Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

GEE Group Inc. and its wholly owned material operating subsidiaries, Access Data Consulting Corporation, Agile Resources, Inc., Hornet Staffing, Inc., Paladin Consulting, Inc., Scribe Solutions, Inc., SNI Companies, Inc., and Triad Personnel Services, Inc. are providers of permanent and temporary professional staffing and placement services in and near several major U.S. cities. We specialize in the placement of information technology, accounting, finance, office, and engineering professionals for direct hire and contract staffing for our clients, and data entry assistants (medical scribes) who specialize in electronic medical records (EMR) services for emergency departments, specialty physician practices and clinics. GEE Group Inc.'s former wholly owned subsidiaries, BMCH, Inc. and Triad Logistics, Inc., provided temporary staffing services for our industrial clients until their operations were discontinued and assets were sold on June 2, 2025. Effective January 1, 2026, the Company transitioned the medical scribe business formerly done by Scribe Solutions under SNI's Staffing Now division.

The acquisitions of Scribe Solutions, Inc., a Florida corporation ("Scribe") in April 2015, Agile Resources, Inc., a Georgia corporation ("Agile") in July 2015, Access Data Consulting Corporation, a Colorado corporation ("Access") in October 2015, Paladin Consulting Inc. ("Paladin") in January 2016, and SNI Companies, Inc., a Delaware corporation ("SNI") in April 2017, expanded our geographical footprint within the professional placement and contract staffing verticals or end markets of information technology, accounting, finance, office, engineering professionals, and medical scribes. The acquisition of Hornet Staffing, Inc., a Georgia corporation, ("Hornet") in January 2025 broadened our footprint in the professional contract staffing market with a specialty in working with managed service providers ("MSP") and vendor management systems ("VMS") which streamline outsourced labor for large clients.

We market our 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 Hornet Staffing. As of March 31, 2026, we operated from locations in ten (10) states, including fourteen (14) branch offices in downtown or suburban areas of major U.S. cities and five (5) additional U.S. locations utilizing local staff members working remotely. We have offices or serve markets remotely, as follows; (i) one office in each of Connecticut, Georgia, New Jersey and Texas; (ii) two offices each in Massachusetts, Colorado, and Ohio; (v) four offices in Florida; and (vi) , and one remote local market presence in each of Florida, Georgia, Illinois, Texas and Virginia.

Management has a long-term business strategy that 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, accretive acquisitions, financed primarily through a combination of cash and debt, including seller financing, the issuance of equity in appropriate circumstances, and the use of earn-outs where efficient to improve the overall profitability and our cash flows.

Our contract and placement services are currently provided under our Professional Staffing Services operating division or segment. Our former Industrial Staffing Services segment was designated a discontinued operation during fiscal 2025 and is excluded from results of continuing operations reported in this MD&A, unless otherwise stated.

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Results of Operations

Summary and Outlook

We incurred net income (losses) from continuing operations of $14 thousand and $(33) million for the three-month periods ended March 31, 2026 and 2025, respectively. We incurred net losses from continuing operations of $(136) thousand and ($33.6) million for the six-month periods ended March 31, 2026 and 2025, respectively.

The net losses and lower volumes of business underlying them are primarily attributable to uncertain conditions in the U.S. labor markets that have been ongoing since the second half of 2023. The U.S. Staffing Industry, as a whole, has experienced material declines in overall volume and financial performance and the industry outlook remains mixed as to when these conditions may be expected to definitively improve. As a result of the prolonged negative effects on our business associated with these conditions, we recorded a $22 million impairment charge in the quarter ended March 31, 2025, and reduced our goodwill asset, accordingly. In addition, we established a full valuation allowance against our deferred tax assets. These two non-cash charges account for a substantial portion of the net losses reported for the three and six-month periods ended March 31, 2025.

