JOB

Business Context and Reporting Period

Company: General Employment Enterprises, Inc. (GEE Group Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: The Company provides contract and placement staffing services, specializing in information technology, engineering, and accounting professionals. Operations are conducted through 16 offices in nine states. The business is highly sensitive to national employment trends, with the national unemployment rate rising to 8.5% in March 2009 from 5.1% in March 2008.

Key Financial Metrics

All figures in thousands, except per share data.

Margins: Gross profit margin on contract business was 27.3% for the three months ended March 31, 2009, and 30.2% for the six-month period, down from 33.2% and 32.4% respectively in the prior year.

Material Changes vs. Prior Period

• Revenue Decline: Consolidated net revenues decreased 36% ($1.4 million) for the quarter and 32% ($2.5 million) for the six months ended March 31, 2009, compared to the prior year. This was driven by an 18% decrease in billable contract hours and a 46% decrease in placements for the quarter.
• Increased Losses: Net loss for the six months ended March 31, 2009, more than doubled to $1.864 million from $750,000 in the prior year period. Loss from operations increased to $1.78 million from $800,000.
• Cash Position: Cash and cash equivalents decreased by $1.701 million to $2.464 million as of March 31, 2009, due to operating losses and deferred stock issuance costs.
• Expense Reductions: Selling, general, and administrative expenses decreased 17% for the quarter and 16% for the six months, driven by a 24% reduction in sales and recruiting staff and a 22% reduction in executive compensation effective January 1, 2009.
• Investment Losses: Investment income turned negative, with a loss of $84,000 for the six months ended March 31, 2009, compared to income of $50,000 in the prior year, due to losses on trading securities.

Outlook, Risks, and Contingencies

Going Concern Uncertainty: The Company has incurred losses and reduced its cash position due to the U.S. economic downturn. Management states that without additional funding, the Company estimates it would exhaust cash resources by the end of the fourth calendar quarter of 2009. The financial statements are prepared on a going concern basis, but this is contingent on obtaining additional funding.

Proposed Transactions: On March 30, 2009, the Company signed a definitive agreement with PSQ, LLC to acquire a controlling interest. Key terms include:

• PSQ to purchase 7,700,000 newly issued shares at $0.25 per share (Total: $1.925 million).
• PSQ to commence a cash tender offer for up to 2,500,000 outstanding shares at $0.60 per share.
• Transactions are subject to shareholder approval and customary closing conditions.
• If consummated, the CEO (Herbert F. Imhoff, Jr.) will resign and enter a three-year consulting agreement.

Risks: If the stock sale is not approved and business conditions do not improve, the Company may need to significantly reduce or cease operations. The Company does not provide forecasts of future financial performance.

Investor Verification Checklist

• Shareholder Approval: Verify the outcome of the shareholder vote regarding the sale of shares to PSQ, LLC, which is critical for the Company's liquidity and survival.
• Cash Runway: Monitor the Company's cash burn rate and confirm if the $1.9 million capital raise is successfully closed before the estimated Q4 2009 cash exhaustion date.
• Operational Turnaround: Assess whether the 24% reduction in sales staff and executive pay cuts are sufficient to stabilize margins given the 32% revenue decline.
• Deferred Costs: Note the $194,000 in deferred stock issuance costs recorded as an asset; these may be expensed if the transaction fails.
• Market Conditions: Evaluate the impact of the 8.5% national unemployment rate on future demand for IT, engineering, and accounting staffing services.