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MarketScreener Homepage  >  Equities  >  Nyse MKT  >  GEE Group Inc    JOB

GEE GROUP INC

(JOB)
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GEE : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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02/13/2020 | 04:39pm EDT

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, a Delaware corporation ("SNI") 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 Enterprises, Omni One, Ashley Ellis, Agile Resources, Scribe Solutions Inc., Access Data Consulting Corporation, Paladin Consulting Inc., SNI Companies (including Staffing Now, Accounting Now, and Certes), Triad Personnel Services and Triad Staffing. As of December 31, 2019, we operated thirty-three branch offices in downtown or suburban areas of major U.S. cities in fourteen states. We have one office located in each of Arizona, Washington D.C., Iowa, Connecticut, Georgia, Minnesota, New Jersey, and Virginia, three offices in Colorado and Massachusetts, two offices in Illinois, four offices in Texas, seven offices in Ohio and six offices in Florida.

Management has implemented a strategy which includes cost reduction efforts as well as 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 complement one another and position us for future growth.



Results of Operations


Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018




Net Revenues



Consolidated net revenues are comprised of the following:



                                             Three Months
                                          Ended December 31,
(in thousands)                            2019          2018         $ Change       % Change
Professional contract services         $   27,423$  28,394           (971 )            (3 )
Industrial contract services                5,655         5,620             35               1
Total professional and industrial
contract services                          33,078        34,014           (936 )            (3 )

Direct hire placement services              4,479         4,529            (50 )            (1 )
Consolidated net revenues              $   37,557$  38,543           (986 )            (3 )



Contract staffing services contributed $33,078 or approximately 88% of consolidated revenue and direct hire placement services contributed $4,479, or approximately 12%, of consolidated revenue for the three-month period ended December 31, 2019. This compares to contract staffing services revenue of $34,014, or approximately 88%, of consolidated revenue and direct hire placement revenue of $4,529, or approximately 12%, of consolidated revenue for the three-month period ended December 31, 2018.




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The overall decrease in contract staffing services revenues of $936, or 3%, for the three months ended December 31, 2019 compared to the three months ended December 31, 2018 was primarily attributable to a lower number of work days during the fiscal quarter ended December 31, 2019 as compared with the fiscal quarter ended December 31, 2018. The lower number of net work days in the fiscal quarter ended December 31, 2019 was due to the Christmas and New Year's holidays falling mid-week and inclement weather in some portions of the country resulting in higher incidences of client closures, holidays taken and other ancillary time off taken. In addition, lower temporary workforce requirements and reorganization of a few key customers in the quarter ended December 31, 2019 contributed to the net reduction in revenues. Industrial contract services revenue grew by 1% on higher demand, despite experiencing these same conditions in addition to the negative effects of an auto industry strike on some of its clients.

Direct hire placement revenue for the three months ended December 31, 2019 decreased by $50, or approximately 1%, over the three months ended December 31, 2018. The Company believes demand for its direct hire services remains stable and strong and that the decrease in direct hire placement revenue can also be attributed to the holidays and weather conditions and related postponements in recruiting activities at some of its 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 three-month period ended December 31, 2019 decreased by approximately 3% to $24,962 compared to $25,812 for the three-month period ended December 31, 2018. The $850 overall decrease in cost of contract services for the three-month period ended December 31, 2019 compared to the three-month period ended December 31, 2018 was primarily attributable to and consistent with the corresponding decline in revenues, which is discussed further below.

Gross Profit percentage by service:

                                                       Three Months Ended
                                                 December 31,       December 31,
                                                     2019               2018
Professional contract services                            26.4 %             26.1 %
Industrial contract services                              15.6 %             13.9 %
Professional and industrial services combined             24.5 %             24.1 %

Direct hire placement services                           100.0 %            100.0 %
Combined gross profit margin %(1)                         33.5 %             33.0 %


____________

(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 December 31, 2019 was approximately 33.5% as compared with approximately 33.0% for the three-month period ended December 31, 2018.

