UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: JUNE 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number: 0-21825
STREICHER MOBILE FUELING, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0707824
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 WEST CYPRESS CREEK ROAD, SUITE 580, FORT LAUDERDALE, FLORIDA 33309
(Address of principal executive offices) (Zip Code)
(954) 308-4200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
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. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates was
$4,108,735. The aggregate market value was computed by reference to the last
sale price of the registrant's Common Stock on the NASDAQ Stock Market on
September 30, 2002.
As of September 30, 2002 there were 7,215,469 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain Portions of Registrant's Proxy Statement relating to the 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Streicher Mobile Fueling, Inc., a Florida corporation (the "Company")
formed in 1996, provides mobile fueling and fuel management out-sourced services
to businesses that operate all size fleets of vehicles and equipment, including
governmental agencies, utilities, trucking companies, bus lines, hauling and
delivery services, courier services, construction companies and others. The
Company's specialized truck fleet delivers fuel to customers' locations on a
regularly scheduled or as needed basis, refueling vehicles and equipment and/or
re-supplying fixed-site storage facilities. The Company's patented proprietary
electronic fuel tracking control system is used to measure, record and track
fuel dispensed to each vehicle and tank fueled at a customer location, allowing
verification of the amount and type of fuel delivered and providing customers
with customized fleet fuel data for management analysis and tax reporting.
The Company believes that mobile fueling provides several economic and
other advantages to its customers, including reducing the labor and
administrative costs associated with fueling vehicles, providing centralized
control over fuel inventories and usage, tax reporting benefits, eliminating the
costs and potential environmental liabilities associated with equipping and
maintaining on-site fuel storage and dispensing facilities, reducing the risk of
employee theft of fuel by dispensing it only to authorized vehicles, providing
fueling services in emergency situations, and eliminating security risks
associated with off-site fueling by employees.
The Company presently operates over 100 custom mobile fueling trucks from
13 service locations in California, Florida, Georgia, Tennessee and Texas and is
seeking to increase market penetration in its existing service areas and to
develop its operations in new markets.
THE MOBILE FUELING INDUSTRY
Traditionally, businesses and other entities that operate fleets of
vehicles and equipment have met their fueling requirements by either maintaining
their own supply of fuel in on-site storage tanks or fueling vehicles at retail
stations and other third party facilities.
On-site storage tanks and fueling facilities can be expensive to construct
and maintain, and expose the property owner and operator to potential liability
associated with fuel leaks or spills. In addition, increasingly stringent
federal and state environmental regulation of underground storage tanks may
require businesses that maintain their own fuel supplies to spend significant
amounts to remove, retrofit and/or to maintain underground and aboveground
storage tanks to meet regulatory standards. The Company believes that many fleet
operators currently utilizing on-site storage tanks will choose to meet their
fueling requirements by other means, including mobile fueling, instead of
investing in upgrading and/or maintaining existing facilities.
The fueling of vehicles at retail stations and other third party facilities
by fleet operators can result in a higher cost of operations due to inefficient
use of employee time, the creation of significant unnecessary paperwork and
employee fraud. While large users may be able to negotiate favorable fuel
pricing from retail stations or other fuel suppliers, the labor cost incurred in
connection with employee fueling of vehicles and the costs associated with
management and administration of fuel purchases, can exceed the benefits
associated with price discounts.
Specifically, the Company believes that the mobile fueling and fuel
management out-sourced services that it offers provide numerous benefits over
traditional fueling methods:
o Reduces Operating Costs and Increases Labor Productivity. Mobile fueling
enables fleet operators to reduce operating costs by eliminating the need
for their employees to fuel vehicles either on-site or at local retail
stations and other third party facilities. Overnight fueling prepares fleet
vehicles for operation at the beginning of each workday and increases labor
productivity by allowing employees to use their vehicles during time that
would otherwise be spent fueling. Mobile fueling also reduces the
administrative burden required to oversee and administer fuel purchases and
inventories.
o Provides Centralized Inventory Control and Management. The Company's fuel
management system provides fleet operators with weekly reports detailing,
among other things, the location, description and daily and weekly fuel
consumption of each vehicle or piece of equipment fueled by the Company.
This eliminates customers' need to invest working capital to maintain
adequate fuel supplies, allows customers to centralize their fuel inventory
controls, track and analyze vehicle movement and fuel consumption for
management and tax reporting purposes.
o Provides Tax Reporting Benefits. The ability of the Company's fuel
management system to track fuel consumption to specific vehicles and fuel
tanks provides tax benefits to customers who consume fuel in uses that are
tax-exempt, such as for off-road vehicles, government-owned vehicles and
fuel used to operate refrigerator units on vehicles. For such uses, the
customers receive reports which provide them with the information required
to substantiate such tax exemptions.
o Eliminates Expenses and Liabilities of On-site Storage. Fleet operators who
previously satisfied their fuel requirements using on-site storage tanks
can eliminate the capital and costs relating to equipping and maintaining
fuel storage and dispensing facilities, including carrying fuel inventory
and complying with increasingly stringent environmental regulations. By
removing on-site storage tanks and relying on mobile fueling, customers
avoid potential liabilities associated with the handling and storage of
fuel.
o Prevents Fuel Theft. Fleet operators that rely on employees to fuel
vehicles, whether at on-site facilities or at retail stations, often
experience shrinkage of fuel inventories or excess fuel purchases due to
employee fraud. The Company's fuel management system eliminates the risk of
employee theft by dispensing fuel only to authorized vehicles. Utilizing an
independent contractor such as the Company for fueling services rather than
allowing employees to purchase fuel at local retail stations also
eliminates employee fraud due to credit card abuse.
o Provides Emergency Fuel Supplies and Security. Emergency preparedness,
including fuel availability, is critical to the operation of utilities,
delivery services and other fleet operators. The Company provides access to
emergency fuel supplies at times and locations chosen by its customers,
allowing customers to react more quickly and effectively to emergency
situations, such as severe weather conditions. Fueling by fleet operators
at their own on-site storage facilities, and/or at retail and other third
party locations may be limited due to power interruption, supply outages or
access and other natural limitations. In addition, security concerns of
fleet operators to terrorism, hijacking and sabotage is increasing. The
mobile fueling of vehicles at the customers' facilities eliminates security
risks to the fleet operators' employees and equipment associated with
fueling at retail service stations and other third party facilities.
MARKETING AND CUSTOMERS
The Company markets its services to customers operating all size fleets of
vehicles and equipment in connection with their business, including governmental
agencies, utilities, trucking companies, bus lines, hauling and delivery
services, courier services, construction companies and others. While large fleet
operators offer immediate market penetration on a regional basis, small fleet
operators are equally important accounts because they provide geographic density
which optimizes fuel delivery efficiency and minimizes cost. Once engaged to
provide fueling services, the Company is usually the exclusive service provider
for the fueling of a customer's entire fleet or of a particular location of
vehicles and equipment in a market.
The Company focuses its marketing efforts on fleet operators within
established service areas. Its representatives identify and directly contact
candidates for the Company's services. Fleet size and type, fuel requirements,
fueling logistics and credit worthiness are factors in identifying candidates
for the Company's services. Direct marketing is the primary method of developing
new business. Referrals from existing customers and Company personnel are also
important sources of potential business. In addition, the Company is actively
developing new service markets. A minimum level of business commitments is
required prior to the Company's entry into any new market. The ability to
provide service to an existing customer in a new market and the
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identification of local candidates meeting the Company's criteria are strong
considerations in a decision to enter any market.
The Company currently distributes diesel, gasoline and alternative fuels to
approximately 700 customers. Revenue from one large customer, excluding fuel
taxes, totaled $8.4 million or 19% of total revenue, excluding fuel taxes, in
the fiscal year ended June 30, 2002. However, revenue from this customer was
generated from a total of 10 separate and non-dependent written contracts of
varying lengths of service and renewal options. Revenue from two large
customers, excluding fuel taxes, totaled approximately $5.8 million or 26% of
total revenue, excluding fuel taxes, in the five-month period ended June 30,
2001. Revenue from three large customers, excluding fuel taxes, totaled $12.1
million or 19% and $13.4 million or 26% of the total revenue, excluding fuel
taxes in the fiscal years ended January 31, 2001 and 2000, respectively.
Although the Company does have formal, length of service written contracts with
certain of its larger customers, such agreements are not customary in the mobile
fueling business and have not been entered into by the Company with the majority
of its customers. Therefore, most of the Company's customers can terminate the
Company's mobile fueling services at any time and for any reason, and the
Company can similarly discontinue service to any customer. The Company would
discontinue service to a customer if changes in the service conditions or other
factors cause the Company not to meet its minimum level of margins and rates,
and the Company is unable to re-negotiate its arrangement with the customer.
The Company competes with other distributors of fuel, including several
regional distributors and numerous small independent operators who provide
mobile fueling services. The Company also competes with retail marketing where
fleet operators have the option of fueling their own equipment at retail
stations and other third-party service locations. The Company's ability to
compete is dependent on numerous factors, including price, delivery
dependability, credit terms, service locations, as well as the level of
reporting and invoicing services provided.
TRUCK FLEET AND OPERATIONS
The Company currently operates from 13 service locations in California,
Florida, Georgia, Tennessee, and Texas. The Company delivers fuel utilizing its
own fleet of over 100 custom mobile fueling trucks with multi-compartmented
tanks whose fuel carrying capacities range from 2,800 to 4,400 gallons. These
trucks are equipped with the Company's patented proprietary electronic fuel
management system which records and regulates fuel flow into the customers'
vehicles. Generally, each truck services between five and fifteen customer
locations per night or day, on specified delivery routes, depending on customer
size and fueling logistics. The fuel supply to be delivered is acquired daily at
local third-party terminal storage facilities. Each truck is operated by a
driver who also handles the actual fueling of the customers' vehicles
("fueler/operator").
FUEL TRACKING AND REPORTING SYSTEM
The Company utilizes a patented proprietary fuel tracking and reporting
management system in its mobile fueling operations. It owns all patents covering
the system, the rights to which are registered with the United States Patent and
Trademark Office. Data is derived from the Fuel Tracking Controller ("FTC")
Computer which is installed on each truck and is linked to the Company's
fueler/operator by a hand-held radio controlled scanning and transmitting
device. The FTC Computer is programmed to control any variety of truck
configurations, including single or multiple products and any number of pumps
and hoses attached to the truck. The FTC fuel management system electronically
records date, time, customer vehicle identification number, product type and
volume of fuel delivered by the Company's trucks into each customer vehicle. For
security and tracking purposes, the FTC Computer will not permit fuel to be
dispensed from the Company's truck unless both the customer's fleet yard and the
individual vehicle or piece of equipment to be fueled are electronically
verified by the FTC Computer registration. All fueling transactions are recorded
on the truck's FTC Computer, downloaded at the Company's service locations and
transmitted to the Company's corporate headquarters where the data is
assimilated into detailed service reports and invoices for the customer. This
information can be delivered to the customer by a number of methods, including
the internet, and certain data may also be delivered to the customer at his
vehicle location at the time of fueling.
As some service applications require both mobile fueling and the use by the
customer of his own on-site storage tanks, the Company has adapted the FTC
Computer to track the use by the customer of its own fixed-site
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tanks. Upon installation of an FTC Computer, the Company services and manages
fuel delivery to a customer's on-site storage tank, providing reports detailing
fuel dispensed from the tank into each of the customer's vehicles, either alone
or in combination with the customer's mobile fueling use.
FUEL SUPPLY
Diesel fuel and gasoline are commodities which are refined and distributed
by numerous sources. The Company purchases the fuel delivered to its customers
from multiple suppliers at daily market prices and in some cases qualifies for
volume discounts. The Company monitors fuel prices and trends in each of its
service markets on a daily basis and seeks to purchase its supply at the lowest
prices and under the most favorable terms. Commodity price risk is mitigated as
the Company purchases and delivers its fuel supply daily and utilizes cost-plus
pricing to its customers. The Company also handles the delivery of customer and
third-party supplied fuel.
