GEE Group Inc. — FY2013 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2013. This is an annual report, not a standalone fourth-quarter report. The company provides industrial and professional contract staffing and direct-hire placement services through U.S. branches. It discontinued its agricultural staffing operations in July 2013.
Financial results
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $46.504 million | $44.553 million |
| Operating loss | $1.307 million | $0.698 million |
| Loss from continuing operations | $1.566 million | $0.902 million |
| Loss from discontinued operations | $0.324 million | $0.109 million |
| Net loss | $1.890 million | $1.011 million |
| Basic and diluted loss per share | $0.09 | $0.05 |
| Operating cash flow, consolidated | $(1.071) million | $0.095 million |
| Cash and cash equivalents | $0.361 million | $0.364 million |
- Revenue rose 4%, primarily attributed by management to work related to Hurricane Sandy. Industrial contract services generated $29.816 million, professional contract services $9.371 million, and direct-hire placement services $7.317 million.
- Combined gross margin was 30.5%, compared with 31.0%. SG&A increased to $15.173 million from $13.852 million; the filing cites higher professional fees and one-time employee and lease termination expenses.
- Operating cash flow from continuing operations was $(1.112) million; the discontinued business provided $0.041 million. Investing cash flow was $(0.345) million and financing cash flow was $1.413 million.
- At year-end, short-term debt was $3.734 million, current liabilities were $8.493 million, and shareholders’ equity was $2.613 million. Working capital was negative $0.781 million and the current ratio was approximately 0.91.
Material changes and financing
- Agricultural operations were discontinued, with a reported FY2013 loss of $0.324 million. The filing describes a one-time shutdown expense as approximately $100,000 in one section and approximately $150,000 in another.
- In September 2013, the company replaced its Wells Fargo receivables facility with a three-year, $6 million secured revolving facility from Keltic. At September 30, $3.734 million was outstanding and reported availability was approximately $1.362 million. The facility is secured by substantially all company assets and bears interest at the greatest of prime plus 3.25%, LIBOR plus 6.25%, or 6.50%.
- The company issued 1.1 million shares valued at approximately $330,000 in connection with settling amounts owed under the RFFG/DMCC purchase agreement; approximately $350,000 of cash consideration remained accrued at year-end.
- Management reported compliance with the Keltic covenants as of the report date and said facility availability and operating cash flow should cover liquidity needs for the next 12 months. The company had incurred significant losses and negative operating cash flows in recent years.
Outlook, risks, and unusual items
- Management expected elevated SG&A to decline in FY2014, but cautioned that higher workers’ compensation and Affordable Care Act costs, together with limited ability to raise customer rates, could reduce gross margins.
- The NYSE MKT had cited the company’s low equity and questioned its ability to continue operations or meet obligations. It accepted the company’s compliance plan and extended the financial-impairment plan period to February 21, 2014; the equity compliance deadline remained June 6, 2014.
- Management identified significant operating losses, financing access, competition, personnel retention, management turnover, and concentrated ownership as risks. LEED HR and Michael Schroering together were reported to control approximately 70.4% of common stock.
- Approximately $238,000 of agricultural-business receivables remained to be collected. Management expected collection in 2014; failure to collect could result in up to $238,000 of additional expense.
- The filing reports a full valuation allowance against deferred tax assets and says use of approximately $10.8 million of federal and $9.5 million of state net operating losses may be limited under Section 382.
- No dividends were paid, and none were anticipated in the foreseeable future. The auditor issued an unmodified opinion on the financial statements; it did not express an opinion on internal-control effectiveness. Management concluded controls were effective.
Important facts for investors to verify
- Current borrowing availability, borrowing-base capacity, interest costs, and continued compliance with Keltic covenants.
- Progress toward NYSE MKT listing compliance and the company’s ability to fund operations and meet obligations as they mature.
- Collection status of the $238,000 agricultural receivable and the final costs of closing that division.
- Underlying staffing margins and the extent to which labor-related cost increases can be passed through to clients. The filing presents differing industrial gross-margin figures in separate sections, so the reported basis should be checked.
- Potential dilution from outstanding options and the 2013 incentive plan, which authorizes up to 10 million shares for awards.