UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 2002
[ ] 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, IL 60181
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 954-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Names of each exchange on which registered
Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of October 31,
2002 was $1,649,000. At that date, there were 5,120,776 shares
of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the General Employment Enterprises, Inc. Proxy
Statement for the annual meeting of shareholders to be held on
February 24, 2003 are incorporated by reference into Part III of
this Form 10-K.
1
PART I
Item 1. Business
General
General Employment Enterprises, Inc. (the "Company") was
incorporated in the State of Illinois in 1962 and is the
successor to employment offices doing business since 1893. In
1987 the Company established Triad Personnel Services, Inc., a
wholly-owned subsidiary, incorporated in the State of Illinois.
The principal executive office of the Company is located at One
Tower Lane, Suite 2100, Oakbrook Terrace, Illinois.
Services Provided
The Company operates in one industry segment, providing
professional staffing services. The Company offers its customers
both placement and contract staffing services, specializing in
the placement of information technology, engineering and
accounting professionals.
The Company's placement services include placing candidates into
regular, full-time jobs with client-employers. The Company's
contract services include placing its professional employees on
temporary assignments, under contracts with client companies.
Contract workers are employees of the Company, typically working
at the client location and at the direction of client personnel
for periods of three months to one year. Management believes
that the combination of these two services provides a strong
marketing opportunity, because it offers customers a variety of
staffing alternatives that includes direct hire, temporary
staffing and a contract-to-hire approach to hiring.
The amount of revenues derived from these services for each of
the last three fiscal years is presented in the Company's
consolidated statement of income. In fiscal 2002, the Company
derived 32% of its revenues from placement services and 68% from
contract services.
Marketing
The Company markets its services using the trade names General
Employment Enterprises, Omni One, Business Management Personnel,
Triad Personnel Services and Generation Technologies. As of
September 30, 2002, it operated 32 branch offices located in
downtown or suburban areas of major U.S. cities in 12 states.
Twenty-seven of the offices were full-service branches, providing
both placement and contract services, and 5 of the offices
specialized in contract services only. The offices were
concentrated in California (6), Illinois (7), and Massachusetts
(3), with two offices each in Arizona, Florida, Georgia, Indiana,
Ohio, Pennsylvania, and Texas, and one office each in North
Carolina, and Tennessee.
The Company markets its services to prospective clients primarily
through telephone marketing by its employment consultants and
through mailing of employment bulletins listing candidates
available for placement and contract employees available for
assignment.
The Company has a diverse customer base, and no single customer
accounts for more than 4% of its revenues.
2
Recruiting
The success of the Company is highly dependent on its ability to
obtain qualified candidates. Prospective employment candidates
are recruited through telephone contact by the Company's
employment consultants, through classified newspaper advertising
and through postings on the internet. For this purpose, the
Company maintains its own internet web page at
www.generalemployment.com and uses other internet job posting
bulletin board services. The Company uses a computer program to
track applicants' skills and match them with job openings. The
Company screens and interviews all applicants who are presented
to its clients.
Billing Practices
When applicants accept employment, the Company charges its
clients a placement fee that is based on a percentage of the
applicant's projected annual salary, and the Company provides its
clients with a guarantee under which the fee is refundable if the
applicant does not remain employed during a guarantee period.
Fees for contract services are billed on an hourly basis each
week. The Company expects payment by its customers upon receipt
of its invoices. Typical of the staffing industry, working
capital is required to finance the wages of contract workers
before the related customer accounts are collected.
Competition
The staffing industry is highly competitive. There are
relatively few barriers to entry by firms offering placement
services, while significant amounts of working capital typically
are required for firms offering contract services. The Company's
competitors include a large number of sole-proprietorship
operations, as well as regional and national organizations. Many
of them are large corporations with substantially greater
resources than the Company.
Because the Company focuses its attention on professional
staffing positions, particularly in the highly specialized
information technology field, it competes by providing services
that are dedicated to quality. This is done by providing highly
qualified candidates who are well matched for the position, by
responding quickly to client requests, and by establishing
offices in convenient locations. As an added service, the
Company provides reference checking and scrutiny of candidates'
work experience and optional background checks. Pricing is
considered to be secondary to quality of service as a competitive
factor.
Geographic diversity helps the Company to balance local or
regional business cycles. Multiple offices in the Atlanta,
Boston, Chicago, Columbus, Indianapolis, Los Angeles, Phoenix and
San Francisco markets help to provide better client services
through convenient office locations and the sharing of
assignments.
Regulation
Employment agency service companies are regulated by two of the
states in which the Company operates. Licenses are issued on a
year-to-year basis. As of September 30, 2002, the Company held
current licenses for all of the offices that were required to
have them.
Employees
As of September 30, 2002, the Company had approximately 180
regular employees and 130 contract service employees.
3
Item 2. Properties
The Company's policy is to lease commercial office space for all
of its offices. The Company's headquarters are located in a
modern 31-story building near Chicago, Illinois. The Company
leases 12,900 square feet of space at this location, under a
lease that will expire in January 2006.
The Company's staffing offices are located in downtown
metropolitan and suburban business centers in 12 states.
Generally, the Company enters into six-month leases for new
locations, using shared office facilities whenever possible.
Established offices are operated from leased space ranging from
1,100 to 4,900 square feet, generally for periods of two to five
years, with cancellation clauses after certain periods of
occupancy. Management believes that existing facilities are
adequate for the Company's current needs and that its leasing
strategies provide the Company with sufficient flexibility to
open or close offices to accommodate business needs.
Item 3. Legal Proceedings
As of September 30, 2002, there were no material legal
proceedings pending against the Company.
Item 4. Results of Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of the 2002 fiscal year.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Information regarding this item is contained in "Item 8.
Financial Statements and Supplementary Data."
Securities authorized for issuance under equity compensation plans were as
follows as of September 30, 2002 (number of shares in thousands):
Number of securi-
ties remaining
available for
Number of future issuance
securities to under equity
be issued upon Weighted-average compensation
exercise of exercise price plans(excluding
outstanding of outstanding securities
options, warrants options, warrants reflected in
Plan category and rights and rights first column)
Equity compensation
plans approved by
security holders 574 $1.29 305
Equity compensation
plans not approved
by security holders -- -- --
Total 574 $1.29 305
4
Item 6. Selected Financial Data
Year Ended September 30
(In Thousands, Except Per Share) 2002 2001 2000 1999 1998
Operating results:
Net revenues $20,318 $31,035 $39,802 $39,553 $36,734
Income (loss) from operations (4,652) (2,217) 3,577 4,569 4,710
Net income (loss) (3,214) (1,066) 2,532 3,025 3,090
Per share data:
Net income (loss) - basic $ (.63) $ (.21) $ .50 $ .59 $ .61
Net income (loss) - diluted (.63) (.21) .49 .59 .58
Cash dividends declared -- -- .30 .04 .04
Balance sheet data:
Net working capital $ 7,038 $ 9,444 $11,300 $11,391 $ 9,261
Long-term obligations -- -- -- 484 460
Shareholders' equity 9,989 13,077 14,143 13,137 10,335
Total assets 11,933 15,679 19,979 18,085 15,632
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company provides placement and contract staffing services for
business and industry, specializing in the placement of
professional information technology, engineering and accounting
professionals. As of September 30, 2002, the Company operated 32
offices located in major metropolitan business centers in 12
states.