EXECUTIVE OFFICERS
The executive officers of the Company as of September 30, 2002 are as
follows:
Name Age Position and Office
- ------------------------ --- ---------------------------------------
Richard E. Gathright.... 48 President and Chief Executive Officer,
Director
Michael S. Shore........ 34 Senior Vice President, Chief Financial
Officer and Chief Information Officer
Gary G. Williams........ 46 Senior Vice President, Commercial
Operations
Paul C. Vinger.......... 32 Vice President, Corporate Planning and
Operations
Timothy W. Koshollek.... 38 Vice President, Marketing
MR. GATHRIGHT has been Chief Executive Officer and President of the Company
since November 2000 and a Director since March 2001. He is responsible for the
management of all business affairs of the Company, reporting directly to the
Board of Directors. He was an advisor on operational and financial matters to
the senior management of several domestic and international energy companies
from January 2000 through October 2000. From September 1996 to December 1999, he
was President and Chief Operating Officer of TransMontaigne Inc., a Denver-based
publicly owned company providing logistical services to major energy companies
and large industrial customers; a Director from April 1995 to December 1999;
Executive Vice President from April 1995 to September 1996; and from December
1993 to April 1995 was President and Chief Operating Officer of a predecessor of
TransMontaigne. From 1988 to 1993, he was President and Director of North
American Operations for Aberdeen Petroleum PLC, a London-based public company
engaged in international oil and gas operations, also serving on its Board of
Directors. Prior to joining Aberdeen, he held a number of positions in the
energy industry in the areas of procurement, operations and management of oil
and gas assets.
MR. SHORE has been Senior Vice President, Chief Financial Officer and Chief
Information Officer since February 2002. Prior to joining the Company, he was
CEO and President of Shore Strategic and Financial Consulting, providing
financial, management and information systems technology services to corporate
clients in the United States and Latin America. From 1998 to 2000, he served as
Director of Finance/Controller for the North American Zone Operations of
Paris-based Club Mediterranee. From 1996 to 1998, he was Vice President of
Finance/Controller for Interfoods of America, Inc., the largest Popeyes Fried
Chicken & Biscuits franchisee. From 1994 to 1996, he was the Manager of
Accounting for Arby's, Inc. Mr. Shore began his professional career in 1990 with
Arthur Andersen & Company where he became a Senior Auditor.
MR. WILLIAMS has been Senior Vice President, Commercial Operations for the
Company since February 2001, responsible for Marketing and Sales and Product
Procurement. From 1995 to February 2001, he was Vice President of Marketing for
the supply, distribution and marketing subsidiary of TransMontaigne Inc.,
managing wholesale marketing functions in the Mid-Continent, Southeast and
Mid-Atlantic and serving on that company's senior risk management committee.
From 1987 to 1995, he was Regional Manager for Kerr-McGee Refining Corporation,
responsible for unbranded petroleum product sales in its southeastern United
States 11 state marketing region. Prior to 1987, Mr. Williams held various
positions in the product procurement, marketing and sales, and trucking sectors
of the petroleum industry.
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MR. VINGER has been Vice President, Corporate Planning and Operations for
the Company since August 2001, managing fleet and field operations and
responsible for corporate planning and analysis; and from December 2000 to
August 2001, he was Director of Corporate Planning. He was Senior Analyst of
Corporate Planning and Finance for TransMontaigne Inc., from September 1998 to
December 2000, responsible for operations and acquisitions analyses and the
management of supply scheduling and product allocations. From 1997 to 1998, he
was a Manager of Terminal Operations for TransMontaigne Inc. responsible for
petroleum product and chemical terminals. From 1994 to 1997, he was a Research
Associate for E. I. Dupont. From 1991 to 2001, Mr. Vinger served to the rank of
Captain in the United States Military.
MR. KOSHOLLEK has been Vice President, Marketing for the Company since
March 1998. From October 1996 to March 1998, he was Vice President of Marketing
and Operations for the Company and from 1994 to October 1996 served in the same
position for Streicher Enterprises, Inc., the Company's predecessor. From 1992
to 1993, he was an owner and the General Manager of Premier Wholesale Seafood
Exchange, Inc. From 1989 to 1992, he was the Operations Manager of Streicher
Enterprises, Inc. responsible for its Southeast division fuel delivery
operations. From 1986 to 1988, Mr. Koshollek was Sales and Maintenance Manager
of Kay Yacht Management, Inc., responsible for new customer sales, set-up and
maintenance programs.
EMPLOYEES
At September 30, 2002, the Company had 154 full-time employees. None of the
Company's employees are covered by a collective bargaining agreement or is a
member of a union. The Company considers its relationship with its employees to
be good.
GOVERNMENTAL REGULATION
The Company's operations are affected by numerous federal, state and local
laws, regulations and ordinances, including those relating to protection of the
environment and worker safety. Various federal, state and local agencies have
broad powers under these laws, regulations and ordinances. In particular, the
operation of the Company's mobile fueling fleet and its transportation of diesel
fuel and gasoline are subject to extensive regulation by the U.S. Department of
Transportation ("DOT") under the Federal Motor Carrier Safety Act ("FMCSA") and
the Hazardous Materials Transportation Act ("HMTA"). The Company is subject to
regulatory and legislative changes that can affect the economics of the industry
by requiring changes in operating practices or influencing the demand for, and
the cost of providing, its services. In addition, the Company depends on the
supply of diesel fuel and gasoline from the oil and gas industry and, therefore,
is affected by changing taxes, price controls and other laws and regulations
generally relating to the oil and gas industry. The Company cannot determine the
extent to which its future operations and earnings may be affected by new
legislation, new regulations or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct of or conditions caused by others, or for acts of the Company that
were in compliance with all applicable laws at the time such acts were
performed. Sanctions for noncompliance may include revocation of permits,
corrective action orders, administrative or civil penalties and criminal
prosecution. Certain environmental laws provide for joint and several liability
for remediation of spills and releases of hazardous substances. In addition, the
Company may be subject to claims alleging personal injury or property damage as
a result of alleged exposure to hazardous substances, as well as damage to
natural resources.
Although the Company believes that it is in substantial compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred in the future. There could be an adverse
affect upon the Company's operations if there were any substantial violations of
these rules and regulations. Moreover, it is possible that other developments,
such as stricter environmental laws, regulations and enforcement policies
thereunder, could result in additional, presently unquantifiable, costs or
liabilities to the Company.
5
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The following important factors have affected, and may in the future
continue to affect, the Company's business, results of operations and financial
condition, and could cause the Company's operating results to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company elsewhere in this report.
NO ASSURANCES OF FUTURE PROFITABILITY; LOSSES FROM OPERATIONS; NEED FOR
CAPITAL. The Company incurred net losses for the fiscal year ended June 30,
2002, the transition period ended June 30, 2001 and the fiscal year ended
January 31, 2001. The Company earned a profit in the fiscal year ended January
31, 2000 and in the fourth quarter ended June 30, 2002. The Company's
"turnaround" in financial and operating performance in the fourth quarter ended
June 30, 2002 and over the last 12 months ended June 30, 2002 has resulted from
the execution by the Company's of its new business plan, as more fully described
in Management's Discussion and Analysis of Financial Conditions and Results of
Operations. In order for the Company to continue recent positive trends, it
needs to continue to increase volumes at profitable margins, control costs and
generate sufficient cash flow to support its working capital and debt service
requirements. There is no assurance that management will be able to continue to
execute its turnaround program, or that it will be able to raise capital to
support any working capital or debt service shortfalls during any business
downturns.
TRADING MARKET FOR THE COMPANY'S COMMON STOCK. The Company's common stock
is thinly traded which might make it difficult for investors to sell their
shares at a predictable price or at all. Additionally, there may be volatility
in the market price of the Company's common stock due to factors beyond the
Company's control. The Company's quarterly operating results, changes in general
conditions in the economy, the financial markets or other developments affecting
the Company could cause the market price of the Company's common stock to
fluctuate, thus making it difficult for shareholders to sell their shares.
GROWTH DEPENDENT UPON EXPANSION; RISKS ASSOCIATED WITH EXPANSION INTO NEW
MARKETS. A significant component of the Company's future growth strategy will be
to expand the Company's business into new service markets. The Company intends
to expand into additional major and secondary metropolitan areas. Expansion will
largely be dependent on the Company's ability to demonstrate the benefits of
mobile fueling to potential new customers; successfully establish and operate
new locations; hire and retain qualified management, operating, marketing and
sales personnel; obtain financing for capital expenditures and working capital
purposes; secure reliable sources of product supply on a timely basis and on
commercially acceptable credit terms; and successfully manage growth by
effectively supervising operations, controlling costs and maintaining
appropriate quality controls. The Company's growth will depend upon its ability
to achieve greater penetration in existing markets and to successfully penetrate
new markets. The Company may also seek to expand through the acquisition of
existing companies or their customer bases. There can be no assurance that the
Company will be able to successfully expand its operations.
ACQUISITION AVAILABILITY; INTEGRATING ACQUISITIONS. The Company's future
growth strategy may involve the acquisition of fuel distributors in existing and
new markets. There can be no assurance that the Company will be able to locate
or acquire suitable acquisition candidates on acceptable terms or that future
acquisitions will be effectively and profitably integrated into the Company.
Acquisitions involve risks that could adversely affect the Company's operating
results, including management commitment; integration of the operations and
personnel of the acquired operations; amortization of acquired intangible
assets; and possible loss of key employees of the acquired operations.
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DEPENDENCE ON KEY PERSONNEL. The future success of the Company will be
largely dependent on the continued services and efforts of Richard E. Gathright,
the Company's President and Chief Executive Officer, and other key personnel.
The loss of the services of Mr. Gathright or other key personnel could have a
material adverse effect on the Company's business and prospects. The Company's
success and plans for future growth will also depend on its ability to attract
and retain additional qualified management, operating, marketing, sales and
financial personnel. There can be no assurance that the Company will be able to
hire or retain such personnel on terms satisfactory to the Company. Mr.
Gathright and the Company have entered into a three year employment agreement.
FUEL PRICING; EFFECT ON PROFITABILITY. Diesel fuel and gasoline are
commodities which are refined and distributed by numerous sources. The Company
purchases the fuel delivered to its customers from multiple suppliers at daily
market prices and in some cases qualifies for volume discounts. The Company
monitors fuel prices and trends in each of its service markets on a daily basis
and seeks to purchase its supply at the lowest prices and under the most
favorable terms. Commodity price risk is mitigated as the Company purchases and
delivers its fuel supply daily and utilizes cost-plus pricing to its customers.
If the Company cannot pass on the cost-plus pricing to its customers, margins
would decrease and a loss could be incurred. The Company has not engaged in
derivatives or futures trading to hedge fuel price movements.
RISKS ASSOCIATED WITH CUSTOMER CONCENTRATION; ABSENCE OF WRITTEN
AGREEMENTS. Although the Company provides services an extensive number of
customers, a significant portion of its revenue is generated from certain of its
larger customers. While the Company does have formal, length of service written
contracts with certain of its larger customers, such agreements are not
customary in the mobile fueling business and have not been entered into by the
Company with the majority of its customers. Therefore, most of the Company's
customers can terminate the Company's mobile fueling services at any time and
for any reason, and the Company can similarly discontinue service to any
customer. The Company would discontinue service to a customer if changes in the
service conditions or other factors cause the Company not to meet its minimum
level of margins and rates, and the Company is unable to re-negotiate its
arrangement with the customer. As a result of this customer concentration and
absence of written agreements, the Company's business, results of operations and
financial condition could be materially adversely affected by the loss of one or
more of its large customers or if the Company were to experience a high rate of
contract terminations.
MANAGEMENT OF GROWTH. The Company's future growth strategy is dependent on
the continuing improvement of its operational, financial and other internal
systems, and the ability to attract, train, motivate, manage and retain its
employees. If the Company is unable to manage growth effectively, the Company's
results of operations will be adversely affected.
COMPETITION. The Company competes with other distributors of fuel,
including several regional distributors and numerous small independent operators
who provide mobile fueling services. The Company also competes with retail
marketing where fleet operators have the option of fueling their own equipment
at retail stations and other third-party service locations. The Company's
ability to compete is dependent on numerous factors, including price, delivery
dependability, credit terms, service locations, and reporting and invoicing
services. There can be no assurance that the Company will be able to continue to
compete successfully as a result of these or other factors.
