UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the fiscal year ended September 30, 2003
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-05707
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Exact name of registrant as specified 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)
Registrant'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
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained herein,
and will not 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-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). [ ]
The aggregate market value of the common stock held by non-
affiliates of the registrant as of October 31, 2003 was
$5,045,000.
The number of shares outstanding of the registrant's common stock
as of October 31, 2003 was 5,120,776.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the General Employment Enterprises, Inc. Proxy
Statement for the annual meeting of shareholders to be held on
February 23, 2004 are incorporated by reference into Part III of
this Form 10-K.
1
PART I
Item 1. 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
2003 2002 2001
Placement services 29% 32% 52%
Contract services 71% 68% 48%
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, 2003, it operated 22 branch offices located in
downtown or suburban areas of major U.S. cities in 11 states.
The offices were concentrated in Illinois (5) and California (3),
with two offices each in Arizona, Indiana, Massachusetts, Ohio
and Pennsylvania, 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 any of the last
three 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 classified newspaper advertising
and through postings on the Internet. For this purpose, the
Company maintains its own Internet 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, 2003, the Company had approximately 140
regular employees and 200 contract service employees.
3
Item 2. Properties.
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 11 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 4,900 square feet, generally for periods of two to five
years, with cancellation clauses after certain periods of
occupancy. 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, 2003, there were no material legal
proceedings pending against the Company.
Item 4. Results of Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of the 2003 fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
Information regarding this item is contained in "Item 8.
Financial Statements and Supplementary Data."
Securities authorized for issuance under equity compensation
plans were as follows as of September 30, 2003
(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 552 $1.10 327
Equity compensation
plans not approved
by security holders -- -- --
Total 552 $1.10 327
4
Item 6. Selected Financial Data.
Year Ended September 30
(In Thousands, Except Per Share) 2003 2002 2001 2000 1999
Operating results:
Net revenues $18,609 $20,318 $31,035 $39,802 $39,553
Income (loss) from operations (3,564) (4,652) (2,217) 3,577 4,569
Net income (loss) (3,506) (3,214) (1,066) 2,532 3,025
Per share data:
Net income (loss) - basic $ (.68) $ (.63) $ (.21) $ .50 $ .59
Net income (loss) - diluted (.68) (.63) (.21) .49 .59
Cash dividends declared -- -- -- .30 .04
Balance sheet data:
Net working capital $ 4,333 $7,038 $ 9,444 $11,300 $11,391
Long-term obligations -- -- -- -- 484
Shareholders' equity 6,524 9,989 13,077 14,143 13,137
Total assets 8,691 11,933 15,679 19,979 18,085
Item 7. Management's Discussion and Analysis of Financial
Condition and Results 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, 2003, the Company operated 22
offices located in major metropolitan business centers in 11 states.
Overview of Operations
The U.S. economic recession of 2001 and its lingering after-
effects significantly affected the Company's results of
operations during the three years ended September 30, 2003. It
was a period of growing unemployment, as the national
unemployment rate stood at 6.1% in September 2003, compared with
5.6% in September 2002 and 4.9% in September 2001.
The national employment conditions, particularly in the
information technology sector, resulted in weak demand for the
Company's employment services. That weakness, together with
competitive market conditions, led to fewer full-time placements by
the Company and to declining average service fees and billing rates.
To control operating costs, the Company closed ten branch offices
during fiscal 2003, five branch offices during fiscal 2002 and
seven branches during fiscal 2001 due to unprofitable operations.
Additional cost reductions were achieved through actions to
switch recruitment advertising from print media to the Internet,
and to reduce administrative compensation.
5
A summary of operating data, expressed as a percentage of
consolidated net revenues, is presented below. Percentages may
not add due to rounding.
Year Ended September 30
2003 2002 2001
Net revenues:
Placement services 29.5 % 32.4 % 52.3 %
Contract services 70.5 67.6 47.7
Net revenues 100.0 100.0 100.0
Operating expenses:
Cost of contract services 48.7 44.7 31.1
Selling 19.9 22.6 32.0
General and administrative 50.5 55.6 44.0
Total operating expenses 119.2 122.9 107.1
Loss from operations (19.2)% (22.9)% (7.1)%
Fiscal 2003 Results of Operations
Net Revenues
Consolidated net revenues for the year ended September 30,2003
were down $1,709,000 (8%) from the prior year. That was due to
the combination of a $1,103,000 (17%) decrease in placement
service revenues and a $606,000 (4%) decrease in contract service
revenues.
