UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KWASHINGTON, DC 20549
FORM 10-K
| x | Annual Report UnderPursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| | For the fiscal year ended September 30, 20122013 |
| o | Transition Report UnderPursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 1-05707
| Commission File Number 1-05707 |
|
GENERAL EMPLOYMENT ENTERPRISES, INCINC. |
| (Exact name of registrant as specified in its charter) |
| Illinois | | 36-6097429 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
One Tower Lane,184 Shuman Blvd., Suite 2200, Oakbrook Terrace,420, Naperville, IL | | 6018160563 |
| (Address of principal executive offices) | | (Zip Code) |
| Registrant’s telephone number, including area code: (630) 954-0400 |
|
| One Tower Lane, Suite 2200, Oakbrook Terrace, IL 60181 |
| (Former name, former address and former fiscal year, if changed since last report) |
|
| Securities registered pursuant to Section 12(b) of the Act: |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | | Name of each exchange on which registered |
| Common Stock, no par value | | NYSE MKT |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes oNo x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes oNo x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 ox No xo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant 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 the Form 10-K. ox
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
| Large accelerated filer | o | | Accelerated filer | o |
| | | | |
| Non-accelerated filer | o | | Smaller reporting company | x |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes oNo x
The aggregate market value of shares of common stock held by non-affiliates of the registrant on March 31, 201228, 2013 was 3,306,3054,471,171 x 0.570.38 = $1,884,594.$1,699,045.
The number of shares outstanding of the registrant’s common stock as of March 28, 2013January 13, 2014 was 21,699,675.22,799,675.
| | Page |
| PART I | | |
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| Item 1. | | 1 |
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| Item 1A. | | 43 |
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| Item 1B. | | 98 |
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| Item 2. | | 98 |
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| Item 3. | | 108 |
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| Item 4. | | 108 |
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| PART II | | |
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| Item 5. | | 109 |
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| Item 6. | | 1110 |
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| Item 7. | | 1110 |
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| Item 7A. | | 18 |
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| Item 8. | | 19 |
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Item 8. | | 20 |
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Item 9. | | 4139 |
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| Item 9A. | | 4139 |
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| Item 9B. | | 4240 |
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| PART III | | |
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| Item 10. | | 4341 |
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| Item 11. | | 4845 |
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| Item 12. | | 5549 |
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| Item 13. | | 5650 |
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| Item 14. | | 5750 |
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| PART IV | | |
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| Item 15. | | 5951 |
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| | 6355 |
Forward Looking Statement
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). The Company has based these forward-looking statements on the Company’s current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us and the Company’s subsidiaries that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a material difference include, but are not limited to, those discussed elsewhere in this Annual Report, including the section entitled “Risks“Risk Factors” and the risks discussed in the Company’s other Securities and Exchange Commission filings. The following discussion should be read in conjunction with the Company’s audited Financial Statements and related Notes thereto included elsewhere in this report.
General
General Employment Enterprises, Inc. (the “Company”, “us”, “our” or “we”) 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. In June 2010, the Company purchased certain assets of On-Site Services, a temporary staffing agricultural business. In December 2010, the Company purchased certain assets of DMCC Staffing, LLC (“DMCC”) and RFFG of Cleveland, LLC (“RFFG of Cleveland”) an industrial staffing business located in the state of Ohio. In August 2011, the Company purchased certain assets of Ashley Ellis, LLC (“Ashley Ellis”), a professional staffing and placement business. The principal executive office of the Company is located at One Tower Lane,184 Shuman Blvd., Suite 2200, Oakbrook Terrace,420, Naperville, Illinois.
Changes in Control of the Company
On January 3, 2012, each of Trinity HR Services, LLC, a Delaware limited liability company (“Trinity Services”), Trinity HR, LLC, a Kentucky limited liability company (“Trinity HR”), Brandon Simmons, Jeff Moody and J. Sherman Henderson III (collectively, the “Trinity Group”) filed Schedule 13Ds (the “Schedule 13D Filings”) with the Securities and Exchange Commission disclosing that each of Messrs. Simmons, Moody and Henderson, as co-managers of Trinity Services and Trinity HR, may be deemed to beneficially own, in the aggregate, 12,825,281 shares of the Company’s common stock, no par value (the “Common Stock”), or approximately 59.1% of the issued and outstanding Common Stock based on the number of shares outstanding as of September 30, 2011, reported by the Company in its Annual Report on Form 10-K for the period ended September 30, 2011, filed on December 29, 2011, constituting a change of control for the Company.
According to the Schedule 13D Filings, Gregory L. Skaggs, the sole member of PSQ, LLC, a Kentucky limited liability company (“PSQ”), which owned 9,325,281 shares of Common Stock, or approximately 43% of the issued and outstanding Common Stock (the “PSQ Shares”), had sold his entire membership interest in PSQ to Trinity Services, effective as of December 12, 2011, which Trinity Services distributed to itself on December 13, 2011. The PSQ Shares were purchased by Trinity Services for $500,000, payable in monthly installments through seller financing from Mr. Skaggs and approximately $45,000 of short term borrowings from Derby Capital, LLC, an affiliate of Messrs. Henderson and Moody. Trinity Services pledged the PSQ Shares to Mr. Skaggs as collateral for payment of the balance of the purchase price.
The Schedule 13D Filings also disclosed that Trinity HR had acquired 3,500,000 shares of Common Stock (the “RFFG Shares” and, together with the PSQ Shares, the “Shares”) or approximately 16.1% of the issued and outstanding Common Stock, from RFFG, LLC (“RFFG”), a wholly owned subsidiary of Trinity HR, on December 21, 2011 as a distribution from RFFG. Trinity HR acquired RFFG from WTS Acquisition LLC on September 8, 2011. RFFG previously obtained beneficial ownership of the RFFG Shares in early September 2011 as a prospective purchase price payment from the Company to RFFG in connection with the sale by RFFG to the Company of a portion of its business on December 30, 2010.
On August 28, 2012, Brandon Simmons filed an Amendment No. 1 to Schedule 13D (the “Trinity 13D Filing”) with the SEC disclosing that on August 21, 2012, (i) Trinity Services sold 9,325,281 shares (the “Services Shares”) of Common Stock to LEED HR (owned and controlled by Michael Schroering our Chairman of the Board and Chief Executive Officer) and (ii) Trinity HR sold 2,974,719 shares (the “HR Shares” and, together with the Services Shares, the “Transferred Shares”) of Common Stock to LEED (collectively, the “Trinity Transfer”). As a result of the Trinity Transfer, LEED acquired an aggregate of 12,300,000 shares of Common Stock, or approximately 57% of the issued and outstanding Common Stock based on the number of shares outstanding as of August 13, 2012, reported by the Company in its Quarterly Report on Form 10-Q for the period ended June 30, 2012, filed on August 14, 2012, constituting a change of control for the Company.
According to the Trinity 13D Filing and the exhibits attached thereto, the Services Shares were purchased by LEED for a purchase price of $2,274,000, payable as follows: (i) $37,900 in cash at closing, (ii) $721,000 within 45 days thereof, and (iii) the balance by delivery of a promissory note. As additional consideration, LEED also agreed to promptly pay Trinity Services, 40% of any proceeds in excess of $4,662,641 received by LEED from (x) the sale of the first 2,974,719 Transferred Shares either sold by LEED or subject to a “Deemed Sale” (defined as shares deemed to be sold if, after the third anniversary date from August 21, 2012, the market price of the Transferred Shares exceeds $0.50, subject to certain exclusions), and (y) all dividends or distributions made by the Company. Under the promissory note, LEED is required to pay to Trinity Services, $1,515,100 plus interest accrued at an annual rate of one percent (1%), not later than January 21, 2014. LEED is also required to pay Trinity Services under the promissory note, one-half (1/2) of the net proceeds of any sales of the Transferred Shares yielding aggregate proceeds to LEED in excess of $250,000 in any twelve-month period.
According to the Trinity 13D Filing and the exhibits attached thereto, the HR Shares were purchased by LEED for a purchase price of $726,000, payable as follows: (i) $12,100 in cash at closing, (ii) $229,000 within 45 days thereof, and (iii) the balance by delivery of a promissory note. As additional consideration, LEED also agreed to promptly pay Trinity HR, 40% of any proceeds in excess of $1,487,359.50 received by LEED from (x) the sale of the first 2,974,719 Transferred Shares either sold by LEED or subject to a Deemed Sale (as defined above), and (y) all dividends or distributions made by the Company. Under the promissory note, LEED is required to pay to Trinity HR, $484,900 plus interest accrued at an annual rate of one percent (1%), not later than January 21, 2014. LEED is also required to pay Trinity HR under the promissory note, one-half (1/2) of the net proceeds of any sales of the Transferred Shares yielding aggregate proceeds to LEED in excess of $250,000 in any twelve-month period.
On August 24, 2012, the Company was informed of the transfer of 3,357,410 shares of Common Stock, constituting approximately 15.5% of the issued and outstanding Common Stock, from Big Red Investment Partnership, Ltd. to LEED, pursuant to a privately negotiated transaction (the “Big Red Transfer”). As a result of the Trinity Transfer and the Big Red Transfer, LEED may be deemed to beneficially own 15,657,410 shares of Common Stock, constituting approximately 74% of the issued and outstanding Common Stock. LEED is controlled by our current Chief Executive officer and Chairman of the Board, Michael Schroering.
Services Provided
The Company provides the following distinctive services: (a) professional placement services specializing in the placement of information technology, engineering, and accounting professionals for direct hire and contract staffing, (b) temporary staffing services in the agricultural industry, which was discontinued as of July 7, 2013, and (c) temporary staffing services in light industrial staffing.
The Company’s placementCompany provides staffing services include placing candidates into regular, full-time jobs with client-employers.through a network of branch offices located in major metropolitan areas throughout the United States. The Company’s professional staffing services provide information technology, engineering and accounting professionals to clients on either a regular placement basis or a temporary contract services include professional employees andbasis. The Company’s industrial staffing business provides weekly temporary staffing for light industrial employees on temporary assignments, under contracts with client companies. Professional and light industrial contract workers are employees of the Company, typically working at the client location and at the direction of client personnel for periods of one week to one year. The Company’s light industrial staffing provides services to clients through five offices in Ohio and one office in Pennsylvania. The Company’s temporary staffing in the agricultural industry provides agricultural workers for farms and groves primarily located in Florida. Most of the workers migrate from location to location because the work is seasonal depending on the type of crop.
In conjunction with the purchase of the assets of DMCC and RFFG of Cleveland in fiscal 2011, the Company entered into a management service agreement (the “Management Agreement”) with RFFG to operate its day to day business, but due to an unresolved issue with the Ohio Bureau of Workers Compensation, the former owners of RFFG ceased operations as of July 15, 2011. As a result the consolidated statements of operations reflect a loss on impairment of intangible assets of $1,126,000, offset by income of $1,276,000 from the reduction of an associated earn-out liability. We do not provide management services to any other company and management does not currently intend to provide management services to any other company in the foreseeable future.
The percentage of revenues derived from each of the Company’s distinctive servicescontinuing operations is as follows:
| | | Year Ended September 30 | | | | |
| | | 2012 | | | 2011 | | | Year Ended September 30, | |
| Agricultural contract services | | | 15 | % | | | 34 | % | |
| | | 2013 | | | 2012 | |
| Industrial contract services | | | 54 | % | | | 33 | % | | | 64 | % | | | 63 | % |
| Professional contract services | | | 17 | % | | | 19 | % | | | 20 | % | | | 20 | % |
| Direct hire placement services | | | 14 | % | | | 12 | % | | | 16 | % | | | 17 | % |
| Management services | | | - | % | | | 2 | % | |
Marketing
The Company markets its services using the trade names General Employment Enterprises, Omni One, Business Management Personnel, Ashley Ellis, Triad Personnel Services, Triad Staffing, Generation Technologies, BMCH, BMCHPA and On-Site Services.BMCHPA. As of September 30, 2012,2013, it operated twenty twotwenty-one branch offices located in downtown or suburban areas of major U.S. cities in eleven states. The offices were located in Arizona, California (4)(3), Florida (2), Georgia, Illinois (2), Indiana, Massachusetts, North Carolina, Ohio (7), Pennsylvania and Texas.
The Company markets its staffing services to prospective clients primarily through telephone marketing by its recruiting and sales consultants, and through mailing of employment bulletins, which list candidates available for placement and contract employees available for assignment. The Company’s agricultural staffing services are marketed directly through contact and relationships built and maintained by the division’s general manager.
There was no customer that represented more than 10% of the Company’s consolidated revenue in fiscal 2012; however the Company did have two large customers that represented approximately 17.4% and 11.5% of the Company’s consolidated revenue for2013 or in fiscal 2011.2012.
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.
The Company’s professional and industrial staffing services compete 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 part of its service, the Company provides professional reference checking, scrutiny of candidates’ work experience and optional background checks. In general, pricing is considered to be secondary to quality of service as a competitive factor. During slow hiring periods, however, competition can put pressure on the Company’s pricing.
The agricultural staffing service iswas considered a niche business that requiresrequired a high capital reserve to cover the weekly payroll. There arewere few businesses in this market and themarket. The Company does not anticipate a significant change in the pricing for the next year.discontinued this business as of July 7, 2013.
Recruiting
The success of the Company’s services is highly dependent on its ability to obtain qualified candidates. Prospective employment candidates are generally recruited through telephone contact by the Company’s employment consultants or through postings on the Internet. For Internet postings, the Company maintains its own web page at www.generalemployment.com and uses other Internet job posting bulletin board services. The Company maintains database records of applicants’ skills to assist in matching them with job openings and contract assignments. The Company generally screens and interviews all applicants who are presented to its clients. The Company’s agricultural service employees are generally seasonal migrant workers, who are typically recurring workers or are directly recruited by the customers.
Employees
As of September 30,
2012,2013, the Company had approximately
140160 regular employees and the number of contract service employees varied week to week from a minimum of
200approximately 500 to a maximum of 4,000.
Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 139a)13(a), 14 and 15(d) ifof the Securities and Exchange Act of 1934, as amended.Act. The public may obtain these filings at the Securities and Exchange Commission (SEC)’s(the “SEC”) Public Reference Room at 100 F Street, NE, Washington DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http//www.sec.gov that contains reports, proxy and information statements and other information regarding the General Employment Enterprise’sCompany and other companies that file material with the SEC electronically. Copies of the Company’s reports can be obtained, free of charge, electronically through our internet website, http//www.generalemployment.com.
WE HAVE EXPERIENCED LOSSES FROM OPERATIONS AND MAY NOT BE PROFITABLE IN THE FUTUREFUTURE.
The Company experienced significant losses for the year ended September 30, 2012.2013. There can be no assurance that the Company will not incur losses in the future. The Company’s operating expenses have increased as the business has grown and can be expected to increase significantly because of expansion efforts. There is no assurance that the Company will be able to generate sufficient revenue to meet its operating expenditures or continue to operate profitably.
RECENT GLOBAL TRENDS IN THE FINANCIAL MARKETS COULD ADVERSELY AFFECT OUR BUSINESS, LIQUIDITY AND FINANCIAL RESULTSRESULTS.
Recent global economic conditions, including disruption of financial markets, could adversely affect our business and results of operations, primarily through limiting our access to credit, our ability to refinance debt and disrupting our customers’ businesses, which are heavily dependent on retail and e-commerce transactions. Although we currently believe that we will be able to obtain the necessary financing in the future, there is no assurance that these institutions will be able to loan us the necessary capital, which could have a material adverse impact on our business. In addition, continuation or worsening of general market conditions in the United States economy important to our businesses may adversely affect our customers’ level of spending, ability to obtain financing for purchases and ability to make timely payments to us for our services, which could require us to increase our allowance for doubtful accounts, negatively impact our days sales outstanding and adversely affect our results of operations.
WE DEPEND ON ATTRACTING, INTEGRATING, MANAGING, AND RETAINING QUALIFIED PERSONNEL.
Our success depends upon our ability to attract, integrate, manage and retain personnel who possess the skills and experience necessary to fulfill our clients’ needs. Our ability to hire and retain qualified personnel could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors or modifications to our total compensation philosophy or competitor hiring programs. If we cannot attract, hire and retain qualified personnel, our business, financial condition and results of operations may suffer. Our future success also depends upon our ability to manage the performance of our personnel. Failure to successfully manage the performance of our personnel could affect our profitability by causing operating inefficiencies that could increase operating expenses and reduce operating income.
ONE OF OUR CHIEF EXECUTIVE OFFICER AND CHAIRMANBOARD OF THE BOARD,DIRECTORS, TOGETHER WITH HIS AFFILIATES, CONTROLCONTROLS A MAJORITY OF THE COMBINED VOTING POWER OF OUR COMMON STOCK, WHICH MAY GIVE RISE TO CONFLICTS OF INTERESTSINTERESTS.
Michael Schroering, our former Chief Executive Officer and Chairman of the Board,current director, together with his affiliates, control approximately 74%70% of the Company’s voting shares outstanding. As a result, Mr. Schroering and his affiliates are able to control all matters requiring the Company’s stockholders’shareholders’ approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may delay, prevent or deter a change in control, and could deprive the Company’s stockholdersshareholders of an opportunity to receive a premium for their common stock as part of a sale of the Company or its assets. The interests of Mr. Schroering and his affiliates may not always coincide with your interests or the interests of other stockholders,shareholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders.
In addition, there have been two civil actions brought against Mr. Schroering and certain of his affiliates questioning the validity of the two transactions that have resulted in Mr. Schroering’s ownership of approximately 74% of the Company, including a lawsuit in which the Company has been named. In the event Mr. Schroering is deemed to not have properly acquired these shares, it is unclear whether Mr. Schroering will remain our Chief Executive Officer and Chairman of the Board and/or who will control the Company thereafter.shareholders.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELYEFFECTIVELY.
Competition in the market for placement and staffing services is intense. The Company faces competition from many larger, more established companies. In addition, other companies could seek to introduce competing services and increased competition could result in a decrease in the price charged by the Company’s competitors for their services or reduce demand for the Company’s products and services, which would have a material adverse effect on the Company’s business, operating results and financial condition. There can be no assurance that the Company will be able to compete successfully with its existing or potential competitors, which may have substantially greater financial, technical, and marketing resources, longer operating histories, greater name recognition or more established relationships in the industry than the Company. If any of these competitors provides competitive services to the marketplace in the future, the Company cannot be sure that it will have the resources or expertise to compete successfully.
CHANGES IN GOVERNMENT REGULATION COULD LIMIT OUR GROWTH OR RESULT IN ADDITIONAL COSTS OF DOING BUSINESSBUSINESS.
We are subject to the same federal, state and local laws as other companies conducting placement and staffing services, which is extensive. The adoption or modification of laws related to the placement and staffing industry, such as the Healthcare for America Plan, could harm our business, operating results and financial condition by increasing our costs and administrative burdens.
INTERRUPTION OF THE COMPANY’S BUSINESS COULD RESULT FROM INCREASED SECURITY MEASURES IN RESPONSE TO TERRORISMTERRORISM.
The continued threat of terrorism within the United States and the ongoing military action and heightened security measures in response to such threat has and may cause significant disruption to commerce. The U.S. economy in general is being adversely affected by terrorist activities and potential activities. Any economic downturn could adversely impact the Company’s results of operations, impair the Company’s ability to raise capital or otherwise adversely affect the Company’s ability to grow the business. It is impossible to predict how this may affect the Company’s business or the economy in the U.S. and in the world. In the event of further threats or acts of terrorism, the Company’s business and operations may be severely and adversely affected or destroyed.
SUBSTANTIAL ALTERATION OF THE COMPANY’S CURRENT BUSINESS AND REVENUE MODEL COULD HURT SHORT-TERM RESULTSRESULTS.
The Company’s present business and revenue model represents the current view of the optimal business and revenue structure, which is to derive revenues and achieve profitability in the shortest period. There can be no assurance that current models will not be altered significantly or replaced with an alternative model that is driven by motivations other than near-term revenues and/or profitability (for example, building market share before the Company’s competitors). Any such alteration or replacement of the business and revenue model may ultimately result in the deferring of certain revenues in favor of potentially establishing larger market share. The Company cannot assure that any adjustment or change in the business and revenue model will prove to be successful.
THE REQUIREMENTS OF BEING A PUBLIC COMPANY MAY STRAIN OUR RESOURCES AND DISTRACT MANAGEMENT.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are extensive. ��The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.
We may incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our boardBoard of directorsDirectors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS. IN ADDITION, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR STOCK PRICE.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time; we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.
We cannot provide assurance as to the result of these efforts. We cannot be certain that any measures we take will ensure that we implement and maintain adequate internal controls in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligationsobligations.
WE HAVE EXPERIENCED A SIGNIFICANT CHANGE IN THE COMPOSITION OF OUR BOARD OF DIRECTORS (THE “BOARD”) AND SENIOR MANAGEMENT, INCLUDING THE DEPARTURE OF OUR FORMER CHAIRMAN, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, AND PRESIDENT. FAILURE OF ANY NEW MANAGEMENT AND BOARD OF DIRECTORS MEMBERS TO INTEGRATE THEMSELVES INTO, AND EFFECTIVELY MANAGE, OUR BUSINESS INCLUDING ANY NEW STRATEGIES THEY MAY ADOPT, COULD RESULT IN MATERIAL HARM TO THE COMPANY.
On February 22, 2013, Jarett A. Misch, our former Chief Financial Officer and Treasurer resigned from all positions with the Company. To assist the Company in completion of the fiscal 2012 audit, the Company engaged Andrew J. Norstrud, a Consultant with Norco Accounting & Consulting, who subsequently became our Chief Financial Officer effective March 28, 2013. On January 31, 2013, Herbert F. Imhoff Jr., our former President and a director, retired from all positions with the Company. On December 26, 2012, Salvatore J. Zizza, our former Chief Executive Officer and Chairman of the Board, retired from all positions with the Company, and Mr. Schroering was appointed by the Board as Chief Executive Officer and Chairman of the Board. Mr. Schroering resigned his position as Chief Executive Officer and Chairman of the Board of Directors on November 3, 2013, however remains as a Board of Directors member. On October 2, 2012, Edward O. HuntersHunter was appointed to the Board of Directors to fill the vacancy created by the resignation of Charles W.B. Wardell III on September 4, 2012. Andrew J. Norstrud was appointed Chief Financial Officer on March 29, 2013, and subsequently has assumed the Principle Executive Officer role upon Michael Schroering’s resignation.
The failure of our Directorsdirectors or any new members of management to perform effectively or the loss of any of the Directorsdirectors or former or current members of management could have a significant negative impact on our business, financial condition and results of operations. In addition, our Board of Directors and management may institute strategies that differ from those we are applying currently. If any new strategies are adopted, it may take management a significant amount of time to fully implement such new strategies. If any new strategies are unsuccessful or if we are unable to execute them successfully, there could be a significant negative impact on our business, financial condition, and results of operations.
WE HAVE NOT REGISTERED WITH THE SEC OR LISTED WITH THE NYSE MKT, THE SHARES UNDERLYING OPTIONS ISSUED UNDER OUR 2011 INCENTIVE PLAN.
We have issued options to purchase 1.51.3 million shares of our common stock under the Company's 2011 Incentive Plan, all of which are fully vested and exercisable. We have not yet filed a registration statement on Form S-8, registering the shares underlying such options, nor have we listed such shares with the NYSE MKT. If we do not register these shares, the Company may be subject to civil or other penalties (including sanctions) by regulatory authorities and/or stockholdersshareholders for certain violations of federal or state securities laws. We may also be subject to the suspension of trading in, or removal from listing from, the NYSE MKT for failure to comply with ourthe NYSE MKT listing agreement.
WE ARE NOT CURRENTLY IN COMPLIANCE WITH THE NYSE MKT LLC’S REPORTING REQUIREMENTS AND FAILURE TO REGAIN AND MAINTAIN COMPLIANCE WITH THIS STANDARD COULD RESULT IN DELISTING AND ADVERSELY AFFECT THE MARKET PRICE AND LIQUIDITY OF OUR COMMON STOCK AND OUR ABILITY TO RAISE ADDITIONAL CAPITAL.
Our common stock is currently listed on the NYSE MKT LLC (“NYSE MKT”). Companies trading on the NYSE MKT such as us, must be reporting issuers under Section 12 of the Exchange Act and must be current in their reports filed under Section 13 of the Exchange Act. If we fail to remain current on our reporting requirements, we could be removed from the NYSE MKT.
On January 17, 2013 and February 21, 2013, the Company received notices from the NYSE MKT staff indicating that the Company is below certain of the NYSE MKT’s continued listing standards due to itsthe Company’s delinquency in filing its Annual Report on Form 10-K for the fiscal year ended September 30, 2012, and the delinquency in filing its Quarterly Report on Form 10-Q for the quarter ended December 31, 2012, as set forth in sections 134 and 1101 of the NYSE MKT Company Guide. The Company was afforded the opportunity to submit a plan of compliance to the NYSE MKT and on January 31, 2013, presented its plan for both reports to the NYSE MKT. On March 5, 2013, the NYSE MKT notified the Company that it accepted the Company’s plan of compliance and granted the Company an extension until April 17, 2013, to regain compliance with the continued listing standards. The Company has since become compliant will all delinquencies in filings.
On June 6, 2013, the Company received a letter from NYSE MKT which stated, among other things, that the Company has equity less than $4 million and has sustained losses from continuing operations and/or net losses in three of its four most recent fiscal years and, in the opinion of NYSE MKT, it is questionable as to whether the Company will be able to continue operations and/or meet its obligations as they mature based on its current overall financial condition, pursuant to Sections 1003(a)(ii) and 1003(a)(iv) of the NYSE MKT's Company Guide, respectively. The Company was afforded the opportunity to submit a plan of compliance to the NYSE MKT and on July 8, 2013, presented its plan to correct its deficiencies related to Sections 1003(a)(ii) and 1003(a)(iv) of the NYSE MKT's Company Guide. On August 27, 2013, NYSE MKT notified the Company that it accepted the Company's plan of compliance and granted the Company an extension until October 7, 2013, to obtain the necessary financing to provide the necessary cash flow to continue operations and/or meet its obligations as they mature and until June 6, 2014, to have the required $4 million in equity. On October 29, 2013, the Company received a letter from the NYSE MKT stating that, based on the review of the information provided by the Company, the Company has made significant progress towards regaining compliance with Section 1003(a)(iv) of the Company Guide. Based on the Company’s progress to date and actions the Company plans to implement in the future, in accordance with Section 1009 of the Company Guide, the NYSE MKT has determined to extend the Financial Impairment Plan Period until February 21, 2014. The foregoing is subject to periodic reviewthe Company making a public announcement by November 4, 2013, continuing to provide updates to the NYSE MKT staff and continuing to show progress in regaining compliance. The plan period for the Company to regain compliance with Section 1003(a)(ii) remains June 6, 2014. On November 4, 2013, a press release announcing the acceptance by the NYSE MKT staff during the extension period. Failure to make progress consistent withLLC of the plan or to regain compliance with the continued listing standards by the endwas issued.
6
VOLATILITY OF THE MARKET PRICE OF THE COMPANY’S STOCK IS LIKELY TO OCCUR DUE TO THE LOW TRADING VOLUME OF OUR STOCKSTOCK.
The market price of the Company’s common stock may be volatile, which could cause the value of your investment to decline. Any of the following factors could affect the market price of our common stock:
| | · | Changes in earnings estimates and outlook by financial analysts; |
| | · | Our failure to meet investors’ performance expectations; |
| | · | General market and economic conditions; and |
| | · | Our small trading volume. |
ACCORDING TO THE SEC, THE MARKET FOR PENNY STOCKS HAS SUFFERED FROM PATTERNS OF FRAUD AND ABUSEABUSE.
Such patterns include:
| | · | Control of the market for the security by one or a few broker–dealers that are often related to the promoterthepromoter or issuer; |
| | · | Manipulation of prices through prearranged matching of purchases and sales and false and misleadingandmisleading press releases; |
| | · | “Boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperiencedbyinexperienced sales persons; |
| | · | Excessive and undisclosed bid–ask differentials and markups by selling broker–dealers; and |
| | · | The wholesale dumping of the same securities by promoters and broker–dealers after prices have been manipulatedhavebeenmanipulated to a desired level, along with the inevitable collapse of those prices with consequent investorwithconsequentinvestor losses. |
In addition, many of the risks described elsewhere in this “Risk Factors” section could adversely affect the Company’s stock price. The stock markets have experienced price and volume volatility that have affected many companies’ stock prices. Stock prices for many companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These types of fluctuations may affect the market price of our common stock.
