
| % |
|
|
| ||||
| Operating income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Depreciation and amortization |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unallocated Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate administrative expenses |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Corporate facility expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Stock Compensation expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Board related expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Total unallocated expenses |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Operating income (loss) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
| Depreciation and amortization |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
1) | Includes $( |
16. Subsequent Events
On July 9, 2021, the Company’s subsidiary Agile Resources, Inc. was notified by the SBA that its total outstanding PPP Loans and accrued interest in the amount of $
| 24 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We specialize in the placement of information technology, accounting, finance, office, and engineering professionals for direct hire and contract staffing for our clients, data entry assistants (medical scribes) who specialize in electronic medical records (EMR) services for emergency departments, specialty physician practices and clinics and provide temporary staffing services for our light industrial clients. The acquisitions of Agile Resources, Inc., a Georgia corporation (“Agile”), Access Data Consulting Corporation, a Colorado corporation (“Access”), Paladin Consulting Inc. (“Paladin”) and SNI Companies, Inc., a Delaware corporation (“SNI”) significantly expanded our geographical footprint within the placement and contract staffing of information technology, accounting, finance, office and engineering professionals.
The Company markets its services using the trade names General Employment, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies, Inc., (including Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad Staffing. As of June 30, 2021, we operated twenty-seven branch offices in downtown or suburban areas of major U.S cities in eleven states and additional local staff members working remotely serving four additional U.S. locations. We have offices or serve markets remotely in each of Connecticut, Georgia, Minnesota, New Jersey, and Virginia, two offices each in Illinois and Massachusetts, three offices in Colorado, three offices and two additional local market presences in Texas, five offices and two additional local market presences in Florida, and seven offices in Ohio.
Management has implemented a strategy which includes organic and acquisition growth components. Management’s organic growth strategy includes seeking out and winning new client business, as well as expansion of existing client business and on-going cost reduction and productivity improvement efforts in operations. Management’s acquisition growth strategy includes identifying strategic acquisitions, financed primarily through the issuance of equity and debt to improve the overall profitability and cash flows of the Company.
The Company’s contract and placement services are principally provided under two operating divisions or segments: Professional Staffing Services and Industrial Staffing Services. We believe our current segments and array of businesses and brands within our segments complement one another and position us for future growth.
In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the COVID-19 pandemic. These have included abrupt reductions in demand for the Company’s primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations. These effects have been and continue to be felt across all businesses, with the most severe impacts being felt in the industrial and finance, accounting, and office clerical (“FA&O) end markets within the professional segment. In response to the crisis, in April 2020 we took a series of proactive actions including a 10% pay cut for full-time salaried employees, temporary furloughing and redeployment of some employees, reduction of discretionary expenses and projects, and obtaining funds under CARES Act Payroll Protection Program (“PPP”). These actions allowed us to generate cost savings and time with which to mitigate the impacts of the COVID-19 pandemic on our businesses and brands. Our businesses have continued recover to a significant extent during nine-month period ended June 30, 2021, as compared with prior sequential quarters since the quarter ended June 30, 2020. While we remain optimistic about our prospects for continuing recovery to pre-COVID-19 levels of results and performance, the rate of such recovery is still somewhat uncertain and could be delayed, for example, by potential resurgences and negative impacts of COVID-19 or variants on the U.S. economy and the specific markets and clients we serve in the future.