Placement service revenues were down for the year because of a 3%
decline in the number of placements, together with a 13% decrease
in the average placement fee. The decrease in contract service
revenues occurred, despite a 7% increase in the number of
billable hours, because of an 11% decrease in the average hourly
billing rate.
Operating Expenses
Total operating expenses for fiscal 2003 were down $2,797,000
(11%) compared with the prior year.
The cost of contract services was down $14,000, as a result of
the lower contract service revenues and lower profit margins.
Due to competitive market conditions, the gross profit margin on
contract services declined 2.9 points to 30.9% for fiscal 2003,
compared with 33.8% the prior year.
Selling expenses decreased $874,000 (19%) for the year.
Commission expense was down 10% due to the lower placement
service revenues, while recruitment advertising expense was 43%
lower than the prior year. Selling expenses represented 19.9% of
consolidated net revenues, which was down 2.7 points from the
prior year.
General and administrative expenses include provisions for office
closings and asset impairment losses totaling $625,000 in 2003
and $401,000 in 2002. Excluding those charges, general and
administrative expenses decreased $2,133,000 (20%) for the year.
Compensation in the operating divisions decreased 24% due to a
reduction in the size of the consulting staff, and administrative
compensation was reduced by 18% through a combination of lower
headcounts and lower executive compensation rates. Overall, the Company
6
reduced its in-house consulting and administrative staff by 22%
from the prior-year level. Office rent and occupancy costs were
down 15% for the year, due to the effect of office closings
during the current and prior year, and all other general and
administrative expenses were down 19%. General and
administrative expenses represented 50.5% of consolidated
revenues, and that was down 5.1 points from the prior year
because expenses declined more sharply than revenues.
Other Items
The loss from operations was $3,564,000 for fiscal 2003, which
was $1,088,000 (23%) better than the prior year's operating loss
of $4,652,000.
Investment income was down $50,000 (46%) for fiscal 2003, due to
a combination of lower average funds available for investment and
lower average rates of return.
There was no credit for income taxes as a result of the pretax
losses in 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. There was an income tax
credit of $1,330,000 in fiscal 2002.
As a result, the net loss for the year was $3,506,000, compared
with a net loss of $3,214,000 the prior year.
Fiscal 2002 Results of Operations
Net Revenues
Consolidated net revenues for the year ended September 30,2002
were down $10,717,000 (35%) from the prior year. That was due to
the combination of a $9,626,000 (59%) decrease in placement
service revenues and a $1,091,000 (7%) decrease in contract
service revenues.
Placement service revenues were down for the year because of a
53% decline in the number of placements, together with a 13%
decrease in the average placement fee. The decrease in contract
service revenues was the result of a 9% decrease in billable
hours, partially offset by a 2% increase in the average hourly
billing rate. In April 2001, the Company acquired the assets and
business operations of Generation Technologies, Inc. ("GenTech"),
a staffing business in Pittsburgh, Pennsylvania specializing in
information technology professionals. The Company's results of
operations include GenTech for a full year in fiscal 2002 and for
six months in fiscal 2001. Excluding GenTech from both years,
the Company's contract service revenues decreased $2,334,000 (17%).
Operating Expenses
Total operating expenses for fiscal 2002 were down $8,282,000
(25%) compared with the prior year.
The cost of contract services was down $577,000 (6%), as a result
of the lower contract service revenues. Due to competitive
market conditions, the gross profit margin on contract services
declined 1.0 point to 33.8% for fiscal 2002, compared with 34.8%
the prior year.
Selling expenses decreased $5,334,000 (54%) for the year.
Commission expense was down 61% due to the lower placement
service revenues and lower commissionable profits, while
recruitment advertising expense was 36% lower than the prior
year. Selling expenses represented 22.6% of consolidated net
7
revenues, which was down 9.4 points from the prior year because
of the shift in mix of revenues toward contract services.
General and administrative expenses include provisions for office
closings and asset impairment losses totaling $401,000 in 2002
and $283,000 in 2001. Excluding those charges, general and
administrative expenses decreased $2,489,000 (19%) for the year.