The net income for the fiscal second quarter ended March 31, 2026 and the net loss for the six-month period ended March 31, 2026 have improved relative to the comparable prior year periods and sequential calendar quarters. These improvements are due to growth in our direct hire revenues and resulting improvements in our gross profits and margins associated with them, and operating cost reductions and other productivity improvement initiatives. We were able to reduce selling, general, and administrative expenses ("SG&A") by approximately $3.8 million on an annual basis during the latter part our fiscal year ended September 30, 2025, with the substantial benefit of these now being realized in fiscal 2026. We also remain committed and prepared to make additional cost cuts necessary to restore profitability.

We learned at the end of fiscal 2025 that one of our larger contract services accounts was acquired. As a result, our services were terminated as of October 1, 2025, and replaced by comparable services provided by an affiliate of the acquirer. This account produced revenues of $2.5 million and $5.1 million, and contributed approximately $199 thousand and $683 thousand to income from operations, net of direct expenses, that offset the losses from operations during the three and six-month periods ended March 31, 2025, respectively.

Artificial intelligence ("AI") continues to gain momentum in the economy and is serving as a disruptor of traditional labor and employment markets, including the staffing and HR solutions markets or portions of them we serve. We are responding by integrating AI into our operating business strategy, plans and systems; focusing on seeking, attracting and placing AI talent; and refocusing our other organic growth efforts towards verticals where we can leverage AI, or that are less likely to be significantly disrupted by AI. Our IT businesses are focused on building AI expertise and on presenting themselves as thought leaders and knowledge resources in AI for our clients and potential new clients.

On January 3, 2025, we acquired Hornet Staffing, Inc., an Atlanta-based provider of staff augmentation services with national service capability. Hornet provides staffing solutions to markets serving large scale, "blue chip" companies in the information technology, professional and customer service staffing verticals. The acquisition is expected to be accretive to earnings. Under the terms of the stock purchase agreement, we acquired 100% of the Hornet common stock for consideration including cash and seller financing. Larry Bruce, Hornet's Managing Director and Founder, has continued his capacity at Hornet and joined the GEE Group National Sales Team, working with our vertical leaders on new business development.

We expect the Hornet acquisition to enhance our ability to compete more effectively and anticipate it helping us secure new business from Fortune 1000 and other large users of contingent and outsourced labor. Its workforce solutions include significant expertise in working with MSPs and VMSs. According to Staffing Industry Analysts' ("SIA") recent Workforce Solutions Buyer Survey, approximately 58% of companies with one thousand employees or more engage a third-party firm to manage their staffing providers. These large businesses spend for contingent labor is typically managed by MSP and VMS providers which are evolving rapidly, driven by the increasing complexity of workforce management and to achieve economies of scale in today's business environment. In 2023 according to SIA, the global MSP/VMS market accounted for approximately $222 billion of temporary staffing spend under management.

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In light of the forgoing trends and in order to compete more efficiently and effectively on these and other engagements, staffing firms are turning to offshore recruiting models as an increasing number of organizations turn to MSP and VMS for managing their contract labor providers. According to SIA, offshore recruiting teams located in cost-effective regions of the world provide significant cost savings and can help reduce operational expenses by up to approximately 70%, without compromising on quality. Hornet has adopted this method of recruiting which we believe provides for faster hiring cycles tapping a vast, global talent pool; and, coupled with round-the-clock recruitment efforts, offshore recruiting can reduce hiring timelines by up to 40%, allowing staffing firms to attract top talent ahead of competitors. We plan to continue our on-shore relationship-based recruitment for select customers and leverage Hornet's offshore recruiting capability and technology across all of our staffing verticals on MSP, VMS and other large enterprise engagements. This is expected to give us additional flexibility and scalability to adjust hiring volumes based on project needs, ensuring efficiency without sacrificing quality.

Starting in fiscal 2025, we classified and reported our Industrial Segment as a discontinued operation. The decision to discontinue this division is in continuance with our long-term strategy and focus on the professional verticals within our business. The initiative to seek a buyer for the Industrial Segment was approved on April 18, 2024, as part of our plans and budgets comprehended in the M&A Committee's strategic recommendations developed during a formal review of strategic alternatives in 2024. Other strategic recommendations stemming from the strategic alternatives review are on-going, including (1) proactive measures to streamline operations and enhance growth opportunities and cost-efficiency, including significant cost reductions, (2) building upon past acquisitions by taking advantage of current conditions and further integrating and consolidating operations and systems for further efficiencies and cost saving opportunities, and (3) capitalizing on acquisition opportunities arising from the economic downturn by identifying and with the objective of acquiring businesses at reduced multiples and favorable valuations.