Critical Accounting Policies
The following accounting policies are considered by management to
be "critical" because of the judgments and uncertainties
affecting the application of these policies and because of the
likelihood that materially different amounts would be reported
under different conditions or using different assumptions.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax
rates and laws that are expected to be in effect when the
differences reverse. A valuation allowance is recorded to reduce
deferred tax assets to the amount that is more likely than not to
be realized as a tax benefit in the future.
Accounts Receivable Allowances
An allowance for placement falloffs is recorded, as a reduction
of revenues, for estimated losses due to applicants not remaining
employed for the Company's guarantee period. An allowance for
doubtful accounts is recorded, as a charge to bad debt expense,
where collection is considered to be doubtful due to credit
issues. These allowances reflect management's estimate of
potential losses inherent in the accounts receivable balances,
based on historical loss statistics.
5
Goodwill
Goodwill is being amortized on a straight-line basis over forty
years. The carrying amount of goodwill is reviewed whenever
events or changes in circumstances indicate that it may not be
recoverable. The carrying value would be written down if it were
determined to exceed the estimated future undiscounted cash flows
of the acquired business.
The Company will adopt the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" as of October 1, 2002. This statement requires that
goodwill no longer be amortized, and it requires instead that
goodwill be tested at least annually for impairment. If the
carrying value of goodwill were determined to be greater than its
estimated fair value under the impairment test, then it would be
written down to its estimated fair value.
The discontinuance of goodwill amortization is not expected to
have a significant effect on the Company's future results of
operations. The Company has completed a transitional impairment
test, as required by Statement No. 142, and has determined that
there was no impairment of goodwill as of October 1, 2002.
Results of Operations
A summary of operating data, expressed as a percentage of
consolidated net revenues, is presented below. Percentages may
not add due to rounding.
Year Ended September 30
2002 2001 2000
Net revenues:
Placement services 32.4% 52.3% 59.6%
Contract services 67.6 47.7 40.4
Net revenues 100.0 100.0 100.0
Operating expenses:
Cost of contract services 44.7 31.1 26.4
Selling 22.6 32.0 35.3
General and administrative 55.6 44.0 29.3
Total operating expenses 122.9 107.1 91.0
Income (loss) from operations (22.9)% (7.1)% 9.0%
Fiscal 2002 Results of Operations
Net Revenues
Consolidated net revenues for the year ended September 30,2002
were down $10,717,000 (35%) from the prior year. This was due to
the combination of a $9,626,000 (59%) decrease in placement
service revenues and a $1,091,000 (7%) decrease in contract
service revenues. Placement services represented 32% of
consolidated net revenues for the year, and contract services
represented 68% of the total.
6
Placement service revenues were down for the year because of a
53% decline in the number of placements, together with a 13%
decrease in the average placement fee. The decrease in contract
service revenues was the result of a 9% decrease in billable
hours, partially offset by a 2% increase in the average hourly
billing rate. In April 2001, the Company acquired the assets and
business operations of Generation Technologies, Inc. ("GenTech"),
a staffing business in Pittsburgh, Pennsylvania specializing in
information technology professionals. The Company's results of
operations include GenTech for a full year in fiscal 2002 and for
six months in fiscal 2001. Excluding GenTech from both years,
the Company's contract service revenues decreased $2,334,000
(17%).
The Company attributes the decline in revenues to the weak demand
for employment placement services, particularly in the
information technology sector. The lingering effects of the U.S.
economic recession in 2001 and the terrorist attacks on the
United States on September 11, 2001 resulted in economic and
political uncertainties that had an adverse effect on the
Company's business throughout fiscal 2002, and hiring activity
was considerably lower than during the prior year. The national
unemployment rate was 5.6% in September 2002, compared with 4.9%
in September 2001.
Operating Expenses
Total operating expenses for fiscal 2002 were down $8,282,000
(25%) compared with the prior year.
The cost of contract services was down $577,000 (6%), as a result
of the lower contract service revenues. Due to competitive
market conditions, the gross profit margin on contract services
declined 1.0 point to 33.8% for fiscal 2002, compared with 34.8%
the prior year.
Selling expenses decreased $5,334,000 (54%) for the year.
Commission expense was down 61% due to the lower placement
service revenues and lower commissionable profits, while
recruitment advertising expense was 36% lower than the prior
year. Selling expenses represented 22.6% of consolidated net
revenues, which was down 9.4 points from the prior year because
of the shift in mix of revenues toward contract services.
General and administrative expenses decreased $2,371,000 (17%)
for the year. Compensation in the operating divisions decreased
23% due to a reduction in the size of the consulting staff.
Office rent and occupancy costs were down 8% for the year, due to
the effect of office closings during the current and prior year,
despite recording a $401,000 provision to cover the costs of
offices closed this year. Other office operating costs declined
36% due to fewer offices, and bad debt expense was 63% lower due
to the lower volume of business and improved collection
experience this year. All other general and administrative
expenses were up 3%. General and administrative expenses
represented 55.6% of consolidated revenues, and that was up 11.6
points from the prior year because revenues declined more sharply
than expenses.
To control operating costs, the Company closed five unprofitable
branch offices during fiscal 2002. As a result of these and
other actions, the Company reduced its in-house consulting and
administrative staff by 33% from the prior-year level.
Other Items
The effect of lower revenues resulted in a loss from operations
of $4,652,000 for the year, compared with a loss from operations
of $2,217,000 for the prior year.
7
Interest income was down $423,000 (80%) for fiscal 2002, due to a
combination of lower average funds available for investment and
lower average interest rates.
The effective income tax rate was 29% for the year, compared with
37% for the prior year. The lower effective tax rate in fiscal
2002 resulted from recording a $386,000 valuation allowance to
reduce net deferred tax assets to zero. This valuation allowance
will be reversed in future periods, as a reduction of the
provision for income taxes, if it is determined that the deferred
tax assets will be realized, based on future taxable income.
