SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 16, 1999
JOULE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 1-9477 22-2735672
(State or other jurisdiction of (Commission (IRS employer
incorporation) file number) identification no.)
1245 Route 1 South, Edison, New Jersey 08837
(Address of principal executive offices) (Zip Code)
(732) 548-5444
(Registrant's telephone number, including area code)
This Current Report on Form 8-K/A amends the Current Report on Form 8-K
filed by Joule Inc. (the "Company") on May 20, 1999 (the "Initial 8-K")
to include certain financial information omitted from the Initial
Report pursuant to Item 7(a)(4) of Form 8-K and the consent of
independent accountants with respect to the audited financial
statements included herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of the business acquired.
(b) Pro forma financial information
(c) Exhibits
Exhibit Number Description
-------------- -----------
2.1* Form of Asset Purchase Agreement, dated as
of May 16, 1999, between Ideal Technical
Services, Inc., SkillMaster Staffing
Services, Inc. and the Company.
23.1 Consent of Arthur Andersen LLP
*Previously filed with the Initial 8-K.
2
IDEAL TECHNICAL SERVICES INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Ideal Technical Services Inc.:
We have audited the accompanying balance sheet of Ideal Technical Services Inc.
(an Alabama corporation) as of December 31, 1998, and the related statements of
operations and accumulated deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ideal Technical Services Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Roseland, New Jersey
July 2, 1999
4
IDEAL TECHNICAL SERVICES INC.
-----------------------------
BALANCE SHEET--DECEMBER 31, 1998
--------------------------------
ASSETS
------
CURRENT ASSETS:
Cash $ --
Accounts receivable, less allowance for doubtful accounts of $372,301 2,113,686
Unbilled revenue 203,657
Prepaid expenses and other assets 84,380
-----------
Total current assets 2,401,723
PROPERTY AND EQUIPMENT, net 191,185
GOODWILL, net of accumulated amortization of $332,653 1,210,977
OTHER ASSET 42,181
-----------
Total assets $ 3,846,066
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 290,704
Parent company payable 2,449,548
Accrued payroll and related taxes 348,449
-----------
Total current liabilities 3,088,701
Commitments and Contingencies
STOCKHOLDER'S EQUITY:
Common stock 1,000
Additional paid-in capital 4,287,458
Accumulated deficit (3,531,093)
-----------
Total stockholder's equity 757,365
-----------
Total liabilities and stockholder's equity $ 3,846,066
===========
The accompanying notes are an integral part of this balance sheet.
5
IDEAL TECHNICAL SERVICES INC.
-----------------------------
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
-----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
REVENUES $ 15,316,448
------------
COSTS, EXPENSES AND OTHER:
Cost of services 13,429,426
Selling, general and administrative expenses 1,847,319
Depreciation and amortization expense 287,451
Impairment of goodwill 2,743,828
Other expense 808,267
------------
Total costs and expenses 19,116,291
LOSS BEFORE TAX BENEFIT (3,799,843)
BENEFIT FOR INCOME TAXES 231,592
------------
NET LOSS (3,568,251)
Retained earnings, beginning of the year 37,158
------------
Accumulated deficit, end of the year $ (3,531,093)
============
The accompanying notes are an integral part of this statement.
6
IDEAL TECHNICAL SERVICES INC.
-----------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,568,251)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation and amortization 287,451
Provision for losses on doubtful accounts 372,301
Impairment of goodwill 2,743,828
Changes in operating assets and liabilities-
Decrease in trade accounts receivable 57,967
Increase in unbilled revenue (7,730)
Increase in prepaid expenses and other assets (77,923)
Decreases in accounts payable and accrued liabilities (85,974)
Increase in parent company payable 595,101
Decrease in accrued payroll and related taxes (193,066)
-----------
Net cash provided by operating activities 123,704
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (65,053)
-----------
Net cash used in investing activities (65,053)
-----------
NET INCREASE IN CASH 58,651
CASH, beginning of year (58,651)
-----------
CASH, end of year $ --
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ --
Cash paid for taxes 4,210
The accompanying notes are an integral part of this statement.