| 25 |
| Table of Contents |
Results of Operations
Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020
Net Revenues
Consolidated net revenues are comprised of the following:
|
| Three Months |
|
|
|
|
|
|
| |||||||
|
| Ended June 30, |
|
|
|
|
|
|
| |||||||
| (in thousands) |
| 2021 |
|
| 2020 |
|
| Change |
|
| Change |
| ||||
| Professional contract services |
| $ | 28,747 |
|
| $ | 20,595 |
|
| $ | 8,152 |
|
|
| 40 | % |
| Industrial contract services |
|
| 3,792 |
|
|
| 2,898 |
|
|
| 894 |
|
|
| 31 | % |
| Total professional and industrial contract services |
|
| 32,539 |
|
|
| 23,493 |
|
|
| 9,046 |
|
|
| 39 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Direct hire placement services |
|
| 5,529 |
|
|
| 3,101 |
|
|
| 2,428 |
|
|
| 78 | % |
| Consolidated net revenues |
| $ | 38,068 |
|
| $ | 26,594 |
|
| $ | 11,474 |
|
|
| 43 | % |
Contract staffing services contributed $32,539, or approximately 85%, of consolidated revenue and increased by $9,046, or approximately 39%, for the three-month period ended June 30, 2021, as compared with the comparable period ended June 30, 2020. Direct hire placement services contributed $5,529, or approximately 15%, of consolidated revenue for the three-month period ended June 30, 2021 and were up $2,428, or approximately 78%, as compared with the comparable three-month period ended June 30, 2020. Contract staffing services revenue was $23,493, or approximately 88%, of consolidated revenue and direct hire placement revenue was $3,101, or approximately 12%, of consolidated revenue for the three-month period ended June 30, 2020.
The overall increase in contract staffing services revenues of $9,046, or 39%, for the three-month period ended June 30, 2021 compared to the three-month period ended June 30, 2020 was primarily attributable to recovery and improvement in professional contract services markets from the negative effects of the COVID-19 pandemic beginning approximately in the month of June 2020. The onset of COVID-19 resulted in a near immediate decline in demand for our staffing services due to client closures, postponements in projects and related needs for our services at some clients, significant travel restrictions, and corresponding decreases in the volume of contract services billable hours. Professional contract services have experienced consistent recovery through this quarter resulting in the revenue increase of $8,152 for the three-month period ended June 30, 2021, as compared with the three-month period ended June 30, 2020. Management believes this trend is the result of U.S. economic recovery, as well as actions taken by the Company to adapt to COVID-19, hire top talent, and position the Company for recovery and growth. Industrial contract services revenue experienced improvement this quarter due to continuing recovery and improvement from negative impacts related to COVID-19, including most recently, a workforce shortage being felt across the U.S. and widely believed to be attributable to recent and plentiful economic stimulus and unemployment benefits, as well as school and other shutdowns.
Direct hire placement revenue for the three-month period ended June 30, 2021 increased by $2,428, or approximately 78%, over the three-month period ended June 30, 2020, driven by an increase in number of placements. Demand for the Company’s direct hire services increased due to the continuing recovery and significant improvement from the negative effects of the COVID-19 pandemic beginning in approximately June 2020.
Management believes that the underlying trends toward significant recovery since May 2020 are generally consistent with the recovery experienced in the overall U.S. economy so far and, therefore, may be expected to continue, accordingly. The Company continues to observe, analyze and make modifications and changes to its business model and practices on a routine basis in response to the on-going COVID-19 pandemic and related health and safety concerns. These include, but are not limited to, implementation of policies and procedures in observance of Federal, state and/or local guidelines regarding the coronavirus, including matters such as working from home, use of personal protective equipment (principally, protective masks), social distancing, personal hygiene and sanitary practices, and other preventative and responsive measures, impacting both our core human resources, as well as our contract laborers serving clients.
| 26 |
| Table of Contents |
Cost of Contract Services
Cost of contract services includes wages and related payroll taxes and employee benefits of the Company's contract services employees, and certain other contract employee-related costs, while working on contract assignments. Cost of contract services for the three-month period ended June 30, 2021 increased by approximately 43% to $24,242 compared to $16,925 for the three-month period ended June 30, 2020. The $7,317 overall increase in cost of contract services for the three-month period ended June 30, 2021 compared to the three-month period ended June 30, 2020 was attributable to the corresponding increase in contract service revenues.
