FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from_________________ to _________________
Commission File Number 1-9477
Joule Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2735672
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1245 Route 1 South, Edison, New Jersey 08837
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(Address of principal executive officers)
(Zip Code)
(732) 548-5444
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(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports 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.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b.2 of the Act).
Yes [ ] No [X]
As of August 16, 2004, 3,683,650 shares of the Registrant's common stock were
outstanding.
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Joule Inc. And Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30, September 30,
2004 2003
------------ ------------
ASSETS
- ------
CURRENT ASSETS:
Cash $ 189,000 $ 177,000
Accounts receivable, less allowance
for doubtful accounts of $244,000 at June 30
and $393,000 at September 30 8,401,000 7,940,000
Prepaid insurance 630,000 1,214,000
Prepaid expenses and other current assets 516,000 606,000
------------ ------------
Total Current Assets 9,736,000 9,937,000
PROPERTY AND EQUIPMENT, NET 3,224,000 3,675,000
GOODWILL 1,191,000 1,184,000
OTHER ASSETS 623,000 501,000
------------ ------------
Total Assets $ 14,774,000 $ 15,297,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Loans payable to bank $ 2,333,000 $ 3,150,000
Accounts payable and accrued expenses 1,535,000 1,289,000
Accrued payroll and related taxes 1,665,000 1,935,000
------------ ------------
Total Current Liabilities 5,533,000 6,374,000
CAPITAL LEASE OBLIGATIONS 25,000 85,000
DEFERRED COMPENSATION 252,000 162,000
------------ ------------
Total Liabilities 5,810,000 6,621,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value:
Authorized 500,000 shares, none outstanding -- --
Common stock, $.01 par value:
Authorized 10,000,000 shares; issued 3,828,000 shares 38,000 38,000
Additional paid-in capital 3,674,000 3,674,000
Retained earnings 5,634,000 5,346,000
------------ ------------
9,346,000 9,058,000
LESS: Cost of 144,000 shares of common stock held in treasury 382,000 382,000
------------ ------------
Total Stockholders' Equity 8,964,000 8,676,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 14,774,000 $ 15,297,000
============ ============
See accompanying notes to consolidated financial statements.
2
Joule Inc. And Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
REVENUES $ 18,643,000 $ 17,799,000 $ 53,100,000 $ 51,325,000
------------ ------------ ------------ ------------
COSTS, EXPENSES AND OTHER:
Cost of services 14,918,000 14,390,000 42,588,000 41,711,000
Selling, general & administrative expenses 3,415,000 3,172,000 9,846,000 10,037,000
Interest expense 32,000 31,000 114,000 93,000
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 278,000 206,000 552,000 (516,000)
INCOME TAX PROVISION (BENEFIT) 136,000 80,000 264,000 (202,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 142,000 $ 126,000 $ 288,000 $ (314,000)
============ ============ ============ ============
BASIC AND DILUTED INCOME (LOSS) PER SHARE $ 0.04 $ 0.03 $ 0.08 $ (0.09)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 3,684,000 3,684,000 3,684,000 3,684,000
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENTS OUTSTANDING - DILUTED 3,696,000 3,685,000 3,694,000 3,684,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
3
Joule Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
----------------------------
June 30, June 30,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 288,000 $ (314,000)
Adjustments to reconcile net income (loss) to
net cash flows provided by operating
activities:
Depreciation and amortization 626,000 684,000
Provision for losses on accounts receivable (100,000) --
Writeoffs of property and equipment 12,000 70,000
Gain on sale of property and equipment (22,000) --
Changes in operating assets and liabilities:
Accounts receivable (361,000) 1,591,000
Prepaid expenses and other assets 581,000 (59,000)
Accounts payable and accrued expenses 246,000 (555,000)
Accrued payroll and related taxes (270,000) (231,000)
Deferred compensation 90,000 63,000
------------ ------------
Net cash flows provided by operating activities 1,090,000 1,249,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (164,000) (342,000)
Purchase of marketable securities for deferred compensation plan (56,000) (46,000)
Disposal of property and equipment 26,000 --
Payment for business acquired (7,000) (55,000)
------------ ------------
Net cash flows used in investing activities (201,000) (443,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in loans payable to bank (817,000) (580,000)
Repayment of obligations under capital leases (60,000) (87,000)
------------ ------------
Net cash flows used in financing activities (877,000) (667,000)
------------ ------------
NET CHANGE IN CASH 12,000 139,000
CASH, BEGINNING OF PERIOD 177,000 174,000
------------ ------------
CASH, END OF PERIOD $ 189,000 $ 313,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 103,000 $ 95,000
============ ============
Income taxes paid $ 136,000 $ 24,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTMENT AND FINANCING ACTIVITIES:
Capitalized vehicle leases $ -- $ (16,000)
============ ============
See accompanying notes to consolidated financial statements.
