UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 2004
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 1-05707
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Name of small business issuer in its charter)
Illinois 36-6097429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Tower Lane, Suite 2100, Oakbrook Terrace, IL 60181
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (630) 954-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the most recent fiscal year were $17,981,000.
The aggregate market value of the common stock held by non-
affiliates as of October 31, 2004 was $11,341,000.
The number of shares outstanding of the issuer's common stock as
of October 31, 2004 was 5,135,894.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the General Employment Enterprises, Inc. Proxy
Statement for the annual meeting of shareholders to be held on
February 28, 2005 are incorporated by reference into Part III of
this Form 10-KSB.
Transitional small business disclosure format: Yes [ ] No [X]
PART I
Item 1, Description of Business.
General
General Employment Enterprises, Inc. (the "Company") was
incorporated in the State of Illinois in 1962 and is the
successor to employment offices doing business since 1893. In
1987 the Company established Triad Personnel Services, Inc., a
wholly-owned subsidiary, incorporated in the State of Illinois.
The principal executive office of the Company is located at One
Tower Lane, Suite 2100, Oakbrook Terrace, Illinois.
Services Provided
The Company operates in one industry segment, providing
professional staffing services. The Company offers its customers
both placement and contract staffing services, specializing in
the placement of information technology, engineering and
accounting professionals.
The Company's placement services include placing candidates into
regular, full-time jobs with client-employers. The Company's
contract services include placing its professional employees on
temporary assignments, under contracts with client companies.
Contract workers are employees of the Company, typically working
at the client location and at the direction of client personnel
for periods of three months to one year. Management believes
that the combination of these two services provides a strong
marketing opportunity, because it offers customers a variety of
staffing alternatives that includes direct hire, temporary
staffing and a contract-to-hire approach to hiring. The
percentage of revenues derived from these services is as follows:
Year Ended September 30
2004 2003
Contract services 65% 68%
Placement services 35% 32%
Marketing
The Company markets its services using the trade names General
Employment Enterprises, Omni One, Business Management Personnel,
Triad Personnel Services and Generation Technologies. As of
September 30, 2004, it operated 19 branch offices located in
downtown or suburban areas of major U.S. cities in 10 states.
The offices were concentrated in Illinois (4) and California (3),
with two offices each in Arizona, Indiana, Massachusetts and
Ohio, and one office each in Florida, Georgia, North Carolina and
Texas.
The Company markets its services to prospective clients primarily
through telephone marketing by its employment consultants and
through mailing of employment bulletins listing candidates
available for placement and contract employees available for
assignment.
The Company has a diverse customer base, and no single customer
accounted for more than 5% of its revenues during either of the
last two fiscal years.
2
Recruiting
The success of the Company is highly dependent on its ability to
obtain qualified candidates. Prospective employment candidates
are recruited through telephone contact by the Company's
employment consultants, through postings on the Internet, and
through classified newspaper advertising. For Internet postings,
the Company maintains its own web page at www.generalemployment.com
and uses other Internet job posting bulletin board services. The
Company uses a computer program to track applicants' skills and
match them with job openings. The Company screens and interviews
applicants who are presented to its clients.
Billing Practices
When applicants accept employment, the Company charges its
clients a placement fee that is based on a percentage of the
applicant's projected annual salary, and the Company provides its
clients with a guarantee under which the fee is refundable if the
applicant does not remain employed during a guarantee period.
Fees for contract services are billed on an hourly basis each
week. The Company expects payment by its customers upon receipt
of its invoices. Typical of the staffing industry, working
capital is required to finance the wages of contract workers
before the related customer accounts are collected.
Competition
The staffing industry is highly competitive. There are
relatively few barriers to entry by firms offering placement
services, while significant amounts of working capital typically
are required for firms offering contract services. The Company's
competitors include a large number of sole-proprietorship
operations, as well as regional and national organizations. Many
of them are large corporations with substantially greater
resources than the Company.
Because the Company focuses its attention on professional
staffing positions, particularly in the highly specialized
information technology field, it competes by providing services
that are dedicated to quality. This is done by providing highly
qualified candidates who are well matched for the position, by
responding quickly to client requests, and by establishing
offices in convenient locations. As an added service, the
Company provides reference checking, scrutiny of candidates' work
experience and optional background checks. In general, pricing
is considered to be secondary to quality of service as a
competitive factor. During slow hiring periods, however,
competition can put pressure on the Company's pricing.
Geographic diversity helps the Company to balance local or
regional business cycles. Multiple offices in the Boston,
Chicago, Columbus (Ohio), Indianapolis, Los Angeles and Phoenix
markets help to provide better client services through convenient
office locations and the sharing of assignments.
Employees
As of September 30, 2004, the Company had approximately 150
regular employees and 190 contract service employees.
3
Item 2, Description of Property.
The Company's policy is to lease commercial office space for all
of its offices. The Company's headquarters are located in a
modern 31-story building near Chicago, Illinois. The Company
leases 12,900 square feet of space at that location, under a
lease that will expire in January 2006.
The Company's staffing offices are located in downtown
metropolitan and suburban business centers in 10 states.
