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, 20022003
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________
Commission File Number: 001-05707Number 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 NamesName 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[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 voting and non-voting common equitystock held by non-affiliatesnon-
affiliates of the registrant as of October 31, 20022003 was
$1,649,000. At that date, there were 5,120,776$5,045,000.
The number of shares outstanding of the registrant's common stock
outstanding.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 24, 200323, 2004 are incorporated by reference into Part III of
this Form 10-K.
1
PART I
Item 1. BusinessBusiness.
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
amountpercentage of revenues derived from these services for each of
the last three fiscal years is presented in the Company's
consolidated statement of income. In fiscalas follows:
Year Ended September 30
2003 2002 the Company
derived2001
Placement services 29% 32% of its revenues from placement52%
Contract services and71% 68% from
contract services.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, 2002,2003, it operated 3222 branch offices located in
downtown or suburban areas of major U.S. cities in 1211 states.
Twenty-seven of the offices were full-service branches, providing
both placement and contract services, and 5 of the offices
specialized in contract services only.
The offices were concentrated in California (6), Illinois (7),(5) and MassachusettsCalifornia (3),
with two offices each in Arizona, Florida, Georgia, Indiana, Massachusetts, Ohio
Pennsylvania, and Texas,Pennsylvania, and one office each in Florida, Georgia, North
Carolina and Tennessee.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
accountsaccounted for more than 4%5% of its revenues.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.Internet. For this purpose, the
Company maintains its own internetInternet web page at
www.generalemployment.com and uses other internetInternet 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 all 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, and scrutiny of candidates' work
experience and optional background checks. PricingIn 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 Atlanta,
Boston,
Chicago, Columbus (Ohio), Indianapolis, Los Angeles Phoenix and San FranciscoPhoenix
markets help to provide better client services through convenient
office locations and the sharing of assignments.
Regulation
Employment agency service companies are regulated by two of the
states in which the Company operates. Licenses are issued on a
year-to-year basis. As of September 30, 2002, the Company held
current licenses for all of the offices that were required to
have them.
Employees
As of September 30, 2002,2003, the Company had approximately 180140
regular employees and 130200 contract service employees.
3
Item 2. PropertiesProperties.
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 thisthat 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 1211 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 ProceedingsProceedings.
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, 2002,2003, there were no material legal
proceedings pending against the Company.
Item 4. Results of Vote of Security HoldersHolders.
No matters were submitted to a vote of security holders during
the fourth quarter of the 20022003 fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder MattersMatters.
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, 20022003
(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(excludingplans (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 574 $1.29 305552 $1.10 327
Equity compensation
plans not approved
by security holders -- -- --
Total 574 $1.29 305552 $1.10 327
4
Item 6. Selected Financial DataData.
Year Ended September 30
(In Thousands, Except Per Share) 2003 2002 2001 2000 1999
1998
Operating results:
Net revenues $18,609 $20,318 $31,035 $39,802 $39,553
$36,734
Income (loss) from operations (3,564) (4,652) (2,217) 3,577 4,569
4,710
Net income (loss) (3,506) (3,214) (1,066) 2,532 3,025 3,090
Per share data:
Net income (loss) - basic $ (.68) $ (.63) $ (.21) $ .50 $ .59
$ .61
Net income (loss) - diluted (.68) (.63) (.21) .49 .59 .58
Cash dividends declared -- -- -- .30 .04 .04
Balance sheet data:
Net working capital $ 7,0384,333 $7,038 $ 9,444 $11,300 $11,391 $ 9,261
Long-term obligations -- -- -- -- 484 460
Shareholders' equity 6,524 9,989 13,077 14,143 13,137
10,335
Total assets 8,691 11,933 15,679 19,979 18,085 15,632
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of OperationsOperations.
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, 2002,2003, the Company operated 3222
offices located in major metropolitan business centers in 1211 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.
5
Goodwill
Goodwill is being amortizedProperty and Equipment
Furniture, fixtures and equipment are stated at cost. The
Company provides for depreciation on a straight-line basis over
fortyestimated 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 amountvalue of goodwillproperty and equipment is reviewed for
impairment whenever events or changes in circumstances indicate
that it may not be recoverable. TheIf the carrying value would be written down if it were
determined to exceed theamount 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 business.is allocated to goodwill.