4
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(1) The consolidated balance sheet at the end of the preceding fiscal year
has been derived from the audited consolidated balance sheet contained in the
Company's Form 10-K and is presented for comparative purposes. All consolidated
financial statements are unaudited. Management believes all adjustments,
consisting only of normal and recurring adjustments, necessary to present fairly
the consolidated financial position, results of operations and changes in cash
flows for all interim periods presented, have been made. The results of
operations for interim periods are not necessarily indicative of the operating
results for the full year.
Footnote disclosures normally included in the consolidated financial
statements have been omitted in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and
the published rules and regulations of the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the most recent fiscal year.
(2) At June 30, 2004, the Company has two stock-based employee compensation
plans, which are described more fully in Note 5 to the Company's consolidated
financial statements included in Form 10-K for the fiscal year ended September
30, 2003. The Company accounts for those plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee and director
compensation cost is reflected in net income (loss) in the periods presented
herein as all options granted under those plans had an exercise price equal to
the fair value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income (loss) and income (loss)
per share as if the Company had applied the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation.
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income (loss) as reported ..... $ 142,000 $ 126,000 $ 288,000 $ (314,000)
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects ....... (1,000) (1,000) (3,000) (5,000)
------------ ------------ ------------ ------------
Pro forma net income (loss) ....... $ 141,000 $ 125,000 $ 285,000 $ (319,000)
============ ============ ============ ============
Income (loss) per share:
Basic - as reported .............. $ 0.04 $ 0.03 $ 0.08 $ (0.09)
============ ============ ============ ============
Basic - pro forma ................ $ 0.04 $ 0.03 $ 0.08 $ (0.09)
============ ============ ============ ============
Diluted - as reported ............ $ 0.04 $ 0.03 $ 0.08 $ (0.09)
============ ============ ============ ============
Diluted - pro forma .............. $ 0.04 $ 0.03 $ 0.08 $ (0.09)
============ ============ ============ ============
(3) Segment Disclosures
The Company has determined that its reportable segments are those that
are based on the Company's method of internal reporting, which disaggregates its
business by segment. The Company's reportable segments are: (1) Commercial
Staffing, (2) Industrial Staffing, and (3) Technical Staffing.
5
Information concerning operations by operating segment is as follows
(in 000's):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues
Commercial ..................... $ 5,435 $ 4,973 $ 15,496 $ 13,919
Industrial ..................... 5,800 5,427 15,931 16,668
Technical ...................... 7,408 7,399 21,673 20,738
---------- ---------- ---------- ----------
$ 18,643 $ 17,799 $ 53,100 $ 51,325
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes
Commercial ..................... $ 380 $ 271 $ 935 367
Industrial ..................... 312 113 821 343
Technical ...................... 754 792 2,171 1,826
Corporate (unallocated,
including interest) ........ (1,168) (970) (3,375) (3,052)
---------- ---------- ---------- ----------
$ 278 $ 206 $ 552 $ (516)
---------- ---------- ---------- ----------
(4) Litigation
The Company is subject to various claims and legal proceedings that
arise in the ordinary course of its business activities. Management believes
that any liability that may ultimately result from the resolution of these
matters will not have a material adverse effect on the consolidated financial
condition, results of operations or liquidity of the Company.
(5) Going Private Proposal and Subsequent Events:
On August 21, 2003, the Company announced that it had received a
non-binding proposal from a purchaser group (the "JAC Group") consisting of
Emanuel N. Logothetis, the founder, Chairman of the Board and Chief Executive
Officer of the Company, members of his immediate family and John G. Wellman,
Jr., President and Chief Operating Officer of the Company, to acquire all of the
outstanding shares of the Company's common stock not already owned by the JAC
Group.