Generally, the Company enters into six-month leases for new
locations, using shared office facilities whenever possible.
Established offices are operated from leased space ranging from
1,100 to 2,100 square feet, generally for periods of two to five
years, with cancellation clauses after certain periods of
occupancy in some cases. Management believes that existing
facilities are adequate for the Company's current needs and that
its leasing strategies provide the Company with sufficient
flexibility to open or close offices to accommodate business
needs.
Item 3, Legal Proceedings.
From time to time, the Company is subject to various legal
proceedings and claims arising in the ordinary course of
business. As of September 30, 2004, there were no material legal
proceedings pending against the Company.
Item 4, Results of Votes of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of the 2004 fiscal year.
PART II
Item 5, Market for Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities.
The Company's common stock is traded on the American Stock
Exchange under the trading symbol JOB. The high and low common
stock prices per share were as follows:
Fourth Third Second First
Quarter Quarter Quarter Quarter
Fiscal 2004:
Market price per share:
High $ 2.58 $ 1.90 $ 1.95 $ 1.79
Low 1.62 1.23 1.05 .87
Fiscal 2003:
Market price per share:
High $ .90 $ .82 $ .74 $ .69
Low .61 .46 .44 .41
There were 813 holders of record on October 31, 2004. The
Company has declared no cash dividends on its common stock during
the last two fiscal years, and there are no intentions to do so
in the foreseeable future.
4
Securities authorized for issuance under equity compensation plans were
as follows as of September 30, 2004 (number of shares in thousands):
Number of securi-
ties remaining
available for
Number of future issuance
securities to under equity
be issued upon Weighted-average compensation
exercise of exercise price plans (excluding
outstanding of outstanding securities
options, warrants options, warrants reflected in
Plan category and rights and rights first column)
Equity compensation
plans approved by
security holders 458 $1.08 406
Equity compensation
plans not approved
by security holders -- -- --
Total 458 $1.08 406
Item 6, Management's Discussion and Analysis or Plan of Operation.
Overview of Operations
The Company provides placement and contract staffing services for
business and industry, specializing in the placement of
professional information technology, engineering and accounting
professionals. As of September 30, 2004, the Company operated 19
branch offices located in 10 states.
The Company's business is highly dependent on national employment
trends in general and on the demand for information technology
and other professional staff in particular. During fiscal 2004,
the Company experienced an increase in the demand for its
placement services, as the U.S. jobs market improved. The
national unemployment rate decreased to 5.4% in September 2004
from 6.1% in September 2003. Previously, through fiscal 2003,
the demand for the Company's employment services was adversely
affected by the lingering weakness in the employment market
caused by economic and political uncertainties that followed the
U.S. economic recession and terrorist attacks in 2001.
As a result of the increased demand for the Company's services,
consolidated net revenues for fiscal 2004 were up 6% compared
with the prior year. The number of placements, average placement
fee and billable contract hours were all up for the year.
However, lower-skilled positions and competitive market
conditions resulted in a lower average hourly billing rate for
contract services.
The Company closed twelve unprofitable branch offices since the
beginning of fiscal 2003. Because of these and other actions
taken by management, the Company achieved an 8% reduction in
total operating expenses for the year ended September 30, 2004.
Due to the effect of higher revenues and lower operating costs,
the loss from operations was reduced by 77% for the year.
5
Results of Continuing Operations
A summary of operating data, expressed as a percentage of
consolidated net revenues, is presented below.
Year Ended September 30
2004 2003
Net revenues:
Contract services 65.3% 67.7%
Placement services 34.7 32.3
Net revenues 100.0 100.0
Operating expenses:
Cost of contract services 47.4 46.4
Selling 20.9 21.5
General and administrative 36.2 52.7
Total operating expenses 104.5 120.6
Loss from operations (4.5)% (20.6)%
Net Revenues
Consolidated net revenues for the year ended September 30, 2004
were up $1,016,000 (6%) from the prior year. That was due to a
$273,000 (2%) increase in contract service revenues and a
$743,000 (14%) increase in placement service revenues.
The increase in contract service revenues was due to a 19%
increase in billable hours, which was partially offset by a 14%
decrease in the average hourly billing rate. Placement service
revenues were up for the year because of a 12% increase in the
number of placements and a 6% increase in the average placement
fee.
Operating Expenses
Total operating expenses for the year ended September 30, 2004
were down $1,669,000 (8%) compared with the prior year.
The cost of contract services was up $645,000 (8%) as a result of
the higher number of billable hours. Due to competitive market
conditions, the gross profit margin on contract services declined
3.9 points to 27.5% for the year ended September 30, 2004,
compared with 31.4% the prior year.
Selling expenses increased $124,000 (3%) for the year.
Commission expense was up 12% due to the higher placement service
revenues. Recruitment advertising expense was down 29% for the
year due to a change in emphasis from print advertising to lower-
cost Internet advertising. Selling expenses represented 20.9% of
consolidated net revenues, which was down slightly from the prior
year.