APPLICABILITY OF LOW PRICED STOCK RISK DISCLOSURE REQUIREMENTS COULD DISCOURAGE BROKERS FROM MAKING A MARKET IN OUR STOCKSTOCK.
The Company’s common stock may be considered a low priced security under rules promulgated under the Exchange Act. Under these rules, broker-dealers participating in transactions in low priced securities must first deliver a risk disclosure document which describes that risks associated with such stock, the broker-dealer’s duties, the customer’s rights and remedies, and certain market and other information, and make a suitability determination approving the customer for low priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing and provide monthly account statements to the customer, and obtain specific written consent of the customer. With these restrictions, the likely effect of designation as a low price stock would be to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and to increase the transaction costs of sales and purchase of such stocks compared to other securities.
NO DIVIDENDS ANTICIPATEDANTICIPATED.
The Company intends to retain all future earnings for use in the development of the Company’s business and does not anticipate paying any cash dividends on the Common Stock in the near future.
WE MAY NOT BE ABLE TO OBTAIN THE NECESSARY ADDITIONAL FINANCING TO ACHIEVE OUR STRATEGIC GOALSGOALS.
On September 27, 2013, the Company entered into agreements with Keltic Financial Partners II LP (“Keltic”) that provide the Company with long term financing through a six million dollar ($6,000,000) secured revolving note (the “Note”). The Note has a term of three years and has no amortization prior to maturity. The interest rate for the Note is a fluctuating rate that, when annualized, is equal to the greatest of (A) the Prime Rate plus three and one quarter percent (3.25%), (B) the LIBOR Rate plus six and one quarter percent (6.25%), and (C) six and one half percent (6.50%), interest is paid on a monthly basis. Loan advances pursuant to the Note are based on the accounts receivable balance and other assets. Upon execution of the Note, approximately three million fifty thousand dollars ($3,050,000) was advanced for the full repayment of debt owed to Wells Fargo and fees from Wells Fargo related to the early termination of their debt agreement. At the time of close, there was approximately nine hundred thousand ($900,000) of availability under the new Note in excess of amounts paid to extinguish the debt and fees with Wells Fargo. The Company expects to incur certain cash expense and commitment fees related to obtaining the agreement of approximately $170,000, which has been paid prior to the closing of the Note or will be paid over the next six months. The Note is secured by all of the Company’s property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title or interests.
There is no guarantee that we will be able to obtain any additional financing that may be required to continue to expand our business or that our present funding sources will continue to extend terms under which we can operate efficiently. If we are unable to secure financing under favorable terms, we may be materially adversely affected. On January 14, 2013, the Company and Wells Fargo Bank, National Association entered into a Fifth Amendment (the “Fifth Amendment”) to its Account Purchase Agreement dated as of December 14, 2010 (the “AR Credit Facility”). The Fifth Amendment extended the term of the AR Credit Facility to December 14, 2013. Notwithstanding the foregoing extension, Wells Fargo may issue a written notice to the Company shortening the term of the of the AR Credit Facility to a date 60 days following such notice in the event that (i) the Company is not dismissed without prejudice from a recently brought lawsuit entitled Derby Capital LLC and Derby Capital JOB LLC, as plaintiffs, vs. Trinity HR Services, LLC, et al., as defendants, a lawsuit seeking to establish relative ownership among stockholders which the Company believes it should not be a party to, (ii) the Company fails to furnish Wells Fargo its audited financial statements for its fiscal year ended September 30, 2012 by March 15, 2013 or if the results in such audited financial statements are not satisfactory to Wells Fargo in its sole discretion, (iii) background checks of newly appointed officers of the Company are unsatisfactory to Wells Fargo in its sole discretion, or (iv) significant changes have occurred to the composition of the Company’s Board of Directors as determined by Wells Fargo in its sole discretion. In March of 2013 the Company and Wells Fargo entered into a Sixth Amendment that extended the required delivery date on certain documents, such as the audited financial statements, until April 30, 2013.
business. Our continued viability depends on our ability to raise capital. Changes in economic, regulatory or competitive conditions may lead to cost increases. Management may also determine that it is in our best interest to expand more rapidly than currently intended, to expand marketing activities, to develop new or enhance existing services or products, to respond to competitive pressures or to acquire complementary services, businesses or technologies. In any such case or other change of circumstance, additional financing will be necessary. If any additional financing is required, there can be no assurances that we will be able to obtain such additional financing on terms acceptable to us and at times required by us, if at all. In such event, we may be required to materially alter our business plan or curtail all or a part of our expansion plans.
WE MAY NOT BE ABLE TO MANAGE EXPECTED GROWTH AND INTERNAL EXPANSIONEXPANSION.
We have not yet undergone the significant managerial and internal expansion that we expect will occur, and our inability to manage growth could hurt our results of operations. Expansion of our operations will be required to address anticipated growth of our customer base and market opportunities. Expansion will place a significant strain on our management, operational and financial resources. Currently, we have a limited number of employees. We will need to improve existing procedures and controls as well as implement new transaction processing, operational and financial systems, procedures and controls to expand, train and manage our employee base. Our failure to manage growth effectively could have a damaging effect on our business, results of operations and financial condition.
Item 1B. Unresolved Staff Comments. | Unresolved Staff Comments. |
None.Not applicable.
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 8,200approximately 5,000 square feet of space at that location under a lease that will expire in 2015.2018.
The Company’s staffing offices are located in downtown and suburban business centers in the following eleven states. The states that we have locations in are;states: Arizona, California, Florida, Georgia, Illinois, North Carolina, Indiana, Ohio, Texas, Massachusetts and Pennsylvania. Established offices are operated from leased space ranging from 800 to 2,000 square feet, generally for initial lease periods of one to five years, with cancellation clauses after certain periods of occupancy in some cases. Management believes that existing facilities are adequate for the Company’s current needs and that its leasing strategies provide the Company with sufficient flexibility to open or close offices to accommodate business needs.
In March 2012, the Company became aware of a lien on the business by the Ohio Bureau of Workers Compensation for $229,000, which has been fully accrued for. The Company believes this claim represents unpaid workers compensation premium for a period prior to the acquisition of certain assets of RFFG of Cleveland in November 2010. The Company is currently defending its position in this matter.
As of
March 28,September 30, 2013, there were no other material legal proceedings pending against the Company.
PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
The Amended and Issuer PurchasesRestated Purchase agreement with RFFG required the issuance of Equity Securities.1.1 million shares of common stock. The stock was officially issued on July 2, 2013. The stock price on July 2, 2013 was $0.2999 and there were shares traded that day at that price. The value related to this transaction on July 2, 2013 was $329,890.
Market Information
The Company’s common stock is listed on the NYSE MKT and is traded under the symbol “JOB.” The following table sets forth the quarterly high and low sales prices per share of the Company’s common stock on the consolidated market for each quarter within the last two fiscal years.
| | | | Fourth Quarter | | | Third Quarter | | | Second Quarter | | | First Quarter | |
| Fiscal 2013: | | | | | | | | | | | | | |
| High | | | $ | .47 | | | $ | .37 | | | $ | .56 | | | $ | .68 | |
| Low | | | | .16 | | | | .27 | | | | .31 | | | | .42 | |
| | | Fourth Quarter | | | Third Quarter | | | Second Quarter | | | First Quarter | | | | | | | | | | | | | | | | | |
| Fiscal 2012: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| High | | $ | .33 | | | $ | .53 | | | $ | .69 | | | $ | .65 | | | $ | .33 | | | $ | .53 | | | $ | .69 | | | $ | .65 | |
| Low | | | .18 | | | | .22 | | | | .41 | | | | .25 | | | | .18 | | | | .22 | | | | .41 | | | | .25 | |
| | | | | | | | | | | | | | | | | | |
| Fiscal 2011: | | | | | | | | | | | | | | | | | |
| High | | $ | .33 | | | $ | .53 | | | $ | .69 | | | $ | .65 | | |
| Low | | | .18 | | | | .22 | | | | .41 | | | | .25 | | |
Holders of Record
There were approximately 600 holders of record of the Company’s common stock on March 28, 2013.January 13, 2014.
Dividends
No dividends were declared or paid during the years ended September 30, 20112013 and September 30, 2012. We do not anticipate paying any cash dividends for the foreseeable future.
Stock Repurchases by Issuer
During the two years ended September 30, 20122013 and 2011,2012, no equity securities of the Company were repurchased by the Company.
Securities Authorized for Issuance under Equity Compensation Plans
As of September 30, 2012,2013, there were stock options outstanding under the Company’s 1995 Stock Option Plan, Second Amended and Restated 1997 Stock Option Plan, 1999 Stock Option Plan and the 2011 Company Incentive Plan. All four plans were approved by the shareholders. The 1995 Stock Option Plan and the 1999 Stock Option Plan have expired, and no further options may be granted under those plans. During fiscal 2009, the Second Amended and Restated 1997 Stock Option Plan was approved by the Board and shareholdersamended to make an additional 592,000 options available for granting and as of September 30, 20122013, there were 700,840no shares available for issuance under such plan.the Amended and Restated 1997 Stock Option Plan. As of September 30, 20122013, there were 500,000no shares available for issuance under the 2011 Company Incentive Plan. The plans granted specified numbers
On July 23, 2013, the Board of Directors approved the Company’s 2013 Incentive Stock Plan (the “2013 Plan”), and resolved to cease issuing securities under all prior Company equity compensation plans. The 2013 Plan was approved by the Company’s shareholders at the Annual Meeting of Stockholders on September 9, 2013. The purpose of the 2013 Plan is to provide additional incentives to select persons who can make, are making, and continue to make substantial contributions to the growth and success of the Company, to attract and retain the employment and services of such persons, and to encourage and reward such contributions, by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant either incentiveof options or non-statutory stock options to employees. Vesting periods are establishedrestricted stock. The 2013 Plan is administered by the Compensation Committee ator such other committee as is appointed by the timeBoard of grant.
Equity CompensationDirectors pursuant to the 2013 Plan Information
((the “Committee”). The Committee has full authority to administer and interpret the provisions of the 2013 Plan including, but not limited to, the authority to make all determinations with regard to the terms and conditions of an Award made under the 2013 Plan. The maximum number of shares that may be granted under the 2013 Plan is 10,000,000. This number is subject to adjustment to reflect changes in thousands)the capital structure or organization of the Company.
| (number of shares in thousands) | | | | | | | | | | | | | |
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Equity compensation plans approved by security holders | | | 1,747 | | | $ | 0.38 | | | | 1,201 | | | | 1,478 | | | $ | 0.40 | | | | 10,000 | (1) |
| | | | | | | | | | | | | | | | | | | | | | | - | |
| Equity compensation plans not approved by security holders | | | — | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 1,747 | | | $ | 0.38 | | | | 1,201 | | | | 1,478 | | | $ | 0.40 | | | | 10,000 | (1) |
Item 6. Selected Financial Data. | (1) | Includes 10,000,000 shares issuable under the 2013 Plan. |
Not Applicable.applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
You should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this report.
Overview
The Company was incorporated in the State of Illinois in 1962 and is the successor to employment offices doing business since 1893. The Company provides the following distinctive services: (a) professional placement services specializing in the placement of information technology, engineering, and accounting professionals for direct hire and contract staffing, (b) temporary staffing services in the agricultural industry which was discontinued as of July 7, 2013, and (c) temporary staffing services in light industrial staffing.
The Company provides staffing services through a network of branch offices located in major metropolitan areas throughout the United States. The Company’s professional staffing services provide information technology, engineering and accounting professionals to clients on either a regular placement basis or a temporary contract basis. The Company’s agricultural staffing services provide agricultural workers for farms and groves. The Company’s industrial staffing business provides weekly temporary staffing for light industrial clients in Ohio and Pennsylvania.
Management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions, financed primarily through the issuance of common stock, to improve the overall profitability and cash flows of the Company. We believe our current segments complement one another and position us for future growth.
TheAs of July 7, 2013, the Company’s professional staffing servicesBoard of Directors determined that the best course of action related to the Agricultural Division was to terminate its operations, to liquidate its assets, and to focus the business is highly dependent on national employment trends in general and on the demand forlight industrial and professional staff in particular. As an indicatordivisions. On July 7, 2013, all staffing was discontinued and the entire operations of employment conditions, the national unemployment rateAgricultural Division were discontinued as of August 1, 2013. All employees have been terminated and a one-time expense of approximately $150,000 was 7.8% inrecognized as of September 2012 and 9.1% in September 2011. In the past 12 months the unemployment rate has slowly decreased by approximately 1%; overall the trend has been flat over the past several years.30, 2013.
Results of Operations
Net Revenues
Consolidated net revenues are comprised of the following:
| | | Year Ended September 30 | | | Year Ended September 30, | |
| (In Thousands) | | 2012 | | | 2011 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Agricultural contract services | | $ | 7,852 | | | $ | 12,412 | | |
| Industrial contract services | | | 28,206 | | | | 12,349 | | | $ | 29,816 | | | $ | 28,206 | |
| Professional contract services | | | 9,132 | | | | 7,160 | | | | 9,371 | | | | 9,132 | |
| Direct hire placement services | | | 7,215 | | | | 4,430 | | | | 7,317 | | | | 7,215 | |
| Management services | | | - | | | | 838 | | |
| | | | | | | | | | | | | | | | | |
| Consolidated net revenues | | $ | 52,405 | | | $ | 37,189 | | | $ | 46,504 | | | $ | 44,553 | |
Consolidated net revenues for the year ended September 30, 2012 increased by approximately 41% to approximately $52 million$1,951 or 4% compared with the prior year of approximately $37 million.same period last year. The increase in revenue was primarily due to athe work performed related to Hurricane Sandy. Management has taken significant increase inaction during the course of the year to improve both revenue from contract servicesgrowth and direct placement, which was partially offset by the loss of a major customer in the Agriculture division andprofitability, including the termination or replacement of senior management. The current management of the management services agreement. Contract service revenues, including On-Site Services, Inc., RFFGCompany believes that the changes will eliminate several of Cleveland, LLC, DMCC, LLCthe ongoing issues and Ashley Ellis, LLC increased by approximately 42%, and direct hire placement service revenues increased by approximately 63%.strengthen the Company’s revenue potential.
Cost of Contract Services
Consolidated cost of contract services are comprised of the following:
| | | Year Ended September 30 | | | Year Ended September 30, | |
| (In Thousands) | | 2012 | | | 2011 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Agricultural contract services | | $ | 7,506 | | | $ | 11,835 | | |
| Industrial contract services | | | 23,368 | | | | 10,551 | | | $ | 26,058 | | | $ | 23,368 | |
| Professional contract services | | | 7,362 | | | | 5,019 | | | | 6,260 | | | | 7,363 | |
| | | | | | | | | | | | | | | | | |
| Consolidated cost of contract services | | $ | 38,236 | | | $ | 27,405 | | | $ | 32,318 | | | $ | 30,731 | |
Cost of services includes wages and related payroll taxes and employee benefits of the Company’s employees while they work on contract assignments. Cost of contract services for the year ended September 30, 20122013, increased by approximately 40%5% to approximately $38$32 million compared with the prior year of approximately $27$31 million. Cost of contract services, as a percentage of contract revenue, for the year ended September 30, 2012 decreased approximately 1%. The overall increase in cost of contract services was directly related to2013, remained consistent with the increase in revenue. The decrease of approximately 1% of cost of contract services as a percentage of contract services revenue was related to the decreaseprior year. There have been significant increases in the agricultural business.
workers compensation rates in Ohio, however this was offset in 2013 from a $410,000 rebate received from the Ohio Bureau of Workers Compensation. The Company is in the process of increasing our rates in 2014 to account for the increases in workers compensation and the Affordable Care Act costs, however management believes that the overall gross margin will decrease as the Company will not be able to increase the rates and maintain the same profit as it has in the past.
Gross Profit percentage by segment:
Gross Profit Margin % | | Year Ended September 30, 2013 | | | Year Ended September 30, 2012 | |
| Direct hire placement services | | | 100 | % | | | 100 | % |
| Industrial contract services | | | 14.3 | % | | | 14.2 | % |
| Professional contract services | | | 33.2 | % | | | 28.4 | % |
| Combined Gross Profit Margin % (1) | | | 30.5 | % | | | 31.0 | % |
| (1) | Includes gross profit from direct hire placements, which all associated costs are recorded as selling, general and administrative expenses. |
Selling, General and Administrative Expenses
Selling, general and administrative expenses include the following categories:
| · | Compensation in the operating divisions, which includes commissions earned by the Company’s employment consultants and branch managers on permanent and temporary placements. It also includes salaries, wages, unrecovered advances against commissions, payroll taxes and employee benefits associated with the management and operation of the Company’s staffing offices. |
| · | Administrative compensation, which includes salaries, wages, payroll taxes and employee benefits associated with general management and the operation of the finance, legal, human resources and information technology functions. |
| · | Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses. |
| · | Recruitment advertising, which includes the cost of identifying job applicants. |
| · | Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services and other corporate-level expenses such as business insurance and taxes. |
The Company’s largest selling, general and administrative expense is for compensation in the operating divisions. Most of the Company’s employment consultants are paid on a commission basis and receive advances against future commissions. When commissions are earned, prior advances are applied against them and the consultant is paid the net amount. At that time, the Company recognizes the full amount as commission expense, and advance expense is reduced by the amount recovered. Thus, the Company’s advance expense represents the net amount of advances paid, less amounts applied against commissions.
Selling, general and administrative expenses for the year ended September 30, 20122013, increased by approximately $6$1.3 million to approximately $15$15.2 million as compared to the prior year of approximately $9$13.9 million. The increase in selling, general and administrative expense was primarily related to the significant increase business; however there were also significant increases in stock compensationprofessional fees and a one-time expense bad debt expense, certain compensation expense relatedfor terminated employees and the San Mateo terminated lease. Management expects these higher than normal expenses to be significantly reduced in the changefirst quarter of control, impairment of long-term assetsfiscal 2014 and some general onetime expenses. Selling, general and administrativeoverall expenses are not expected to continue to grow at a higher pace than revenue as the Company is able to eliminate many of the onetime expenses incurred in fiscal 2012 and should decrease significantly once the Company is able to capitalize on the consolidation of the acquisitions.
Amortization of intangible assets
For the year ended September 30, 20122013, there was a decrease in the amortization of intangible assets of approximately $143,000,$74,000 which was primarily due to the impairment of a long term intangible assets and a reduction of earn-out liabilitiesasset in the prior year.
Due to an unresolved issue with the Ohio Bureau of Workers Compensation, the former owners of RFFG have ceased operations as of July 15, 2011 and as a result the Management Agreement was effectively terminated and no future cash flows from this agreement are expected. As a result, the Company recorded a loss on impairment of intangible assets of $1,126,000 and a reduction in the associated earn-out liability of $1,276,000, in 2011.
During the year ended September 30, 2012, the Company wrote off the intangible assets and goodwill of approximately $274,000 related to the Agricultural divisionDivision due to the loss of a large customer in 2012.
Interest expense
Interest expense for the year ended September 30, 2013, increased $47,000, or 23% compared with the prior year primarily as a result of higher borrowings.
Discontinued Operations
As a result of terminating our Agricultural Division in July of 2013, we have reclassified the operations of that division to loss from discontinued operations, in the accompanying statement of operations. For the years ended September 30, 2013 and 2012 the Company recognized a loss of $324,000 and $109,000, respectively, for this division. There continues to be approximately $238,000 of accounts receivable related to this division that management believes will be collected in 2014, however, if we are unable to collect this receivable, it would result in an additional $238,000 of expense.
Taxes
There were no credits for income taxes as a result of the pretax losses incurred during the periods because there was not sufficient assurance that future tax benefits would be realized.
Liquidity and Capital Resources
The following table sets forth certain consolidated statements of cash flows data (in thousands):
| | For the year ended September 30, 2013 | | | For the year ended September 30, 2012 | |
| Cash flows (used in) provided by operating activities | | $ | (1,112 | ) | | $ | 204 | |
| Cash flows used in investing activities | | $ | (341 | ) | | $ | (511 | ) |
| Cash flows provided by financing activities | | $ | 1,413 | | | $ | 466 | |
As of September 30, 2012,2013, the Company had cash and cash equivalents of $364,000, which was an increase of approximately $50,000 from approximately $314,000 at September 30, 2011. Net working capital at September 30, 2012 was approximately $530,000,$361,000, which was a decrease of approximately $457,000$3,000 from approximately $364,000 at September 30, 2011.2012. Negative working capital at September 30, 2013 was approximately $781,000, as compared to net working capital of approximately $541,000 for September 30, 2012. The Company’s current ratio was approximately 1.10.91, a decrease of approximately 0.10.19 from the prior year. Shareholders’ equity as of September 30, 20122013, was approximately $4,105,000$2,613,000 which represented approximately 37%23% of total assets.
During the year ended September 30, 2012, net cash provided by operating activities was approximately $95,000. The net loss for the year ended September 30, 2013, was approximately $1,890,000.
Net cash (used in) provided by operating activities for the years ended September 30, 2013 and 2012 was approximately $1,011,000, adjusting the net loss for depreciation($1,071,000) and amortization, stock compensation expense, impairment of goodwill and other non-cash charges; there was approximately $231,000 provided by operations. Considering the changes in current assets and current liabilities, in addition$95,000, respectively. The fluctuation is due to the significant increase in provision for doubtful accounts of $491,000 there was a net decrease of approximately $136,000, resulting inloss sustained during the positive cash flow from operations.year ended September 30, 2013.
The CompanyNet cash used $511,000 in investing activities during fiscal 2012. As partfor the years ended September 30, 2013 and 2012 was ($345,000) and ($511,000) respectively. The decrease was due to a higher amount of property and equipment acquired in the Ashley Ellis acquisition,prior year and the Company used $200,000payments in investing activities. In addition, the2012 for a prior year acquisitions. The Company used cash to acquire equipment in the amount of approximately $261,000.$191,000, net of a sale lease back agreement the Company entered into during the year.
The CompanyNet cash flow provided $466,000 of net cash fromby financing activities in 2012 by the increase in short term debt of approximately $466,000.
During the year ended September 30, 2011, net cash used by operating activities was $2,290,000. The net income for the year ended September 30, 2012, adjusted for depreciation and amortization and other non-cash charges,2013 was $929,000, while the large increase in accounts receivables and accrued compensation caused the working capital items$1,413,000 compared to decrease by $3,219,000. Overall, the increase in cash used in operations during fiscal 2011 is due to the significant increase in accounts receivables generated by the acquisitions of On-Site Services, Inc., RFFG of Cleveland, LLC, DMCC, LLC and Ashley Ellis, LLC.
The Company used $284,000 in investing activities during fiscal 2011. As part of the Ashley Ellis, LLC acquisition, the Company used $200,000 in investing activities. The Company provided $1,943,000 of net cash from financing activities in 2011 by the increase in short term debt and the exercising of stock options.
On August 31, 2011, the Company entered into an asset purchase agreement with Ashley Ellis LLC, an Illinois limited liability company (“Ashley Ellis”), and Brad A. Imhoff, for the purchase of certain assets of Ashley Ellis, including customer lists, comprising Ashley Ellis’ services business. Ashley Ellis’ services business was operated from offices in Illinois, Texas and Georgia and provided services related to the recruitment and placement of technical personnel. The asset purchase agreement was deemed effective on September 1, 2011. Brad A. Imhoff is the brother of Herbert F. Imhoff, Jr., a former director of the Company and our former President. Mr. Imhoff, Jr. resigned from all positions of the Company effective January 31, 2013. The assets purchased from Ashley Ellis constitute a business and as such, the acquisition of these assets was accounted for as a business combination. The assets purchased related to the Ashley Ellis, LLC acquisition was not considered a significant acquisition. The results of operations of Ashley Ellis, LLC are included$466,000 in the Company’s statement of operations from the effective date of the acquisition, September 1, 2011.
As consideration for the assets, the Company paid Ashley Ellis $200,000 on the date of closing and agreed to pay Ashley Ellis an additional $200,000 within six months of closing. The Company also issued to Ashley Ellis 1,250,000 shares of the Company’s common stock
In December 2010, the Company purchased certain assets of RFFG of Cleveland, LLC (“RFFG of Cleveland”) and DMCC Staffing, LLC (“DMCC”) and entered into a management agreement with RFFG, LLC (the previous parent company of RFFG of Cleveland and DMCC Staffing, LLC) to provide services to RFFG to operate its day-to-day business, including services related to accounting, sales, finance, workers compensation, benefits, physical locations, IT, and employees. Thomas J. Bean, a 10% shareholder of the Company at the time (prior to consideration of common shares issued in this transaction), was the manager of RFFG. The assets purchased related to RFFG of Cleveland and DMCC Staffing constitute businesses and as such the acquisition of these assets will be accounted for as a business combination.
In consideration of the services provided under the management agreement, RFFG was to pay the Company approximately 6% of its gross revenues. Gross revenues of RFFG were expected to approximate $18,000,000 on an annual basis, resulting in an expected management fee of approximately $1,000,000 per year. The Company added employees to provide the services required under the management agreement. In consideration for the assets acquired and the rights under the management agreement, the Company paid $2,400,000 through the issuance of its common stock. In addition, the purchase agreement requires the Company to make additional payments of up to a total of $2,400,000 over the next four years if certain performance targets are achieved. Under the terms of the purchase agreement, the maximum amount payable under the earn-out agreement for fiscal 2011 is $450,000. The Management Agreement was terminated when RFFG’s operations were closed and as of September 30, 2012, there are no services being provided. In addition, since the Company was providing certain management services, RFFG and the transactions between the RFFG and the Company were considered to be related party in nature because Thomas Bean, a manager, was a 10% owner of the Company at the time. The Company is currently in discussions with RFFG to amend the original purchase agreement as it relates to the earn-out since the value of the management agreement was of significant value with respect to the original purchase. The Company has made payment of approximately $50,000 related to the earn-out liability and has a current liability of approximately $182,000, net of applicable off-sets atyear ended September 30, 2012. At September 30, 2012 there is approximately $834,000 accrued for earn-out payments relatedFluctuations in financing activities are attributable to the original purchase agreement.level of borrowings.
All of the Company’s office facilities are leased. As of September 30, 2012,2013, future minimum lease payments under non-cancelable lease commitments having initial terms in excess of one year, including closed offices, totaled approximately $2,200,000.$1.9 million.
On April 22, 2013, the Company finalized an Amendment to the Asset Purchase Agreement by and among DMCC Staffing, LLC, an Ohio limited liability company, RFFG of Cleveland, LLC an Ohio limited liability company (each a “Seller” and together, “Sellers”), the Company, and Triad Personnel Services, Inc., an Illinois corporation and wholly owned subsidiary of the Company (“Buyer”).
The Company agreed to pay the Sellers additional cash consideration of between $550,000 and $650,000 depending on the length of payment terms and 1,100,000 shares of common stock, in full satisfaction of all amounts owed to Seller, related to the Asset Purchase Agreement. The Company issued 1,100,000 shares of common stock on July 2, 2013, which was valued at approximately $330,000. During the year ended September 30, 2013, the Company paid $200,000 of the cash consideration noted above. The Company has accrued $350,000 at September 30, 2013, for the balance of the liability, however has elected to pay the remaining amount over two years. The total payments over the two years will be approximately $450,000 with the additional $100,000 to be recorded as interest expense.
In connection with the completion of the sale of shares of common stock to PSQ in fiscal 2009, Herbert F. Imhoff, Jr., the Company’s then Chairman and Chief Executive Officer retired from those positions and his employment agreement with the Company was replaced by a new consulting agreement. Under the consulting agreement, the Company became obligated to pay an annual consulting fee of $180,000 over a five-year period and to issue 500,000 shares of common stock to Mr. Imhoff, Jr. for no additional consideration, and the Company recorded a liability for the net present value of the future fee payments in the amount of $790,000. As of September 30, 2012, $280,0002013, $135,000 remains payable under this agreement and is included in accrued compensation and long-term obligations on the Company’s balance sheet. On January 31, 2013, Mr. Imhoff Jr. retired from all positions with the Company, however he will continue to receive his monthly payments related to the accrued compensation of $280,000.$135,000.