OPERATING RISKS MAY NOT BE COVERED BY INSURANCE. The Company's operations
are subject to all of the operating hazards and risks normally incidental to
handling, storing and transporting diesel fuel and gasoline, which are
classified as hazardous materials. The Company maintains insurance policies in
such amounts and with such coverages and deductibles as the Company believes are
reasonable and prudent. However, there can be no assurance that such insurance
will be adequate to protect the Company from liabilities and expenses that may
arise from claims for personal and property damage arising in the ordinary
course of business or that such levels of insurance will be maintained by the
Company or will be available at economical prices.
GOVERNMENTAL REGULATION. See the discussion of governmental regulations and
their impact on the Company in the "Government Regulation" section set forth
above.
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CHANGES IN ENVIRONMENTAL REQUIREMENTS. The Company expects to derive future
business by converting to mobile fueling fleet operators currently utilizing
underground fuel storage tanks for their fueling needs. The owners of
underground storage tanks have been required to remove or retrofit those tanks
to comply with technical requirements pertaining to their construction and
operation. If other more economical means of compliance are developed or adopted
by owners of underground storage tanks, the opportunity for the Company to
market its services to such operator may be adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth certain information concerning the property
and facilities that are owned or leased by the Company for use in its
operations:
Lease Expiration
Description Location With All Options Notes
----------- -------- ----------------- -----
Corporate offices Ft. Lauderdale, Florida 3/1/04 (2)
Truck yard and office Port Everglades, Florida 3/1/04 (2)
Truck yard and office Ft. Myers, Florida Month to Month (2)
Truck yard and office Jacksonville, Florida 8/31/15 (1)
Truck yard and office Orlando, Florida 6/1/05 (2)
Truck yard and office Tampa, Florida N/A (3)
Truck yard and office Melbourne, Florida Month to Month (2)
Truck yard and office Doraville, Georgia Month to Month (2)
Truck yard and office Kingsport, Tennessee Month to Month (2)
Truck yard and office Chattanooga, Tennessee Month to Month (2)
Truck yard and office Houston, Texas Month to Month (2)
Truck yard and office Ft. Worth, Texas 12/31/04 (2)
Truck yard and office Gardena, California 1/15/03 (2)
Truck yard and office Riverside, California Month to Month (2)
- ---------------
(1) Leased from Stanley H. Streicher, the Company's Chairman of the Board.
(2) Leased.
(3) Property owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material legal proceedings pending. From time to time,
the Company may become a party to litigation incidental to its business. There
can be no assurance that any future legal proceedings will not have a material
adverse effect on the Company's business, reputation, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the three months ended June 30,
2002.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 ("common stock") and Redeemable
Common Stock Purchase Warrants ("warrants") have traded in the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
Small-Cap Market under the symbols "FUEL" and "FUELW", respectively, since
December 11, 1996, the date of the Company's initial public offering. The
following table sets forth, for the periods indicated, the high and low closing
prices for the common stock and warrants, as reported by NASDAQ.
Common Stock Warrants
----------------- -----------------
High Low High Low
-------- ------- ------- --------
Year Ended June 30, 2002
------------------------
1st quarter $1.74 $1.11 $0.14 $0.08
2nd quarter $1.58 $ .97 $0.08 $0.03
3rd quarter $1.34 $1.00 $0.12 $0.07
4th quarter $1.46 $1.00 $0.10 $0.08
Transition Period Ended
June 30, 2001
-----------------------
1st quarter $2.23 $1.00 $0.44 $0.12
2 month $1.97 $1.30 $0.20 $0.12
Year Ended January 31,
2001
-----------------------
1st quarter $7.19 $4.13 $1.16 $ .50
2nd quarter $4.50 $2.25 $ .56 $ .25
3rd quarter $4.00 $1.50 $ .50 $ .13
4th quarter $2.47 $1.25 $ .44 $ .06
On September 30, 2002, the closing price of the common stock was $1.35 per
share and the closing price of the warrants was $0.08 per Warrant. As of
September 30, 2002, there were 50 holders of record of the Company's common
stock and approximately 521 beneficial owners of the Company's common stock.
To date, the Company has not declared or paid any dividends on its common
stock. The payment of dividends, if any, is within the discretion of the Board
of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition and other relevant factors. The Board of
Directors does not intend to declare any dividends in the foreseeable future,
but instead intends to retain future earnings for use in the Company's business
operations.
ISSUANCES OF UNREGISTERED SECURITIES
In January 2001, the Company issued 531,667 shares of common stock in a
private placement at $1.50 per share. The Company also issued in January 2001,
333,333 shares of common stock to three shareholders upon their conversion of a
promissory note in the principal amount of $500,000, at a conversion price of
$1.50. In February 2001 and March 2001, the Company issued a total of 846,666
shares of common stock in a private placement at $1.50 per share. While these
shares were sold in private offerings to "accredited investors" exempt from
registration under the Securities Act of 1933 (the "Act") pursuant to Sections
4(2) and 4(6) and Rules 505 and 506 of Regulation D promulgated thereunder, the
Company subsequently registered the shares for resale as part of a Form S-3
registration statement which was declared effective by the Securities and
Exchange Commission on June 8, 2001.
During the transition period from February 1, 2001 to June 30, 2001, the
Company issued an aggregate of $1.0 million of convertible subordinated
promissory notes for which, either at the Company's or the Payee's option,
accrued quarterly interest earned on the notes could be paid with shares of the
Company's common stock instead of cash. During that period, the Company issued
10,614 shares of common stock to the holders of these notes for the interest
earned to date at a price of $1.28 per share. During the last fiscal year, July
1, 2001 to June 30, 2002, the Company issued an aggregate of $1.7 million of
convertible subordinated promissory notes for which, at the Payee's option,
accrued quarterly interest earned on the notes could be paid in the Company's
common stock instead of cash. During that period, the Company issued 67,226
shares of common stock to the holders of all of the foregoing notes for the
interest earned to date at prices ranging from $1.17 to $1.51 per share. The
offer and sale of the convertible
9
subordinated promissory notes, and the underlying shares of stock into
which the notes are convertible or which are issued as payment of interest, were
exempt from registration under the Act as private offerings to "accredited
investors" under Sections 4(2) and 4(6) of the Act and Rules 505 and 506 of
Regulation D thereunder. The Company has agreed to register the shares into
which the notes may be converted for resale by filing a Form S-3 registration
statement with the Securities and Exchange Commission, which it intends to do
sometime after the filing of this Form 10-K.
In August 2001, the Company issued 133,333 shares of common stock in a
private placement at $1.50 per share. In January 2002, the Company issued
476,190 shares in a private placement at $1.05 per share. As a result of the
reduction in the offering price in January 2002 to $1.05 per share, 57,143
additional shares were issued to the August 2001 investor in January 2002,
resulting in an effective price of $1.05 for all purchasers in the offering. The
offer and sale of these shares of common stock were exempt from registration as
private offerings to "accredited investors" under Sections 4(2) and 4(6) of the
Act and Rules 505 and 506 of Regulation D thereunder. The Company has also
agreed to register these shares for resale, which it intends to do sometime
after the filing of this Form 10-K.
On January 15, 2002, certain holders of the convertible subordinated
promissory notes converted an aggregate of $2,616,800 to shares of the Company's
common stock at a conversion price of $1.24 per share, for a total of 2,110,322
shares.
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company and its consolidated
subsidiaries are qualified in their entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected financial table below is for each of the fiscal years
ended June 30, 2002 and 2001 (unaudited), the transition period ended June 30,
2001, and the fiscal years ended January 31, 2001, 2000, 1999, and 1998. Except
for the unaudited financial and statistical information section, and the
unaudited selected financial data for fiscal year ended June 30, 2001 which is
presented for 12-month comparison information only, the selected financial data
is derived from the audited Consolidated Financial Statements of the Company for
the fiscal years ended June 30, 2002, the transition period ended June 30, 2001,
and the fiscal years ended January 31, 2001, 2000, 1999 and 1998.
(in thousands, except net margin per gallon and per share data)
Five-month
Transition
Fiscal Years Period Ended Fiscal Years
Ended June 30, June 30, Ended January 31,
--------------- ------------- -------------------------------------
2002 2001 2001 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----
SELECTED INCOME STATEMENT DATA: (Unaudited)
Revenue, net of fuel taxes ...................... 43,538 60,293 22,235 65,002 50,801 30,332 29,400
Gross profit .................................... 4,591 2,520 740 3,093 4,629 2,754 3,305
Operating profit (loss) ......................... 209 (1,273) (1,386) 241 1,559 (54) (332)
Beneficial conversion of debt to
equity interest expense ......................... (241) -- -- -- -- -- --
-------------------------------------------------------------------------------
Net income (loss) ............................... (1,162) (2,774) (1,951) (1,335) 472 (1,082) (475)
Less: Beneficial conversion of debt
to equity interest expense ...................... 241 -- -- -- -- -- --
-------------------------------------------------------------------------------
Net income (loss) adjusted for
beneficial conversion interest expense .......... (921) (2,774) (1,951) (1,335) 472 (1,082) (475)
================================================================================
PER SHARE DATA:
Basic net income (loss) per share ............... (0.20) (0.84) (0.47) (0.49) 0.17 (0.42) (0.18)
Diluted net income (loss) per share ............. (0.20) (0.84) (0.47) (0.49) 0.16 (0.42) (0.18)
================================================================================
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents ....................... 815 6 6 447 353 123 1,411
Accounts receivable, net ........................ 6,382 8,669 8,669 9,638 9,588 5,775 5,065
Bank line of credit payable ..................... 4,680 6,905 6,905 7,286 7,679 4,571 3,269
Shareholders' equity ............................ 5,676 3,332 3,332 5,218 4,289 3,360 4,441
Total Assets .................................... 18,560 22,194 22,194 24,645 23,931 16,194 13,996
================================================================================
FINANCIAL AND STATISTICAL INFORMATION (UNAUDITED):
EBITDA (1) ...................................... 1,712 223 (748) 1,659 2,709 592 511
Working Capital (Deficit) (4).................... (1,576) (3,093) (3,093) (1,891) (1,797) (2,325) 3,392
Net Margin (2) .................................. 6,049 3,946 1,354 4,442 5,713 3,588 3,816
Net Margin per gallon (in dollars) (3) .......... 0.122 0.073 0.062 0.077 0.096 0.086 0.115
Total Gallons (000's) ........................... 49,500 54,102 21,800 57,600 59,400 41,900 33,300
================================================================================
EBITDA CALCULATION (UNAUDITED):
Net income (loss) ............................... (1,162) (2,774) (1,951) (1,335) 472 (1,082) (475)
Add back:
Interest expense .............................. 1,175 1,571 590 1,645 1,152 840 475
Beneficial conversion of debt to
equity interest expense ..................... 241 -- -- -- -- -- --
Depreciation and amortization expense ......... 1,458 1,426 613 1,349 1,085 834 511
-------------------------------------------------------------------------------
EBITDA .......................................... 1,712 223 (748) 1,659 2,709 592 511
================================================================================
(1) EBITDA = Earnings before interest, taxes, depreciation and amortization.