General and administrative expenses include provisions for office
closings and asset impairment losses totaling $42,000 in 2004 and
$625,000 in 2003. Excluding those charges, general and
administrative expenses decreased $1,855,000 (22%) for the year
ended September 30, 2004. Compensation in the operating
divisions decreased 29% due to a reduction in the size of the
consulting staff. Office rent and occupancy costs were down 23%
for the period, due to the effect of office closings, and all
other general and administrative expenses were down 17%. General
and administrative expenses represented 36.2% of consolidated
revenues, and that was down 16.5 points from the prior year.
6
There were no credits for income taxes as a result of the pretax
losses in fiscal 2004 and fiscal 2003, because the losses must be
carried forward for income tax purposes and there was not
sufficient assurance that future tax benefits would be realized.
Discontinued Operations
In September 2004, the Company completed a transaction to sell
the assets and business operations of its Pittsburgh,
Pennsylvania staffing business ("GenTech") for $705,000 in cash
and recorded a loss on disposal of $553,000. The assets sold
include GenTech's accounts receivable, office furniture and
equipment and goodwill. The results of GenTech are reflected in
the consolidated statement of operations as discontinued
operations for all periods presented.
Outlook
The Company's current priority is to return to profitability.
Management believes that it has taken appropriate actions to
reduce operating costs as far as possible, consistent with
positioning the Company for future growth. The improvement in
national hiring patterns and the improved demand for the
Company's services resulted in improved operating performance for
the Company in fiscal 2004. Management believes that continued
improvement for the Company will depend on continued improvement
in the U.S. jobs market.
Financial Condition
As of September 30, 2004, the Company had cash and cash
equivalents of $4,437,000, which was an increase of $532,000 from
September 30, 2003. Net working capital at September 30, 2004
was $4,630,000, which was an increase of $297,000 from September
30, 2003, and the current ratio was 3.2 to 1. The Company had no
long-term debt. Shareholders' equity as of September 30, 2004
was $5,168,000, which represented 71% of total assets.
During the year ended September 30, 2004, the net cash used by
operating activities was $167,000, as the $1,397,000 net loss for
the year was substantially offset by non-cash charges. The non-
cash loss on disposal of discontinued operations was $553,000,
and depreciation and other non-cash expenses totaled $590,000.
Working capital provided $87,000.
As a result of the disposal of GenTech, the Company received
$705,000 in cash and wrote off goodwill having a carrying value
of $1,088,000.
The Company's primary source of liquidity is normally from its
operating activities. Management believes that existing cash
balances will be adequate to finance current operations for the
foreseeable future. Nevertheless, if operating losses were to
continue indefinitely, or if the Company's business were to
deteriorate, such losses would have a material, adverse effect on
the Company's financial condition. External sources of funding
are not likely to be available to support continuing losses.
As of September 30, 2004, there were approximately $4,300,000 of
losses available to reduce federal taxable income in future years
through 2024, and there were approximately $7,000,000 of losses
available to reduce state and local taxable income in future
years, expiring from 2006 through 2024.
7
Off-Balance Sheet Arrangements
As of September 30, 2004, and during the two years then ended,
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.
Critical Accounting Policies
The following accounting policies are considered by management to
be "critical" because of the judgments and uncertainties
affecting the application of these policies and because of the
likelihood that materially different amounts would be reported
under different conditions or using different assumptions.
Management believes that its judgments are reasonable under the
circumstances.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax
rates and laws that are expected to be in effect when the
differences reverse. A valuation allowance is recorded to reduce
deferred tax assets to the amount that is more likely than not to
be realized as a tax benefit in the future. Judgment is required
in assessing the likelihood that tax assets will be realized.
These judgments are based on estimates about future taxable
income, which is inherently uncertain. The Company recorded a
valuation allowance as of September 30, 2004, because there was
not sufficient assurance that future tax benefits would be
realized. The Company's financial position and results of
operations would have been significantly different under
different assumptions.
Accounts Receivable Allowances
An allowance for placement falloffs is recorded, as a reduction
of revenues, for estimated losses due to applicants not remaining
employed for the Company's guarantee period. An allowance for
doubtful accounts is recorded, as a charge to bad debt expense,
where collection is considered to be doubtful due to credit
issues. These allowances reflect management's estimate of
potential losses inherent in the accounts receivable balances,
based on historical loss statistics. Actual results may differ.
Property and Equipment
Furniture, fixtures and equipment are stated at cost. The
Company provides for depreciation on a straight-line basis over
estimated useful lives of five years for computer equipment and
two to ten years for office equipment, furniture and fixtures.
The Company capitalizes computer software purchased or developed
for internal use, and amortizes it over an estimated useful life
of five years. The carrying value of property and equipment is
reviewed for impairment whenever events or changes in
circumstances indicate that it may not be recoverable. If the
carrying amount of an asset group is greater than its estimated
future undiscounted cash flows, the carrying value is written
down to the estimated fair value. These processes require the
use of estimates and assumptions about the future that require a
significant degree of judgment. Different amounts would have
been reported using different assumptions.
If future events result in different outcomes, the results of
operations in future periods could be affected. In the past,
actual results have not been significantly different from the
Company's estimates.