Gross Profit percentage by service:
|
| Three Months |
| |||||
|
| Ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| Professional contract services |
|
| 27 | % |
|
| 27 | % |
| Industrial contract services |
|
| 15 | % |
|
| 37 | % |
| Professional and industrial services combined |
|
| 26 | % |
|
| 28 | % |
|
|
|
|
|
|
|
|
|
| Direct hire placement services |
|
| 100 | % |
|
| 100 | % |
| Combined gross profit margin % (1) |
|
| 36 | % |
|
| 36 | % |
____________
(1) | Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses. |
The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for the three-month period ended June 30, 2021 and 2020, was approximately 36% each. In the professional contract services, the gross margin (excluding direct hire placement services) was approximately 27% for three-month period ended June 30, 2021 and 2020 each.
The Company’s industrial contract services gross margin for the three-month period ended June 30, 2021 was approximately 15% versus approximately 37% for the three-month period ended June 30, 2020. The decrease in industrial contract services gross margin is due to a decrease in the amount of premium refunds the Company’s industrial business is eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively-rated insurance program. The industrial contract services gross margins normalized for the effects of these items were approximately 15% and 13% for the three months ended June 30, 2021 and 2020, respectively. The increase after adjustment to remove the effect of the workers compensation premium refunds is primarily attributable to increased bill rates and a decrease in premium charges related to workers compensation for the three-month period ended June 30, 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include the following categories:
| • | Compensation and benefits in the operating divisions, which includes salaries, wages, and commissions earned by the Company’s employment consultants and branch managers on permanent and temporary placements. |
|
|
|
| • | Administrative compensation, which includes salaries, wages, payroll taxes, and employee benefits associated with general management and the operation of the finance, legal, human resources and information technology functions. |
|
|
|
| • | Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses. |
|
|
|
| • | Recruitment advertising, which includes the cost of identifying job applicants. |
|
|
|
| • | Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services, and other corporate-level expenses such as business insurance and taxes. |
| 27 |
| Table of Contents |
The Company’s SG&A for the three-month period ended June 30, 2021, increased by $905 as compared to the three-month period ended June 30, 2020. SG&A for the three-month period ended June 30, 2021, as a percentage of revenues, was approximately 29% compared to approximately 38% for the three-month period ended June 30, 2020. The decrease in SG&A expenses as a percentage of revenue is primarily attributable to the significant recovery and improvement in revenues discussed earlier and Company’s efforts to manage costs effectively.
SG&A also includes certain non-cash costs, expenses incurred related to acquisition, integration and restructuring, non-recurring items, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations, and/or other items that have been eliminated on a going forward basis and/or are of an isolated, non-recurring nature. These costs were estimated to be $159 and $1,557 for the three-month periods ended June 30, 2021 and 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, and former personnel costs associated with eliminated positions.
Depreciation Expense
Depreciation expense was $78 and $33 for the three-month period ended June 30, 2021, and 2020, respectively. The increase is due to the fixed assets additions.
Amortization Expense
Amortization expense was $1,015 and $1,125 for the three-month period ended June 30, 2021 and 2020, respectively. The decrease is due to certain SNI intangible assets related to non-compete agreements that have become fully amortized as of March 31, 2020.
Income from Operations
The income from operations increased by $3,317 for the three-month period ended June 30, 2021 compared to the three-month period ended June 30, 2020. The increase is due to the factors described above including a significant improvement and recovery in revenues and the Company’s mitigating efforts beginning in approximately mid-March 2020 to restore and grow revenues, and to manage costs effectively to adapt to the COVID-19 pandemic and position the Company for recovery.
Interest Expense
Interest expense was $539 for the three-month period ended June 30, 2021, which decreased by $2,795 compared to the three-month period ended June 30, 2020. The decrease in interest expense for the three-month period ended June 30, 2021 is mainly attributable to the interest expense related to the former Senior Credit Agreement, 9.5% Notes, and 10% Notes that were included in the three-month period ended June 30, 2020. The Company’s former Senior Credit Agreement contributed $459 and $2,093 the three-month period ended June 30, 2021 and June 30, 2020, respectively. On April 20, 2021, the Company retired and fully repaid its remaining principal and accrued interest balances under its former Senior Credit Agreement.