In December 2010,On September 27, 2013, the Company terminated its agreement with Crestmark Bank and entered into agreements with Keltic Financial Partners II LP (“Keltic”) that provide the Company with long term financing through a two-year, $3,000,000 account purchase agreement (“AR Credit Facility”) with Wells Fargo Bank N.A. (“Wells Fargo”six million dollar ($6,000,000) secured revolving note (the “Note”). The AR Credit FacilityNote has a term of three years and has no amortization prior to maturity. The interest rate for the Note is a fluctuating rate that, when annualized, is equal to the greatest of (A) the Prime Rate plus three and one quarter percent (3.25%), (B) the LIBOR Rate plus six and one quarter percent (6.25%), and (C) six and one half percent (6.50%), interest is paid on a monthly basis. Loan advances pursuant to the Note are based on the accounts receivable balance and other assets. Upon execution of the Note, approximately three million fifty thousand dollars ($3,050,000) was advanced for the full repayment of debt owed to Wells Fargo and fees from Wells Fargo related to the early termination of their debt agreement. At the time of close, there was approximately nine hundred thousand ($900,000) of availability under the new Note in excess of amounts paid to extinguish the debt and fees with Wells Fargo. The Company incurred certain cash expense and commitment fees related to obtaining the agreement of approximately $170,000, which has been subsequently amended and provides for borrowings on a revolving basispaid prior to the closing of up to 85%the Note or will be paid over the next six months. The Note is secured by all of the Company’s eligible accounts receivable less than 90 days oldproperty and bears interestassets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at a rate equal to the three month LIBOR (minimum of .5%) plus 5.25% for a total interest rate of 5.75%. Upon the terms and subject to the conditionsany time in the agreement, Wells Fargofuture may determine which receivables are eligible receivables, may determine the amount it will advance onacquire any such receivables, and may require the Company to repay advances made on receivables and thereby repay amounts outstanding under the AR Credit Facility. Wells Fargo also has the right, to require the Company to repurchase receivables that remain outstanding 90 days past their invoice date.title or interests. The Company continues to be responsible for the servicing and administration of the receivables purchased. The Company will carry the receivables and any outstanding borrowings on its consolidated balance sheet. The outstanding borrowings at September 30, 2012 are $2,404,000 and the remaining borrowing availability is $596,000.
On January 14, 2013, the Company and Wells Fargo Bank, National Association entered into a Fifth Amendment (the “Fifth Amendment”) to its AR Credit Facility. The Fifth Amendment extended the term of the AR Credit Facility to December 14, 2013. Notwithstanding the foregoing extension, Wells Fargo may issue a written notice to the Company shortening the term of the of the AR Credit Facility to a date 60 days following such notice in the event that (i) the Company is not dismissed without prejudice from a recently brought lawsuit entitled Derby Capital LLC and Derby Capital JOB LLC, as plaintiffs, vs. Trinity HR Services, LLC, et al., as defendants, a lawsuit seeking to establish relative ownership among stockholders which the Company believes it should not be a party to, (ii) the Company fails to furnish Wells Fargo its audited financial statements for its fiscal year ended September 30, 2012 by March 15, 2013 or if the results in such audited financial statements are not satisfactory to Wells Fargo in its sole discretion, (iii) background checks of newly appointed officers of the Company are unsatisfactory to Wells Fargo in its sole discretion, or (iv) significant changes have occurred to the composition of the Company’s Board of Directors as determined by Wells Fargo in its sole discretion. In March 2013, the Company and Wells Fargo entered into a Sixth Amendment that extended the required delivery date on certain of the foregoing requirements, such as the audited financial statements, until April 30, 2013. To date, the Company has not received notice from Wells Fargo of any intent to shorten the term of the AR Credit Facility.
The AR Credit Facility with Wells Fargo BankKeltic facility includes certain covenants which require compliance until termination of the agreement.
The Company has several administrative covenants and the following financial covenant:
The Company must maintain the following EBITDA:
(a) The Fiscal Quarter ending on December 31, 2013, to be less than Three Hundred Seventy Thousand and 00/100 Dollars ($370,000.00);
(b) The six (6) consecutive calendar month period ending on March 31, 2014, to be less than Seven Hundred Fifteen Thousand and 00/100 Dollars ($715,000.00);
(c) The nine (9) consecutive calendar month period ending on June 30, 2014, to be less than One Million One Hundred Thirty Thousand and 00/100 Dollars ($1,130,000.00);
(d) The Fiscal Year ending on September 30, 2014, to be less than One Million Three Hundred Thousand and 00/100 Dollars ($1,300,000.00); and
(e) For any period commencing on or after October 1, 2014, no less than such amounts as are established by Lender for such period based on the annual financial projections including such period delivered by Borrower pursuant the agreement. Borrower acknowledges and agrees that the above EBITDA covenant levels, and Lender’s adjustment in accordance with the preceding sentence, have been established by Lender based on Borrower’s operations as conducted on the Effective Date, and that any material change to such operations, whether by Strategic Acquisition or otherwise, will necessitate an adjustment by Lender of the above EBITDA covenant levels, and that Lender will make such adjustments in Lender’s permitted discretion.
As of September 30, 2012,the date of this report, the Company was in compliance with all suchadministrative and financial covenants.
The Company believes that the borrowing availability under the AR Credit FacilityKeltic facility will be adequate to fund the increase in working capital needs resulting from the acquisitions of On-Site, RFFG of Cleveland, DMCC Staffing, and Ashley Ellis.needs. In recent years, the Company has incurred significant losses and negative cash flows from operations. Management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions, financed primarily through the issuance of common stock, to improve the overall profitability and cash flows of the Company. In addition, as discussed above, the Company entered into an AR Credit Facility with Wells Fargothe Keltic facility to provide working capital financing.
As of September 30, 2012, there were approximately $8,900,000 of losses available to reduce federal taxable income in future years through 2030, and there were approximately $7,525,000 of losses available to reduce state taxable income in future years, expiring from 2012 through 2031. Due to the sale of shares of common stock to PSQ during fiscal 2009 and the change in ownership of PSQ in November 2010, the Company will be limited by Section 382 of the Internal Revenue Code as to the amount of net operating losses that may be used in future years. The Company is currently evaluating the effects of any such limitation. Future realization of the tax benefits of net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. Based on the weight of available evidence, the Company determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of September 30, 2012.
Due to the sale of shares of common stock to LEED HR purchasing a majority ownership during fiscal 2012 and the resulting change in control, the Company willmay be limited by Section 382 of the Internal Revenue Code as to the amount of net operating losses that may be used in future years.
In recent years, the Company has incurred significant losses and negative cash flows from operations. Management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions, financed primarily through the issuance of common stock, to improve the overall profitability and cash flows of the Company. Management believes with current cash flow from operations and the availability under the AR Credit Facility,Keltic facility, the Company will have sufficient cashliquidity for the next 12 months.
Off-Balance Sheet Arrangements
As of September 30, 20122013 and 2011,2012, and during the two years then ended, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.
Critical Accounting Policies
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission.
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. Those 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 the estimates. If 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, accounting for acquisitions, and evaluation of impairment of long-lived assets. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
The following accounting policies are considered by management to be “critical” because of the judgments and uncertainties involved, and because different amounts would be reported under different conditions or using different assumptions.
Estimates and Assumptions
Management makes estimates and assumptions that can affect the amounts of assets and liabilities reported as of the date of the consolidated financial statements, as well as the amounts of reported revenues and expenses during the periods presented. Those 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 the estimates. If 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, but may not be limited to, deferred income tax valuation allowances, accounts receivable allowances, accounting for acquisitions and evaluation of impairment. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
Revenue Recognition
Direct hire 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 staffing service revenues are recognized when services are rendered.
Cost of Contract Staffing Services
The cost of contract services includes the wages and the related payroll taxes and employee benefits of the Company’s employees while they work on contract assignments.
Income Taxes
We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.
Due to the private sale of shares of common stock to LEED HR during fiscal 2012 and the resulting change in control, the Company may be limited by Section 382 of the Internal Revenue Code as to the amount of net operating losses that may be used in future years.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties.
Accounts Receivable
The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for placement falloffsfall-offs 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 and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a small accounts receivable allowance. Based on management’s review of accounts receivable, an allowance for doubtful accounts of approximately $259,000$272,000 and $137,000$259,000 is considered necessary as of September 30, 20122013, and September 30, 2011,2012, respectively. The Company charges uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The Company does not accrue interestBased on past due receivables.management’s review of accounts receivables related to discontinued operations, an allowance of approximately $35,000 is considered necessary as of September 30, 2013.
Goodwill
Goodwill represents the excess of cost over the fair value of the net assets acquired in the June 1, 2010 acquisition of On-Site Services, Inc., the November 1, 2010 purchaseacquisitions of DMCC Staffing, LLC, and RFFG of Cleveland, LLC, and Ashley Ellis, LLC on September 1, 2011.LLC. The Company early adopted,assesses goodwill for impairment at least annually. Testing Goodwill for Impairment, which allows the optionCompany to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. An impairment loss would be recognized to the extent the carrying value of goodwill exceeds its implied fair value.
Fair Value Measurement
The Company follows the provisions of the accounting standard which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The fair value of the Company’s current assets and current liabilities approximate their carrying values due to their short term nature. The carrying value of the Company’s long-term liabilities represents their fair value based on level 3 inputs. The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using level 3 inputs.
Intangible Assets
Customer lists, and non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to fiveten years using both accelerated and straight-line methods, respectively.methods.
Impairment of Long-lived Assets
The Company records an impairment onof long-lived assets (including amortizable intangible assets) used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method.
Stock-Based Compensation
Compensation expense is recorded for the fair value of stock options issued to directors and employees. The expense is measured as the estimated fair value of the stock options on the date of grant and is recorded over the vesting periods.
Segment Data
The Company hashad three operating business segments a) Contract staffing services, b) Direct hire placement services and c) Management services until July 15, 2011, when the Company stopped performing these services. These operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations.operations until October 1, 2012, when the management services were discontinued. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including type of business, type of employee, length of employment and revenue recognition are considered in determining these operating segments. ManagementWe did not provide management services are no longer in operations during the year ended September 30, 2012.2013, and management does not currently intend to provide management services in the future.
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.
Recent Accounting Pronouncements
In May 2011,July 2013, the FASB issued ASU No. 2011-04, “Fair Value Measurements2013-11, Income Taxes (Topic 820)740): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”)Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to be applied prospectively.eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This guidance was effective forASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the Company beginning January 1, 2012. The adoption of this standard did not materially affect the consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02 – Testing indefinite-Lived Intangible Assets for Impairments (“ASU 2012-02”, which amends the guidance in ASC 350-30 on testing indefinite-lived intangible assets, other than goodwill, for impairments. FASB issued ASU 2012-12 in response to feedback on ASU 2011-08, which amended the goodwill impairment testing requirements by allowing an entity to perform a qualitative impairment assessment before proceeding to the two-step impairment test. Similarly, under ASU 2012-02, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before calculating the fair valuesame tax jurisdiction as of the asset. If the entity determines, on the basis of quantitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than note (i.e. a likelihood of more than 50 percent) impaired, the entity would not need to calculate the fair value of the asset. ASU 2012-02 does note revise the requirement to test indefinite-lived intangible assets annually for impairment. In addition, the ASU 2012-02 does not amend the requirement to test these assets for impairment between annual tests if there is a change in the events or circumstances; however, it does revise the examples of events and circumstances that an entity should consider in interim periods. ASU 201-02reporting date. This amendment is effective for annual and interim impairment tests performedpublic entities for fiscal years beginning after SeptemberDecember 15, 2012. Early adoption is permitted.2013, and interim periods within those years. The Company does not expect the adoption of this guidancestandard to have a material effectimpact on the Company’s unaudited condensed consolidated financial statements.position and results of operations.
Other recent accounting pronouncements issued by FASB including its Emerging Issues Task Force (“EITF”), the American Institute of Certified Accountants (“AICPA”), and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk. | Quantitative and Qualitative Disclosure About Market Risk. |
Not applicable.
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| Report of Independent Registered Public Accounting Firm | 2120 |
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Consolidated Balance SheetSheets as of September 30, 20122013 and September 30, 20112012 | 2221 |
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Consolidated StatementStatements of Operations for the years ended September 30, 20122013 and September 30, 20112012 | 2322 |
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Consolidated StatementStatements of Shareholders’ Equity for the years ended September 30, 20122013 and September 30, 20112012 | 2423 |
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Consolidated StatementStatements of Cash Flows for the years ended September 30, 20122013 and September 30, 20112012 | 2524 |
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| Notes to Consolidated Financial Statements | 2625 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
General Employment Enterprises, Inc.
Oakbrook Terrace,Naperville, Illinois
We have audited the accompanying consolidated balance sheets of General Employment Enterprises, Inc. (the “Company”) as of September 30, 20122013 and 2011,2012, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. as of September 31, 20122013 and 2011,2012, and the consolidated results of its operations and cash flows for each of the years then ended in conformity with US generally accepted accounting principles
/s/ FRIEDMAN LLP
New York, New York
March 29, 2013
January 13, 2014
| GENERAL EMPLOYMENT ENTERPRISES, INC. | | | | | | | | | | | | |
| CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | | |
| (In Thousands) | | | | | | | | | | | | |
| | | September 30, | | | September 30, | | | September 30, 2013 | | | September 30, 2012 | |
| | | 2012 | | | 2011 | | | | | | | |
| ASSETS | | | | | | | | | | | | |
| | | | | | | | |
| CURRENT ASSETS: | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 364 | | | $ | 314 | | | $ | 361 | | | $ | 364 | |
| Accounts receivable, less allowances (2012 - $259; 2011 - $137) | | | 6,761 | | | | 6,604 | | |
| Other | | | 246 | | | | 190 | | |
| Total Current Assets | | | 7,371 | | | | 7,108 | | |
| | | | | | | | | | |
| Property and equipment, net (2012 - $3,240; 2011 - $3,104) | | | 518 | | | | 409 | | |
| Accounts receivable, less allowances (2013 - $272; 2012 - $259) | | | | 6,697 | | | | 6,164 | |
| Other current assets | | | | 416 | | | | 246 | |
| Assets of discontinued operations, less allowances (2013 - $35) | | | | 238 | | | | 608 | |
| Total current assets | | | | 7,712 | | | | 7,382 | |
| Property and equipment, net | | | | 530 | | | | 507 | |
| Goodwill | | | 1,106 | | | | 1,280 | | | | 1,106 | | | | 1,106 | |
| Intangible assets, net | | | 2,204 | | | | 2,699 | | | | 1,884 | | | | 2,204 | |
| | | | | | | | | | |
| | | | | | | | | | |
| TOTAL ASSETS | | $ | 11,199 | | | $ | 11,496 | | | $ | 11,232 | | | $ | 11,199 | |
| | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | | | | | | | | | |
| Short-term debt | | $ | 2,404 | | | $ | 1,938 | | | $ | 3,734 | | | $ | 2,404 | |
| Accounts payable | | | 173 | | | | 485 | | | | 1,015 | | | | 173 | |
| Accrued compensation | | | 3,068 | | | | 2,391 | | | | 2,733 | | | | 3,033 | |
| Other current liabilities | | | 1,196 | | | | 1,307 | | | | 981 | | | | 1,196 | |
| Total Current Liabilities | | | 6,841 | | | | 6,121 | | |
| | | | | | | | | | |
| Liabilities from discontinued operations | | | | 30 | | | | 35 | |
| Total current liabilities | | | | 8,493 | | | | 6,841 | |
| Long-term liabilities | | | 253 | | | | 681 | | | | 126 | | | | 253 | |
| | | | | | | | | | |
| Commitments and Contingencies | | | | | | | | | |
| | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | |
| SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | |
| Preferred stock; authorized - 100 shares; no par value; issued and outstanding - none | | | - | | | | - | | |
| Common stock, no-par value; authorized - 50,000 shares; issued and outstanding - 21,699 at September 30, 2012 and September 30, 2011 | | | 10,453 | | | | 10,031 | | |
| Preferred stock; no par value; authorized - 20,000 shares; issued and outstanding - none | | | | - | | | | - | |
| Common stock, no-par value; authorized - 200,000 shares; issued and outstanding - 22,799 shares at September 30, 2013 and 21,699 shares at September 30, 2012 | | | | 10,851 | | | | 10,453 | |
| Accumulated deficit | | | (6,348 | ) | | | (5,337 | ) | | | (8,238 | ) | | | (6,348 | ) |
| Total Shareholders' Equity | | | 4,105 | | | | 4,694 | | |
| | | | | | | | | | |
| Total shareholders' equity | | | | 2,613 | | | | 4,105 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 11,199 | | | $ | 11,496 | | | $ | 11,232 | | | $ | 11,199 | |
The accompanying notes are an integral part of these consolidated financial statements.
21
| GENERAL EMPLOYMENT ENTERPRISES, INC. | |
| CONSOLIDATED STATEMENTS OF OPERATIONS | |
| (In Thousands, Except Per Share Data) | | | | | | |
| | | | | | | |
| | | Years Ended September 30, | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| NET REVENUES: | | | | | | |
| Contract staffing services | | $ | 45,190 | | | $ | 31,921 | |
| Direct hire placement services | | | 7,215 | | | | 4,430 | |
| Management services | | | - | | | | 838 | |
| NET REVENUES | | | 52,405 | | | | 37,189 | |
| | | | | | | | | |
| Cost of contract services | | | 38,236 | | | | 27,405 | |
| Selling, general and administrative expenses | | | 14,308 | | | | 8,841 | |
| Amortization of intangible assets | | | 394 | | | | 537 | |
| Loss on impairment of intangible assets and goodwill | | | 274 | | | | 1,126 | |
| Reduction of earn-out liability | | | - | | | | (1,276 | ) |
| | | | | | | | | |
| INCOME (LOSS) FROM OPERATIONS | | | (807 | ) | | | 556 | |
| Interest expense | | | (204 | ) | | | (198 | ) |
| | | | | | | | | |
| NET (LOSS) INCOME | | $ | (1,011 | ) | | $ | 358 | |
| | | | | | | | | |
| | | | | | | | | |
| NET INCOME(LOSS) PER SHARE - BASIC | | $ | (0.05 | ) | | $ | 0.02 | |
| NET INCOME(LOSS) PER SHARE - DILUTED | | $ | (0.05 | ) | | $ | 0.02 | |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF SHARES - BASIC | | | 21,699 | | | | 18,394 | |
| WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED | | | 21,699 | | | | 18,648 | |
The accompanying notes are an integral part of these consolidated financial statements.| GENERAL EMPLOYMENT ENTERPRISES, INC. | | | | | | |
| CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | |
| (In Thousands, Except Per Share Data) | | | | | | |
| | | | | | |
| | Years Ended September 30, | |
| | 2013 | | | 2012 | |
| | | | | | |
| NET REVENUES: | | | | | | |
| Contract staffing services | | $ | 39,187 | | | $ | 37,338 | |
| Direct hire placement services | | | 7,317 | | | | 7,215 | |
| NET REVENUES | | | 46,504 | | | | 44,553 | |
| Cost of contract services | | | 32,318 | | | | 30,731 | |
| Selling, general and administrative expenses | | | 15,173 | | | | 13,852 | |
| Amortization of intangible assets | | | 320 | | | | 394 | |
| Loss on impairment of intangible assets and goodwill | | | - | | | | 274 | |
| LOSS FROM OPERATIONS | | | (1,307 | ) | | | (698 | ) |
| Interest expense | | | 251 | | | | 204 | |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION | | | (1,558 | ) | | | (902 | ) |
| Provision for income tax | | | (8 | ) | | | - | |
| LOSS FROM CONTINUING OPERATIONS | | $ | (1,566 | ) | | $ | (902 | ) |
| Loss from discontinued operations | | $ | (324 | ) | | $ | (109 | ) |
| NET LOSS | | $ | (1,890 | ) | | $ | (1,011 | ) |
| BASIC AND DILUTED LOSS PER SHARE | | | | | | | | |
| From continuing operations | | $ | (0.07 | ) | | $ | (0.04 | ) |
| From discontinued operations | | $ | (0.01 | ) | | $ | (0.01 | ) |
| Total net loss per share | | $ | (0.09 | ) | | $ | (0.05 | ) |
| WEIGHTED AVERAGE NUMBER OF SHARES - BASIC AND DILUTED | | | 21,969 | | | | 21,699 | |
| GENERAL EMPLOYMENT ENTERPRISES, INC. | | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
| (In Thousands) | | | | | | | | | | | | |
| | | | | | | | | | | | Total | |
| | | Common Stock | | | Accumulated | | | Shareholders' | |
| | | Shares | | | Amount | | | Deficit | | | Equity | |
| | | | | | | | | | | | | |
| Balance, September 30, 2010 | | | 14,856 | | | $ | 7,287 | | | $ | (5,695 | ) | | $ | 1,592 | |
| | | | | | | | | | | | | | | | | |
| Issuance of common stock for acquisitions | | | 6,831 | | | | 2,731 | | | | - | | | | 2,731 | |
| | | | | | | | | | | | | | | | | |
| Exercises of stock options | | | 12 | | | | 5 | | | | - | | | | 5 | |
| | | | | | | | | | | | | | | | | |
| Stock compensation expense | | | - | | | | 8 | | | | - | | | | 8 | |
| | | | | | | | | | | | | | | | | |
| Net income | | | - | | | | - | | | | 358 | | | | 358 | |
| | | | | | | | | | | | | | | | | |
| Balance, September 30, 2011 | | | 21,699 | | | $ | 10,031 | | | $ | (5,337 | ) | | $ | 4,694 | |
| | | | | | | | | | | | | | | | | |
| Stock compensation expense | | | | | | | 422 | | | | | | | | 422 | |
| | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | (1,011 | ) | | | (1,011 | ) |
| | | | | | | | | | | | | | | | | |
| Balance, September 30, 2012 | | | 21,699 | | | $ | 10,453 | | | $ | (6,348 | ) | | $ | 4,105 | |
The accompanying notes are an integral part of these consolidated financial statements.
| GENERAL EMPLOYMENT ENTERPRISES, INC. | | | | | | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | |
| (In Thousands) | | | | | | |
| | | | | | | |
| | | Years Ended September 30, | |
| | | | | | | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net Income (Loss) | | $ | (1,011 | ) | | $ | 358 | |
| Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities: | | | | | | | | |
| Depreciation and amortization | | | 546 | | | | 713 | |
| Reduction of earn-out liability | | | - | | | | (1,276 | ) |
| Loss on impairment of goodwill | | | 173 | | | | | |
| Loss on impairment of other intangible assets | | | 101 | | | | 1,126 | |
| Stock compensation expense | | | 422 | | | | 8 | |
| Non cash interest expense | | | - | | | | 120 | |
| Provision for doubtful accounts | | | 491 | | | | 66 | |
| Changes in assets and liabilities - | | | | | | | | |
| Accounts receivable | | | (648 | ) | | | (5,250 | ) |
| Accounts payable | | | (312 | ) | | | 378 | |
| Accrued compensation | | | 677 | | | | 1,622 | |
| Other current items, net | | | (164 | ) | | | 398 | |
| Long-term liabilities | | | (180 | ) | | | (553 | ) |
| Net cash provided by (used by) operating activities | | | 95 | | | | (2,290 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Acquisition of property and equipment | | | (261 | ) | | | (84 | ) |
| Partial payment of earn-out | | | (50 | ) | | | - | |
| Acquisition of Ashley Ellis | | | (200 | ) | | | (200 | ) |
| Net cash used in investing activities | | | (511 | ) | | | (284 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Exercise of stock options | | | - | | | | 5 | |
| Net proceeds from short-term debt | | | 466 | | | | 1,938 | |
| Net cash provided by financing activities | | | 466 | | | | 1,943 | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 50 | | | | (631 | ) |
| | | | | | | | | |
| Cash and cash equivalents at beginning of year | | | 314 | | | | 945 | |
| | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 364 | | | $ | 314 | |
| | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | |
| | | | | | | | | |
| Cash paid for interest | | $ | 182 | | | $ | 66 | |
| Cash paid for taxes | | $ | - | | | $ | - | |
GENERAL EMPLOYMENT ENTERPRISES, INC. | | | | | | | | | | | | |
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
| (In Thousands) | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Common Stock | | | Accumulated | | | Total Shareholders' | |
| | Shares | | | Amount | | | Deficit | | | Equity | |
| | | | | | | | | | | | |
| Balance, September 30, 2011 | | | 21,699 | | | $ | 10,031 | | | $ | (5,337 | ) | | $ | 4,694 | |
| | | | | | | | | | | | | | | | |
| Stock compensation expense | | | - | | | | 422 | | | | - | | | | 422 | |
| | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | (1,011 | ) | | | (1,011 | ) |
| | | | | | | | | | | | | | | | |
| Balance, September 30, 2012 | | | 21,699 | | | $ | 10,453 | | | $ | (6,348 | ) | | $ | 4,105 | |
| | | | | | | | | | | | | | | | |
| Issuance of common stock | | | 1,100 | | | | 330 | | | | - | | | | 330 | |
| | | | | | | | | | | | | | | | |
| Stock compensation expense | | | - | | | | 68 | | | | - | | | | 68 | |
| | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | (1,890 | ) | | | (1,890 | ) |
| | | | | | | | | | | | | | | | |
| Balance, September 30, 2013 | | | 22,799 | | | $ | 10,851 | | | $ | (8,238 | ) | | $ | 2,613 | |
NON-CASH FINANCING AND INVESTING ACTIVITIES:
In August 2011, the Company purchased certain assets of Ashley Ellis, LLC as discussed in Note 4 in exchange for 1,250 shares of stock valued at $331.
In November 2010, the Company purchased certain assets of DMCC Staffing, LLC and RFFG of Cleveland, LLC as discussed in Note 4 in exchange for 5,581 shares of stock valued at $2,400.
The accompanying notes are an integral part of these consolidated financial statements.
23
| GENERAL EMPLOYMENT ENTERPRISES, INC. | | | | | | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | |
| (In Thousands) | | | | | | |
| | | | | | |
| | Years Ended September 30, | |
| | 2013 | | | 2012 | |
| | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss | | $ | (1,890 | ) | | $ | (1,011 | ) |
| Loss from discontinued operations | | | (324 | ) | | | (109 | ) |
| Loss from continuing operations | | | (1,566 | ) | | | (902 | ) |
| Adjustments to reconcile loss from continuing operations to net cash (used in) provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 485 | | | | 546 | |
| Loss on impairment of goodwill | | | - | | | | 173 | |
| Loss on impairment of other intangible assets | | | - | | | | 101 | |
| Stock compensation expense | | | 68 | | | | 422 | |
| Provision for doubtful accounts | | | 142 | | | | 491 | |
| Loss on sale of fixed assets | | | 78 | | | | - | |
| Changes in operating assets and liabilities - | | | | | | | | |
| Accounts receivable | | | (675 | ) | | | (648 | ) |
| Accounts payable | | | 842 | | | | (312 | ) |
| Accrued compensation | | | (300 | ) | | | 677 | |
| Other current items, net | | | (59 | ) | | | (164 | ) |
| Long-term liabilities | | | (127 | ) | | | (180 | ) |
| Net cash (used in) provided by operating activities - Continuing Operations | | | (1,112 | ) | | | 204 | |
| Net cash provided by (used in) operating activities - Discontinued Operations | | | 41 | | | | (109 | ) |
| Net cash (used in) provided by operating activities | | | (1,071 | ) | | | 95 | |
| | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Acquisition of property and equipment | | | (191 | ) | | | (261 | ) |
| Partial payment of earn-out | | | (150 | ) | | | (50 | ) |
| Acquisition of Ashley Ellis | | | - | | | | (200 | ) |
| Net cash used in investing activities - Continuing Operations | | | (341 | ) | | | (511 | ) |
| Net cash used in investing activities - Discontinued Operations | | | (4 | ) | | | - | |
| Net cash used in investing activities | | | (345 | ) | | | (511 | ) |
| | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from sale lease back | | | 122 | | | | - | |
| Payments on Capital Lease | | | (39 | ) | | | - | |
| Net proceeds from short-term debt | | | 1,330 | | | | 466 | |
| Net cash provided by financing activities | | | 1,413 | | | | 466 | |
| | | | | | | | |
| Net change in cash and cash equivalents - Continuing Operations | | | (40 | ) | | | 159 | |
| Net change in cash and cash equivalents - Discontinued Operations | | | 37 | | | | (109 | ) |
| | | | | | | | |
| Cash and cash equivalents at beginning of year - Continuing Operations | | | 364 | | | | 314 | |
| | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 361 | | | $ | 364 | |
| | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | |
| | | | | | | | |
| Cash paid for interest | | $ | 248 | | | $ | 182 | |
| Cash paid for taxes | | $ | 8 | | | $ | - | |
| | | | | | | | | |
| Non-Cash Investing and Financing Activities: | | | | | | | | |
| Property and equipment additions purchased by capital lease | | $ | 194 | | | $ | - | |
| Non-cash payment of earn-out | | $ | 330 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
General Employment Enterprises, Inc. (the “Company”“Company,” “we,” “our” or “us”) provides staffing services through a network of branch offices located in major metropolitan areas throughout the United States. The Company’s professional staffing services provide information technology, engineering and accounting professionals to clients on either a regular placement basis or a temporary contract basis. The Company’s agricultural staffing services provideprovided agricultural workers for farms and groves.groves, until July 7, 2013, when the Company ceased operations within its Agricultural Division, terminated all the division’s employees and began the process of liquidating all assets of this Division. The Company’s industrial staffing business provides weekly temporary staffing for light industrial clients in Ohio and Pennsylvania. There was no customer that represented more than 10% of the Company’s consolidated revenue in fiscal 2012, however the Company did have two large customers that represented approximately 17.4% and 11.5% of the Company’s consolidated revenue2013 or in fiscal 2011.2012.
