GEE Group Inc. (formerly General Employment Enterprises, Inc.) — FY2014 Form 10-K
Reporting period: Fiscal year ended September 30, 2014; comparisons are with fiscal 2013. The filing reports annual results, not standalone fourth-quarter results. The company provides professional placement and contract staffing, and light-industrial staffing. Its agricultural staffing division was discontinued in 2013.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $39.811 million | $46.504 million |
| Gross profit | Approximately $13.394 million; 33.6% margin | Approximately $14.186 million; 30.5% margin |
| Operating loss | $0.641 million | $1.307 million |
| Net loss | $1.355 million | $1.890 million |
| Cash from continuing operating activities | $0.308 million | $(1.112) million |
| Cash and cash equivalents at year-end | $0.168 million | $0.361 million |
- Revenue fell about 14%. Industrial contract staffing generated $25.031 million (63% of revenue), professional contract staffing $7.692 million (19%), and direct-hire placements $7.088 million (18%).
- Management attributed lower revenue to the prior-year Hurricane Sandy work, closed offices, and terminated underperforming customers. Contract-service costs declined 18%; combined gross margin rose to 33.6%, aided in part by lower Ohio workers’ compensation costs.
- SG&A declined about $1.5 million to $13.709 million. Interest expense increased $0.256 million to $0.507 million. The discontinued agricultural division recorded a $0.230 million loss in FY2014, versus $0.324 million in FY2013.
- At year-end, total assets were $9.844 million, shareholders’ equity $2.065 million, and working capital was negative $0.909 million. The current ratio was approximately 0.88.
- Short-term debt was $2.711 million. The ACF secured revolving facility has a $6 million maximum, carried a 6.5% rate at year-end, and had approximately $0.730 million of availability. The facility is secured by company assets. The Brio convertible note had an original principal of $0.633 million; its reported carrying value was $0.167 million, net of discounts.
Material changes, outlook, and risks
- Losses continued, although the net loss and operating loss narrowed year over year. Continuing-operations operating cash flow improved to positive $0.308 million; total operating cash flow, including discontinued operations, was $0.286 million.
- The company was not in compliance with the ACF EBITDA and certain administrative covenants at September 30, 2014. It reported subsequent compliance with the amended EBITDA covenant and a lender waiver for other administrative covenants. The December 3, 2014 amendment also adjusted future covenants and waived certain defaults.
- Management said cash from operations, ACF availability, and planned financing would provide sufficient liquidity for the next 12 months. This outlook is dependent on financing and execution; year-end cash was only $0.168 million, and the company had negative working capital.
- After year-end, the company entered into an agreement for a $2 million Series A convertible preferred-stock offering, with proceeds held in escrow and closing expected in early January 2015. Planned use: approximately $1 million for working capital and $1 million for marketing, acquisitions, expansion, and operations. Each preferred share is initially convertible into 50 common shares.
- NYSE MKT had extended the company’s compliance-plan deadline to December 6, 2014, citing equity below $4 million and recurring losses, among other concerns. As of the 10-K date, the company said it had received no further exchange letter and remained listed; further exchange review and possible delisting remained risks.
- Other material risks include recurring losses and financing needs, customer and hiring-market conditions, competition, dilution from equity and convertible securities, and concentrated ownership. Michael Schroering and affiliates controlled approximately 62% of common shares; directors, officers, and principal shareholders collectively held about 71%.
- The Aracle financing included potential price-adjustment shares and a provision for 3 million additional shares if specified delisting conditions occur. The Brio note includes a conversion-price reset subject to a $0.14 floor and warrants for up to 2.372 million shares. The company reported 3.872 million warrants outstanding at year-end.
- The company reported no material legal proceedings and no dividends. The independent auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective. The auditor was not engaged to audit internal-control effectiveness.
Important facts for investors to verify
- Whether the preferred-stock offering closed, the net proceeds received, and their use; the filing described the funds as still in escrow.
- Current ACF borrowing availability, covenant compliance and waivers, and the company’s ability to meet near-term obligations.
- Progress toward NYSE MKT listing compliance and any subsequent exchange notices or delisting-related provisions.
- Actual operating trends after the reported revenue decline, including whether cost reductions and improved gross margin translated into sustainable profitability and cash generation.
- Potential dilution and control effects from preferred conversion, the Brio note and warrants, Aracle securities, and outstanding options.