Provision for Income Taxes
The Company recognized a tax benefit of $29 for the three-month period ended June 30, 2021. Our effective tax rate for the three-month periods ended June 30, 2021 and 2020, were lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a valuation allowance against the remaining net DTA position.
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| Table of Contents |
Net (Loss) Income
The Company’s net (loss) income was $(937) and $7,195 for the three-month periods ended June 30, 2021 and 2020, respectively. The decrease in net income is primarily attributable to gains recognized of $12,316 on extinguishment of subordinated debt during the three-month period ended June 30, 2020. In addition to the changes discussed above gains of $1,957 on the extinguishment of PPP loans were offset by a loss in the form of a charge off of unamortized debt costs on a debt extinguishment related to the term loan pay-off in amount of $4,004 during the three-month period ended June 30, 2021.
On April 19, 2021, the Company raised net proceeds of $45,487 of common equity capital and on April 20, 2021, repaid all its remaining outstanding principal and accrued interest balances of $56,022 under its former Senior Credit Agreement. The Company incurred $459 in interest expense in the accompanying unaudited condensed consolidated statement of operations for the three-month period ended June 30, 2021, which obligations have now ceased effective April 21, 2021..
The Company continues to closely manage costs and to pursue opportunities to selectively increase revenue producing headcount in key markets and industry verticals. The Company also seeks to organically grow its professional contract services revenue and direct hire placement revenue, including business from staff augmentation, permanent placement, statement of work (SOW) and other human resource solutions in the information technology, engineering, healthcare and finance and accounting higher margin staffing specialties. The Company’s strategic plans to achieve this goal involve setting aggressive new business growth targets, including initiatives to increase services to existing customers, increasing its numbers of revenue producing core professionals, including primarily, business development managers and recruiters, changes to compensation, commission and bonus plans to better incentivize producers, and frequent interaction with the field to monitor and motivate growth. The Company’s strategy entails both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing.
Nine Months Ended June 30, 2021 Compared to the Nine Months Ended June 30, 2020
Net Revenues
Consolidated net revenues are comprised of the following:
|
| Nine Months |
|
|
|
|
|
|
| |||||||
|
| Ended June 30, |
|
|
|
|
|
|
| |||||||
| (in thousands) |
| 2021 |
|
| 2020 |
|
| Change |
|
| Change |
| ||||
| Professional contract services |
| $ | 81,923 |
|
| $ | 73,810 |
|
| $ | 8,113 |
|
|
| 11 | % |
| Industrial contract services |
|
| 12,927 |
|
|
| 13,025 |
|
|
| (98 | ) |
|
| -1 | % |
| Total professional and industrial contract services |
|
| 94,850 |
|
|
| 86,835 |
|
|
| 8,015 |
|
|
| 9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Direct hire placement services |
|
| 12,579 |
|
|
| 11,996 |
|
|
| 583 |
|
|
| 5 | % |
| Consolidated net revenues |
| $ | 107,429 |
|
| $ | 98,831 |
|
| $ | 8,598 |
|
|
| 9 | % |
Contract staffing services contributed $94,850 or approximately 88% of consolidated revenue and were higher by $8,015 for the nine-month period ended June 30, 2021, as compared with the comparable period ended June 30, 2020. Direct hire placement services contributed $12,579, or approximately 12%, of consolidated revenue for the nine-month period ended June 30, 2021 and were up $583, or approximately 5%, as compared with the comparable period ended June 30, 2020. Contract staffing services revenue was $86,835, or approximately 88%, of consolidated revenue and direct hire placement revenue was $11,996, or approximately 12%, of consolidated revenue for the nine-month period ended June 30, 2020.