A Special Committee, comprised of the three independent members of the
Company's Board of Directors, was formed to evaluate and negotiate the going
private proposal. Following negotiations with the Special Committee, on November
21, 2003, JAC Acquisition Company, Inc. ("JAC"), a corporation formed by the JAC
Group, commenced a tender offer (the "Tender Offer") for all of the outstanding
common stock of the Company not owned by the JAC Group at $1.52 per share. The
Tender Offer was scheduled to expire at 12:00, midnight, Eastern Standard Time,
on December 19, 2003. On December 22, 2003, the JAC Group announced that it had
extended the expiration of the Tender Offer to 5:00 p.m., Eastern Standard Time,
on January 15, 2004, unless further extended. At December 19, 2003,
approximately 350,000 shares of common stock of the Company had been tendered
and not withdrawn.
On January 16, 2004, the JAC Group announced that the number of shares
tendered pursuant to its offer to purchase all of the outstanding common stock
of the Company not owned by the JAC Group was not sufficient to satisfy the
non-waivable minimum tender condition of the tender offer and that the tender
offer had been withdrawn. The JAC Group also announced that it had made an
alternative going private proposal to the Board of Directors of the Company for
a merger of JAC with Joule pursuant to which stockholders of Joule (other than
the JAC Group and stockholders who properly perfect appraisal rights under
Delaware law) would receive $1.54, in cash, for each outstanding share of Joule
6
common stock owned by them. The Board of Directors of Joule reconstituted the
Special Committee of its Board of Directors, consisting of the three independent
directors, to evaluate the merger proposal. The Special Committee sought further
advice from the independent financial advisor and independent legal counsel
previously retained in connection with the original going private proposal.
On March 19, 2004, Joule Inc. announced that it had entered into an
Agreement and Plan of Merger with JAC and that the merger consideration had been
increased to $1.70 per share following discussions between members of the
special committee and the JAC group. In connection with both the Tender Offer
and the merger plan, the Company incurred costs of approximately $224,000
through June 30, 2004, including $71,000 and $174,000 in the three and nine
months ended June 30, 2004, related to fees incurred by the Special Committee to
analyze the JAC Group's offers, which are included in selling, general and
administrative expenses.
The merger was approved by the Board of Directors, with the directors
who are members of the JAC Group abstaining, and by the holders of a majority of
the outstanding shares of Joule common stock, which was obtained by the written
consent of the members of the JAC Group.
On August 13, 2004 the merger was consummated. JAC was merged with and
into Joule, with Joule as the surviving corporation. Each share of Joule common
stock, other than shares of common stock held by the JAC Group, which were
contributed to JAC immediately prior to the Merger in exchange for shares of JAC
common stock, and shares of common stock held by stockholders who perfect
appraisal rights under Delaware law, was converted into the right to receive the
merger consideration of $1.70 per share in cash, without interest. As a result
of the merger, Joule became a privately-held company owned solely by the members
of the JAC Group. The common stock of Joule will cease to be listed on the
American Stock Exchange and Joule will cease to file periodic reports with the
Securities and Exchange Commission.
7
JOULE INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Executive Level Overview
The Company's revenues are derived from providing staffing services to
its customers. Such services include providing commercial (office and light
industrial) workers, technical (engineering, scientific and graphic
design/marketing) personnel, and industrial (skilled craft, industrial plant and
facility maintenance) labor. Substantially all revenue is billed on a direct
cost plus markup basis. The Company also recognizes revenues under fixed price
contracts and for permanent placement services. The Company desegregates its
operations into three segments for internal reporting and management purposes -
Commercial, Industrial, and Technical.