After interest and taxes, the net loss for the year was
$3,214,000, compared with a net loss of $1,066,000 the prior
year.
Fiscal 2001 Results of Operations
Net Revenues
For the year ended September 30, 2001, consolidated net revenues
were down $8,767,000 (22%) from the prior year. This was due to
the combination of a $7,503,000 (32%) decrease in placement
service revenues and a $1,264,000 (8%) decrease in contract
service revenues. Placement services represented 52% of
consolidated net revenues for the year, and contract services
represented 48% of the total.
Placement service revenues were down for the year because of a
35% decline in the number of placements, partially offset by a 1%
increase in the average placement fee. The decrease in contract
service revenues was the result of an 11% decrease in billable
hours, while the average hourly billing rate increased 4%. The
acquisition of GenTech added $1,335,000 to consolidated contract
service revenues for the 2001 fiscal year.
The Company attributes the overall decline in revenues to the
effects of the U.S. economic recession that caused customers to
delay or reduce their hiring and contract staffing activities,
particularly those customers operating in the computer and
information technology field. As an indication of the national
slowdown, the U.S. Gross Domestic Product declined at an average
rate of 0.4% during the year ended September 30, 2001, compared
with an average growth rate of 3.8% for the year ended September
30, 2000, and the national unemployment rate was 4.9% in
September 2001, compared with 3.9% in September 2000.
Operating Expenses
Total operating expenses for fiscal 2001 were down $2,973,000
(8%) compared with the prior year.
The cost of contract services was down $861,000 (8%), as a result
of the lower contract service revenues. The gross profit margin
on contract services was 34.8% in fiscal 2001, compared with
34.6% the prior year.
Selling expenses decreased $4,127,000 (29%) in fiscal 2001, and
they represented 32.0% of consolidated net revenues, which was
down 3.3 points from the prior year. Commission expense was down
36% due to the lower placement service revenues and lower
commissionable profits, while recruitment advertising expense was
4% lower than the prior year.
General and administrative expenses increased $2,015,000 (17%)
for the year, and they represented 44.0% of consolidated net
revenues. This was up 14.7 points from the prior year.
Compensation in the operating divisions increased
8
29% for the year, as lower consultant productivity and lower
commissions led to higher amounts of base pay. Office rent and
occupancy costs were up 21% for the year, including a $283,000
provision for the cost of closing unprofitable branch offices.
Reflecting the weak economy, the Company's bad debt expense
doubled, while all other general and administrative expenses were
down 6%.
To control operating costs, the Company closed seven unprofitable
branch offices during fiscal 2001, including four that were
closed at the end of the fiscal year, and reduced its in-house
staff by 18% from the prior-year level.
Other Items
The effect of lower revenues combined with higher general and
administrative expenses resulted in a loss from operations of
$2,217,000 for the year, compared with income from operations of
$3,577,000 for the prior year.
Interest income was down $114,000 (18%) in fiscal 2001, due to a
lower average amount of funds available for investment.
The effective income tax rate was 37% for the year, compared with
40% for the prior year.
After interest and taxes, the net loss for the year was
$1,066,000, compared with net income of $2,532,000 the prior
year.
Financial Condition
Although fiscal 2002 was a difficult year, the Company's
financial condition remained strong. As of September 30, 2002,
the Company had cash and cash equivalents of $4,759,000. That
was a decrease of $3,029,000 from September 30, 2001. Net
working capital at September 30, 2002 was $7,038,000, which was a
decrease of $2,406,000 compared with last September, and the
current ratio was 4.6 to 1.
During the fiscal year ended September 30, 2002, the net cash
used by operating activities was $2,845,000, which was primarily
due to the $3,214,000 net loss. Depreciation and other non-cash
expenses provided $992,000, while working capital items used
$623,000. The Company paid $207,000 for an earn out payment under
the agreement to purchase GenTech. As part of the Company's cash
conservation measures, capital expenditures were limited to
$17,000 for the year, and there were no cash dividends paid.
All of the Company's office facilities are leased through
operating leases that are not included on the balance sheet. As
of September 30, 2002 future minimum lease payments under lease
agreements having initial terms in excess of one year, including
the closed offices, were: 2003 - $1,759,000, 2004 - $1,396,000,
2005 - $1,251,000 and 2006 - $370,000.
As of September 30, 2002, the Company had no debt outstanding,
and there were no off-balance sheet arrangements, unconsolidated
subsidiaries, commitments or guarantees of other parties, except
as disclosed in the notes to the consolidated financial
statements. Shareholders' equity at that date was $9,989,000,
which represented 84% of total assets.
Outlook
The Company's business is highly dependent on national employment
trends in general and on the demand for information technology
and other professional staff in particular. The demand for the
Company's employment services was
9
adversely affected during fiscal 2001 by the U.S. economic
recession and during fiscal 2002 by the lingering weakness in the
employment market caused by economic and political uncertainties
that followed the September 2001 terrorist attacks.
It is not known how long the weakness in the U. S. labor market
will continue to have an adverse effect on the Company's
operations. Management believes that the Company's placement
service revenues will continue at depressed levels until there is
an increase in national business spending on computer equipment
and software, leading to a rebound in the technology sector of
the economy.
The Company's current priority is to minimize the impact of the
economy, to return the Company to profitability as soon as
possible, and to be positioned for growth when the demand for its
services returns. Returning the Company to profitability will
require a combination of both increasing revenues and reducing
costs. Management took steps over the last two fiscal years to
lower the Company's infrastructure costs, including closing 12
unprofitable branch offices, reducing the in-house consulting and
administrative staff by 45% and reducing other operating
expenses. As a result, general and administrative expenses for
fiscal 2002 were below the fiscal 2000 level. The consolidated
statement of operations for the year ended September 30, 2002
reflects $388,000 of operating losses of closed branch offices,
which will not be incurred in future periods. Management
believes that it took all appropriate actions within its control
to reduce costs in fiscal 2002, consistent with positioning the
Company for the future, and it will continue to evaluate the
Company's operations and take appropriate actions to meet the
economic challenges ahead in fiscal 2003.
The Company recorded $1,540,000 of income tax refunds receivable
as of September 30, 2002, and it expects to receive those refunds
during fiscal 2003. As of September 30, 2002, the Company had
recorded the tax benefit of all available loss carrybacks, and
there were approximately $1,180,000 of losses available to reduce
state and local taxable income in future years, expiring from
2006 through 2022. Under current income tax regulations, any
losses that might be incurred by the Company in fiscal 2003 would
not result in current tax refunds, but would be carried forward
to reduce taxable income in subsequent years.
