10-Q 1 joule_10q.txt FORM 10-Q 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 December 31, 2002 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. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 22-2735672 ------------------------------- ------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1245 Route 1 South, Edison, New Jersey 08837 ------------------------------------------------------ (Address of principal executive officers) (Zip Code) (732) 548-5444 ------------------------------------------------------ ( 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 February 12, 2003, 3,684,000 shares of the Registrant's common stock were outstanding. Part I - Financial Information Item 1. Financial Statements Joule Inc. And Subsidiaries Consolidated Balance Sheets

See accompanying notes to consolidated financial statements. 2 Joule Inc. And Subsidiaries Consolidated Statements of Operations Three Months Ended ---------------------------- December 31, December 31, 2002 2001 ------------ ------------ (Unaudited) (Unaudited) REVENUES $ 17,017,000 $ 19,389,000 ------------ ------------ COSTS, EXPENSES AND OTHER: Cost of services 13,785,000 15,525,000 Selling, general & administrative expenses 3,386,000 3,635,000 Interest expense 34,000 58,000 Interest income - (6,000) ------------ ------------ (LOSS) INCOME BEFORE INCOME TAXES (188,000) 177,000 INCOME TAX (BENEFIT) PROVISION (73,000) 61,000 ------------ ------------ NET (LOSS) INCOME $ (115,000) $ 116,000 ============ ============ BASIC AND DILUTED (LOSS) EARNINGS PER SHARE ($0.03) $ 0.03 ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC 3,683,000 3,682,000 ============ ============ WEIGHTED AVERAGE COMMON SHARES AND COMMON EQUIVALENTS OUTSTANDING - DILUTED 3,683,000 3,687,000 ============ ============ See accompanying notes to consolidated financial statements. 3 Joule Inc. And Subsidiaries Consolidated Statements of Cash Flows

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 other financial statements are unaudited. Management believes all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly the 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 financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with 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 and Annual Report to Stockholders for the most recent fiscal year. (2) In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets. Since the requirement is to recognize the obligation when incurred, approaches that have been used in the past to accrue the asset retirement obligation over the life of the asset are no longer acceptable. SFAS 143 also requires the enterprise to record the contra to the initial obligation as an increase to the carrying amount of the related long-lived asset (i.e., the associated asset retirement costs) and to depreciate that cost over the life of the asset. The liability is increased at the end of each period to reflect the passage of time (i.e., accretion expense) and changes in the estimated future cash flows underlying the initial fair value measurement. The Company adopted SFAS 143 effective October 1, 2002 and it had no effect on the consolidated financial statements. (3) In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of", it retains many of the fundamental provisions of that statement. SFAS 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in distribution to owners) or is classified as held for sale. The Company adopted SFAS 144 effective October 1, 2002 and it had no effect on the consolidated financial statements. 5 (4) 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) Technical Staffing and (3) Industrial Staffing. Information concerning operations by operating segment is as follows (in 000's): Three Months Ended December 31, ------------------------- 2002 2001 ---------- ---------- Revenues Commercial .................... $ 4,869 $ 5,904 Technical ..................... 6,455 5,994 Industrial .................... 5,693 7,491 ---------- ---------- $ 17,017 $ 19,389 ---------- ---------- (Loss) Income Before Income Taxes Commercial .................... $ 116 $ 246 Technical ..................... 595 517 Industrial .................... 145 438 Corporate (unallocated, including interest) ......... (1,044) (1,024) ---------- ---------- $ (188) $ 177 ---------- ---------- (5) 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 financial condition, results of operations or liquidity of the Company. (6) Subsequent Event On January 27, 2003, the Company acquired Wennik & Motta in an asset purchase business combination. The acquisition cost was not significant to the Company. Wennik & Motta is a small staffing firm in Boston, Massachusetts, which places marketing and creative personnel with its clients. 