x
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QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2011
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Illinois | 36-6097429 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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3
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Item 1.
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4
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4
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5
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6
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7
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8-15
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Item 2.
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15-20
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Item 3.
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20
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Item 4.
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20
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Item 1.
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20
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Item 1A.
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20
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Item 2.
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20
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Item 3.
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20
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Item 4.
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20
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Item 5.
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21
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Item 6.
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21
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21
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December 31
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September 30
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|||||||
(In Thousands)
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2011
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2011
|
||||||
(unaudited)
|
|
|||||||
ASSETS
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|
|||||||
Current assets:
|
|
|||||||
Cash and cash equivalents
|
$ | 45 | $ | 314 | ||||
Accounts receivable, less allowances (December 2011- $187; September 2011 - $137)
|
7,464 | 6,604 | ||||||
Other
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160 | 190 | ||||||
Total current assets
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7,669 | 7,108 | ||||||
Property and equipment, net
|
385 | 409 | ||||||
Goodwill
|
1,280 | 1,280 | ||||||
Intangible assets, net
|
2,599 | 2,699 | ||||||
Total assets
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$ | 11,933 | $ | 11,496 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 400 | $ | 485 | ||||
Accrued compensation
|
2,532 | 2,391 | ||||||
Short-term debt
|
2,360 | 1,938 | ||||||
Other
|
1,286 | 1,307 | ||||||
Total current liabilities
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6,578 | 6,121 | ||||||
Long-term obligations
|
632 | 681 | ||||||
Shareholders’ equity:
|
||||||||
Preferred stock; authorized - 100 shares; issued and outstanding - none
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— | — | ||||||
Common stock, no-par value; authorized - 50,000 shares; issued and outstanding - 21,699 shares at December 2011 and at September 2011
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10,037 | 10,031 | ||||||
Accumulated deficit
|
(5,314 | ) | (5,337 | ) | ||||
Total shareholders’ equity
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4,723 | 4,694 | ||||||
Total liabilities and shareholders’ equity
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$ | 11,933 | $ | 11,496 |
Three Months
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||||||||
Ended December 31
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||||||||
(In Thousands, Except Per Share Data)
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2011
|
2010
|
||||||
|
|
|||||||
Net revenues:
|
|
|
||||||
Contract staffing services
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$ | 10,907 | $ | 4,887 | ||||
Direct hire placement services
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1,873 | 923 | ||||||
Management services
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— | 162 | ||||||
Net revenues
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12,780 | 5,972 | ||||||
Cost of contract services
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9,322 | 4,115 | ||||||
Selling, general and administrative expenses
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3,283 | 1,735 | ||||||
Amortization of intangible assets
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100 | 94 | ||||||
Income from operations
|
75 | 28 | ||||||
Interest expense
|
52 | 13 | ||||||
Net Income
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$ | 23 | $ | 15 | ||||
Weighted average number of shares – basic
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21,699 | 14,917 | ||||||
Weighted average number of shares – diluted
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21,928 | 14,921 | ||||||
Net Income per share – basic and diluted
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$ | — | $ | — |
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Three Months
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|||||||
Ended December 31
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||||||||
(In Thousands)
|
2011
|
2010
|
||||||
|
|
|
||||||
Operating activities:
|
||||||||
Net income
|
$ | 23 | $ | 15 | ||||
Adjustments to reconcile net income to net cash used in operating activities -
|
||||||||
Depreciation and amortization
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134 | 141 | ||||||
Stock compensation expense
|
6 | 2 | ||||||
Other non-cash items
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— | 9 | ||||||
Changes in current assets and current liabilities -
|
||||||||
Accounts receivable
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(860 | ) | (1,723 | ) | ||||
Accounts payable
|
(85 | ) | 589 | |||||
Accrued compensation
|
141 | 88 | ||||||
Other items, net
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(40 | ) | (87 | ) | ||||
Net cash used in operating activities
|
(681 | ) | (966 | ) | ||||
Investing activities:
|
||||||||
Acquisition of property and equipment
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(10 | ) | — | |||||
Financing activities:
|
||||||||
Net proceeds from short-term debt
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422 | 264 | ||||||
Net cash provided by financing activities
|
422 | 264 | ||||||
Decrease in cash and cash equivalents
|
(269 | ) | (702 | ) | ||||
Cash and cash equivalents at beginning of period
|
314 | 945 | ||||||
Cash and cash equivalents at end of period
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$ | 45 | $ | 243 | ||||
Supplemental Disclosure of Cash Flow Information:
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||||||||
Interest paid
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$ | 37 | $ | 15 |
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·
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In August 2011, the Company purchased certain assets of Ashley Ellis, LLC in exchange for 1,250 shares of common stock value at $331.