7
IDEAL TECHNICAL SERVICES INC.
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
-------------------
BASIS OF PRESENTATION AND USE OF ESTIMATES
- ------------------------------------------
The financial statements of Ideal Technical Services Inc. (the Company) have
been prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue at the time the services are provided. Amounts
included in unbilled revenue represents work performed in accordance with
contract terms but not billed to the customers before year-end. The Company had
two customers during 1998 who represented 19 percent and 11 percent of revenues.
No other customer accounted for more than 10 percent of revenue during 1998.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is based on management's experience and
other factors, such as current economic conditions, which are used to estimate
bad debts.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of property and
equipment and amortization of leasehold improvements are accounted for on the
straight-line method over the estimated useful lives of the assets, five years.
Maintenance and repairs are expensed when incurred. Disposals are removed at
cost less accumulated depreciation, and any gain or loss resulting from the
disposition is recorded in operations.
INTANGIBLE AND OTHER ASSETS
Goodwill is being amortized over a period of 25 years. Accumulated amortization
of goodwill amounted to $332,653. The other asset is a noncompete agreement with
the former owner of the Company and is being amortized over a four-year period.
VALUATION OF LONG-LIVED ASSETS
The provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," require, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. Other than the impairment of goodwill described in Note 4,
the Company does not believe that any such changes have occurred.
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INCOME TAXES
The Company accounts for income taxes pursuant to the provisions of SFAS No.
109, "Accounting for Income Taxes," which utilizes the liability method and
results in the determination of deferred taxes based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates currently in effect. The Company does
not file income taxes on a stand-alone basis, but rather on a consolidated basis
with its parent company. Any taxes receivable or payable are included within the
parent company payable account.
2. PROPERTY AND EQUIPMENT:
----------------------
Property and equipment at December 31, 1998, consists of the following:
Furniture and fixtures $ 52,453
Computer hardware 124,029
Third-party computer software 97,532
Leasehold improvements 5,000
----------
279,014
Less- Accumulated depreciation and amortization 87,829
----------
$ 191,185
==========
3. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company's facilities are leased under noncancelable terms expiring through
2000. Rent expense for the year ended December 31, 1998 was $76,552.
Aggregate rentals for the remaining lease terms at December 31, 1998, are as
follows:
1999 $ 75,421
2000 57,812
----------
$ 133,233
==========
4. GOODWILL IMPAIRMENT CHARGE:
--------------------------
In December 1998, the Company recorded a noncash impairment loss of $2,743,828
related to the write-down of the Company's goodwill resulting from the sale of
the Company (see Note 7). The Company also considers continued operating losses
and cash flows to be indicators of potential impairment. As a result, the
carrying value of the Company's goodwill was written down to management's
estimated fair value.
5. SELF INSURANCE:
--------------
The Company is self-insured up to specific stop-loss limits for its workers'
compensation insurance. Insurance providers assist the Company in determining
its estimated liabilities for these self-insured claims. The Company has accrued
$21,343 for self insurance claims at December 31, 1998, which is included in
accrued expenses.
6. PARENT COMPANY PAYABLE:
----------------------
The Company is a subsidiary of Skillmaster, Inc. Throughout the year ended
December 31, 1998, Skillmaster, Inc., paid various liabilities on behalf of the
Company. The parent company payable has no defined repayment terms. As such, the
amount is reflected as a current liability. Also, during the year ended December
31, 1998, the Company was allocated certain charges from the parent company.
Approximately $808,000 of these charges are reflected in other expense in the
statement of operations and accumulated deficit.
7. SUBSEQUENT EVENT:
----------------
On May 17, 1999, the Company sold substantially all of the assets used in its
operations, excluding accounts receivable earned prior to the effective date of
the purchase agreement, to Joule Inc., a publicly traded staffing company, for
$1,300,000 in cash.