The Company's primary source of liquidity is normally from its
operating activities. Despite recent losses, management believes
that existing cash and securities, together with the available
income tax refunds, will be adequate to finance current
operations for the foreseeable future. Nevertheless, if
operating losses were to continue indefinitely into the future,
or if the Company's business were to deteriorate further, such
losses would have a material, adverse effect on the Company's
financial condition. External sources of funding are not likely
to be available to support continuing losses.
Risk Factors
Some of the factors that could affect the Company's future
performance include, but are not limited to, general business
conditions, the demand for the Company's services, competitive
market pressures, the ability of the Company to attract and
retain qualified personnel for regular full-time placement and
contract project assignments, and the ability to attract and
retain qualified corporate and branch management.
10
Forward-Looking Statements
As a matter of policy, the Company does not provide forecasts of
future financial performance. However, the Company and its
representatives may from time to time make written or verbal
forward-looking statements, including statements contained in
press announcements, reports to shareholders and filings with the
Securities and Exchange Commission. All statements which address
expectations about future operating performance and cash flows,
future events and business developments, and future economic
conditions are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These
statements are based on management's then-current expectations
and assumptions. Actual outcomes could differ significantly.
The Company and its representatives do not assume any obligation
to provide updated information.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
The primary objective for the Company's investment portfolio is
to provide maximum protection of principal and high liquidity.
By investing in high-quality securities having relatively short
maturity periods, the Company is not exposed to the risk of
material interest rate fluctuations.
11
Item 8. Financial Statements and Supplementary Data
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
As of September 30
(In Thousands) 2002 2001
ASSETS
Current assets:
Cash and cash equivalents $ 4,759 $ 7,293
Short-term investments -- 495
Accounts receivable, less allowances
(2002 -- $ 312; 2001 -- $243) 2,255 2,685
Income tax refunds receivable 1,540 948
Other current assets 428 625
Total current assets 8,982 12,046
Property and equipment:
Furniture, fixtures and equipment 6,575 6,697
Accumulated depreciation and amortization (4,693) (3,952)
Net property and equipment 1,882 2,745
Goodwill, net of accumulated amortization 1,069 888
Total assets $11,933 $15,679
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 623 $ 551
Accrued compensation and payroll taxes 1,030 1,753
Other current liabilities 291 298
Total current liabilities 1,944 2,602
Shareholders' equity:
Preferred stock; authorized - 100 shares;
issued and outstanding - none -- --
Common stock, no-par value; authorized --
20,000 shares; issued and outstanding --
5,121 shares in 2002 and 5,087 in 2001 51 51
Capital in excess of stated value of shares 4,695 4,569
Retained earnings 5,243 8,457
Total shareholders' equity 9,989 13,077
Total liabilities and shareholders' equity $11,933 $15,679
See notes to consolidated financial statements.
12
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30
(In Thousands, Except Per Share) 2002 2001 2000
Net revenues:
Placement services $ 6,591 $16,217 $23,720
Contract services 13,727 14,818 16,082
Net revenues 20,318 31,035 39,802
Operating expenses:
Cost of contract services 9,082 9,659 10,520
Selling 4,584 9,918 14,045
General and administrative 11,304 13,675 11,660
Total operating expenses 24,970 33,252 36,225
Income (loss) from operations (4,652) (2,217) 3,577
Interest income 108 531 645
Income (loss) before income taxes (4,544) (1,686) 4,222
Provision (credit) for income taxes (1,330) (620) 1,690
Net income (loss) $(3,214) $(1,066) $ 2,532
Net income (loss) per share:
Basic $ (.63) $ (.21) $ .50
Diluted $ (.63) $ (.21) $ .49
Average number of shares:
Basic 5,116 5,087 5,087
Diluted 5,116 5,087 5,117
See notes to consolidated financial statements.
13
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30
(In Thousands) 2002 2001 2000
Operating activities:
Net income (loss) $(3,214) $(1,066) $ 2,532
Depreciation and amortization 854 857 597
Reduction of long-term obligations -- -- (516)
Other noncurrent items 138 22 403
Changes in current assets and current
liabilities, net of effects from
acquisition:
Accounts receivable 430 1,989 (213)
Income tax refunds receivable (592) (948) --
Accrued compensation and payroll taxes (723) (2,038) 163
Other, net 262 (231) (257)
Net cash provided (used) by
operating activities (2,845) (1,415) 2,709
Investing activities:
Acquisition of property and equipment (17) (733) (1,583)
Acquisition of Generation Technologies, Inc. (207) (1,523) --
Purchases of short-term investments -- -- (3,461)
Maturities of short-term investments 500 5,000 4,800
Net cash provided (used) by
investing activities 276 2,744 (244)
Financing activities:
Exercises of stock options 35 -- --
Cash dividends paid -- (1,272) (254)
Net cash provided (used) by
financing activities 35 (1,272) (254)
Increase (decrease) in cash and
cash equivalents (2,534) 57 2,211
Cash and cash equivalents at beginning
of year 7,293 7,236 5,025
Cash and cash equivalents at end of year $ 4,759 $ 7,293 $ 7,236
See notes to consolidated financial statements.
14
GENERAL EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended September 30
(In Thousands, Except Per Share) 2002 2001 2000
Common shares outstanding:
Number at beginning of year 5,087 5,087 5,087
Exercises of stock options 34 -- --
Number at end of year 5,121 5,087 5,087
Common stock:
Balance at beginning and end of year $ 51 $ 51 $ 51
Capital in excess of stated value:
Balance at beginning of year $ 4,569 $ 4,569 $ 4,569
Stock option awards 91 -- --
Exercises of stock options 35 -- --
Balance at end of year $ 4,695 $ 4,569 $ 4,569
Retained earnings:
Balance at beginning of year $ 8,457 $ 9,523 $ 8,517
Net income (loss) (3,214) (1,066) 2,532
Cash dividends declared on common stock -
$.30 per share in 2000 -- -- (1,526)
Balance at end of year $ 5,243 $ 8,457 $ 9,523
See notes to consolidated financial statements.
15
GENERAL EMPLOYMENT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company
General Employment Enterprises, Inc. (the "Company") and its
wholly-owned subsidiary, Triad Personnel Services, Inc., operate
in one industry segment, providing staffing services through a
network of branch offices located in major metropolitan areas
throughout the United States. The Company specializes in
providing information technology, engineering and accounting
professionals to clients on either a regular placement basis or a
temporary contract basis. The Company has a diverse customer
base, and no single customer accounts for more than 4% of its
revenues.
