Business Context and Reporting Period
Company: General Employment Enterprises, Inc. (GEE Group Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: The Company provides contract and placement staffing services, specializing in information technology, engineering, and accounting professionals. As of March 31, 2010, it operated ten branch offices across eight states. The Company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Six Months Ended Mar 31, 2010 | Six Months Ended Mar 31, 2009 | Three Months Ended Mar 31, 2010 |
|---|---|---|---|
| Net Revenues | $4,000,000 | $5,359,000 | $2,028,000 |
| Net Loss | $(1,289,000) | $(1,864,000) | $(700,000) |
| Loss Per Share (Basic/Diluted) | $(0.10) | $(0.36) | $(0.05) |
| Cash and Cash Equivalents | $1,433,000 (Ending Balance) | $2,464,000 (Ending Balance) | $1,433,000 |
| Net Cash Used in Operating Activities | $(1,377,000) | $(1,507,000) | N/A |
| Total Assets | $3,050,000 | $4,667,000 (Sep 30, 2009) | $3,050,000 |
| Total Liabilities | $1,683,000 | $2,063,000 (Sep 30, 2009) | $1,683,000 |
| Shareholders' Equity | $1,367,000 | $2,604,000 (Sep 30, 2009) | $1,367,000 |
| Long-term Obligations | $504,000 | $575,000 (Sep 30, 2009) | $504,000 |
Margins: Gross profit margin on contract business was 28% for the six-month period (down 2 points from the prior year) and 27% for the three-month period (flat year-over-year).
Material Changes Versus Prior Period
- Revenue Decline: Consolidated net revenues decreased 25% ($1.359 million) for the six months ended March 31, 2010, compared to the prior year. This was driven by a 53% drop in placement service revenues and a 3% drop in contract service revenues.
- Volume Reduction: The revenue decline resulted from a 20% decrease in billable contract hours and a 45% decrease in the number of placements.
- Expense Reduction: Selling, general, and administrative (SG&A) expenses decreased 37% ($1.879 million) due to significant restructuring, including a 50% reduction in operating division compensation, 34% reduction in administrative compensation, and 33% reduction in occupancy costs.
- Improved Loss Profile: Despite revenue declines, the net loss improved by 31% for the six-month period and 36% for the three-month period compared to the prior year, largely due to cost-cutting measures.
- Cash Position: Cash and cash equivalents decreased by $1.377 million during the six-month period, reducing the total cash balance to $1.433 million.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern Warning: Management explicitly states that the Company's ability to continue as a going concern is dependent on obtaining additional funding and increasing sales to achieve profitability. The financial statements do not include adjustments for potential asset recoverability issues if the Company cannot continue operations.
- Forward-Looking Statements: The Company does not provide specific financial forecasts. Management intends to grow through accretive business acquisitions, financed via notes, stock issuance, or earn-out agreements.
- Acquisition Activity:
- On-Site Services, Inc.: The Company is in negotiations to purchase this temporary staffing company (approx. $10 million annual revenue). Terms are being negotiated.
- GT Systems, Inc.: A Memorandum of Agreement to purchase GT Systems was terminated on March 22, 2010. The Company incurred $196,000 in professional fees related to this failed transaction.
- Liquidity: The Company has a $3.5 million line of credit secured by accounts receivable with Crestmark Bank. As of March 31, 2010, there were no outstanding borrowings under this facility.
- Risks: Key risks include general economic conditions, demand for staffing services, competitive pricing pressures, and the ability to retain qualified personnel.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $1.433 million cash balance against the $1.377 million operating cash burn over six months to assess immediate liquidity risk.
- Going Concern Status: Confirm if the Company has secured the "additional funding" mentioned as critical for its continued operation.
- Acquisition Progress: Monitor the status of the On-Site Services, Inc. acquisition and the terms of financing (debt vs. equity dilution).
- Revenue Recovery: Assess whether the 20% drop in billable hours and 45% drop in placements is stabilizing given the 9.7% national unemployment rate.
- Contractual Obligations: Review the $630,000 commitment for recruitment advertising through December 2011 and its impact on future cash flow.