On June 2, 2025, we entered into an agreement for the sale of certain operating assets of the Industrial Segment, including those of BMCH, Inc., Triad Logistics, Inc., and our Triad Staffing brand. The remaining assets of the Industrial Segment not sold were distributed to the Company.

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

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

Net Revenues

Consolidated net revenues are comprised of the following:

		Three Months Ended
		March 31,
		2026				2025				Change				Change
Professional contract services		$	16,294			$	21,495			$	(5,201	)			-24%
Direct hire placement services			3,187				3,000				187				6%
Consolidated net revenues		$	19,481			$	24,495			$	(5,014	)			-20%

Professional contract staffing services contributed $16,294 or approximately 84% of consolidated revenue and direct hire placement services contributed $3,187, or approximately 16%, of consolidated revenue for the three months ended March 31, 2026. This compares to professional contract staffing services revenue of $21,495, or approximately 88%, of consolidated revenue and direct hire placement revenue of $3,000, or approximately 12%, of consolidated revenue for the three months ended March 31, 2025.

As mentioned in our Summary and Outlook discussion above, one of our larger contract services accounts terminated our services as of October 1, 2025, upon being acquired and accessing comparable services provided by an affiliate of the acquirer. This account produced revenues of $2,512 during the three months ended March 31, 2025. Uncertainties in the U.S. labor markets have continued to negatively impact our results and ability to grow our contract services revenue through the three months ended March 31, 2026. The proliferation of AI applications and tools is also having disruptive effects on our business by causing business plans, hiring plans, and HR needs across industries, including those we serve, to be reconsidered. As a result of these events and trends, professional contract staffing services revenues decreased $5,201, or 24%, as compared to the three months ended March 31, 2025.

Direct hire placement revenue for the three months ended March 31, 2026 increased $187, or approximately 6%, as compared to the three months ended March 31, 2025, and $471, or approximately 17%, as compared to the prior sequential quarter ended December 31, 2025. Direct hire opportunities tend to be highly cyclical and demand dependent and may be expected to rise during times of economic recovery and decline during downturns and periods of uncertainty. And while this increase is encouraging and might be viewed by some as a leading indicator or sign of recovery in our business, we remain cautiously optimistic.

Staffing Industry Analysts ("SIA"), a leading industry trade organization, recently published its January 2026 U.S. Staffing Industry Forecast update, indicating that the U.S. staffing industry is expected to grow modestly by approximately 1% to 2% in 2026 following a period of decline. The SIA report attributes this tempered outlook to continued economic uncertainty, cautious client hiring behavior, reduced employee turnover, and ongoing pressure on bill rates. While our businesses serve clients of all sizes, a substantial portion of our client base consists of small and medium-sized enterprises, which have less financial flexibility to absorb rising costs and higher borrowing expenses. As a result, these clients may continue to delay hiring decisions or reduce reliance on temporary labor, which we believe could continue to disproportionately impact our revenue relative to broader industry trends.

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

Cost of Contract Services

Cost of contract services includes wages and related payroll taxes, employee benefits of our 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, 2026 decreased by approximately 25% to $12,066 compared to $16,135 for the three months ended March 31, 2025. The $4,069 overall decrease in cost of contract services is consistent with the decrease in revenues as discussed above. As further explained below, our gross profit and gross margin for the three months ended March 31, 2026 are proportionally higher relative to revenue than those for the three months ended March 31, 2025.