In the professional contract staffing services segment, the gross margin (excluding direct placement services) was approximately 26.4% for three months ended December 31, 2019, which is 0.3% (30 basis points) higher than the gross margin for the three months ended December 31, 2018. This increase is primarily the result of increases in the amounts and mix of higher margin contract services business in IT end markets, including growth in several of the Company's higher end IT brands during the fiscal quarter ended December 31, 2019, as compared with the same quarter of the prior fiscal year.

The Company's industrial staffing services gross margin for the three-month period ended December 31, 2019 was approximately 15.6% versus approximately 13.9% for the three-month period ended December 31, 2018. The increase in industrial staffing services gross margin is due to an increase in the estimated amounts of return premiums the Company's light industrial business is eligible to receive under the Ohio Bureau of Workers' Compensation retrospectively-rated insurance program.




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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.



In addition to depreciation and amortization, which are broken out and reported separately in the consolidated statement of operations from other selling, general and administrative expenses (SG&A), the Company separately reports expenses incurred that are related to acquisition, integration and restructuring activities. These include expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, and other costs incurred related to acquisitions, including associated legal and professional costs. Management believes reporting these expenses separately from other SG&A provides useful information considering the Company's dual track growth strategy of internal (organic) growth and growth by acquisitions and when comparing and considering the Company's operating results and activities with other entities.

The Company's SG&A for the three-month period ended December 31, 2019 increased by approximately $1,128 as compared to the three-month period ended December 31, 2018. SG&A for the three-month period ended December 31, 2019, as a percentage of revenues was approximately 29% compared to approximately 25% for the three-month period ended December 31, 2018. The increase in SG&A expenses is primarily attributable to the benefit recognized for return premiums the Company was eligible to receive from Ohio Bureau of Workers' Compensation retrospectively-rated insurance program three-month period ended December 31, 2018; an increase in sales-related compensation, including increased incentive compensation intended to accelerate the Company's return to sustainable growth; and an increase in professional services fees incurred in connection with the Company's fiscal 2019 year end audit, tax compliance and SEC reporting.

Acquisition, Integration and Restructuring Expenses

The Company classifies and reports costs incurred related to acquisition, integration and restructuring activities separately from other SG&A within its operating expenses. These costs were $377 and $1,451 for the three-month periods ended December 31, 2019 and 2018, respectively. These costs include mainly expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, costs incurred related to acquisitions and associated legal and professional costs. The significant decline in these costs is the direct result of lessening activities in these areas.




Depreciation Expense



Depreciation expense was $79 for the three-month period ended December 31, 2019, which remained approximately level compared to the three-month period ended December 31, 2018.




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Amortization Expense



Amortization expense was $1,398 for the three-month period ended December 31, 2019, which remained approximately level compared to the three-month period ended December 31, 2018.



Loss from Operations


As the net result of the matters discussed regarding revenues and operating expenses above, income from operations decreased by approximately $192 for the three-month period ended December 31, 2019 compared to the three-month period ended December 31, 2018. The decrease is a function of a combination of factors discussed above, including the accelerated vesting of restricted stock to a former president, higher sales-related compensation, including increased incentive compensation intended to accelerate the Company's return to sustainable growth, and professional services fees incurred in connection with the Company's fiscal 2019 year end audit, tax compliance and SEC reporting.



Interest Expense


Interest expense for the three-month period ended December 31, 2019, increased by approximately $271 compared to the three-month period ended December 31, 2018. The increase in interest expense is attributable to an increase in the loan balances under the Credit Agreement for the three-month period ended December 31, 2019.




Provision for Income Taxes



The Company recognized a tax expense of approximately $171 for the three-month period ended December 31, 2019. Our effective tax rate for the three-month periods ended December 31, 2019 and 2018, is lower than the statutory tax rate primarily due to an increase in the deferred tax liability related to indefinite lived assets. Other than the deferred tax liability relating to indefinite lived asset, the Company is maintaining a valuation allowance against the remaining net DTA position.



