UNITED STATES SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549




FORM
10-Q





x
            Quarterly
      Report Under Section 13 or 15(d) of the Securities Exchange Act of
      1934





For the
quarterly period ended December 31, 2009





or





o
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





Commission
File Number 1-05707





GENERAL
      EMPLOYMENT ENTERPRISES, INC(Exact
      name of registrant as specified in its charter)Illinois
            36-6097429(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification Number)One Tower Lane, Suite 2200, Oakbrook Terrace,
      Illinois 60181(Address
      of principal executive offices)(630) 954-0400(Registrant’s
      telephone number, including area
code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yesx   No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).


Yes   o  
No o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer o
              Accelerated
      fileroNon-accelerated
      filer   o
              Smaller reporting
      companyx


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


YesoNo x





The
number of shares outstanding of the registrant’s common stock as of December 31,
2009 was 13,380,265.










PART
I
 – FINANCIAL INFORMATION





Item
1, Financial Statements





GENERAL
EMPLOYMENT ENTERPRISES, INC.


CONSOLIDATED
BALANCE SHEET


December
      31
            
            
            September
      302009
            
            
            2009(In Thousands)
            
            (Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            2,247
            
            
            $
            2,810Accounts
      receivable, less allowances (December 2009 - $95; September 2009 -
      $76)
            
            
            801
            
            
            
            1,038Other current assets
            
            
            211
            
            
            
            249Total
      current assets
            
            
            3,259
            
            
            
            4,097Property and equipment, net
            
            
            520
            
            
            
            570Total assets
            
            $
            3,779
            
            
            $
            4,667LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            301
            
            
            $
            348Accrued
      compensation
            
            
            461
            
            
            
            666Other current liabilities
            
            
            459
            
            
            
            474Total current liabilities
            
            
            1,221
            
            
            
            1,488Long-term obligations
            
            
            540
            
            
            
            575Shareholders’
      equity:Preferred
      stock; authorized - 100 shares; issued and outstanding -
    none
            
            
            —
            
            
            
            —Common
      stock, no-par value; authorized - 20,000 shares; issued and outstanding -
      13,380 shares
            
            
            6,746
            
            
            
            6,743Accumulated deficit
            
            
            (4,728
            )
            
            
            (4,139
            )Total shareholders’ equity
            
            
            2,018
            
            
            
            2,604Total liabilities and shareholders’
      equity
            
            $
            3,779
            
            
            $
            4,667





See notes
to consolidated financial statements.


2


GENERAL
EMPLOYMENT ENTERPRISES, INC.


CONSOLIDATED
STATEMENT OF OPERATIONS (Unaudited)


Three
      MonthsEnded December 31(In Thousands, Except Per Share
      Amounts)
            
            2009
            
            
            2008Net
      revenues:Contract
      services
            
            $
            1,402
            
            
            $
            1,545Placement services
            
            
            570
            
            
            
            1,342Net
      revenues
            
            
            1,972
            
            
            
            2,887Cost
      of contract services
            
            
            996
            
            
            
            1,036Selling, general and administrative
      expenses
            
            
            1,547
            
            
            
            2,556Loss
      from operations
            
            
            (571
            )
            
            
            (705
            )Other expense, net
            
            
            18
            
            
            
            71Net loss
            
            $
            (589
            )
            
            $
            (776
            )Average number of shares - basic and
      diluted
            
            
            13,380
            
            
            
            5,165Net loss per share - basic and
      diluted
            
            $
            (.04
            )
            
            $
            (.15
            )




See notes
to consolidated financial statements.


3


GENERAL
EMPLOYMENT ENTERPRISES, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS (Unaudited)


Three
      MonthsEnded December 31(In Thousands)
            
            2009
            
            
            2008Operating
      activities:Net
      loss
            
            $
            (589
            )
            
            $
            (776
            )Depreciation
      and other noncurrent items
            
            
            18
            
            
            
            65Changes
      in current assets and current liabilities -Accounts
      receivable
            
            
            237
            
            
            
            251Accounts
      payable
            
            
            (47
            )
            
            
            (35
            )Accrued
      compensation
            
            
            (205
            )
            
            
            (389
            )Other current items, net
            
            
            23
            
            
            
            (124
            )Net cash used by operating
      activities
            
            
            (563
            )
            
            
            (1,008
            )Decrease
      in cash and cash equivalents
            
            
            (563
            )
            
            
            (1,008
            )Cash and cash equivalents at beginning of
      period
            
            
            2,810
            
            
            
            4,165Cash and cash equivalents at end of
      period
            
            $
            2,247
            
            
            $
            3,157




See notes
to consolidated financial statements.