Compensation in the operating divisions decreased 23% due to a
reduction in the size of the consulting staff. Office rent and
occupancy costs were down 12% for the year, due to the effect of
office closings during the current and prior year. Other office
operating costs declined 36% due to fewer offices, and bad debt
expense was 63% lower due to the lower volume of business and
improved collection experience in 2002. All other general and
administrative expenses were up 3%. General and administrative
expenses represented 55.6% of consolidated revenues, and that was
up 11.6 points from the prior year because revenues declined more
sharply than expenses.
Other Items
The effect of lower revenues resulted in a loss from operations
of $4,652,000 for the year, compared with a loss from operations
of $2,217,000 for the prior year.
Investment income was down $423,000 (80%) for fiscal 2002, due to
a combination of lower average funds available for investment and
lower average interest rates.
The effective income tax rate was 29% for the year, compared with
37% for the prior year. The lower effective tax rate in fiscal
2002 resulted from recording a $386,000 valuation allowance to
reduce net deferred tax assets to zero. The valuation allowance
will be reversed in future periods, as a reduction of the
provision for income taxes, if it is determined that the deferred
tax assets will be realized, based on future taxable income.
As a result, the net loss for the year was $3,214,000, compared
with a net loss of $1,066,000 the prior year.
Outlook
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. The demand for the
Company's employment services has been 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.
The Company's current priority is to minimize the impact of the
weak labor market, to return the Company to profitability as soon
as possible, and to be positioned for growth when the demand for
its services improves. Returning the Company to profitability
will require a combination of both increasing revenues and
reducing costs.
It is not known how long the weakness in the U. S. labor market
will continue to have an adverse effect on the Company's
operations. Management believes that the Company's placement
service revenues will continue at depressed levels until there is
an increase in national business spending on computer equipment
and software, leading to a rebound in hiring in the technology
sector of the economy. The reduced number of branch offices and
consulting staff could inhibit the Company's rate of revenue
growth when the demand for its services improves in the future.
8
During the last three fiscal years, management took steps to
lower the Company's infrastructure costs, including closing 22
unprofitable branch offices and reducing the in-house consulting
and administrative staff by 58%. As a result, the general and
administrative expenses for fiscal 2003 were at their lowest
level in five years. Moreover, the consolidated statement of
operations reflects $509,000 of operating losses of closed branch
offices in fiscal 2003, which will not be incurred in future
years. Management believes that it has taken all appropriate
actions within its control to reduce costs to date, consistent
with positioning the Company for the future, and it will continue
to evaluate the Company's operations and take appropriate actions
to meet the economic challenges ahead.
Liquidity and Capital Resources
As of September 30, 2003, the Company had cash and cash
equivalents of $3,905,000, which was a decrease of $854,000 from
the prior year. Net working capital at September 30, 2003 was
$4,333,000, which was a decrease of $2,705,000 from the prior
year, and the current ratio was 3.0 to 1. The Company had no
long-term debt. Shareholders' equity as of September 30, 2003
was $6,524,000, which represented 75% of total assets.
During the year ended September 30, 2003, the net cash used by
operating activities was $728,000, as the $3,506,000 net loss for
the year was partially offset by depreciation and other non-cash
expenses of $927,000. Income tax refunds provided $1,483,000,
and all other working capital items provided $368,000. As part
of the Company's cash conservation measures, capital expenditures
were limited to $107,000 for the year, and there were no cash
dividends paid.
As of September 30, 2002, the Company had recorded the income tax
benefit of all available loss carrybacks. As of September 30,
2003, there were approximately $2,900,000 of losses available to
reduce federal taxable income in future years through 2023, and
there were approximately $5,800,000 of losses available to reduce
state and local taxable income in future years, expiring from
2005 through 2023.
The Company's primary source of liquidity is normally from its
operating activities. Despite recent losses, management believes
that existing cash and securities 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 further, 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.
Contractual Obligations
As of September 30, 2003, the Company's contractual obligations
were as follows:
(In Thousands) 2004 2005 2006
Payments due by period:
Operating lease obligations $1,524 $1,273 $395
The above amounts include operating lease obligations for closed
offices. The Company had no long-term debt, capital lease
obligations, purchase commitments or other long-term liabilities
as of September 30, 2003.