The Company will adoptadopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets"Assets," as of October 1, 2002. ThisIn accordance with the
statement, requires that
goodwill no longer be amortized, and it requires instead that
goodwill be tested at least annually for impairment. If the carrying value of goodwill were determined to be greater than its
estimated fair value under the impairment test, then it would be
written down to its estimated fair value.
The discontinuance of goodwill amortization is not expected to
have a significant effect on the Company's future results of
operations. The Company has completedperformed a transitional impairment test
as required by Statement No. 142, and has determined that there was no impairment of goodwill as of
October 1, 2002. ResultsPursuant to Statement No. 142, an annual
impairment test is performed, under which the estimated fair
value of Operations
A summary of operating data, expressed as a percentage of
consolidated net revenues,goodwill is presented below. Percentages may
not add due to rounding.
Year Endedcompared with its carrying value.
For years ended on and before September 30, 2002, 2001 2000
Net revenues:
Placement services 32.4% 52.3% 59.6%
Contract services 67.6 47.7 40.4
Net revenues 100.0 100.0 100.0
Operating expenses:
Cost of contract services 44.7 31.1 26.4
Selling 22.6 32.0 35.3
General and administrative 55.6 44.0 29.3
Total operating expenses 122.9 107.1 91.0
Income (loss) from operations (22.9)% (7.1)% 9.0%
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. Thisgoodwill was
due to
the combination ofbeing amortized on a $9,626,000 (59%) decrease in placement
service revenues and a $1,091,000 (7%) decrease in contract
service revenues. Placement services represented 32% of
consolidated net revenues for the year, and contract services
represented 68% of the total.
6
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%).
The Company attributes the decline in revenues to the weak demand
for employment placement services, particularly in the
information technology sector. The lingering effects of the U.S.
economic recession in 2001 and the terrorist attacks on the
United States on September 11, 2001 resulted in economic and
political uncertainties that had an adverse effect on the
Company's business throughout fiscal 2002, and hiring activity
was considerably lower than during the prior year. The national
unemployment rate was 5.6% in September 2002, compared with 4.9%
in September 2001.
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
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 decreased $2,371,000 (17%)
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 8% for the year, due to
the effect of office closings during the current and prior year,
despite recording a $401,000 provision to cover the costs of
offices closed this 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 this year. 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.
To control operating costs, the Company closed five unprofitable
branch offices during fiscal 2002. As a result of these and
other actions, the Company reduced its in-house consulting and
administrative staff by 33% from the prior-year level.
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.
7
Interest 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. This 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.
After interest and taxes, the net loss for the year was
$3,214,000, compared with a net loss of $1,066,000 the prior
year.
Fiscal 2001 Results of Operations
Net Revenues
For the year ended September 30, 2001, consolidated net revenues
were down $8,767,000 (22%) from the prior year. This was due to
the combination of a $7,503,000 (32%) decrease in placement
service revenues and a $1,264,000 (8%) decrease in contract
service revenues. Placement services represented 52% of
consolidated net revenues for the year, and contract services
represented 48% of the total.
Placement service revenues were down for the year because of a
35% decline in the number of placements, partially offset by a 1%
increase in the average placement fee. The decrease in contract
service revenues was the result of an 11% decrease in billable
hours, while the average hourly billing rate increased 4%. The
acquisition of GenTech added $1,335,000 to consolidated contract
service revenues for the 2001 fiscal year.
The Company attributes the overall decline in revenues to the
effects of the U.S. economic recession that caused customers to
delay or reduce their hiring and contract staffing activities,
particularly those customers operating in the computer and
information technology field. As an indication of the national
slowdown, the U.S. Gross Domestic Product declined at an average
rate of 0.4% during the year ended September 30, 2001, compared
with an average growth rate of 3.8% for the year ended September
30, 2000, and the national unemployment rate was 4.9% in
September 2001, compared with 3.9% in September 2000.
Operating Expenses
Total operating expenses for fiscal 2001 were down $2,973,000
(8%) compared with the prior year.
The cost of contract services was down $861,000 (8%), as a result
of the lower contract service revenues. The gross profit margin
on contract services was 34.8% in fiscal 2001, compared with
34.6% the prior year.
Selling expenses decreased $4,127,000 (29%) in fiscal 2001, and
they represented 32.0% of consolidated net revenues, which was
down 3.3 points from the prior year. Commission expense was down
36% due to the lower placement service revenues and lower
commissionable profits, while recruitment advertising expense was
4% lower than the prior year.
General and administrative expenses increased $2,015,000 (17%)
for the year, and they represented 44.0% of consolidated net
revenues. This was up 14.7 points from the prior year.