8
Forward-Looking Statements
As a matter of policy, the Company does not provide forecasts of
future financial performance. However, the Company and its
representatives may from time to time make written or verbal
forward-looking statements, including statements contained in
press announcements, reports to shareholders and filings with the
Securities and Exchange Commission. All statements which address
expectations about future operating performance and cash flows,
future events and business developments, and future economic
conditions are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These
statements are based on management's then-current expectations
and assumptions. Actual outcomes could differ significantly.
The Company and its representatives do not assume any obligation
to provide updated information.
Some of the factors that could affect the Company's future
performance include, but are not limited to, general business
conditions, the demand for the Company's services, competitive
market pressures, the ability of the Company to attract and
retain qualified personnel for regular full-time placement and
contract assignments, and the ability to attract and retain
qualified corporate and branch management.
9
Item 7, Financial Statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
As of September 30
(In Thousands) 2004 2003
ASSETS
Current assets:
Cash and cash equivalents $ 4,437 $ 3,905
Accounts receivable, less allowances
(2004 -- $281; 2003 -- $238) 1,833 2,095
Other current assets 486 500
Total current assets 6,756 6,500
Property and equipment:
Furniture, fixtures and equipment 4,812 5,037
Accumulated depreciation and amortization (4,274) (3,934)
Net property and equipment 538 1,103
Goodwill -- 1,088
Total assets $ 7,294 $ 8,691
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 318 $ 237
Accrued compensation and payroll taxes 1,244 1,054
Other current liabilities 564 876
Total current liabilities 2,126 2,167
Shareholders' equity:
Preferred stock; authorized -- 100 shares;
issued and outstanding -- none -- --
Common stock, no-par value; authorized --
20,000 shares; issued and outstanding -
5,136 shares in September 2004 and
5,121 shares in September 2003 51 51
Capital in excess of stated value of shares 4,777 4,736
Retained earnings 340 1,737
Total shareholders' equity 5,168 6,524
Total liabilities and shareholders' equity $ 7,294 $ 8,691
See notes to consolidated financial statements.
10
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30
(In Thousands, Except Per Share) 2004 2003
Net revenues:
Contract services $11,750 $11,477
Placement services 6,231 5,488
Net revenues 17,981 16,965
Operating expenses:
Cost of contract services 8,520 7,875
Selling 3,765 3,641
General and administrative 6,508 8,946
Total operating expenses 18,793 20,462
Loss from operations (812) (3,497)
Investment income 34 58
Loss from continuing operations (778) (3,439)
Loss from discontinued operations (619) (67)
Net loss $(1,397) $(3,506)
Average number of shares - basic and diluted 5,131 5,121
Per share - basic and diluted:
Loss from continuing operations $ (.15) $ (.67)
Loss from discontinued operations (.12) (.01)
Net loss $ (.27) $ (.68)
See notes to consolidated financial statements.
11
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30
(In Thousands) 2004 2003
Operating activities:
Net loss $(1,397) $(3,506)
Loss on disposal of discontinued operations 553 --
Depreciation and amortization 524 850
Other noncurrent items 66 77
Changes in current assets and current
liabilities, net of effects from disposal in 2004:
Accounts receivable 149 160
Income tax refunds receivable 57 1,483
Accrued compensation and payroll taxes 190 24
Other current items, net (309) 184
Net cash used by operating activities (167) (728)
Investing activities:
Acquisition of property and equipment (19) (126)
Proceeds on disposal of discontinued operations 705 --
Net cash provided (used) by investing activities 686 (126)
Financing activities:
Exercises of stock options 13 --
Net cash provided by financing activities 13 --
Increase (decrease) in cash and cash equivalents 532 (854)
Cash and cash equivalents at beginning of year 3,905 4,759
Cash and cash equivalents at end of year $ 4,437 $ 3,905
See notes to consolidated financial statements.
12
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended September 30
(In Thousands, Except Per Share) 2004 2003
Common shares outstanding:
Number at beginning of year 5,121 5,121
Exercises of stock options 15 --
Number at end of year 5,136 5,121
Common stock:
Balance at beginning and end of year $ 51 $ 51
Capital in excess of stated value:
Balance at beginning of year $ 4,736 $ 4,695
Stock option expense 28 41
Exercises of stock options 13 --
Balance at end of year $ 4,777 $ 4,736
Retained earnings:
Balance at beginning of year $ 1,737 $ 5,243
Net loss (1,397) (3,506)
Balance at end of year $ 340 $ 1,737
See notes to consolidated financial statements.
13
GENERAL EMPLOYMENT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
General Employment Enterprises, Inc. (the "Company") and its
wholly-owned subsidiary, Triad Personnel Services, Inc., operate
in one industry segment, providing staffing services through a
network of branch offices located in major metropolitan areas
throughout the United States. The Company specializes in
providing information technology, engineering and accounting
professionals to clients on either a regular placement basis or a
temporary contract basis. The Company has a diverse customer
base, and no single customer accounted for more than 5% of its
revenues during either of the last two fiscal years.