Gross profit percentage by service:

		Three Months Ended
		March 31,
		2026				2025
Professional contract services			25.9%				24.9%
Direct hire placement services			100.0%				100.0%
Combined gross profit margin (a)			38.1%				34.1%

(a)

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses. Unlike temporary contract staffing services, where we maintain primary responsibility for and control the staff members that we provide to perform services for our clients, direct hire placement revenues are only recognized for the net amount of fees we earned acting under an agency type of relationship. Accordingly, none of our costs associated with direct hire placement services are reportable as costs of services deducted from revenues to derive gross profit.

Our combined gross profit margin, including direct hire placement services, for the three-month periods ended March 31, 2026 and 2025 were approximately 38.1% and 34.1%, respectively. Our professional contract staffing services gross margins for the three-month periods ended March 31, 2026 and 2025 were approximately 25.9% and 24.9%, respectively. The net increase in our combined gross margin is mainly attributable to an increase in the mix of direct hire placement revenues, which have a 100% gross margin. The increase in professional contract staffing services gross margin is attributable to net increases in prices and spreads on some of our professional contract services businesses, and to an increase in the mix of higher margin business following the termination of our services by one of our former contract services clients, which produced below average margins for us.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include the following categories:

	·	Compensation and benefits in the operating divisions, which include salaries, wages and commissions earned by our employment consultants, recruiters and branch managers on permanent and temporary placements;
	·	Administrative compensation, which includes salaries, wages, share-based compensation, payroll taxes, and employee benefits associated with general management and the operation of corporate functions, including principally, finance, human resources, information technology and administrative functions;
	·	Occupancy costs, which includes office rent, and other office operating expenses;
	·	Recruitment advertising, which includes the cost of identifying and tracking job applicants; and
	·	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.

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

Our SG&A for the three months ended March 31, 2026 decreased by $1,898 as compared to the three months ended March 31, 2025. SG&A, as a percentage of revenues, were approximately 38% for both the three months ended March 31,2026 and March 31, 2025. SG&A expenses as a percentage of revenues remained consistent among both periods, as the decrease in SG&A expenses during the three months ended March 31, 2026 was large enough to offset the increase normally associated with the decline in revenue. This was mainly due to certain cost reductions and productivity improvement initiatives made during the latter portion of our fiscal year ended September 30, 2025. These cost reductions contributed approximately $1,336 to the decrease in SG&A for the three months ended March 31, 2026.

SG&A includes certain non-cash and non-operational costs and expenses incurred related to acquisition, integration, restructuring and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations or have been eliminated on a going forward basis. These costs were $14 and $226 for the three-month periods ended March 31, 2026 and 2025, respectively, and include mainly advisory and legal fees related to other than routine matters and expenses associated with former closed or consolidated locations.

Amortization and Depreciation Expense

Amortization expense was $20 and $225 for the three-month periods ended March 31, 2026 and 2025, respectively. The decrease in amortization expense is due to certain intangible assets becoming fully amortized during the fiscal year ended September 30, 2025. Depreciation expense was $45 and $50 for the three-month periods ended March 31, 2026 and 2025, respectively.

Goodwill Impairment

We completed an interim goodwill impairment assessment as of March 31, 2025 and determined that our goodwill was impaired. The estimated fair value of our Professional Services reporting unit decreased as compared to those resulting from the September 30, 2024 annual assessment, indicating that the pre-assessment carrying value as of March 31, 2025 exceeded its estimated fair value. As a result, a non-cash goodwill impairment charge of $22,000 was recorded during the three months ended March 31, 2025 so that the carrying value of the Professional Services reporting unit reflects its estimated fair value, as determined by the interim evaluations made of our goodwill.

Loss from Operations

Loss from operations was $(57) and $(23,220) for the three-month periods ended March 31, 2026 and 2025, respectively. The improvement in loss from operations is primarily attributable to the goodwill impairment charge included in results for the three months ended March 31, 2025. Additionally, the growth in our direct hire revenues, and the cost reductions and productivity improvements initiated during the latter portion of our fiscal year ended September 30, 2025, as discussed above, contributed to this improvement.