Compensation in the operating divisions increased
8
29% for the year, as lower consultant productivity and lower
commissions led to higher amounts of base pay. Office rent and
occupancy costs were up 21% for the year, including a $283,000
provision for the cost of closing unprofitable branch offices.
Reflecting the weak economy, the Company's bad debt expense
doubled, while all other general and administrative expenses were
down 6%.
To control operating costs, the Company closed seven unprofitable
branch offices during fiscal 2001, including four that were
closed at the end of the fiscal year, and reduced its in-house
staff by 18% from the prior-year level.
Other Items
The effect of lower revenues combined with higher general and
administrative expenses resulted in a loss from operations of
$2,217,000 for the year, compared with income from operations of
$3,577,000 for the prior year.
Interest income was down $114,000 (18%) in fiscal 2001, due to a
lower average amount of funds available for investment.
The effective income tax rate was 37% for the year, compared with
40% for the prior year.
After interest and taxes, the net loss for the year was
$1,066,000, compared with net income of $2,532,000 the prior
year.
Financial Condition
Although fiscal 2002 was a difficult year, the Company's
financial condition remained strong. As of September 30, 2002,
the Company had cash and cash equivalents of $4,759,000. That
was a decrease of $3,029,000 from September 30, 2001. Net
working capital at September 30, 2002 was $7,038,000, which was a
decrease of $2,406,000 compared with last September, and the
current ratio was 4.6 to 1.
During the fiscal year ended September 30, 2002, the net cash
used by operating activities was $2,845,000, which was primarily
due to the $3,214,000 net loss. Depreciation and other non-cash
expenses provided $992,000, while working capital items used
$623,000. The Company paid $207,000 for an earn out payment under
the agreement to purchase GenTech. As part of the Company's cash
conservation measures, capital expenditures were limited to
$17,000 for the year, and there were no cash dividends paid.
All of the Company's office facilities are leased through
operating leases that are not included on the balance sheet. As
of September 30, 2002 future minimum lease payments under lease
agreements having initial terms in excess of one year, including
the closed offices, were: 2003 - $1,759,000, 2004 - $1,396,000,
2005 - $1,251,000 and 2006 - $370,000.
As of September 30, 2002, the Company had no debt outstanding,
and there were no off-balance sheet arrangements, unconsolidated
subsidiaries, commitments or guarantees of other parties, except
as disclosed in the notes to the consolidated financial
statements. Shareholders' equity at that date was $9,989,000,
which represented 84% of total assets.
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 was
9
adversely affected during fiscal 2001 by the U.S. economic
recession and during fiscal 2002 by the lingering weakness in the
employment market caused by economic and political uncertainties
that followed the September 2001 terrorist attacks.
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 the technology sector of
the economy.
The Company's current priority is to minimize the impact of the
economy, to return the Company to profitability as soon as
possible, and to be positioned for growth when the demand for its
services returns. Returning the Company to profitability will
require a combination of both increasing revenues and reducing
costs. Management took stepsstraight-line basis over the last two fiscal years to
lower the Company's infrastructure costs, including closing 12
unprofitable branch offices, reducing the in-house consulting and
administrative staff by 45% and reducing other operating
expenses. As a result, general and administrative expenses for
fiscal 2002 were below the fiscal 2000 level. The consolidated
statement of operations for the year ended September 30, 2002
reflects $388,000 of operating losses of closed branch offices,
which will not be incurred in future periods. Management
believes that it took all appropriate actions within its control
to reduce costs in fiscal 2002, 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 in fiscal 2003.
The Company recorded $1,540,000 of income tax refunds receivable
as of September 30, 2002, and it expects to receive those refunds
during fiscal 2003. As of September 30, 2002, the Company had
recorded the tax benefit of all available loss carrybacks, and
there were approximately $1,180,000 of losses available to reduce
state and local taxable income in future years, expiring from
2006 through 2022. Under current income tax regulations, any
losses that might be incurred by the Company in fiscal 2003 would
not result in current tax refunds, but would be carried forward
to reduce taxable income in subsequentforty years.
The Company's primary source of liquidity is normally from its
operating activities. Despite recent losses, management believes
that existing cash and securities, together with the available
income tax refunds, will be adequate to finance current
operations for the foreseeable future. Nevertheless, if
operating losses were to continue indefinitely into the future,
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.
Risk Factors
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.
10
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
RiskRisk.