4


GENERAL
EMPLOYMENT ENTERPRISES, INC.


CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)


Three
      MonthsEnded December 31(In Thousands)
            
            2009
            
            
            2008Common
      shares outstanding:Number at beginning of
    period
            
            
            13,380
            
            
            
            5,165Number at end of period
            
            
            13,380
            
            
            
            5,165Common
      stock:Balance
      at beginning of period
            
            $
            6,743
            
            
            $
            4,987Stock compensation expense
            
            
            3
            
            
            
            9Balance at end of period
            
            $
            6,746
            
            
            $
            4,996Retained
      earnings (accumulated deficit):Balance
      at beginning of period
            
            $
            (4,139
            )
            
            $
            89Net loss
            
            
            (589
            )
            
            
            (776
            )Balance at end of period
            
            $
            (4,728
            )
            
            $
            (687
            )




See notes
to consolidated financial statements.


5


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)








Basis
of Presentation





The
consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America and the rules of
the United States Securities and Exchange Commission.  In the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial statements have been
included.  We have evaluated events occurring between the end of our
most recent fiscal year and February 3, 2010, which is the date that these
financial statements were issued.  Interim results are not necessarily
indicative of results for a full year.  These financial statements
should be read in conjunction with the financial statements included in the
Company’s annual report on Form 10-K for the year ended September 30,
2009.








Recent
Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board issued guidance on
business combinations. Under the FASB guidance, an entity is required to
recognize the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration at their fair value on the acquisition date. It
further requires that acquisition-related costs be recognized separately from
the acquisition and expensed as incurred, restructuring costs generally be
expensed in periods subsequent to the acquisition date, and changes in
accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period impact income tax expense. The
Company adopted the guidance on business combinations on a prospective basis as
of October 1, 2009, and it will be applied to any future
acquisitions.








Placement
Service Revenues





The
provision for falloffs and refunds, reflected in the consolidated statement of
operations as a reduction of placement service revenues, was $67,000 for the
three-month period ended December 31, 2009 and $81,000 for the three-month
period ended December 31, 2008.








Other
Expense, Net





The
components of other expense, net are as follows:





Three
      MonthsEnded December 31(In Thousands)
            
            2009
            
            
            2008Interest
      expense
            
            $
            10
            
            
            $
            —Interest
      income
            
            
            (3
            )
            
            
            (22
            )Loss on investments
            
            
            11
            
            
            
            93Other expense, net
            
            $
            18
            
            
            $
            71





The loss
on investments includes realized and unrealized holding gains and losses on
trading securities.


6


Cash
and Cash Equivalents





A summary
of cash and cash equivalents is as follows:


December
      31
            
            September
      30(In Thousands)
            2009
            
            2009Cash
            
            $
            2,247
            
            
            $
            510Certificate of deposit
            
            
            —
            
            
            
            2,300Total cash and cash
    equivalents
            
            $
            2,247
            
            
            $
            2,810





In
November 2009, the Company discovered that it did not receive the proceeds from
a bank for a $2,300,000 certificate of deposit that was scheduled to mature in
October 2009.  Although the Company made a formal inquiry of the bank,
it did not receive an adequate explanation for the bank’s non-performance
related to the deposit.   In December 2009, the Company entered
into an agreement to assign its interests in the certificate of deposit, without
recourse, to an unrelated party that has other business interests with the bank,
and the Company was reimbursed for the face value of the deposit.








Income
Taxes





There
were no credits for income taxes as a result of the pretax losses during the
periods, because there was not sufficient assurance that a future tax benefit
would be realized.








Property
and Equipment





Property
and equipment consisted of the following:




December
      31
              
              
              September
      30(In
      Thousands)
              
              2009
              
              
              2009Property
      and equipment, at cost
              
              $
              3,466
              
              
              $
              3,466Accumulated
      depreciation and amortization
              
              
              (2,946
              )
              
              
              (2,896
              )Property
      and equipment, net
              
              $
              520
              
              
              $
              570





Commitments





As of
December 31, 2009, the Company had contractual obligations to purchase
approximately $710,000 of recruitment advertising through December 31,
2011.