Significant Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United
States. The more significant accounting policies that are
followed by the Company are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts and
transactions of the Company and its wholly-owned subsidiary. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Estimates and Assumptions
Management makes estimates and assumptions that can affect the
amounts of assets and liabilities reported as of the date of the
financial statements, as well as the amounts of reported revenues
and expenses during the periods presented. These estimates and
assumptions typically involve expectations about events to occur
subsequent to the balance sheet date, and it is possible that
actual results could ultimately differ from those estimates. If
significant differences were to occur in a subsequent period, the
Company would recognize those differences when they became known.
Management believes that its estimates and assumptions are
reasonable, based on information that is available at the time
they are made.
Revenue Recognition
Placement service revenues are recognized when applicants accept
offers of employment, less a provision for estimated losses due
to applicants not remaining employed for the Company's guarantee
period. Contract service revenues are recognized when services
are rendered.
Cost of Contract Services
The cost of contract services includes the wages and the related
payroll taxes and benefits of contract workers.
Income Taxes
Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax
rates and laws that are expected to be in
16
effect when the differences reverse. A valuation allowance is
recorded to reduce deferred tax assets to the amount that is more
likely than not to be realized as a tax benefit in the future.
Net Income Per Share
Basic net income per share is based on the average number of
common shares outstanding. Diluted net income per share is based
on the average number of common shares and the dilutive effect of
stock options.
Cash Equivalents and Short-term Investments
Highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents. The
Company classifies its cash equivalents and short-term
investments individually when purchased as either available-for-
sale or held-to-maturity securities.
Accounts Receivable Allowances
An allowance for placement falloffs is recorded, as a reduction
of revenues, for estimated losses due to applicants not remaining
employed for the Company's guarantee period. An allowance for
doubtful accounts is recorded, as a charge to bad debt expense,
where collection is considered to be doubtful due to credit
issues. These allowances together reflect management's estimate
of the potential losses inherent in the accounts receivable
balances, based on historical loss statistics.
Property and Equipment
Furniture, fixtures and equipment are stated at cost. The
Company provides for depreciation on a straight-line basis over
estimated useful lives of five years for computer equipment and
two to ten years for office equipment, furniture and fixtures.
The Company capitalizes computer software purchased or developed
for internal use, and amortizes it over an estimated useful life
of five years.
The carrying value of property and equipment is reviewed for
impairment whenever events or changes in circumstances indicate
that it may not be recoverable. If the carrying amount of an
asset group is greater than its estimated future undiscounted
cash flows, the carrying value is written down to the estimated
fair value.
As of October 1, 2002, The Company will adopt the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This
statement establishes accounting standards for the recognition
and measurement of the impairment of long-lived assets. The
adoption of this new statement is not expected to have a
significant effect on the Company's financial position or results
of operations.
Goodwill
A business combination completed in April 2001 was recorded as a
purchase transaction, and the excess of the cost over the fair
values of the identifiable net assets acquired was allocated to
goodwill. Goodwill is being amortized on a straight-line basis
over forty years. The carrying amount of goodwill is reviewed
whenever events or changes in circumstances indicate that it may
not be recoverable. The carrying value would be written down if
it were determined to exceed the estimated future undiscounted
cash flows of the acquired business.
17
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations" and Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets." Statement No. 141
requires that business combinations completed after June 30, 2001
be accounted for using the purchase method of accounting and
specifies the types of intangible assets to be recognized in such
transactions. The accounting for the Company's April 2001
business combination was not affected by the adoption of
Statement No. 141.
The Company will adopt the provisions of Statement No. 142 as of
October 1, 2002. This statement requires that goodwill no longer
be amortized, and it requires instead that goodwill be tested at
least annually for impairment. If the carrying value of goodwill
were determined to be greater than its estimated fair value under
the impairment test, then it would be written down to its
estimated fair value.
The discontinuance of goodwill amortization is not expected to
have a significant effect on the Company's future results of
operations. The Company has completed a transitional impairment
test, as required by Statement No. 142, and has determined that
there was no impairment of goodwill as of October 1, 2002.
Stock Options
As of October 1, 2001, the Company adopted the policy of
recording compensation expense for the fair value of stock
options issued to employees, under the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." Compensation expense under this statement
is measured as the estimated fair value of the stock options on
the date of grant, and the expense is amortized over the vesting
periods. Prior years have not been restated to reflect this
method of accounting.
For fiscal years ended on and before September 30, 2001, the
Company did not record compensation expense when stock options
were granted with exercise prices equal to the fair market value
of the Company's common stock on the date of grant, in accordance
with the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees."
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"), a staffing business
in Pittsburgh, Pennsylvania, specializing in information
technology professionals. The assets acquired include the
business operations, company name, customer lists, interests in
office space and equipment, accounts receivable and goodwill.
The purchase price was established as an initial cash payment to
the seller and three annual cash payments to be equal to a
multiple of the respective year's annual earnings, as defined.
The initial cost of the acquisition was $1,523,000, of which
$624,000 was allocated to the net assets acquired and $899,000
was allocated to goodwill. In April 2002, the Company made the
first annual payment in the amount of $207,000 and recorded it as
additional goodwill. Future payments under the purchase
agreement will be recorded as additional goodwill when the
amounts are determined.
Accumulated amortization of goodwill was $36,000 as of September
30, 2002 and $11,000 as of September 30, 2001.
18
The results of GenTech's operations are included in the Company's
financial statements for periods subsequent to the date of
acquisition. The unaudited pro forma results of operations
presented below assume that the acquisition had occurred at the
beginning of fiscal 2000:
(In Thousands, Except per Share) 2001 2000
Net revenues $32,894 $42,232
Net income (loss) (936) 2,658
Net income (loss) per share - diluted (.18) .52
This information is presented for informational purposes only.
It is not necessarily indicative of the results that would have
been achieved had the acquisition taken place at the beginning of
fiscal 2000 or of future results of operations.
Cash, Cash Equivalents and Short-term Investments
The Company's primary objective for its investment portfolio is
to provide maximum protection of principal and high liquidity.
By investing in high-quality securities having relatively short
maturity periods, the Company reduces its exposure to the risks
associated with interest rate fluctuations. Investments in
securities of corporate issuers are rated A2 and P2 or better. A
summary of cash, cash equivalents and short-term investments as
of September 30 is as follows:
(In Thousands) 2002 2001
Cash $1,180 $1,410
Money market funds 408 --
Commercial paper 3,171 5,583
U.S. federal agency notes -- 300
Corporate notes -- 495
Total cash, cash equivalents
and short-term investments $4,759 $7,788
All cash equivalents held as of September 30, 2002 were
classified as available-for-sale securities. Amortized cost
approximated market value for all investments, and unrealized
gains and losses were not significant.