Interest Expense

Interest expense was $66 and $89 for the three-month periods ended March 31, 2026 and 2025, respectively, and was comprised mainly of fees associated with our Facility including unused capacity fees, administrative charges, and the amortization of related debt issuance costs. No advances were taken on our Facility during the three-month periods ended March 31, 2026 and 2025.

Interest Income

Interest income earned was $116 and $139 for the three-month periods ended March 31, 2026 and 2025, respectively. Interest income is earned on cash balances held in our two brokerage accounts. The reduction in interest income is primarily due to a reduction in interest rates available on our cash balances.

27

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

Provision for Income Taxes

We recognized income tax expense (benefit) of $(21) and $9,786 for the three-month periods ended March 31, 2026 and 2025, respectively. Our effective tax rates for the three-month periods ended March 31, 2026 and 2025 differ from the statutory rate primarily due to the effect of changes in the valuation allowance on our net DTA position.

Loss from Discontinued Operations

As a result of our Industrial Segment being designated a discontinued operation, the results of that segment have been reclassified to loss from discontinued operations in the accompanying unaudited condensed consolidated statements of operations. On June 2, 2025, we entered into an agreement to sell substantially all of the operating assets of our former Industrial Segment. Loss from discontinued operations was $(163) for the three months ended March 31, 2025.

Consolidated Net Income (Loss)

Our consolidated net income (loss) was $14 and $(33,119) for the three-month periods ended March 31, 2026 and 2025, respectively. The improvement in consolidated net income (loss) is primarily attributable to the goodwill impairment charge and valuation allowance related to our deferred tax assets included in results for the three months ended March 31, 2025, as explained in the preceding paragraphs. Additionally, the growth in our direct hire revenue, and the cost reductions and productivity improvements initiated during the latter portion of our fiscal year ended September 30, 2025, as discussed above, contributed to this improvement.

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

Six Months Ended March 31, 2026 Compared to the Six Months Ended March 31, 2025

Net Revenues

Consolidated net revenues are comprised of the following:

		Six Months Ended
		March 31,
		2026				2025				Change				Change
Professional contract services		$	34,094			$	43,009			$	(8,915	)			-21%
Direct hire placement services			5,903				5,511				392				7%
Consolidated net revenues		$	39,997			$	48,520			$	(8,523	)			-18%

Professional contract staffing services contributed $34,094 or approximately 85% of consolidated revenue and direct hire placement services contributed $5,903, or approximately 15%, of consolidated revenue for the six months ended March 31, 2026. This compares to professional contract staffing services revenue of $43,009, or approximately 89%, of consolidated revenue and direct hire placement revenue of $5,511, or approximately 11%, of consolidated revenue for the six months ended March 31, 2025.

As mentioned in our Summary and Outlook discussion above, one of our larger contract services accounts terminated our services as of October 1, 2025, upon being acquired and accessing comparable services provided by an affiliate of the acquirer. This account produced revenues of $5,081 during the six months ended March 31, 2025. Uncertainties in the U.S. labor markets have continued to negatively impact our results and ability to grow our contract services revenue through the six months ended March 31, 2026. The proliferation of AI applications and tools is also having disruptive effects on our business by causing business plans, hiring plans, and HR needs across industries, including those we serve, to be reconsidered. As a result of these events and trends, professional contract staffing services revenues decreased $8,915, or 21%, as compared to the six months ended March 31, 2025.

Direct hire placement revenue for the six months ended March 31, 2026 increased $392, or approximately 7%, as compared to the six months ended March 31, 2025. Direct hire opportunities tend to be highly cyclical and demand dependent and may be expected to rise during times of economic recovery and decline during downturns and periods of uncertainty. And while this increase is encouraging and might be viewed by some as a leading indicator or sign of recovery in our business, we remain cautiously optimistic.

Staffing Industry Analysts ("SIA"), a leading industry trade organization, recently published its January 2026 U.S. Staffing Industry Forecast update, indicating that the U.S. staffing industry is expected to grow modestly by approximately 1% to 2% in 2026 following a period of decline. The SIA report attributes this tempered outlook to continued economic uncertainty, cautious client hiring behavior, reduced employee turnover, and ongoing pressure on bill rates. While our businesses serve clients of all sizes, a substantial portion of our client base consists of small and medium-sized enterprises, which have less financial flexibility to absorb rising costs and higher borrowing expenses. As a result, these clients may continue to delay hiring decisions or reduce reliance on temporary labor, which we believe could continue to disproportionately impact our revenue relative to broader industry trends.