Line
of Credit





On
November 20, 2009, the Company completed the execution of a loan and security
agreement with Crestmark Bank.  Under the agreement, the bank will
make advances to the Company upon the request of the Company, subject to certain
limitations.  Advances with respect to the loan are always
discretionary with Crestmark.  The aggregate loan amount outstanding
at any one time may not exceed the lesser of $3,500,000 or 85% of eligible
accounts receivable, as defined in the agreement, and the Company granted the
bank a security interest in all of its accounts receivable and other
property.  In addition, the agreement requires the Company to comply
with certain financial covenants.  Advances will be charged interest
at the rate of 1.00 percentage point above the prime rate and are payable on
demand.   The loan agreement will continue in effect until
demand, but if not sooner demanded then for three years from the date of the
agreement, and it will be automatically renewed for consecutive two year terms
unless terminated by either party.  Certain officers of the Company
have provided the bank with a guaranty of validity for certain representations
and covenants made by the Company.  As of December 31, 2009, there
were no outstanding borrowings under the line of credit, the Company was in
compliance with its financial covenants, and the amount available for borrowing
was $538,000.


7


Item
2, Management’s Discussion and Analysis of Financial Condition and Results of
Operations.








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 December 31, 2009, the Company
operated ten branch offices located in eight 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 10.0% in
December 2009 and 7.2% in December 2008.  The change indicates a trend
toward a lower level of employment in the United States during the last twelve
months.





During
the twelve months ended December 31, 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 4.2 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.





To better
position the Company in the face of these economic conditions, the Company took
action to reduce its cost structure.  The Company implemented a
restructuring of its corporate and field operations during the third quarter of
fiscal 2009.  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 other actions taken, the sales, recruiting and administrative staff as of
December 31, 2009 was 56% below the staff level a year earlier, and the salaries
and benefits of its three executive officers in the aggregate had been reduced
by $637,000 on an annual basis.  Although the restructuring was
successful in reducing costs, it also had the effect of reducing the Company’s
sales capacity.








Results
of Operations





Net
Revenues


Consolidated
net revenues for the three months ended December 31, 2009 were down $915,000
(32%) from the prior year.  Contract service revenues decreased
$143,000 (9%) and placement service revenues decreased $772,000
(58%).  As a result of the weaker economic conditions that prevailed
during the three months ended December 31, 2009, the Company experienced less
demand for its services.  The decline in consolidated net revenues was
the result of a 20% decrease in the number of billable contract hours and 47%
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 three months
ended December 31, 2009 was down $40,000 (4%) as a result of the lower volume of
contract business.  The gross profit margin on contract business was
29.0%, which was 3.9 points less than 32.9% for the prior year due to
competitive pricing pressures during the period.


8


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 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.





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 three months ended December 31, 2009
decreased $1,009,000 (39%).  Compensation in the operating divisions
was down 53%, reflecting lower commission expense on the lower volume of
business and staff reductions during the last year.  Administrative
compensation was down 36%, reflecting executive pay
reductions.  Occupancy costs were down 33% for the period because of
operating fewer branch offices than last year.  Recruitment
advertising decreased 70% due to lower utilization of job board posting
services.  All other selling, general and administrative expenses
together were up 65%, primarily due to additional professional
fees.





Other


Other
expense, net, for the three months ended December 31, 2009 was down 75% from the
same period last year due to a reduction in investment losses.





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.








Liquidity
and Capital Recourses





As of
December 31, 2009, the Company had cash and cash equivalents of $2,247,000,
which was a decrease of $563,000 from September 30, 2009.  Net working
capital at December 31, 2009 was $2,038,000, which was a decrease of $571,000
from September 30, 2009, and the current ratio was 2.7 to
1.  Shareholders’ equity as of December 31, 2009 was $2,018,000 which
represented 53% of total assets.





During
the three months ended December 31, 2009, the net cash used by operating
activities was $563,000.  The net loss for the period, adjusted for
depreciation and other non-cash charges, used $571,000.  A reduction
of accounts receivable provided $237,000, a reduction of payroll liabilities
used $205,000, and all other working capital items used an additional
$24,000.





Information
about future minimum lease payments, purchase commitments and long-term
obligations is presented in the notes to consolidated financial statements
contained in the Company’s annual report on Form 10-K for the fiscal year ended
September 30, 2009.