Net Loss


As the net result of the matters discussed regarding revenues and expenses above, the Company incurred net losses for the three-month periods ended December 31, 2019 and 2018 of $3,563 and $3,452, respectively. The most significant drivers of the Company's net loss continue to be the interest costs associated with debt and the amortization expenses associated with the Company identifiable intangible assets.

The Company continues 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 strategic plan contains both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing.

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 the Credit Agreement. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to the Company's contract and permanent employees, operating costs and expenses, payment of taxes, payment of interest and principal under its debit agreements, and capital expenditures.




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The Company experienced significant net losses for its most recent fiscal years ended September 30, 2019 and 2018, and for the three-month periods ended December 31, 2019 and 2018, and which also have negatively impacted the Company's ability to generate liquidity. Management believes the Company can generate adequate liquidity to meet its obligations for the foreseeable future and has taken definitive actions to improve operations, reduce costs and improve profitability and liquidity, and position the Company for future growth. In addition, management has successfully negotiated waivers to the Credit Agreement with the Company's current senior lenders, when needed, and six amendments to date as management works to improve the Company's operations and to refinance and restructure its current debt and equity capitalization. However, there can be no assurance that the Company will not fall into non-compliance with its loan covenants in the future or that its Lenders will continue to provide waivers or amendments to the Company in the event of future non-compliance with debt covenants or other possible events of default that could happen. There also can be no assurance that the Company will be successful in its efforts to refinance and restructure the Company's debt and equity capitalization under reasonable terms or at all, or that it will generate adequate liquidity to fund operations and meet its debt service obligations in the future.




The following table sets forth certain consolidated statements of cash flows
data:



                                                            Three Months Ended
                                                     December 31,        December 31,
(in thousands)                                           2019                2018
Cash flows (used in) provided by operating
activities                                          $       (1,450 )    $          766
Cash flows used in investing activities             $          (58 )    $          (36 )
Cash flows used in financing activities             $         (408 )    $         (443 )




As of December 31, 2019, the Company had $2,139 of cash, which was a decrease of approximately $1,916 from approximately $4,055 as of September 30, 2019. As of December 31, 2019, the Company had working capital of approximately $10,252 compared to approximately $8,534 of working capital as of September 30, 2019.

Net cash (used in) provided by operating activities for the three-month periods ended December 31, 2019 and 2018 was approximately $(1,450) and $766, respectively. The negative operating cash flow in the three-month period ended December 31, 2019 is attributable to negative income (lower operating income excluding depreciation and amortization) from operations and other net changes in working capital.

The primary uses of cash for investing activities were for the acquisition of property and equipment in the three-month periods ended December 31, 2019 and 2018.

Cash flow used in financing activities for the three-month periods ended December 31, 2019 and 2018 was primarily for payments on our term loan offset by proceeds from advances taken on the revolving credit facility.

Minimum debt service payments (principal) for the twelve-month period commencing after the close of business on December 31, 2019, are approximately $2,000. 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 December 31, 2019, are approximately $1,891.

Revolving Credit Facility and Term Loan

After the close of business On March 31, 2017, the Company and its subsidiaries, as borrowers, entered into a Revolving Credit, Term Loan and Security Agreement (the "Credit Agreement") with PNC Bank National Association ("PNC"), and certain investment funds managed by MGG Investment Group LP ("MGG"). Initial funds were distributed on April 3, 2017, the closing date to repay the existing indebtedness, pay fees and expenses relating to the Credit Agreement, and to pay a portion of the purchase price for the acquisition of the SNI Companies.

Under the terms of the Credit Agreement, the Company may borrow up to $73,800 consisting of a four-year term loan in the principal amount of $48,800 and revolving loans in a maximum amount up to the lesser of (i) $25,000 or (ii) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of the Company's eligible accounts receivable, as described in the Credit Agreement. The loans under the Credit Agreement, as amended, mature on June 30, 2021.