The Company has experienced significant losses forin the year ended September 30, 2012. past. Management has implemented a strategy which included cost reduction efforts, closure of the Agricultural Division as well as identifying strategic acquisitions, financed primarily through the issuance of stock, to improve the overall profitability and cash flows of the Company. In December 2010, theThe Company entered into an account purchasea three year revolving credit agreement with Wells Fargo Business CreditKeltic to provide working capital financing. The account purchase agreement allows Wells FargoKeltic to advance the Company funds based on accounts receivable at its sole discretion. a percentage of eligible invoices.
In recent years, the event Wells Fargo elects notCompany has incurred significant losses and negative cash flows from operations. Management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions, financed primarily through the issuance of common stock, to advance us funds on our accounts receivable balance orimprove the performanceoverall profitability and cash flows of the acquired entities does not meet our expectations,Company. Management believes with current cash flow from operations and the availability under the Keltic loan agreement, the Company could experiencewill have sufficient liquidity constraints.
for the next 12 months.
2. Significant Accounting Policies and Estimates
Basis of Presentation
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission.
Principles of Consolidation
The consolidated financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries. All significant inter-company 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 condensed consolidated financial statements, as well as the amounts of reported revenues and expenses during the periods presented. Those 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 the estimates. If 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, but may not be limited to, deferred income tax valuation allowances, accounts receivable allowances, accounting for acquisitions and evaluation of impairment. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
Revenue Recognition
Direct hire 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 staffing service revenues are recognized when services are rendered.
The provision for falloffs and refunds, which is reflected in the consolidated statements of operations as a reduction of placement service revenues, was $969,000 in fiscal 2013 and $1,026,000 in fiscal 2012.
Cost of Contract Staffing Services
The cost of contract services includes the wages and the related payroll taxes and employee benefits of the Company’s employees while they work on contract assignments.
Income Taxes
We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any accruals that we believe are appropriate, as well as the related net interest and penalties.
Income or Loss per Share
Basic income or loss per share is based on the average number of common shares outstanding. Diluted income per share is based on the average number of common shares and the dilutive effect of stock options. Stock options are not considered to be dilutive during loss periods. The diluted net loss per share in fiscal 2012 excludes approximately 589,000 stock options as they had an anti-dilutive effect. The diluted net income per share includes the effect of 254,000 stock options in fiscal 2011.
Cash and Cash Equivalents
Highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. At September 201230, 2013, and 2011,September 30, 2012, there were no cash equivalents. The Company maintains deposits in financial institutions in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. All of our non-interest bearing cash balances were fully insured at September 30,December 31, 2012, due to a temporary federal program in effect from December 31, 2010, through December 31, 2012. Under the program, there iswas no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revertreverted to $250,000 per depositor at each financial institution, and our non-interest bearing cash balances may again exceed federally insured limits.
Accounts Receivable
The Company extends credit to its various customers based on evaluation of the customer’s financial condition and ability to pay the Company in accordance with the payment terms. An allowance for placement falloffsfall-offs 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 and known factors impacting its customers. The nature of the contract service business, where companies are dependent on employees for the production cycle allows for a small accounts receivable allowance. Based on management’s review of accounts receivable, an allowance for doubtful accounts of approximately $259,000$272,000 and $137,000$259,000 is considered necessary as of September 30, 20122013, and September 30, 2011,2012, respectively. The Company charges uncollectible accounts against the allowance once the invoices are deemed unlikely to be collectible. The Company does not accrue interestBased on past due receivables.management’s review of accounts receivables related to discontinued operations, an allowance of approximately $35,000 is considered necessary as of September 30, 2013.
Property and Equipment
Property and equipment are recorded at cost. Depreciation expense is calculated 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. There was no impairment of property and equipment for the years ended September 30, 20122013 and September 30, 2011.2012. For property and equipment included in current asset of discontinued operations in the accompanying balance sheet the Company has ceased recording depreciation expense.
Goodwill
Goodwill represents the excess of cost over the fair value of the net assets acquired in the June 1, 2010 acquisition of On-Site Services, Inc., the November 1, 2010 purchaseacquisitions of DMCC Staffing, LLC, and RFFG of Cleveland, LLC, and the Ashley Ellis, LLC acquisition on September 1, 2011.(“Ashley Ellis”). The Company assesses goodwill for impairment at least annually. The Company early adopted, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which allows the Company to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. An impairment loss would be recognized to the extent the carrying value of goodwill exceeds its implied fair value.
Fair Value Measurement
The Company follows the provisions of the accounting standard which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Under these provisions, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
The standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The fair value of the Company’s current assets and current liabilities approximatelyapproximate their carrying values due to their short term nature. The carrying value of the Company’s long-term liabilities represents their fair value based on level 3 inputs further disclosed in note 11. inputs. The Company’s goodwill and other intangible assets are measured at fair value on a non-recurring basis using level 3 inputs, as further discloseddiscussed in Notes 4,5 and 8.Note 4.
Earnings (loss) per share
Basic income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted income (loss) per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation. Common share equivalents of approximately 47,000 and 117,000 were excluded from the computation of diluted earnings per share for the years ended September 30, 2013 and 2012, respectively, because their effect is anti-dilutive.
Certain reclassifications have been made to the financial statements as of and for the year ended September 30, 2012 to conform to the presentation as of and for the year ended September 30, 2013.
Advertising Expenses
The majority of the Company’s advertising expense budget is used to support the Company’s business. Most of the advertisements are in print or internet media, with expenses recorded as they are incurred. For the years ended September 30, 2013 and 2012, included in selling, general and administrative expenses was advertising expense totaling approximately $733,000 and $869,000, respectively.
Intangible Assets
Customer lists, non-compete agreements, customer relationships, management agreements and trade names were recorded at their estimated fair value at the date of acquisition and are amortized over their estimated useful lives ranging from two to ten years using both accelerated and straight-line methods.
Impairment of Long-lived Assets
The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method.
Stock-Based Compensation
Compensation expense is recorded for the fair value of stock options issued to directors and employees. The expense is measured as the estimated fair value of the stock options on the date of grant and is recorded over the vesting periods.
AdvertisingIncome Taxes
The Company expenses advertising costs
We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as incurred. Advertising costs were approximately $870,000well as for operating loss and $541,000tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years ended September 30,in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.
Due to the private sale of shares of common stock to LEED HR during fiscal 2012 and 2011, respectively.the resulting change in control, the Company may be limited by Section 382 of the Internal Revenue Code as to the amount of net operating losses that may be used in future years.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results.
Discontinued operations
A discontinued operation is a component of an entity that has either been disposed of or that is classified as held for sale, which represents a separate major line of business or geographical area of operations and is part of a single coordinated plan to dispose of a separate line of business or geographical area of operations. In accordance with the rules regarding the presentation of discontinued operations, the assets, liabilities and activity of our agricultural business have been reclassified as a discontinued operation for all periods presented.
Segment Data
The Company hashad three operating business segments a) Contract staffing services, b) Direct hire placement services and c) Management services until July 15, 2011, when the Company stopped performing these services. These operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations.operations until October 1, 2012, when the management services were discontinued. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including type of business, type of employee, length of employment and revenue recognition are considered in determining these operating segments. ManagementWe did not provide management services are no longer in operations during the year ended September 30, 2012.2013, and management does not currently intend to provide management services in the future.
3. Recent Accounting Pronouncements
In May 2011,July 2013, the FASB issued ASU No. 2011-04, “Fair Value Measurements2013-11, Income Taxes (Topic 820)740): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”)Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists (A Consensus the FASB Emerging Issues Task Force). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new2013-11 provides guidance on financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to be applied prospectively.eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This guidance was effective forASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the Company beginning January 1, 2012. The adoption of this standard did not materially affect the consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02 – Testing indefinite-Lived Intangible Assets for Impairments (“ASU 2012-02”, which amends the guidance in ASC 350-30 on testing indefinite-lived intangible assets, other than goodwill, for impairments. FASB issued ASU 2012-12 in response to feedback on ASU 2011-08, which amended the goodwill impairment testing requirements by allowing an entity to perform a qualitative impairment assessment before proceeding to the two-step impairment test. Similarly, under ASU 2012-02, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before calculating the fair valuesame tax jurisdiction as of the asset. If the entity determines, on the basis of quantitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than note (i.e. a likelihood of more than 50 percent) impaired, the entity would not need to calculate the fair value of the asset. ASU 2012-02 does note revise the requirement to test indefinite-lived intangible assets annually for impairment. In addition, the ASU 2012-02 does not amend the requirement to test these assets for impairment between annual tests if there is a change in the events or circumstances; however, it does revise the examples of events and circumstances that an entity should consider in interim periods. ASU 201-02reporting date. This amendment is effective for annual and interim impairment tests performedpublic entities for fiscal years beginning after SeptemberDecember 15, 2012. Early adoption is permitted.2013 and interim periods within those years. The Companycompany does not expect the adoption of this guidancestandard to have a material effectimpact on the Company’s unaudited condensed consolidated financial statements.position and results of operations.
Other recent accounting pronouncements issued by FASB including its Emerging Issues Task Force (“EITF”), the American Institute of Certified Accountants (“AICPA”), and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
4. Acquisitions
In connection with the application of purchase accounting, the Company recorded its identifiable intangible assets at fair value. Fair value of the intangible assets was determined primarily through the use of a discounted cash flow analysis. The discounted cash flow analysis projected the estimated future cash flows to be generated by the underlying assets and discounted these at a rate reflecting perceived business and financial risks. The projected cash flow estimates used in the discounted cash flow analysis are based on management’s best estimate and actual results may differ. The valuation of these intangible assets is based predominately on Level 3 inputs.
Ashley Ellis, LLC
On August 31, 2011, General Employment Enterprises, Inc. (the “Company”) entered into an asset purchase agreement with Ashley Ellis LLC, an Illinois limited liability company (“Ashley Ellis”), and Brad A. Imhoff (the “Ashley Ellis Asset Purchase Agreement”), for the purchase of certain assets of Ashley Ellis, primarily customer lists, comprising Ashley Ellis’ services business. Ashley Ellis’ services business was operated from offices in Illinois, Texas and Georgia and provided services related to the recruitment and placement of technical personnel. The Ashley Ellis Asset Purchase Agreement was deemed effective on September 1, 2011.
Brad A. Imhoff is the brother of Herbert F. Imhoff, Jr., a former director and President of the Company who retired from all positions effective January 31, 2013. Brad A. Imhoff and Ashley Ellis, an entity of which Brad A. Imhoff is the sole member and Chief Executive Officer, were parties to the transaction. As consideration for the assets, the Company paid Ashley Ellis $200,000 on the date of closing and paid Ashley Ellis an additional $200,000 within six months of closing. The Company also issued to Ashley Ellis 1,250,000 restricted shares of the Company’s common stock. As the sole member of Ashley Ellis, Brad A. Imhoff has an interest in the entire consideration paid by the Company to Ashley Ellis for the assets.
In connection with the transactions contemplated by the Ashley Ellis Asset Purchase Agreement, on August 31, 2011, the Company and Ashley Ellis entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which Ashley Ellis was granted certain piggyback registration rights with respect to the Shares to be issued to Ashley Ellis under the Ashley Ellis Asset Purchase Agreement. The Registration Rights Agreement contains certain indemnification provisions for the benefit of the Company and Ashley Ellis and other customary provisions. The total consideration is summarized as follows:
| In Thousands | | | |
| | | | |
| Stock consideration | | $ | 331 | |
| Cash consideration | | | 400 | |
| | | | | |
| Total consideration for acquisition | | $ | 731 | |
The following table summarizes the approximate fair value of the assets acquired and liabilities assumed at the date of closing.
| In Thousands | | | |
| | | | |
| Property and Equipment | | $ | 114 | |
| Intangible assets – trade name | | | 17 | |
| Intangible assets – customer relationships | | | 577 | |
| Goodwill | | | 23 | |
| | | | | |
| Total fair value of assets acquired | | $ | 731 | |
The assets purchased from Ashley Ellis constitute a business and as such, the acquisition of these assets was accounted for as a business combination. The assets purchased related to the Ashley Ellis, LLC acquisition was not considered a significant acquisition. The results of operations of Ashley Ellis, LLC are included in the Company’s statement of operations from the effective date of the acquisition, September 1, 2011. Goodwill and the intangible assets acquired in this transaction are deductible for tax purposes.
Acquisition of DMCC Staffing, LLC and RFFG of Cleveland, LLC
Effective November 1, 2010, the Company, through its wholly-owned subsidiary, Triad Personnel Services, Inc. (Triad), entered into an asset purchase agreement (the “Asset Purchase Agreement”), dated as of October 29, 2010, with DMCC Staffing, LLC (“DMCC”), RFFG of Cleveland, LLC (“RFFG of Cleveland”), and Thomas J. Bean, for the purchase of certain assets of DMCC and RFFG of Cleveland, primarily customer lists, comprising DMCC’s and RFFG of Cleveland’s services business. Thomas Bean was the beneficial owner of approximately 9.9% of the Company’s outstanding shares prior to this acquisition. The business is primarily operated from offices in Ohio and provides labor and human resource solutions, including temporary staffing, human resources and payroll outsourcing services, labor and employment consulting and workforce solutions. When the assets were purchased, there was only one primary customer.
The closing of the Asset Purchase Agreement was subject to certain conditions, including entry into a definitive management and services agreement for the management of the businesses of certain affiliates of DMCC, RFFG of Cleveland and Mr. Bean (the “Management Agreement”) by the Company. On November 30, 2010, Business Management Personnel, Inc. (“BMP”), a wholly-owned subsidiary of the Company, entered into the Management Agreement, effective as of November 1, 2010, with RFFG, LLC (“RFFG”). The Management Agreement was terminated in July 2011. Refer to Note 5, Entry into Management Agreement for a further description.
The assets purchased from RFFG of Cleveland and DMCC constitute businesses and as such the acquisition of these assets were accounted for as a business combination. Pursuant to the Asset Purchase Agreement, the Company agreed to issue $2,400,000 in shares of its common stock (5,581,395 shares based on the December 30, 2010 closing date) to DMCC and RFFG of Cleveland upon receipt of (a) stockholder approval of the transaction and of an increase to the Company’s authorized Common Stock and (b) approval of an additional listing application by the NYSE MKT. On March 24, 2011, the Company received written consents in lieu of a meeting of shareholders from the holders of 71.9% of the shares of Common Stock, (i) approving the issuance of 5,581,395 shares of the Common Stock to DMCC Staffing and RFFG of Cleveland pursuant to the Asset Purchase Agreement and the issuance of any additional shares of Common Stock to DMCC and RFFG of Cleveland as may be necessary pursuant to certain earn-out payment provisions under the Asset Purchase Agreement; and (ii) approving an amendment to the Articles of Incorporation of the Company to increase the number of authorized shares of capital stock from 20,100,000 shares to 50,100,000 shares and to increase the number of authorized shares of Common Stock from 20,000,000 shares to 50,000,000 shares.
Commencing in 2011, if the aggregate EBITDA of the businesses acquired, plus any management fees paid to the Company under the Management Agreement meets certain targets (each, an “EBITDA Target”) over a four-year period ending December 31, 2014 (the “Earnout Period”), the Company will be required to make earn-out payments to DMCC and RFFG of Cleveland, each payable in three equal installments. In the event that an EBITDA Target for a certain period is not met, the earn-out payment in respect to such period will be reduced proportionately. The EBITDA Targets are $300,000, $600,000, $900,000 and $1,200,000 for each of the three-, six-, nine- and twelve-month periods, respectively, in the fiscal year ending December 31, 2011, and earn-out payments will consist of quarterly payments of $150,000, payable in three equal monthly installments, if the relevant EBITDA Targets are met. Starting in the fiscal year ending December 31, 2012, the EBITDA Targets will be adjusted annually to reflect the EBITDA for the twelve-month period ending on December 31st of the most recently completed fiscal year (each, an “Annual EBITDA Target”) and earn-out payments for the year will be adjusted to equal 50% of the relevant Annual EBITDA Target divided by four. At the end of each fiscal year during the Earnout Period, if the aggregate EBITDA for the 12-month period then ended is greater than the Annual EBITDA Target for such year, then the Company will pay to DMCC and RFFG of Cleveland the amount of such excess, 50% in cash and 50% in shares of common stock. Through September 30, 2012, $232,000 has been earned related to the purchase agreement earn-out, net of off-sets, and the Company made one $50,000 cash payment against this liability.
The Company is currently in discussions with RFFG to amend the Asset Purchase Agreement as it relates to the earn-out since the value of the Management Agreement was a significant value of the original agreement and was terminated in July 2011.
The accounting guidance requires that contingent consideration be added to the purchase price and the resultant liability be recorded at fair value. Given the terms of the earn-out provisions of the Asset Purchase Agreement, the Company believes that the earn-out will be paid and accordingly, has included the fair value of the projected total earn-out payments in the total consideration paid for the acquisition. Any subsequent changes in the estimated fair value of this contingent consideration will be recorded in the Company’s statement of operations. At September 30, 2012 the expected earn-out liability is approximately $845,000 based on the originally present value accounting for the transaction.
The total consideration is summarized as follows:
| In Thousands | | | |
| | | | |
| Stock consideration | | $ | 2,400 | |
| Earn-out consideration | | | 2,198 | |
| | | | | |
| Total consideration for acquisition | | $ | 4,598 | |
The following table summarizes the approximate fair value of the assets acquired and liabilities assumed at the date of closing.
| In Thousands | | | |
| | | | |
| Property and equipment | | $ | 5 | |
| Intangible assets - management agreement | | | 1,396 | |
| Intangible assets - customer relationships | | | 2,113 | |
| Goodwill | | | 1,084 | |
| | | | | |
| Total fair value of assets acquired | | $ | 4,598 | |
Goodwill and the intangible assets acquired in this transaction are deductible for tax purposes.
The Company wrote off the intangible asset associated with the management agreement of approximately $1,126,000 and reduced the earn-out liability by $1,276,000 when it was determined that RFFG ceased doing business on July 15, 2011 and therefore, future management fees would no longer would be earned, as discussed further in Note 5.
As with any asset purchase of a business the purchaser may be held accountable for the seller’s debts and liabilities where; (i) there is an express or implied agreement of assumption; (ii) the transaction amounts to a de facto consolidation or merger of the buyer or seller corporation; (iii) the purchaser is merely a continuation of the seller; or (iv) the transaction is for the fraudulent purpose of escaping liability for the seller’s obligations. There are always several factors in the determination of any successor corporation legal liabilities related to the predecessor company. Other than the current litigation related to the Ohio Bureau of Workers Compensation, the Company has not been noticed of any additional claims, however additional claims could be material to the business.
The loss of a significant customer by Onsite during the year ended September 30, 2012 had a negative effect on future earnings and cash flows from operations, and is a factor indicating the possibility of future impairment to the Company’s goodwill. The Company has determined that based on expected future cash flows there was an impairment of the related intangible assets of approximately $274,000.
5. Entry into Management Service Agreement
In conjunction with the Asset Purchase Agreement for DMCC and RFFG of Cleveland, BMP, an Ohio corporation and a wholly-owned subsidiary of the Company, entered into a management service agreement (the “Management Agreement”) with RFFG effective November 1, 2010.
Pursuant to the Management Agreement, BMP agreed to provide services to RFFG to operate its day-to-day business, including services related to accounting, sales, finance, workers’ compensation, benefits, physical locations, information technologies and employees. The Management Agreement provided that additional services may be added if BMP and RFFG mutually agree to the cost to be charged by BMP for such services and as long as BMP has the resources to provide such services.
In consideration of the services provided under the Management Agreement, RFFG, LLC agreed to pay BMP monthly fees that approximate 6% of its gross revenues on an annual basis. For the year ended September 30, 2011, the Company recorded approximately $838,000 of revenue related to this agreement. As of September 30, 2011, BMP has $225,000 of management fee receivable.
Due to an unresolved issue with the Ohio Bureau of Workers Compensation, RFFG ceased operations as of July 15, 2011 and, as a result, the Management Agreement was effectively terminated. As a result, the Company recorded a loss on impairment of intangible assets of $1,126,000 (as discussed further in Note 9), offset by income of $1,276,000 for the reduction of an associated earn-out liability. There was approximately $140,000 unpaid related to this Management Agreement, which was offset against amounts owed related to the earn-out agreement. In addition, since the Company was providing certain management services, RFFG and the transactions between RFFG and the Company were considered to be related party in nature because Thomas Bean was a 10% owner of the Company at the time.
There continued to be some expenses related to transportation, fuel and utilities that were paid by the Company to RFFG after RFFG ceased operations and the Management Agreement was effectively terminated.
6. Placement Service Revenues
The provision for falloffs and refunds, which is reflected in the consolidated statements of operations as a reduction of placement service revenues, was $1,026,000 in fiscal 2012 and $695,000 in fiscal 2011.
7.3. Property and Equipment
Property and equipment consisted of the following as of September 30th:30:
| (In Thousands) | Useful Lives | | 2012 | | | 2011 | | |
| | | Useful Lives | | September 30, | | | September 30, | |
| (In thousands) | | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | | | |
| Computer software | 5 years | | $ | 1,447 | | | $ | 1,447 | | 5 years | | $ | 1,447 | | | $ | 1,447 | |
| Office equipment, furniture and fixtures and leasehold improvements | 2 to 10 years | | | 2,311 | | | | 2,066 | | 2 to 10 years | | | 2,325 | | | | 2,311 | |
| | | | | | | | | | | |
| Total property and equipment, at cost | | | | 3,758 | | | | 3,513 | | | | | 3,772 | | | | 3,758 | |
| Accumulated depreciation and amortization | | | | (3,240 | ) | | | (3,104 | ) | | | | (3,242 | ) | | | (3,240 | ) |
| | | | | | | | | | | |
| Property and equipment, net | | | $ | 518 | | | $ | 409 | | | | | 530 | | | | 518 | |
| Less: Property and equipment, net from discontinued operations | | | | $ | - | | | $ | (11 | ) |
| Property and equipment, net | | | | $ | 530 | | | $ | 507 | |
Disposals of property and equipment, consisting primarily of fully-depreciated office furniture, a vehicle and equipment, had an original cost of $16,000approximately $28,000 and $24,000$16,000 in fiscal 20122013 and 2011,2012, respectively. Leasehold improvements are amortized over the term of the lease.
During the year, the Company sold vehicles with a value of approximately $225,000 and leased them back under a 30 month agreement at an interest rate of approximately 23%. At September 30, 2013, approximately $72,000 is current and included in other current liabilities and approximately $83,000 is included in other long term liabilities. The terms are 30 months and totaled approximately $155,000 at September 30, 2013 and are as follows: fiscal 2014 - $72,000, fiscal 2015 - $83,000.
Depreciation expense for the yearsyear ended September 30, 20122013 and 20112012 was approximately $152,000$165,000 and $176,000,$152,000, respectively.
8.4. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of cost over the fair value of the net assets acquired from various acquisitions. Goodwill is not amortized. The Company performs a goodwill impairment test annually, by reporting unit, in the fourth quarter of the fiscal year, or whenever potential impairment triggers occur. Should the two-step process be necessary, the first step of the impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value including goodwill. In applying a fair-value-based test, estimates are made of the expected future cash flows to be derived from the reporting unit. Similar to the review for impairment of other long-lived assets, the resulting fair value determination is significantly impacted by estimates of future margins, capital needs, economic trends and other factors. If the carrying value of the reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. An impairment loss would be recognized to the extent the carrying value of goodwill exceeds its implied fair value.
The loss of a significant customer by Onsite during the year ended September 30, 2012, had a negative effect on future earnings and cash flows from operations, and is a factor indicating the possibility of future impairment to the Company’s goodwill. The Company has determined that based on expected future cash flows there was an impairment of the related intangible assets of $101,000 and goodwill of approximately $173,000.
33
As of September 30, 2013| (In Thousands) | | Cost | | | Accumulated Amortization | | | Loss on impairment of Intangible assets | | | Net Book Value | |
| | | | | | | | | | | | |
| Customer Relationships | | $ | 2,690 | | | $ | 816 | | | $ | 0 | | | $ | 1,874 | |
| Trade Name | | | 17 | | | | 7 | | | | 0 | | | | 10 | |
| | | | | | | | | | | | | | | | |
| | $ | 2,707 | | | $ | 823 | | | $ | 0 | | | $ | 1,884 | |
Intangible Assets
As of September 30, 2012
| (In Thousands) | | Cost | | | Accumulated Amortization | | | Loss on impairment of Intangible assets | | | Net Book Value | |
| | | | | | | | | | | | |
| Non-Compete | | $ | 89 | | | $ | 48 | | | | 41 | | | $ | — | |
| Customer Relationships | | | 2,913 | | | | 662 | | | | 60 | | | | 2,191 | |
| Management Agreement | | | 1,396 | | | | 270 | | | | 1,126 | | | | — | |
| Trade Name | | | 17 | | | | 4 | | | | — | | | | 13 | |
| | | | | | | | | | | | | | | | |
| | $ | 4,415 | | | $ | 984 | | | $ | 1,227 | | | $ | 2,204 | |
As of September 30, 2011
| (In Thousands) | | Cost | | | Accumulated Amortization | | | Loss on impairment of Intangible assets | | | Net Book Value | |
| | | | | | | | | | | | | |
| Non-Compete | | $ | 89 | | | $ | 24 | | | | — | | | $ | 65 | |
| Customer Relationships | | | 2,913 | | | | 296 | | | | — | | | | 2,617 | |
| Management Agreement | | | 1,396 | | | | 270 | | | | 1,126 | | | | — | |
| Trade Name | | | 17 | | | | — | | | | — | | | | 17 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 4,415 | | | $ | 590 | | | $ | 1,126 | | | $ | 2,699 | |
Amortization expense was approximately $394,000$320,000 and approximately $537,000$394,000 for the years ended September 30, 20122013 and 2011,2012, respectively.
Finite life intangible assets are comprised of a non-compete agreement, management agreement, trade name and customer relationships. The non-compete agreementagreements were and trade namenames are amortized on a straight – line basis over the estimated useful liveslife of 5five years. The customerCustomer relationships are amortized based on the future undiscounted cash flows over estimated remaining useful lives of three to 10ten years. The management agreement intangible was being amortized over the five year term of the agreement. Over the next five years, annual amortization expense for these finite life intangible assets will be $393,000 in 2013, $376,000approximately $320,000 in 2014, $359,000$320,000 in 2015, $340,000$320,000 in 2016, and $322,000$320,000 in 2017 and $414,000$320,000 in 2018 and $284,000 thereafter.