Cost of Contract Services

Cost of contract services includes wages and related payroll taxes, employee benefits of our contract services employees, and certain other contract employee-related costs, while working on contract assignments. Cost of contract services for the six months ended March 31, 2026 decreased by approximately 22% to $25,177 compared to $32,234 for the six months ended March 31, 2025. The $7,057 overall decrease in cost of contract services is consistent with the decrease in revenues as discussed above. As further explained below, our gross profit and gross margin for the six months ended March 31, 2026 are proportionally higher relative to revenue than those for the six months ended March 31, 2025.

29

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

Gross profit percentage by service:

		Six Months Ended
		March 31,
		2026				2025
Professional contract services			26.2%				25.1%
Direct hire placement services			100.0%				100.0%
Combined gross profit margin (a)			37.1%				33.6%

(b)

Includes gross profit from direct hire placements, for which all associated costs are recorded as selling, general and administrative expenses. Unlike temporary contract staffing services, where we maintain primary responsibility for and control the staff members that we provide to perform services for our clients, direct hire placement revenues are only recognized for the net amount of fees we earned acting under an agency type of relationship. Accordingly, none of our costs associated with direct hire placement services are reportable as costs of services deducted from revenues to derive gross profit.

Our combined gross profit margin, including direct hire placement services, for the six-month periods ended March 31, 2026 and 2025 were approximately 37.1% and 33.6%, respectively. Our professional contract staffing services gross margins for the six-month periods ended March 31, 2026 and 2025 were approximately 26.2% and 25.1%, respectively. The net increase in our combined gross margin is mainly attributable to an increase in the mix of direct hire placement revenues, which have a 100% gross margin. The increase in professional contract staffing services gross margin is attributable to net increases in prices and spreads on some of our professional contract services businesses, and to an increase in the mix of higher margin business following the termination of our services by one of our former contract services clients, which produced below average margins for us.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include the following categories:

	·	Compensation and benefits in the operating divisions, which include salaries, wages and commissions earned by our employment consultants, recruiters and branch managers on permanent and temporary placements;
	·	Administrative compensation, which includes salaries, wages, share-based compensation, payroll taxes, and employee benefits associated with general management and the operation of corporate functions, including principally, finance, human resources, information technology and administrative functions;
	·	Occupancy costs, which includes office rent, and other office operating expenses;
	·	Recruitment advertising, which includes the cost of identifying and tracking job applicants; and
	·	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.

Our SG&A for the six months ended March 31, 2026 decreased by $2,629 as compared to the six months ended March 31, 2025. SG&A for the six months ended March 31, 2026, as a percentage of revenues, were approximately 37.8% compared to approximately 36.6% for the six months ended March 31, 2025. The increase in SG&A expenses as a percentage of revenues during the six months ended March 31, 2026 was attributable to lower revenues in relation to fixed costs, including certain personnel, occupancy and costs associated with applicant tracking systems and job boards. This was offset, in part, by certain cost reductions and productivity improvement initiatives made during the latter portion of the fiscal year ended September 30, 2025. These cost reductions contributed approximately $2,389 to the decrease in SG&A for the six months ended March 31, 2026.

30

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

SG&A includes certain non-cash and non-operational costs and expenses incurred related to acquisition, integration, restructuring and other non-recurring activities, such as certain corporate legal and general expenses associated with capital markets activities that either are not directly associated with core business operations or have been eliminated on a going forward basis. These costs were $108 and $317 for the six-month periods ended March 31, 2026 and 2025, respectively, and include mainly advisory and legal fees related to other than routine matters, severance costs associated with eliminated positions, and expenses associated with former closed or consolidated locations.