9
Off-Balance Sheet Arrangements
As of September 30, 2003, and during the three 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.
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.
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.
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.
As of October 1, 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This
statement establishes accounting standards for the recognition
and measurement of the impairment of long-lived assets. The
adoption of this new statement did not have a significant effect
on the Company's financial position as of September 30, 2003 or
on the results of operations for the year then ended.
10
Business Combinations and Goodwill
Business combinations are recorded by using the purchase method
of accounting, whereby the excess of the cost over the
identifiable net assets acquired is allocated to goodwill.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets," as of October 1, 2002. In accordance with the
statement, the Company performed a transitional impairment test
and determined that there was no impairment of goodwill as of
October 1, 2002. Pursuant to Statement No. 142, an annual
impairment test is performed, under which the estimated fair
value of goodwill is compared with its carrying value.
For years ended on and before September 30, 2002, goodwill was
being amortized on a straight-line basis over forty years.
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 project assignments, and the ability to attract and
retain qualified corporate and branch management.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
The Company was not exposed to material market risks as of
September 30, 2003.
11
Item 8. Financial Statements and Supplementary Data.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
As of September 30
(In Thousands) 2003 2002
ASSETS
Current assets:
Cash and cash equivalents $ 3,905 $ 4,759
Accounts receivable, less allowances
(2003 -- $238; 2002 -- $312) 2,095 2,255
Income tax refunds receivable 57 1,540
Other current assets 443 428
Total current assets 6,500 8,982
Property and equipment:
Furniture, fixtures and equipment 5,037 6,575
Accumulated depreciation and amortization (3,934) (4,693)
Net property and equipment 1,103 1,882
Goodwill 1,088 1,069
Total assets $ 8,691 $11,933
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 237 $ 235
Accrued compensation and payroll taxes 1,054 1,030
Other current liabilities 876 679
Total current liabilities 2,167 1,944
Shareholders' equity:
Preferred stock; authorized -- 100 shares;
issued and outstanding -- none -- --
Common stock, no-par value; authorized --
20,000 shares; issued and outstanding --
5,121 shares 51 51
Capital in excess of stated value of shares 4,736 4,695
Retained earnings 1,737 5,243
Total shareholders' equity 6,524 9,989
Total liabilities and shareholders' equity $ 8,691 $11,933
See notes to consolidated financial statements.
12
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30
(In Thousands, Except Per Share) 2003 2002 2001
Net revenues:
Placement services $ 5,488 $6,591 $16,217
Contract services 13,121 13,727 14,818
Net revenues 18,609 20,318 31,035
Operating expenses:
Cost of contract services 9,068 9,082 9,659
Selling 3,710 4,584 9,918
General and administrative 9,395 11,304 13,675
Total operating expenses 22,173 24,970 33,252
Loss from operations (3,564) (4,652) (2,217)
Investment income 58 108 531
Loss before income taxes (3,506) (4,544) (1,686)
Credit for income taxes -- (1,330) (620)
Net loss $(3,506) $(3,214) $(1,066)
Net loss per share - basic and diluted $ (.68) $ (.63) $ (.21)
Average number of shares - basic and diluted 5,121 5,116 5,087
See notes to consolidated financial statements.
13
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30
(In Thousands) 2003 2002 2001
Operating activities:
Net loss $(3,506) $(3,214) $(1,066)
Depreciation and amortization 850 854 857
Other noncurrent items 77 138 22
Changes in current assets and current
liabilities, net of effects from acquisition
in 2001:
Accounts receivable 160 430 1,989
Income tax refunds receivable 1,483 (592) (948)
Accrued compensation and payroll taxes 24 (723) (2,038)
Other, net 184 262 (231)
Net cash used by operating activities (728) (2,845) (1,415)
Investing activities:
Acquisition of property and equipment (107) (17) (733)
Acquisition of Generation Technologies, Inc. (19) (207) (1,523)
Maturities of short-term investments -- 500 5,000
Net cash provided (used) by investing activities (126) 276 2,744
Financing activities:
Exercises of stock options -- 35 --
Cash dividends paid -- -- (1,272)
Net cash provided (used) by financing activities -- 35 (1,272)
Increase (decrease) in cash and
cash equivalents (854) (2,534) 57
Cash and cash equivalents at beginning
of year 4,759 7,293 7,236
Cash and cash equivalents at end of year $ 3,905 $ 4,759 $ 7,293
See notes to consolidated financial statements.