Long-lived assets, such as purchased intangibles subject to amortization, are reviewed for impairment wheneverwhen events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company regularly evaluates regularly, whether events and circumstances have occurred that indicate possible impairment and relies on a number of factors, including operating results, business plans, economic projections, and anticipated future cash flows. The Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether the assets are recoverable.
During the year ended, September 30, 2013, the Company did not record any impairment of intangible assets.
During the year ended, September 30, 2012, the Company recorded an impairment charge of approximately $101,000 for the remaining unamortized amount of the non-compete and a certain amount of the customer relationship intangible asset related to the agricultural operation. In addition, the Company recorded an impairment charge of approximately $173,000 related to the goodwill of the agriculture operation. The impairment charge representsrepresented the difference between the fair value and the carrying value of the intangible assets. The agricultural operationAgricultural Division has limited margins and lostbeen operating at a largeloss since the loss of a major customer in 2012 and management determinedhas decided that the present valueAgricultural Division was not a core business in the future operations of the future cash flows associated with the operation did not support the recorded value.
During the year ended, September 30, 2011, the Company recorded an impairment charge of $1,126,000 for the remaining unamortized amountJuly 7, 2013, and has liquidated all of the Management Agreement intangible asset. The impairment charge represents the difference between the fair value and the carrying valuedivisions assets, other than approximately $238,000 of the intangible asset. No future cash flows associated with the Management Agreement are expected as the management agreement was effectively terminated as a result of the managed entity, RFFG, ceasing operations in July 2011.accounts receivable.
9.5. Short-term Debt
The Company through December 2010, had a loan and security agreement with Crest mark Bank for the financing of its accounts receivable. Under the terms, the Company could borrow up to 85% of its eligible accounts receivable, not to exceed $3,500,000. The loan was secured by accounts receivable and other property of the Company. Interest was charged at the rate of 1% above the prime rate. Interest expense under this agreement was $4,500 for the year ending September 30, 2011. In addition, the agreement required a maintenance fee of $3,500 per month and an annual loan fee of 1% of the maximum borrowing amount under the agreement. The Company incurred $29,000 of fees related to this agreement during the year ended September 30, 2011.
In December 2010, the Company terminated its agreement with Crest mark Bank and entered into a two-year, $3,000,000$4,500,000 account purchase agreement (“AR Credit Facility”) with Wells Fargo Bank N.A. (“Wells Fargo”) which has been subsequently amended. The AR Credit Facility as amended, providesprovided for borrowings, on a revolving basis, of up to 85% of the Company’s eligible accounts receivable less than 90 days old and bears interest at a rate equal to the three month LIBOR (minimum of 0.5%) plus 5.25% (effective rate was 5.65%5.75% as of September 30, 2012 and 5.75 % as of September 30, 2011)2012). Under the terms and subject to the conditions in the agreement, Wells Fargo maycould determine which receivables are eligible receivables, maycould determine the amount it will advanceadvanced on any such receivables, and maycould require the Company to repay advances made on receivables and thereby repay amounts outstanding under the AR Credit Facility on demand. Wells Fargo also hashad the right to require the Company to repurchase receivables that remainremained outstanding 90 days past their invoice date. The Company continuescontinued to be responsible for the servicing and administration of the receivables purchased and carriescarried the receivables and any outstanding borrowings on its consolidated balance sheet. The Company paid off the entire outstanding balance of the Wells Fargo credit facility as of September 27, 2013.
On January 14,September 27, 2013, the Company and Wells Fargo Bank, National Association entered into agreements with Keltic Financial Partners II LP (“Keltic”) that provide the Company with long term financing through a Fifth Amendmentsix million dollar ($6,000,000) secured revolving note (the “Fifth Amendment”“Note”). The Note has a term of three years and has no amortization prior to its AR Credit Facility.maturity. The Fifth Amendment extendedinterest rate for the termNote is a fluctuating rate that, when annualized, is equal to the greatest of (A) the Prime Rate plus three and one quarter percent (3.25%), (B) the LIBOR Rate plus six and one quarter percent (6.25%), and (C) six and one half percent (6.50%), with the interest paid on a monthly basis. Loan advances pursuant to the Note are based on the accounts receivable balance and other assets. Upon execution of the Note, approximately three million fifty thousand dollars ($3,050,000) was advanced for the full repayment of the AR Credit Facility to December 14, 2013. Notwithstanding the foregoing extension,and fees from Wells Fargo may issue a written noticerelated to the early termination thereof. At the time of close, there was approximately nine hundred thousand ($900,000) of availability under the new Note in excess of amounts paid to extinguish the debt and fees with Wells Fargo. The Company shorteningexpects to incur certain cash expense and commitment fees related to obtaining the termagreement of approximately $170,000, which has been paid prior to the closing of the ofNote or will be paid over the AR Credit Facility to a date 60 days following such notice in the event that (i) the Companynext six months. The Note is not dismissed without prejudice from a recently brought lawsuit entitled Derby Capital LLC and Derby Capital JOB LLC, as plaintiffs, vs. Trinity HR Services, LLC, et al., as defendants, a lawsuit seeking to establish relative ownership among stockholders which the Company believes it should not be a party to, (ii) the Company fails to furnish Wells Fargo its audited financial statements for its fiscal year ended September 30, 2012secured by March 15, 2013 or if the results in such audited financial statements are not satisfactory to Wells Fargo in its sole discretion, (iii) background checks of newly appointed officers of the Company are unsatisfactory to Wells Fargo in its sole discretion, or (iv) significant changes have occurred to the compositionall of the Company’s Board of Directors as determined by Wells Fargoproperty and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in its sole discretion. In March 2013,which it now has or at any time in the Company and Wells Fargo entered into a Sixth Amendment that extended the required delivery date on certain of the foregoing requirements, such as the audited financial statements, until April 30, 2013. To date, the Company has not received notice from Wells Fargo offuture may acquire any intent to shorten the term of the AR Credit Facility.
right, title or interests. The AR Credit Facility with Wells Fargo Bank includes certain covenants which require compliance until termination of the agreement. As of September 30, 2012, the Company was in compliance with all such covenants.
The Company believes that the borrowing availability provided by the AR Credit Facility will be adequate to fund the increase in working capital needs resulting from the acquisitions of certain assets of On-Site, RFFG of Cleveland, DMCC and Ashley Ellis, LLC.
As of September 30, 2012, the borrowing base availability under this agreement was $596,000 and the outstanding borrowings, which are classified as short-term debt on the 2012 consolidated balance sheet, were approximately $2,404,000. Total interest expense related to the line of credit for the years ending September 30, 2012 and September 30, 2011 approximated $176,000 and $79,000, respectively.
The AR Credit FacilityKeltic facility includes certain covenants which require compliance until termination of the agreement. As of the date of March 29, 2013,this report, the Company was in compliance with all such covenants.
As of September 30, 2013, the availability under the Keltic facility was approximately $1,362,000 and the outstanding borrowings, which are classified as short-term debt on the consolidated balance sheet, were approximately $3,734,000. Total interest expense related to the lines of credit for the years ending September 30, 2013, and September 30, 2012 approximated $174,000 and $176,000, respectively.
The Company has several administrative covenants and the following financial covenant:
The Company must maintain the following EBITDA:
10.(a) The Fiscal Quarter ending on December 31, 2013, to be less than Three Hundred Seventy Thousand and 00/100 Dollars ($370,000.00);
(b) The six (6) consecutive calendar month period ending on March 31, 2014, to be less than Seven Hundred Fifteen Thousand and 00/100 Dollars ($715,000.00);
(c) The nine (9) consecutive calendar month period ending on June 30, 2014, to be less than One Million One Hundred Thirty Thousand and 00/100 Dollars ($1,130,000.00);
(d) The Fiscal Year ending on September 30, 2014, to be less than One Million Three Hundred Thousand and 00/100 Dollars ($1,300,000.00); and
(e) For any period commencing on or after October 1, 2014, no less than such amounts as are established by Lender for such period based on the annual financial projections including such period delivered by Borrower pursuant the agreement. Borrower acknowledges and agrees that the above EBITDA covenant levels, and Lender’s adjustment in accordance with the preceding sentence, have been established by Lender based on Borrower’s operations as conducted on the Effective Date, and that any material change to such operations, whether by Strategic Acquisition or otherwise, will necessitate an adjustment by Lender of the above EBITDA covenant levels, and that Lender will make such adjustments in Lender’s permitted discretion.
As of the date of this report, the Company was in compliance with all administrative and financial covenants.
6. Other Current Liabilities
Other current liabilities consisted of the following:
| | | September 30th | | | September 30, | |
| (In Thousands) | | 2012 | | | 2011 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Accrued expenses | | $ | 282 | | | $ | 201 | | | $ | 482 | | | $ | 282 | |
| Accrued rent | | | - | | | | 31 | | |
| Second Installment of the Ashley Ellis, LLC purchase price | | | - | | | | 200 | | |
| Contingent earn-out liability due within one year | | | 834 | | | | 803 | | |
| Capital lease | | | | 72 | | | | - | |
| Earn-out liability | | | | 350 | | | | 834 | |
| Deferred rent | | | 80 | | | | 72 | | | | 77 | | | | 80 | |
| | | | | | | | | | | | | | | | | |
| Total other current liabilities | | $ | 1,196 | | | $ | 1,307 | | | $ | 981 | | | $ | 1,196 | |
11.7. Long-Term Liabilities
In connection with the completion of the sale of shares of common stock to PSQ in fiscal year 2009, the Company’s then Chairman, Chief Executive Officer and President (the “former CEO”) retired from those positions and his employment agreement with the Company was replaced by a new consulting agreement. Under the consulting agreement, the Company became obligated to pay an annual consulting fee of $180,000 over a five-year period and to issue 500,000 shares of common stock to the former CEO for no additional consideration. During fiscal year 2009, the Company recorded a liability for the net present value of the future payments in the amount of $790,000 and recorded additional common stocka charge to operations in the amount of $280,000 based on a quoted market price of $.56$0.56 per share on the date of the award. On January 31, 2013, Mr. Imhoff Jr. retired from all positions with the Company, however he will continue to receive his monthly payments required under his consulting agreement. As of September 30, 2012,2013, the liability for future payments was reflected on the consolidated balance sheet as short term accrued compensation of $180,000 and$135,000. Included in long-term liability of $100,000. Asliabilities as of September 30, 2011, the liability for future payments was reflected on the consolidated balance sheet2013 are capital leases as accrued compensation of $180,000 and a long-term liability of $280,000.
In November 2010, in conjunction with the purchase of RFFG of Cleveland and DMCC the Company accrued an earn-out liability as discusseddisclosed in Note 4, which was subsequently reduced by $1,276,000. There is no longer a remaining long-term earn-out liability on September 30, 2012.3 and deferred rent.
12.8. Common Stock
In November 2010,The Amended and Restated Purchase agreement with RFFG required the Company issued 5,581,395issuance of 1.1 million shares of common stock. The stock in connection with the acquisitionwas officially issued on July 2, 2013. The stock price on July 2, 2013 was $0.2999 and there were shares traded that day at that price, for a total value of DMCC and RFFG of Cleveland.$329,890.
In
On September 2011,9, 2013 the shareholders approved the increase of common shares authorized to be issued by the Company issued 1,250,000from 50,000,000 to 200,000,000 and preferred shares of its common stock in connection with the acquisition of Ashley Ellis, LLC.
from 1,000,000 to 20,000,000.
13.9. Stock Option Plans
As of September 30, 2012,2013, there were stock options outstanding under the Company’s 1995 Stock Option Plan, Second Amended and Restated 1997 Stock Option Plan, 1999 Stock Option Plan and the 2011 Company Incentive Plan. All four plans were approved by the shareholders. The 1995 Stock Option Plan and the 1999 Stock Option Plan have expired, and no further options may be granted under those plans. During fiscal 2009, the Second Amended and Restated 1997 Stock Option Plan was approved by the Board and shareholdersamended to make an additional 592,000 options available for granting and as of September 30, 20122013 there were 700,840no shares available for issuance under the Second Amended and Restated 1997 Stock Option Plan. As of September 30, 20122013, there were 500,000no shares available for issuance under the 2011 Company Incentive Plan. The plans granted specified numbers of options to non-employee directors, and they authorized the Compensation Committee of the Board of Directors to grant either incentive or non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant. All stock options outstanding as of September 30, 20122013 were non-statutory stock options, had exercise prices equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.
On July 23, 2013, the Board of Directors approved the Company’s 2013 Incentive Stock Plan (the “2013 Plan”), and resolved to cease issuing securities under all prior Company equity compensation plans. The 2013 Plan was approved by the Company’s shareholders at the Annual Meeting of Stockholders on September 9, 2013. The purpose of the 2013 Plan is to provide additional incentives to select persons who can make, are making, and continue to make substantial contributions to the growth and success of the Company, to attract and retain the employment and services of such persons, and to encourage and reward such contributions, by providing these individuals with an opportunity to acquire or increase stock ownership in the Company through either the grant of options or restricted stock. The 2013 Plan is administered by the Compensation Committee or such other committee as is appointed by the Board of Directors pursuant to the 2013 Plan (the “Committee”). The Committee has full authority to administer and interpret the provisions of the 2013 Plan including, but not limited to, the authority to make all determinations with regard to the terms and conditions of an Award made under the 2013 Plan. The maximum number of shares that may be granted under the 2013 Plan is 10,000,000. This number is subject to adjustment to reflect changes in the capital structure or organization of the Company.
A summary of stock option activity is as follows:
| | Year Ended September 30, | |
| (Number of Options in Thousands) | | 2013 | | | 2012 | |
| | | | | | |
| Number of options outstanding: | | | | | | |
| Beginning of year | | | 1,747 | | | | 301 | |
| Granted | | | 108 | | | | 1,747 | |
| Exercised | | | — | | | | — | |
| Terminated | | | (377 | ) | | | (301 | ) |
| | | | | | | | |
| End of year | | | 1,478 | | | | 1,747 | |
| | | | | | | | |
| Number of options exercisable at end of year | | | 1,418 | | | | 1,658 | |
| Number of options available for grant at end of year | | | 10,000 | | | | 1,201 | |
| | | | | | | | |
| Weighted average option prices per share: | | | | | | | | |
| Granted during the year | | $ | .49 | | | $ | .41 | |
| Exercised during the year | | | — | | | | — | |
| Terminated during the year | | | .40 | | | | — | |
| Outstanding at end of year | | | .40 | | | | .38 | |
| Exercisable at end of year | | | .41 | | | | .40 | |
| | | Year Ended September 30 | |
| (Number of Options in Thousands) | | 2012 | | | 2011 | |
| | | | | | | |
| Number of options outstanding: | | | | | | |
| Beginning of year | | | 301 | | | | 388 | |
| Granted | | | 1,747 | | | | — | |
| Exercised | | | — | | | | (12 | ) |
| Terminated | | | (301 | ) | | | (75 | ) |
| | | | | | | | | |
| End of year | | | 1,747 | | | | 301 | |
| | | | | | | | | |
| Number of options exercisable at end of year | | | 1,658 | | | | 255 | |
| Number of options available for grant at end of year | | | 1,201 | | | | 731 | |
| | | | | | | | | |
| Weighted average option prices per share: | | | | | | | | |
| Granted during the year | | $ | .41 | | | $ | — | |
| Exercised during the year | | | — | | | | .40 | |
| Terminated during the year | | | — | | | | 1.26 | |
| Outstanding at end of year | | | .38 | | | | .95 | |
| Exercisable at end of year | | | .40 | | | | 1.00 | |
33
Stock options outstanding as of September 30, 20122013 were as follows (number of options in thousands):
Range of Exercise Prices | | Number Outstanding | | | Weighted Average Price | | | Number Exercisable | | | Weighted Average Price | | | Average Remaining Life (Years) | | | Number Outstanding | | | Weighted Average Price | | | Number Exercisable | | | Weighted Average Price | | | Average Remaining Life (Years) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Under $1.00 | | | 1,747 | | | $ | .38 | | | | 1,658 | | | $ | .40 | | | | 4 | | | | 1,463 | | | $ | .40 | | | | 1,403 | | | $ | .41 | | | | 7 | |
| $1.25 to $2.39 | | | | | | | | | | | | | | | | | | | | | |
| $1.01 to 2.39 | | | | 15 | | | $ | 2.39 | | | | 15 | | | $ | 2.39 | | | | 4 | |
As of September 30, 2012,2013, the aggregate intrinsic value of outstanding stock options and exercisable stock options was $0.19. There were no stock options exercised during the year.approximately $0.23 per share.
The average fair value of stock options granted was estimated to be $0.43 per share in fiscal 2013 and $0.26 per share in fiscal 2012. No stock options were issued in fiscal year 2011. This estimate was made using the Black-Scholes option pricing model and the following weighted average assumptions:
| | | 2013 | | | 2012 | |
| | | | | | |
| Expected option life (years) | | 10.0 | | | 5.0 | |
| Expected stock price volatility | | 94 | % | | 76 | % |
| Expected dividend yield | | — | % | | — | % |
| Risk-free interest rate | | 2.64% to 1.86 | % | | .91 | % |
| | | 2012 | | 2011 | |
| Expected option life (years) | | | 5.0 | | | |
| Expected stock price volatility | | | 76 | % | | |
| Expected dividend yield | | | — | % | | |
| Risk-free interest rate | | | .91 | % | | |
Stock-based compensation expense attributable to stock options was $68,000 and $422,000 in fiscal2013 and 2012, and $8,000 in fiscal 2011.respectively. As of September 30, 2012,2013, there was approximately $46,000$2,000 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average vesting period for those options was 2.51.5 years.
14.10. Income Taxes
The components of the provision for income taxes are as follows:
| | | Year Ending September 30, | |
| (In Thousands) | | 2013 | | | 2012 | |
| | | | | | | |
| Current tax provision | | $ | — | | | $ | — | |
| Deferred tax provision (credit) related to: | | | | | | | | |
| Temporary differences | | | | | | | | |
| Stock option expense | | | 21 | | | | 74 | |
| Deferred compensation expense | | | (63 | ) | | | (60 | ) |
| Vacation expense | | | 18 | | | | 39 | |
| Intangible assets | | | 37 | | | | 94 | |
| Allowance for doubtful accounts | | | (27 | ) | | | 46 | |
| Other | | | (36 | ) | | | (45 | ) |
| Loss carryforwards | | | (664 | ) | | | (194 | ) |
| Valuation allowances | | | 714 | | | | 46 | |
| | | | | | | | |
| Provision for income taxes | | $ | — | | | $ | — | |
| | | Year Ending September 30, | |
| (In Thousands) | | 2012 | | | 2011 | |
| | | | | | | |
| Current tax provision | | $ | — | | | $ | — | |
| Deferred tax provision (credit) related to: | | | | | | | | |
| Temporary differences | | | | | | | | |
| Stock option Expense | | | 74 | | | | 2 | |
| Deferred compensation expense | | | (60 | ) | | | (57 | ) |
| Vacation expense | | | 39 | | | | 32 | |
| Intangible assets | | | 94 | | | | (272 | ) |
| Allowance for doubtful accounts | | | 46 | | | | 19 | |
| Other | | | (45 | ) | | | (24 | ) |
| Loss carryforwards | | | (194) | | | | 104 | |
| Valuation allowances | | | 46 | | | | 196 | |
| | | | | | | | | |
| Provision for income taxes | | $ | — | | | $ | — | |
The differences between income taxes calculated at the 34% statutory U.S. federal income tax rate and the Company’s provision for income taxes are as follows:
| | | Year Ended September 30, | | Year Ended September 30, | |
| (In Thousands) | | 2012 | | 2011 | | 2013 | | 2012 | |
| | | | | | | | | | |
| Income tax provision at statutory federal tax rate | | $ | 50 | | | $ | 122 | | | $ | 22 | | | $ | 50 | |
| Valuation allowance | | | (50 | ) | | | (122 | ) | | | (14 | ) | | | (50 | ) |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | $ | — | | | $ | — | | | $ | 8 | | | $ | — | |
The net deferred income tax asset balance related to the following:
| | | Year Ended September 30, | |
| (In Thousands) | | 2012 | | | 2011 | |
| | | | | | | |
| Temporary differences | | | | | | | | |
| Stock option Expense | | $ | 217 | | | $ | 138 | |
| Deferred compensation expense | | | 120 | | | | 184 | |
| Vacation expense | | | 30 | | | | 47 | |
| Intangible assets | | | 107 | | | | 282 | |
| Allowance for doubtful accounts | | | 104 | | | | 55 | |
| Other | | | 85 | | | | 105 | |
| Net operating loss carryforwards | | | 3,560 | | | | 3,366 | |
| Valuation allowances | | | (4,223 | ) | | | (4,177 | ) |
| | | | | | | | | |
| Net deferred income tax asset | | $ | — | | | $ | — | |
| | Year Ended September 30, | |
| (In Thousands) | | 2013 | | | 2012 | |
| | | | | | |
| Temporary differences | | | | | | |
| Stock option Expense | | $ | 326 | | | $ | 217 | |
| Deferred compensation expense | | | (59 | ) | | | 120 | |
| Vacation expense | | | 69 | | | | 30 | |
| Intangible assets | | | 107 | | | | 107 | |
| Allowance for doubtful accounts | | | 74 | | | | 104 | |
| Other | | | (49 | ) | | | 85 | |
| Net operating loss carryforwards | | | 4,292 | | | | 3,560 | |
| Valuation allowances | | | (4,760 | ) | | | (4,223 | ) |
| | | | | | | | |
| Net deferred income tax asset | | $ | — | | | $ | — | |
As of September 30, 20122013, there were approximately $8,900,000$10,800,000 of losses available to reduce federal taxable income in future years through 2031,2032, and there were approximately $7,525,000$9,500,000 of losses available to reduce state taxable income in future years, expiring from 20122014 through 2031. 2032. Due to common stock transactions in the current and prior years, it is likely that the Company will be limited by Section 382 of the Internal Revenue Code as to the amount of net operating losses that may be used in future years. The Company is currently evaluating the effects of any such limitation.
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of September 30, 20122013 and 2011,2012, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. Because long-term contracts are not a significant part of the Company’s business, future results cannot be reliably predicted by considering past trends or by extrapolating past results. Moreover, the Company’s earnings are strongly influenced by national economic conditions and have been volatile in the past. Considering these factors, the Company determined that it was not possible to reasonably quantify future taxable income. The Company determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of September 30, 20122013 and 2011.2012.
As a result of continuing losses, we have determined that it is more likely than not that we will not realize the benefits of the deferred tax assets and therefore we have recorded a valuation allowance to reduce the carrying value of the deferred tax assets to zero. As a result, theThe valuation allowance on our net deferred tax assets decreasedincreased by approximately $131,000 for the year ended September 31, 2012.$537,000 and $46,000 in 2013 and 2012, respectively.
We file federal and state income tax returns in jurisdictions with varying statutes of limitations. Due to our net operating loss carryforwards, our income tax returns generally remain subject to examination by federal and most state tax authorities. We are not currently under examination in any federal or state jurisdiction.
15.11. Contingencies and Commitments
In March 2012,On April 22, 2013, the Company became aware of a lien on the business by the Ohio Bureau of Workers Compensation for $229,000, which has been fully accrued for. The Company believes this claim represents unpaid workers compensation premium for a period priorfinalized an Amendment to the acquisition of certain assets ofAsset Purchase Agreement by and among DMCC Staffing, LLC, an Ohio limited liability company, RFFG of Cleveland, in November 2010. LLC an Ohio limited liability company (each a “Seller” and together, “Sellers”), the Company, and Triad Personnel Services, Inc., an Illinois corporation and wholly owned subsidiary of the Company (“Buyer”).
The Company agreed to pay Sellers additional cash consideration of between $550,000 and $650,000 depending on the length of payments and 1,100,000 shares of common stock, in full satisfaction of all amounts owed to Seller, related to the Asset Purchase Agreement. The Company issued 1,100,000 shares of common stock on July 2, 2013, which was valued at approximately $330,000. During the year ended September 30, 2013, the Company paid $200,000 of the cash consideration noted above. The Company has accrued $350,000, which is currently defending its positionincluded in this matter.other current liabilities on the consolidated balance sheet at September 30, 2013, for the liability, however has elected to pay the remaining amount over two years. The total payments will be approximately $450,000 with additional $100,000 to be recorded as interest expense.
AsDuring the year, the Company sold vehicles with a value of approximately $225,000 and leased them back under a 30 month agreement at an interest rate of approximately 23%. At September 30, 2013, approximately $72,000 is included in other current liabilities and approximately $83,000 in other long term liabilities. The terms are 30 months and the payments totaled approximately $155,000 at September 30, 2013 and are due as follows: fiscal 2014 - $72,000 and fiscal 2015 - $83,000.
On August 13, 2013 the Company entered into an employment agreement with Andrew J. Norstrud. The Employment Agreement provides for a three-year term ending on March 28, 2013, there were no other material legal proceedings pending against29, 2016, unless employment is earlier terminated in accordance with the Company.provisions thereof. Mr. Norstrud is to receive a starting base salary at the rate of $200,000 per year, which can be adjusted by the Compensation Committee. Mr. Norstrud is also entitled to receive an annual bonus based on criteria to be agreed to by Mr. Norstrud and the Compensation Committee.
Lease12. Leases
The Company leases space for all of its branch offices, which are located either in downtown or suburban business centers, and for its corporate headquarters. Branch offices are generally leased over periods from three to five years. The corporate office lease expires in 2015. The leases generally provide for payment of basic rent plus a share of building real estate taxes, maintenance costs and utilities.
Rent expense was $ 1,028,0001,087,000 in fiscal 20122013 and $617,000$1,028,000 in fiscal 2011.2012. As of September 30, 2012,2013, future minimum lease payments due under non-cancelable lease agreements having initial terms in excess of one year, including certain closed offices, totaled approximately $2,200,000,$1,875,000, as follows: fiscal 2013 - $922,000, fiscal 2014 - $733,000,$793,000, fiscal 2015 - $424,000,$551,000, fiscal 2016 - $99,000$289,000, fiscal 2017 - $159,000 and thereafter - 22,000.$83,000.
In August of 2013, the Company executed a termination agreement for the San Mateo office, which has not been in operation for the past eight months. This termination required the Company to pay approximately $25,000, which has been accrued as of September 30, 3013 and was subsequently paid. This termination will relieve the Company of approximately $80,000 of additional lease payments over the next two years.
16.13. Segment Data
As a result of the acquisition of certain of the assets of DMCC and RFFG of Cleveland and entry into the Management Agreement discussed above, the Company’s internal reporting was adjusted and as a result, the Company re-assessed its segment presentation. Accordingly, the Company’s segment disclosures were revised in the current year.
The Company provides the following distinctive services: (a) direct hire placement services, (b) temporary professional services staffing in the fields of information technology, engineering, and accounting, and (c) temporary staffing in the agricultural industry, (d) temporary light industrial staffing and (e) management services. Inter-segmentstaffing. Intersegment net service revenues are not significant. Revenues generated from the temporary professional services staffing temporary staffing in the agricultural industry and light industrial staffing are classified as contract staffing services revenues in the statements of operations. Selling, general and administrative expenses are not separately allocated among agricultural, professional services or industrial staffing services within the contract staffing services sector for internal reporting purposes.