Amortization and Depreciation Expense

Amortization expense was $80 and $430 for the six-month periods ended March 31, 2026, and 2025, respectively. The decrease in amortization expense is due to certain intangible assets becoming fully amortized during the fiscal year ended September 30, 2025. Depreciation expense was $91 and $105 for the six-month periods ended March 31, 2026, and 2025, respectively.

Goodwill Impairment

We completed an interim goodwill impairment assessment as of March 31, 2025 and determined that our goodwill was impaired. The estimated fair value of our Professional Services reporting unit decreased as compared to those resulting from the September 30, 2024 annual assessment, indicating that the pre-assessment carrying value as of March 31, 2025 exceeded its estimated fair value. As a result, a non-cash goodwill impairment charge of $22,000 was recorded during the six months ended March 31, 2025 so that the carrying value of the Professional Services reporting unit reflects its estimated fair value, as determined by the interim evaluations made of our goodwill.

Loss from Operations

Loss from operations was $(466) and $(23,993) for the six-month periods ended March 31, 2026 and 2025, respectively. The improvement in loss from operations is primarily attributable to the goodwill impairment charge included in results for the six months ended March 31, 2025. Additionally, the growth in our direct hire revenue, and cost reductions and productivity improvements initiated in the latter portion of the fiscal year ended September 30, 2025, as discussed above, contributed to this improvement.

Interest Expense

Interest expense was $131 and $155 for the six-month periods ended March 31, 2026 and 2025, respectively, and was comprised mainly of fees associated with our Facility including unused capacity fees, administrative charges, and the amortization of related debt issuance costs. No advances were taken on our Facility during the six-month periods ended March 31, 2026 and 2025.

Interest Income

Interest income earned was $244 and $294 for the six-month periods ended March 31, 2026 and 2025, respectively. Interest income is earned on cash balances held in our two brokerage accounts. The reduction in interest income is primarily due to a reduction in interest rates available on our cash balances.

Other Income

Other income was $196 for the six months ended March 31, 2026 and was the result of elimination of a portion of the Promissory Notes issued to Hornet's former shareholders as part of the purchase consideration. Under the Purchase Agreement, payments on the Promissory Notes are to be made annually in two equal installments on the first and second anniversaries of the issuance date. These payments are contingent upon the achievement of minimum average gross profit ("AGP") requirements by Hornet over the first two annual periods prior to closing. The first installments of the Promissory Notes have been entirely eliminated as of December 31, 2025 due to the minimum AGP requirements not being met.

31

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

Provision for Income Taxes

We recognized income tax expense (benefit) of $(21) and $9,786 for the six-month periods ended March 31, 2026 and 2025, respectively. Our effective tax rates for the six-month periods ended March 31, 2026 and 2025 differ from the statutory rate primarily due to the effect of the change in valuation allowance on our net DTA position.

Loss from Discontinued Operations

As a result of our Industrial Segment being designated a discontinued operation, the results of that segment have been reclassified to loss from discontinued operations in the accompanying unaudited condensed consolidated statements of operations. On June 2, 2025, we entered into an agreement to sell substantially all of the operating assets of our former Industrial Segment. Loss from discontinued operations was $(171) for the six months ended March 31, 2025.

Consolidated Net Loss

Our consolidated net loss was $(136) and $(33,811) for the six-month periods ended March 31, 2026 and 2025, respectively. The improvement in consolidated net loss is primarily attributable to the goodwill impairment charge and change in valuation allowance related to our deferred tax assets included in results for the six months ended March 31, 2025, as explained in the preceding paragraphs. Additionally, the growth in our direct hire revenue, and cost reductions and productivity improvements initiated in the latter portion of the fiscal year ended September 30, 2025, as discussed above, contributed to this improvement.

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

Liquidity and Capital Resources

Our primary sources of liquidity are revenues earned and collected from our clients for the placement of contract employees and independent contractors on a temporary basis and permanent employment candidates and borrowings available under our asset-based senior secured revolving credit facility. Uses of liquidity include primarily the costs and expenses necessary to fund operations, including payment of compensation to our contract and permanent employees, and employment-related expenses, operating costs and expenses, taxes and capital expenditures.