Significant Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United
States. The more significant accounting policies that are
followed by the Company are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts and
transactions of the Company and its wholly-owned subsidiary. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Estimates and Assumptions
Management makes estimates and assumptions that can affect the
amounts of assets and liabilities reported as of the date of the
financial statements, as well as the amounts of reported revenues
and expenses during the periods presented. These estimates and
assumptions typically involve expectations about events to occur
subsequent to the balance sheet date, and it is possible that
actual results could ultimately differ from those estimates. If
significant differences were to occur in a subsequent period, the
Company would recognize those differences when they became known.
Significant matters requiring the use of estimates and
assumptions include deferred income tax valuation allowances,
accounts receivable allowances, and valuations of property and
equipment. Management believes that its estimates and
assumptions are reasonable, based on information that is
available at the time they are made.
Revenue Recognition
Placement service revenues are recognized when applicants accept
offers of employment, less a provision for estimated losses due
to applicants not remaining employed for the Company's guarantee
period. Contract service revenues are recognized when services
are rendered.
Cost of Contract Services
The cost of contract services includes the wages and the related
payroll taxes and benefits of contract workers.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax
rates and laws that are expected to be in
effect when the differences reverse. A valuation allowance is
recorded to reduce deferred tax assets to the amount that is more
likely than not to be realized as a tax benefit in the future.
14
Net Income Per Share
Basic net income per share is based on the average number of
common shares outstanding. Diluted net income per share is based
on the average number of common shares and the dilutive effect of
stock options.
Cash Equivalents
Highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
Accounts Receivable Allowances
An allowance for placement falloffs is recorded, as a reduction
of revenues, for estimated losses due to applicants not remaining
employed for the Company's guarantee period. An allowance for
doubtful accounts is recorded, as a charge to bad debt expense,
where collection is considered to be doubtful due to credit
issues. These allowances together reflect management's estimate
of the potential losses inherent in the accounts receivable
balances, based on historical loss statistics.
Property and Equipment
Furniture, fixtures and equipment are stated at cost. The
Company provides for depreciation on a straight-line basis over
estimated useful lives of five years for computer equipment and
two to ten years for office equipment, furniture and fixtures.
The Company capitalizes computer software purchased or developed
for internal use, and amortizes it over an estimated useful life
of five years.
The carrying value of property and equipment is reviewed for
impairment whenever events or changes in circumstances indicate
that it may not be recoverable. If the carrying amount of an
asset group is greater than its estimated future undiscounted
cash flows, the carrying value is written down to the estimated
fair value.
Disposal Activities
A liability is recorded for the cost of exit or disposal
activities in the period when the liability is incurred.
Stock Options
Compensation expense is recorded for the fair value of stock
options issued to employees, under the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." Compensation expense under this statement
is measured as the estimated fair value of the stock options on
the date of grant, and the expense is amortized over the vesting
periods.
15
Discontinued Operations
In September 2004, the Company completed a transaction to sell
the assets and business operations of its Pittsburgh,
Pennsylvania staffing business ("GenTech") for $705,000 in cash.
The assets sold include GenTech's accounts receivable, office
furniture and equipment and goodwill. The results of GenTech are
reflected in the statement of operations as discontinued
operations for all periods presented. Summarized information for
discontinued operations is as follows:
(In Thousands) 2004 2003
Net revenues $1,272 $1,644
Loss from operations $ (66) $ (67)
Loss on disposal (553) --
Loss from discontinued operations $ (619) $ (67)
Income Taxes
There were no credits for income taxes as a result of the pretax
losses from continuing operations or from discontinued operations
in fiscal 2004 and fiscal 2003, because the losses must be
carried forward for income tax purposes and there was not
sufficient assurance that a future tax benefit would be realized.
The components of the provision for income taxes are as follows:
(In Thousands) 2004 2003
Deferred tax provision (credit) related to:
Temporary differences (5) (217)
Loss carryforwards (546) (1,063)
Valuation allowances 551 1,280
Provision for income taxes $ -- $ --
The differences between income taxes calculated at the 34%
statutory U.S. federal income tax rate and the Company's
provision for income taxes are as follows:
(In Thousands) 2004 2003
Income tax credit at statutory
federal tax rate $(475) $(1,192)
Federal valuation allowance 470 1,186
Other 5 6
Provision for income taxes $ -- $ --
16
The net deferred income tax asset balance as of September 30
related to the following:
(In Thousands) 2004 2003
Temporary differences $ 409 $ 404
Net operating loss carryforwards 1,808 1,262
Valuation allowances (2,217) (1,666)
Net deferred income tax asset $ -- $ --
The Company received income tax refunds of $55,000 in 2004 and
$1,467,000 in 2003.
As of September 30, 2004, there were approximately $4,300,000 of
losses available to reduce federal taxable income in future years
through 2024, and there were approximately $7,000,000 of losses
available to reduce state and local taxable income in future
years, expiring from 2006 through 2024.
Property and Equipment
Property and equipment, at cost, comprised the following as of
September 30:
(In Thousands) 2004 2003
Computer equipment and software $2,869 $3,014
Office equipment, furniture and fixtures 1,943 2,023
Total property and equipment, at cost $4,812 $5,037
As of September 30, 2003, the Company identified certain office
equipment that was idle due to the closing of branch offices, and
that was not likely to be returned to service before the end of
their estimated useful lives. Based on the estimated fair value
of that furniture and equipment, the Company recorded an
impairment loss, included in general and administrative expenses,
of $177,000 in 2003.
