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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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05/15/2020 | 04:16pm 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 March 31, 2020, 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 March 31, 2020 Compared to the Three Months Ended March 31, 2019




Net Revenues



Consolidated net revenues are comprised of the following:



                                               Three Months
                                              Ended March 31,
(in thousands)                              2020          2019         Change         Change
Professional contract services            $  25,794$  26,732$    (938 )           -4 %
Industrial contract services                  4,471         5,095          (624 )          -12 %
Total professional and industrial
contract services                            30,265        31,827        (1,562 )           -5 %

Direct hire placement services                4,416         4,350            66              2 %
Consolidated net revenues                 $  34,681$  36,177$  (1,496 )           -4 %



Contract staffing services contributed $30,265 or approximately 87% of consolidated revenue and direct hire placement services contributed $4,416, or approximately 13%, of consolidated revenue for the three-month period ended March 31, 2020. This compares to contract staffing services revenue of $31,827, or approximately 88%, of consolidated revenue and direct hire placement revenue of $4,350, or approximately 12%, of consolidated revenue for the three-month period ended March 31, 2019.




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The overall decrease in contract staffing services revenues of $1,562, or 5%, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily attributable to coronavirus outbreak that resulted in client closures, postponements in recruiting activities at some clients, and layoffs. Reduction in temporary workforce requirements and reorganization of a few key customers in the quarter ended March 31, 2020 contributed to the net reduction in revenues. Additionally, jobseekers are more hesitant to enter the process due to uncertain times and concerns over the face-to-face nature of the recruiting process. We are striving to leverage our digital capabilities to ensure we continue to recruit top talent for our clients. In addition to the Coronavirus Pandemic-related weakness in demand for our services beginning in approximately the last half of the month of March 2020, our professional contract services segment finance, accounting and office end markets and our industrial contract services segment experienced some contraction in customer orders in the March 2020 quarter as compared with the March 2019 quarter, which we estimate accounted for approximately $2,218 and $624, respectively, of the decline. Offsetting these declines were increases in the Company's IT professional services end markets; the largest component of our professional contract services segment, which increased $1,279 in the March 2020 quarter as compared with March 2019.

Direct hire placement revenue for the three months ended March 31, 2020 increased by $66, or approximately 2%, over the three months ended March 31, 2019.

Despite the relative performance of the contract and direct hire revenues in the March quarters year over year, since the Coronavirus Pandemic outbreak in approximately mid-March 2020, the Company has seen demand for its direct hire services drop significantly.



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 months ended March 31, 2020 decreased by approximately 7% to $22,767 compared to $24,459 for the three months ended March 31, 2019. The $1,692 overall decrease in cost of contract services for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 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 March 31,
                                                  2020        2019
Professional contract services                      26.6 %      25.0 %
Industrial contract services                        14.1 %      13.6 %

Professional and industrial services combined 24.8 % 23.2 %


Direct hire placement services                     100.0 %     100.0 %
Combined gross profit margin % (1)                  34.4 %      32.4 %


________

(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 March 31, 2020 was approximately 34.4% as compared with approximately 32.4% for the three-month period ended March 31, 2019.

In the professional contract staffing services segment, the gross margin (excluding direct placement services) was approximately 26.6% for three-month period ended March 31, 2020 compared to approximately 25.0% for the three-months period ended March 31, 2019. 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 March 31, 2020, as compared with the same quarter of the prior fiscal year.




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The Company's industrial staffing services gross margin for the three-month period ended March 31, 2020 was approximately 14.1% versus approximately 13.6% for the three-month period ended March 31, 2019. 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.

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 three-month period ended March 31, 2020 increased by approximately $1,759 as compared to the three-month period ended March 31, 2019. SG&A for the three-month period ended March 31, 2020, as a percentage of revenues was approximately 37% compared to approximately 31% for the three-month period ended March 31, 2019. The increase in SG&A expenses is primarily attributable to increases made in our allowance for doubtful accounts. A significant portion of the increase is attributable to a single customer of our industrial services segment who filed for bankruptcy protection during March 2020. Approximately $537 of the Company's SG&A incurred in the quarter ended March 31, 2020, represents personnel-related costs associated with former employees laid off, effective March 25, 2020, in response to the downturn associated with the coronavirus outbreak.