Results of Operations
Revenue increased 4.7% to $18.6 million for the three months ended June
30, 2004 compared to $17.8 million for the year earlier period. Revenue for the
nine months of fiscal 2004 increased 3.5% to $53.1 million from $51.3 million
for the comparable nine-month period of 2003. Technical staffing revenue was
$7.4 million for the three months ended June 30, 2004 and 2003; for the
nine-month period ended June 30, 2004 revenue increased 4.5% to $21.7 million
from $20.7 million for the comparable prior period. This increase, in the
nine-month period, related primarily to the strength of its scientific business
that places personnel with pharmaceutical, bio-tech, chemical, and consumer
products clients, as well as the acquisition in January 2003 of a staffing firm,
which places marketing and creative personnel. Commercial staffing revenue
increased 9.3% to $5.4 million and 11.3% to $15.5 million for the respective
three and nine-month periods ended June 30, 2004 as general demand for these
services improved over prior year periods. Industrial staffing revenue increased
6.9% to $5.8 million for the three-month period ended June 30, 2004 compared to
the 2003 similar period. For the nine-month period ended June 30, 2004,
industrial staffing revenue declined 4.4% to $15.9 million compared to the year
earlier period. This nine-month decline was due to the uneven economic recovery,
which negatively impacted demand for the Company's industrial personnel earlier
in the year. It is too early to conclude that the improvement in results in the
current quarter represents a trend since it was based on short-term projects.
Cost of services was 80.0% of revenue in the current quarter compared
to 80.8% for the prior year three-month period. For the nine-month period cost
of services were 80.2% of revenues in 2004 compared to 81.3% in the same prior
year period. These expenses consist primarily of compensation to employees on
assignment to clients and related costs, including social security, unemployment
taxes, general liability and workers' compensation insurance, and other costs of
services, including travel expenses and a van transportation service which
transports some commercial staffing workers to job sites. The improvements in
cost of services as a percentage of revenue related to modest reductions in
various costs of services in 2004 compared to the prior periods.
Selling, general and administrative expenses were $3.4 million and $9.8
million for the three and nine months ended June 30, 2004, respectively,
compared to $3.2 million and $10.0 million for the year earlier periods, and
represented 18.3% and 18.5% of revenue in the 2004 respective periods, compared
to the respective 2003 periods of 17.8% and 19.6% of revenue. Selling, general
and administrative expenses include staff payroll and related expenses in
addition to advertising, professional fees, depreciation and amortization,
provision for the allowance for doubtful accounts, rent and other costs related
to maintaining the Company's branch offices. The Company has reduced selling,
8
general and administrative expenses as a percentage of sales in the nine months
of 2004 through a decrease in staff payroll and related expenses, some branch
closures, and decreases in other costs related to the Company's branch offices.
The Company continues to monitor these expenses and expects that such cost
controls will further benefit future periods. Partially offsetting this trend,
the Company incurred fees of approximately $71,000 and $174,000 in the 2004
current quarter and nine-month periods, respectively, for services performed by
the Special Committee and its advisors relating to the going private proposal.
The percentage increase in the current quarter can be attributed to this
$71,000.
Interest expense increased $1,000 and $21,000 for the 2004 three and
nine-month periods, respectively, compared to the respective prior year periods,
reflecting higher interest rates associated with the new three-year loan
agreement, offset partially by lower levels of borrowing. After giving effect to
non-deductible costs associated with the going private proposal, partially
offset by the utilization of certain tax credits, the effective tax rates for
the three and nine month periods ended June 30, 2004 were 49% and 48%,
respectively; for 2003 the effective tax rate was 39% for the three-month period
ended June 30, 2003; the effective tax rate benefit was 39% for the nine months
ended June 30, 2003. As a result of the above, the net income for the 2004
three-month period was $142,000 or $0.04 per share, basic and diluted, compared
with net income of $126,000 or $0.03 per share, basic and diluted, for the 2003
period; for the 2004 nine-month period, the net income was $288,000 or $0.08 per
share, basic and diluted, compared with the net loss of $314,000 or $0.09 per
share, basic and diluted, for the 2003 period.
Liquidity and Capital Resources
Current assets at June 30, 2004 were $9,736,000 compared to current
assets of $9,937,000 at September 30, 2003 and current liabilities at June 30,
2004 were $5,533,000 compared to $6,374,000 as of September 30, 2003. The
decrease in current assets relates to a $312,000 increase in gross accounts
receivable, offset by a $584,000 decrease in prepaid insurance related to the
timing of insurance renewals as well as lower premium deposits and a $90,000
decrease in prepaid expense and other current assets. The decrease in current
liabilities is principally the result of an $817,000 decrease in bank
borrowings, partially offset by a $246,000 increase in accounts payable and
accrued expenses principally related to accounts payable fluctuations and a
$270,000 decrease in accrued payroll and related taxes due to extra days payroll
accrual at September 30, 2003.