(2) Net Margin = Gross profit plus depreciation
(3) Net Margin / Total Gallons
(4) Working Capital (Deficit) = current assets - current liabilities
11
UNAUDITED QUARTERLY SELECTED FINANCIAL DATA FOR FISCAL YEAR
ENDED JUNE 30, 2002 AND 2001
(in thousands, except net margin per gallon and per share data)
June 30, 2002 June 30, 2001
---------------------------------------- --------------------------------------------
YTD YTD
SELECTED INCOME STATEMENT DATA: Q1 Q2 Q3 Q4 2002 Q1 Q2 Q3 Q4 2001
---------------------------------------- --------------------------------------------
Revenue, net of fuel taxes .............. 12,299 9,867 9,892 11,480 43,538 16,576 16,348 13,843 13,526 60,293
Gross profit ............................ 1,167 965 1,169 1,290 4,591 997 524 488 511 2,520
Operating profit (loss) ................. 32 (182) 64 296 209 351 (203) (551) (870) (1,273)
Beneficial conversion of debt to equity
Interest expense ...................... -- -- (241) -- (241) -- -- -- -- --
Net income (loss) ....................... (307) (515) (405) 63 (1,162) (43) (608) (915) (1,208) (2,774)
--------------------------------------- ------------------------------------------
Less: Beneficial conversion of debt
to equity interest expense ............ -- -- 241 -- 241 -- -- -- -- --
Net income (loss) adjusted for beneficial
conversion interest expense ........... (307) (515) (164) 63 (921) (43) (608) (915) (1,208) (2,774)
======================================= ============================================
PER SHARE DATA:
Basic net income (loss) per share ....... (0.07) (0.11) (0.06) 0.01 (0.20) (0.01) (0.22) (0.26) (0.28) (0.84)
Diluted net income (loss) per share ..... (0.07) (0.11) (0.06) 0.00 (0.20) (0.01) (0.22) (0.26) (0.28) (0.84)
======================================= ============================================
SELECTED BALANCE SHEETS DATA:
Cash and cash equivalents ............... 163 183 402 815 815 177 124 173 6 6
Accounts receivable, net ................ 9,678 7,011 7,313 6,382 6,382 10,024 9,647 8,220 8,669 8,669
Bank line of credit payable ............. 7,322 5,850 5,552 4,680 4,680 8,221 8,057 6,473 6,905 6,905
Shareholders' equity .................... 3,224 2,743 5,630 5,676 5,676 3,799 3,141 4,540 3,332 3,332
Total Assets ............................ 22,616 20,013 19,816 18,560 18,560 24,408 23,879 22,156 22,194 22,194
======================================= ============================================
FINANCIAL AND STATISTICAL INFORMATION:
EBITDA .................................. 416 194 449 653 1,712 707 176 (179) (480) 223
Working Capital (Deficit) ............... (2,051) (2,479) (1,950) (1,576) (1,576) (3,182) (4,068) (2,879) (3,093) (3,093)
Net Margin .............................. 1,537 1,327 1,540 1,645 6,049 1,338 877 844 887 3,946
Net Margin per gallon (in dollars) ...... 0.099 0.111 0.142 0.146 0.122 0.092 0.066 0.068 0.064 0.073
Total Gallons (000's) ................... 15,495 11,905 10,808 11,292 49,500 14,591 13,328 12,408 13,774 54,101
======================================= ============================================
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains "forward-looking statements" which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
factors, including but not limited to those set forth above in Item 1. under the
caption "Certain Factors Affecting Future Operating Results," below, and
elsewhere in this Form 10-K. The following discussion also should be read in
conjunction with the Company's financial statements and notes thereto included
elsewhere in this Form 10-K.
GENERAL
The Company generates substantially all of its revenue from providing
mobile fueling and fuel management services. Revenue is comprised principally of
delivery service charges and the related sale of diesel fuel and gasoline. Cost
of sales is comprised principally of direct operating expenses and the cost of
fuel. Included in both revenue and cost of sales are federal and state fuel
taxes, which are collected by the Company from its customers, when required, and
remitted to the appropriate taxing authorities.
The Company provides mobile fueling and fuel management services at a
negotiated rate for service plus the cost of fuel based on market prices.
Revenue levels will vary depending on the upward or downward movement of fuel
prices in each market. For the fiscal year ended June 30, 2002, market prices
for fuel were substantially lower than for the fiscal year ended June 30, 2001,
and were primarily responsible for the significant declines in both revenue and
cost of sales for June 30, 2002. Lower volumes of delivered gallons for the
fiscal year ended June 30, 2002, as compared to the fiscal year ended June 30,
2001 also contributed to the declines in both revenue and cost of sales. These
volume declines were due primarily to the elimination of non-profitable markets
and accounts, as well as volume declines of certain customers whose levels of
business activity have been adversely impacted by the current economic downturn.
In the mobile fueling business, the majority of deliveries are made on
workdays, Monday through Friday, to coincide with customers' fuel service
requirements. Thus, the number of workdays in any given month will impact the
quarterly financial performance of the Company. In addition, a downturn in
customer demand generally takes place on and/or in conjunction with national
holidays, resulting in decreased volumes of fuel delivered. This downturn may be
offset during the fiscal year by emergency mobile fueling services and fuel
deliveries to certain customers resulting from impending or actual severe
meteorological or geological events, including hurricanes, tropical storms, ice
and snow storms, forest fires and earthquakes.
The Company believes that there are significant opportunities to increase
the size of its mobile fueling and fuel management services business and the
volumes of fuel sold and delivered in conjunction with it. The Company has
reestablished and developed its marketing and sales function in order to grow
the Company's business. However, this growth is dependent upon a number of
business and economic factors, such as the success of the Company's sales and
marketing and other business strategies, the availability of qualified workers
to provide the level of service required by customers, the continuation of cash
flow from operating activities, the availability of sufficient debt or equity
capital to meet the Company's business requirements, and changes in market
conditions in the related transportation or petroleum industries, some of which
factors are beyond the Company's control.
CAPITAL RESOURCES AND LIQUIDITY
During the 18-month period from January 1, 2001 to June 30, 2002, the
Company raised in the aggregate $6.0 million in equity capital through private
placements of common stock and the issuance of subordinated debt. For the 12
months ended June 30, 2002, the Company raised $700,000 from private placements
and $1.7 million from convertible subordinated promissory notes.
On January 15, 2002, certain holders of the Company's convertible
subordinated promissory notes converted their aggregate $2.617 million in debt
to shares of the Company's common stock at a conversion price of $1.24 per
share, for a total of 2,110,322 shares of the Company's common stock. The
convertible subordinated
13
promissory notes converted contained conversion rates ranging from $1.35 to
$1.50 per share. The conversion resulted in the Company recording a one time,
non-cash beneficial conversion of debt to equity interest expense of $241,000.
The beneficial conversion of debt to equity interest expense had no impact on
total shareholders' equity.
As a result of the capital raised through private placements and the
conversion of $2.617 million of the outstanding $2.90 million in subordinated
debt, the Company's stockholders' equity increased from June 30, 2001 by 70% to
$5.676 million at June 30, 2002, the highest amount in the Company's history.
The Company's business requires it to expend considerable working capital
for fuel, labor and equipment costs prior to payments being received from the
Company's customers. The fuel purchased by the Company for resale to its
customers must generally be paid for within 10 to 15 days of purchase, with
labor costs and related taxes paid bi-weekly, and equipment related costs
generally paid within 30 days. The Company invoices its customers weekly and
generally collects the majority of its accounts within 30 to 45 days. Days sales
outstanding at June 30, 2002 was 33 days compared to 42, 39 and 41 days for the
five month transition period ended June 30, 2001 and for the fiscal years ended
January 31, 2001 and 2000, respectively.
The Company has mostly incurred net losses during its operating history and
has met its working capital and debt service requirements through the raising of
capital and drawing from its bank line of credit. During the fiscal year ended
June 30, 2002, the Company incurred a net loss (before the beneficial conversion
of debt to equity interest expense) of $921,000 compared to a $2.774 million
loss for the fiscal year ended June 30, 2001. Furthermore, the Company generated
operating profit and net income in the fourth quarter ended June 30, 2002 of
$296,000 and $63,000, respectively, compared to losses of $870,000 and $1.21
million, respectively, for the same periods a year ago. Even though the Company
delivered approximately 5 million less gallons of fuel during the fiscal year
ended June 30, 2002 as compared to the fiscal year ended June 30, 2001, it was
able to significantly reduce its losses over the course of the year due to
higher net margins on the fuel delivered, ultimately resulting in a modest
profit for the fourth quarter of fiscal year 2002.
The Company's improved performance in the fourth quarter ended June 30,
2002 and over the 12 months ended June 30, 2002 is the result of extensive
structural changes to its operations and management. During the last 18 months
ended June 30, 2002, most of the Company's executive management has changed.
Current management instituted a new business plan and a turnaround program
comprised of various substantive changes in operations, management and reporting
which have improved the Company's financial operating results by reducing
operating costs, increasing net margins and operating cash flow. However, there
can be no assurance that the Company will maintain and/or continue to improve
its operating performance in the future. In addition, there can be no assurance
that the Company will not require additional capital to support its operating
and debt service requirements in the future.
AMONG THE NEW INITIATIVES WERE THE FOLLOWING:
o Review and reduce the field operating expenses, primarily payroll and
vehicle maintenance costs.
o Review and change the route and delivery structures to improve efficiency
and reduce costs.
o Evaluate the current overhead structure of the Company and implement
reductions where feasible.
o Renegotiate prices on low margin accounts or discontinue service to such
accounts.
o Reestablish the marketing and sales function, eliminated approximately 18
months prior to the change in the Company's management, in order to market
the Company's services and increase sales volumes.
o Raise capital to support the implementation of the turnaround program.
o Establish a long-term credit facility with improved terms.
14
THE RESULTS OF THE TURNAROUND PROGRAM AS OF JUNE 30, 2002 ARE AS FOLLOWS:
OVERALL
o The Company posted operating profits for the third and fourth quarters of
the fiscal year ended June 30, 2002 in the amounts of $64,000 and $296,000,
respectively.
o In the fourth quarter ended June 30, 2002, the Company earned bottom line
net income of $63,000 and generated EBITDA of $653,000.
o The Company's EBITDA increased by approximately 80% in the last six months
versus the first six months of the fiscal year ended June 30, 2002, with
EBITDA of $1.1 million for the six-month period of January 2002 through
June 2002, versus $610,000 for the six-month period of July 2001 through
December 2001.
o At June 30, 2002, the Company had $1.1 million of total cash availability,
comprised of the cash and cash equivalents balance of $815,000 and $250,000
of availability on the line of credit, as opposed to a cash overdraft of
$312,000 at June 30, 2001.
o Cash flow provided by operations during the fiscal year ended June 30, 2002
was $2.5 million versus cash usage of $1.5 million for the prior 12-month
period.
o The Company paid down its line of credit and equipment debt principal
balances since January 31, 2001 by approximately 39% or $6.0 million. The
balance outstanding at January 31, 2001 was $15.5 million versus $9.5
million at June 30, 2002.
o The net margin per gallon for the last 17 months has increased by over
270%, increasing from 4.6 cents per gallon for the month of February 2001
to 17.0 cents per gallon in June 2002.
o The Company's new management team has been able to raise capital as needed
to implement the new business plan and turnaround program, raising over
$6.0 million during the 18-month period from January 2001 through June
2002.
o The Company's stockholder equity increased by 107% in the last six months
of the fiscal year ended June 2002. At December 31, 2001, the stockholder's
equity was $2.7 million versus $5.7 million at June 30, 2002.
o The Company's annualized payroll costs were reduced by approximately
$970,000 between June 30, 2001 and 2002, with the number of employees being
lowered by approximately 21%.
o Subsequent to June 30, 2002, the Company replaced its short-term bank line
of credit, securing a new three-year $10.0 million bank credit facility
with a national financial institution.
FIELD OPERATIONS
o The average operating cost of each mobile fueling truck was reduced by
approximately 25% over the 17-month period ended June 30, 2002, as a result
of major operating changes which included implementing new programs for
efficient route structuring, equipment utilization, hiring and retention,
and training and safety.
o Material improvements to the Company's patented electronic fuel dispensing
and field information gathering system reduced the field and office
man-hours necessary to run and expand the business, together with
eliminating historical inventory reconciliation and control issues.
15
o The efficiency improvements in deliveries of the Company's mobile fueling
services for the 17-month period ended June 30, 2002 reflected 49% more
gallons being delivered per payroll hour per day with 27% less drivers.
o Direct operating expenses during the 17-month period ended June 30, 2002
were reduced from 23.5 cents per gallon delivered in February 2001 to 18.3
cents per gallon in June 2002, a 22% reduction.
o The improvements in delivery efficiencies and the lower direct operating
expenses realized during the last 17 months contributed to an over 270%
increase in the Company's net margin per gallon as of June 30, 2002, with a
net margin of 17.0 cents per gallon delivered in June 2002 as compared to
4.6 cents per gallon in February 2001.
o The Company eliminated duplicate and non-performing management and support
staff in the operations and introduced a program of accountability for all
personnel.