Office Closings
The Company closed two branch offices during fiscal 2004 and ten
branch offices during fiscal 2003 due to unprofitable operations,
and recorded a provision, included in general and administrative
expenses, of $42,000 in 2004 and $448,000 in 2003 covering the
future lease obligations of those offices. The rent liability
for closed offices, included in other current liabilities, was as
follows as of September 30:
(In Thousands) 2004 2003
Balance at beginning of year $ 657 $ 388
Provision for office closings 42 448
Payments (383) (179)
Balance at end of year $ 316 $ 657
17
The combined net revenues and the combined loss from operations
of all offices that were closed as of September 30, 2004,
included in continuing operations on the consolidated statement
of operations, were as follows:
(In Thousands) 2004 2003
Net revenues $ 802 $ 2,334
Loss from operations (343) (1,023)
Lease Obligations
The Company leases space for all of its branch offices, which are
located either in downtown or suburban metropolitan business
centers, and space for its corporate headquarters. Established
branch offices are generally leased over periods from two to five
years, and the corporate headquarters lease expires in 2006.
Certain lease agreements provide for increased rental payments
contingent upon future increases in real estate taxes, building
maintenance costs and the cost of living index. Rent expense
from continuing operations was $1,179,000 in 2004 and $1,524,000
in 2003.
As of September 30, 2004, future minimum lease payments under
lease agreements having initial terms in excess of one year,
including the closed offices, totaled $1,734,000, as follows:
2005 - $1,302,000, 2006 - $384,000, 2007 - $30,000 and 2008 -
$18,000.
Retirement Plans
The Company has a 401(k) retirement plan in which all full-time
employees may participate after one year of service. Under the
plan, eligible participants may contribute a portion of their
earnings to a trust, and the Company makes matching
contributions, subject to certain limitations. In addition, the
Company has a deferred compensation plan for certain officers.
Under the plan, the Company contributes a percentage of each
participant's earnings to a trust under a defined contribution
arrangement. The participants direct the investments of the
trust, and the Company does not guarantee investment performance.
Participant account balances are payable upon retirement or
termination from the Company, subject to certain vesting
requirements. The cost of retirement plans was $64,000 in 2004
and $131,000 in 2003.
Stock Options
The Company has stock option plans that were approved by the
shareholders for directors, officers and employees. As of
September 30, 2004, there were stock options outstanding under
the Company's 1999 Stock Option Plan, 1997 Stock Option Plan and
1995 Stock Option Plan. Under these plans, incentive or non-
statutory stock options may be granted to officers and employees,
and they may be exercisable for up to ten years. Outside
directors were automatically granted non-statutory options to
purchase specified numbers of shares under the terms of the
plans. The Compensation and Stock Option Committee of the Board
of Directors, which has the authority to select the employees and
to determine the terms of each option granted, administers the
plans.
18
No stock options were granted during the two most recent fiscal
years. A summary of stock option activity is as follows:
(Number of Shares in Thousands) 2004 2003
Number of shares outstanding:
Beginning of year 552 574
Exercised (15) --
Terminated (79) (22)
End of year 458 552
Number of shares exercisable
at end of year 458 304
Number of shares available for grant
at end of year 406 327
Weighted average option prices per share:
Exercised during the year $ .86 --
Terminated during the year 1.27 6.15
Outstanding at end of year 1.08 1.10
Exercisable at end of year 1.08 1.20
Stock options outstanding as of September 30, 2004 had exercise
prices ranging from $.86 per share to $2.45 per share, as follows
(number of shares in thousands):
Weighted Average
Range of Number Number Average Remaining
Exercise Prices Outstanding Exercisable Price Life (Years)
Under $1.00 366 366 $ .86 8
Over $1.00 92 92 1.93 7
Stock option expense was $28,000 in 2004 and $41,000 in 2003.
Severance Arrangements
The Company has an employment agreement with the chief executive
officer that provides for the continuation of salary and benefits
for a period of three years following the officer's termination
of employment by the Company for any reason other than "cause."
The Company also has arrangements covering certain other officers
and key employees that would become effective if their employment
terminated under certain conditions following a change in control
of the Company. Under these circumstances, the Company would be
obligated to continue salary for a period of one year in certain
cases, to make lump sum payments ranging from $20,000 to $50,000
in other cases, and to provide continued welfare plan benefits
for up to two years. As of September 30, 2004, the potential,
aggregate obligation under these arrangements, if all such
officers and employees were terminated, was approximately
$2,700,000.
19
Shareholder Rights Plan
On February 4, 2000, the Company adopted a shareholder rights
plan, and the Board of Directors declared a dividend of one share
purchase right for each share of outstanding common stock.
The rights will become exercisable if any person or affiliated
group (other than certain "grandfathered" shareholders) acquires,
or offers to acquire, 10% or more of the Company's outstanding
common shares. Each exercisable right entitles the holder (other
than the acquiring person or group) to purchase, at a price of
$21.50 per share, common stock of the Company having a market
value equal to two times the purchase price. The purchase price
and the number of common shares issuable on exercise of the
rights are subject to adjustment in accordance with customary
anti-dilution provisions.