The primary objective for the Company's investment portfolio is
to provide maximum protection of principal and high liquidity.
By investing in high-quality securities having relatively short
maturity periods, the Company iswas not exposed to the riskmaterial market risks as of
material interest rate fluctuations.September 30, 2003.
11
Item 8. Financial Statements and Supplementary DataData.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
As of September 30
(In Thousands) 2003 2002 2001
ASSETS
Current assets:
Cash and cash equivalents $ 4,7593,905 $ 7,293
Short-term investments -- 4954,759
Accounts receivable, less allowances
(2002(2003 -- $ 312; 2001$238; 2002 -- $243)$312) 2,095 2,255 2,685
Income tax refunds receivable 57 1,540 948
Other current assets 443 428 625
Total current assets 6,500 8,982 12,046
Property and equipment:
Furniture, fixtures and equipment 5,037 6,575 6,697
Accumulated depreciation and amortization (3,934) (4,693) (3,952)
Net property and equipment 1,103 1,882
2,745
Goodwill net of accumulated amortization1,088 1,069 888
Total assets $ 8,691 $11,933 $15,679
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 623237 $ 551235
Accrued compensation and payroll taxes 1,054 1,030 1,753
Other current liabilities 291 298876 679
Total current liabilities 2,167 1,944 2,602
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 in 2002 and 5,087 in 2001 51 51
Capital in excess of stated value of shares 4,736 4,695 4,569
Retained earnings 1,737 5,243 8,457
Total shareholders' equity 6,524 9,989 13,077
Total liabilities and shareholders' equity $ 8,691 $11,933 $15,679
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 2000
Net revenues:
Placement services $ 6,5915,488 $6,591 $16,217 $23,720
Contract services 13,121 13,727 14,818
16,082
Net revenues 18,609 20,318 31,035 39,802
Operating expenses:
Cost of contract services 9,068 9,082 9,659
10,520
Selling 3,710 4,584 9,918 14,045
General and administrative 9,395 11,304 13,675 11,660
Total operating expenses 22,173 24,970 33,252
36,225
Income (loss)Loss from operations (3,564) (4,652) (2,217)
3,577
InterestInvestment income 58 108 531
645
Income (loss)Loss before income taxes (3,506) (4,544) (1,686)
4,222
Provision (credit)Credit for income taxes -- (1,330) (620)
1,690
Net income (loss)loss $(3,506) $(3,214) $(1,066)
Net loss per share - basic and diluted $ 2,532
Net income (loss) per share:
Basic(.68) $ (.63) $ (.21)
$ .50
Diluted $ (.63) $ (.21) $ .49
Average number of shares:
Basicshares - basic and diluted 5,121 5,116 5,087 5,087
Diluted 5,116 5,087 5,117
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 2000
Operating activities:
Net income (loss)loss $(3,506) $(3,214) $(1,066) $ 2,532
Depreciation and amortization 850 854 857 597
Reduction of long-term obligations -- -- (516)
Other noncurrent items 77 138 22 403
Changes in current assets and current
liabilities, net of effects from acquisition:acquisition
in 2001:
Accounts receivable 160 430 1,989 (213)
Income tax refunds receivable 1,483 (592) (948) --
Accrued compensation and payroll taxes 24 (723) (2,038)
163
Other, net 184 262 (231)
(257)
Net cash provided (used)used by operating activities (728) (2,845) (1,415) 2,709
Investing activities:
Acquisition of property and equipment (107) (17) (733) (1,583)
Acquisition of Generation Technologies, Inc. (19) (207) (1,523)
--
PurchasesMaturities of short-term investments -- -- (3,461)
Maturities of short-term investments 500 5,000 4,800
Net cash provided (used) by investing activities (126) 276 2,744 (244)
Financing activities:
Exercises of stock options -- 35 -- --
Cash dividends paid -- -- (1,272) (254)
Net cash provided (used) by financing activities -- 35 (1,272) (254)
Increase (decrease) in cash and
cash equivalents (854) (2,534) 57 2,211
Cash and cash equivalents at beginning
of year 4,759 7,293 7,236 5,025
Cash and cash equivalents at end of year $ 3,905 $ 4,759 $ 7,293 $ 7,236
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 2000
Common shares outstanding:
Number at beginning of year 5,0875,121 5,087 5,087
Exercises of stock options -- 34 -- --
Number at end of year 5,121 5,0875,121 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 $ 4,5694,695 $ 4,569 $ 4,569
Stock option awardsexpense 41 91 -- --
Exercises of stock options -- 35 -- --
Balance at end of year $ 4,6954,736 $ 4,5694,695 $ 4,569
Retained earnings:
Balance at beginning of year $ 5,243 $ 8,457 $ 9,523
$ 8,517
Net income (loss)loss (3,506) (3,214) (1,066) 2,532
Cash dividends declared on common stock -
$.30 per share in 2000 -- -- (1,526)
Balance at end of year $ 1,737 $ 5,243 $ 8,457 $ 9,523
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 accountsaccounted for more than 4%5% of its
revenues.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
16
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
and Short-term Investments
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 and short-term
investments individually when
purchased as either available-for-
saleavailable-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, Thethe Company will adoptadopted 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 isdid not expected to have a significant effect
on the Company's financial position as of September 30, 2003 or
on the results of operations.operations for the year then ended.