SG&A also includes certain costs and expenses incurred related to acquisition, integration and restructuring activities, including corporate legal and general expenses associated with capital markets activities and not directly associated with core business operations. These costs were $776 and $592 for the three-month periods ended March 31, 2020 and 2019, respectively, and include mainly expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, costs incurred related to acquisitions and associated legal and professional costs. The net increase in these costs for the three-month period ended March 31, 2020 compared to the three-month period ended March 31, 2019 is primarily attributable to costs incurred to align operational needs related to coronavirus outbreak.



Depreciation Expense


Depreciation expense was $69 for the three-month period ended March 31, 2020, which remained approximately level compared to the three-month period ended March 31, 2019.




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Amortization Expense



Amortization expense was $1,398 for the three-month period ended March 31, 2020, which remained approximately level compared to the three-month period ended March 31, 2019.




Loss from Operations



As the net result of the matters discussed regarding revenues and operating expenses above, loss from operations increased by approximately $1,533 for the three-month period ended March 31, 2020 compared to the three-month period ended March 31, 2019. The increase is a function of a combination of factors discussed above, including the increase in costs incurred to align operational needs related to coronavirus outbreak, and recognition of provision for doubtful accounts related to a key customer who filed for a bankruptcy.



Interest Expense


Interest expense was approximately $3,065 for the three-month period ended March 31, 2020, which remained approximately level compared to the three-month period ended March 31, 2019.




Provision for Income Taxes



The Company recognized a tax expense of approximately $10 for the three-month period ended March 31, 2020. Our effective tax rate for the three-month periods ended March 31, 2020 and 2019, 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 March 31, 2020 and 2019 of $5,428 and $3,890, respectively. In addition to the items discussed above, other significant drivers of the Company's net loss have been 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 strategy entails both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing.

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 and continue to be felt across all businesses, with the most severe impacts being felt in the commercial (light industrial) and finance, accounting and office clerical ("FA&O) end markets within the professional segment.

On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment, dated as of April 28, 2020 (the "Seventh Amendment"), to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). The Seventh Amendment represents the most significant loan modification of the Company's Credit Agreement since inception.




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On May 5, 2020 the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program ("PPP") and received net funds totaling $19,926 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP. On May 5, 2020, the Company also entered into Eighth Amendment, dated as of May 5, 2020 (the "Eighth Amendment") to the Credit Agreement. The Eighth Amendment served as the conforming amendment under the Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement. The CARES Act PPP relief funds are the only source of financing available to our companies and businesses to help withstand the significant downturn and disruptions we are now undergoing and are absolutely critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to produce and meet our foreseeable liquidity requirements in the midst of this continuing worldwide pandemic.

Management believes that the execution of the amendments to its senior Credit Agreement and the CARES Act PPP loans and related funding will provide significant needed relief to the otherwise negative effects of the present Coronavirus Pandemic.

Six Months Ended March 31, 2020 Compared to the Six Months Ended March 31, 2019



Net Revenues


Consolidated net revenues are comprised of the following:



                                               Six Months
                                             Ended March 31,
(in thousands)                             2020          2019         $ Change        Change
Professional contract services           $  53,216$  55,125         (1,909 )           -3 %
Industrial contract services                10,126        10,715           (589 )           -5 %
Total professional and industrial
contract services                           63,342        65,840         (2,498 )           -4 %

Direct hire placement services               8,895         8,880             15              0 %
Consolidated net revenues                $  72,237$  74,720         (2,483 )           -3 %



Contract staffing services contributed $63,342 or approximately 88% of consolidated revenue and direct hire placement services contributed $8,895, or approximately 12%, of consolidated revenue for the six-month period ended March 31, 2020. This compares to contract staffing services revenue of $65,840, or approximately 88%, of consolidated revenue and direct hire placement revenue of $8,880, or approximately 12%, of consolidated revenue for the six-month period ended March 31, 2019.

The overall decrease in contract staffing services revenues of $2,498, or 4%, for the six-month period ended March 31, 2020 compared to the six-month period ended March 31, 2019 was primarily attributable to coronavirus outbreak that resulted in client closures, postponements in recruiting activities at some clients, and layoffs. Reduction in temporary workforce requirements and reorganization of a few key customers in the quarter ended March 31, 2020 contributed to the net reduction in revenues. Additionally, jobseekers are more hesitant to enter the process due to uncertain times and concerns over the face-to-face nature of the recruiting process. We are striving to leverage our digital capabilities to ensure we continue to recruit top talent for our clients. In addition to the Coronavirus Pandemic-related weakness in demand for our services beginning in approximately the last half of the month of March 2020, our professional contract services segment finance, accounting and office end markets and our industrial contract services segment experienced some contraction in customer orders in the first half of our 2020 fiscal year through March 31, 2020, as compared with the first half of our 2019 fiscal year through March 31, 2019, which we estimate accounted for approximately $4,658 and $589 respectively, of the decline. Offsetting these declines were increases in the Company's IT professional services end markets; the largest component of our professional contract services segment, which increased $2,748 in the first half of our 2020 fiscal year through March 31, 2020, as compared with the first half of our 2019 fiscal year through March 31, 2019.