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On the closing date of the Credit Agreement, the Company borrowed $48,800 from term loans and borrowed approximately $7,500 from the Revolving Credit Facility for a total of $56,200, which was used by the Company to repay existing indebtedness, to pay fees and expenses relating to the Credit Agreement, and to pay a portion of the purchase price for the acquisition of all of the outstanding stock of SNI Holdco Inc. pursuant to the Merger Agreement. Amounts borrowed under the Credit Agreement also may be used by the Company to partially fund capital expenditures, provide for on-going working capital needs and general corporate needs, and to fund future acquisitions subject to certain customary conditions of the lenders.

The Credit Agreement contains certain covenants applicable to both the Revolving Credit Facility and Term Loan. In addition to the financial covenants, the Credit Agreement includes other restrictive covenants. The Credit Agreement permits capital expenditures up to a certain level and contains customary default and acceleration provisions. The Credit Agreement also restricts, above certain levels, acquisitions, incurrence of additional indebtedness, and payment of dividends.

On May 15, 2018, the Company obtained a temporary waiver from its lenders for the missed financial covenants at March 31, 2018. On August 10, 2018, the Company and its subsidiaries, as Borrowers, entered into a third amendment and waiver (the "Third Amendment and Waiver") to the Credit Agreement. Pursuant to the Third Amendment and Waiver, the Lenders agreed to modify the definition of EBITDA in the Credit Agreement to allow for the recognition and exclusion of certain additional acquisition, integration and restructuring expenses not previously specified and to provide a temporary waiver for any Defaults and Events of Default under the Credit Agreement that have solely arisen by reason of the Company failing to comply with the financial covenants of the Credit Agreement for the period ending June 30, 2018.

On December 27, 2018, the Company and its subsidiaries, as Borrowers, entered into a fourth amendment and waiver (the "Fourth Amendment and Waiver") to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the "Credit Agreement"). Under the Fourth Amendment and Waiver, the Company and its Lenders negotiated and agreed to a temporary waiver for non-compliance with the financial covenants under the Credit Agreement as of September 30, 2018, and amendments to the financial covenants and to the remaining scheduled principal payments.

On May 15, 2019, the Company and its subsidiaries, as Borrowers, entered into a fifth amendment and waiver (the "Fifth Amendment") to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the "Credit Agreement"). Under the Fifth Amendment, the Company and its Lenders have negotiated and agreed to a waiver for non-compliance with the financial covenants under the Credit Agreement as of March 31, 2019, and amendments to the financial covenants and to the remaining scheduled principal payments.

Following the Fifth Amendment, the Company has met its financial covenants, as amended, for the quarters ended June 30, 2019, September 30, 2019 and December 31, 2019.

On February 12, 2020, the Company and its subsidiaries, as Borrowers, entered into a sixth amendment (the "Sixth Amendment") to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (the "Credit Agreement"). Under the Sixth Amendment, the Company and its Lenders have negotiated and agreed to amendments to the remaining scheduled principal payments and to the maturity date of the Credit Agreement. The maturity date was extended to June 30, 2021.

Subordinated Debt - Convertible and Non-Convertible

10% Convertible Subordinated Note

On October 2, 2015, the Company issued and sold a Subordinated Note in the aggregate principal amount of $4,185 to JAX Legacy - Investment 1, LLC ("JAX") pursuant to a Subscription Agreement dated October 2, 2015 between the Company and Jax. On April 3, 2017, the Company and JAX amended and restated the Subordinated Note in its entirety in the form of the 10% Convertible Subordinated Note (the "10% Note") in the aggregate principal amount of $4,185. The 10% Note matures on October 3, 2021. The 10% Note is convertible into shares of the Company's Common Stock at a conversion price equal to $5.83 per share (subject to adjustment as provided in the 10% Note upon any stock dividend, stock combination or stock split or upon the consummation of certain fundamental transactions) (the "Conversion Price"). The 10% Note is subordinated in payment to the obligations of the Company to the lending parties to the Credit Agreement, pursuant to a Subordination and Inter-creditor Agreements, dated as of March 31, 2017 by and among the Company, the Borrowers, the Agent and JAX. The 10% Note issued to JAX is not registered under the Securities Act of 1933, as amended (the "Securities Act"). JAX is an accredited investor. The issuance of the 10% Note to JAX is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act.