6 JOULE INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2002, it believes the following accounting policies to be critical: Revenue - 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 information technology) personnel, and industrial (skilled craft industrial plant and facility maintenance) labor. Substantially all revenue is billed on a direct cost plus markup basis. Revenues are recorded when services are rendered. Long-Lived Assets - Except for goodwill and intangible assets, beginning in fiscal 2002, the Company reviews amortizable long-lived assets and goodwill for impairment whenever events or changes in business circumstances occur that indicate the carrying amount of the assets may not be recovered. In accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Company assesses the recoverability of long-lived assets held and to be used based on undiscounted cash flows. In accordance with SFAS No. 142, goodwill is not amortized but is tested 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. Valuation of Stock Options - Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), permits an entity to continue to account for director and employee stock-based compensation under APB Opinion No. 25, "Accounting for Stock Issued to Employees", or adopt a fair value based method of accounting for such compensation. The Company has elected to continue to account for stock-based compensation under Opinion No. 25. Accordingly, compensation expense is recognized on fixed option grants only if the current fair value of the underlying stock exceeds the exercise price of the option at the date of grant and it is recognized on a straight-line basis over the vesting period. Had the Company elected to adopt the measurement provisions of SFAS No. 123 compensation expense would have been recognized based on the fair value of the options at the grant date. 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 the proforma net (loss) income disclosed in Note 5 to the Company's consolidated financial statements included in Form 10-K for the fiscal year ended September 30, 2002. 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 7 reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. 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 $3,000 and $4,000 for the three months ended December 31, 2002 and December 31, 2001, respectively. For the three months ended December 31, 2002 and December 31, 2001 the Company recognized $95,000 and $102,000, respectively, in revenues from related parties. In addition, accounts receivable include amounts due for services rendered to a company owned by a stockholder of $66,000 and $36,000 as of December 31, 2002 and September 30, 2002, respectively. Results of Operations 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 information technology) personnel, and industrial (skilled craft industrial plant and facility maintenance) labor. Substantially all revenue is billed on a direct cost plus markup basis. Revenue decreased 12% to $17.0 million during the first three months of fiscal 2003 compared to $19.4 million for the year earlier period. Technical staffing revenue increased 8% to $6.5 million in the current period from $6.0 million in the year earlier period. This increase related to the continuing strength of its scientific business that places personnel with pharmaceutical, bio-tech, chemical, and consumer products clients. Commercial staffing revenue decreased 17% to $4.9 million in 2003 from $5.9 million in 2002. Industrial staffing revenue decreased 24% to $5.7 million in 2003 from $7.5 million in 2002. These declines were due to the uneven recovery of the economy which negatively impacted demand for the Company's light-industrial and industrial personnel. Demand for these services was uneven throughout fiscal 2002 and weakened in the first quarter of fiscal 2003. Cost of services were 81.0% of revenues in the 2003 first quarter compared to 80.0% for the 2002 first quarter. 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. 8 Selling, general and administrative expenses were $3.4 million in the 2003 period compared to $3.6 million for the 2002 period, representing 19.9% and 18.7% of revenues in the 2003 and 2002 periods, respectively. 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 percentage increase was principally related to lower revenue in 2003. However, the Company reduced actual selling, general and administrative expenses by $249,000 for the period 2003 compared to the period 2002 through a decrease in staff payroll and related expenses, a reduction in the provision for losses on accounts receivable and an overall decrease in other costs related to the Company's branch offices. The Company continues to review and reduce personnel and other branch costs which has had a positive impact during the latter part of 2002, and will further benefit future periods. Interest expense decreased $18,000 to $34,000 in the 2003 quarter compared to $52,000 in the 2002 quarter, reflecting a decrease in average borrowings along with decreases in interest rates. Interest income of $6,000 in 2002 relates to a note receivable, which was paid in full in 2002. After giving effect to the utilization of certain tax credits, the effective tax rate benefit for 2003 was 39%; for 2002 the effective tax rate was 34%. As a result of the above, net loss was $115,000 or $0.03 per share, basic and diluted, in the fiscal 2003 period compared with net income of $116,000 or $0.03 per share, basic and diluted, for the fiscal 2002 period. Liquidity and Capital Resources Current assets at December 31, 2002 were $9,103,000 compared to current assets of $10,888,000 at September 30, 2002 and current liabilities were $5,626,000 compared to $7,303,000 as of