The Board of Directors may authorize the Company to redeem the
rights at a price of $.01 per right at any time before they
become exercisable. After the rights become exercisable, the
Board of Directors may authorize the Company to exchange any
unexercised rights at the rate of one share of common stock for each
right. The rights are nonvoting and will expire on February 22, 2010.
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
General Employment Enterprises, Inc.
Oakbrook Terrace, Illinois
We have audited the accompanying consolidated balance sheet of
General Employment Enterprises, Inc. and subsidiary as of
September 30, 2004 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of General Employment Enterprises, Inc. and
subsidiary at September 30, 2004, and the consolidated results of
its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
/s/ BDO Seidman, LLP
Chicago, Illinois
November 12, 2004
21
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
General Employment Enterprises, Inc.
Oakbrook Terrace, Illinois
We have audited the accompanying consolidated balance sheet of
General Employment Enterprises, Inc. and subsidiary as of
September 30, 2003, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of General Employment Enterprises, Inc. and
subsidiary at September 30, 2003, and the consolidated results of
their operations and their cash flows for the year then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
November 7, 2003
22
Item 8, Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There were no disagreements with the Company's independent
auditors during the two most recent fiscal years. Information
concerning changes in independent auditors was previously
reported in a Form 8-K Current Report dated December 23, 2003.
Item 8A, Controls and Procedures.
Disclosure Controls and Procedures
As of September 30, 2004, the Company's management evaluated,
with the participation of its principal executive officer and its
principal financial officer, the effectiveness of the Company's
disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934 (the
"Exchange Act"). Based on that evaluation, the Company's
principal executive officer and its principal financial officer
concluded that the Company's disclosure controls and procedures
were adequate as of September 30, 2004 to ensure that information
required to be disclosed in reports filed or submitted by the
Company under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities
and Exchange Commission's rules and forms.
Internal Control over Financial Reporting
Under Rules 13a-15 and 15d-15 of the Exchange Act, companies are
required to maintain internal control over financial reporting,
as defined, and company managements are required to evaluate and
report on internal control over financial reporting. Under an
extended compliance period for these rules, the Company must
begin to comply with the evaluation and disclosure requirements
with its annual report for the fiscal year ending September 30,
2005, and the Company must begin to comply with a requirement to
perform a quarterly evaluation of changes to internal control
over financial reporting that occur thereafter. As of September
30, 2004, the Company had not performed the required evaluations
mentioned above.
There was no change in the Company's internal control over
financial reporting that occurred during the Company's most
recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART III
Item 9, Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
Information concerning directors, executive officers, promoters
and control persons, and compliance with Section 16(a) of the
Exchange Act is set forth in the registrant's Proxy Statement for
the annual meeting of shareholders and is incorporated herein by
reference.
Item 10, Executive Compensation.
Information concerning executive compensation is set forth in the
registrant's Proxy Statement for the annual meeting of
shareholders and is incorporated herein by reference.
23
Item 11, Security Ownership of Certain Beneficial Owners and
Management.
Information concerning security ownership of certain beneficial
owners and management is set forth in the registrant's Proxy
Statement for the annual meeting of shareholders and is
incorporated herein by reference.
Item 12, Certain Relationships and Related Transactions.
Information concerning certain relationships and related
transactions is set forth in the registrant's Proxy Statement for
the annual meeting of shareholders and is incorporated herein by
reference.
Item 13, Exhibits and Reports on Form 8-K.
Exhibits required by item 601 of Regulation S-B
The following exhibits are filed as a part of this report:
No. Description of Exhibit
2.01 Asset Purchase Agreement Among Triad Personnel Services,
Inc., Michael P. Verona and Generation Technologies, L.P. dated
September 24, 2004. Incorporated by reference to Exhibit 2.01 to
the registrant's Form 8-K Current Report dated September 24, 2004.
Commission File No. 1-05707.
3.01 Articles of Incorporation and amendments thereto.
Incorporated by reference to Exhibit 3 to the registrant's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996,
Commission File No. 1-05707.
3.02 By-Laws. Incorporated by reference to Exhibit 3(b) of the
registrant's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997, Commission File No. 1-05707.
4.01 Rights Agreement dated as of February 4, 2000, between
General Employment Enterprises, Inc. and Continental Stock
Transfer and Trust Company, as Rights Agent. Incorporated
by reference to Exhibit 1 to the registrant's Registration
Statement on Form 8-A filed with the Securities and
Exchange Commission on February 7, 2000, Commission File
No. 1-05707.
10.01* Key Manager Plan, adopted May 22, 1990. Incorporated by
reference to Exhibit 10(h) to the registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1990, Commission File No. 1-05707.
10.02 Agreement with Sheldon Brottman dated October 3, 1991.
Incorporated by reference to Exhibit 10(l) to the
registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1991, Commission File No. 1-05707.
10.03* General Employment Enterprises, Inc. 1995 Stock Option
Plan. Incorporated by reference to Exhibit 4.1 to the
registrant's Form S-8 Registration Statement dated April
25, 1995, Registration No. 33-91550.