19
Income Taxes
The components of the provision (credit) for income taxes are as follows:
(In Thousands) 2002 2001 2000
Current tax provision (credit):
U.S. federal $(1,382) $(491) $1,168
State and local (58) (101) 296
Total current tax provision (credit) (1,440) (592) 1,464
Deferred tax provision (credit) related to:
Temporary differences (144) 39 226
Loss carryforwards (132) (67) --
Valuation allowance 386 -- --
Total deferred tax provision (credit) 110 (28) 226
Provision (credit) for income taxes $(1,330) $(620) $1,690
The differences between income taxes calculated at the 34%
statutory U.S. federal income tax rate and the Company's
provision (credit) for income taxes are as follows:
(In Thousands) 2002 2001 2000
Income tax (credit) at statutory
federal tax rate $(1,545) $(573) $1,435
Federal valuation allowance 166 -- --
State income taxes, including state
valuation allowance, less federal effect 33 (69) 228
Other 16 22 27
Provision (credit) for income taxes $(1,330) $(620) $1,690
The net deferred income tax asset balance as of September 30
related to the following:
(In Thousands) 2002 2001
Accrued and deferred rent $ 188 $ 87
Accrued compensation 124 119
Depreciation and amortization (196) (193)
Other expenses 71 30
Net operating loss carryforwards 199 67
Valuation allowance (386) --
Net deferred income tax asset $ -- $ 110
The Company received income tax refunds of $950,000 in 2002. The
Company made income tax payments of $57,000 in 2002, $423,000 in
2001 and $1,596,000 in 2000.
20
For federal income tax purposes, and for certain states, the tax
losses incurred in 2002 and 2001 were carried back, and the
Company recorded the benefit of the resulting tax refunds. For
all other state and local income taxes, the 2002 and 2001 losses
were carried forward. As of September 30, 2002, the Company had
recorded the tax benefit of all available loss carrybacks, and
there were approximately $2,400,000 of losses available to reduce
state and local taxable income in future years. They expire from
2006 through 2022.
Property and Equipment
Property and equipment, at cost, comprised the following as of
September 30:
(In Thousands) 2002 2001
Computer equipment and software $3,830 $3,892
Office equipment, furniture and fixtures 2,745 2,805
Total property and equipment, at cost $6,575 $6,697
Office Closings
The Company closed five branch offices during fiscal 2002 and
seven branch offices during fiscal 2001 due to unprofitable
operations, and recorded a provision of $345,000 in 2002 and
$283,000 in 2001 covering the future lease obligations of those
offices. The rent liability, included in other current
liabilities, was as follows as of September 30:
(In Thousands) 2002 2001
Balance at beginning of year $120 $ --
Provision for office closings 345 283
Payments (77) (163)
Balance at end of year $388 $ 120
In addition, due to the office closings, the Company recorded a
$56,000 expense in 2002 for the impairment in value of certain
property and equipment.
The combined operating revenues and the combined operating income
or loss of all offices that were closed as of September 30, 2002,
included in the consolidated statement of operations, were as
follows:
(In Thousands) 2002 2001 2000
Operating revenues $ 390 $ 3,027 $7,275
Operating income (loss) (388) (1,335) 580
Line of Credit
The Company has a loan agreement with a bank, renewable annually,
that makes a $1,000,000 unsecured line of credit available to the
Company at the prime rate. Under the agreement, the Company is
required to maintain a balance of
21
cash and marketable securities of $2,000,000 or more to support
any borrowings. There were no borrowings outstanding under the
line of credit as of September 30, 2002 and 2001.
Lease Obligations
The Company leases space for all of its branch offices, which are
located either in downtown or suburban metropolitan business
centers, and space for its corporate headquarters. Established
branch offices are generally leased over periods from two to five
years, and the corporate headquarters lease expires in 2006.
Certain lease agreements provide for increased rental payments
contingent upon future increases in real estate taxes, building
maintenance costs and the cost of living index.
Rent expense was $1,848,000 in 2002, $1,997,000 in 2001 and
$1,783,000 in 2000. As of September 30, 2002, future minimum
lease payments under lease agreements having initial terms in
excess of one year, including the closed offices, were: 2003 -
$1,759,000, 2004 - $1,396,000, 2005 - $1,251,000, and 2006 -
$370,000.
Retirement Benefits
The Company has a 401(k) retirement plan in which all full-time
employees may participate after one year of service. Under the
plan, eligible participants may contribute a portion of their
earnings to a trust, and the Company makes matching
contributions, subject to certain limitations. As of January 1,
2002, the Company adopted a deferred compensation plan for
certain officers. Under the plan, the Company contributes either
5% or 10% of the participant's base salary to a trust under a
defined contribution arrangement. The participants direct the
investments of the trust, and the Company does not guarantee
investment performance. Participant account balances are payable
upon retirement or termination from the Company, subject to
certain vesting requirements. During the year ended September
30, 2000, the Company fulfilled its obligation under an agreement
to provide retirement benefits to an officer by paying out a lump
sum of $400,000. The total cost of all retirement plans was
$108,000 in 2002, $101,000 in 2001 and $123,000 in 2000.
Stock Options
The Company has stock option plans for directors, officers and
employees. As of September 30, 2002, there were stock options
outstanding under the Company's 1999 Stock Option Plan, 1997
Stock Option Plan and 1995 Stock Option Plan. Under these plans,
incentive or non-statutory stock options may be granted to
officers and employees, and they may be exercisable for up to ten
years. Outside directors were automatically granted non-
statutory options to purchase specified numbers of shares on the
effective dates of the plans. The Compensation and Stock Option
Committee of the Board of Directors, which has the authority to
select the employees and to determine the terms of each option
granted, administers the plans.
In September 2002, the Company completed a tender offer to
exchange outstanding stock options having an exercise price of
$3.00 per share or more for new options having an exercise price
equal to the fair market value on the date of grant. Options to
purchase 581,000 shares of the Company's common stock were
tendered and accepted by the Company for cancellation, and
options to purchase 432,000 shares were issued.
