UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 001-05707
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-6097429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Tower Lane, Suite 2100, Oakbrook Terrace, Illinois 60181
(Address of principal executive offices) (Zip Code)
(630) 954-0400
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No __
The number of shares outstanding of the issuer's common stock as
of July 31, 2001 was 5,086,656.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
June 30 September 30
2001 2000
(In Thousands) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,130 $ 7,236
Short-term investments 1,484 5,470
Accounts receivable, less allowances
(June 2001--$334; Sept. 2000--$512) 3,706 4,430
Income tax refunds receivable 803 --
Total current assets 13,123 17,136
Property and equipment:
Furniture, fixtures and equipment 6,737 6,058
Accumulated depreciation (3,776) (3,215)
Net property and equipment 2,961 2,843
Goodwill, net 893 --
Total assets $16,977 $19,979
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable $ -- $ 1,272
Accrued compensation and payroll taxes 2,694 3,769
Other current liabilities 621 795
Total current liabilities 3,315 5,836
Shareholders' equity:
Common stock, no-par value; authorized --
20,000 shares; issued and outstanding --
5,087 shares 51 51
Capital in excess of stated value of shares 4,569 4,569
Retained earnings 9,042 9,523
Total shareholders' equity 13,662 14,143
Total liabilities and shareholders' equity $16,977 $19,979
See notes to consolidated financial statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Nine Months
Ended June 30 Ended June 30
(In Thousands, Except Per Share) 2001 2000 2001 2000
Net revenues:
Placement services $ 3,482 $ 6,088 $13,856 $17,397
Contract services 3,939 3,820 10,726 12,422
Net revenues 7,421 9,908 24,582 29,819
Operating expenses:
Cost of contract services 2,568 2,480 6,964 8,145
Selling 2,224 3,533 8,648 10,371
General and administrative 3,340 2,828 10,173 8,551
Total operating expenses 8,132 8,841 25,785 27,067
Income (loss) from operations (711) 1,067 (1,203) 2,752
Interest income 99 171 442 460
Income (loss) before
income taxes (612) 1,238 (761) 3,212
Provision (credit) for
income taxes (235) 495 (280) 1,290
Net income (loss) $ (377) $ 743 $ (481) $ 1,922
Net income (loss) per share:
Basic $ (.07) $ .15 $ (.09) $ .38
Diluted $ (.07) $ .15 $ (.09) $ .38
Average number of shares:
Basic 5,087 5,087 5,087 5,087
Diluted 5,087 5,116 5,087 5,118
See notes to consolidated financial statements.
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months
Ended June 30
(In Thousands) 2001 2000
Operating activities:
Net income (loss) $ (481) $ 1,922
Depreciation and other noncurrent items 627 510
Reduction of long-term obligations -- (400)
Changes in current assets and current
liabilities, net of effects from acquisition:
Accounts receivable 1,314 (621)
Income tax refunds receivable (803) --
Accrued compensation and payroll taxes (1,097) 577
Other current liabilities (180) (227)
Net cash provided (used) by operating activities (620) 1,761
Investing activities:
Acquisition of property and equipment (691) (1,040)
Acquisition of Generation Technologies, Inc. (1,523) --
Purchases of short-term investments -- (1,461)
Maturities of short-term investments 4,000 3,800
Net cash provided by investing activities 1,786 1,299
Financing activities:
Cash dividend paid (1,272) (254)
Increase (decrease) in cash and cash equivalents (106) 2,806
Cash and cash equivalents at beginning of period 7,236 5,025
Cash and cash equivalents at end of period $ 7,130 $ 7,831
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Interim Financial Statements
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. This financial information should be read in
conjunction with the financial statements included in the
Company's annual report on Form 10-K for the year ended September
30, 2000.
Accounting Policies
Goodwill is being amortized over a period of 40 years.
In June 2001 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations," and Statement of Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," effective for fiscal
years beginning after December 15, 2001. Under the new rules,
goodwill will no longer be amortized but will be subject to
annual impairment tests.
The Company has not determined whether it will adopt these rules
beginning in fiscal 2002 or 2003. The non-amortization provision
of Statement 142 is not expected to have a material effect on net
income. The Company has not determined what effect, if any, that
the impairment tests might have on future earnings and financial
position of the Company.
Cash and Short-Term Investments
The balance of cash and cash equivalents as of June 30, 2000 on
the consolidated statement of cash flows has been adjusted to
include $3,876,000 of securities previously classified as short-
term investments.
Acquisition
On April 10, 2001, the Company completed a transaction to
purchase substantially all of the assets and business operations
of Generation Technologies, Inc. (GenTech) in accordance with an
Asset Purchase Agreement. GenTech operates a staffing business
in Pittsburgh, Pennsylvania, specializing in the placement of
information technology professionals, and the Company intends to
operate the business in substantially the same manner in the
future. The assets acquired include the business operations,
company name, customer lists, interests in office space and
equipment, accounts receivable and goodwill.
The purchase price was established as an initial cash payment to
the seller and three annual cash payments to be equal to a
multiple of the respective year's annual earnings, as defined.