Business Combinations and Goodwill
A business combination completed in April 2001 wasBusiness combinations are recorded as aby using the purchase transaction, andmethod
of accounting, whereby the excess of the cost over the
fair
values of the identifiable net assets acquired wasis allocated to goodwill.
Goodwill is being amortized on a straight-line basis
over forty years.17
The carrying amountCompany adopted the provisions of goodwill is reviewed
whenever events or changes in circumstances indicate that it may
not be recoverable. The carrying value would be written down if
it were determined to exceed the estimated future undiscounted
cash flows of the acquired business.
17
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations" and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets.Assets," Statement No. 141
requires that business combinations completed after June 30, 2001
be accounted for using the purchase method of accounting and
specifies the types of intangible assets to be recognized in such
transactions. The accounting for the Company's April 2001
business combination was not affected by the adoption of
Statement No. 141.
The Company will adopt the provisions of Statement No. 142 as of October 1, 2002. ThisIn accordance with the
statement, requires that goodwill no longer
be amortized, and it requires instead that goodwill be tested at
least annually for impairment. If the carrying value of goodwill
were determined to be greater than its estimated fair value under
the impairment test, then it would be written down to its
estimated fair value.
The discontinuance of goodwill amortization is not expected to
have a significant effect on the Company's future results of
operations. The Company has completedperformed a transitional impairment test
as required by Statement No. 142, and has 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 fiscal 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
On April 10,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 April 2002, the Company made the first
annual payment in the amount of $207,000 and recorded it as
additional goodwill. Future payments underIn 2003, the purchase
agreement will beCompany 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 whenduring 2003.
Goodwill amortization expense was $25,000 for the amounts are determined.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 and $11,000 as of September 30, 2001.
182002.
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 2000:2001:
(In Thousands, Except perPer Share) 2001 2000
Net revenues $32,894
$42,232
Net income (loss)loss (936)
2,658
Net income (loss)loss per share - basic and diluted (.18) .52
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 20002001 or of future results of operations.
Cash and Cash Equivalents and Short-term Investments
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 and short-term investments as of September 30 is as
follows:
(In Thousands) 2003 2002
2001
Cash $1,176 $1,180 $1,410
Money market funds 2,729 408 --
Commercial paper 3,171 5,583
U.S. federal agency notes -- 300
Corporate notes -- 4953,171
Total cash and cash equivalents and short-term investments$3,905 $4,759 $7,788
All cash equivalents held as of September 30, 20022003 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 provision (credit)credit for income taxes are as follows:
(In Thousands) 2003 2002 2001
2000
Current tax provision (credit):credit:
U.S. federal $ -- $(1,382) $(491) $1,168
State and local -- (58) (101) 296
Total current tax provision (credit)credit -- (1,440) (592) 1,464
Deferred tax provision (credit) related to:
Temporary differences (217) (144) 39
226
Loss carryforwards (1,063) (132) (67)
--
Valuation allowanceallowances 1,280 386 -- --
Total deferred tax provision (credit) -- 110 (28)
226
Provision (credit)Credit for income taxes $ -- $(1,330) $(620) $1,690
The differences between income taxes calculated at the 34%
statutory U.S. federal income tax rate and the Company's provision (credit)credit
for income taxes are as follows:
(In Thousands) 2003 2002 2001
2000
Income tax (credit)credit at statutory
federal tax rate $(1,192) $(1,545) $(573) $1,435
Federal valuation allowance 1,186 166 -- --
State income taxes, including state
valuation allowance, less federal effect -- 33 (69)
228
Other 6 16 22
27
Provision (credit)Credit for income taxes $ -- $(1,330) $(620) $1,690
The net deferred income tax asset balance as of September 30
related to the following:
(In Thousands) 2003 2002 2001
Accrued and deferred rent $ 188276 $ 87188
Accrued compensation 156 124 119
Depreciation and amortization (84) (196) (193)
Other expenses 56 71 30
Net operating loss carryforwards 1,262 199
67
Valuation allowanceallowances (1,666) (386) --
Net deferred income tax asset $ -- $ 110--
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 20012001.
