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PART I
Item 1,
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. In June 2010 the Company purchased certain assets of On-Site Services, a temporary staffing agricultural business. In November 2010, the Company purchased certain assets of DMCC Staffing, LLC (“DMCC”) and RFFG of Cleveland, LLC (“RFFG of Cleveland”). an industrial staffing business located in the state of Ohio. In August 2011, the Company purchased certain assets of Ashley Ellis, LLC (“Ashley Ellis”), a professional staffing and placement business. The principal executive office of the Company is located at One Tower Lane, Suite 2200, Oakbrook Terrace, Illinois.
Services Provided
The Company provides the following distinctive services: (a) professional placement services specializing in the placement of information technology, engineering, and accounting professionals for direct hire and contract staffing, (b) temporary staffing services in the agricultural industry, (c) temporary staffing services in light industrial staffing, and (d) management services.
The Company’s placement services include placing candidates into regular, full-time jobs with client-employers. The Company’s contract services include professional employees and light industrial employees on temporary assignments, under contracts with client companies. Professional and light industrial contract workers are employees of the Company, typically working at the client location and at the direction of client personnel for periods of one week to one year. The Company’s light industrial staffing provides services to clients through five offices in Ohio and one office in Pennsylvania. The Company’s temporary staffing in the agricultural industry provides agricultural workers for farms and groves located in Florida, Georgia, and Indiana. Most of the workers migrate from location to location because the work is seasonal depending on the type of crop . In conjunction with the purchase of the Ohio business in fiscal 2011, the Company entered into a management service agreement with RFFG, LLC (“RFFG”) to operate its day to day business, but due to an unresolved issue with the Ohio Bureau of Workers Compensation, the former owners of RFFG ceased operations as of July 15, 2011. As a result the consolidated statements of operations reflect a loss on impairment of intangible assets of $1,126,000, offset by income of $1,276,000 from the reduction of an associated earn-out liability.
The percentage of revenues derived from each of the Company’s distinctive services is as follows:
Year Ended September 30
2011
2010
Agricultural contract services
Industrial contract services
Professional contract services
Direct hire placement services
Management services
Marketing
The Company markets its services using the trade names General Employment Enterprises, Omni One, Business Management Personnel, Ashley Ellis, Triad Personnel Services, Triad Staffing, Generation Technologies, BMCH, BMCHPA and On-Site Services. As of September 30, 2011, it operated eighteen branch offices located in downtown or suburban areas of major U.S. cities in eleven states. The offices were located in Arizona, California (2), Florida (2), Georgia, Illinois (2), Indiana, Massachusetts, North Carolina, Ohio (7), Pennsylvania and Texas.
The Company markets its staffing services to prospective clients primarily through telephone marketing by its recruiting and sales consultants, and through mailing of employment bulletins, which list candidates available for placement and contract employees available for assignment. The Company’s agricultural staffing services are marketed directly through contact and relationships built and maintained by the division’s general manager.
The portion of consolidated net revenues derived from the Company’s two largest customers was approximately 17.4% and 11.5% in fiscal 2011 and 8.6 % and 8.3% in fiscal 2010, and no other customer accounted for more than 5% of net revenues during either year.
Competition
The staffing industry is highly competitive. There are relatively few barriers to entry by firms offering placement services, while significant amounts of working capital typically are required for firms offering contract services. The Company’s competitors include a large number of sole-proprietorship operations, as well as regional and national organizations. Many of them are large corporations with substantially greater resources than the Company.
The Company’s professional and industrial staffing services compete by providing highly qualified candidates who are well matched for the position, by responding quickly to client requests, and by establishing offices in convenient locations. As part of its service, the Company provides professional reference checking, scrutiny of candidates’ work experience and optional background checks. In general, pricing is considered to be secondary to quality of service as a competitive factor. During slow hiring periods, however, competition can put pressure on the Company’s pricing.
The agricultural staffing service is considered a niche business that requires a high capital reserve to cover the weekly payroll. There are few businesses in this market and the Company does not anticipate a significant change in the pricing for the next year.