14
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended September 30
(In Thousands, Except Per Share) 2003 2002 2001
Common shares outstanding:
Number at beginning of year 5,121 5,087 5,087
Exercises of stock options -- 34 --
Number at end of year 5,121 5,121 5,087
Common stock:
Balance at beginning and end of year $ 51 $ 51 $ 51
Capital in excess of stated value:
Balance at beginning of year $ 4,695 $ 4,569 $ 4,569
Stock option expense 41 91 --
Exercises of stock options -- 35 --
Balance at end of year $ 4,736 $ 4,695 $ 4,569
Retained earnings:
Balance at beginning of year $ 5,243 $ 8,457 $ 9,523
Net loss (3,506) (3,214) (1,066)
Balance at end of year $ 1,737 $ 5,243 $ 8,457
See notes to consolidated financial statements.
15
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 any of the last three 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, impairment of property and
equipment, and impairment of goodwill. 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.
16
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.
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. The
Company classifies its cash equivalents individually when
purchased as either available-for-sale or held-to-maturity
securities.
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.
As of October 1, 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This
statement establishes accounting standards for the recognition
and measurement of the impairment of long-lived assets. The
adoption of this new statement did not have a significant effect
on the Company's financial position as of September 30, 2003 or
on the results of operations for the year then ended.
Business Combinations and Goodwill
Business combinations are recorded by using the purchase method
of accounting, whereby the excess of the cost over the
identifiable net assets acquired is allocated to goodwill.
17
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets," as of October 1, 2002. In accordance with the
statement, the Company performed a transitional impairment test
and determined that there was no impairment of goodwill as of
October 1, 2002. Pursuant to Statement No. 142, an annual
impairment test is performed, under which the estimated fair
value of goodwill is compared with its carrying value.
For years ended on and before September 30, 2002, goodwill was
being amortized on a straight-line basis over forty years.
Disposal Activities
A liability is recorded for the cost of exit or disposal
activities in the period when the liability is incurred.
Stock Options
As of October 1, 2001, the Company adopted the policy of
recording compensation expense 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. Prior years have not been restated to reflect this
method of accounting.
For years ended on and before September 30, 2001, the Company did
not record compensation expense when stock options were granted
with exercise prices equal to the fair market value of the
Company's common stock on the date of grant, in accordance with
the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
Had the Company recorded compensation expense for stock options
granted in previous years, and allocated the expense over their
vesting periods, the effect on the 2003 and 2002 results of
operations would have been insignificant, and the Company's pro
forma results of operations in fiscal 2001 would have been as
follows:
(In Thousands) 2001
Net loss, as reported $(1,066)
Stock-based compensation expense, net of tax 62
Net loss, pro forma $(1,128)
Net loss per share - basic and diluted:
As reported $ (.21)
Pro forma $ (.22)
Acquisition
In 2001, the Company completed a transaction to purchase
substantially all of the assets and business operations of
Generation Technologies, Inc. ("GenTech"), a staffing business in
Pittsburgh, Pennsylvania, specializing in information technology
professionals. The assets acquired include the business
operations, company name, customer lists, interests in office
space and equipment, accounts receivable and goodwill.
18
The purchase price was established as an initial cash payment to
the seller and three annual cash payments to be equal to a
multiple of the respective year's annual earnings, as defined.
The initial cost of the acquisition was $1,523,000, of which
$624,000 was allocated to the net assets acquired and $899,000
was allocated to goodwill. In 2002, the Company made the first
annual payment in the amount of $207,000 and recorded it as
additional goodwill. In 2003, the Company made the second annual
payment in the amount of $19,000 and recorded it as additional
goodwill.
Based on tests performed using discounted cash flow analysis and
multiple of earnings techniques, there was no impairment of
goodwill during 2003.
Goodwill amortization expense was $25,000 for the year ended
September 30, 2002 and $11,000 for the year ended September 30,
2001. Accumulated amortization of goodwill was $36,000 as of
September 30, 2002.