22
A summary of stock option activity is as follows:
(Number of Shares in Thousands) 2002 2001 2000
Number of shares outstanding:
Beginning of year 877 719 721
Granted 485 215 32
Exercised (34) -- --
Terminated (754) (57) (34)
End of year 574 877 719
Number of shares exercisable
at end of year 312 776 651
Number of shares available for grant
at end of year 305 36 194
Weighted average option prices
per share:
Granted during the year $ .91 $3.03 $4.73
Exercised during the year .78 -- --
Terminated during the year 5.21 4.68 6.13
Outstanding at end of year 1.29 4.86 5.39
Exercisable at end of year 1.47 5.04 5.41
Stock options outstanding as of September 30, 2002 had exercise
prices ranging from $.86 per share to $9.29 per share, as follows
(number of shares in thousands):
Weighted Average
Range of Number Number Average Remaining
Exercise Prices Outstanding Exercisable Price Life (Years)
Under $1.00 432 228 $ .86 10
$1.00 to $3.00 123 71 1.95 9
Over $3.00 19 13 6.69 6
The Company adopted the policy of expensing the fair value of
stock option awards beginning in fiscal 2002, and the
compensation expense for the year was $91,000. Under the
Company's previous method of accounting, there was no expense
resulting from the granting of stock options because the option
exercise prices were equal to the fair market values of the
Company's common stock at the dates of grant. Had the Company
recorded compensation expense for stock options issued in
previous years, and allocated the expense over their vesting
periods, the effect on the 2002 reported net loss of $3,214,000
($.63 per share) would have been insignificant, and the Company
would have had a pro forma net loss of $1,128,000 ($.22 per
share) in 2001 and pro forma net income of $2,477,000 ($.49 per
share) in 2000.
23
Stock option award expense was calculated using the Black-Scholes
option-pricing model to determine the estimated fair value of
options granted, and using the following assumptions:
2002 2001 2000
Weighted average estimated fair value per
share of stock options granted $ .33 $ .99 $1.48
Expected option life (years) 4.00 3.00 3.00
Stock price volatility 42% 40% 53%
Risk-free interest rate 2.6% 5.1% 5.4%
Dividend yield -- % -- % 1.0%
Shareholder Rights Plan
On February 4, 2000, the Company adopted a shareholder rights
plan, and the Board of Directors declared a dividend of one share
purchase right for each share of outstanding common stock.
The rights will become exercisable if any person or affiliated
group (other than certain "grandfathered" shareholders) acquires,
or offers to acquire, 10% or more of the Company's outstanding
common shares. Each exercisable right entitles the holder (other
than the acquiring person or group) to purchase, at a price of
$21.50 per share, common stock of the Company having a market
value equal to two times the purchase price.
The purchase price and the number of common shares issuable on
exercise of the rights are subject to adjustment in accordance
with customary anti-dilution provisions.
The Board of Directors may authorize the Company to redeem the
rights at a price of $.01 per right at any time before they
become exercisable. After the rights become exercisable, the
Board of Directors may authorize the Company to exchange any
unexercised rights at the rate of one share of common stock for
each right. The rights are nonvoting, and they will expire on
February 22, 2010.
Severance Arrangements
The Company has an employment agreement with an officer that
provides for the continuation of salary and benefits for a period
of three years following the officer's termination of employment
by the Company for any reason other than "cause." The Company
also has arrangements covering certain other officers and key
employees that would become effective if their employment
terminated under certain conditions following a change in control
of the Company. Under these circumstances, the Company would be
obligated to continue salary for a period of one year in certain
cases, to make lump sum payments ranging from $20,000 to $50,000
in other cases, and to provide continued welfare plan benefits
for up to two years. As of September 30, 2002, the potential,
aggregate obligation under these arrangements, if all such
officers and employees were terminated, was approximately
$3,300,000.
24
GENERAL EMPLOYMENT ENTERPRISES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended September 30
(In Thousands) 2002 2001 2000
Allowance for falloffs and doubtful accounts:
Balance at beginning of year $243 $512 $440
Additions charged to operating expenses 323 884 411
Adjustments charged (credited) to revenues 22 (314) 74
Deductions for bad debt write-offs (276) (839) (413)
Balance at end of year $312 $243 $512
25
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
General Employment Enterprises, Inc.
Oakbrook Terrace, Illinois
We have audited the accompanying consolidated balance sheet of
General Employment Enterprises, Inc. and subsidiary as of
September 30, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 2002.
Our audits also included the financial statement schedule listed
in the Index at Item 15. These financial statements and the
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of General Employment Enterprises, Inc. and
subsidiary at September 30, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended September 30, 2002, in conformity
with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
aspects the information set forth therein.
/s/ Ernst & Young LLP
November 8, 2002
26
GENERAL EMPLOYMENT ENTERPRISES, INC.
SELECTED QUARTERLY FINANCIAL DATA AND MARKET INFORMATION
Fourth Third Second First
(In Thousands, Except Per Share) Quarter Quarter Quarter Quarter
Fiscal 2002:
Net revenues $4,921 $ 4,734 $ 5,154 $5,509
Operating expenses(1) 5,846 6,011 6,676 6,437
Loss from operations (925) (1,277) (1,522) (928)
Interest income 11 18 31 48
Loss before income taxes (914) (1,259) (1,491) (880)
Provision (credit) for income taxes(2) 45 (475) (570) (330)
Net loss $ (959) $ (784) $ (921) $ (550)
Net loss per share $ (.19) $ (.15) $ (.18) $ (.11)
Market price per share:
High 1.29 1.99 1.79 1.70
Low .62 1.20 1.20 1.04
Fiscal 2001:
Net revenues $6,453 $ 7,421 $ 8,249 $8,912
Operating expenses(1) 7,467 8,132 8,800 8,853
Income (loss) from operations (1,014) (711) (551) 59
Interest income 89 99 149 194
Income (loss) before income taxes (925) (612) (402) 253
Provision (credit) for income taxes 340 (235) (150) 105
Net income (loss) $ (585) $ (377) $ (252) $ 148
Net income (loss) per share $ (.12) $ (.07) $ (.05) $ .03
Market price per share:
High 2.73 2.74 3.38 3.75
Low 1.13 2.30 2.30 2.50
(1) Operating expenses include provisions for office closings of
$92,000 in the fourth quarter of fiscal 2002, $253,000 in
the second quarter of fiscal 2002, and $283,000 in the
fourth quarter of fiscal 2001.
(2) The provision (credit) for income taxes includes a provision
to record a deferred tax valuation allowance of $386,000 in
the fourth quarter of fiscal 2002.
The Company's common stock is traded on the American Stock
Exchange under the trading symbol JOB. There were 867 holders of
record on October 31, 2002. The Company has declared no cash
dividends on its common stock during the last two fiscal years,
and there are no intentions to do so in the foreseeable future.
27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There have been no changes in or disagreements with the Company's
independent accountants during the two most recent fiscal years.
PART III
Item 10. Directors, Executive Officers, Promoters and Control
Persons of the Registrant
Information concerning directors and the executive officers of
the registrant is set forth in the registrant's Proxy Statement
for the annual meeting of shareholders and is incorporated herein
by reference.