The overall increase in contract staffing services revenues of $8,015, or 9%, for the nine-month period ended June 30, 2021 compared to the nine-month period ended June 30, 2020 was primarily attributable to significant recovery and improvement in professional contract services markets from the negative effects of the COVID-19 pandemic beginning in approximately June 2020. The onset of COVID-19 resulted in a near immediate decline in demand for our staffing services due to client closures, postponements in projects and related needs for our services at some clients, significant travel restrictions, and corresponding decreases in the volume of contract services billable hours. Professional contract services significantly outperformed their historical trends and experienced consistent recovery since May 2020 through this quarter resulting in the revenue increase of $8,113 for the nine-month period ended June 30, 2021, as compared with the nine-month period ended June 30, 2020. Management believes this trend is the result of U.S. economic recovery, as well as actions taken by the Company to adapt to COVID-19, hire top talent, and position the Company for recovery and growth. Industrial contract services revenue experienced improvement due to continuing recovery and improvement from negative impacts related to COVID-19, including most recently, a workforce shortage being felt across the U.S. and widely believed to be attributable to recent and plentiful economic stimulus and unemployment benefits, as well as school and other shutdowns.
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| Table of Contents |
Direct hire placement revenue for the nine-month period ended June 30, 2021 increased by $583, or approximately 5%, over the nine-month period ended June 30, 2020. Demand for the Company’s direct hire services increased due to the continuing recovery and significant improvement from the negative effects of the COVID-19 pandemic beginning in approximately June 2020.
Management believes that the underlying trends toward recovery since May 2020 are generally consistent with the recovery experienced in the overall U.S. economy so far and, therefore, may be expected to continue, accordingly. The Company continues to observe, analyze and make modifications and changes to its business model and practices on a routine basis in response to the on-going COVID-19 pandemic and related health and safety concerns. These include, but are not limited to, implementation of policies and procedures in observance of Federal, state and/or local guidelines regarding the coronavirus, including matters ranging working from home, use of personal protective equipment (principally, protective masks), social distancing, personal hygiene and sanitary practices, and other preventative and responsive measures, impacting both our core human resources, as well as our contract laborers serving clients.
Cost of Contract Services
Cost of contract services includes wages and related payroll taxes and employee benefits of the Company's contract services employees, and certain other contract employee-related costs, while working on contract assignments. Cost of contract services for the nine-month period ended June 30, 2021 increased by approximately 8% to $70,115 compared to $64,654 for the nine-month period ended June 30, 2020. The $5,461 overall increase in cost of contract services for the nine-month period ended June 30, 2021 compared to the nine-month period ended June 30, 2020 was primarily attributable to the corresponding increase in revenues, and an increase in additional premium refunds in the form of policyholder dividends from the Ohio Bureau of Workers’ Compensation related to the Company’s industrial business.
Gross Profit percentage by service:
|
| Nine Months |
| |||||
|
| Ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
| Professional contract services |
|
| 26 | % |
|
| 27 | % |
| Industrial contract services |
|
| 25 | % |
|
| 20 | % |
| Professional and industrial services combined |
|
| 26 | % |
|
| 26 | % |
|
|
|
|
|
|
|
|
|
| Direct hire placement services |
|
| 100 | % |
|
| 100 | % |
| Combined gross profit margin % (1) |
|
| 35 | % |
|
| 35 | % |
_______________
(1) | Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses. |
The Company’s combined gross profit margin, including direct hire placement services (recorded at 100% gross margin) for the nine-month period ended June 30, 2021 and 2020 was approximately 35% each.
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| Table of Contents |
In the professional contract staffing services segment, the gross margin (excluding direct placement services) was approximately 26% for nine-month period ended June 30, 2021 compared to approximately 27% for the nine-month period ended June 30, 2020. This decrease is generally due to shifts in the amounts and mix of business between end markets and higher and lower billing rates and margins. Contributing to this 0.3% (300 basis points) decrease is a disproportionate increase in the mix of lower margin office and clerical temporary staffing services within the overall COVID-19 business recovery taking place.