9


On
November 20, 2009, the Company completed the execution of a loan and security
agreement with Crestmark Bank.  Under the agreement, the bank will
make advances to the Company upon the request of the Company, subject to certain
limitations.  Advances with respect to the loan are always
discretionary with Crestmark.  The aggregate loan amount outstanding
at any one time may not exceed the lesser of $3,500,000 or 85% of eligible
accounts receivable, as defined in the agreement, and the Company granted the
bank a security interest in all of its accounts receivable and other
property.  In addition, the agreement requires the Company to comply
with certain financial covenants.  Advances will be charged interest
at the rate of 1.00 percentage point above the prime rate and are payable on
demand.   The loan agreement will continue in effect until
demand, but if not sooner demanded then for three years from the date of the
agreement, and it will be automatically renewed for consecutive two year terms
unless terminated by either party.  Certain officers of the Company
have provided the bank with a guaranty of validity for certain representations
and covenants made by the Company.  Borrowings available under the
line of credit could be used for working capital purposes.  As of
December 31, 2009, there were no outstanding borrowings under the line of
credit, the Company was in compliance with its financial covenants, and the
amount available for borrowing was $538,000.





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’s ability to continue as a going concern is
ultimately dependent on its ability to reduce costs and increase revenues to a
level that will allow it to operate profitably and sustain positive operating
cash flows.  Despite recent losses, management believes that existing
cash resources will be adequate to finance current operations for at least the
next twelve months.  Management intends to grow the Company through
business acquisitions that are expected to be accretive to revenues, earnings
and cash flow.





The
Company is in negotiations to purchase On-Site Services, Inc., a temporary
staffing and payroll services company with annual revenues of approximately $10
million.  It is anticipated that the purchase would be financed
through the issuance of a note payable and shares of Company’s common
stock.





On
December 21, 2009, the Company entered into a memorandum agreement to purchase
the core business and business assets of GT Systems, Inc.  Among other
things, the agreement requires the Company to obtain an accounts receivable
financing line of credit of $9,000,000.  The purchase price is to be
paid by the issuance of no more than 2,000,000 shares of the Company’s common
stock.  The closing of the transaction is subject to the approval and
execution by both parties of definitive transaction documents.








Off-Balance
Sheet Arrangements





As of
December 31, 2009, and during the three 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.


10


Item
4, Controls and Procedures.





As of
December 31, 2009, the Company’s management evaluated, with the participation of
its principal executive officer and its principal financial officer, the
effectiveness of the Company’s disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the
"Exchange Act").  Based on that evaluation, the Company’s principal
executive officer and its principal financial officer concluded that the
Company’s disclosure controls and procedures were adequate as of December 31,
2009 to ensure that information required to be disclosed in reports filed or
submitted by the Company under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms.





As noted
in our Form 10-K for the year ended September 30, 2009, management identified
material weaknesses in internal control during the fourth quarter of fiscal
2009. A certificate of deposit was purchased without adequate documentation and
this investment also violated the Company’s established investment policy. In
addition, management identified that during part of fiscal 2009, an individual
that was neither an employee nor a director was included as an authorized signor
on one of the Company’s bank accounts.





During
the quarter ended December 31, 2009, the Company has taken remedial actions to
address these material weaknesses.  The Company transferred the funds
originally invested in the certificate of deposit (“CD”) to a financial
institution that meets the criteria of the Company’s established investment
policy.  In addition, the Chief Executive Officer, Ron Heineman, who
authorized the purchase of the CD, voluntarily resigned effective December 23,
2009 and Salvatore Zizza was appointed by the Board of Directors as the Chief
Executive Officer of the Company effective December 23, 2009. We believe these
actions have resulted in the remediation of the material weaknesses previously
disclosed in our Form 10-K for the year ended September 30, 2009.





Except as
discussed above, there were no changes in the Company’s internal control over
financial reporting that occurred during the Company’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.








PART
II – OTHER INFORMATION





Item
6, Exhibits.





The
      following exhibits are filed as a part of Part I of this
      report:No.
            Description of Exhibit31.01
            Certifications
      of the principal executive officer required by Rule 13a-14(a) or Rule
      15d-14(a) of the Exchange Act.31.02
            Certifications
      of the principal financial officer required by Rule 13a-14(a) or Rule
      15d-14(a) of the Exchange Act.32.01
            Certifications
      of the principal 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.32.02
            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..


11


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





GENERAL EMPLOYMENT ENTERPRISES,
      INC.
              (Registrant)Date:  February
      3, 2010
            By: /s/ Kent M. YauchKent
      M. YauchVice
      President, Chief Financial Officer and Treasurer (Principal financial and
      accounting officer and duly authorized
officer)







12