Item 11. Executive Compensation
Information concerning executive compensation is set forth in the
registrant's Proxy Statement for the annual meeting of
shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain beneficial
owners and management is set forth in the registrant's Proxy
Statement for the annual meeting of shareholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related
transactions is set forth in the registrant's Proxy Statement for
the annual meeting of shareholders and is incorporated herein by
reference.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of a date within 90 days of the
filing of this Annual Report on Form 10-K, the Company's
principal executive officer and its principal financial officer
have concluded that the Company's disclosure controls and
procedures, as defined in Rule 13a-14(c) and Rule 15d-14(c) under
the Securities Exchange Act of 1934 (the "Exchange Act"), are
effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the rules and forms for
those reports.
Changes in Internal Controls
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation.
28
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Financial Statements and Financial Statement Schedules
The following financial statements and financial statement
schedules are filed as a part of this report:
Page
Consolidated Balance Sheet as of September 30, 2002 and 2001 12
Consolidated Statement of Operations for the years
ended September 30, 2002, 2001 and 2000 13
Consolidated Statement of Cash Flows for the years
ended September 30, 2002, 2001 and 2000 14
Consolidated Statement of Shareholders' Equity for the years
ended September 30, 2002, 2001 and 2000 15
Notes to Consolidated Financial Statements 16
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 2002, 2001 and 2000 25
Report of Independent Auditors 26
All other financial statement schedules are omitted because they
are not applicable.
Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 2002.
Exhibits
The following exhibits are filed as a part of this report:
No. Description of Exhibit
2.01 Asset Purchase Agreement Among Triad Personnel Services,
Inc., Generation Technologies, Inc. and Michael P. Verona dated
April 10, 2001. Incorporated by reference to Exhibit 2.01 to the
Registrant's Form 8-K Current Report dated April 10, 2001.
Commission File No. 001-05707.
3.01 Articles of Incorporation and amendments thereto.
Incorporated by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1996, Commission File No. 001-05707.
3.02 By-Laws. Incorporated by reference to Exhibit 3(b) of the
Registrant's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997, Commission File No. 001-05707.
29
4.01 Rights Agreement dated as of February 4, 2000, between
General Employment Enterprises, Inc. and Continental Stock
Transfer and Trust Company, as Rights Agent. Incorporated
by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A filed with the Securities and
Exchange Commission on February 7, 2000.
10.01* Key Manager Plan, adopted May 22, 1990. Incorporated by
reference to Exhibit 10(h) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30
1990, Commission File No. 001-05707.
10.02 Agreement with Sheldon Brottman dated October 3, 1991.
Incorporated by reference to Exhibit 10(l) to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1991, Commission File No. 001-05707.
10.03* General Employment Enterprises, Inc. 1995 Stock Option
Plan. Incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-8 Registration Statement dated April
25, 1995, Registration No. 33-91550.
10.04* General Employment Enterprises, Inc. 1997 Stock Option
Plan. Incorporated by reference to Exhibit 10(n) to the
Registrant's Annual Report on Form 10-KSB for the fiscal
year ended September 30,1998, Commission File No. 001-05707.
10.05* Resolution of the Board of Directors adopted September 28,
1998, amending the General Employment Enterprises, Inc.
1997 Stock Option Plan. Incorporated by reference to
Exhibit 10(o) to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended September 30,1998,
Commission File No. 001-05707.
10.06* General Employment Enterprises, Inc. 1999 Stock Option
Plan. Incorporated by reference to Exhibit 10 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, Commission File No. 001-05707.
10.07* Employment Agreement with Herbert F. Imhoff, Jr. effective
as of August 1, 2001. Incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-
K for the fiscal year ended September 30, 2001, Commission
File No. 001-05707.
10.08* Chief Executive Officer Bonus Plan, adopted September 24,
2001. Incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 001-05707.
10.09* The Corporate Plan for Retirement Select Plan Basic Plan
Document. Incorporated by reference to Exhibit 10.12 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 001-05707.
10.10* The Corporate Plan for Retirement Select Plan Adoption
Agreement dated September 27, 2001. Incorporated by
reference to Exhibit 10.13 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 2001, Commission File No. 001-05707.
10.11* First Amendment to the General Employment Enterprises,
Inc. Executive Retirement Plan dated September 27, 2001.
Incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001, Commission File No. 001-05707.
30
10.12* Form of employment agreement with executive officers.
Incorporated by reference to Exhibit 10.01 to the
Registrant's Quarterly Report of Form 10-Q for the
quarterly period ended December 31, 2001, Commission File
No. 001-05707.
10.13* Regional Vice President Bonus Plan effective for fiscal
years beginning on or after October 1, 2001. Incorporated
by reference to Exhibit 10.02 to the Registrant's
Quarterly Report of Form 10-Q for the quarterly period
ended December 31, 2001, Commission File No. 001-05707.
10.14* Agreement with Herbert F. Imhoff, Jr., effective August 1, 2002.
23.01 Consent of Independent Auditors.
99.01 General Employment Enterprises, Inc. certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
* Management contract or compensatory plan or arrangement.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENERAL EMPLOYMENT ENTERPRISES, INC.
(Registrant)
Date: November 25, 2002 By: /s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr.
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Date: November 25, 2002 By: /s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr., Director
Chairman of the Board, Chief
Executive Officer and President
(Principal executive officer)
Date: November 25, 2002 By: /s/ Kent M. Yauch
Kent M. Yauch, Director
Vice President, Chief Financial
Officer and Treasurer
(Principal financial and accounting officer)
Date: November 25, 2002 By: /s/ Dennis W. Baker
Dennis W. Baker, Director
Date: November 25, 2002 By: /s/ Sheldon Brottman
Sheldon Brottman, Director
Date: November 25, 2002 By: /s/ Delain G. Danehey
Delain G. Danehey, Director
Date: November 25, 2002 By: /s/ Joseph F. Lizzadro
Joseph F. Lizzadro, Director
32
CERTIFICATIONS
I, Herbert F. Imhoff, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of General
Employment Enterprises, Inc;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls sub-sequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 25, 2002
/s/ Herbert F. Imhoff, Jr.
Herbert F. Imhoff, Jr.
Chairman of the Board, Chief Executive Officer and President
(Principal executive officer)
33
I, Kent M. Yauch, certify that:
1. I have reviewed this annual report on Form 10-K of General
Employment Enterprises, Inc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this annual report (the
"Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 25, 2002
/s/ Kent M. Yauch
Kent M. Yauch
Vice President, Chief Financial Officer and Treasurer
(Principal financial officer)
34