As of March 28, 2013, there were no other material legal proceedings pending against the Company.
| | | | |
| | | Fiscal Year Ended | | | Fiscal Year Ended | |
| | | September 30 | | | September 30, | |
| (In Thousands) | | 2012 | | | 2011 | | | 2013 | | | 2012 | |
| | | | | | | | | | | | | |
| Direct Hire Placement Services | | | | | | | | | | | | |
| Revenue | | $ | 7,215 | | | $ | 4,430 | | | $ | 7,317 | | | $ | 7,215 | |
| Placement services gross margin | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| Operating loss | | | (1,701 | ) | | | (678 | ) | | | (2,226 | ) | | | (1,701 | ) |
| Depreciation & amortization | | | 237 | | | | 180 | | | | 224 | | | | 237 | |
| Accounts receivable – net | | | 980 | | | | 699 | | | | 625 | | | | 980 | |
| Intangible assets | | | 465 | | | | 584 | | | | 347 | | | | 465 | |
| Goodwill | | | 24 | | | | 24 | | | | 24 | | | | 24 | |
| Total assets | | | 3,334 | | | | 5,301 | | | | 4,810 | | | | 2,727 | |
| Management Services | | | | | | | | | |
| Revenue | | $ | — | | | $ | 838 | | |
| Operating income | | | — | | | | 519 | | |
| Fee receivable | | | — | | | | 225 | | |
| Total assets | | | — | | | | 225 | | |
| | | | | | | | | | | | | | | | | |
| Contract Staffing Services | | | | | | | | | | | | | | | | |
| Agricultural services revenue | | $ | 7,852 | | | $ | 12,412 | | |
| Industrial services revenue | | | 28,206 | | | | 12,349 | | | $ | 29,816 | | | $ | 28,206 | |
| Professional services revenue | | | 9,132 | | | | 7,160 | | | | 9,371 | | | | 9,132 | |
| Agricultural services gross margin | | | 4.41 | % | | | 4.6 | % | |
| Industrial services gross margin | | | 17.15 | % | | | 14.6 | % | | | 12.61 | % | | | 17.15 | % |
| Professional services gross margin | | | 19.38 | % | | | 29.9 | % | | | 33.19 | % | | | 19.38 | % |
| Operating income (loss) | | $ | 894 | | | $ | 715 | | | $ | 660 | | | $ | 799 | |
| Depreciation and amortization | | | 309 | | | | 533 | | | | 261 | | | | 309 | |
| Accounts receivable – agricultural services | | | 597 | | | | 666 | | |
| Accounts receivable – industrial services | | | 4,056 | | | | 3,837 | | | | 4,778 | | | | 4,056 | |
| Accounts receivable – professional services | | | 1,128 | | | | 1,177 | | | | 1,294 | | | | 1,128 | |
| Intangible assets | | | 1,739 | | | | 2,115 | | | | 1,537 | | | | 1,739 | |
| Goodwill | | | 1,083 | | | | 1,256 | | | | 1,082 | | | | 1,082 | |
| Total assets | | $ | 7,865 | | | $ | 5,970 | | | $ | 6,184 | | | $ | 7,865 | |
| | | | | | | | | | | | | | | | | |
| Consolidated | | | | | | | | | | | | | | | | |
| Total revenue | | $ | 52,405 | | | $ | 37,189 | | | $ | 46,504 | | | $ | 44,553 | |
| Operating income (loss) | | | (807 | ) | | | 556 | | |
| Operating loss | | | | (1,566 | ) | | | (902 | ) |
| Depreciation and amortization | | | 546 | | | | 713 | | | | 485 | | | | 546 | |
| Total accounts receivables – net | | | 6,761 | | | | 6,604 | | | | 6,697 | | | | 6,164 | |
| Intangible assets | | | 2,204 | | | | 2,699 | | | | 1,884 | | | | 2,204 | |
| Goodwill | | | 1,106 | | | | 1,280 | | | | 1,106 | | | | 1,106 | |
| Assets from continuing operations | | | | 10,994 | | | | 10,591 | |
| Assets from discontinued operations | | | | 238 | | | | 608 | |
| Total assets | | $ | 11,199 | | | $ | 11,496 | | | $ | 11,232 | | | $ | 11,199 | |
14. Discontinued Operations
Item 9. Changes inAs of July 7, 2013, the Board of Directors of General Employment Enterprises, Inc. determined that the best course of action related to the Agricultural Division was to terminate operations, to liquidate the Division’s assets, and Disagreements with Accountantsto focus the business on Accountingthe light industrial and Financial Disclosure.professional divisions. On July 7, 2013, all staffing was discontinued and the entire operations of the Agricultural Division were discontinued as of August 1, 2013. All employees have been terminated and a one-time expense of approximately $100,000 was recognized as of September 30, 2013.
| | Years Ended | |
| | September 30, | |
| (In Thousands) | | 2013 | | | 2012 | |
| | | | | | |
| Discontinued Operations | | | | | | |
| Agricultural services revenue – net | | $ | 6,801 | | | $ | 7,852 | |
| Agricultural services gross margin | | | 3.3 | % | | | 4.4 | % |
| Agricultural services net loss | | | (324 | ) | | | (109 | ) |
| Accounts receivable net – Agricultural services | | | 238 | | | | 597 | |
| A Fixed assets – Agricultural services | | | - | | | | 10 | |
| Total assets – Agricultural services | | | 238 | | | | 608 | |
| Total liabilities – Agricultural services | | $ | 30 | | | $ | 35 | |
The Company will continue to pay the former head of the Agricultural Division for a period of six months and sell him the property and equipment for approximately $9,000. The Company expects to collect the receivables over a period of the next three to nine months.
On November 26, 2012,15. Related Party Transactions
The Company contracted with Norco Accounting & Consulting Inc. (“Norco”) to provide accounting and consulting services prior to Andrew J. Norstrud (our current CFO) joining the Company. Norco charged approximately $63,000 for consulting services and approximately $13,000 in related expense during the second quarter ended March 31, 2013. Norco is 50% owned by Andrew J. Norstrud, who joined the Company dismissed BDO USA, LLP (“BDO”), its independent registered public accounting firm. The decision was approved by the Company’s Audit Committee.
The reports of BDO on the Company’s financial statements for the fiscal years ended September 30, 2011 and 2010 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal years ended September 30, 2011 and September 30, 2010, (i) there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of BDO would have caused it to make reference to such disagreement in its reports; and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
In connection with the audit of the Company’s financial statements for the fiscal year ended September 30, 2012 (the “2012 Audit”), on October 12, 2012, BDO notified the Company of its need to expand the scope of the procedures to be performed as part of the 2012 Audit, to ascertain the extent of the Company’s business and financial affiliation with Mr. Wilbur Anthony Huff following the indictment of Mr. Huff for various conspiracies and fraudulent schemes. On October 18, 2012, BDO set out a work plan for such extended audit procedures (the “Work Plan”), which consisted of two phases. The first phase of the Work Plan had estimated fees of $150,000, without any limit or guarantee. BDO could not estimate the fees for phase II of the Work Plan. Through multiple communications, the Company’s Audit Committee expressed its disagreement to BDO regarding the necessity and scope of the extended audit procedures. After being unable to agree upon the extent of the 2012 Audit, the Company’s Audit Committee informed BDO, on November 26, 2012, that it was terminating the services of BDO due to (i) the open ended nature of fees which may be imposed by BDO for the two phase Work Plan, (ii) the open ended time frame for the completion of both phases of the Work Plan, and (iii) the uncertainty of BDO’s conclusion following the completion of the Work Plan.
On NovemberMarch 29, 2012, the Company engaged Friedman, LLP (“Friedman”)2013, as the Company’s newChief Financial Officer. The Company no longer uses Norco for accounting and consulting services.
The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent registered public accounting firm to audit the Company’s financial statements for the fiscal years ending September 30, 2012 and 2011. The appointment of Friedman was approved by the Company’s Audit Committee.parties.
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
We carried out an evaluation required by Rule 13a-15 of the Exchange Act under the supervision and with the participation of our management, including our ChiefPrincipal Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Empire Resorts, Inc.’sthe Company’s “disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Annual Report.
The evaluation of General Employments Inc.’sthe Company’s disclosure controls and procedures and internal control over financial reporting included a review of our objectives and processes, implementation by us and the effect on the information generated for use in this Annual Report. In the course of this evaluation and in accordance with Section 302 of the Sarbanes Oxley Act, of 2002, we sought to identify material weaknesses in our controls, to determine whether we had identified any acts of fraud involving personnel who have a significant role in our internal control over financial reporting that would have a material effect on our consolidated financial statements, and to confirm that any necessary corrective action, including process improvements, were being undertaken. Our evaluation of our disclosure controls and procedures is done quarterly and management reports the effectiveness of our controls and procedures in our periodic reports filed with the Securities and Exchange Commission. Our internal control over financial reporting is also evaluated on an ongoing basis by our internal auditors and by other individuals in our organization. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and internal control over financial reporting and to make modifications as necessary. We periodically evaluate our processes and procedures and make improvements as required.
Because of inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management applies its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the companyCompany have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) information is accumulated and communicated to management, including our ChiefPrincipal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Based on their evaluation, our ChiefPrincipal Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.were effective as of September 30, 2013.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our ChiefPrincipal Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 1992 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (a)(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b)(ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the our management and directors; and (c)(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Based on ourthe foregoing evaluation, under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of September 30, 2012.2013.
There were no changes in our internal controls over financial reporting during the fourth quarter of the year ended September 30, 20122013, that have materially affected, or are reasonably likely to materially affect, the registrant'sour internal control over financial reporting.
Item 9B.
OtherOther Information.
Not applicable.
On August 13, 2013 the Company entered into an employment agreement with Andrew J. Norstrud. The Employment Agreement provides for a three-year term ending on March 29, 2016, unless employment is earlier terminated in accordance with the provisions thereof. Mr. Norstrud is to receive a starting base salary at the rate of $200,000 per year and can be adjusted by the Compensation Committee. Mr. Norstrud is also entitled to receive an annual bonus based on criteria to be agreed to by Mr. Norstrud and the Compensation Committee.
Item 10, Directors, Executive Officers and Corporate Governance. | Directors, Executive Officers and Corporate Governance. |
DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers
The named executive officers and directors of the Company as of March 29, 2013January 13, 2014 are as follows:
| Name | Age | Position |
Michael K. SchroeringAndrew J. Norstrud | 5540 | Chief Financial Officer, Principle Executive Officer and Treasurer |
| Dennis W. Baker | 67 | Chairman of the Board |
Brad A. Imhoff | 50 | Chief Operating Officer, President of the Professional Staffing Division |
Andrew J. Norstrud | 39 | Chief Financial Officer, Treasurer |
Katy M. Imhoff | 29 | Vice President of Operations, Vice President of the Professional Staffing Division |
| Edward Hunter | 6667 | Director |
| Michael K. Schroering | 56 | Director |
| Thomas C. Williams | 53 | Director |
Dennis W. Baker | 6654 | Director |
Michael K, Schroering – Chief Executive Officer, Chairman of the Board
Mr. Schroering joined General Employment Enterprises as a director in November 2012 and become the Chairman of the Board and Chief Executive Officer in December 2012. Prior to joining the Company, he served as President of The Schroering Company which he founded in 1993. The Schroering Company is a Louisville-based commercial real estate firm specializing in consulting services, site procurement, owner and tenant representation for the sale/leasing of office and industrial space. Other companies under his leadership have been active in real estate development through GlobalPort United, LLC which owns interest in several million square feet of big box warehouse space. Mr. Schroering received a B.A. in Business Administration in Finance and Management from Loyola University (1979) and went to the University of Louisville School of law (1979 – 1981).
Brad A. Imhoff – Chief Operating Officer, President of the Professional Staffing Division
Mr. Imhoff has served as Chief Operating Officer and President of the Professional Staffing Division since September 1, 2011. Prior to joining the Company, Mr. Imhoff, co-founded Ashley Ellis, LLC (“Ashley Ellis”) a company that provided services related to the recruitment and placement of technical personnel, in January 2009 and served as its Chief Executive Officer and sole member from January 2009 until August 31, 2011, at which time substantially all of the assets of Ashley Ellis were acquired by the Company. Prior to founding Ashley Ellis, Mr. Imhoff worked as a sales consultant and participated in sales training seminars from January 2005 to January 2009. Prior to that, Mr. Imhoff managed and co-owned Camden Aviation LLC, a private jet charter company, from January 2000 to January 2005 and, co-founded and served as Chief Executive Officer of Camden Vale Corporation, an information technology recruiting firm, from January 1995 to October 2001. Mr. Imhoff previously served as Vice President of Staffing of the Company from October 1985 to January 1995.
Andrew J. Norstrud – Chief Financial Officer, Treasurer
Mr. Norstrud joined General Employment Enterprisesthe Company in March 2013. Prior to joining the Company, Mr. Norstrud was a consultant with Norco Accounting and Consulting from October 2011 until March 2013. From October 2005 to October 2011, Mr. Norstrud served as the Chief Financial Officer for Jagged Peak. Prior to his role at Jagged Peak, Mr. Norstrud was the Chief Financial Officer of Segmentz,Segmentz, Inc., and played an instrumental role in the company achieving its strategic goals by pursuing and attaining growth initiatives, building an exceptional financial team, completing and integrating strategic acquisitions and implementing the structure required of public companies. Previously, Mr. Norstrud worked for Grant Thornton LLP and PricewaterhouseCoopers LLP and has extensive experience with young, rapid growth public companies. Mr. Norstrud earned a BA in Business and Accounting from Western State College and a Master of Accounting with a systems emphasis from the University of Florida. He is a Florida licensed Certified Public Accountant.
Katy ImhoffDennis W. Baker – Vice PresidentChairman of Operations, Vice President of Professional Divisionthe Board
Ms. Imhoff
Mr. Baker has served as Vice President of Operations and Vice Presidenta Director of the Professional Staffing DivisionCompany since September2000 and became Chairman of the Board in November of 2013. From April 1975 to April 2006, Mr. Baker held various positions with CF Industries Holdings, Inc., a fertilizer manufacturing and distribution company, and most recently served as Treasurer from March 1988 to April 2007, when he retired. During this time, he also held the following titles at CF Industries Holdings, Inc.: Assistant Treasurer, Director of Financial Planning and Budgeting, Manager of Financial Planning, Manager of Budgets and Capital Expenditure Control, Capital Expenditure Control Analyst and Financial Analyst. On May 1, 2011. Prior to joining the Company, Ms. Imhoff co-founded Ashley Ellis in January 2009, a company that provided services related2011 Mr. Baker was elected to the recruitment and placementBoard of technical personnel, and served as its Chief Operations Officer and Vice President until August 31, 2011, when Ashley Ellis become a wholly owned subsidiaryDirectors of CIS World, Inc. Mr. Baker is Chairman of the Company. PriorAudit Committee and is a member of the Compensation and Nominating Committees. The Company believes that Mr. Baker is qualified to founding Ashley Ellis, Ms. Imhoff served as a consultant from 2006 to December1 2008 forsit on the Company and, previously, for Austin Vale, an India-based recruitment firm for technical personnel. In this position, Ms. Gallagher consulted on strategic planning, marketing and training. Prior to that, Ms. Gallagher was the sole ownerBoard of Ashton Zane Inc, a providerDirectors because of sales training seminars across the country, from 2004 to 2006.his extensive management experience.
Edward Hunter – Director
Mr. Hunter joined the Company in October 2012 as a Director.director. Mr. Hunter has practiced as an international business lawyer and litigator for more than 35 years, in both private practice and as in-house counsel. Most recently, he practiced with the business-focused firm of Robinson & Robinson, LLP, from 2002 to 2010, and since then with his own law office in Laguna Hills, California. Within the past five years, he served as a director of En Pointe Technologies, Inc. (formerly NASDAQ-CM: (now privately held)) (2003-2009) and of International Stem Cell Corporation (OTC: ISCO) (2007-2009), where he also served as Chairman of the respective Compensation Committees and as a member of their Audit Committees. From 2006 to 2009, he served on the board of Ovex Technologies (Pvt.) Ltd. of Lahore, Pakistan, chaired its Compensation Committee, and served on its Audit Committee. He previously served on the registrant’s Board of Directors from February 2009 to July 2009. He has been designated a “financial expert” within the meaning of the Sarbanes-Oxley Act of 2002 (“SOX”) and has experience implementing internal control and other procedures to comply with SOX requirements. In addition to legal training and experience as an attorney, Mr. Hunter has completed the Corporate Directors Certification Program at the UCLA Anderson Graduate School of Management and the certification procedures of the National Association of Corporate Directors. As chair of three previous Compensation Committees, he led each company’s compliance with Regulation S-K (nonfinancial disclosures) and the evolving new rules and standards for executive compensation.
Michael K. Schroering – Director
Mr. Schroering joined the Company as a director in November 2012 and become the Chairman of the Board and Chief Executive Officer in December 2012. Mr. Schroering resigned as the Chairman of the Board of Directors and Chief Executive Officer on November 3, 2013, but remains a director. Prior to joining the Company, he served as President of The Schroering Company which he founded in 1993. The Schroering Company is a Louisville-based commercial real estate firm specializing in consulting services, site procurement, owner and tenant representation for the sale/leasing of office and industrial space. Other companies under his leadership have been active in real estate development through GlobalPort United, LLC which owns interest in several million square feet of big box warehouse space. Mr. Schroering received a B.A. in Business Administration in Finance and Management from Loyola University (1979) and went to the University of Louisville School of law (1979 – 1981).
Thomas C. Williams – Director
Mr. Williams has served as a director of the Company since July 2009. Since 2005, Mr. Williams has served as acting Vice Chairman of Capital Management of Bermuda (previously Travelers of Bermuda), a company providing pension benefits for expatriates who have worked outside the U.S. and accrued benefits towards their retirement which are not covered by their domestic pension plans. Additionally, Mr. Williams has served as the Chief Executive Officer of Innova Insurance Ltd., a Bermuda based insurer, which provides extension risk to the Capital Markets on life insurance related assets from 2005 to 2009 when it was acquired. Mr. Williams is Chairman of the Nominating Committee and is a member of the Audit and Compensation Committees. The Company believes that Mr. Williams is qualified to sit on the boardBoard of directorsDirectors because of his significant management experience.
Dennis W. Baker – Director
Mr. Baker has served as a director of the Company since 2000. From April 1975 to April 2006, Mr. Baker held various positions with CF Industries Holdings, Inc., a fertilizer manufacturing and distribution company, and most recently served as Treasurer from March 1988 to April 2007, when he retired. During this time, he also held the following titles at CF Industries Holdings, Inc.: Assistant Treasurer, Director of Financial Planning and Budgeting, Manager of Financial Planning, Manager of Budgets and Capital Expenditure Control, Capital Expenditure Control Analyst and Financial Analyst. On May 1, 2011 Mr. Baker was elected to the Board of Directors of CIS World, Inc. Mr. Baker is Chairman of the Audit Committee and is a member of the Compensation and Nominating Committees. The Company believes that Mr. Baker is qualified to sit on the board of directors because of his extensive management experience.
All executive officers are elected annually by the Board of Directors at the first meeting of the boardBoard of Directors held following each Annual Meeting of Shareholders, and they hold office until their successors are elected and qualified.
Brad A. Imhoff is married to Katy Imhoff, the Vice President of operations for the Company. Brad A. Imhoff is the brother of Herbert F. Imhoff Jr., our former President and former director. Herbert Imhoff, Jr. retired from all positions within the Company effective January 31, 2013.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s directors and officers, and persons who own more than 10% of a registered class of its equity securities, to file reports of ownership and changes in ownership (typically, Forms 3, 4 and/or 5) of such equity securities with the SEC. Such entities are also required by SEC regulations to furnish the Company with copies of all such Section 16(a) reports.
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to the Company and written representations that no Form 5 or amendments thereto were required, the Company believes that during the fiscal year ended September 30, 20122013 and 2011,2012, its directors and officers, and greater than 10% beneficial owners, have complied with all Section 16(a) filing, except as follows:
| · | Michael Schroering was late in filing his initial Form 3 dated September 21, 2012 reflecting the acquisition of 199,334 shares directly and 15,842,410 shares indirectly through LEED HR, LLC on August 16, 2012. |
filing.
| · | LEED HR, LLC was late in filing its initial Form 3 dated September 14, 2012 reflecting the acquisition of 15,842,410 shares on August 16, 2012. |
Board of Directors Leadership Structure and Role in Risk Oversight
The Board of Directors believes that the Company’s Chief Executive Officer is best situated to serve as Chairman because he is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the company and industry, while the Chief Executive Officermanagement brings company-specific experience and expertise. The Board of Directors believes that thea board of directors combined role of Chairmanwith independent board members and Chief Executive Officermanagement is in the best interest of shareholders because it promotes strategy development and execution, and facilitates information flow between management and the Board of Directors, which are essential to effective governance. The Company’s Chief Executive Officer and Chairman, Mr. Schroering, resigned both positions on November 3, 2013, but remains a director. Mr. Baker assumed the position of Chairman upon Mr. Schroering’s resignation.
The Board of Directors does not have a lead independent director.
The Board of Directors provides overall risk oversight for the Company as part of its normal, ongoing responsibilities. It receives reports from Mr. Schroering and other members of senior management on a periodic basis on areas of risk facing the Company. In addition, boardBoard of Directors committees oversee specific elements of risk or potential risk.
Director Independence
The Board of Directors has determined that each director, other than Mr. Schroering, is an independent director under the listing standards of the NYSE MKT. In addition, the Board of Directors has determined that each current member of the Audit Committee meets the additional independence criteria required for audit committee membership under the listing standards of the NYSE MKT and Rule 10A-3 of the Exchange Act.
Board of Directors and Committee Meetings
The Board of Directors meets on a regularly scheduled basis to review significant developments affecting the Company and to act on matters requiring Board of Directors approval. It also holds special meetings when an important matter requires Board of Directors action between scheduled meetings. The Board of Directors held eighttwenty meetings during the last fiscal year. No director of the Company attended less than 75% of the total meetings of the Board of Directors and Committees on which such Board of Directors members served during this period.
The members of the Board of Directors are expected to attend the Company’s Annual Meeting of Shareholders. There are three standing committees of the Board of Directors, which are the Nominating Committee, the Audit Committee and the Compensation Committee.
Nominating Committee
The functions of the Nominating Committee are to assist the Board of Directors in identifying, interviewing and recommending to the Board of Directors qualified candidates to fill positions on the board.Board of Directors. The Nominating Committee met two timesonce during 2012.2013.
The Company does not have a policy regarding the consideration of diversity, however defined, in identifying nominees for director. Instead, in evaluating candidates to serve on the Company’s Board of Directors, consideration is given to the level of experience, financial literacy and business acumen of the candidate. In addition, qualified candidates for director are those who, in the judgment of the Nominating Committee, have significant decision-making responsibility, with business, legal or academic experience. The Nominating Committee will consider recommendations for boardBoard of Directors candidates that are received from various sources, including directors and officers of the Company, other business associates and shareholders, and all candidates will be considered on an equal basis, regardless of source.
Shareholders may contact the Nominating Committee to make such recommendations by writing in care of the Secretary of the Company, at One Tower Lane,184 Shuman Blvd., Suite 2200, Oakbrook Terrace,420, Naperville, Illinois 60181.60563. Submissions must be in accordance with the Company’s By-Laws and include: (a) a statement that the writer is a shareholder and is proposing a candidate for consideration by the Nominating Committee; (b) the name, address and number of shares beneficially owned by the shareholder; (c) the name, address and contact information of the candidate being recommended; (d) a description of the qualifications and business experience of the candidate; (e) a statement detailing any relationships between the candidate and the Company and any relationships or understandings between the candidate and the proposing shareholder; and (f) the written consent of the candidate that the candidate is willing to serve as a director if nominated and elected.
The Nominating Committee is presently composed of three non-employeeindependent directors: Thomas C. Williams (Chairman), Dennis W. Baker, and Edward Hunter.
The Board of Directors has adopted a written charter for the Nominating Committee. The Nominating Committee Charter is not available on the Company’s website. A copy of the Nominating Committee Charter was attached as an appendix to the proxy statement prepared in connection with the February 10, 2011, Annual Meeting of Shareholders.
Audit Committee
The Audit Committee is primarily concerned with the effectiveness of the Company’s accounting policies and practices, its financial reporting and its internal accounting controls. In addition, the Audit Committee reviews and approves the scope of the annual audit of the Company’s books, reviews the findings and recommendations of the independent registered public accounting firm at the completion of their audit, and approves annual audit fees and the selection of an auditing firm. The Audit Committee met fournineteen times during fiscal 2012.2013.
The Audit Committee is presently composed of three non-employeeindependent directors: Dennis W. Baker (Chairman), Edward Hunter and Thomas C. Williams. The Board of Directors has determined that Mr. Baker, Mr. Hunter and Mr. Williams are all considered an “audit committee financial expert” as defined by rules of the SEC. The Board of Directors has determined that each audit committee financial expert meets the additional independence criteria required under the listing standards of the NYSE MKT and Rule 10A-3 of the Exchange Act.
The Board of Directors has adopted a written charter for the Audit Committee. The Audit Committee Charter is not available on the Company’s website. A copy of the Audit Committee Charter is attached as appendix A to the proxy filed with the SEC on January 27, 2012.
Compensation Committee
The Compensation Committee has the sole responsibility for approving and evaluating the officer compensation plans, policies and programs. It may not delegate this authority. It meets as often as necessary to carry out its responsibilities. The Compensation Committee has the authority to retain compensation consultants, but has not done so. The Compensation Committee met threeseven times during fiscal 2012.2013.
In the past, the Compensation Committee has met each September to consider the compensation of the Company’s executive officers, including the establishment of base salaries and performance targets for the succeeding year, and the consideration of stock option awards. Management provides the Compensation Committee with such information as may be requested by the Compensation Committee, which in the past has included historical compensation information of the executive officers, tally sheets, internal pay equity statistics, and market survey data. Under the guidelines of the NYSE MKT, the chief executive officerChief Executive Officer may not be present during the Compensation Committee’s deliberations regarding his compensation. If requested by the committee,Committee, the chief executive officerChief Executive Officer may provide recommendations regarding the compensation of the other officers.
The Compensation Committee also has the responsibility to make recommendations to the Board of Directors regarding the compensation of directors.
The Compensation Committee is presently composed of three non-employeeindependent directors: Edward Hunter (Chairman), Dennis W. Baker, and Thomas C. Williams.
The Board of Directors has adopted a written charter for the Compensation Committee. The Compensation Committee Charter is not available on the Company’s website. A copy the Compensation Committee Charter was attached as an appendix to the proxy statement prepared in connection with the March 22, 2010, Annual Meeting of Shareholders.
Shareholder Communications
The Board of Directors has established a procedure by which shareholders of the Company can communicate with the Board of Directors. Shareholders interested in communicating with the Board of Directors as a group or with individual directors may do so, in writing. Correspondence to the directors should be sent by regular mail c/o the Secretary, General Employment Enterprises, Inc., One Tower Lane,184 Shuman Blvd, Suite 2200, Oakbrook Terrace,420, Naperville, Illinois 60181.60563. Any such correspondence will be reviewed by the Secretary, who will then forward it to the appropriate parties. Communications that are solicitations or deemed to be irrelevant to the Board of Directors’ responsibilities may be discarded, at the discretion of the Secretary.
The Company has a code of ethics that applies to all of its directors and employees, including its principal executive officer, principal financial officer and principal accounting officer. The code of ethics is filed as an exhibit to this Annual Report.
Item 11. Executive Compensation. Item 11, Executive Compensation.EXECUTIVE COMPENSATION
Summary Compensation Information
The following table summarizes all compensation awarded to, earned by or paid to all individuals serving as the Company’s principal executive officer, its two most highly compensated executive officers other than the principal executive officer, and up to two additional individuals who were serving as executive officers at the end of the last completed fiscal year, for each of the last two completed fiscal years. These individuals are referred to throughout this proxy statement as the “named executive officers.”