The Company’s industrial contract services gross margin for the nine-month period ended June 30, 2021 was approximately 25% versus approximately 20% for the nine-month period ended June 30, 2020. The increase in industrial contract services gross margin is due to the amount of additional premium refunds in the form of policyholder dividends the Company’s industrial business was eligible to receive under the Ohio Bureau of Workers’ Compensation retrospectively-rated insurance program. Results for the nine months ended June 30, 2021 includes $1,337 of such premium refunds. The industrial contract services gross margins excluding the effects of these items were approximately 15% and 14% for the nine months ended June 30, 2021 and 2020, respectively. The increase, adjusted to remove the effects of workers compensation premium refunds, is generally within a reasonable performance range for our Light Industrial segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include the following categories:
| • | Compensation and benefits in the operating divisions, which includes salaries, wages, and commissions earned by the Company’s employment consultants and branch managers on permanent and temporary placements. |
|
|
|
| • | Administrative compensation, which includes salaries, wages, payroll taxes, and employee benefits associated with general management and the operation of the finance, legal, human resources and information technology functions. |
|
|
|
| • | Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses. |
|
|
|
| • | Recruitment advertising, which includes the cost of identifying job applicants. |
|
|
|
| • | Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services, and other corporate-level expenses such as business insurance and taxes. |
The Company’s SG&A for the nine-month period ended June 30, 2021 decreased by $4,520 as compared to the nine-month period ended June 30, 2020. SG&A for the nine-month period ended June 30, 2021, as a percentage of revenues, was approximately 28% compared to approximately 35% for the nine-month period ended June 30, 2020. The decrease in SG&A expenses is primarily attributable to the Company’s mitigating efforts to reduce and manage costs to adopt to COVID-19 and position the Company for recovery and growth. In addition, a provision for doubtful accounts related to a key customer who filed for a bankruptcy protection of approximately $1,700, was taken in the form of a charge to income during March 2020.
SG&A also includes certain non-cash costs, expenses incurred related to acquisition, integration and restructuring, non-recurring items, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations, and/or other items that have been eliminated on a going forward basis and/or are of an isolated, non-recurring nature. These costs were estimated to be $340 and $3,247 for the nine-month periods ended June 30, 2021 and 2020, respectively, and include mainly expenses associated with former closed and consolidated locations, and personnel costs associated with eliminated positions.
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| Table of Contents |
Depreciation Expense
Depreciation expense was $228 and $181 for the nine-month period ended June 30, 2021, and 2020, respectively. The increase is attributable to net fixed assets additions.
Amortization Expense
Amortization expense was $3,074 and $3,921 for the nine-month period ended June 30, 2021 and 2020, respectively. The decrease is due to certain SNI intangible assets related to non-compete agreements that have become fully amortized during March 31, 2020.
Income from Operations
The income from operations increased by $8,457 for the nine-month period ended June 30, 2021 compared to the nine-month period ended June 30, 2020. The increase is due to the factors described above including an increase in revenues, a decrease in amortization, recognition of provision for doubtful accounts related to a key customer who filed for a bankruptcy protection during March 2020, and the Company’s mitigating efforts beginning in approximately mid-March 2020 to restore and grow revenues, and to manage costs to adapt to the COVID-19 pandemic and position the Company for recovery and growth.
Interest Expense
Interest expense was $5,759 for the nine-month period ended June 30, 2021, which decreased by $3,859 compared to the nine-month period ended June 30, 2020. The decrease in interest expense for the nine-month period ended June 30, 2021 is mainly attributable to the interest expense related to the former Senior Credit Agreement, 9.5% Notes, and 10% Notes that were included in the nine-month period ended March 31, 2020. The Company’s former Senior Credit Agreement contributed $3,595 and $6,888 the nine-month period ended June 30, 2021 and June 30, 2020, respectively. On April 20, 2021, the Company repaid its remaining principal and accrued interest balances under its former Senior Credit Agreement, after which time interest expense ceased to accrue.
Provision for Income Taxes
The Company recognized a tax benefit of $307 for the nine-month period ended June 30, 2021. Our effective tax rate for the nine-month periods ended June 30, 2021 and 2020, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. In nine-month period ended June 30, 2021, the statutory changes regarding the deductibility of PPP loan expenses resulted in the recognition of a $352 discrete item. Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a valuation allowance against the remaining net DTA position.