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·
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In November 2010, the Company purchased certain assets of DMCC Staffing, LLC and RFFG of Cleveland, LLC in exchange for the issuance of 5,581 shares of common stock valued at $2,400.
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Three Months
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||||||||
Ended December 31
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||||||||
(In Thousands)
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2011
|
2010
|
||||||
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|
|||||||
Common shares outstanding:
|
|
|
||||||
Number at beginning of period
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21,699 | 14,856 | ||||||
Issuance of common stock for acquisition
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— | 5,581 | ||||||
Number at end of period
|
21,699 | 20,437 | ||||||
Common stock:
|
||||||||
Balance at beginning of period
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$ | 10,031 | $ | 7,287 | ||||
Issuance of common stock for acquisitions
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— | 2,400 | ||||||
Stock compensation expense
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6 | 2 | ||||||
Balance at end of period
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$ | 10,037 | $ | 9,689 | ||||
Accumulated deficit:
|
||||||||
Balance at beginning of period
|
$ | (5,337 | ) | $ | (5,695 | ) | ||
Net Income
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23 | 15 | ||||||
Balance at end of period
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$ | (5,314 | ) | $ | (5,680 | ) |
In Thousands
|
||||
Stock consideration
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$ | 331 | ||
Future payout consideration
|
200 | |||
Payout consideration
|
200 | |||
Total consideration for acquisition
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$ | 731 |
In Thousands
|
||||
Fixed assets
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$ | 114 | ||
Intangible assets – trade name
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17 | |||
Intangible assets – customer relationships
|
577 | |||
Goodwill
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23 | |||
Total fair value of assets acquired
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$ | 731 |
In Thousands
|
||||
Stock consideration
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$ | 2,400 | ||
Earn-out consideration
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2,198 | |||
Total consideration for acquisition
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$ | 4,598 |
In Thousands
|
||||
Fixed assets
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$ | 5 | ||
Intangible assets - management agreement
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1,396 | |||
Intangible assets - customer relationships
|
2,113 | |||
Goodwill
|
1,084 | |||
Total fair value of assets acquired
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$ | 4,598 |
Three months ended
|
||||||||
December 31
|
||||||||
(In thousands)
|
2011
|
2010
|
||||||
Net revenues
|
$ | 12,780 | $ | 6,563 | ||||
Net income
|
$ | 23 | $ | 26 | ||||
Basic and diluted loss per share
|
$ | 0.00 | $ | 0.00 |
Three Months Ended
|
||||||||
December 31
|
||||||||
(In Thousands)
|
2011
|
2010
|
||||||
Direct Hire Placement Services
|
||||||||
Revenue - net
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$ | 1,873 | $ | 923 | ||||
Placement services gross margin
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100 | % | 100 | % | ||||
Operating loss
|
(203 | ) | (152 | ) | ||||
Depreciation & amortization
|
64 | 47 | ||||||
Accounts receivable – net
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1,043 | 477 | ||||||
Intangible assets - net
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555 | — | ||||||
Goodwill
|
24 | — | ||||||
Total assets
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4,697 | 4,988 | ||||||
Management Services
|
||||||||
Revenue - net
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$ | — | $ | 162 | ||||
Operating income
|
— | 164 | ||||||
Fee receivable
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137 | 162 | ||||||
Intangible assets –net
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— | 1,342 | ||||||
Total assets
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137 | 1,504 |
Contract Staffing Services
|
||||||||
Agricultural services revenue – net
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$ | 2,565 | $ | 2,377 | ||||
Industrial services revenue – net
|
6,284 | 935 | ||||||
Professional services revenue – net
|
2,058 | 1,575 | ||||||
Agricultural services gross margin
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5.7 | % | 3.9 | % | ||||
Industrial services gross margin
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12.5 | % | 17.4 | % | ||||
Professional services gross margin
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31.5 | % | 32.9 | % | ||||
Operating income
|
$ | 278 | $ | 16 | ||||
Depreciation and amortization
|
72 | 95 | ||||||
Accounts receivable net – agricultural services
|
1,411 | 932 | ||||||
Accounts receivable net – industrial services
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3,751 | 676 | ||||||