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Subordinated Promissory Note



On January 20, 2017, the Company entered into Addendum No. 1 (the "Addendum") to the Stock Purchase Agreement dated as of January 1, 2016 (the "Paladin Agreement") by and among the Company and Enoch S. Timothy and Dorothy Timothy (collectively, the "Sellers"). Pursuant to the terms of the Addendum, the Company and the Sellers agreed (a) that the conditions to the "Earnouts" (as defined in the Paladin Agreement) had been satisfied or waived and (b) that the amounts payable to the Sellers in connection with the Earnouts shall be amended and restructured as follows: (i) the Company paid $250 in cash to the Sellers prior to January 31, 2017 (the "Earnout Cash Payment") and (ii) the Company issued to the Sellers a subordinated promissory note in the principal amount of $1,000 (the "Subordinated Note"). The Subordinated Note originally bore interest at the rate of 5.5% per annum. Interest on the Subordinated Note is payable monthly and principal can only be paid in stock until the term loan and Revolving Credit Facility are repaid. The Subordinated Note may be prepaid without penalty. The principal of and interest on the Subordinated Note may be paid, at the option of the Company, either in cash or in shares of common stock of the Company or in any combination of cash and common stock. The Sellers have agreed that all payments and obligations under the Subordinated Note shall be subordinate and junior in right of payment to any "Senior Indebtedness" (as defined in the Paladin Agreement) now or hereafter existing to "Senior Lenders" (current or future) (as defined in the Paladin Agreement).

On February 8, 2020, the Company and its subsidiaries, as Borrowers, entered into a first amendment (the "First Amendment") to the Subordinated Note, dated as of January 20, 2017 (the "Subordinated Note"). Under the First Amendment, the Company and its lender have negotiated and agreed to amend the Subordinated Note to change the maturity date to January 20, 2022.

9.5% Convertible Subordinated Notes

On April 3, 2017, the Company issued and paid to certain SNIH Stockholders as part of the SNIH acquisition an aggregate of $12,500 in aggregate principal amount of its 9.5% Notes. The 9.5% Notes mature on October 3, 2021 (the "Maturity Date"). The 9.5% Notes are convertible into shares of the Company's Common Stock at a conversion price equal to $5.83 per share. Interest on the 9.5% Notes accrues at the rate of 9.5% per annum and shall be paid quarterly in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2017, on each conversion date with respect to the 9.5% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an "Interest Payment Date"). At the option of the Company, interest may be paid on an Interest Payment Date either in cash or in shares of Common Stock of the Company, which Common Stock shall be valued based on the terms of the agreement, subject to certain limitations defined in the loan agreement. Each of the 9.5% Notes is subordinated in payment to the obligations of the Company to the lending parties to the Credit Agreement, pursuant to those certain Subordination and Inter-creditor Agreements, each dated as of March 31, 2017 by and among the Company, the other borrowers under the Credit Agreement, the Agent under the Credit Agreement and each of the holders of the 9.5% Notes.