OTHER OPERATIONAL IMPROVEMENTS
o The Company restructured its corporate and administrative overhead during
the last 17 months, eliminating non-value added positions while adding
personnel necessary to meet the Company's new operating requirements.
o The Company relocated its corporate offices and several of its field
operating offices and truck yards to locations that were more practical and
efficient from which to conduct business and control costs.
o The accounting back office, data collection and information systems were
upgraded, which included establishing for the first time a corporate local
area network and a company-wide communication system; developing an
effective e-mail system; developing an internet web site with internal
hosting; and developing electronic banking, tax return filing and
electronic report submission to certain customers. The upgrade in the back
office systems and structure has allowed for the elimination of certain
duplicate positions and for more timely and accurate billing and financial
reporting.
o The Company's key finance and accounting management positions were upgraded
and significant improvements in the internal control procedures were
introduced to protect the Company's assets and enhance the timeliness and
accuracy of financial information.
o The Company's credit and collections department, personnel and procedures
were revamped, with the days sales outstanding at June 30, 2002 being 33
days as compared to 42, 39 and 41 days for the transition period ended June
30, 2001, and the fiscal years ended January 31, 2001 and 2000,
respectively.
o Since the Company's re-establishment of the sales and marketing department
and using the most recent 12-month historical average available (September
2001 through August 2002), the Company has added new business averaging
over 130,000 gallons per month net of normal business turnover at pricing
levels meeting or exceeding target margins established by the Company.
16
o While the Company's selling, general and administrative costs increased
$589,000 or 15.5% when comparing the 12 months ended June 30, 2002 with the
same period ended 2001, this increase primarily resulted from the
re-establishment of the sales and marketing department, costs associated
with the reorganization of management, supervisory and administrative
personnel, including the duplication of certain positions during this
restructuring period and substantial increases in insurance costs. The
reorganization steps have been taken to improve the Company's efficiency
and operating performance, and in comparing the fourth quarter ended June
30, 2002 with same the period ended 2001, the selling, general and
administrative costs were lower by $387,000 or 28%.
NEW THREE-YEAR $10 MILLION BANK FACILITY
On September 26, 2002, the Company entered into a new three-year $10
million credit facility with a national financial institution. This line of
credit replaces the Company's short-term $10 million credit facility. The new
line of credit permits the Company to borrow up to 85% of the total amount of
eligible accounts receivable. Interest is payable monthly at 1.75% over the
prime rate (6.50% at September 30, 2002), and outstanding borrowings under the
line are secured by substantially all Company assets other than its truck fleet
and related equipment. The maturity date of the new line of credit is September
25, 2005, and should the Company elect to terminate the credit facility prior to
such date, prepayment fees of 3%, 1.5% and .5% will apply during year one, two
and three, respectively. In addition, the credit facility may be extended by the
mutual consent of the Company and the bank after year three. Under the terms of
the credit facility, the Company is required to maintain one financial covenant,
which it was in compliance with as of September 30, 2002. Management believes
that this three-year credit facility with the new bank will provide the Company
with the financing needed to maintain and grow its business. However, if
additional financing is required, there can be no assurance that the Company
will be able to obtain such financing from the new bank at acceptable terms or
at all.
As of June 30, 2002, the Company had outstanding borrowings of $4.68
million under its prior short-term $10.0 million bank line of credit. Based on
eligible receivables outstanding at June 30, 2002, the Company had $250,000 of
cash availability on the bank line of credit, and was in compliance with all
financial covenants required by the credit facility. During the fiscal year
ended June 30, 2002, the bank waived a $100,000 termination fee contained in the
credit agreement.
A significant portion of the Company's outstanding debt bears interest at
variable interest rates. The Company's financial results will be impacted by
significant increases or decreases in interest rates.
NO ASSURANCES OF FUTURE PROFITABILITY; LOSSES FROM OPERATIONS; NEED FOR CAPITAL
The Company incurred net losses for the fiscal year ended June 30, 2002,
the transition period ended June 30, 2001 and the fiscal year ended January 31,
2001 of $1.162 million, $1.951 million and $1.335 million, respectively. The
Company earned net income of $472,000 in the fiscal year ended January 31, 2000
and earned net income of $63,000 in the fourth quarter ended June 30, 2002.
The Company's expects that the improved financial and operating performance
over the last 17 months from the turnaround program will continue into the next
fiscal year. However, for the Company to maintain and improve these positive
trends, it must continue to increase volumes at profitable margins, control
costs and generate sufficient cash flow to support its working capital and debt
service requirements. There can be no assurance that management will be able to
do so, or that it will be able to raise capital to support any working capital
or debt service shortfalls during any future business downturns, whether the
downturn is part of broader economic conditions or the Company's failure to
successfully execute its business plan.
NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after
17
June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
We were required to adopt the provisions of SFAS No. 141 immediately upon
its issuance and it did not have a material effect on our results of operations
or financial condition. We adopted SFAS No. 142 effective July 1, 2002. SFAS No.
141 requires that upon adoption of SFAS No. 142 that we evaluate our existing
intangible assets and goodwill that we acquired in prior purchase business
combinations, and make any necessary reclassifications in order to conform with
the new criteria in SFAS No. 141 for recognition apart from goodwill. Upon
adoption of SFAS No. 142, we are required to reassess the useful lives and
residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, we are
required to test the intangible asset for impairment in accordance with the
provisions of SFAS No. 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.
In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 requires us to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. To accomplish this, we
must identify our reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date of
adoption. We then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and we will be required to perform the second step of the transitional
impairment test. In the second step, we must compare the implied fair value to
all of its assets (recognized and unrecognized) and liabilities in a manner
similar to a purchase price allocation in accordance with SFAS No. 141, to its
carrying amount, both of which would be measured as of the date of adoption. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company's statement of operations.
As of the date of adoption, we have no goodwill or other intangible assets
and as such, we do not anticipate that the adoption of SFAS No. 142 will be
material to our consolidated results of operations or financial position.
Also, in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity will capitalize a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier adoption
permitted. We are currently evaluating the effect that the adoption of SFAS No.
143 may have on our consolidated results of operation and financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, it retains many of the fundamental
provisions of SFAS No. 121. SFAS No. 144 also supersedes the accounting and
reporting provisions of Accounting Principles Board ("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 APB 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 a distribution to
owners) or is classified as held for sale. The provisions of SFAS No. 144
18
become effective for fiscal years beginning after December 15, 2001 and must be
adopted as of the beginning of a fiscal year. We adopted SFAS No. 144 effective
July 1, 2001 and the statement did not have a material effect upon our
consolidated results of operations or financial position.
In June 2002, the FASB issued SFAS No. 146, "Costs Associated with Exit or
Disposal Activities." The Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This statement does not enable us to recognize a liability for
costs associated with an exit or disposal activity until the liability is
incurred. The statement is effective for exit or disposal activities that are
initiated after December 31, 2002, and will result in a change in accounting
policy associated with the recognition of liabilities in connection with future
exit and disposal activities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have identified the policies outlined below as critical to our business
operations and an understanding of our results of operations. The listing is not
intended to be a comprehensive list of all of our accounting policies. In many
cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States, with
no need for management's judgment in their application. The impact and any
associated risks related to these policies on our business operations are
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 2 in the Notes to the Consolidated Financial
Statements in Item 8 on Form 10-K. Note that our preparation of this Form 10-K
requires us to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
Accounts Receivable and Allowance for Doubtful Accounts
We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customers' current credit worthiness,
as determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. While such credit losses
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience the same credit loss
rates that have occurred in the past. Our accounts receivable balance as of June
30, 2002 was approximately $6.4 million, net of allowance for doubtful accounts
of approximately $509,000.
Property and Equipment
We record our property and equipment at cost and depreciate over the
estimated useful life of the asset on a straight-line basis. We expense ordinary
maintenance and repairs as incurred and capitalize improvements that
significantly increase the value or useful life of our property and equipment.
We periodically test our property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. The conditions that would trigger an impairment
assessment of our property, plant and equipment would include, but not be
limited to, a significant, sustained negative trend in our operating results or
cash flows, a decrease in demand for our products, a change in the competitive
environment and other industry and economic factors. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of the asset
to future net cash flows expected to be generated by the asset. If such assets
are deemed to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets based on the projected net cash flows discounted at a rate commensurate
with the risk of the assets.
19
Income Taxes
As part of the process of preparing our consolidated financial statements,
we are required to estimate our income taxes. This process involves us
estimating our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheet. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent we believe that recovery is not likely, we must
establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the consolidated statement of operations.
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have recorded a
valuation allowance of approximately $2.3 million as of June 30, 2002, due to
uncertainties related to our ability to utilize some of our deferred tax assets,
primarily consisting of certain net operating losses carried forward, before
they expire. The valuation allowance is based on our estimates of taxable income
and the period over which our deferred tax assets will be recoverable. In the
event that actual results differ from these estimates, or we adjust these
estimates in future periods, we may need to establish an additional valuation
allowance which could materially impact our financial position and results of
operations. The net deferred tax asset as of June 30, 2002 was $0, net of the
valuation allowance.
RELATED PARTY TRANSACTIONS
The related party account receivable from Streicher Enterprises, Inc.
("Enterprises"), an entity wholly owned by the Company's Chairman, Stanley H.
Streicher, amounted to approximately $204,000 and $583,000 at June 30, 2002 and
2001, respectively, and $540,000 and $501,000 at January 31, 2001 and 2000,
respectively, bearing interest at 8.25 percent per annum. Two promissory notes
to the Company, one dated January 31, 1997, in the amount of $319,043 due
January 31, 2007, and the second in the amount of $94,850 dated January 31, 1998
due January 31, 2007 (the "Notes"), represented the bulk of the above referenced
account. Mr. Streicher personally guaranteed the principal of, and interest on,
the Notes. Such amounts represented tax benefits of the Company used by
Enterprises, certain expenses of Enterprises paid by the Company prior to its
initial public offering and cash advances to Enterprises prior to the Company's
initial public offering. Interest income on the account included approximately
$41,000 and $18,000 for the year ended June 30, 2002 and the transition period,
respectively, and approximately $42,000 and $37,000 for the fiscal years ended
2001 and 2000 relating to the account receivable from Enterprises. Enterprises
was required to make annual payments of interest only with a final payment of
all accrued interest and unpaid principal due on January 31, 2007. The account
receivable was secured by a pledge of 360,213 shares of the Company's common
stock owned by Supreme Oil Company, another entity wholly owned by Mr.
Streicher.
The Company had leased its former corporate headquarters from Mr.
Streicher, from which a portion of the above referenced account receivable had
arisen (see Note 10(a), Commitments and Contingencies, Operating Leases). Mr.
Streicher and the Company entered into a Lease Cancellation and Assignment of
Sublease dated February 1, 2002, whereby Mr. Streicher agreed to pay to the
Company the net book value of certain leasehold improvements which were paid by,
and carried on the books of, the Company as of April 30, 2001, in the amount of
$59,600 (the "Leasehold Improvements Debt") on or before March 31, 2002.
On April 1, 2002, Mr. Streicher and Supreme Oil Company Inc. and the
Company entered into an agreement with respect to the repayment by Mr. Streicher
and Supreme of the Leasehold Improvements Debt and the Notes (collectively, the
"Debt"). In connection therewith, Supreme delivered to the Company additional
shares of the Company's stock owned by Supreme, so that an aggregate of 533,088
shares of the Company's common stock owned by Supreme (the " Certificates") were
pledged as security for the Debt.
In the April 1, 2002, agreement, Mr. Streicher and Supreme agreed to
accelerate the due date of the Notes to September 30, 2003, to make quarterly
payments of interest on the Debt, and waived any defenses to foreclosure on the
Certificates if the Debt remained unpaid on September 30, 2003. The Company
agreed to defer any such foreclosure on the Certificates until that date in
exchange for the pledge by Supreme of additional shares of the Company's common
stock owned by Supreme and the waiver of defenses to any such foreclosure on all
pledged
20
stock if and to the extent that the Debt was not repaid prior to the expiration
of such eighteen month period (the "Acceleration Period"). Supreme also agreed
to pledge additional shares of the Company's common stock if the Company deemed
itself insecure during the Acceleration Period. Mr. Streicher and Supreme also
agreed that, in order to ensure that the Debt was repaid before the end of the
Acceleration Period, Supreme would conduct an orderly liquidation of those of
Supreme's shares of the Company's common stock which were not pledged to the
Company and then would pay the entire net proceeds of such liquidation, if any,
to the Company.