The initial cash payment on April 10, 2001 was paid out of the
Company's existing cash resources, and the Company expects that
similar cash resources will be available to fund the future cash
payments. The initial cost of the acquisition was $1,523,000, of
which $624,000 was allocated to the net assets acquired and
$899,000 represented the excess of the cost over net assets
acquired ("goodwill"). Future payments under the purchase
agreement will be recorded as additional goodwill when the
amounts are determined.
This transaction was accounted for as a purchase, and the results
of GenTech's operations are reflected in the Company's financial
statements for periods subsequent to the date of acquisition.
The pro forma results of operations presented below assume that
the acquisition had occurred at the beginning of fiscal 2000:
Nine Months
Ended June 30
(In Thousands, Except per Share) 2001 2000
Net revenues $26,441 $31,466
Net income (loss) (371) 2,012
Net income (loss) per share - diluted (.07) .39
This information is presented for informational purposes only.
It is not necessarily indicative of the results that would have
been achieved had the acquisition taken place at the beginning of
fiscal 2000 or of future results of operations.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company provides placement and contract staffing services for
business and industry, specializing in the placement of
professional information technology, engineering and accounting
professionals. As of June 30, 2001, the Company operated 41
offices located in major metropolitan business centers in 13
states.
A summary of operating data, expressed as a percentage of
consolidated net revenues, is presented below.
Three Months Nine Months
Ended June 30 Ended June 30
2001 2000 2001 2000
Net revenues:
Placement services 46.9% 61.4% 56.4% 58.3%
Contract services 53.1% 38.6% 43.6% 41.7%
Net revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of contract services 34.6% 25.0% 28.3% 27.3%
Selling 30.0% 35.7% 35.2% 34.8%
General and administrative 45.0% 28.5% 41.4% 28.7%
Total operating expenses 109.6% 89.2% 104.9% 90.8%
Income (loss) from operations (9.6)% 10.8% (4.9)% 9.2%
Third Quarter Results of Operations
Net Revenues
For the three months ended June 30, 2001, consolidated net
revenues were down $2,487,000 (25%) from the same period last
year. This was due to the combination of a $2,606,000 (43%)
decrease in placement service revenues and a $119,000 (3%)
increase in contract service revenues. Placement services
represented 46.9% of consolidated net revenues for the period,
and contract services represented 53.1% of the total.
Placement service revenues were down for the quarter because of a
39% decline in the number of placements, together with a 4%
decrease in the average placement fee. The increase in contract
service revenues was the result of a 6% increase in the average
hourly billing rate, while billable hours declined slightly.
The Company attributes the decline in revenues to the effects of
the slowdown in the U.S. economy that has caused customers to
delay or reduce their hiring and contract staffing activities,
particularly those customers operating in the computer and
information technology field. As an indication of the national
slowdown, the U.S. Gross Domestic Product grew at a 0.7% annual
rate during the quarter ended June 30, 2001, compared with 5.6%
for the quarter ended June 30, 2000.
Operating Expenses
Total operating expenses for the quarter were down $709,000 (8%)
compared with the same quarter last year.
The cost of contract services was up $88,000 (4%), as a result of
the higher contract service revenues. The gross profit margin on
contract services was 34.8% this quarter, compared with 35.1% the
prior year.
Selling expenses decreased $1,309,000 (37%) this quarter, and
they represented 30.0% of consolidated net revenues, which was
down 5.7 points from the prior year. Commission expense was down
43% due to the lower placement service revenues and lower average
commission rates, while recruitment advertising expense was 17%
lower than last year.
General and administrative expenses increased $512,000 (18%) for
the quarter, and they represented 45.0% of consolidated net
revenues. This was up 16.5 points from the same quarter last
year. Compensation in the operating divisions increased 41% for
the quarter, as lower consultant productivity and lower
commissions led to higher amounts of base pay. Office rent and
occupancy costs were up 19% for the quarter, while all other
general and administrative expenses were down 1%. Areas where
the Company reduced costs include administrative compensation and
office operating costs.
Other Items
The effect of lower revenues combined with higher general and
administrative expenses resulted in a loss from operations of
$711,000 for the quarter, which was a decrease of $1,778,000
compared with income from operations of $1,067,000 for the same
quarter last year.
Interest income was down $72,000 (42%) in the quarter, due to a
combination of lower average funds available for investment and
lower average interest rates.
The effective income tax rate was 38% this quarter, down slightly
from the 40% rate the prior year.
After interest and taxes, the net loss for the quarter was
$377,000, which was a decrease of $1,120,000, compared with net
income of $743,000 last year.
Nine Months Results of Operations
Net Revenues
For the nine months ended June 30, 2001, consolidated net
revenues were adversely affected by the same U.S. economic
conditions that affected the third quarter, and they were down
$5,237,000 (18%) from the same period last year. This was due to
the combination of a $3,541,000 (20%) decrease in placement
service revenues and a $1,696,000 (14%) decrease in contract
service revenues. Placement services represented 56.4% of
consolidated net revenues for the period, and contract services
represented 43.6% of the total.