Accounts receivable net – professional services
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1,122 | 898 | ||||||
Intangible assets - net
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2,044 | 2,332 | ||||||
Goodwill
|
1,256 | 1,256 | ||||||
Total assets
|
7,099 | 2,385 | ||||||
Consolidated
|
||||||||
Revenue -net
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12,780 | 5,972 | ||||||
Operating income
|
75 | 28 | ||||||
Depreciation and amortization
|
136 | 141 | ||||||
Total accounts receivable – net
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7,464 | 3,143 | ||||||
Intangible assets – net
|
2,599 | 3,674 | ||||||
Goodwill
|
1,280 | 1,256 | ||||||
Total assets
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$ | 11,933 | $ | 8,877 |
December 31
|
September 30
|
|||||||
(In thousands)
|
2011
|
2011
|
||||||
|
|
|||||||
Computer software
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$ | 1,447 | $ | 1,447 | ||||
Office equipment, furniture and fixtures
|
2,076 | 2,066 | ||||||
Total property and equipment, at cost
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3,523 | 3,513 | ||||||
Accumulated depreciation and amortization
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(3,138 | ) | (3,104 | ) | ||||
Property and equipment, net
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$ | 385 | $ | 409 |
(In Thousands)
|
Cost
|
Accumulated
Amortization and
Impairment
|
Net
Book Value
|
|||||||||
Non-Compete
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$ | 89 | $ | 28 | $ | 61 | ||||||
Customer Relationships
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2,913 | 391 | 2,522 | |||||||||
Management Agreement
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1,396 | 1,396 | — | |||||||||
Trade Name
|
17 | 1 | 16 | |||||||||
$ | 4,415 | $ | 1,816 | $ | 2,599 |
(In Thousands)
|
Cost
|
Accumulated
Amortization and
Impairment
|
Net
Book Value
|
|||||||||
Non-Compete
|
$ | 89 | $ | 24 | $ | 65 | ||||||
Customer Relationships
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2,913 | 296 | 2,617 | |||||||||
Management Agreement
|
1,396 | 1,396 | — | |||||||||
Trade Name
|
17 | — | 17 | |||||||||
$ | 4,415 | $ | 1,716 | $ | 2,699 |
Three Months
Ended December 31,
|
||||||||||||||||
(In thousands)
|
2011
|
2010
|
$ change
|
% change
|
||||||||||||
Placement Services
|
$ | 1,873 | $ | 923 | $ | 950 | 102.9 | % | ||||||||
Management Services
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— | 162 | (162 | ) | (100 | %) | ||||||||||
Professional Contract Services
|
2,058 | 1,575 | 483 | 30.7 | ||||||||||||
Agricultural Contract Services
|
2,565 | 2,377 | 188 | 7.9 | ||||||||||||
Industrial Contract Services
|
6,284 | 935 | 5,349 | 572 | ||||||||||||
Consolidated Net Revenues
|
$ | 12,780 | $ | 5,972 | $ | 6,808 | 114.0 | % |
Three Months Ended | Three Months Ended | ||
Gross Profit Margin % |
December 31, 2011
|
December 31, 2010
|
|
Direct hire placement services
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100%
|
100%
|
|
Management services
|
n/a
|
100%
|
|
Agricultural contract services
|
5.7%
|
3.9%
|
|
Industrial contract services
|
12.5%
|
17.2%
|
|
Professional contract services
|
31.5%
|
32.9%
|
|
Combined Gross Profit Margin %
|
27.1%
|
31.1%
|
|
·
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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 the 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.
|
For the three
months ended
December 31, 2011
|
For the three
months ended
December 31, 2010
|
|||||||
Cash flows used in operating activities
|
$ | (681 | ) | $ | (966 | ) | ||
Cash flows used in investing activities
|
(10 | ) | — | |||||
Cash flows provided by financing activities
|
422 | 264 |
Item 4.
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Item 1.
|
Item 1A.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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No.
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Description of Exhibit
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Certifications of the principal chief executive officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
|
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Certifications of the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
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Certifications of the principal chief executive officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act and Section 1350 of Title 18 of the United States Code.
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Certifications of the principal financial officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act and Section 1350 of Title 18 of the United States Code.
|
|
101.INS | Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
GENERAL EMPLOYMENT ENTERPRISES, INC.
|
|
(Registrant) | |
Date : February 14, 2012
|
By: /s/ Salvatore J. Zizza
|
Salvatore J. Zizza
|
|
Chairman of the Board and Chief Executive Officer
|
|
By: /s/ Jarett A. Misch
|
|
Jarett A. Misch
|
|
Chief Financial Officer and Treasurer
|
1.
|
|
I have reviewed this Quarterly Report on Form 10-Q of General Employment Enterprises, Inc. for the quarterly period ended December 31, 2011;
|
2.
|
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: February 14, 2012 | ||
/s/ Salvatore J. Zizza
|
|
|
Salvatore J. Zizza | ||
Chairman of the Board and Chief Executive Officer |
1.