September 30, 2002. The decrease in current assets principally relates to a $1.9 million reduction in accounts receivable due to lower revenue in the current period compared to the fourth quarter of fiscal 2002, as well as a continuing emphasis on credit and collections. The decrease in current liabilities results from a $280,000 decrease in bank borrowings, reflective of the lower receivables noted above, a $621,000 decrease in accounts payable and accrued expenses principally related to normal accounts payable fluctuations and a lower sales level for the current quarter compared to the quarter ended September 30, 2002, and a $776,000 decrease in accrued payroll and related taxes due to a lower level of business in the final week of the current period as compared to the final week of September 2002. The Company's capital expenditures are generally relatively modest due to the nature of its business. 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 $9,000,000 bank line of credit that matures May 31, 2003; loans thereunder are secured principally by receivables with interest at LIBOR plus one and one-half percent with a prime rate less one-half percent option; $3,700,000 was outstanding under this line as of December 31, 2002. The Company believes that the bank line of credit will be extended or replaced at similar terms in May and that internally generated funds and available borrowings will provide sufficient cash flow to meet its requirements for at least the next 12 months. 9 Below is a table that presents the Company's contractual obligations and commercial commitments as of December 31, 2002:

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. Since the fiscal year ended September 30, 2002, there has been no change with respect to the Company's interest rate exposures or its approach toward those exposures. Further, the Company does not expect its interest rate exposures on its borrowings to change in the near term. 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. Item 4. - Controls and Procedures Within the 90-day period preceding the filing date of this report, an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was carried out under the supervision and with the participation of the Company's management, including the Chairman of the Board and Chief Executive Officer and the Vice President and Chief Financial Officer (the "Certifying Officers"). Based on that evaluation, the Certifying Officers concluded that the Company's disclosure controls and procedures are effective to bring to the attention of the Company's management the relevant information necessary to permit an assessment of the need to disclose material developments and risks pertaining to the Company's business in its periodic filings with the Securities and Exchange Commission. There have been no significant changes to the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation. 10 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. 11 JOULE INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds During the first quarter of fiscal 2003, the Company issued an aggregate of 1,260 shares of Common Stock from authorized but unissued status as service awards to certain employees who had completed five and twenty years of service with the Company during fiscal 2002. The shares were not registered under the Securities Act of 1933 based on the conclusion that the awards would not be events of sale within the meaning of Section 2 (a) (3) of the Act. Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Stockholders was held on February 5, 2003 (b) The following directors were elected at the annual meeting with the votes as indicated: VOTES FOR VOTES WITHHELD ----------- -------------- Richard Barnitt 3,597,810 12,400 Robert W. Howard 3,598,110 12,100 Emanuel N. Logothetis 3,598,110 12,100 Nick M. Logothetis 3,598,110 12,100 Steven Logothetis 3,597,110 13,100 Andrew G. Spohn 3,597,810 12,400 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 99.1 - Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Emanuel N. Logothetis Exhibit 99.2 - Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Bernard G. Clarkin (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. 12 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) February 12, 2003 /s/ E.N. LOGOTHETIS ----------------------------------------- E. N. Logothetis, Chairman and Chief Executive Officer (Principal Executive Officer) February 12, 2003 /s/ BERNARD G. CLARKIN ----------------------------------------- Bernard G. Clarkin, Vice President and Chief Financial Officer (Principal Financial Officer) 13 CERTIFICATIONS I, Emanuel N. Logothetis, Principal Executive Officer of Joule, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Joule Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ EMANUEL N. LOGOTHETIS ----------------------------------------- Emanuel N. Logothetis Chairman of the Board and Chief Executive Officer CERTIFICATIONS I, Bernard C. Clarkin, Principal Financial Officer of Joule, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Joule Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ BERNARD G. CLARKIN ----------------------------------------- Bernard G. Clarkin Vice President, Chief Financial Officer and Secretary

JOULE INC 10-Q