The following table sets forth certain consolidated statement of cash flows data, including cash flows from discontinued operations:

		Six Months Ended
		March 31,
		2026				2025
Cash flows used in operating activities		$	(862	)		$	(1,141	)
Cash flows used in investing activities			(110	)			(972	)
Cash flows used in financing activities			(61	)			(39	)

As of March 31, 2026, we had $20,331 of cash, a decrease of $1,033 from $21,364 as of September 30, 2025. As of March 31, 2026, we had working capital of $23,769 compared to $23,993 as of September 30, 2025. Cash flows used in operating activities improved $279 due to positive cash flow from operating activities during the quarter ended March 31, 2026.

The primary use of cash for investing activities was for the acquisition of property and equipment during the six months ended March 31, 2026. During the six months ended March 31, 2025, the primary use of cash for investing activities was for the acquisition of Hornet. On January 3, 2025, we completed the acquisition of 100% of the outstanding common stock of Hornet Staffing, Inc., which is now our wholly owned subsidiary. We paid $1,100 of cash consideration at closing on January 3, 2025, and entered into two 5% uncollateralized subordinated promissory notes with the sellers in the aggregate amount of $400, each payable in two equal annual installments due at the end of the two subsequent years following closing. The purchase price and our obligations under the subordinated promissory notes are subject to reduction in the event Hornet Staffing does not achieve agreed upon profit metrics during the two years subsequent to closing on a dollar-for-dollar basis. The first installments of the Promissory Notes have been entirely eliminated as of December 31, 2025 due to the minimum AGP requirements not being met, and no payments being required to Hornet's former shareholders under the former first installments, accordingly.

The cash flows used in financing activities were primarily for payments made on finance leases during the six-month periods ended March 31, 2026 and 2025.

We had $4,895 in availability for borrowings under our facility as of March 31, 2026. There were no outstanding borrowings on the Facility as of March 31, 2026, or September 30, 2025, except for certain accrued incidental carrying fees and costs, which are included in other current liabilities in the accompanying unaudited condensed consolidated balance sheets.

On May 12, 2026, the Company and FCB entered into Amendment No. 4 to the Facility ("Amendment No. 4") which extends the Facility expiration date from May 14, 2026, to May 13, 2027. Additionally, this amendment increases the availability block to the greater of $1.5 million, or 12.5% of the lesser of (i) the revolver commitment and (ii) the borrowing base. The Amendment No. 4 also contains two new requirements. First, during the term of the facility, as amended, all cash and cash equivalents held by the Company will not exceed an aggregate amount of $25 million (or such greater amount that FCB may, in its sole discretion, otherwise consent to in writing). Second, within fourteen (14) days following the effective date of the Amendment No. 4, the Company has agreed to increase its cash on deposit with FCB and/or its affiliates and thereafter maintain such cash and cash equivalents on deposit in an aggregate amount of not less than $12 million (or such lesser amount that FCB may, in its sole discretion, otherwise consent to in writing).

33

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

On December 2, 2025, we reissued 592 additional treasury shares to fulfill commitments for the issuance of previously granted restricted stock awards that became fully vested and unrestricted. These treasury shares were reissued in lieu of issuing new shares of our common stock, therefore, while our total number of outstanding shares of common stock increased as a result of each issuance, our total number of issued shares of common stock did not increase. Of the shares reissued on December 2, 2025, 135 were returned to the Company on January 7, 2026, to satisfy statutory income tax obligations of the recipients on the vested restricted stock awards.

All our office facilities are leased. Minimum lease payments under all our lease agreements for the twelve-month period commencing after the close of business on March 31, 2026, are approximately $1,159. There are no minimum debt service principal payments due during the twelve-month period commencing after the close of business on March 31, 2026.

Management believes that we can generate adequate liquidity to meet our obligations for the foreseeable future and at least for the next twelve months.

Off-Balance Sheet Arrangements

As of March 31, 2026, 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.