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 $1,596,000 in 2000.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. For
all other state and local income taxes, the 2002 and 2001 losses
were carried forward. As of September 30, 2002, the Company
had recorded the tax benefit of all available loss carrybacks,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 $2,400,000$5,800,000 of losses
available to reduce state and local taxable income in future
years. They expireyears, expiring from 20062005 through 2022.2023.
Property and Equipment
Property and equipment, at cost, comprised the following as of
September 30:
(In Thousands) 2003 2002 2001
Computer equipment and software $3,014 $3,830 $3,892
Office equipment, furniture and fixtures 2,023 2,745 2,805
Total property and equipment, at cost $5,037 $6,575
$6,697Due 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
In addition, due to the office closings, the Company recorded a
$56,000 expense in 2002 for the impairment in value of certain
property and equipment.
The combined operatingnet revenues and the combined operating income
or loss from operations
of all offices that were closed as of September 30, 2002,2003,
included in the consolidated statement of operations, were as
follows:
(In Thousands) 2003 2002 2001
2000
OperatingNet revenues $ 3901,080 $ 3,027 $7,275
Operating income (loss) (388) (1,335) 580
Line of Credit
The Company has a loan agreement with a bank, renewable annually,
that makes a $1,000,000 unsecured line of credit available to the
Company at the prime rate. Under the agreement, the Company is
required to maintain a balance of2,085 $ 5,971
Loss from operations (509) (1,105) (1,535)
21
cash and marketable securities of $2,000,000 or more to support
any borrowings. There were no borrowings outstanding under the
line of credit as of September 30, 2002 and 2001.
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 and
$1,783,000 in 2000.2001.
As of September 30, 2002,2003, future minimum lease payments under
lease agreements having initial terms in excess of one year,
including the closed offices, were: 2003 -
$1,759,000, 2004 - $1,396,000,$1,524,000, 2005 -
$1,251,000,$1,273,000 and 2006 - $370,000.$395,000.
Retirement BenefitsPlan
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 either
5% or 10%a
percentage of theeach participant's base salaryearnings 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. During the year ended September
30, 2000, the Company fulfilled its obligation under an agreement
to provide retirement benefits to an officer by paying out a lump
sum of $400,000. The total cost of all retirement plans
was $134,000 in 2003, $108,000 in 2002 and $101,000 in 2001 and $123,000 in 2000.2001.
Stock Options
The Company has stock option plans that were approved by the
shareholders for directors, officers and employees. As of
September 30, 2002,2003, 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-statutorynon-
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-
statutorynon-statutory options to
purchase specified numbers of shares onunder the effective datesterms 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 September 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 2000
Number of shares outstanding:
Beginning of year 574 877 719
721
Granted -- 485 215
32
Exercised -- (34) --
--
Terminated (22) (754) (57) (34)
End of year 552 574 877 719
Number of shares exercisable
at end of year 304 312 776 651
Number of shares available for grant
at end of year 327 305 36 194
Weighted average option prices per share:
Granted during the year $ -- $ .91 $3.03 $4.73
Exercised during the year -- .78 -- --
Terminated during the year 6.15 5.21 4.68 6.13
Outstanding at end of year 1.10 1.29 4.86 5.39
Exercisable at end of year 1.20 1.47 5.04 5.41
Stock options outstanding as of September 30, 20022003 had exercise
prices ranging from $.86 per share to $9.29$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 432431 228 $ .86 109
$1.00 to $3.00 123 71 1.95 9
Over $3.00 19 13 6.69 6121 76 1.94 8
The Company adopted the policy of expensing the fair value of
stock option awards beginning in fiscal 2002, and the
compensation expense for the year was $91,000. Under the
Company's previous methodas of accounting, there was no expense
resulting from the granting of stock options because the option
exercise prices were equalOctober 1, 2001, applicable to the fair market values of the
Company's common stock at the dates of grant. Had the Company
recorded compensation expense for stock options issued in
previous years, and allocated the expense over their vesting
periods, the effectall
awards granted on the 2002 reported net loss of $3,214,000
($.63 per share) would have been insignificant, and the Company
would have had a pro forma net loss of $1,128,000 ($.22 per
share) in 2001 and pro forma net income of $2,477,000 ($.49 per
share) in 2000.