Due to the nature of its business, the Company's capital expenditures
are relatively modest and amounted to $164,000 for the nine months ended June
30, 2004. Employees typically are paid on a weekly basis. Clients generally are
billed on a weekly basis. The Company has generally utilized bank borrowings to
meet its working capital needs. The Company has a three-year loan agreement in
the form of a line of credit of $7,500,000 that bears interest at LIBOR plus two
and one-half percent with a prime rate plus one-half percent option. The Company
used its bank line of credit to obtain a $1,000,000 letter of credit in favor of
its worker compensation insurance carrier as a part of its insurance renewal in
2003. Borrowings are collateralized principally by accounts receivable. In
addition to the letter of credit, $2,333,000 was outstanding under this line as
of June 30, 2004. In August 2004, the Company also obtained a long-term loan
from its lender for $1,492,000 secured by mortgages on real estate it owns. The
proceeds are being used to partially pay the merger consideration and fees and
expenses related to the going private transaction, as described in Note 5. The
loan bears interest at the prime rate plus one percent and matures August 22,
2006. The loan is to be paid down monthly using a seven (7) year amortization
schedule with a balloon payment of approximately $1,083,000 due at maturity. The
Company believes that internally generated funds and available borrowings will
provide sufficient cash flow to meet its requirements for at least the next 12
months.
9
The following is a table that presents the Company's contractual obligations and
commercial commitments as of June 30, 2004:
Payments Due by Fiscal Year
-------------------------------------------------
2006 and
Total 2004* 2005 Thereafter
---------- ---------- ---------- ----------
Loan payable to bank ............................ $2,333,000 $2,333,000 $ -- $ --
Capital lease obligations including interest .... 114,000 29,000 67,000 18,000
Operating leases ................................ 384,000 78,000 203,000 103,000
---------- ---------- ---------- ----------
Total contractual cash obligations .............. 2,831,000 2,440,000 270,000 121,000
========== ========== ========== ==========
*Represents contractual cash obligations for the three months ended September
30, 2004.
Critical Accounting Policies
During December 2001, the Securities and Exchange Commission ("SEC")
published a Commission Statement in the form of Financial Reporting Release No.
60 which encouraged that all registrants discuss their most "critical accounting
policies" in management's discussion and analysis of financial condition and
results of operations. The SEC has defined critical accounting policies as those
that are both important to the portrayal of a company's financial condition and
results, and that require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. While the Company's significant
accounting policies are summarized in Note 2 to the consolidated financial
statements included in the Company's Form 10-K for the fiscal year ended
September 30, 2003, the Company believes the following accounting policies to be
critical:
Revenue Recognition - The Company's revenues are derived from providing
staffing services to its customers. Such services include providing commercial
(office and light industrial) workers, technical (engineering, scientific and
graphic design/marketing) personnel, and industrial (skilled craft, industrial
plant and facility maintenance) labor. Substantially all revenue is billed on a
direct cost plus markup basis. In addition, the Company recognizes revenues
under fixed price contracts and permanent placement services. Revenues are
recorded when services are rendered.
Long-Lived Assets -The Company reviews amortizable long-lived assets
for impairment whenever events or changes in business circumstances occur that
indicate the carrying amount of the assets may not be recovered. The Company
assesses the recoverability of long-lived assets held and to be used based on
undiscounted cash flows. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 142, goodwill is not amortized but is tested at the segment
level at least annually for impairment. If impairment is indicated, the
impairment is measured as the difference between the carrying value and the fair
value of the asset.
Stock Options - The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for the Company's stock options
granted under its two stock-based employee compensation plans. Accordingly,
compensation expense is recorded on the date of grant of an option to an
employee or member of the Board of Directors only if the fair market value of
the underlying stock at the time of grant exceeds the exercise price. No options
have been granted with an exercise price less than the fair market value of the
Company's common stock at the date of grant. Had the Company elected to account
for its stock options using SFAS No. 123, compensation expense would have been
recognized on options granted based on their fair value. Estimating the fair
value of stock options involves a number of judgments and variables that are
subject to significant change. A change in the fair value estimate could have a
significant effect on the amount of compensation expense disclosed.