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Direct hire placement revenue for the six-month period ended March 31, 2020 remained consistent with the six-month period ended March 31, 2019. Despite the consistent performance of the direct hire revenues in the March quarters year over year, since the Coronavirus Pandemic outbreak in approximately mid-March 2020, the Company has seen demand for its direct hire services drop significantly.




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 six-month period ended March 31, 2020 decreased by approximately 5% to $47,729 compared to $50,271 for the six-month period ended March 31, 2019. The $2,542 overall decrease in cost of contract services for the six-month period ended March 31, 2020 compared to the six-month period ended March 31, 2019 was primarily attributable to and consistent with the corresponding decline in revenues, which is discussed further below.

Gross Profit percentage by service:

                                                     Six Months
                                                  Ended March 31,
                                                  2020        2019
Professional contract services                      26.5 %      25.6 %
Industrial contract services                        15.0 %      13.7 %

Professional and industrial services combined 24.7 % 23.6 %


Direct hire placement services                     100.0 %     100.0 %
Combined gross profit margin % (1)                  33.9 %      32.7 %


________

(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 six-month period ended March 31, 2020 was approximately 33.9% as compared with approximately 32.7% for the six-month period ended March 31, 2019.

In the professional contract staffing services segment, the gross margin (excluding direct placement services) was approximately 26.5% for six-month period ended March 31, 2020. The 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 six-month period ended March 31, 2020, as compared with the same period of the prior fiscal year.

The Company's industrial staffing services gross margin for the six-month period ended March 31, 2020 was approximately 15.0% versus approximately 13.7% for the six-month period ended March 31, 2019. 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.



The Company's SG&A for the six-month period ended March 31, 2020 increased by approximately $1,813 as compared to the six-month period ended March 31, 2019. SG&A for the six-month period ended March 31, 2020, as a percentage of revenues was approximately 33% compared to approximately 30% for the six-month period ended March 31, 2019. The increase in SG&A expenses is primarily attributable to a recognition of provision for doubtful accounts related to a key customer who filed for a bankruptcy protection during March 2020. Approximately $1,057 of the Company's SG&A incurred in the six months ended March 31, 2020, represents personnel-related costs associated with former employees laid off, effective March 25, 2020, in response to the downturn associated with the coronavirus outbreak.

SG&A also includes certain costs and expenses incurred related to acquisition, integration and restructuring activities, including corporate legal and general expenses associated with capital markets activities and not directly associated with core business operations. These costs were $633 and $1,751 for the six-month periods ended March 31, 2020 and 2019, respectively, and include mainly expenses associated with former closed and consolidated locations, personnel costs associated with eliminated positions, costs incurred related to acquisitions and associated legal and professional costs. The decline of approximately $1,118 of these costs, is primarily the result of lessening acquisition, integration and restructuring activities in the first half of our 2020 fiscal year as compared with the first half of our 2019 fiscal year.



Depreciation Expense


Depreciation expense was $148 for the six-month period ended March 31, 2020, which remained approximately level compared to the six-month period ended March 31, 2019.




Amortization Expense



Amortization expense was $2,795 for the six-month period ended March 31, 2020, which remained approximately level compared to the six-month period ended March 31, 2019.




Loss from Operations



As the net result of the matters discussed regarding revenues and operating expenses above, income from operations decreased by approximately $1,723 for the six-month period ended March 31, 2020 compared to the six-month period ended March 31, 2019. The decrease is a function of a combination of factors discussed above, mainly due to recognition of provision for doubtful accounts related to a key customer who filed for a bankruptcy.




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Interest Expense


Interest expense for the six-month period ended March 31, 2020, increased by approximately $251 compared to the six-month period ended March 31, 2019. The increase in interest expense is attributable to an increase in the loan balances under the Credit Agreement for the six-month period ended March 31, 2019.