Summary Compensation Table
Name and Principal Position | | Fiscal Year | | Salary ($) | | Bonus ($) | | Stock Awards ($) | | Option Awards ($) | | | NonEquity Incentive Plan Compensation ($) | | Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | | |
| Salvatore J. Zizza | | 2012 | | 120,000 | | | | –– | | 76,500 | (1) | | | | | | –– | | 196,500 | |
former Chief Executive Officer and Chairman of the Board(2) | | 2011 | | 97,667 | | | | –– | | –– | | | | | | | –– | | 97,667 | |
| | | | | | | | | | | | | | | | | | | | | |
| Herbert F. Imhoff, Jr.(3) | | 2012 | | –– | | | | –– | | 76,500 | (1) | | | | | | 180,000 | | 256,500 | |
| former President | | | | –– | | | | –– | | –– | | | | | | | 180,000 | | 180,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Brad Imhoff(4) | | 2012 | | 180,000 | | | | –– | | –– | | | | | | | 2,500 | | 182,500 | |
| Chief Operating Officer and President, Professional Staffing Division | | 2011 | | 15,000 | | | | –– | | –– | | | | | | | 2,500 | | 17,500 | |
| | | | | | | | | | | | | | | | | | | | | |
| Katy Imhoff(5) | | 2012 | | 150,000 | | | | –– | | –– | | | | | | | –– | | 150,000 | |
| Vice President, Professional Staffing Division | | 2011 | | 12,500 | | | | –– | | –– | | | | | | | –– | | 12,500 | |
| | | | | | | | | | | | | | | | | | | | | |
| Marilyn L. White(6) | | 2012 | | –– | | | | –– | | –– | | | | | | | –– | | –– | |
| former Vice President | | 2011 | | 137,500 | | | | –– | | –– | | | | | | | 32,500 | (7) | 170,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Jarett Misch(8) | | 2012 | | 108,200 | | | | –– | | –– | | | | | | | 9,500 | | 117,700 | |
former Chief Financial Officer and Treasurer | | 2011 | | –– | | | | –– | | –– | | | | | | | –– | | –– | |
| | | | | | | | | | | | | | | | | | | | | |
James R. Harlan(9) former Chief Financial Officer and Treasurer | | 2011 | | 119,167 | | | | –– | | –– | | | | | | | –– | | 119,167 | |
| (1) | Includes an option to purchase 300,000 shares of common stock at a price of $0.41 per share, granted on February 22, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. In connection with Mr. Zizza’s retirement, the Board agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested from one year to eighteen months from the date of his retirement on December 26, 2012. |
| | As of December 26, 2012, Mr. Zizza retired from all positions with the Company. |
| | As of August 31, 2011, Herbert F. Imhoff, Jr. no longer served as Chief Operating Officer of the Company. Effective January 31, 2013, Mr. Herbert Imhoff, Jr. retired from all positions with the Company. |
| | On August 31, 2011, Mr. Brad Imhoff was appointed Chief Operating Officer and President of the Professional Staffing Division. |
| | On August 31, 2011, Ms. Imhoff was appointed Vice President, Professional Staffing Division |
| | On August 31, 2011, Marilyn L. White was terminated from her position as Vice President of the Company. |
| | Amount represents severance payment made to Ms. White |
| | On December 30, 2011, James Harlan was terminated from his position as Chief Financial Officer and Treasurer. |
| | Mr. Misch was appointed Chief Financial Officer and Treasurer of the Company effective January 3, 2012. On February 22, 2013, Mr. Misch resigned from all positions with the Company. |
Employment and Change in Control Agreements
Salvatore J. Zizza: On September 7, 2011, the Company and Salvatore J. Zizza, the Company’s Chairman and Chief Executive Officer, entered into an employment agreement (the “Zizza Employment Agreement”) and a change of control agreement (the “Zizza Change of Control Agreement”), each dated as of September 1, 2011. The Zizza Employment Agreement provides for a two-year term ending on September 1, 2013, unless Mr. Zizza’s employment is earlier terminated by either party in accordance with the provisions thereof. Mr. Zizza is to receive a base salary at the rate of $120,000 per year, subject to increase in the discretion of the Board of Directors of the Company. Mr. Zizza will also receive a life insurance policy with coverage equal to two times his base salary and a disability income insurance policy with coverage equal to 50% of his base salary. Mr. Zizza will be entitled to receive equity compensation on the same terms and conditions as other executives and members of the Board of Directors of the Company. In the event that Mr. Zizza’s employment is terminated (other than as a result of Mr. Zizza’s death or disability) either (i) by the Company for a reason other than Cause or (ii) by Mr. Zizza for Good Reason (each as defined in the Zizza Employment Agreement), Mr. Zizza will continue to receive his base salary and other benefits provided under the Zizza Employment Agreement for the remainder of the term of the Zizza Employment Agreement.
The term of the Zizza Change of Control Agreement commenced on September 1, 2011 and will terminate on the earlier of (i) two years following the date of execution; (ii) termination of Mr. Zizza’s employment; or (iii) the execution of a written agreement between the Company and Mr. Zizza terminating the Zizza Change of Control Agreement. Under the Zizza Change of Control Agreement, in the event that the Company terminates Mr. Zizza’s employment without Cause or Mr. Zizza resigns with Good Reason after a Change of Control (each as defined in the Zizza Change of Control Agreement), Mr. Zizza will receive, subject to his execution of a separation agreement and release of claims in a form reasonably satisfactory to the Company, (i) a lump sum payment equal to all unpaid compensation remaining from the day of separation to the end of the term of the Zizza Employment Agreement; (ii) continuation of health insurance benefits for six months following his separation from service; (iii) reimbursement for the premiums associated with COBRA for 18 months following the six-month continuation of health insurance period; and (iv) the same percentage of Company-paid group-term life insurance benefits as were provided to Mr. Zizza and his family under plans of the Company as of the Change of Control for a total of twenty-four months following the year in which Mr. Zizza separates from service.
On December 26, 2012, Mr. Zizza informed the Board that he was retiring from all positions with the Company, effective immediately. Under the terms of the Zizza Employment Agreement, Mr. Zizza will continue to receive his base salary of $10,000 per month through August 31, 2013. Additionally, the Board agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested and outstanding as of December 26, 2012 from one year to eighteen months from the date of his retirement. As of December 26, 2012, Mr. Zizza had options to purchase 300,000 shares of the Company’s common stock vested and outstanding.
Brad A. Imhoff: In connection with Brad A. Imhoff’s appointment as Chief Operating Officer of the Company, the Company entered into an employment agreement (the “Imhoff Employment Agreement”) and a change of control agreement (the “Imhoff Change of Control Agreement”) with Mr. Imhoff, each dated as of August 31, 2011. The Imhoff Employment Agreement provides for a three-year term ending on September 1, 2014, unless Mr. Imhoff’s employment is earlier terminated in accordance with the provisions thereof. Mr. Imhoff is to receive a base salary at the rate of $180,000 per year for the term of the Imhoff Employment Agreement. Mr. Imhoff is also entitled to receive an annual bonus equal to 10% of the increase in profits earned by the Company’s Professional Staffing Division over the prior fiscal year minus an agreed upon corporate allocation and not including any profits of acquired entities or assets until the applicable earnout periods related thereto have expired. The fiscal year ending September 30, 2011 will be used as the first baseline to determine the profitability bonus and will be used in subsequent years to determine the profitability bonus to the extent that profits in subsequent years are less than profits for the fiscal year ending September 30, 2011. Upon the expiration of the term of the Imhoff Employment Agreement or termination of Mr. Imhoff’s employment by the Company with cause under the circumstances set forth in the Imhoff Employment Agreement, the Company’s obligations are limited generally to paying Mr. Imhoff his base salary through the termination date.
The term of the Imhoff Change of Control Agreement commenced on August 31, 2011 and will terminate on the earlier of (i) three years following the date of execution; (ii) termination of Mr. Imhoff’s employment; or (iii) the execution of a written agreement between the Company and Mr. Imhoff terminating the Imhoff Change of Control Agreement. Under the Imhoff Change of Control Agreement, in the event that the Company terminates Mr. Imhoff’s employment without Cause or Mr. Imhoff resigns with Good Reason after a Change of Control (each as defined in the Imhoff Change of Control Agreement), Mr. Imhoff will receive, subject to his execution of a separation agreement and release of claims in a form reasonably satisfactory to the Company, (i) a lump sum payment equal to all unpaid compensation remaining from the day of separation to the end of the term of the Imhoff Employment Agreement; (ii) continuation of health insurance benefits for six months following his separation from service; (iii) reimbursement for the premiums associated with COBRA for 18 months following the six-month continuation of health insurance period; and (iv) the same percentage of Company-paid group-term life insurance benefits as were provided to Mr. Imhoff and his family under plans of the Company as of the Change of Control for a total of twenty-four months following the year in which Mr. Imhoff separates from service.
Katy M. Imhoff: On August 31, 2011, the Company and Katy Gallagher, Vice President Operations, entered into an employment agreement (the “Katy Imhoff Employment Agreement”) and a change of control agreement (the “Katy Imhoff Change of Control Agreement”). Ms. Imhoff will serve as the Vice President of Operations and the Vice President of the Professional Staffing Division of the Company. The Katy Imhoff Employment Agreement provides for a three-year term ending on September 1, 2014, unless Ms. Imhoff’s employment is earlier terminated in accordance with the provisions thereof. Ms. Imhoff is to receive a base salary at the rate of $150,000 per year for the term of the Katy Imhoff Employment Agreement. Upon the Death, Disability, expiration of the term of the Katy Imhoff Employment Agreement, or a termination of Ms. Imhoff’s employment with Cause (each as defined in the Katy Imhoff Employment Agreement), the Company’s obligations are limited generally to paying Ms. Imhoff her base salary through the termination date.
The term of the Katy Imhoff Change of Control Agreement commenced on August 31, 2011 and will terminate on the earlier of (i) three years following the date of execution; (ii) termination of Ms. Imhoff’s employment; or (iii) the execution of a written agreement between the Company and Ms. Imhoff terminating the Katy Imhoff Change of Control Agreement. Under the Katy Imhoff Change of Control Agreement, in the event that the Company terminates Ms. Imhoff’s employment without Cause or Ms. Imhoff resigns with Good Reason after a Change of Control (each as defined in the Katy Imhoff Change of Control Agreement), Ms. Imhoff will receive, subject to her execution of a separation agreement and release of claims in a form reasonably satisfactory to the Company, (i) a lump sum payment equal to all unpaid compensation remaining from the day of separation to the end of the term of the Katy Imhoff Employment Agreement; (ii) continuation of health insurance benefits for six months following her separation from service; (iii) reimbursement for the premiums associated with COBRA for 18 months following the six-month continuation of health insurance period; and (iv) the same percentage of Company-paid group-term life insurance benefits as were provided to Ms. Imhoff and her family under plans of the Company as of the Change of Control for a total of twenty-four months following the year in which Ms. Imhoff separates from service.
Consulting Agreement
In connection with the completion of the sale of shares of Common Stock to PSQ on July 1, 2009, Mr. Imhoff, Jr. resigned from his positions as Chairman of the Board and Chief Executive Officer of the Company and his employment agreement with the Company was replaced by a new consulting agreement. Under the consulting agreement, dated as of June 22, 2009, the Company became obligated to pay an annual consulting fee of $180,000 over a five-year period and to issue 500,000 shares of Common Stock to Mr. Imhoff, Jr. in exchange for his service to the Company. On January 31, 2013, Mr. Herbert Imhoff informed the Board that he was retiring from all positions with the Company, effectively immediately. Mr. Imhoff Jr. will continue to receive monthly payments of $15,000 through June 30, 2014 as well as medical benefits provided by the Company. Additionally, under the terms of his stock option agreements, he will have one year to exercise his stock options that are vested and outstanding as of January 31, 2013. As of January 31, 2013, Mr. Imhoff, Jr, had options to purchase 315,000 shares of the Company’s common stock vested and outstanding.
Option Awards
The option awards column represents the fair value of the stock options as measured on the grant date. The methods and assumptions used to determine the fair value of stock options granted are disclosed in “Note 15 - Stock Option Plans” in the notes to consolidated financial statements contained elsewhere herein.
All stock options awarded to the named executive officers during fiscal 2012 were at option prices that were equal to the market price on the date of grant, had vesting dates two years or less after the date of grant, and had expiration dates ten years after the date of grant. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. There were no stock options awarded in fiscal 2011.
Name and Principal Position | Fiscal Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | NonEquity Incentive Plan Compensation ($) | | | Nonqualified Deferred Compensation Earnings ($) | | | All Other Compensation ($) | | | Total ($) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Salvatore J. Zizza | 2013 | | | –– | | | | | | | | –– | | | | –– | | | | –– | | | | –– | | | | –– | | | | –– | |
| former Chief Executive Officer | 2012 | | | 120,000 | | | | | | | | –– | | | | 76,500 | (1) | | | –– | | | | –– | | | | –– | | | | 196,500 | |
| and Chairman of the Board(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Brad Imhoff(3) | 2013 | | | 190,000 | | | | | | | | –– | | | | –– | | | | –– | | | | –– | | | | –– | | | | 190,000 | |
| Former Chief Operating Officer and President, Professional Staffing Division | 2012 | | | 180,000 | | | | | | | | –– | | | | –– | | | | –– | | | | –– | | | | 2,500 | | | | 182,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Andrew Norstrud (4) | 2013 | | | 126,000 | | | | | | | | –– | | | | –– | | | | –– | | | | –– | | | | 63,000 | | | | 189,000 | |
| Chief Financial Officer and Treasurer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Michael Schroering (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Former Chief Executive Officer and Chairman | 2013 | | | 40,000 | | | | | | | | –– | | | | –– | | | | –– | | | | –– | | | | –– | | | | 40,000 | |
| (1) | Includes an option to purchase 300,000 shares of common stock at a price of $0.41 per share, granted on February 22, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. In connection with Mr. Zizza’s retirement, the Board of Directors agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested from one year to eighteen months from the date of his retirement on December 26, 2012. |
| (2) | As of December 26, 2012, Mr. Zizza retired from all positions with the Company. |
| (3) | On August 31, 2011, Brad Imhoff was appointed Chief Operating Officer and President of the Professional Staffing Division. Brad Imhoff’s employment with the Company ceased on July 15, 2013. |
| (4) | Mr. Norstrud became the Company’s Chief Financial Officer and Treasurer on March 28, 2013. Mr. Norstrud was a consultant during the year and charged the Company approximately $63,000 for those services through his consulting business, Norco Accounting & Consulting. Since November of 2013, Mr. Norstrud has also been the Principle Executive Officer. |
| (5) | Mr. Schroering served as the Company’s Chief Executive Officer and Chairman from November 24, 2012, until November 3, 2013. Mr. Schroering remains a director. |
Employment and Change in Control Agreements
Salvatore J. Zizza: On September 7, 2011, the Company and Salvatore J. Zizza, the Company’s Chairman and Chief Executive Officer, entered into an employment agreement (the “Zizza Employment Agreement”) and a change of control agreement (the “Zizza Change of Control Agreement”), each dated as of September 1, 2011. The Zizza Employment Agreement provides for a two-year term ending on September 1, 2013, unless Mr. Zizza’s employment is earlier terminated by either party in accordance with the provisions thereof. Mr. Zizza is to receive a base salary at the rate of $120,000 per year, subject to increase in the discretion of the Board of Directors of the Company. Mr. Zizza will also receive a life insurance policy with coverage equal to two times his base salary and a disability income insurance policy with coverage equal to 50% of his base salary. Mr. Zizza will be entitled to receive equity compensation on the same terms and conditions as other executives and members of the Board of Directors of the Company. In the event that Mr. Zizza’s employment is terminated (other than as a result of Mr. Zizza’s death or disability) either (i) by the Company for a reason other than Cause or (ii) by Mr. Zizza for Good Reason (each as defined in the Zizza Employment Agreement), Mr. Zizza will continue to receive his base salary and other benefits provided under the Zizza Employment Agreement for the remainder of the term of the Zizza Employment Agreement.
The term of the Zizza Change of Control Agreement commenced on September 1, 2011 and will terminate on the earlier of (i) two years following the date of execution; (ii) termination of Mr. Zizza’s employment; or (iii) the execution of a written agreement between the Company and Mr. Zizza terminating the Zizza Change of Control Agreement. Under the Zizza Change of Control Agreement, in the event that the Company terminates Mr. Zizza’s employment without Cause or Mr. Zizza resigns with Good Reason after a Change of Control (each as defined in the Zizza Change of Control Agreement), Mr. Zizza will receive, subject to his execution of a separation agreement and release of claims in a form reasonably satisfactory to the Company, (i) a lump sum payment equal to all unpaid compensation remaining from the day of separation to the end of the term of the Zizza Employment Agreement; (ii) continuation of health insurance benefits for six months following his separation from service; (iii) reimbursement for the premiums associated with COBRA for 18 months following the six-month continuation of health insurance period; and (iv) the same percentage of Company-paid group-term life insurance benefits as were provided to Mr. Zizza and his family under plans of the Company as of the Change of Control for a total of twenty-four months following the year in which Mr. Zizza separates from service.
On December 26, 2012, Mr. Zizza informed the Board of Directors that he was retiring from all positions with the Company, effective immediately. Under the terms of the Zizza Employment Agreement, Mr. Zizza continued to receive his base salary of $10,000 per month through August 31, 2013. Additionally, the Board of Directors agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested and outstanding as of December 26, 2012 from one year to eighteen months from the date of his retirement. As of December 26, 2012, Mr. Zizza had options to purchase 300,000 shares of the Company’s common stock vested and outstanding.
Brad A. Imhoff: In connection with Brad A. Imhoff’s appointment as Chief Operating Officer of the Company, the Company entered into an employment agreement (the “Imhoff Employment Agreement”) and a change of control agreement (the “Imhoff Change of Control Agreement”) with Brad A. Imhoff, each dated as of August 31, 2011. The Imhoff Employment Agreement provides for a three-year term ending on September 1, 2014, unless Mr. Imhoff’s employment is earlier terminated in accordance with the provisions thereof. Brad A. Imhoff is to receive a base salary at the rate of $180,000 per year for the term of the Imhoff Employment Agreement. Brad A. Imhoff is also entitled to receive an annual bonus equal to 10% of the increase in profits earned by the Company’s Professional Staffing Division over the prior fiscal year minus an agreed upon corporate allocation and not including any profits of acquired entities or assets until the applicable earnout periods related thereto have expired. The fiscal year ending September 30, 2011 will be used as the first baseline to determine the profitability bonus and will be used in subsequent years to determine the profitability bonus to the extent that profits in subsequent years are less than profits for the fiscal year ending September 30, 2011. Upon the expiration of the term of the Imhoff Employment Agreement or termination of Brad A. Imhoff’s employment by the Company with cause under the circumstances set forth in the Imhoff Employment Agreement, the Company’s obligations are limited generally to paying Brad A. Imhoff his base salary through the termination date.
The term of the Imhoff Change of Control Agreement commenced on August 31, 2011 and will terminate on the earlier of (i) three years following the date of execution; (ii) termination of Brad A. Imhoff’s employment; or (iii) the execution of a written agreement between the Company and Brad A. Imhoff terminating the Imhoff Change of Control Agreement. Under the Imhoff Change of Control Agreement, in the event that the Company terminates Brad A. Imhoff’s employment without Cause or he resigns with Good Reason after a Change of Control (each as defined in the Imhoff Change of Control Agreement), Brad A. Imhoff will receive, subject to his execution of a separation agreement and release of claims in a form reasonably satisfactory to the Company, (i) a lump sum payment equal to all unpaid compensation remaining from the day of separation to the end of the term of the Imhoff Employment Agreement; (ii) continuation of health insurance benefits for six months following his separation from service; (iii) reimbursement for the premiums associated with COBRA for 18 months following the six-month continuation of health insurance period; and (iv) the same percentage of Company-paid group-term life insurance benefits as were provided to Brad A. Imhoff and his family under plans of the Company as of the Change of Control for a total of twenty-four months following the year in which he separates from service.
On June 26, 2013, the Company entered into an Amended and Restated Employment Agreement with Brad A. Imhoff (the “Amended Agreement”). The Amended Agreement provided that Brad A. Imhoff would serve as the President of the Professional Staffing Division of the Company until July 15, 2013, at which point Brad A. Imhoff’s employment with the Company ceased. Under the Amended Agreement the Company paid Brad A. Imhoff an annualized based salary of $180,000 per year, and, in the event the Amended Agreement expired at the end of its term, a one-time payment of $12,500 and continued base salary through October 15, 2013. The Amended Agreement expressly cancelled and voided the Imhoff Change of Control Agreement.
Andrew Norstrud: On August 13, 2013, the Company entered into an employment agreement with Andrew J. Norstrud (the “Norstrud Employment Agreement”). The Norstrud Employment Agreement provides for a three-year term ending on March 29, 2016, unless employment is earlier terminated in accordance with the provisions thereof. Mr. Norstrud is to receive a starting base salary at the rate of $200,000 per year which is subject to adjustment by the Compensation Committee. Mr. Norstrud is to receive options to purchase 200,000 shares of the Company’s common stock in connection with his execution of the Norstrud Employment Agreement, and is also entitled to receive an annual bonus based on criteria to be agreed to by Mr. Norstrud and the Compensation Committee. The option has not been granted by the Compensation Committee at September 30, 2013. The Norstrud Employment Agreement contains standard termination, change of control, non-compete and confidentiality provisions.
Option Awards
The option awards column represents the fair value of the stock options as measured on the grant date. The methods and assumptions used to determine the fair value of stock options granted are disclosed in “Note 9 - Stock Option Plans” in the notes to consolidated financial statements contained elsewhere herein.
All stock options awarded to the named executive officers during fiscal 2013 and 2012 were at option prices that were equal to the market price on the date of grant, had vesting dates two years or less after the date of grant, and had expiration dates ten years after the date of grant. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable.
Outstanding Equity Awards at Fiscal Year-End
Outstanding Equity Awards at Fiscal Year- End Table
The following table summarizes equity awards granted to Named Executive Officers and directors that were outstanding as of September 30, 2013:
| | Option Awards | | | Stock Awards | |
| Name | | Number of Securities Underlying Unexercised Options: # Exercisable | | Number of Securities Underlying Unexercised Options: # Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unearned and Unexercisable Options: | | Option Exercise Price $ | | | Option Expiration Date | | | # of Shares or Units of Stock That Have Not Vested # | | Market Value of Shares or Units of Stock That Have Not Vested $ | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested # | | Equity Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested $ | |
Salvatore J. Zizza former Chairman of the Board of Directors, Chief Executive Officer | | | (1)300,000 | | | - | | | | - | | | 0.41 | | | 6/25/14 | | | | - | | | - | | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Herbert F. Imhoff, Jr. Former President | | | (1)300,000 | | | - | | | | - | | | 0.41 | | | 1/30/14 | | | | - | | | - | | | | - | | | - | |
| | | | (2)15,000 | | | - | | | | - | | | 0.73 | | | 1/30/14 | | | | - | | | - | | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Andrew Norstrud, Chief Financial Officer and Treasurer | | | - | | | - | | | | - | | | - | | | - | | | | - | | | - | | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Michael Schroering, Former Chief Executive Officer and Chairman | | | 15,000 | | | - | | | | - | | | 0.48 | | | 12/19/22 | | | | - | | | - | | | | - | | | - | |
| Name | | Year | | Executive Retirement Plan ($) | | | Consulting Fees ($) | | | Other ($) | | | Total All Other Compensation ($) | |
| | | | | | | | | | | | | | | |
| Salvatore J. Zizza | | 2012 | | | –– | | | | –– | | | | 76,500 | (1) | | | 76,500 | |
| former Chief Executive Officer and Chairman of the Board | | 2011 | | | –– | | | | –– | | | | –– | | | | –– | |
| | | | | | | | | | | | | | | | | | | |
| Herbert F. Imhoff, Jr. | | 2012 | | | –– | | | | 180,000 | | | | 76,500 | (1) | | | 256,500 | |
| former President | | 2011 | | | –– | | | | 180,000 | | | | –– | | | | 180,000 | |
| | | | | | | | | | | | | | | | | | | |
| Marilyn L. White | | 2012 | | | –– | | | | –– | | | | –– | | | | –– | |
| former Vice President | | 2011 | | | –– | | | | –– | | | | 32,500 | (2) | | | 32,500 | |
| (1) | The options vest at the rate of 3,000 every year beginning on September 30, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. |
| (2) | Includes an option to purchase 300,000 shares of common stock at a price of $0.41 per share, granted on February 22, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. In connection with Mr. Zizza’s retirement, the Board agreed to extend the period during which Mr. Zizza can exercise his stock options that are vested from one year to eighteen months from the date of his retirement on December 26, 2012. |
| (2) | Amount represents severance payment made to Ms. White. |
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table summarizes equity awards granted to Named Executive Officers and Directors that were outstanding as of September 30, 2012:
| | Option Awards | | Stock Awards | |
| N | Number of Securities Underlying Unexercised Options: # Exercisable | | Number of Securities Underlying Unexercised Options: # Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unearned and Unexercisable Options: | | Option Exercise Price $ | | Option Expiration Date | | # of Shares or Units of Stock That Have Not Vested # | Market Value of Shares or Units of Stock That Have Not Vested $ | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested # | Equity Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested $ | |
Salvatore J. Zizza former Chairman of the Board of Directors, Chief Executive Officer | 300,000 | (2) | 0 | 0 | | | 0.41 | | 6/25/14 | | 0 | 0 | 0 | 0 | |
| | | | | | | | | | | | | | | | |
| Herbert F. Imhoff, Jr. President | 300,000 | (2) | 0 | 0 | | | 0.41 | | 1/30/14 | | 0 | 0 | 0 | 0 | |
| | | | | | | | | | | | | | | | |
| Dennis Baker, Director | 300,000 | (2) | 0 | 0 | | | 0.41 | | 2/22/17 | | 0 | 0 | 0 | 0 | |
| | 15,000 | | 0 | 0 | | | 2.39 | | 2/25/17 | | 0 | 0 | 0 | 0 | |
| | 15,000 | (1) | 0 | 0 | | | 0.73 | | 2/22/19 | | 0 | 0 | 0 | 0 | |
| | | | | | | | | | | | | | | | |
| Charles W. B. Wardell III, Director | 300,000 | (2) | 0 | 0 | | | 0.41 | | 10/4/13 | | 0 | 0 | 0 | 0 | |
| (3) | 15,000 | (1) | 0 | 0 | | | 0.73 | | 9/4/13 | | 0 | 0 | 0 | 0 | |
| | | | | | | | | | | | | | | | |
| Thomas C. Williams, Director | 300,000 | (2) | 0 | 0 | | | 0.41 | | 2/22/17 | | 0 | 0 | 0 | 0 | |
| (2) | 15,000 | (1) | 0 | 0 | | | 0.73 | | 2/22/19 | | 0 | 0 | 0 | 0 | |
| (1) | The options vest at the rate of 3,000 every year beginning on September 30, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. |
| (2) | Includes an option to purchase 300,000 shares of common stock at a price of $0.41 per share, granted on February 22, 2012. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. |
| (3) | Charles W. B. Wardell resigned as of September 4, 2012 |
Retirement Benefits
The Company does not maintain a tax-qualified defined benefit retirement plan for any of its executive officers or employees. The Company has a 401(k) retirement plan in which all full-time employees may participate after one year of service.
DIRECTOR COMPENSATION
Compensation of Directors
Under the Company’s standard compensation arrangements that were in effect during fiscal 2013, each non-employee director received a monthly retainer of $2,000 with the exception of Mr. Baker who received $2,500 per month. Directors did not receive any additional compensation for attendance at meetings of the Board of Directors or its committees. Employees of the Company did not receive any additional compensation for service on the Board of Directors.
The following table sets forth information concerning the compensation paid to each of the non-employee directors during fiscal 2013:
The Company does not maintain a tax-qualified defined benefit retirement plan for any of its executive officers or employees. The Company has a 401(k) retirement plan in which all full-time employees may participate after one year of service.
Potential Payments upon Termination of Employment or Change in Control
We have entered into certain agreements (such as the employment agreements discussed above under the caption “Employment and Change in Control Agreements”) and maintain certain plans that require us to provide compensation to the named executive officers in the event of certain terminations of their employment or if the Company experiences a change in control. The amount of compensation that would be payable at September 30, 2012 to each named executive officer for such terminations is shown in the tables below.