10
Management Estimates - Management of the Company is required to make
certain estimates and assumptions during the preparation of consolidated
financial statements in accordance with accounting principles generally accepted
in the United States of America. These estimates and assumptions impact the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of the date of the consolidated financial statements and the
reported revenues and expenses during the reporting period. Estimates and
assumptions are reviewed periodically and the effects of revisions are reflected
in the consolidated financial statements in the period they are determined to be
necessary. Some of the more significant estimates made by management include the
allowance for doubtful accounts and various other operating allowances and
accruals.
Related Party Transactions
The Company paid certain major stockholders Board of Director's fees of
approximately $6,000 and $10,000 for the nine months ended June 30, 2004 and
2003, respectively. For the nine months ended June 30, 2004, the Company
provided temporary office services to Symphony Suites, a company owned by Nick
M. Logothetis, a director and significant shareholder. Billing rates are
comparable to those used for other customers; amounts charged for the three and
nine months ended June 30, 2004 were $127,000 and $307,000, respectively; such
charges for the three and nine months ended June 30, 2003 were $90,000 and
$287,000; $64,000 and $85,000 was outstanding at June 30, 2004 and September 30,
2003, respectively.
The Company rented a facility from E.N. Logothetis, Chairman and Chief
Executive Officer and a significant stockholder for approximately $12,000 for
the nine months ended June 30, 2004 and June 30, 2003. The Company's rental
agreement with the stockholder is on a month-to-month basis.
The Company's Board of Directors has approved the transactions outlined
above. Any substantial change in the terms of any such transactions and any
additional transactions with affiliates of the Company will be submitted to the
Board for approval.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the Company is exposed to
fluctuations in interest rates as it seeks debt financing to meet its working
capital needs. The Company does not employ specific strategies, such as the use
of derivative instruments or hedging, to manage its interest rate exposures. The
fair value of the loans payable to bank as of June 30, 2004 approximates its
carrying value. There has been no change with respect to the Company's interest
rate exposures or its approach toward those exposures since September 30, 2003.
The Company does not expect its interest rate exposures on its borrowings to
change significantly in the near term. A 100 basis point (1.0%) increase in
interest rates on the Company's loan payable to bank would have an immaterial
impact on the Company's financial position or results of operations.
The Company is also exposed to market risks with respect to the
unvested portion of its deferred compensation program. Participants in the
program may direct the investment of deferred compensation amounts into various
debt and equity investments. Such investments are classified as trading
securities and as such are carried on the Company's consolidated balance sheet
at fair value with changes in their fair values recognized each period in the
Company's consolidated statement of operations. Therefore, the Company is
exposed to changes in interest rates and the volatility of the stock and bond
markets.
11
Item 4. - Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our "disclosure
controls and procedures" (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e) as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information that we are required
to disclose in the reports that we file or submit under the Exchange Act.
Internal Control Over Financial Reporting
There has been no change in our internal control over financial
reporting during the nine months ended June 30, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Forward-Looking Information
Certain parts of this document include forward-looking statements
within the meaning of the federal securities laws that are subject to risks and
uncertainties. Factors that could cause the Company's actual results and
financial condition to differ from the Company's expectations include, but are
not limited to, a change in economic conditions that adversely affects the level
of demand for the Company's services, competitive market and pricing pressures,
the availability of qualified temporary workers, the ability of the Company to
manage growth through improved information systems and the training and
retention of new staff, and government regulation.
12
JOULE INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 31.1 - Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) (Section 302 Certification), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 31.2 - Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) (Section 302 Certification), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 32.1 - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 - Principal Executive Officer
Exhibit 32.2 - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 - Principal Financial Officer
(b) Reports on Form 8-K
Form 8-K dated May 5, 2004 with respect to the issuance of the
press release for the second quarter and six months ended
March 31, 2004 (Item 12).
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
JOULE INC.
(Registrant)
August 16, 2004 /s/ E.N. LOGOTHETIS
--------------------------------------
E. N. Logothetis, Chairman
and Chief Executive Officer
(Principal Executive
Officer)
August 16, 2004 /s/ BERNARD G. CLARKIN
--------------------------------------
Bernard G. Clarkin, Vice President and
Chief Financial Officer (Principal
Financial Officer)
14
EXHIBIT INDEX
31.1 - Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
(Section 302 Certification), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 - Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
(Section 302 Certification), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - Principal Executive
Officer
32.2 - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - Principal Financial
Officer