On June 12, 2002, Supreme sold 613,000 shares of the Company's common stock
for aggregate gross proceeds of $711,080 and net proceeds of at least $680,000.
According to the April 1, 2002, agreement, Mr. Streicher and Supreme were
thereby obligated to repay the entire balance of the Debt, then approximately
$680,000. On June 29, 2002, Mr. Streicher tendered $480,000 to the Company as
partial repayment of the Debt. Mr. Streicher and Supreme informed the Company
that they now question the validity of certain portions of the debt and
therefore declined to tender the balance of approximately $200,000 required by
the April 1, 2002 agreement. The Company informed Mr. Streicher and Supreme that
it considered the failure to pay the $200,000 to be a breach of the April 1,
2002 agreement and demanded immediate payment.
On July 19, 2002, after Mr. Streicher and Supreme refused the Company's
demand, the Company suspended further payments of salary to Mr. Streicher under
his November 1, 2000 employment agreement. The Company believes that the
withholding of the $200,000 by Mr. Streicher and Supreme was also a breach of
Mr. Streicher's November 1, 2000 employment agreement, constituting grounds for
the Company to terminate that agreement for cause.
COMPARISON OF YEAR ENDED JUNE 30, 2002 TO YEAR ENDED JUNE 30, 2001
REVENUES
Revenue decreased $18.6 million, or 23.4%, for the year ended June 30, 2002
compared to the year ended June 30, 2001. The decrease in revenue resulted from
a substantial decrease in the wholesale price of diesel fuel and gasoline as
well as a decline in gallons delivered. The Company delivered 49.5 million
gallons of fuel to its customers in the year ended June 30, 2002, a decrease of
8.5% compared to the 54.1 million gallons delivered in the year ended June 30,
2001. The decrease in gallons delivered resulted primarily from the elimination
of non-profitable markets and accounts, as well as volume declines of certain
customers whose levels of business activity have been adversely impacted by the
current economic downturn.
GROSS PROFIT
Gross profit increased approximately $2.1 million, or 82.2%, in the year
ended June 30, 2002 compared to the year ended June 30, 2001. The average net
margin per delivered gallon of fuel in the year ended June 30, 2002 improved to
12.2 cents compared to 7.3 cents in the year ended June 30, 2001. The increase
in gross profit was due to the results of the business initiatives started
February 2001, yielding reduced direct operating expenses, improved margins on
existing accounts and new, higher-margin accounts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately
$589,000, or 15.5%, in the year ended June 30, 2002 compared to the year ended
June 30, 2001. The increase in these expenses primarily resulted from increases
in payroll costs associated with the reestablishment of a marketing and sales
department and program (including direct marketing) which had been previously
eliminated, together with the restructuring of the management, operations, and
information technology departments and related personnel; increases in insurance
expense and legal fees; and an increase in the allowance for doubtful accounts.
21
INTEREST EXPENSE
Interest expense decreased approximately $396,000, or 25.2%, in the year
ended June 30, 2002 compared to the year ended June 30, 2001 as a result of
lower interest rates on variable rate debt and decreased borrowings, primarily
due to repayment of existing equipment debt, credit facility and the conversion
of the subordinated promissory notes to equity.
The Company incurred, in connection with the conversion of its convertible
subordinated promissory notes to equity in January 2002, a one-time non-cash
charge related to EITF 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features". This charge was $241,000 and classified as
beneficial conversion of debt to equity interest expense for the year ended June
30, 2002.
INCOME TAXES
The Company recorded no income tax expense for the years ended June 30,
2002 or 2001. The Company has net operating loss carryforwards of $12.2 million
at June 30, 2002.
EBITDA
Earnings before interest, taxes, depreciation, and amortization increased
by $1.5 million to $1.7 million for the year ended June 30, 2002 from $223,000
for the year ended June 30, 2001. The increase was primarily due to higher net
margins and operating profit. The components of EBITDA for the year ended June
30, 2002 and 2001 are as follows:
2002 2001
---------- ----------
Net loss ............................... $(1,162,000) $(2,774,000)
Add back:
Interest expense .................... 1,175,000 1,571,000
Beneficial conversion of
debt to equity interest expense ... 241,000 --
Depreciation and amortization expense 1,458,000 1,426,000
---------- ----------
EBITDA ................................. $ 1,712,000 $ 223,000
========== ==========
COMPARISON OF FIVE-MONTH TRANSITION PERIOD ENDED JUNE 30, 2001 TO FIVE MONTHS
ENDED JUNE 30, 2000
REVENUES
Revenue decreased $7.0 million, or 19.1%, for the five months ended June
30, 2001 compared to the five months ended June 30, 2000. The decrease in
revenue resulted from a decrease in the wholesale price of diesel fuel and
gasoline, declines in the actual quantities of fuel delivered and, to a lesser
extent, declines in the average delivery service fee as a result of changes in
the mix of business. The Company delivered 21.8 million gallons of fuel to its
customers in the five months ended June 30, 2001, a decrease of 13.9% compared
to the 25.3 million gallons delivered in the five months ended June 30, 2000.
The Company sells fuel at prices based upon the daily market averages in each
operating location and provides delivery services at a fixed price per gallon.
Revenue levels can vary depending on the upward or downward movement of fuel
prices in each market. The Company has begun the reestablishment of its
marketing and sales function in order to increase the volume of mobile and bulk
fueling business for future periods.
GROSS PROFIT
Gross profit decreased $597,000, or 44.7%, in the five months ended June
30, 2001 compared to the five months ended June 30, 2000. The net margin per
gallon of fuel in the five months ended June 30, 2001 was 6.2
22
cents compared to 7.4 cents in the five months ended June 30, 2000. Several
factors contributed to the decrease in gross profit and net margin per gallon,
including decreases in volume; reduced historical inventory gains from gross
volumes sold to net volumes purchased; increases in inventory shrink arising
from inefficiencies in field control and reporting systems; increased product
procurement costs; increased vehicle expenses, primarily depreciation, running
fuel and insurance; and decreases in the average delivery service fee resulting
from the loss of higher margin mobile fueling business and the replacement of a
portion of that business with lower margin bulk delivery business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $917,000, or 75.9%,
in the five months ended June 30, 2001 compared to the five months ended June
30, 2000. The increase in these expenses primarily resulted from increases in
payroll costs associated with a restructuring of the marketing, information
technology and management functions; increases in direct marketing and sales
payroll; and increases in insurance expense, legal fees and other employee
benefits.
INTEREST EXPENSE
Interest expense decreased $75,000, or 11.2%, in the five months ended June
30, 2001 compared to the five months ended June 30, 2000 as a result of
decreased borrowings, primarily due to repayment of existing equipment debt.
INCOME TAXES
The Company recorded no income tax expense in the five-month periods ended
June 30, 2001 or 2000. The Company has net operating loss carryforwards which it
will use to offset taxable income in future periods to the extent available.
NET LOSS
The Company incurred a net loss of approximately $2.0 million, or $0.47 per
basic and diluted share, in the five months ended June 30, 2001 compared to a
net loss of $512,000, or $0.19 per basic and diluted share, in the five months
ended June 30, 2000. The increase in net loss in fiscal period 2001 resulted
primarily from reductions in product sales and delivery service margins;
increased costs related to equipment maintenance; and increases in selling,
general and administrative expenses.
COMPARISON OF FISCAL YEAR ENDED JANUARY 31, 2001 TO FISCAL YEAR ENDED JANUARY
31, 2000.
REVENUES
Revenue increased $12.3 million, or 16.6%, for the year ended January 31,
2001 ("fiscal 2001") compared to the year ended January 31, 2000 ("fiscal
2000"). The increase in revenue resulted from an overall increase in the
wholesale price of diesel fuel and gasoline, offset by declines in the actual
quantity of fuel delivered and, to a lesser extent, declines in the average
delivery service fee as a result of changes in the mix of business. The Company
delivered 57.6 million gallons of fuel to its customers in fiscal 2001, a
decrease of 3.0% over the 59.4 million gallons delivered in fiscal 2000. The
Company sells fuel at prices based upon the daily market averages in each
operating location and provides delivery services at a fixed price per gallon.
Revenue levels can vary depending on the upward or downward movement of fuel
prices in each market.
GROSS PROFIT
Gross profit decreased $1.5 million, or 33.2%, in fiscal 2001 compared to
fiscal 2000. The net margin per gallon of fuel in fiscal 2001 was 7.7 cents
compared to 9.6 cents in fiscal 2000. A number of factors contributed to the
decrease in gross profit, including decreases in volume, reduced historical
inventory gains from gross volumes sold to net volumes purchased, increases in
inventory shortages arising from inefficiencies in field control and reporting
systems, increased product procurement costs, increased vehicle expenses,
primarily depreciation, running
23
fuel and insurance, and decreases in the average delivery service fee resulting
from the loss of higher margin mobile fueling business and the replacement of a
portion of that business with lower margin bulk delivery business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $218,000, or 7.1%,
in fiscal 2001 compared to fiscal 2000. The decrease in these expenses primarily
resulted from eliminating marketing and sales personnel in the first quarter of
the year, including related travel and entertainment expenses and reduced
financial/public relations expenses, offset by increases in corporate payroll
costs in the last quarter of the year.
INTEREST EXPENSE
Interest expense increased $493,000, or 42.8%, in fiscal 2001 compared to
fiscal 2000 as a result of increased borrowings, primarily in prior years, to
pay for new custom fuel trucks for the Company's operations and as a result of
interest rate increases throughout fiscal 2001.
INCOME TAXES
The Company recorded no income tax expense in fiscal 2001 or 2000. The
Company has net operating loss carryforwards which it will use to offset taxable
income in future periods to the extent available.
NET INCOME (LOSS)
The Company incurred a net loss of $1.3 million, or $.49 per diluted share,
in fiscal 2001 compared to net income of $472,000, or $.16 per diluted share, in
fiscal 2000. The Company's net loss in fiscal 2001 resulted primarily from
losses of higher margin mobile fueling business, inefficiencies in product
procurement, underutilization of equipment and increased costs related to
maintaining its equipment.
COMPARISON OF FISCAL YEAR ENDED JANUARY 31, 2000 TO FISCAL YEAR ENDED JANUARY
31, 1999
REVENUES
Revenue increased $26.8 million, or 56.5%, for the year ended January 31,
2000 ("fiscal 2000") compared to the year ended January 31, 1999 ("fiscal
1999"). The Company delivered 59.4 million gallons of fuel to its customers in
fiscal 2000, an increase of 41.8% over the 41.9 million gallons delivered in
fiscal 1999. The increase in revenue resulted from a higher volume of fuel sales
and services to existing customers, acquisition of new customers in existing
locations, the introduction of mobile fueling operations into additional
metropolitan areas and an overall increase in the wholesale price of diesel fuel
and gasoline.
GROSS PROFIT
Gross profit increased $1.9 million, or 67.9%, in fiscal 2000 compared to
fiscal 1999. The net margin per gallon of fuel in fiscal 2000 was 9.6 cents
compared to 8.6 cents in fiscal 1999. This increase in gross profit and net
margin per gallon was due primarily to increases in volume, offset by increases
in driver payroll costs, repair and maintenance costs and other costs associated
with the Company's expansion into new markets in fiscal 2000.
24
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $250,000, or 8.9%,
in fiscal 2000 compared to fiscal 1999. The increase in selling, general and
administrative expenses primarily resulted from an increase in marketing, travel
and entertainment and promotion expenses associated with the expansion of the
Company's mobile fueling operations.
INTEREST EXPENSE
Interest expense increased $312,000, or 37.1%, in fiscal 2000 compared to
fiscal 1999 as a result of increased borrowings to fund the Company's expansion
into new markets and to acquire new custom fuel trucks for existing and new
locations.
