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| JOB > SEC Filings for JOB > Form 10-Q on 13-Aug-2009 | All Recent SEC Filings |
13-Aug-2009
Quarterly Report
Overview
The Company provides contract and placement staffing services for business and industry, specializing in the placement of information technology, engineering and accounting professionals. As of June 30, 2009, the Company operated eleven offices located in nine states.
The Company's 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 9.5% in June 2009 and 5.6% in June 2008. The change indicates a trend toward a lower level of employment in the United States during the last twelve months.
During the nine months ended June 30, 2009, the U.S. economy experienced a period of uncertainty stemming from problems in the housing and credit markets. According to the U.S. Department of Labor, the national employment level declined by approximately 5.3 million jobs during the period. Management believes that employers became extremely cautious about hiring during the period. As a result, the Company experienced sharp declines in both the number of billable contract hours and the number of placements.
Consolidated net revenues for the nine months ended June 30, 2009 decreased 31% compared with the prior year. Contract service revenues were down 22%, and placement service revenues were down 41%. The effects of lower consolidated net revenues resulted in a $4,109,000 loss from operations this year, compared with a $1,396,000 loss from operations for the same period last year.
As of June 30, 2009, the Company recorded the sale of 7,700,000 newly-issued shares of common stock to PSQ, LLC for $1,925,000 in cash, pursuant to a Securities Purchase and Tender Offer Agreement that had been entered into by the Company on March 30, 2009. The net proceeds to the Company from the share issuance, after deducting related costs, were $1,432,000. In connection with the completion of the sale of shares, the Company's Chairman, Chief Executive Officer and President (the "former CEO") resigned from those positions and his employment agreement with the Company was replaced by a new consulting agreement. Under the consulting agreement, the Company is obligated to pay an annual consulting fee of $180,000 over a five-year period and to issue 500,000 shares of common stock to the former CEO for no additional consideration. As of June 30, 2009, the Company recorded a provision for additional compensation expense under the consulting agreement in the amount of $1,125,000. The nine-month results also include a provision for the cost of closing branch offices of $376,000. During the period, the Company consolidated ten branch offices in four metropolitan areas.
Management's current objective is to return the Company to a breakeven level of cash flow as soon as possible and to provide a stable platform for future growth. The Company implemented a restructuring of its corporate and field operations during the June 2009 quarter. Sales, recruiting and administrative positions were eliminated, five branch offices were closed, and the payroll for executive officers was reduced. As a result of this restructuring, together with actions taken earlier in the year, the sales, recruiting and administrative staff as of July 1, 2009 was 55% below the staff level at the beginning of the fiscal year, and the salaries and benefits of its three executive officers in the aggregate had been reduced by $637,000 on an annual basis. Management believes that these and other actions will reduce the Company's selling, general and administrative expenses substantially in the fourth quarter.
Results of Operations - Nine Months
Net Revenues
Consolidated net revenues for the nine months ended June 30, 2009 were down
$3,596,000 (31%) from the prior year. Contract service revenues decreased
$1,232,000 (22%) and placement service revenues decreased $2,364,000 (41%). As a
result of the weaker economic conditions that prevailed during the nine months
ended June 30, 2009, the Company experienced less demand for its services. The
decline in consolidated net revenues was the result of a 16% decrease in the
number of billable contract hours and 48% fewer placements.
Cost of Contract Services
The cost of contract services includes wages and the related payroll taxes and
employee benefits of the Company's employees while they work on contract
assignments. There are no direct costs associated with placement service
revenues. The cost of contract services for the nine months ended June 30, 2009
was down $723,000 (19%) as a result of the lower volume of contract
business. The gross profit margin on contract business was 30.2%, which was 2.4
points less than 32.6% for the prior year due to competitive pricing pressures
during the period.
Selling, General and Administrative Expenses Selling, general and administrative expenses include the following categories:
· Compensation in the operating divisions, which includes commissions earned by the Company's employment consultants and branch managers on permanent and temporary placements. It also includes salaries, wages, unrecovered advances against commissions, payroll taxes and employee benefits associated with the management and operation of the Company's staffing offices.
· Administrative compensation, which includes salaries, wages, payroll taxes and employee benefits associated with general management and the operation of its finance, legal, human resources and information technology functions.
· Occupancy costs, which includes office rent, depreciation and amortization, and other office operating expenses.
· Recruitment advertising, which includes the cost of identifying job applicants.
· Other selling, general and administrative expenses, which includes travel, bad debt expense, fees for outside professional services and other corporate-level expenses such as business insurance and taxes.
The Company's largest selling, general and administrative expense is for compensation in the operating divisions. Most of the Company's employment consultants are paid on a commission basis and receive advances against future commissions. Advances are expensed when paid. When commissions are earned, prior advances are applied against them and the consultant is paid the net amount. At that time, the Company recognizes the full amount as commission expense, and advance expense is reduced by the amount recovered. Thus, the Company's advance expense represents the net amount of advances paid, less amounts applied against commissions.
Selling, general and administrative expenses for the nine months ended June 30, 2009 decreased $160,000 (2%). Compensation in the operating divisions was down 27%, reflecting lower commission expense on the lower volume of business. Administrative compensation was up 72%, reflecting the $1,125,000 of additional compensation recorded under the consulting agreement of the former CEO. All other administrative compensation was down 16% for the period, reflecting executive pay reductions, staff reductions and lower deferred compensation expense. Occupancy costs were up 8%, reflecting a $376,000 provision for office closing costs. All other occupancy costs were down 17% for the period because of operating fewer branch offices than last year. Recruitment advertising increased 17%, due to higher utilization of job board posting services and higher costs per posting.