|
|
I have reviewed this Quarterly Report on Form 10-Q of General Employment Enterprises, Inc. for the quarterly period ended December 31, 2011;
|
2.
|
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: February 14, 2012 | ||
|
/s/ Jarett A. Misch
|
|
Jarett A. Misch | ||
Chief Financial Officer and Treasurer |
|
1.
|
The Quarterly Report of Meritor, Inc. on Form 10-Q for the quarterly period ended December 31, 2011 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and
|
|
2.
|
The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of Meritor, Inc.
|
/s/ Salvatore J. Zizza
|
|
||
Salvatore J. Zizza | |||
Chairman of the Board and Chief Executive Officer | |||
Date: February 14, 2012 |
|
1.
|
The Quarterly Report of Meritor, Inc. on Form 10-Q for the quarterly period ended December 31, 2011 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and
|
|
2.
|
The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of Meritor, Inc.
|
|
/s/ Jarett A. Misch
|
|
Jarett A. Misch | ||
Chief Financial Officer and Treasurer | ||
Date: February 14, 2012 |
Entry into Asset Purchase Agreements
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2011
|
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Entry into Asset Purchase Agreements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entry into Asset Purchase Agreements | 2. Entry into Asset Purchase Agreements Ashley Ellis, LLC On August 31, 2011, General Employment Enterprises, Inc. (the “Company”) entered into an asset purchase agreement with Ashley Ellis LLC, an Illinois limited liability company (“Ashley Ellis”), and Brad A. Imhoff (the “Ashley Ellis Asset Purchase Agreement”), for the purchase of certain assets of Ashley Ellis, primarily customer lists, comprising Ashley Ellis' services business. Ashley Ellis' services business was operated from offices in Illinois, Texas and Georgia and provided services related to the recruitment and placement of technical personnel. The Ashley Ellis Asset Purchase Agreement was deemed effective on September 1, 2011. Brad A. Imhoff is the brother of Herbert F. Imhoff, Jr., a director and President of the Company. Brad A. Imhoff and Ashley Ellis, an entity of which Brad A. Imhoff is the sole member and Chief Executive Officer, were parties to the transaction. As consideration for the assets, the Company paid Ashley Ellis $200,000 on the date of closing and agreed to pay Ashley Ellis an additional $200,000 within six months of closing. The Company also agreed to issue to Ashley Ellis 1,250,000 restricted shares of the Company's common stock. As the sole member of Ashley Ellis, Brad A. Imhoff has an interest in the entire consideration paid by the Company to Ashley Ellis for the assets. In connection with the transactions contemplated by the Ashley Ellis Asset Purchase Agreement, on August 31, 2011, the Company and Ashley Ellis entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which Ashley Ellis was granted certain piggyback registration rights with respect to the Shares to be issued to Ashley Ellis under the Ashley Ellis Asset Purchase Agreement. The Registration Rights Agreement contains certain indemnification provisions for the benefit of the Company and Ashley Ellis and other customary provisions. The total consideration is summarized as follows:
The following table summarizes the approximate fair value of the assets acquired and liabilities assumed at the date of closing.
The assets purchased from Ashley Ellis constitute a business and as such, the acquisition of these assets was accounted for as a business combination. The assets purchased related to the Ashley Ellis, LLC acquisition were not considered a significant acquisition. The results of operations of Ashley Ellis, LLC are included in the Company's statement of operations from the effective date of the acquisition, September 1, 2011. Acquisition of DMCC Staffing, LLC and RFFG of Cleveland, LLC Effective November 1, 2010, the Company, through its wholly-owned subsidiary, Triad Personnel Services, Inc. (Triad), entered into an asset purchase agreement (the “Asset Purchase Agreement”), dated as of October 29, 2010, with DMCC Staffing, LLC (“DMCC”), RFFG of Cleveland, LLC (“RFFG of Cleveland”), and Thomas J. Bean, for the purchase of certain assets of DMCC and RFFG of Cleveland, primarily customer lists, comprising DMCC's and RFFG of Cleveland's services business. Thomas Bean was the beneficial owner of approximately 9.9% of the Company's outstanding shares prior to acquisition. The business is operated from offices in Ohio and provides labor and human resource solutions, including temporary staffing, human resources and payroll outsourcing services, labor and employment consulting and workforce solutions. RFFG of Cleveland has one customer. The closing of the Asset Purchase Agreement was subject to certain conditions, including entry into a definitive management and services agreement for the management of the businesses of certain affiliates of DMCC, RFFG of Cleveland and Mr. Bean (the “Management Agreement”) by the Company. On November 30, 2010, Business Management Personnel, Inc. (“BMP”), a wholly-owned subsidiary of the Company, entered into the Management Agreement, effective as of November 1, 2010, with RFFG, LLC (“RFFG”). The assets purchased from RFFG of Cleveland and DMCC constitute businesses and as such the acquisition of