Provision for Income Taxes

The Company recognized a tax expense of approximately $181 for the six-month period ended March 31, 2020. Our effective tax rate for the six-month periods ended March 31, 2020 and 2019, 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 six-month periods ended March 31, 2020 and 2019 of $8,991 and $7,342, respectively. In addition to the items discussed above, other significant drivers of the Company's net loss have been 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.

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 and continue to be felt across all businesses, with the most severe impacts being felt in the commercial (light industrial) and finance, accounting and office clerical ("FA&O) end markets within the professional segment.

On April 28, 2020, the Company and its subsidiaries entered into Seventh Amendment, dated as of April 28, 2020 (the "Seventh Amendment"), to the Revolving Credit, Term Loan and Security Agreement, dated as of March 31, 2017 (as amended, amended and restated, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). The Seventh Amendment represents the most significant loan modification of the Company's Credit Agreement since inception.

On May 5, 2020 the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program ("PPP") and received net funds totaling $19,926 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP. On May 5, 2020, the Company also entered into Eighth Amendment, dated as of May 5, 2020 (the "Eighth Amendment") to the Credit Agreement. The Eighth Amendment served as the conforming amendment under the Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement. The CARES Act PPP relief funds are the only source of financing available to our companies and businesses to help withstand the significant downturn and disruptions we are now undergoing and are absolutely critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to produce and meet our foreseeable liquidity requirements in the midst of this continuing worldwide pandemic.

Management believes that the execution of the amendments to its senior Credit Agreement and the CARES Act PPP loans and related funding will provide significant needed relief to the otherwise negative effects of the present Coronavirus Pandemic.




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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.




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



                                                             Six Months
                                                          Ended March 31,
(in thousands)                                            2020         2019

Cash flows (used in) provided by operating activities $ (2,066 )$ 227 Cash flows used in investing activities

                 $     (83 )$  (83 )

Cash flows provided by (used in) financing activities $ 473$ (596 )

As of March 31, 2020, the Company had $2,379 of cash, which was a decrease of approximately $1,676 from approximately $4,055 as of September 30, 2019. As of March 31, 2020, the Company had working capital of approximately $9,517 compared to approximately $8,534 of working capital as of September 30, 2019.

Net cash (used in) provided by operating activities for the six-month periods ended March 31, 2020 and 2019 was approximately $(2,066) and $227, respectively. The negative operating cash flow in the six-month period ended March 31, 2020 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 six-month periods ended March 31, 2020 and 2019.

Cash flow provided by (used in) financing activities for the six-month periods ended March 31, 2020 and 2019 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 March 31, 2020, are approximately $0. 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 March 31, 2020, are approximately $1,921.

The Company experienced significant net losses for the six-month periods ended March 31, 2020 and 2019, and for its most recent fiscal years ended September 30, 2019 and 2018, which also have 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. As a result, the Company has begun to see its operations and business stabilize. Effective April 28, 2020, the Company successfully negotiated and entered into the Seventh Amendment to the Credit Agreement with its senior lenders. The Seventh Amendment (as defined below) is the most significant modification of the Company's senior credit facilities since inception and provides several important concessions and features, including extending the maturity by two years to June 30, 2023, and adjusting (reducing) cash debt service and thereby improving the Company's ability to generate liquidity.




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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 and continue to be felt across all businesses, with the most severe impacts being felt in the commercial (light industrial) and finance, accounting and office clerical ("FA&O) end markets within the professional segment.

On May 5, 2020 the Company and its subsidiaries entered into nine (9) unsecured promissory notes payable under CARES Act Payroll Protection Program ("PPP") and received net funds totaling $19,926 in order to obtain needed relief funds for allowable expenses under the CARES Act PPP. On May 5, 2020, the Company also entered into Eighth Amendment, dated as of May 5, 2020 (the "Eighth Amendment") to the Credit Agreement. The Eighth Amendment served as the conforming amendment under the Credit Agreement to enable the Company and its subsidiaries to enter into the PPP loans and additional permitted indebtedness in compliance with the Credit Agreement. The CARES Act PPP relief funds are the only source of financing available to our companies and businesses to help withstand the significant downturn and disruptions we are now undergoing and are absolutely critical to our ability to maintain operations, including the employment of our temporary and full-time employees, in order to produce and meet our foreseeable liquidity requirements in the midst of this continuing worldwide pandemic.

Management believes that the Company can generate adequate liquidity to meet its obligations for the foreseeable future assuming the negative economic effects of COVID-19 do not worsen, and that economic recovery occurs.

Off-Balance Sheet Arrangements

As of March 31, 2020, 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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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
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