Other
Investment income for the nine months ended June 30, 2009 was down $114,000 from
the same period last year, due to a combination of lower funds available for
investment and a lower average rate of return on investments. Returns in both
periods were adversely affected by losses on trading securities.
There were no credits for income taxes as a result of the pretax losses during the periods, because there was not sufficient assurance that future tax benefits would be realized.
Results of Operations - Three Months
Net Revenues
Consolidated net revenues for the three months ended June 30, 2009 were down
$1,102,000 (30%) from the prior year. Contract service revenues decreased
$315,000 (17%) and placement service revenues decreased $787,000 (43%). As a
result of the weaker economic conditions that prevailed during the three months
ended June 30, 2009, the Company experienced less demand for its services. The
decline in consolidated net revenues was the result of a 23% decrease in the
number of billable contract hours and 46% fewer placements.
Cost of Contract Services
The cost of contract services for the three months ended June 30, 2009 was down
$167,000 (14%) as a result of the lower volume of contract business. The gross
profit margin on contract business was 30.2%, which was 2.9 points less than
33.1% for the prior year due to competitive pricing pressures during the period.
Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 2009 increased $789,000 (27%). Compensation in the operating divisions was down 30%, reflecting lower commission expense on the lower volume of business. Administrative compensation increased, reflecting the $1,125,000 of additional compensation recorded under the consulting agreement of the former CEO. Occupancy costs increased, reflecting a $350,000 provision for office closing costs. All other occupancy costs were down 21% because of operating fewer branch offices than last year.
Other
Investment income for the three months ended June 30, 2009 was up $20,000 from
the same period last year, as returns in fiscal 2009 were favorably affected by
gains on trading securities.
There were no credits for income taxes as a result of the pretax losses during the periods, because there was not sufficient assurance that future tax benefits would be realized.
Financial Condition
As of June 30, 2009, the Company had cash and cash equivalents of $3,081,000, which was a decrease of $1,084,000 from September 30, 2008. Net working capital at June 30, 2009 was $2,747,000, which was a decrease of $1,538,000 from September 30, 2008, and the current ratio was 2.4 to 1. Shareholders' equity as of June 30, 2009 was $2,711,000 which represented 51% of total assets.
During the nine months ended June 30, 2009, the net cash used by operating activities was $2,468,000. The net loss for the period, adjusted for depreciation and other non-cash charges, used $2,922,000. A reduction of accounts receivable provided $210,000, and all other working capital items provided an additional $244,000.
Expenditures for the acquisition of property and equipment were $48,000 during the nine months ended June 30, 2009.
As of June 30, 2009, the Company recorded the sale of 7,700,000 newly-issued shares of common stock to PSQ for $1,925,000 in cash. The net proceeds to the Company from the share issuance, after deducting related costs, were $1,432,000.
Information about future minimum lease payments, purchase commitments and severance arrangements is presented in the notes to consolidated financial statements contained in the Company's annual report on Form 10-KSB for the fiscal year ended September 30, 2008.
Due to the effects of the U.S. economic downturn, the Company incurred losses during the first nine months of fiscal 2009, and the negative cash flow from operating activities was $2,468,000. To improve liquidity, the Company took certain actions. First, the Company completed the sale of 7,700,000 shares of common stock to PSQ and raised net cash proceeds of $1,432,000 during the period. With the stock proceeds, the Company's net cash outflow for the year to date was $1,084,000, and the Company's cash position was reduced to $3,081,000 as of June 30, 2009.
Second, the Company implemented a restructuring of its corporate and field operations during the June 2009 quarter. Sales, recruiting and administrative positions were eliminated, five branch offices were closed, and the payroll for executive officers was reduced. As a result of this restructuring, together with actions taken earlier in the year, the sales, recruiting and administrative staff as of July 1, 2009 was 55% below the staff level at the beginning of the fiscal year, and the salaries and benefits of its three executive officers in the aggregate had been reduced by $637,000 on an annual basis. Management believes that these and other actions will reduce the Company's selling, general and administrative expenses substantially in the fourth quarter. Management's current objective is to return the Company to a breakeven level of cash flow as soon as possible and to provide a stable platform for future growth.
Off-Balance Sheet Arrangements
As of June 30, 2009, and during the nine months then ended, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.
Forward-Looking Statements
As a matter of policy, the Company does not provide forecasts of future financial performance. The statements made in this Form 10-Q Quarterly Report which are not historical facts are forward-looking statements. Such forward-looking statements often contain or are prefaced by words such as "will" and "expect." As a result of a number of factors, our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause our actual results to differ materially from those in the forward-looking statements include, without limitation, general business conditions, the demand for the Company's services, competitive market pressures, the ability of the Company to attract and retain qualified personnel for regular full-time placement and contract assignments, the possibility of incurring liability for the Company's business activities, including the activities of its contract employees and events affecting its contract employees on client premises, and the ability to attract and retain qualified corporate and branch management. The Company is under no obligation to (and expressly disclaims any such obligation to) and does not intend to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
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