The results of GenTech's operations are included in the Company's
financial statements for periods subsequent to the date of
acquisition. The unaudited pro forma results of operations
presented below assume that the acquisition had occurred at the
beginning of fiscal 2001:
(In Thousands, Except Per Share) 2001
Net revenues $32,894
Net loss (936)
Net loss per share - basic and diluted (.18)
This information is presented for informational purposes only.
It is not necessarily indicative of the results that would have
been achieved had the acquisition taken place at the beginning of
fiscal 2001 or of future results of operations.
Cash and Cash Equivalents
The Company's primary objective for its investment portfolio is
to provide maximum protection of principal and high liquidity.
By investing in high-quality securities having relatively short
maturity periods, or in money market mutual funds having similar
objectives, the Company reduces its exposure to the risks
associated with interest rate fluctuations. Investments in
securities of corporate issuers are rated A2 and P2 or better. A
summary of cash and cash equivalents as of September 30 is as
follows:
(In Thousands) 2003 2002
Cash $1,176 $1,180
Money market funds 2,729 408
Commercial paper -- 3,171
Total cash and cash equivalents $3,905 $4,759
All cash equivalents held as of September 30, 2003 were
classified as available-for-sale securities. Amortized cost
approximated market value for all investments, and unrealized
gains and losses were not significant.
19
Income Taxes
The components of the credit for income taxes are as follows:
(In Thousands) 2003 2002 2001
Current tax credit:
U.S. federal $ -- $(1,382) $(491)
State and local -- (58) (101)
Total current tax credit -- (1,440) (592)
Deferred tax provision (credit) related to:
Temporary differences (217) (144) 39
Loss carryforwards (1,063) (132) (67)
Valuation allowances 1,280 386 --
Total deferred tax provision (credit) -- 110 (28)
Credit for income taxes $ -- $(1,330) $(620)
The differences between income taxes calculated at the 34%
statutory U.S. federal income tax rate and the Company's credit
for income taxes are as follows:
(In Thousands) 2003 2002 2001
Income tax credit at statutory
federal tax rate $(1,192) $(1,545) $(573)
Federal valuation allowance 1,186 166 --
State income taxes, including state
valuation allowance, less federal effect -- 33 (69)
Other 6 16 22
Credit for income taxes $ -- $(1,330) $(620)
The net deferred income tax asset balance as of September 30
related to the following:
(In Thousands) 2003 2002
Accrued and deferred rent $ 276 $ 188
Accrued compensation 156 124
Depreciation and amortization (84) (196)
Other expenses 56 71
Net operating loss carryforwards 1,262 199
Valuation allowances (1,666) (386)
Net deferred income tax asset $ -- $ --
The Company received income tax refunds of $1,467,000 in 2003 and
$950,000 in 2002. The Company made income tax payments of
$26,000 in 2003, $57,000 in 2002 and $423,000 in 2001.
There was no credit for income taxes as a result of the pretax
losses in fiscal 2003, because the losses must be carried forward
for income tax purposes and there was not sufficient assurance
that a future tax benefit
20
would be realized. For federal income tax purposes, and for
certain states, the tax losses incurred in fiscal 2002 and fiscal
2001 were carried back, and the Company recorded the benefit of
the resulting tax refunds. As of September 30, 2002, the Company
had recorded the tax benefit of all available loss carrybacks.
As of September 30, 2003, there were approximately $2,900,000 of
losses available to reduce federal taxable income in future years
through 2023, and there were approximately $5,800,000 of losses
available to reduce state and local taxable income in future
years, expiring from 2005 through 2023.
Property and Equipment
Property and equipment, at cost, comprised the following as of
September 30:
(In Thousands) 2003 2002
Computer equipment and software $3,014 $3,830
Office equipment, furniture and fixtures 2,023 2,745
Total property and equipment, at cost $5,037 $6,575
Due to the closing of branch offices in recent years, the Company
identified certain idle office furniture and equipment that were
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 and $56,000 in 2002.