23or after that date. Stock option awardexpense 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
2000
Weighted average estimated fair value per
share of stock options granted $ .33 $ .99
$1.48
Expected option life (years) 4.00 3.00
3.00
Stock price volatility 42% 40%
53%
Risk-free interest rate 2.6% 5.1% 5.4%
Dividend yield -- % -- %
1.0%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 they will expire on February
22, 2010.
Severance Arrangements
The Company has an employment agreement with anthe 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, 2002,2003, the potential,
aggregate obligation under these arrangements, if all such
officers and employees were terminated, was approximately
$3,300,000.$2,800,000.
24
GENERAL EMPLOYMENT ENTERPRISES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended September 30
(In Thousands) 2003 2002 2001 2000
Allowance for falloffs and doubtful accounts:
Balance at beginning of year $243 $512 $440$ 312 $ 243 $ 512
Additions charged to operating expenses 307 323 884 411
Adjustments charged (credited) to revenues (35) 22 (314) 74
Deductions for bad debt write-offs (346) (276) (839) (413)
Balance at end of year $312 $243 $512$ 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, 20022003 and 2001,2002, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 2002.2003.
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, 20022003 and 2001,2002, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended September 30, 2002,2003, 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 8, 20027, 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$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)
InterestInvestment 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
Fiscal 2001:
Net revenues $6,453 $ 7,421 $ 8,249 $8,912
Operating expenses(1) 7,467 8,132 8,800 8,853
Income (loss) from operations (1,014) (711) (551) 59
Interest income 89 99 149 194
Income (loss) before income taxes (925) (612) (402) 253
Provision (credit) for income taxes 340 (235) (150) 105
Net income (loss) $ (585) $ (377) $ (252) $ 148
Net income (loss) per share $ (.12) $ (.07) $ (.05) $ .03
Market price per share:
High 2.73 2.74 3.38 3.75
Low 1.13 2.30 2.30 2.50
(1) Operating expenses include provisions for office closings
of
$92,000and asset impairment losses totaling $410,000 in the 2003
fourth quarter, of fiscal$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 quarterquarter.
(2) There were no credits for income taxes as a result of the
pretax losses in fiscal 2002,2003, because the losses must be
carried forward for income tax purposes and $283,000 in the
fourth quarter of fiscal 2001.
(2)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 provision
to record a deferred tax valuation
allowance of $386,000 in
the fourth quarter of fiscal 2002.$386,000.
The Company's common stock is traded on the American Stock
Exchange under the trading symbol JOB. There were 867809 holders of
record on October 31, 2002.2003. 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 DisclosureDisclosure.
There have beenwere 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 RegistrantRegistrant.
Information concerning directors and the executive officers of
the registrant is set
forth in the registrant's Proxy Statement for the annual meeting
of shareholders and is incorporated herein by reference.
Item 11. Executive CompensationCompensation.
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
ManagementManagement.
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 TransactionsTransactions.
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. ControlsPrincipal Accountant Fees and Procedures
Evaluation of Disclosure ControlsServices.
Information concerning principal accountant fees and Procedures
Based on their evaluation as of a date within 90 days of the
filing of this Annual Report on Form 10-K, the Company's
principal executive officer and its principal financial officer
have concluded that the Company's disclosure controls and
procedures, as defined in Rule 13a-14(c) and Rule 15d-14(c) under
the Securities Exchange Act of 1934 (the "Exchange Act"), are
effective to ensure that information required to be disclosed by
the Companyservices is
set forth in the reports that it files or submits underregistrant's Proxy Statement for the Exchange Actannual
meeting of shareholders and is recorded, processed, summarized and reported,
within the time periods specified in the rules and forms for
those reports.
Changes in Internal Controls
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation.
28incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K8-K.
Financial Statements and Financial Statement Schedules
The following financial statements and financial statement
schedules are filed as a part of this report:presented in "Item 8. Financial Statements and
Supplementary Data."