Brad A. Imhoff:
Executive Benefits and Payments Upon Termination | | Voluntary Termination | | | Involuntary Not for Cause Termination | | | Death or Disability | | | For Cause Termination | | | Change in Control | | | Good Reason | |
Compensation: | | | | | | | | | | | | | | | | | | |
| Base Salary Continuance | | $ | –– | | | $ | 345,000 | | | $ | –– | | | $ | –– | | | $ | 345,000 | | | $ | 345,000 | |
| Vacation Pay | | | –– | | | | 31,000 | | | | –– | | | | –– | | | | 31,000 | | | | 31,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | |
| Life Insurance | | | –– | | | | 656 | | | | –– | | | | –– | | | | 656 | | | | 656 | |
| Disability Insurance | | | –– | | | | 1,158 | | | | –– | | | | –– | | | | 1,158 | | | | 1,158 | |
| Medical Dental Vision | | | –– | | | | 11,287 | | | | –– | | | | –– | | | | 11,287 | | | | 11,287 | |
| Total | | $ | –– | | | $ | 389,101 | | | $ | –– | | | $ | –– | | | $ | 389,101 | | | $ | 389,101 | |
Katy M. Imhoff:
Executive Benefits and Payments Upon Termination | | Voluntary Termination | | | Involuntary Not for Cause Termination | | | Death or Disability | | | For Cause Termination | | | Change in Control | | | Good Reason | |
Compensation: | | | | | | | | | | | | | | | | | | |
| Base Salary Continuance | | $ | –– | | | $ | 287,500 | | | $ | –– | | | $ | –– | | | $ | 287,500 | | | $ | 287,500 | |
| Vacation Pay | | | –– | | | | 25,862 | | | | –– | | | | –– | | | | 25,862 | | | | 25,862 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefits and Perquisites: | | | | | | | | | | | | | | | | | | | | | | | | |
| Life Insurance | | | –– | | | | 656 | | | | –– | | | | –– | | | | 656 | | | | 656 | |
| Disability Insurance | | | –– | | | | 965 | | | | –– | | | | –– | | | | 965 | | | | 965 | |
| Medical Dental Vision | | | –– | | | | 11,297 | | | | –– | | | | –– | | | | 11,297 | | | | 11,297 | |
| Total | | $ | –– | | | $ | 326,280 | | | $ | –– | | | $ | –– | | | $ | 326,280 | | | $ | 326,280 | |
DIRECTOR COMPENSATION
Compensation of Directors
Under the Company’s standard compensation arrangements that were in effect during fiscal 2011, each non-employee director received a monthly retainer of $2,000 with the exception of Mr. Baker who received $2,500 per month from March 2011 forward. Directors did not receive any additional compensation for attendance at meetings of the Board of Directors or its committees. Employees of the Company did not receive any additional compensation for service on the Board of Directors.
The following table sets forth information concerning the compensation paid to each of the directors during fiscal 2012:
Director Compensation
| Name | | Fees Earned or Paid in Cash ($) | | Option Awards (1) ($) | | Total ($) | | | Fees Earned or Paid in Cash ($) | | | Option Awards (1) ($) | | | Total ($) | |
| | | | | | | | | | | | | | | | | |
| Dennis W. Baker | | 30,000 | | 76,500 | | 106,500 | | | | 30,000 | | | | 0 | | | | 30,000 | |
| Herbert F. Imhoff, Jr. | | 24,000 | | (2) | | 24,000 | | | | 8,000 | | | | 0 | | | | 8,000 | |
| Charles W. B. Wardell III | | 24,000 | | 76,500 | | 100,500 | | | | 16,000 | | | | 0 | | | | 16,000 | |
| Thomas C. Williams | | 24,000 | | 76,500 | | 100,500 | | | | 24,000 | | | | 0 | | | | 24,000 | |
| Michael Schroering (2) | | | | 12,000 | | | | 6,000 | | | | 18,000 | |
| Edward Hunter (2) | | | | 24,000 | | | | 6,000 | | | | 30,000 | |
| (1) | The aggregate number of outstanding option awards at the end of fiscal 2012 were as follows for each of the non-employee directors: Mr. Baker – 330,000; Mr. Imhoff, Jr. – 315,000; Mr. Wardell – 315,000; Mr. Williams – 315,000. Due to a change of control, subsequent to year end, all of such options were immediately vested and exercisable. |
| (2) | Options grantedDecember 19, 2012, Michael Schroering and Edward Hunter were included in compensation above as Herbert F. Imhoff, Jr. was alsoawarded 15,000 options at an employee. Herbert F. Imhoff, Jr. has since retired from all positions for the Company.
exercise price of $0.40 per share and were immediately exercisable. |
Option Awards
The option awards column represents the fair value of the stock options as measured on the grant date. The methods and assumptions used to determine the fair value of stock options granted are disclosed in “Note 169 - Stock Option Plans” in the notes to consolidated financial statements in the Company’s Annual Report for fiscal 2012 accompanying this proxy statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Listed in the following table is information concerning persons known to the Company to be beneficial owners of more than five percent of the Company’s outstanding Common Stock, and information concerning the beneficial ownership of the Company’s outstanding Common Stock by each director, director nominee and named executive officer, as defined below, individually, and by all current directors and executive officers as a group. Unless noted otherwise, the named persons have sole voting and dispositive power over the shares listed. Except as noted otherwise, the information is as of March 28, 2013.January 13, 2014.
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | | Percent of Class(1) | |
| | | | | | | |
LEED HR, LLC and Michael Schroering(2) LEED HR, LLC 2650 East Point Parkway, Suite 280 Louisville, KY 40223 | | | 16,041,744 | (2) | | | 73.9% | |
| | | | | | | | | |
| Dennis W. Baker. | | | 373,800 | (3) | | | 1.7% | |
| | | | | | | | | |
| Thomas C. Williams | | | 306,000 | (4) | | | 1.4% | |
| | | | | | | | | |
| Brad A. Imhoff | | | 1,252,300 | (5) | | | 5.8% | |
| | | | | | | | | |
| Katy M. Imhoff | | | 1,252,300 | (6) | | | 5.8% | |
| | | | | | | | | |
| Andrew J. Norstrud(7) | | | –– | | | | –– | |
| | | | | | | | | |
| Edward Hunter(8) | | | –– | | | | –– | |
| | | | | | | | | |
| Current directors and executive officers as a group (6 individuals) | | | 17,973,844 | | | | 82.8% | |
Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | | Percent of Class(1) | |
| | | | | | |
LEED HR, LLC and Michael Schroering(2) LEED HR, LLC 2650 East Point Parkway, Suite 280 Louisville, KY 40223 | | | 16,041,744 | (2) | | | 70.4 | % |
| | | | | | | | |
| Dennis W. Baker. | | | 373,800 | (3) | | | 1.6 | % |
| | | | | | | | |
| Thomas C. Williams | | | 306,000 | (4) | | | 1.3 | % |
| | | | | | | | |
| Michael Schroering | | | 15,000 | | | | * | |
| | | | | | | | |
| Andrew J. Norstrud | | | | | | | * | |
| | | | | | | | |
| Current directors and executive officers as a group (5 individuals) | | | 16,736,544 | | | | 73.4 | % |
* Represents less than 1%.
(1) Based on 21,699,675 shares issued and outstanding as of March 28,| (1) | Based on 22,799,675 shares issued and outstanding as of December 31, 2013. |
| (2) | Based on the Schedule 13D filed on September 13, 2013 and the Schedule 13D/A filed on September 21, 2012 by each of LEED HR, LLC a Kentucky limited liability company, and Mr. Schroering, which disclosed that LEED HR, LLC owns directly 15,824,410 shares of Common Stock. Mr. Schroering owns directly 199,334 shares of Common Stock. Mr. Schroering is the sole manager of LEED HR, LLC and is the beneficial owner of these shares. By virtue of this relationship, Mr. Schroering may be deemed to beneficially own, the 15,824,410 shares of Common Stock owned directly by LEED HR, LLC. |
(2) Based on the Schedule 13D filed on September 13, 2013 and the Schedule 13D/A filed on September 21, 2012 by each of LEED HR, LLC a Kentucky limited liability company, and Mr. Schroering, which disclosed that LEED HR, LLC owns directly 15,824,410 shares of Common Stock. Mr. Schroering owns directly 199,334 shares of Common Stock. Mr. Schroering is the sole manager of LEED HR, LLC. By virtue of this relationship, Mr. Schroering may be deemed to beneficially own, the 15,824,410 shares of Common Stock owned directly by LEED HR, LLC. | (3) | Represents (i) 52,800 shares of Common Stock owned, (and (iii) 321,000 shares issuable upon the exercise of stock options that are currently exercisable. |
| (4) | Represents 306,000 shares issuable upon the exercise of stock options that are currently exercisable. |
(3) Represents (i) 52,800 shares of Common Stock owned, (and (ii) 321,000 shares issuable upon the exercise of stock options that are currently exercisable.
(4) Represents 306,000 shares issuable upon the exercise of stock options that are currently exercisable.
(5) Represents (i) 1,250,000 shares of Common Stock held directly by Ashley Ellis LLC, of which Mr. Imhoff is the sole member and Chief Executive Officer , (ii) 1,150 shares of Common Stock directly owned and (iii) 1,150 shares of Common Stock owned by Mr. Imhoff’s daughter, Lisa Imhoff. | Certain Relationships and Related Transactions, and Director Independence. |
(6) Ms. Imhoff is married to Mr. Brad Imhoff and may be deemed to own the shares beneficially owned by him. Ms. Imhoff disclaims beneficial ownership of such shares except to the extent of her pecuniary interest therein.
(7) Mr. Norstrud joined the Company effective March 28, 2013.
(8) Mr. Hunter joined the Company effective October 2, 2012.
Item 13, Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Persons, Promoters and Certain Control Persons
On August 31, 2011, the Company entered into an asset purchase agreement (the “Ashley Purchase Agreement”) with Ashley Ellis, an Illinois limited liability company, and Brad A. Imhoff for the purchase of certain assets of Ashley Ellis, including customer lists, comprising Ashley Ellis’ services business. Ashley Ellis’ services business was operated from offices in Illinois, Texas and Georgia and provided services related to the recruitment and placement of technical personnel. The Ashley Purchase Agreement was deemed effective on September 1, 2011.
Brad A. Imhoff is the brother of Herbert F. Imhoff, Jr., a former director and the former President of the Company. Effective January 31, 2013, Herbert Imhoff, Jr. retired from all positions with the Company. Brad A. Imhoff and Ashley Ellis, an entity of which Brad A. Imhoff is the sole member and Chief Executive Officer, were parties to the transaction. As consideration for the assets, the Company paid Ashley Ellis $200,000 on the date of closing and paid Ashley Ellis an additional $200,000 within six months of closing. The Company also issued to Ashley Ellis 1,250,000 restricted shares of the Company’s common stock. As the sole member of Ashley Ellis, Brad A. Imhoff has an interest in the entire consideration paid by the Company to Ashley Ellis for the assets.
In connection with the transactions contemplated by the Ashley Purchase Agreement, on August 31, 2011, the Company and Ashley Ellis entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which Ashley Ellis was granted certain piggyback registration rights with respect to the shares to be issued to Ashley Ellis under the Ashley Purchase Agreement. The Registration Rights Agreement contains certain indemnification provisions for the benefit of the Company and Ashley Ellis and other customary provisions.
In conjunction with the acquisition of DMCC and RFFG of Cleveland in December 2011, BMP, an Ohio corporation and a wholly-owned subsidiary of the Company, entered into a management service agreement (the “Management Agreement”) with RFFG effective November 1, 2010. Thomas J. Bean, a 10% shareholder of the Company at the time (prior to consideration of common shares issued in this transaction), was the manager of RFFG.
Pursuant to the Management Agreement, BMP agreed to provide services to RFFG to operate its day-to-day business, including services related to accounting, sales, finance, workers’ compensation, benefits, physical locations, information technologies and employees. The Management Agreement provided that additional services may be added if BMP and RFFG mutually agree to the cost to be charged by BMP for such services and as long as BMP has the resources to provide such services.
In consideration of the services provided under the Management Agreement, RFFG agreed to pay BMP monthly fees that approximate 6% of its gross revenues on an annual basis. For the year ended September 30, 2011, the Company recorded approximately $838,000 of revenue related to this agreement. As of September 30, 2011, BMP has $225,000 of management fee receivable.
Due to an unresolved issue with the Ohio Bureau of Workers Compensation, RFFG ceased operations as of July 15, 2011 and, as a result, the Management Agreement was effectively terminated. As a result, the Company recorded a loss on impairment of intangible assets of $1,126,000 (as discussed further in Note 9), offset by income of $1,276,000 for the reduction of an associated earn-out liability. There was approximately $140,000 unpaid related to this Management Agreement, which was offset against amounts owed related to certain earn-out payments provided under the original Asset Purchase Agreement.
In November 2009, the Company discovered that it did not receive the proceeds from a bank for a $2,300,000 certificate of deposit that was scheduled to mature in October 2009. Although the Company made a formal inquiry of the bank, it did not receive an adequate explanation for the bank’s non-performance related to the deposit. In December 2009, the Company entered into an agreement to assign its interests in the certificate of deposit, without recourse and the Company was reimbursed for the face value of the deposit. At that time, management believed the certificate of deposit was purchased by an unrelated third party that had other business interests with the bank. New information was brought to management’s attention in October 2012 and it now believes Thomas J. Bean was involved and that others, who may or may not have been related to the Company may also have been involved in the transaction.
Director Independence
The Board of Directors has determined that each director, other than Mr. Schroering, is an independent director under the listing standards of the NYSE MKT. In addition, the Board of Directors has determined that each current member of the Nominating Committee, Compensation Committee and Audit Committee meets the additional independence criteria required for such membership under the listing standards of the NYSE MKT and Rule 10A-3 of the Exchange Act.
Item 14, Principal14. Principal Accountant Fees and Services.
The Audit Committee is governed by a charter. The Audit Committee held four meetings during fiscal year 2012. The Audit Committee is comprised solely of independent directors as defined by the NYSE Amex Stock Exchange listing standards and Rule 10A-3 of the Securities Exchange Act of 1934.
Audit Committee of the Board of Directors
Dennis W. Baker, Committee Chair
Thomas C. Williams
Edward Hunter
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Company’s Board of Directors has selected Friedman, LLP to serve as the Company’s independent registered public accounting firm and to audit the Company’s consolidated financial statements for the fiscal years ending September 30, 20122013 and 2011.2012. Friedman LLP has served as the Company’s independent registered public accounting firm since November 29, 2012.
PRINCIPAL ACCOUNTANT FEESA representative of Friedman, LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement if desired.
The following table presents fees billed or expected to be billed by BDO USA, LLP and Friedman, LLP for the following professional services rendered for the audit of the Company’s financial statementsCompany for the fiscal years ended September 30, 20122013 and 2011, and fees billed by BDO USA, LLP during those years for other professional services:2012:
| | | Fiscal | | Fiscal | | |
| | | 2012(1)(2) | | 2011 | | | Fiscal | | | Fiscal | |
| | | | | | | | | | | | |
| Audit fees | | $ | 350,000 | | $ | 122,000 | | | $ | 145,000 | | | $ | 350,000 | |
| Audit-related fees | | 18,000 | | 4,000 | | | | 18,500 | | | | 18,000 | |
| Tax fees | | — | | — | | | | — | | | | — | |
| All other fees | | — | | 52,000 | | | | — | | | | — | |
“Audit fees” relate to services for the audit of the Company’s consolidated financial statements for the fiscal year and for reviews of the interim consolidated financial statements included in the Company’s quarterly reports filed with the SEC.
“Audit-related fees” relate to services that are reasonably related to the audit of the Company’s consolidated financial statements and are not included in “audit fees.” These services include audits of the Company’s 401(k) retirement plan the acquisition of certain assets of On-Site Services, Inc. and consultations on certain accounting matters.
“All other fees” relate to services rendered in connection with the subpoena issued to the Company by the SEC on February 14, 2011.
| (1) | Friedman, LLP performed an audit of the Company’s financial statements for the years ended, September 30, 2012 and September 30, 2011 |
| (2) | BDO USA, LLP charged the Company $50,000 for services for the year ended September 30, 2012, however did not complete the audit due to a dispute related to the audit fees required to complete the audit. |
The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm, and to not engage them to perform the specific non-audit services proscribed by law or regulation. At the beginning of each fiscal year, the Audit Committee meets with the independent registered public accounting firm and approves the fees and services to be performed for the ensuing year. On a quarterly basis, the Audit Committee reviews the fees billed for all services provided for the year to date, and it pre-approves additional services if necessary. The Audit Committee’s pre-approval policies allow management to engage the independent registered public accounting firm for consultations on tax or accounting matters up to an aggregate of $10,000 annually. All fees listed in the table above were approved in accordance with the Audit Committee’s policies.
50
Item 15, Exhibits and Financial Statement Schedules. | Exhibits and Financial Statement Schedules. |
Exhibits
The following exhibits are filed as part of this report:
| No. | Description of Exhibit |
| |
| 2.01 | Securities Purchase and Tender Offer Agreement, dated March 30, 2009, by and among General Employment Enterprises, Inc. and PSQ, LLC. Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated March 30, 2009, Commission File No. 1-05707. |
| | |
| 2.02 | Acquisition of Assets of On-Site Services dated June 2. 2010. Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated June 8, 2010, File No. 1-05707. |
| | |
| 2.03 | Financial Statements of On-Site Services dated August 16, 2010, Incorporated by reference to Exhibit 99.1, Exhibit 99.2 and Exhibit 99.3 to the Company’s Current Report on Form 8-K dated August 16, 2010, File No. 1-05707. |
| | |
| 3.01 | Articles of Incorporation and amendments thereto. Incorporated by reference to Exhibit 3 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996, Commission File No. 1-05707. |
| | |
| 3.02 | Amended and Restated Articles of Incorporation. Incorporated by reference to Exhibit 3(i) to the Company’s Form 8-K filed with the Commission on December 6, 2013. |
| |
| 3.03 | By-Laws of General Employment Enterprises, Inc., as amended June 30, 2009. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 30, 2009, Commission File No. 1-05707 |
| | |
| 4.01 | Rights Agreement dated as of February 4, 2000, between General Employment Enterprises, Inc. and Continental Stock Transfer and Trust Company, as Rights Agent. Incorporated by reference to Exhibit 1 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on February 7, 2000, Commission File No. 1-05707. |
| | |
| 4.02 | Amendment No. 1 to Rights Agreement, dated as of March 30, 2009, by and between General Employment Enterprises, Inc. and Continental Stock Transfer and Trust Company, as Rights Agent. Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on March 31, 2009, Commission File No. 1-05707. |
| | |
| 10.01* | Key Manager Plan, adopted May 22, 1990. Incorporated by reference to Exhibit 10(h) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 1990, Commission File No. 1-05707. |
| | |
| 10.02* | General Employment Enterprises, Inc. 1995 Stock Option Plan. Incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement dated April 25, 1995, Registration No. 33-91550. |
| | |
| 10.03* | Second Amended and Restated General Employment Enterprises, Inc. 1997 Stock Option Plan. Incorporated by reference to Exhibit 10.03 to the Company’s Annual Report on Form 10-K filed with the SEC on January 8, 2010. |
| | |
| 10.04* | General Employment Enterprises, Inc. 1999 Stock Option Plan. Incorporated by reference to Exhibit 10 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, Commission File No. 1-05707. |
| |
| 10.05* | Chief Executive Officer Bonus Plan, adopted September 24, 2001. Incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2001, Commission File No. 1-05707. |
| | |
| 10.06* | Operational Vice President Bonus Plan effective for fiscal years beginning on or after October 1, 2004. Incorporated by reference to Exhibit 10.01 to the Company’s Quarterly Report ofon Form 10-QSB for the quarterly period ended December 31, 2004, Commission File No. 1-05707. |
| | |
| 10.07* | Form of stock option agreement under the General Employment Enterprises, Inc. 1997 Stock Option Plan. Incorporated by reference to Exhibit 99.01 to the Company’s current report on Form 8-K dated September 25, 2006, Commission File No. 1-05707. |
| |
| 10.08* | Chief Executive Officer Bonus Plan Amendment 1, effective for fiscal years beginning on or after October 1, 2006. Incorporated by reference to Exhibit 10.01 to the Company’s quarterly report on Form 10-QSB for the quarterly period ended December 31, 2006, Commission File No. 1-05707. |
| | |
| 10.09* | Form of director stock option agreement under the Amended and Restated General Employment Enterprises, Inc. 1997 Stock Option Plan. Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2007, Commission File No. 1-05707. |
| | |
| 10.10* | Form of stock option agreement under the General Employment Enterprises, Inc. 1999 Stock Option Plan. Incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2007, Commission File No. 1-05707. |
| | |
| 10.11* | Form of indemnity agreement with directors and officers, adopted November 19, 2007. Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2007, Commission File No. 1-05707. |
| | |
| 10.12* | Escrow Agreement, dated as of March 30, 2009, by and among General Employment Enterprises, Inc., PSQ, LLC and Park Avenue Bank, as escrow agent. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 30, 2009, Commission File No. 1-05707. |
| | |
| 10.13* | Consulting Agreement, dated as of March 30, 2009, by and among Herbert F. Imhoff, Jr., General Employment Enterprises, Inc. and PSQ LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 30, 2009, Commission File No. 1-05707. |
| | |
| 10.14* | Registration Rights Agreement, dated as of March 30, 2009, by and between General Employment Enterprises, Inc., PSQ, LLC and Herbert F. Imhoff, Jr. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated March 30, 2009, Commission File No. 1-05707. |
| | |
| 10.15* | Amendment No. 1, dated as of June 22, 2009, to Consulting Agreement, dated as of March 30, 2009, by and among Herbert F. Imhoff, Jr., General Employment Enterprises, Inc. and PSQ LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 22, 2009, Commission File No. 1-05707. |
| | |
| 10.16* | Employment Agreement between General Employment Enterprises, Inc. and Kent M. Yauch, dated June 26, 2009. Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated June 22, 2009, Commission File No. 1-05707. |
| | |
| 10.17* | Employment Agreement between General Employment Enterprises, Inc. and Marilyn L. White, dated June 26, 2009. Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated June 22, 2009, Commission File No. 1-05707. |
| | |
| 10.18* | Form of director stock option under the Second Amended and Restated General Employment Enterprises, Inc. 1997 Stock Option Plan. |
| | |
| 10.19* | Form of employee stock option under the Second Amended and Restated General Employment Enterprises, Inc. 1997 Stock Option Plan. |
| |
| 10.20* | Amendment No. 4 dated as of February 5, 2010 to Statement of Acquisition of Beneficial Ownership by Herbert F. Imhoff, Jr. Incorporated by reference to Form SC 13D dated February 5, 2010, Commission File No. 5-40677. |
| | |
| 10.21 | Account Purchase Agreement dated as December 14, 2010 by and between Wells Fargo Bank, National Association and Triad Personnel Services, Inc., the Company, BMPS, Inc., BMCH, Inc. d/b/a Triad Personnel Services, and BMCH PA, Inc. d/b/a Triad Temporaries (the “Account Purchase Agreement”). Incorporated by reference to Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, Commission File No. 001-05707. |
| 10.22 | |
| First Amendment to Account Purchase Agreement dated May 2, 2011. Filed herewith.Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2013. |
| | |
| 10.23 | Second Amendment to Account Purchase Agreement dated as February 15, 2012. Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated March 30, 2012, Commission File No. 001-05707. |
| | |
| Third Amendment to Account Purchase Agreement dated September 25, 2012. Filed herewith.Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2013. |
| | |
| Fourth Amendment to Account Purchase Agreement dated December 14, 2012. Filed herewith.Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2013. |
| | |
| Fifth Amendment to Account Purchase Agreement dated as January 14, 2013. Filed herewith.Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2013. |
| | |
| 10.27 | Asset Purchase Agreement, dated as of August 31, 2011, by and among General Employment Enterprises, Inc., Ashley Ellis LLC and Brad A. Imhoff. Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.28 | Registration Rights Agreement, dated as of August 31, 2011, by and between General Employment Enterprises, Inc. and Ashley Ellis LLC. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.29 | Employment Agreement, dated as of August 31, 2011, by and between General Employment Enterprises, Inc. and Katy M. Imhoff. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.30 | Change of Control Agreement, dated as of August 31, 2011, by and between General Employment Enterprises, Inc. and Katy M. Imhoff. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.31 | Employment Agreement, dated as of September 1, 2011, by and between General Employment Enterprises, Inc. and Salvatore J. Zizza. Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.32 | Change of Control Agreement, dated as of September 1, 2011, by and between General Employment Enterprises, Inc. and Salvatore J. Zizza. Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.33 | Employment Agreement, dated as of August 31, 2011, by and between General Employment Enterprises, Inc. and Brad A. Imhoff. Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.34 | Change of Control Agreement, dated as of August 31, 2011, by and between General Employment Enterprises, Inc. and Brad A. Imhoff. Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K dated September 7, 2011, Commission File No. 001-05707. |
| | |
| 10.35 | Registration Rights Agreement, effective as of December 30, 2010, by and among General Employment Enterprises, Inc., Triad Personnel Services, Inc., DMCC Staffing, LLC and RFFG of Cleveland, LLC. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 5, 2011, Commission File No. 001-05707. |
| |
| 10.36 | General Employment Enterprises, Inc. 2011 Incentive Plan. Incorporated by reference as Appendix B to the Company’s Proxy Statement dated January 23, 2012, Commission File No. 1-05707.* |
| | |
| Sixth Amendment to Account Purchase Agreement dated as March 27, 2013. Filed herewith.Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2013. |
| 10.38 | Amended and Restated Employment Agreement with Brad A. Imhoff dated June 26, 2013. Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on July 1, 2013. |
| | |
| 10.39 | Amended and Restated Employment Agreement with Katy Imhoff dated June 26, 2013. Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on July 1, 2013. |
| |
| 10.40 | Executive Employment Agreement with Andrew Norstrud, dated March 29, 2013. Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-Q filed with the Commission on August 15, 2013. |
| |
| 10.41 | Amendment to Asset Purchase Agreement by and among DMCC Staffing, LLC, RFFG of Cleveland, LLC, the Company and Triad Personnel Services, Inc., dated April 17, 2013. Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on April 24, 2013. |
| |
| 10.42 | General Employment Enterprises, Inc. 2013 Incentive Stock Plan, effective July 23, 2013. Incorporated by reference as Exhibit A to the Company’s Proxy Statement dated August 21, 2013, Commission File No. 001-05707.* |
| |
| Loan and Security agreement and between Keltic Financial Partners II, LLP and General Employment Enterprises Inc., Triad Personnel Services, Inc., BMPS, Inc., BMCH, Inc. d/b/a Triad Personnel Services, and BMCH PA, Inc., Triad Logistics (the “Loan Agreement”). Filed herewith. |
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| 14.01 | General Employment Enterprises, Inc. Code of Ethics for Directors, Officers and Employees, adopted as of August 16, 2004. Incorporated by reference to Exhibit 14.01 to the Company’s Form 8-K Current Report dated August 16, 2004, Commission File No. 1-05707. |
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| Consent of Independent Registered Public Accounting Firm. |
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| Certification of the principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
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| Certification of the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. |
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| Certifications of the principal executive officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code. |
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| Certifications for the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code. |
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| 101.INS | XBRL Instant document, filed |
* Management contract or compensatory plan or arrangement.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act, of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENERAL EMPLOYMENT ENTERPRISES, INC.
Date: 3/29/2013January 13, 2014 | | By: /s/ Michael SchroeringAndrew J. Norstrud |
| | Andrew J. Norstrud |
| | Michael Schroering | |
| ChiefPrincipal Executive Officer | |
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: 3/29/2013January 13, 2014 | | By: /s/ Michael SchroeringAndrew J. Norstrud |
| | Andrew J. Norstrud |
| | Michael Schroering | (Principal Executive Officer) |
| | Chief Executive Officer | |
| (Principal executive officer) | |
| | | |
Date: 3/29/2013January 13, 2014 | | By: /s/ Andrew J. Norstrud | |
| | Andrew J. Norstrud | |
| | | Chief Financial Officer | |
| | (Principal financialFinancial and accounting officer) | Accounting Officer) |
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Date: 3/29/2013January 13, 2014 | | By: /s/ Dennis W. Baker | |
| | Dennis W. Baker, DirectorChairman of the Board |
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| Date: January 13, 2014 | | By: /s/ Michael Schroering |
| | Michael Schroering, Director |
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Date: 3/29/2013 | By: /s/ Edward HunterJanuary 13, 2014 | |
| Edward Hunter, Director | |
| | |
Date: 3/29/2013 | By: /s/ Thomas C. Williams | |
| | Thomas C. Williams, Director | |
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