Net Loss
The Company’s net loss was $(2,987) and $(1,797) for the nine-month periods ended June 30, 2021 and 2020, respectively. The increase in net loss for the nine-month periods ended June 30, 2021 is attributable to the factors described above including recognized gains of $12,316 on extinguishment of subordinated debt during the nine-month period ended June 30, 2020. In addition to the changes discussed above, gain of $2,236 on the extinguishment of PPP loans were offset by a loss in the form of a charge off of unamortized debt costs on a debt extinguishment related to the term loan pay-off in amount of $4,004 during the nine-month period ended June 30, 2021.
The Company continues to closely manage costs and to pursue opportunities to selectively increase revenue producing headcount in key markets and industry verticals. The Company also seeks to organically grow its professional contract services revenue and direct hire placement revenue, including business from staff augmentation, permanent placement, statement of work (SOW) and other human resource solutions in the information technology, engineering, healthcare and finance and accounting higher margin staffing specialties. The Company’s strategic plans to achieve this goal involve setting aggressive new business growth targets, including initiatives to increase services to existing customers, increasing its numbers of revenue producing core professionals, including primarily, business development managers and recruiters, changes to compensation, commission and bonus plans to better incentivize producers, and frequent interaction with the field to monitor and motivate growth. The Company’s strategy entails both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing.
| 32 |
| Table of Contents |
Liquidity and Capital Resources
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 current and former asset-based senior secured revolving credit facilities. 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, operating costs and expenses, payment of taxes, payment of interest and principal under its debit agreements, and capital expenditures.
The following table sets forth certain consolidated statements of cash flows data:
|
| Nine Months |
| |||||
|
| Ended June 30, |
| |||||
| (in thousands) |
| 2021 |
|
| 2020 |
| ||
| Cash flows (used in) provided by operating activities |
| $ | (2,276 | ) |
| $ | 245 |
|
| Cash flows used in investing activities |
| $ | (68 | ) |
| $ | (105 | ) |
| Cash flows (used in) provided by financing activities |
| $ | (4,371 | ) |
| $ | 12,382 |
|
As of June 30, 2021, the Company had $7,359 of cash, which was a decrease of $6,715 from $14,074 as of September 30, 2020. As of June 30, 2021, the Company had working capital of $5,110 compared to $13,351 of working capital as of September 30, 2020.
Net cash (used in) provided by operating activities for the nine-month periods ended June 30, 2021 and 2020 was $(2,276) and $245, respectively. The negative operating cash flow in the nine-month period ended June 30, 2021 corresponds with net changes in working capital.
The primary uses of cash for investing activities were for the acquisition of property and equipment in the nine-month periods ended June 30, 2021 and 2020.
Cash flow (used in) provided by financing activities for the nine-month period ended June 30, 2021 and 2020 was $(4,371) and $12,382, respectively. The decrease during nine-month period ended June 30, 2021 was primarily attributable to the payment on former Senior Credit Agreement that was offset by the proceeds received from the public offering. The increase during nine-month period ended June 30, 2020 was primarily attributable to the net proceeds received from PPP Loans.
Minimum debt service payments (principal) for the twelve-month period commencing after the close of business on June 30, 2021, are approximately $10,966. All the Company’s office facilities are leased. Minimum lease payments under all the Company’s lease agreements for the twelve-month period commencing after the close of business on June 30, 2021, are approximately $1,777.
The Company experienced net losses for the first nine months of its current fiscal year, and for its most recent fiscal years ended September 30, 2020 and 2019, which also negatively impacted the Company’s ability to generate liquidity. During much of this period, the Company significantly restructured its operations, made significant cost reductions, including closing and consolidating unprofitable locations, eliminating underperforming personnel and pursuing top talent, implemented strategic management changes, and intensified focus on stabilizing the business and restoring profitable growth. As a result, management believes the Company had begun to see its operations and business stabilize.