Office Closings
The Company closed ten branch offices during fiscal 2003, five
branch offices during fiscal 2002 and seven branch offices during
fiscal 2001 due to unprofitable operations, and recorded a
provision, included in general and administrative expenses, of
$448,000 in 2003, $345,000 in 2002 and $283,000 in 2001 covering
the future lease obligations of those offices. The rent
liability, included in other current liabilities, was as follows
as of September 30:
(In Thousands) 2003 2002 2001
Balance at beginning of year $ 388 $120 $ --
Provision for office closings 448 345 283
Payments (179) (77) (163)
Balance at end of year $ 657 $388 $ 120
The combined net revenues and the combined loss from operations
of all offices that were closed as of September 30, 2003,
included in the consolidated statement of operations, were as
follows:
(In Thousands) 2003 2002 2001
Net revenues $ 1,080 $ 2,085 $ 5,971
Loss from operations (509) (1,105) (1,535)
21
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 was
$1,623,000 in 2003, $1,848,000 in 2002 and $1,997,000 in 2001.
As of September 30, 2003, future minimum lease payments under
lease agreements having initial terms in excess of one year,
including the closed offices, were: 2004 - $1,524,000, 2005 -
$1,273,000 and 2006 - $395,000.
Retirement Plan
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. As of January 1,
2002, the Company adopted 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 total cost of retirement plans
was $134,000 in 2003, $108,000 in 2002 and $101,000 in 2001.
Stock Options
The Company has stock option plans that were approved by the
shareholders for directors, officers and employees. As of
September 30, 2003, 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.
In 2002, the Company completed a tender offer to exchange
outstanding stock options having an exercise price of $3.00 per
share or more for new options having an exercise price equal to
the fair market value on the date of grant. Options to purchase
581,000 shares of the Company's common stock were tendered and
were accepted by the Company for cancellation, and options to
purchase 432,000 shares were issued.
22
A summary of stock option activity is as follows:
(Number of Shares in Thousands) 2003 2002 2001
Number of shares outstanding:
Beginning of year 574 877 719
Granted -- 485 215
Exercised -- (34) --
Terminated (22) (754) (57)
End of year 552 574 877
Number of shares exercisable
at end of year 304 312 776
Number of shares available for grant
at end of year 327 305 36
Weighted average option prices per share:
Granted during the year $ -- $ .91 $3.03
Exercised during the year -- .78 --
Terminated during the year 6.15 5.21 4.68
Outstanding at end of year 1.10 1.29 4.86
Exercisable at end of year 1.20 1.47 5.04
Stock options outstanding as of September 30, 2003 had exercise
prices ranging from $.86 per share to $2.46 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 $1.00 431 228 $ .86 9
$1.00 to $3.00 121 76 1.94 8
The Company adopted the policy of expensing the fair value of
stock option awards as of October 1, 2001, applicable to all
awards granted on or after that date. Stock option expense was
$41,000 in 2003 and $91,000 in 2002.
Stock option expense was calculated using the Black-Scholes
option-pricing model to determine the estimated fair value of
options granted, and using the following assumptions:
2002 2001
Weighted average estimated fair value per
share of stock options granted $ .33 $ .99
Expected option life (years) 4.00 3.00
Stock price volatility 42% 40%
Risk-free interest rate 2.6% 5.1%
Dividend yield -- % -- %
23
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.
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, 2003, the potential,
aggregate obligation under these arrangements, if all such
officers and employees were terminated, was approximately
$2,800,000.
24
GENERAL EMPLOYMENT ENTERPRISES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended September 30
(In Thousands) 2003 2002 2001
Allowance for falloffs and doubtful accounts:
Balance at beginning of year $ 312 $ 243 $ 512
Additions charged to operating expenses 307 323 884
Adjustments charged (credited) to revenues (35) 22 (314)
Deductions for bad debt write-offs (346) (276) (839)
Balance at end of year $ 238 $ 312 $ 243
Deferred income tax valuation allowances:
Balance at beginning of year $ 386 $ -- $ --
Additions charged to provision for income taxes 1,280 386 --
Balance at end of year $1,666 $ 386 $ --
25
REPORT OF INDEPENDENT AUDITORS
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 2002, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 2003.
Our audits also included the financial statement schedule listed
in the Index at Item 15. These financial statements and the
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the 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 audits provide 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 2002, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended September 30, 2003, in conformity
with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
aspects the information set forth therein.
/s/ Ernst & Young LLP
Chicago, Illinois
November 7, 2003
26
GENERAL EMPLOYMENT ENTERPRISES, INC.