INCOME TAXES
The Company recorded no income tax expense in fiscal 2000 compared to an
income tax expense of $261,000 in fiscal 1999. The Company has net operating
loss carryforwards which it will use to offset taxable income in future periods
to the extent available. The tax expense in fiscal 1999 resulted from the
Company fully reserving a deferred tax asset.
NET INCOME (LOSS)
The Company earned net income of $472,000, or $.16 per diluted share, in
fiscal 2000 and incurred a net loss of $1,082,000, or $.42 per share, in fiscal
1999. The Company's net loss in fiscal 1999 resulted primarily from the
Company's expansion into new markets, underutilization of equipment in such
markets and increases in personnel, equipment, and facilities to support current
and future growth. The increase in earnings in fiscal 2000 is due primarily to
the combination of factors discussed above.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk is limited primarily to the
fluctuating interest rates associated with variable rate debt outstanding to
finance working capital needs and a portion of the Company's fleet of delivery
vehicles. These debts bear interest at the United States prime interest rate
plus a fixed markup and are subject to change based upon interest rate changes
in the United States. The Company does not currently use, and has not
historically used, derivative instruments to hedge against such market interest
rate risk. Increases or decreases in market interest rates could have a material
impact on the financial condition, results of operations and cash flows of the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company required by Form 10-K are attached
following Part III of this report, commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibits Description
-------- -----------
3.1 Amended and Restated Articles of Incorporation (6)
3.2 Amended and Restated Bylaws (6)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Redeemable Common Stock Purchase Warrant (1)
4.3 Underwriters' Purchase Option Agreement between
the Registrant and Argent Securities, Inc. (1)
4.4 Warrant Agreement between the Registrant and
American Stock Transfer & Trust Company (1)
10.1 Employment Agreement, dated November 1, 2000
between the Registrant and Stanley H. Streicher
(2)(6)
10.2 Registrant's 1996 Stock Option Plan (1)(2)
10.3 $10,000,000 Amended and Restated Loan Agreement, dated May
25, 1999, between the Registrant and Bank Atlantic and
First Amendment, dated December 22, 1999, to Amended and
Restated Loan Agreement (5)
10.4 Amended and Restated $10,000,000 Promissory Note, dated May
9, 2001, between the Registrant and Bank Atlantic (7)
10.5 Registrant's 2000 Stock Option Plan (2)(8)
10.6 Employment Agreement, dated October 26, 2000
between the Registrant and Richard E. Gathright
(2)(9)
10.7 Second Amendment, dated May 9, 2001, to Amended and
Restated Loan Agreement, dated May 25, 1999 (10)
10.8 Promissory Note, dated July 7, 2000, between the
Registrant and C. Rodney O'Connor (11)
10.9 Form of Convertible Subordinated Promissory Note (12)
10.10 Streicher Mobile Fueling, Inc. 2001 Directors Stock
Option Plan (13)
10.11 Agreement dated April 1, 2002 between Stanley H.
Streicher, individually, and Supreme Oil Company
Inc. ("Supreme"), a company wholly owned by Mr.
Streicher and the Company with respect to the
repayment by Supreme of certain debts owned to the
Company by Supreme (14)
10.12 Loan and Security Agreement with Congress Financial
Corporation dated September 26, 2002 (15)
23.1 Consent of KPMG LLP (16)
99.1 Certification of President and Chief Executive
Officer, and the Chief Financial Officer (16)
- ---------------
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form SB-2 (No. 333-11541)
(2) Management Contract or Compensatory Plan
(3) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 1998.
(4) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 1999.
(5) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 2000.
26
(6) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 2001.
(7) Incorporated by reference to Exhibit 10.5 filed by the Company with Form
10K for the fiscal year ended January 31, 2001.
(8) Incorporated by reference to Exhibit 10.6 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(9) Incorporated by reference to Exhibit 10.7 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(10) Incorporated by reference to Exhibit 10.8 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(11) Incorporated by reference to Exhibit 10.9 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(12) Incorporated by reference to Exhibit 10.10 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(13) Incorporated by reference to Exhibit A of the Proxy Statement filed by the
Company for the Annual Meeting of Shareholders held on July 19, 2001
(14) Incorporated by reference to Exhibit 99.1 of the Form 8-K dated June 12,
2002 filed by the Company
(15) Incorporated by reference to Exhibit 99.1 of the Form 8-K dated September
30, 2002 filed by the Company
(16) Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULE
(c) REPORTS ON FORM 8-K
(1) The Company filed a Form 8-K dated June 12, 2002 to report,
under Item 5, Other Events, the agreement entered into on
April 1, 2002 with Stanley H. Streicher, individually, and
Supreme Oil Company Inc. (together, "Supreme"), a company
owned by Mr. Streicher, with respect to the repayment by
Supreme of certain debts owed to the Company by Supreme.
(2) The Company filed a Form 8-K dated September 30, 2002 to
report, under Item 5, Other Events, the closing of a new
long-term credit facility with Congress Financial
Corporation, a subsidiary of Wachovia Corporation.
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: October 9, 2002 STREICHER MOBILE FUELING, INC.
By: /S/ RICHARD E. GATHRIGHT
-----------------------------------
Richard E. Gathright, Chief
Executive Officer and President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
By:/S/ STANLEY H. STREICHER Chairman of the Board October 9, 2002
--------------------------
Stanley H. Streicher
By:/S/ RICHARD E. GATHRIGHT Director, Chief Executive October 9, 2002
-------------------------- Officer and President
Richard E. Gathright (Principal Executive Officer)
By:/S/ MICHAEL S. SHORE Senior Vice President - October 9, 2002
-------------------------- Finance and Chief Financial
Michael S. Shore Officer (Principal Financial
and Accounting Officer)
By:/S/ WENDELL R. BEARD Director October 9, 2002
--------------------------
Wendell R. Beard
By:/S/ JOSEPH M. MURPHY Director October 9, 2002
--------------------------
Joseph M. Murphy
By:/S/ C. RODNEY O'CONNOR Director October 9, 2002
--------------------------
C. Rodney O'Connor
By:/S/ ROBERT S. PICOW Director October 9, 2002
--------------------------
Robert S. Picow
By:/S/ W. GREG RYBERG Director October 9, 2002
--------------------------
W. Greg Ryberg
28
CERTIFICATIONS
I, Richard E. Gathright, certify that:
1. I have reviewed this Annual Report on Form 10-K of Streicher Mobile
Fueling, Inc.;
2. Based on my knowledge, this Annual 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 Annual
Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual 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 represented by this Annual Report.
Date: October 9, 2002
/S/ RICHARD E. GATHRIGHT
- -------------------------------------
Richard E. Gathright
President and Chief Executive Officer
I, Michael S. Shore, certify that:
1. I have reviewed this Annual Report on Form 10-K of Streicher Mobile
Fueling, Inc.;
2. Based on my knowledge, this Annual 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 Annual
Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual 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 represented by this Annual Report.
Date: October 9, 2002
/S/ MICHAEL S. SHORE
- --------------------------------------
Michael S. Shore
Chief Financial Officer
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants............ F-2
Consolidated Balance Sheets as of June 30, 2002 and 2001...... F-3
Consolidated Statements of Operations for the Year
Ended June 30, 2002, the Five-Month Transition
Period Ended June 30, 2001 and the Years Ended
January 31, 2001 and 2000.................................. F-4
Consolidated Statements of Shareholders' Equity for the
Year Ended June 30, 2002, the Five-Month Transition
Period Ended June 30, 2001 and the Years Ended
January 31, 2001 and 2000.................................. F-5
Consolidated Statements of Cash Flows for the Year
Ended June 30, 2002, the Five-Month Transition
Period Ended June 30, 2001 and the Years Ended
January 31, 2001 and 2000.................................. F-6
Notes to Consolidated Financial Statements.................... F-8
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Independent Auditors' Report
The Board of Directors and Stockholders
Streicher Mobile Fueling, Inc.:
We have audited the accompanying consolidated balance sheets of Streicher Mobile
Fueling, Inc. and subsidiaries as of June 30, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended June 30, 2002, the five-month transition period ended June 30,
2001, and each of the years in the two-year period ended January 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Streicher Mobile
Fueling, Inc. and subsidiaries as of June 30, 2002 and 2001, and the results of
their operations and their cash flows for the year ended June 30, 2002, the
five-month transition period ended June 30, 2001, and each of the years in the
two-year period ended January 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Fort Lauderdale, Florida
October 1, 2002
F-2
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND 2001
(in 000's, except share and per share data)
June 30, June 30,
ASSETS 2002 2001
- ----------------------------------------------------------- --------- --------
Current assets:
Cash and cash equivalents................................ $ 815 $ 6
Restricted cash.......................................... 245 224
Accounts receivable, net ................................ 6,382 8,669
Inventories ............................................. 363 315
Prepaid expenses and other current assets................ 452 527
--------- -------
Total current assets............................... 8,257 9,741
--------- -------
Property and equipment, net................................ 10,012 11,649
Note receivable from related party (Note 8)................ 200 583
Other assets............................................... 91 221
--------- -------
Total assets........................................ $ 18,560 $22,194
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------
Current liabilities:
Bank line of credit payable (Note 4)..................... $ 4,680 $ 6,905
Current portion of long-term debt........................ 2,101 2,154
Accounts payable and other liabilities .................. 3,052 3,775
--------- -------
Total current liabilities........................... 9,833 12,834
Long-term liabilities:
Convertible subordinated promissory notes................ 284 1,000
Long-term debt, excluding current portion................ 2,767 5,028
--------- -------
Total liabilities................................... 12,884 18,862
--------- -------
Commitments and contingencies (Note 3 and 10)..............