8% Convertible Subordinated Notes to Related Parties

On May 15, 2019, the Company issued and sold to members of its executive management and Board of Directors (the "Investors") $2,000 in aggregate principal amount of its 8% Notes. The 8% Notes mature on October 3, 2021 (the "Maturity Date"). The 8% Notes are convertible into shares of the Company's Series C 8% Cumulative Convertible Preferred Stock ("Series C Preferred Stock") at a conversion price equal to $1.00 per share (subject to adjustment as provided in the 8% Notes upon any stock dividend, stock combination or stock split or upon the consummation of certain fundamental transactions) (the "Conversion Price"). Interest on the 8% Notes accrues at the rate of 8% per annum and shall be paid quarterly in non-cash payments-in-kind ("PIK") in arrears on June 30, September 30, December 31 and March 31, beginning on June 30, 2019, on each conversion date with respect to the 8% Notes (as to that principal amount then being converted), and on the Maturity Date (each such date, an "Interest Payment Date"). Interest shall be paid on an Interest Payment Date in shares of Series C Preferred Stock of the Company, which Series C Preferred Stock shall be valued at its liquidation value. All or any portion of the 8% Notes may be redeemed by the Company for cash at any time. The redemption price shall be an amount equal to 100% of the then outstanding principal amount of the 8% Notes being redeemed, plus accrued and unpaid PIK interest thereon.




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The Company may, at its option, prepay any portion of the principal amount of the 8% Notes without the prior consent of the holders thereof; provided, however, that any prepayments of the 8% Notes shall be made on a pro rata basis to all holders of 8% Notes based on the aggregate principal amount of 8% Notes held by such holders. The Company shall be required to prepay the 8% Notes together with accrued and unpaid PIK interest thereon upon the consummation by the Company of any Change of Control. For purposes of the 8% Notes, a Change of Control of the Company shall mean any of the following: (A) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions or (B) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any person or entity together with their affiliates, becomes the beneficial owner, directly or indirectly, of more than 50% of the Common Stock of the Company. Each of the 8% Notes is subordinated in payment to the obligations of the Company to the lenders parties to that certain Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017, as amended, by and among the Company, the Company's subsidiaries named as borrowers therein (collectively with the Company, the "Borrowers"), the senior lenders named therein and MGG Investment Group LP, as administrative agent and collateral agent (the "Agent") for the senior lenders (the "Senior Credit Agreement"), pursuant to those certain Subordination and Intercreditor Agreements, each dated as of May 15, 2019 by and among the Company, the Borrowers, the Agent and each of the holders of the 8% Notes.

Series B Convertible Preferred Stock

On April 3, 2017, the Company agreed to issue to certain SNIH Stockholders upon receipt of duly executed letters of transmittal as part of the SNIH acquisition, an aggregate of approximately 5,926 shares of its Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock has a liquidation preference equal to $4.86 per share and ranks senior to all "Junior Securities" (including the Company's Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. In the event that the Company declares or pays a dividend or distribution on its Common Stock, whether such dividend or distribution is payable in cash, securities or other property, including the purchase or redemption by the Company or any of its subsidiaries of shares of Common Stock for cash, securities or property, the Company is required to simultaneously declare and pay a dividend on the Series B Convertible Preferred Stock on a pro rata basis with the Common Stock determined on an as-converted basis assuming all Shares had been converted as of immediately prior to the record date of the applicable dividend or distribution. On April 3, 2017, the Company filed a Statement of Resolution Establishing its Series B Convertible Preferred Stock with the State of Illinois. (the "Resolution Establishing Series"). Except as set forth in the Resolution Establishing Series, the holders of the Series B Convertible Preferred Stock have no voting rights. Pursuant to the Resolution Establishing Series, without the prior written consent of holders of not less than a majority of the then total outstanding Shares of Series B Convertible Preferred Stock, voting separately as a single class, the Company shall not create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company) that ranks pari passu with or superior to the Series B Convertible Preferred Stock in relative rights, preferences or privileges (including with respect to dividends, liquidation or voting). Each share of Series B Convertible Preferred Stock is convertible at the option of the holder thereof into one share of Common Stock at an initial conversion price equal to $4.86 per share, each as subject to adjustment in the event of stock splits, stock combinations, capital reorganizations, reclassifications, consolidations, mergers or sales, as set forth in the Resolution Establishing Series.