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| Table of Contents |
In approximately mid-March 2020, the Company began to experience the severe negative effects of the economic disruptions resulting from the Coronavirus Pandemic (“COVID-19”). These have included abrupt reductions in demand for the Company primary sources of revenue, its temporary and direct hire placements, lost productivity due to business closings both by clients and at the Company’s own operating locations, and the significant disruptive impacts to many other aspects of normal operations. These effects have continued to be felt across all businesses, with the most severe impacts being felt in the industrial and finance, accounting and office clerical (FAO) end markets within the professional segment.
Between April 29 and May 7, 2020, the Company was able to obtain CARES Act relief financing under the Paycheck Protection Program (“PPP Loans”) for each of its operating subsidiaries, in the aggregate amount of $19,927. These funds were the only source of financing available to our companies and businesses and have been and continue to be absolutely critical to our ability to maintain operations, including the employment of our temporary and fulltime employees, in order to produce and meet our foreseeable liquidity requirements in the midst of this continuing worldwide Coronavirus Pandemic.
On April 19, 2021, the Company concluded its 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 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. 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 existing 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. The Company took one time charge of $4,004 which represents unamortized debt issue costs associated with its former senior debt.
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.
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. 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.
Management believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future or at least for the following twelve months assuming the negative economic effects of COVID-19 do not worsen, and that economic recovery occurs.
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| Table of Contents |
Off-Balance Sheet Arrangements
As of June 30, 2021, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As of June 30, 2021, the Company's management evaluated, with the participation of its principal executive officer and its principal financial officer, the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act”). Based on that evaluation, the Company's principal executive officer and its principal financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting or in any other factors that could significantly affect these controls, during the Company's nine-month period ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
| 35 |
| Table of Contents |
PART II – OTHER INFORMATION.
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
The full extent of the impact of COVID-19 on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. In evaluating us and our common stock, in addition to the risk factor below, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 (“2020 Form 10-K”) and filed with the SEC on December 29, 2020. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. of Part I of our 2020 Form 10-K, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.
Our business, results of operations, and financial condition have been and may continue to be adversely impacted in material respects by the coronavirus pandemic, and future adverse impacts could be material and difficult to predict.
Our business, results of operations, and financial condition have been, and may continue to be, adversely impacted in material respects by COVID-19 and by related government actions (including declared states of emergency and quarantine, “shelter in place” orders, or similar orders), non-governmental organization recommendations, and public perceptions, all of which have led and may continue to lead to disruption in global economic and labor markets. These effects have had a significant impact on our business, including reduced demand for our services and workforce solutions, early terminations or reductions in projects, and hiring freezes, and a shift of a majority of our workforce to remote operations, all of which have contributed to a decline in revenues and other significant adverse impacts on our financial results. Other potential impacts of COVID-19 may include continued or expanded closures or reductions of operations with respect to our client partners’ operations or facilities, the possibility our client partners will not be able to pay for our services or workforce solutions, or that they will attempt to defer payments owed to us, either of which could materially impact our liquidity, the possibility that the uncertain nature of the pandemic may not yield the increase in certain of our workforce solutions that we have historically observed during periods of economic downturn, and the possibility that various government-sponsored programs to provide economic relief may be inadequate. Further, we may continue to experience adverse financial impacts, some of which may be material, if we cannot offset revenue declines with cost savings through expense-related initiatives, human capital management initiatives, or otherwise. As a result of these observed and potential developments, we expect our business, results of operations, and financial condition to continue to be negatively affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not required.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
| 36 |
| Table of Contents |
Item 6. Exhibits
The following exhibits are filed as a part of Part I of this report:
No. |
| Description of Exhibit |
| ||
| ||
| ||
| ||
| ||
| ||
101.INS |
| Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
* |
| Filed herewith |
** |
| Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
| 37 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GEE GROUP INC. |
| ||
(Registrant) |
| ||
|
| ||
Date: August 16, 2021 | By: | /s/ Derek Dewan |
|
| Derek Dewan |
| |
| Chief Executive Officer |
| |
| (Principal Executive Officer) |
| |
|
|
|
|
|
|
|
|
By: | /s/ Kim Thorpe |
| |
| Kim Thorpe |
| |
| Chief Financial Officer (Principal Financial and Accounting Officer) |
| |
| 38 |