GEE Group(JOB) - 2022 Q4 - Annual Report

Part I Business GEE Group Inc, a US-based firm, provides professional and industrial human resources solutions through its two primary staffing divisions - The company provides human resources solutions, including temporary and permanent personnel, across the United States through a network of 28 branch offices and 4 virtual locations[11] - Services are delivered through two primary operating segments: Professional Staffing Services and Industrial Staffing Services[14] Revenue Breakdown by Service (Fiscal Years 2022 vs. 2021) | Service Line | Fiscal 2022 Revenue % | Fiscal 2021 Revenue % | | :--- | :--- | :--- | | Professional direct hire placement | 16.1% | 12.8% | | Professional contract services | 74.2% | 75.5% | | Industrial contract services | 9.7% | 11.7% | - The company's growth strategy is twofold: organic growth by expanding services and market penetration, and strategic acquisitions of complementary businesses[17][20] - The staffing industry is highly fragmented with low barriers to entry, featuring competitors ranging from sole proprietorships to large national firms[25][27] - As of September 30, 2022, the company had approximately 309 regular employees and a variable number of contract service employees, ranging from 1,880 to 2,579 during fiscal 2022[48] Risk Factors The company faces significant risks from macroeconomic conditions, financial covenants, operational dependencies, and cybersecurity threats - The U.S. economy is facing significant inflation and a potential recession, which could negatively impact the company's business if the economy contracts[51][52] - The company's $20 million asset-based senior secured revolving credit facility with CIT Bank contains restrictive covenants that may limit operational and financial flexibility[57][59][60] - Material intangible assets, including goodwill, are subject to impairment risks, which could lead to future material impairment charges[62][63] - The business requires significant working capital to fund the payroll of temporary workers before receiving client payments, making it vulnerable to cash shortfalls[64] - Success is highly dependent on retaining senior management and attracting qualified personnel in a competitive market[74][76] - On February 1, 2022, the company detected and stopped a network security incident where an unauthorized third party gained access and encrypted systems[89][91] - The company's ability to use its net operating loss (NOL) carryforwards may be limited by Section 382 of the Internal Revenue Code if an "ownership change" occurs[102][103] Unresolved Staff Comments There are no unresolved staff comments to report for the period - Not applicable[135] Properties The company leases all its office spaces, operating from 28 branch offices and 4 remote locations across eleven states - The company's policy is to lease, not purchase, its office spaces, with its headquarters in Jacksonville, Florida, under a lease expiring in 2026[136] - As of September 30, 2022, the company operated from 28 branch offices and 4 remote locations in eleven states[137] Legal Proceedings The company settled two lawsuits in March 2022 for a one-time payment of $1.175 million - The company settled two lawsuits with Sands Brothers Venture Capital II, LLC on March 23, 2022[140] - The settlement involved a one-time payment of approximately $1.175 million, with the company's portion being $975,000, recognized as a pre-tax charge in fiscal 2022[141] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[143] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE American under the symbol "JOB," and no dividends were paid in fiscal 2021 or 2022 - The company's common stock is listed on the NYSE American under the symbol "JOB"[145] - No dividends were paid in fiscal 2022 or 2021, and none are anticipated for the foreseeable future[146] Securities Authorized for Issuance under Equity Compensation Plans (as of Sep 30, 2022) | Plan Category | Securities to be issued upon exercise (thousands) | Weighted average exercise price | Securities remaining available for future issuance (thousands) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 3,619 | $1.24 | 9,931 | [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2022 revenue grew 11% to $165.1 million, while net income surged to $19.6 million due to PPP loan forgiveness and lower interest expense Consolidated Net Revenues (Fiscal 2022 vs. 2021) | Revenue Source | 2022 ($ thousands) | 2021 ($ thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Professional contract services | 122,562 | 112,470 | 10,092 | 9% | | Industrial contract services | 15,945 | 17,332 | (1,387) | -8% | | Total contract services | 138,507 | 129,802 | 8,705 | 7% | | Direct hire placement services | 26,605 | 19,078 | 7,527 | 39% | | Consolidated net revenues | 165,112 | 148,880 | 16,232 | 11% | - The combined gross profit margin increased to 37.4% in fiscal 2022 from 35.3% in fiscal 2021, mainly due to a higher mix of 100% margin direct hire placement revenue[166] - SG&A expenses increased to $51.9 million (31% of revenue) in fiscal 2022 from $41.7 million (28% of revenue) in fiscal 2021, driven by higher incentive compensation and one-time charges[169] - A non-cash goodwill impairment charge of $2.15 million was recognized in the first quarter of fiscal 2022[173] - Net income for fiscal 2022 was $19.6 million, a significant increase from $6,000 in fiscal 2021, primarily driven by a $16.8 million gain on the forgiveness of PPP loans and a $5.5 million decrease in interest expense[178] Consolidated Cash Flow Data (Fiscal 2022 vs. 2021) | Cash Flow Activity | 2022 ($ thousands) | 2021 ($ thousands) | | :--- | :--- | :--- | | Cash flows provided by operating activities | 9,229 | 370 | | Cash flows used in investing activities | (328) | (126) | | Cash flows used in financing activities | - | (4,371) | - Working capital increased substantially to $26.6 million as of September 30, 2022, from $2.5 million a year prior, mainly due to strong cash flow and PPP loan forgiveness[180] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - Not applicable[223] Financial Statements and Supplementary Data This section provides an index to the company's consolidated financial statements and independent auditor reports - This item serves as an index to the detailed Consolidated Financial Statements and Supplementary Data, which are located in the latter part of the report, starting on page F-1[224] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with the company's accountants - None[357] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of September 30, 2022 - Management, including the CEO and PFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of September 30, 2022[357][360][361] - Following a network security incident on February 1, 2022, an investigation was conducted and no material weaknesses in internal controls were identified as a result[362][364] Other Information There is no other information to report under this item - None[365] Part III Directors, Executive Officers and Corporate Governance The company is led by a combined Chairman/CEO, an independent board, and five standing committees, all governed by a Code of Ethics - The executive officers include Derek E. Dewan (CEO), Alex Stuckey (COO), and Kim Thorpe (CFO)[368] - The Board of Directors has determined that all directors, except for CEO Derek E. Dewan, are independent under NYSE American listing standards[393] - The company combines the roles of Chairman of the Board and CEO, held by Mr. Dewan, believing it enables decisive leadership and clear accountability[389] - The Board has five standing committees: Nominating, Audit, Corporate Governance, Mergers and Acquisitions, and Compensation[395] - The company has adopted a Code of Ethics for all directors and employees to promote honest conduct and compliance with laws[420] Executive Compensation Executive compensation in fiscal 2022 featured base salaries, performance bonuses, and equity awards under a new incentive program Summary Compensation Table (Fiscal 2022) | Name and Principal Position | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Derek Dewan, CEO | 350,000 | 498,750 | 2,800 | 851,550 | | Alex Stuckey, COO | 250,000 | 267,188 | 2,800 | 519,988 | | Kim Thorpe, SVP & CFO | 270,000 | 288,563 | 2,800 | 561,363 | - The company has employment agreements with its named executive officers, which include provisions for salary, bonus eligibility, and standard termination clauses[423][424][425] - In fiscal 2022, the company adopted a formal Annual Incentive Compensation Program (AICP) which includes performance-based short-term cash incentives and long-term equity incentives[427][428] - Non-employee directors were compensated with quarterly cash fees for board and committee service, with increased compensation and stock option grants beginning in fiscal 2023[434][435] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 2022, directors and executives owned 5.26% of common stock, while Raffle Associates, L.P. held 7.79% Security Ownership as of December 19, 2022 | Name of Beneficial Owner | Amount of Beneficial Ownership | Percent of Class | | :--- | :--- | :--- | | Derek Dewan (CEO) | 2,091,017 | 1.83% | | Alex Stuckey (COO) | 1,666,624 | 1.46% | | Current directors and executive officers as a group (9 individuals) | 6,018,525 | 5.26% | | Raffle Associates, L.P. (5% Holder) | 8,913,857 | 7.79% | Certain Relationships and Related Transactions, and Director Independence Six of the seven board members are independent, and no material related party transactions were reported beyond executive compensation and director stock purchases - The Board has determined that six directors (William Isaac, Darla Moore, Carl Camden, Matthew Gormly, Thomas Vetrano, and Peter Tanous) are independent[442] - In April 2021, six directors and officers collectively acquired 678,765 shares of common stock by participating in the company's follow-on public offering or through open market purchases[445] Principal Accountant Fees and Services FORVIS, LLP served as the independent auditor for fiscal 2022, with total fees of approximately $276,000 for audit and related services - FORVIS, LLP was engaged as the independent registered public accounting firm for fiscal year 2022, succeeding Friedman, LLP[446] Accountant Fees (Fiscal 2022 vs. 2021) | Fee Type | Fiscal 2022 ($) | Fiscal 2021 ($) | | :--- | :--- | :--- | | Audit fees | 244,000* | 212,000 | | Audit-related fees | 32,000 | 77,500 | *Fiscal 2022 includes $192,000 billed by FORVIS and $52,000 by Friedman for prior period services. - The Audit Committee's policy is to pre-approve all audit and non-audit services provided by the independent accounting firm[450] Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including corporate documents, material contracts, and required certifications - This item provides a list of all exhibits filed with the annual report, including articles of incorporation, bylaws, material contracts, and required certifications[452]