None of the shares of Series B Preferred Stock issued to the SNIH Stockholders are registered under the Securities Act. Each of the SNIH Stockholders who received shares of Series B Preferred Stock is an accredited investor. The issuance of the shares of Series B Preferred Stock to such SNIH Stockholders is exempt from the registration requirements of the Act in reliance on an exemption from registration provided by Section 4(2) of the Act.

During the three months ended December 31, 2018, the Company issued 250 shares of common stock for the conversion of approximately 250 shares of Series B Convertible Preferred Stock.




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Series C Convertible Preferred Stock

On May 17, 2019, the Company filed a Statement of Resolution Establishing its Series C Preferred Stock with the State of Illinois. (the Resolution Establishing Series"). Pursuant to the Resolution Establishing Series, the Company designated 3,000 of its authorized preferred stock as "Series C 8% Cumulative Convertible Preferred Stock", without par value. The Series C Preferred Stock has a Liquidation Value equal to $1.00 per share and ranks pari passu with the Company's Series B Convertible Preferred Stock ("Series B Preferred Stock") and senior to all "Junior Securities" (including the Company's Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. Holders of shares of Series C Preferred Stock shall be entitled to receive an annual non-cash ("PIK") dividend of 8% of the Liquidation Value per share. Such dividend shall be payable quarterly on June 30, September 30, December 31 and March 31 of each year commencing on June 30, 2019, in preference to any dividend paid on or declared and set aside for the Series B Preferred Stock or any Junior Securities and shall be paid-in-kind in additional shares of Series C Preferred Stock. Except as set forth in the Resolution Establishing Series or as may be required by Illinois law, the holders of the Series C Preferred Stock have no voting rights. Pursuant to the Resolution Establishing Series, without the prior written consent of holders of not less than a majority of the then total outstanding Shares of Series C Preferred Stock, voting separately as a single class, the Company shall not create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company) that ranks superior to the Series C Preferred Stock in relative rights, preferences or privileges (including with respect to dividends, liquidation or voting). Each share of Series C Preferred Stock shall be convertible at the option of the holder thereof into one share of Common Stock at an initial conversion price equal to $1.00 per share, each as subject to adjustment in the event of stock splits, stock combinations, capital reorganizations, reclassifications, consolidations, mergers or sales, as set forth in the Resolution Establishing Series.

During the three months ended December 31, 2019 and 2018, the Company issued approximately 42 shares and 0 shares of Series C Preferred Stock to Investors related to interest of $42 and $0 on the 8% Notes, respectively.

Off-Balance Sheet Arrangements

As of December 31, 2019, 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.

© Edgar Online, source Glimpses

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05/15GEE : Management's Discussion and Analysis of Financial Condition and Results of..
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05/11GEE GROUP INC. : Entry into a Material Definitive Agreement, Creation of a Direc..
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05/04GEE GROUP INC. : Entry into a Material Definitive Agreement, Creation of a Direc..
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04/03GEE GROUP INC. : Change in Directors or Principal Officers, Financial Statements..
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02/15GEE GROUP INC. : Results of Operations and Financial Condition, Financial Statem..
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02/14GEE : Announces Results for the Fiscal 2020 First Quarter
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02/13GEE : Management's Discussion and Analysis of Financial Condition and Results of..
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2019GEE GROUP INC. : Results of Operations and Financial Condition, Financial Statem..
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2019GEE : Announces Fiscal Year 2019 and Fourth Quarter Results
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Managers
NameTitle
Derek E. Dewan Chairman & Chief Executive Officer
Kim D. Thorpe Chief Financial Officer & Senior Vice President
Peter J. Tanous Independent Director
Bill M. Isaac Independent Director
Darla Dee Moore Independent Director
Sector and Competitors
1st jan.Capitalization (M$)
GEE GROUP INC223.08%9
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