Page
Consolidated Balance Sheet as of September 30, 20022003 and 20012002 12
Consolidated Statement of Operations for the years
ended September 30, 2003, 2002 2001 and 20002001 13
Consolidated Statement of Cash Flows for the years
ended September 30, 2003, 2002 2001 and 20002001 14
Consolidated Statement of Shareholders' Equity for the years
ended September 30, 2003, 2002 2001 and 20002001 15
Notes to Consolidated Financial Statements 16
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 2003, 2002 2001 and 20002001 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 no reportsthe following report on Form 8-K during the
quarter ended September 30, 2002.2003:
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'sregistrant's Form 8-K Current Report dated April 10, 2001.
Commission File No. 001-05707.1-05707.
3.01 Articles of Incorporation and amendments thereto.
Incorporated by reference to Exhibit 3 to the Registrant'sregistrant's
Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996, Commission File No.
001-05707.1-05707.
3.02 By-Laws. Incorporated by reference to Exhibit 3(b) of the
Registrant'sregistrant's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997, Commission File No. 001-05707.
291-
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'sregistrant'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'sregistrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1990, Commission File No. 001-05707.1-05707.
10.02 Agreement with Sheldon Brottman dated October 3, 1991.
Incorporated by reference to Exhibit 10(l) to the
Registrant'sregistrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1991, Commission File No. 001-05707.1-
05707.
10.03* General Employment Enterprises, Inc. 1995 Stock Option
Plan. Incorporated by reference to Exhibit 4.1 to the
Registrant'sregistrant'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'sregistrant's Annual Report on Form 10-KSB for the fiscal
year ended September 30,1998, Commission File No. 001-05707.1-05707.
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'sregistrant's Annual Report on Form 10-
KSB for the fiscal year ended September 30,1998,30, 1998,
Commission File No. 001-05707.1-05707.
10.06* General Employment Enterprises, Inc. 1999 Stock Option
Plan. Incorporated by reference to Exhibit 10 of the
Registrant'sregistrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, Commission File No. 001-05707.1-05707.
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'sregistrant's Annual Report on Form 10-
K for the fiscal year ended September 30, 2001, Commission
File No. 001-05707.1-05707.
30
10.08* Chief Executive Officer Bonus Plan, adopted September 24,
2001. Incorporated by reference to Exhibit 10.11 to the
Registrant'sregistrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 001-05707.1-
05707.
10.09* The Corporate Plan for Retirement Select Plan Basic Plan
Document. Incorporated by reference to Exhibit 10.12 to
the Registrant'sregistrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 001-05707.1-
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'sregistrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 2001, Commission File No. 001-05707.1-05707.
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'sregistrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 001-05707.
301-
05707.
10.12* Form of employment agreement with executive officers.
Incorporated by reference to Exhibit 10.01 to the
Registrant'sregistrant's Quarterly Report of Form 10-Q for the
quarterly period ended December 31, 2001, Commission File
No. 001-05707.1-05707.
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'sregistrant's
Quarterly Report of Form 10-Q for the quarterly period
ended December 31, 2001, Commission File No. 001-05707.1-05707.
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.
99.01 General Employment Enterprises, Inc. certification
pursuant to 18 U.S.C.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 as adopted pursuant to
Section 906of Chapter 63
of Title 18 of the Sarbanes-Oxley Act of 2002.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 Registrantregistrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Registrant)
Date: November 25, 200224, 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 25, 200224, 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 25, 200224,2003 By: /s/ Kent M. Yauch
Kent M. Yauch, Director
Vice President, Chief Financial
Officer and Treasurer (Principal
financial and accounting officer)
Date: November 25, 200224, 2003 By: /s/ Dennis W. Baker
Dennis W. Baker, Director
Date: November 25, 200224, 2003 By: /s/ Sheldon Brottman
Sheldon Brottman, Director
Date: November 25, 200224, 2003 By: /s/ Delain G. Danehey
Delain G. Danehey, Director
Date: November 25, 200224, 2003 By: /s/ Joseph F. Lizzadro
Joseph F. Lizzadro, Director
32
CERTIFICATIONS
I, Herbert F. Imhoff, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of General
Employment Enterprises, Inc;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls sub-sequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 25, 2002
/s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr.
Chairman of the Board, Chief Executive Officer and President
(Principal executive officer)
33
I, Kent M. Yauch, certify that:
1. I have reviewed this annual report on Form 10-K of General
Employment Enterprises, Inc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
"Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 25, 2002
/s/ Kent M. Yauch
Kent M. Yauch
Vice President, Chief Financial Officer and Treasurer
(Principal financial officer)
34