SELECTED QUARTERLY FINANCIAL DATA AND MARKET INFORMATION
Fourth Third Second First
(In Thousands, Except Per Share) Quarter Quarter Quarter Quarter
Fiscal 2003:
Net revenues $4,582 $4,597 $4,530 $4,900
Operating expenses(1) 5,505 5,470 5,636 5,562
Loss from operations (923) (873) (1,106) (662)
Investment income 13 21 6 18
Loss before income taxes (910) (852) (1,100) (644)
Credit for income taxes (2) -- -- -- --
Net loss $ (910) $ (852) $(1,100) $ (644)
Net loss per share $ (.18) $ (.17) $ (.21) $ (.13)
Market price per share:
High .90 .82 .74 .69
Low .61 .46 .44 .41
Fiscal 2002:
Net revenues $4,921 $4,734 $5,154 $5,509
Operating expenses(1) 5,846 6,011 6,676 6,437
Loss from operations (925) (1,277) (1,522) (928)
Investment income 11 18 31 48
Loss before income taxes (914) (1,259) (1,491) (880)
Provision (credit) for income taxes(2) 45 (475) (570) (330)
Net loss $ (959) $ (784) $ (921) $ (550)
Net loss per share $ (.19) $ (.15) $ (.18) $ (.11)
Market price per share:
High 1.29 1.99 1.79 1.70
Low .62 1.20 1.20 1.04
(1) Operating expenses include provisions for office closings
and asset impairment losses totaling $410,000 in the 2003
fourth quarter, $178,000 in the 2003 third quarter, $37,000
in the 2003 second quarter, $148,000 in the 2002 fourth
quarter and $253,000 in the 2002 second quarter.
(2) There were no credits for income taxes as a result of the
pretax losses in 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 provision (credit) for income taxes for the
2002 fourth quarter includes a deferred tax valuation
allowance of $386,000.
The Company's common stock is traded on the American Stock
Exchange under the trading symbol JOB. There were 809 holders of
record on October 31, 2003. 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.
27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There were no changes in or disagreements with the Company's
independent accountants during the two most recent fiscal years.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
As of September 30, 2003, 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, 2003 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.
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 10. Directors, Executive Officers, Promoters and Control
Persons of the Registrant.
Information concerning directors and executive officers is set
forth in the registrant's Proxy Statement for the annual meeting
of shareholders and is incorporated herein by reference.
Item 11. 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.
Item 12. 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.
28
Item 13. 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 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.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
Financial Statements and Financial Statement Schedules
The following financial statements and financial statement
schedules are presented in "Item 8. Financial Statements and
Supplementary Data."
Page
Consolidated Balance Sheet as of September 30, 2003 and 2002 12
Consolidated Statement of Operations for the years
ended September 30, 2003, 2002 and 2001 13
Consolidated Statement of Cash Flows for the years
ended September 30, 2003, 2002 and 2001 14
Consolidated Statement of Shareholders' Equity for the years
ended September 30, 2003, 2002 and 2001 15
Notes to Consolidated Financial Statements 16
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 2003, 2002 and 2001 25
Report of Independent Auditors 26
All other financial statement schedules are omitted because they
are not applicable.
Reports on Form 8-K
The Company filed the following report on Form 8-K during the
quarter ended September 30, 2003:
The Company reported that it issued a press release on July 24,
2003 containing information regarding its results of operations
and financial condition for the quarterly period ended June 30,
2003.
29
Exhibits
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., Generation Technologies, Inc. and Michael P. Verona dated
April 10, 2001. Incorporated by reference to Exhibit 2.01 to the
registrant's Form 8-K Current Report dated April 10, 2001.
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.
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.
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.
30
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
Financial Officers adopted as of October 1, 2003.
23.01 Consent of Independent Auditors.
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.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Registrant)
Date: November 24, 2003 By: /s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr.
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of
1934, 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 24, 2003 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 24,2003 By: /s/ Kent M. Yauch
Kent M. Yauch, Director
Vice President, Chief Financial
Officer and Treasurer (Principal
financial and accounting officer)
Date: November 24, 2003 By: /s/ Dennis W. Baker
Dennis W. Baker, Director
Date: November 24, 2003 By: /s/ Sheldon Brottman
Sheldon Brottman, Director
Date: November 24, 2003 By: /s/ Delain G. Danehey
Delain G. Danehey, Director
Date: November 24, 2003 By: /s/ Joseph F. Lizzadro
Joseph F. Lizzadro, Director
32