Recruiting
The success of the Company’s services is highly dependent on its ability to obtain qualified candidates. Prospective employment candidates are generally recruited through telephone contact by the Company’s employment consultants or through postings on the Internet. For Internet postings, the Company maintains its own web page at www.generalemployment.com and uses other Internet job posting bulletin board services. The Company maintains database records of applicants’ skills to assist in matching them with job openings and contract assignments. The Company screens and interviews applicants who are presented to its clients. The Company’s agricultural service employees are generally seasonal migrant workers, who are typically recurring workers or are directly recruited by the customers.
Employees
As of September 30, 2011, the Company had approximately 140 regular employees and the number of contract service employees varied week to week from a minimum of 200 to a maximum of 4,000.
Item 1A, Risk
Not applicable.
Item 1B, Unresolved Staff
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Item 2,
The Company’s policy is to lease commercial office space for all of its offices. The Company’s headquarters are located in a modern 31-story building near Chicago, Illinois. The Company leases 8,200 square feet of space at that location under a lease that will expire in 2015.
The Company’s staffing offices are located in downtown and suburban business centers in eleven states. Established
offices are operated from leased space ranging from 800 to 2,000 square feet, generally for initial lease periods of one to five years, with cancellation clauses after certain periods of occupancy in some cases. Management believes that existing facilities are adequate for the Company’s current needs and that its leasing strategies provide the Company with sufficient flexibility to open or close offices to accommodate business needs.
Item 3, Legal
From time to time, the Company is subject to various legal proceedings and claims arising in the ordinary course of business. As of September 30, 2011, there were no material legal proceedings pending against the Company.
Item 4, Rese
Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
The Company’s common stock is listed on the NYSE Amex stock exchange and is traded under the symbol JOB. The following table sets forth the quarterly high and low sales prices per share of the Company’s common stock on the consolidated market for each quarter within the last two fiscal years.
Fourth
Quarter
Third
Second
First
Fiscal 2011:
High
Low
Fiscal 2010:
There were 678 holders of record on September 30, 2011.
No dividends were declared or paid during the year ended September 30, 2011. We do not anticipate paying any cash dividends for the foreseeable future.
Information concerning securities authorized for issuance under equity compensation plans is presented in Item 12 of this annual report.
During the twelve months ended September 30, 2011, no equity securities of the Company were purchased by the Company.
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Recent Sales of Unregistered Securities
Not Applicable.
Item 6, Selected Financial
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Overview
The Company provides contract and placement staffing services for business and industry, primarily specializing in the placement of information technology, engineering, accounting, agricultural and light industrial individuals.
The Company’s professional staffing services business is highly dependent on national employment trends in general and on the demand for professional staff in particular. As an indicator of employment conditions, the national unemployment rate was 9.1% in September 2011 and 9.6% in September 2010. This indicates a trend toward a relatively flat level of unemployment in the United States during the last twelve months.
Consolidated net revenues for the year ended September 30, 2011 increased 212.1% compared with the prior year due primarily to the acquisition of On-Site Services, Inc., RFFG of Cleveland, LLC, DMCC, LLC, and Ashley Ellis, LLC. Contract service revenues, including On-Site Services, Inc., RFFG of Cleveland, LLC, DMCC, LLC and Ashley Ellis, LLC increased by 253.9%, and direct hire placement service revenues increased by 52.9%. Due to the Company’s efforts to reduce selling, general, and administrative expenses and the acquisitions of On-Site Services, Inc., RFFG of Cleveland, LLC, DMCC, LLC and Ashley Ellis, LLC, the Company was able to report an operating income of $556,000 compared with a loss from operations of $1,511,000 in the prior year.
Due to the acquisition of certain assets of the four companies purchased in the last 16 months, the Company had a $484,000 increase in the amortization of intangible assets. The Company also recorded a $1,126,000 loss on impairment of intangible assets caused by a reduction in value of the management agreement intangible asset due to the closure of the entities under management and income from an adjustment of $1,276,000 for the reduction of an earnout liability. The management fee intangible asset and the earn-out liability were recorded as part of the purchase of RFFG of Cleveland, LLC and DMCC, LLC.