these assets were accounted for as a business combination. Pursuant to the Asset Purchase Agreement, the Company agreed to issue $2,400,000 in shares of its common stock (5,581,395 shares based on the December 30, 2010 closing date) to DMCC and RFFG of Cleveland upon receipt of (a) stockholder approval of the transaction and of an increase to the Company's authorized Common Stock and (b) approval of an additional listing application by the NYSE Amex Stock Exchange. On March 24, 2011, the Company received written consents in lieu of a meeting of shareholders from the holders of 71.9% of the shares of Common Stock, (i) approving the issuance of 5,581,395 shares of the Common Stock to DMCC Staffing and RFFG of Cleveland pursuant to the Asset Purchase Agreement and the issuance of any additional shares of Common Stock to DMCC and RFFG of Cleveland as may be necessary pursuant to certain earn-out payment provisions under the Asset Purchase Agreement; and (ii) approving an amendment to the Articles of Incorporation of the Company to increase the number of authorized shares of capital stock from 20,100,000 shares to 50,100,000 shares and to increase the number of authorized shares of Common Stock from 20,000,000 shares to 50,000,000 shares. Commencing in 2011, if the aggregate EBITDA of the businesses acquired, plus any management fees paid to the Company under the Management Agreement meets certain targets (each, an “EBITDA Target”) over a four-year period ending December 31, 2014 (the “Earnout Period”), the Company will be required to make earn-out payments to DMCC and RFFG of Cleveland, each payable in three equal installments. In the event that an EBITDA Target for a certain period is not met, the earn-out payment in respect to such period will be reduced proportionately. The EBITDA Targets are $300,000, $600,000, $900,000 and $1,200,000 for each of the three-, six-, nine- and twelve-month periods, respectively, in the fiscal year ending December 31, 2011, and earn-out payments will consist of quarterly payments of $150,000, payable in three equal monthly installments, if the relevant EBITDA Targets are met. Starting in the fiscal year ending December 31, 2012, the EBITDA Targets will be adjusted annually to reflect the EBITDA for the twelve-month period ending on December 31st of the most recently completed fiscal year (each, an “Annual EBITDA Target”) and earn-out payments for the year will be adjusted to equal 50% of the relevant Annual EBITDA Target divided by four. At the end of each fiscal year during the Earnout Period, if the aggregate EBITDA for the 12-month period then ended is greater than the Annual EBITDA Target for such year, then the Company will pay to DMCC and RFFG of Cleveland the amount of such excess, 50% in cash and 50% in shares of common stock. Through December 31, 2011, $556,000 of earn-out payments were currently due and are included in other liabilities on the consolidated balance sheet. The accounting guidance requires that contingent consideration be added to the purchase price and the resultant liability be recorded at fair value. Given the terms of the earn-out provisions of the Asset Purchase Agreement, the Company believes that the earn-out will be paid and accordingly, has included the fair value of the projected total earn-out payments in the total consideration paid for the acquisition. Any subsequent changes in the estimated fair value of this contingent consideration will be recorded in the Company's statement of operations. The total consideration is summarized as follows:
The following table summarizes the approximate fair value of the assets acquired and liabilities assumed at the date of closing.
The results of operations of DMCC and RFFG of Cleveland are included in the Company's statement of operations from the effective date of the acquisition, November 1, 2010. The Company wrote off the intangible asset associated with the management agreement and reduced the earn-out liability by $1,276,000 in September 2011 when it was determined that RFFG ceased doing business on July 15, 2011 and therefore, future management fees would no longer would be earned. In connection with the application of purchase accounting, the Company recorded its identifiable intangible assets at fair value. Fair value of the intangible assets was determined primarily through the use of a discounted cash flow analysis. The discounted cash flow analysis projected the estimated future cash flows to be generated by the underlying assets and discounted these at a rate reflecting perceived business and financial risks. The projected cash flow estimates used in the discounted cash flow analysis are based on management's best estimate and actual results may differ. The valuation of these intangible assets is based predominately on Level 3 inputs. The levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets. Level 2: Inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly, included quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3: Inputs that are both significant to the fair value measurement and unobservable. Pro forma Information The following unaudited pro forma information represents the Company's results of operations as if the acquisitions described above had occurred on the first day of the earliest period presented.
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