10.04* General Employment Enterprises, Inc. 1997 Stock Option
Plan. Incorporated by reference to Exhibit 10(n) to the
registrant's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1998, Commission File No. 1-05707.
24
10.05* Resolution of the Board of Directors adopted September 28,
1998, amending the General Employment Enterprises, Inc.
1997 Stock Option Plan. Incorporated by reference to
Exhibit 10(o) to the registrant's Annual Report on Form 10-
KSB for the fiscal year ended September 30, 1998,
Commission File No. 1-05707.
10.06* General Employment Enterprises, Inc. 1999 Stock Option
Plan. Incorporated by reference to Exhibit 10 of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, Commission File No. 1-05707.
10.07* Employment Agreement with Herbert F. Imhoff, Jr. effective
as of August 1, 2001. Incorporated by reference to
Exhibit 10.10 to the registrant's Annual Report on Form 10-
K for the fiscal year ended September 30, 2001, Commission
File No. 1-05707.
10.08* Chief Executive Officer Bonus Plan, adopted September 24,
2001. Incorporated by reference to Exhibit 10.11 to the
registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 1-05707.
10.09* The Corporate Plan for Retirement Select Plan Basic Plan
Document. Incorporated by reference to Exhibit 10.12 to
the registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 1-05707.
10.10* The Corporate Plan for Retirement Select Plan Adoption
Agreement dated September 27, 2001. Incorporated by
reference to Exhibit 10.13 to the registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 2001, Commission File No. 1-05707.
10.11* First Amendment to the General Employment Enterprises,
Inc. Executive Retirement Plan dated September 27, 2001.
Incorporated by reference to Exhibit 10.14 to the
registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 1-05707.
10.12* Form of employment agreement with executive officers.
Incorporated by reference to Exhibit 10.01 to the
registrant's Quarterly Report of Form 10-Q for the
quarterly period ended December 31, 2001, Commission File
No. 1-05707.
10.13* Regional Vice President Bonus Plan effective for fiscal
years beginning on or after October 1, 2001. Incorporated
by reference to Exhibit 10.02 to the registrant's
Quarterly Report of Form 10-Q for the quarterly period
ended December 31, 2001, Commission File No. 1-05707.
10.14* Agreement with Herbert F. Imhoff, Jr., effective August 1,
2002. Incorporated by reference to Exhibit 10.14 to the
registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2002, Commission File No. 1-05707.
14.01 General Employment Enterprises, Inc. Code of Ethics for
Directors, Officers and Employees, adopted as of August
16, 2004. Incorporated by reference to Exhibit 14.01 to
the registrant's Form 8-K Current Report dated August 16,
2004, Commission File No. 1-05707.
23.01 Consent of Independent Registered Public Accounting Firm.
23.02 Consent of Independent Registered Public Accounting Firm.
25
31.01 Certification of the principal executive officer required
by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
31.02 Certification of the principal financial officer required
by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
32.01 Certifications required by Rule 13a-14(a) or Rule 15d-
14(a) of the Exchange Act and Section 1350 of Chapter 63
of Title 18 of the United States Code.
* Management contract or compensatory plan or arrangement.
Reports on Form 8-K
The Company filed the following reports on Form 8-K during the
quarter ended September 30, 2004:
The Company reported that it issued a press release on July 30,
2004 containing information regarding its results of operations
and financial condition for the quarterly period ended June 30, 2004.
The Company reported that as of August 16, 2004, it adopted a
Code of Ethics for Directors, Officers and Employees, including
its financial officers, and rescinded a separate code of ethics
for financial officers that was previously in effect.
The Company reported that it issued a press release on September 24,
2004, announcing that its wholly-owned subsidiary, Triad
Personnel Services, Inc., completed a transaction to sell the
assets and business operations of its Pittsburgh, Pennsylvania
staffing business.
The Company reported that on September 27, 2004, the Audit
Committee of the Board of Directors approved a bonus plan
covering operational vice presidents of the Company, which is
effective for fiscal years beginning on or after October 1, 2004.
Item 14, Principal Accountant Fees and Services.
Information concerning principal accountant fees and services is
set forth in the registrant's Proxy Statement for the annual
meeting of shareholders and is incorporated herein by reference.
26
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Registrant)
Date: November 22, 2004 By: /s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr.
Chairman of the Board, Chief
Executive Officer and President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date: November 22, 2004 By: /s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr., Director
Chairman of the Board, Chief
Executive Officer and President
(Principal executive officer)
Date: November 22, 2004 By: /s/ Kent M. Yauch
Kent M. Yauch, Director
Vice President, Chief Financial
Officer and Treasurer (Principal
financial and accounting officer)
Date: November 22, 2004 By: /s/ Dennis W. Baker
Dennis W. Baker, Director
Date: November 22, 2004 By: /s/ Sheldon Brottman
Sheldon Brottman, Director
Date: November 22, 2004 By: /s/ Delain G. Danehey
Delain G. Danehey, Director
Date: November 22, 2004 By: /s/ Joseph F. Lizzadro
Joseph F. Lizzadro, Director
27