Placement service revenues were down for the period because of a
25% decline in the number of placements, partially offset by a 4%
increase in the average placement fee. The decrease in contract
service revenues was the result of a 14% decline in billable
hours.
Operating Expenses
Total operating expenses for the year to date were down
$1,282,000 (5%) compared with the same period last year.
The cost of contract services was down $1,181,000 (15%), as a
result of the lower contract service revenues and an improvement
in the profit margin. The gross profit margin on contract
services was 35.1% for the year to date, compared with 34.4% the
prior year.
Selling expenses decreased $1,723,000 (17%) for the nine-month
period, and they represented 35.2% of consolidated net revenues,
which was slightly higher than the prior year. Commission
expense was down 22% due to the lower placement service revenues
and lower average commission rates, while recruitment advertising
expense was up 10% due to higher spending on the Internet.
General and administrative expenses increased $1,622,000 (19%)
for the year to date, and they represented 41.4% of consolidated
net revenues. This was up 12.7 points from the same period last
year. Compensation in the operating divisions increased 33% for
the year to date, due to an increase in the average number of
employment consultants, together with the effect of lower
consultant productivity and lower commissions that led to higher
amounts of base pay. Office rent and occupancy costs were up
16%, and bad debt expense doubled. All other general and
administrative expenses were down 1%.
Other Items
The effect of lower revenues combined with higher general and
administrative expenses resulted in a loss from operations of
$1,203,000 for the year to date, which was a decrease of
$3,955,000 compared with income from operations of $2,752,000 for
the same period last year.
Interest income decreased $18,000 (4%) in the period, primarily
due to lower average funds available for investment.
The effective income tax rate of 37% for the year to date was
less than the 40% rate last year because certain non-deductible
items affect the rate differently in a loss period than in a
profitable period.
After interest and taxes, the net loss for the nine months was
$481,000, which was a decrease of $2,403,000 compared with net
income of $1,922,000 last year.
Financial Condition
As of June 30, 2001, the Company had cash and short-term
investments of $8,614,000. This was a decrease of $4,092,000
from September 30, 2000. Net working capital at June 30, 2001
was $9,808,000, which was a decrease of $1,492,000 compared with
last September, and the current ratio was 4.0 to 1.
During the nine months ended June 30, 2001, net cash used by
operating activities was $620,000. The cost to acquire GenTech
in April 2001 was $1,523,000, and the Company spent $691,000 for
the acquisition of property and equipment. A cash dividend on
common stock of $1,272,000 ($.25 per share) was paid in January
2001.
All of the Company's office facilities are leased, and
information about future minimum lease payments is presented in
the notes to the consolidated financial statements contained in
the Company's annual report on Form 10-K for the year ended
September 30, 2000.
As of June 30, 2001, the Company had no debt outstanding, and it
had a $1,000,000 unused line of credit available. Shareholders'
equity at that date was $13,662,000, which represented 80% of
total assets.
It is not known how long the slowdown in the U.S. economy will
last or how long it will continue to have an adverse effect on
the Company's operations. The Company's short-term priority is
to minimize the impact of the economy and to be positioned for
growth when it recovers. Management believes that existing cash
and short-term investments will be adequate to meet the Company's
anticipated needs.
Forward-Looking Statements
As a matter of policy, the Company does not provide forecasts of
future financial performance. However, the Company and its
representatives may from time to time make written or verbal
forward-looking statements, including statements contained in
press announcements, reports to shareholders and filings with the
Securities and Exchange Commission. All statements which address
expectations about future operating performance and cash flows,
future events and business developments, and future economic
conditions are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. This
includes statements relating to business expansion plans,
expectations about revenue and earnings growth, and general
statements of optimism about the future. These statements are
based on management's then-current expectations and assumptions.
Actual outcomes could differ significantly. The Company and its
representatives do not assume any obligation to provide updated
information.
Some of the factors that could affect the Company's future
performance include, but are not limited to, general business
conditions, the demand for the Company's services, competitive
market pressures, the ability of the Company to attract and
retain qualified personnel for regular full-time placement and
contract project assignments, and the ability to attract and
retain qualified corporate and branch management.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
The following exhibit is filed as part of this report:
No. Description
2.01 Asset Purchase Agreement Among Triad Personnel Services,
Inc., Generation Technologies, Inc., and Michael P. Verona
dated April 10, 2001. Incorporated by reference to Exhibit
2.01 to the Registrant's Form 8-K Current Report dated April
10, 2001. Commission File No. 1-05707.
Reports on Form 8-K
The Registrant filed the following 8-K Current Reports during the
quarter ended June 30, 2001:
The Company reported that it acquired the assets and business
operations of Generation Technologies, Inc. on April 10, 2001.
The Company reported the death of Herbert F. Imhoff, the
Company's Chairman of the Board and Chief Executive Officer, on
June 6, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Registrant)
Date: August 9, 2001 By: /s/ Kent M. Yauch
Kent M. Yauch
Vice President,
Chief Financial Officer and Treasurer