9
(b) Pro Forma Financial Information
(i) Pro Forma Condensed Balance Sheet as of March 31, 1999.
(ii) Related Pro Forma Statements of Income for the year
ended September 30, 1998 and the six months ended March 31,
1999.
(iii) Notes to the Unaudited Pro Forma Condensed Financial
Statements.
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements give
effect to the acquisition of Ideal Technical Services by Joule Inc. (the
Transaction). These pro forma financial statements are presented for
illustrative purposes only, and therefore are not necessarily indicative of the
operating results and financial position that might have been achieved had the
Transaction occurred on an earlier date, nor are they necessarily indicative of
operating results and financial position which may occur in the future.
The condensed historical financial statements of operations for the
periods presented are derived from the historical financial statements of Joule
Inc. and Ideal Technical Services. These condensed financial statements should
be read in conjunction with the Joule Inc. September 30, 1998 Annual Report on
Form 10-K and the quarterly report as of March 31, 1999 on Form 10-Q in addition
to the historical financial statements of Ideal Technical Services, attached
hereto. The historical financial statements as of March 31, 1999 and for the six
months ended March 31, 1999 have been prepared in accordance with generally
accepted accounting principles applicable to interim financial information and,
in the opinion of Joule's management, includes all adjustments necessary for a
fair presentation of information for such periods.
A pro forma condensed balance sheet is provided as of March 31, 1999
giving effect to the Transaction as though it had been consumated on that date.
Pro forma condensed statements of operations are provided for the six months
ended March 31, 1999 and the year ending September 30, 1998, giving effect to
the Transaction as though it had occurred at the beginning of the earliest
period presented.
10
Pro-forma Balance Sheet
as of March 31, 1999
Pro-forma adjustments Pro-forma combined
Historical for acquisition of Ideal Joule Inc. and
Joule Inc. Technical Services Ideal Technical Services
--------- ------------------ ------------------------
CASH ................................. $ 202,000 $ -- $ 202,000
ACCOUNTS RECEIVABLE, NET ............. 10,377,000 -- 10,377,000
PREPAID EXPENSES ..................... 184,000 -- 184,000
----------- ----------- -----------
10,763,000 -- 10,763,000
FIXED ASSETS, NET .................... 3,754,000 172,000 (a) 3,926,000
GOODWILL AND OTHER ASSETS ............ 75,000 1,263,000 (a) 1,338,000
----------- ----------- -----------
$14,592,000 $ 1,435,000 $16,027,000
----------- ----------- -----------
LOANS PAYABLE TO BANKS ............... $ 4,050,000 $ 1,300,000 (a) $ 5,350,000
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES ............... 997,000 135,000 (a) 1,132,000
ACCRUED PAYROLL AND
RELATED TAXES .................. 1,508,000 -- 1,508,000
INCOME TAXES ......................... 130,000 -- 130,000
CURRENT PORTION OF
LONG TERM DEBT ................. 394,000 -- 394,000
----------- ----------- -----------
7,079,000 1,435,000 8,514,000
----------- ----------- -----------
STOCKHOLDERS' EQUITY .................... 7,513,000 -- 7,513,000
----------- ----------- -----------
$14,592,000 $ 1,435,000 $16,027,000
----------- ----------- -----------
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Pro-forma Statement of Income
for the Year Ended September 30, 1998
Historical
---------------------------------- Pro Forma Combined
Ideal Pro Forma Joule Inc. and
Joule Inc. Technical Services Adjustments Ideal Technical Services
---------- ------------------ ----------- ------------------------
Revenues ........................................ $ 55,301,000 $ 15,316,000 $ -- $ 70,617,000
COST, EXPENSES, AND OTHER:
Cost of services ....................... 45,273,000 13,429,000 -- 58,702,000
Selling, general and
administrative expenses .......... 8,262,000 2,135,000 (169,000)(b) 10,228,000
Provision for legal settlement
and related costs ............... 323,000 -- -- 323,000
Interest expense ....................... 250,000 -- 90,000 (c) 340,000
Impairment of goodwill ................. -- 2,744,000 (2,744,000)(d) --
Other .................................. 17,000 808,000 (808,000)(e) 17,000
--------------------------------------------------------------------
Income (loss) before income tax provision .... 1,176,000 (3,800,000) 3,631,000
1,007,000
Income tax provision (benefit) ............... 470,000 (232,000) 165,000 (f) 403,000
--------------------------------------------------------------------
Net income (loss) ............................ $ 706,000 $ (3,568,000) $ 3,466,000 $ 604,000
--------------------------------------------------------------------
Basic and diluted earnings per share.......... $ 0.19 $ 0.16
--------------------------------------------------------------------
Average common shares outstanding-basic....... 3,670,000 3,670,000
Average common shares and common
equivalents outstanding-diluted......... 3,672,000 3,672,000
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Pro-forma Statement of Income
for the Six Months Ended March 31, 1999
Historical
---------------------------------- Pro Forma Combined
Ideal Pro Forma Joule Inc. and
Joule Inc. Technical Services Adjustments Ideal Technical Services
---------- ------------------ ----------- ------------------------
Revenues ...................................... $30,981,000 $ 6,977,000 $ -- $37,958,000
COST, EXPENSES, AND OTHER:
Cost of services ..................... 24,971,000 6,234,000 -- 31,205,000
Selling, general and
administrative expenses ........ 4,873,000 1,174,000 (48,000)(b) 5,999,000
Interest expense ..................... 146,000 -- 45,000 (c) 191,000
Impairment of goodwill ............... -- 2,744,000 (2,744,000)(d) --
Other ................................ -- 376,000 (376,000)(e) --
-------------------------------------------------------------------
Income (loss) before income tax provision .. 991,000 (3,551,000) 3,123,000
563,000
Income tax provision (benefit) ............. 381,000 (160,000) 4,000 (f) 225,000
-------------------------------------------------------------------
Net income (loss) .......................... $ 610,000 $(3,391,000) $ 3,119,000 $ 338,000
-------------------------------------------------------------------
Basic and diluted earnings per share ....... $ 0.17 $ 0.09
-------------------------------------------------------------------
Average common shares outstanding-basic .... 3,674,000 3,674,000
Average common shares and common
equivalents outstanding-diluted ...... 3,674,000 3,674,000
(a) To record the purchase of Ideal and related assets and liabilities for
$1,300,000 in cash. The goodwill will be amortized over 20 years.
(b) Represents amortization of goodwill related to this acquisition
amounting to $63,000, less Ideal goodwill amortization of $232,000
related to goodwill not acquired by Joule, for the year ended September
30, 1998; and the amortization of goodwill related to this acquisition
amounting to $32,000, less Ideal goodwill amortization of $80,000
related to goodwill not acquired by Joule, for the six months ended
March 31, 1999.
(c) Represents interest expense on the purchase price of $1,300,000.
Interest is based on the Company's current lending rate of 6.9%
(d) Represents elimination of impairment of Ideal goodwill not acquired by
Joule.
(e) Represents elimination of intercompany charges from Ideal's former
parent, as Joule does not anticipate incurring additional expenses
resulting from the acquisition.
(f) Represents adjustment of tax provision to expected pro forma tax rate.
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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 hereunto duly authorized.
Date: August 2, 1999
JOULE INC.
By: /s/ BERNARD G. CLARKIN
-----------------------------
Bernard G. Clarkin,
Vice President and Chief
Financial Officer
14
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
2.1* Form of Asset Purchase Agreement, dated as
of May 16, 1999, between Ideal Technical
Services, Inc., SkillMaster Staffing
Services, Inc. and the Company.
23.1 Consent of Arthur Andersen LLP
*Previously filed with the Initial 8-K.
15