Shareholders' equity:
Common stock, par value $.01 per share; 20,000,000 shares
authorized; 7,211,751 and 4,367,537 issued and
outstanding at June 30, 2002 and 2001, respectively.... 72 44
Additional paid-in capital............................... 11,442 7,964
Accumulated deficit...................................... (5,838) (4,676)
--------- -------
Total shareholders' equity......................... 5,676 3,332
--------- -------
Total liabilities and shareholders' equity......... $ 18,560 $ 22,194
========= ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
STREICHER MOBILE FUELING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2002, THE FIVE-MONTH TRANSITION PERIOD ENDED
JUNE 30, 2001 AND THE YEARS ENDED JANUARY 31, 2001 AND 2000
(in 000's, except share and per share data)
Fiscal Fiscal Transition Transition Fiscal Fiscal
Year Year Period Period Year Year
June 30, June 30, June 30, June 30, January 31, January 31,
2002 2001 2001 2000 2001 2000
------- -------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Fuel sales and service revenues $ 43,538 $ 60,293 $ 22,235 $ 26,944 $ 65,002 $ 50,801
Fuel taxes..................... 17,311 19,193 7,275 9,537 21,455 23,370
---------- ---------- ---------- ---------- ---------- ----------
Total revenues.............. 60,849 79,486 29,510 36,481 86,457 74,171
Cost of fuel sales and service. 38,947 57,773 21,495 25,607 61,909 46,172
Fuel taxes..................... 17,311 19,193 7,275 9,537 21,455 23,370
---------- ---------- ---------- ---------- ---------- ----------
Total cost of sales......... 56,258 76,966 28,770 35,144 83,364 69,542
Gross profit.............. 4,591 2,520 740 1,337 3,093 4,629
Selling, general and
administrative expenses........ 4,382 3,793 2,126 1,209 2,852 3,070
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)... 209 (1,273) (1,386) 128 241 1,559
Beneficial conversion of debt
to equity interest expense
(Note 6)..................... (241) -- -- -- -- --
Interest expense............... (1,175) (1,571) (590) (665) (1,645) (1,152)
Interest and other income...... 45 70 25 25 69 65
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes............ (1,162) (2,774) (1,951) (512) (1,335) 472
Income tax expense............. -- -- -- -- -- --
Net income (loss)......... $ (1,162) $ (2,774) $ (1,951) $ (512) $ (1,335) $ 472
========== ========== ========== ========== ========== ==========
Basic net income (loss) per
share......................... $ (.20) $ (.84) $ (.47) $ (.19) $ (.49) $ .17
========== ========== ========== ========== ========== ==========
Diluted net income (loss) per
share.......................... $ (.20) $ (.84) $ (.47) $ (.19) $ (.49) $ .16
========== ========== ========== ========== ========== ==========
Basic weighted average common
shares outstanding........... 5,698,147 3,315,104 4,194,283 2,712,220 2,716,855 2,710,400
========== ========== ========== ========== ========== ==========
Diluted weighted average
common shares outstanding.... 5,698,147 3,315,104 4,194,283 2,712,220 2,716,855 2,880,529
========== ========== ========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2002, THE FIVE-MONTH TRANSITION PERIOD ENDED
JUNE 30, 2001 AND THE YEARS ENDED JANUARY 31, 2001 AND 2000
(IN 000'S, EXCEPT SHARE DATA)
Common Stock Additional
-------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- -------- -------- ----------- --------
BALANCE, January 31, 1999......................... 2,575,000 $ 26 $ 5,196 $ (1,862) $ 3,360
Net income........................................ -- -- -- 472 472
Exercise of stock options and warrants............ 105,400 1 412 -- 413
Stock exchanged for services...................... 30,000 -- 43 -- 43
--------- -------- -------- --------- --------
BALANCE, January 31, 2000......................... 2,710,400 27 5,651 (1,390) 4,288
Net loss.......................................... -- -- -- (1,335) (1,335)
Exercise of stock options ........................ 2,200 -- 8 -- 8
Net proceeds from private placement of stock...... 531,667 5 1,898 -- 1,903
Conversion of note payable to equity.............. 333,333 3 497 -- 500
Treasury stock purchased and retired.............. (67,343) -- (146) -- (146)
--------- -------- -------- --------- --------
BALANCE, January 31, 2001......................... 3,510,257 35 7,908 (2,725) 5,218
Net loss.......................................... -- -- -- (1,951) (1,951)
Issuance of stock held as subscribed.............. 811,666 8 (12) -- (4)
Net proceeds from private placement of stock...... 35,000 1 52 -- 53
Issuance of stock in lieu of debt................. 10,614 -- 16 -- 16
--------- -------- -------- --------- --------
BALANCE, June 30, 2001............................ 4,367,537 44 7,964 (4,676) 3,332
Net loss.......................................... -- -- -- (1,162) (1,162)
Net proceeds from private placement of stock...... 666,666 7 573 -- 580
Issuance of stock in lieu of debt................. 67,226 -- 91 -- 91
Conversion of note payable to equity.............. 2,110,322 21 2,814 -- 2,835
--------- -------- -------- --------- --------
BALANCE, June 30, 2002............................ 7,211,751 $ 72 $ 11,442 $ (5,838) $ 5,676
========= ======== ======== ========= ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2002, THE FIVE-MONTH TRANSITION PERIOD ENDED
JUNE 30, 2001 AND THE YEARS ENDED JANUARY 31, 2001 AND 2000
(IN 000'S, EXCEPT SUPPLEMENTAL DISCLOSURE AND SHARE DATA)
Transition Transition
Fiscal Year Fiscal Year Period Period Fiscal Year Fiscal Year
June 30, June 30, June 30, June 30, January 31, January 31,
2002 2001 2001 2002 2001 2000
----------- ----------- --------- ---------- ----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) ........................................ $(1,162) $(2,774) $(1,951) $ (512) $(1,335) $ 472
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Loss on asset disposal ................................. 9 103 18 -- 4 19
Depreciation and amortization .......................... 1,458 1,426 613 535 1,349 1,085
Interest expense from beneficial
conversion of debt to equity ......................... 241 -- -- -- -- --
Provision for doubtful accounts ........................ 271 90 37 38 90 78
Stock exchanged for services ........................... -- -- -- -- -- 44
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash ................. (21) (14) 580 312 (282) (368)
Decrease (increase) in accounts
receivable ........................................... 2,016 104 931 540 (287) (3,890)
Decrease (increase) in inventories and
other assets ......................................... 143 (336) 133 142 (213) (622)
(Decrease) increase in accounts payable
and accrued expenses ................................. (456) (150) (511) (236) 36 1,349
------ ------ ------ ------ ------ ------
Net cash provided by (used in) operating
activities ........................................... 2,499 (1,551) (150) 819 (638) (1,833)
------ ------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment .................... (152) (671) (288) (1,117) (1,410) (3,648)
Proceeds from disposal of equipment .................... 276 58 29 -- 21 64
Decrease (increase) note receivable due
from related party ................................... 443 (82) (43) (19) (39) (55)
------ ------ ------ ------ ------ ------
Net cash provided by (used in) investing
activities ........................................... 567 (695) (302) (1,136) (1,428) (3,639)
------ ------ ------ ------ ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Change in bank overdraft ................................. (318) 24 318 294 -- (31)
Net (repayments) borrowings on line of
credit ................................................. (2,225) (303) (381) (471) (394) 3,108
Proceeds from the issuance of convertible
debt ................................................... 1,700 1,700 1,000 -- -- --
Borrowings under long-term debt .......................... -- 1,202 100 917 2,092 7,880
Principal payments on long-term debt ..................... (2,114) (2,408) (1,091) (760) (1,949) (5,545)
Net proceeds from issuance of common
stock and common stock warrants ........................ 700 1,961 65 60 2,411 413
------ ------ ------ ------ ------ ------
Net cash (used in) provided by financing
activities ........................................... (2,257) 2,176 11 40 2,160 5,825
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ................................ 809 (70) (441) (277) 94 353
CASH AND CASH EQUIVALENTS,
beginning of period .................................... 6 76 447 353 353 --
------ ------ ------ ------ ------ ------
CASH AND CASH EQUIVALENTS,
end of period .......................................... $ 815 $ 6 $ 6 $ 76 $ 447 $ 353
====== ====== ====== ====== ====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2002, THE FIVE-MONTH TRANSITION PERIOD ENDED
JUNE 30, 2001 AND THE YEARS ENDED JANUARY 31, 2001 AND 2000
(IN 000'S, EXCEPT SUPPLEMENTAL DISCLOSURE AND PER SHARE DATA)
(CONTINUED)
Transition Transition
Fiscal Year Fiscal Year Period Period Fiscal Year Fiscal Year
June 30, June 30, June 30, June 30, January 31, January 31,
2002 2001 2001 2002 2001 2000
----------- ----------- --------- ---------- ----------- -----------
(unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for-
Interest...................... $ 1,193 $ 1,589 $ 615 $ 668 $ 1,642 $ 1,103
----------- ----------- --------- ---------- ----------- -----------
Income taxes.................. $ -- $ -- $ -- $ -- $ -- $ 2
----------- ----------- --------- ---------- ----------- -----------
- ------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
YEAR ENDED JUNE 30, 2002:
Conversion of $2,617,000 of subordinated convertible promissory notes into
common stock resulting in a non-cash charge to interest expense of $241,000
Issuance of $91,000 of common stock in lieu of payment on subordinated
convertible promissory notes
Transfer of $60,000 of fixed assets to note receivable from related party
FIVE MONTHS ENDED JUNE 30, 2001:
Issuance of $16,000 of common stock in lieu of payment on subordinated
convertible promissory notes
YEAR ENDED JANUARY 31, 2001:
Conversion of $500,000 of subordinated convertible promissory notes into
common stock Exchange of receivable of $147,000 from related party for 67,343
shares of common stock
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Streicher Mobile Fueling, Inc., a Florida corporation (the "Company") was
formed in 1996.
The Company provides mobile fueling and fuel management out-sourced
services to businesses that operate all size fleets of vehicles and
equipment, including governmental agencies, utilities, trucking companies,
bus lines, hauling and delivery services, courier services, construction
companies and others. The Company's specialized truck fleet delivers fuel
to customers' locations on a regularly scheduled or as needed basis,
refueling vehicles and equipment and/or re-supplying fixed-site storage
facilities. The Company's patented proprietary electronic fuel tracking
control system is used to measure, record and track fuel dispensed to each
vehicle and tank fueled at a customer location, allowing verification of
the amount and type of fuel delivered and providing customers with
customized fleet fuel data for management analysis and tax reporting. At
June 30, 2002, the Company had operations in California, Florida, Georgia,
Tennessee and Texas.
The Company generates substantially all of its revenue from mobile fueling
and fuel management services. Revenue is comprised principally of delivery
service charges and the related sales of diesel fuel and gasoline. Cost of
sales is comprised principally of direct operating expenses and the cost of
fuel. Included in both revenue and cost of sales are federal and state fuel
taxes, which are collected by the Company from its customers, when
required, and remitted to the appropriate taxing authority. The Company
provides mobile fueling and fuel management services at a minimum rate.
Included in the rate are negotiated service charges and the cost of fuel
based on market prices. Revenue and cost of fuel will vary depending on the
upward or downward movement of fuel prices in each market.
In the mobile fueling business, the majority of deliveries are made on
workdays, Monday through Friday, to coincide with customers' fuel service
requirements. Thus, the number of workdays in any given month will impact
the quarterly financial performance of the Company. In addition, a downturn
in customer demand generally takes place on and/or in conjunction with
national holidays, resulting in decreased volumes of fuel delivered. This
downturn may be offset during the fiscal year by emergency mobile fueling
services and fuel deliveries to certain customers resulting from impending
or actual severe meteorological or geological events, including hurricanes,
tropical storms, ice and snow storms, forest fires and earthquakes.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of
Streicher Mobile Fueling, Inc. and its wholly owned subsidiaries,
Streicher West, Inc., Streicher Realty, Inc., and Mobile Computer
Systems, Inc. As of August 8, 2001 the Company's subsidiaries,
Streicher West, Inc. and Mobile Computer Systems, Inc., were merged
into Streicher Realty, Inc., the surviving corporation. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Effective July 19, 2001, the Company changed its fiscal year-end from
January 31 to June 30. The five-month transition period of February 1,
2001 through June 30, 2001 ("transition period") preceded the start of
the new fiscal year.
F-8
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Included in
cash and cash equivalents in the accompanying consolidated balance
sheets is interest bearing cash of approximately $815,000 and $6,000
as of June 30, 2002 and 2001, respectively.
(c) Restricted Cash
Restricted cash at June 30, 2002 and 2001 consists of $245,000 and
$224,000, respectively, in collections on customer accounts
receivable, which were deposited in a restricted account and used to
repay advances made to the Company on its working capital line of
credit.
(d) Accounts Receivable
Accounts receivable are due from customers within a broad range of
industries and are generally unsecured. Additionally, accounts
receivable are composed of refunds from state and federal governments
for fuel taxes which are not billable to certain customers, yet have
been paid to vendors by the Company. The Company provides for credit
losses based on management's evaluation of collectibility based on
current and historical performance of each customer.
A roll forward of the activity in the allowance for doubtful accounts
for the indicated periods is as follows:
Transition
Fisacal Year Period Fiscal Year Fiscal Year
June 30, June 30, January 31, January 31,
2002 2001 2001 2000
Balance - beginning of period $ 78,000 $ 55,000 $ 111,000 $ 80,000
Provisions for bad debt 637,000 37,000 90,000 77,000
Write-offs, net of recoveries (206,000) (14,000) (146,000) (46,000)
--------- -------- --------- ---------
Balance - end of period $ 509,000 $ 78,000 $ 55,000 $ 111,000
========= ======== ========= =========
(e) Inventories
Inventories, consisting primarily of diesel fuel and gasoline, are
stated at the lower of cost or market and include federal and state
fuel taxes payable to vendors. Cost is determined using the first-in,
first-out method.
(f) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Ordinary maintenance and repairs are
expensed as incurred. Improvements which significantly increase the
value or useful life of property and equipment are capitalized.
Property and equipment are depreciated or amortized using the
straight-line method over their estimated useful lives. Property and
equipment balances and the estimated useful lives were as follows at
the indicated dates:
F-9
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30,
-------------------------- Estimated Useful
2002 2001 Life
---------------------------------------------------
Fuel trucks and automobiles 14,681,000 14,843,000 10 - 25 years
Machinery and equipment 1,194,000 1,084,000 3 - 5 years
Furniture and fixtures 295,000 286,000 5 - 10 years
Leasehold improvements 19,000 140,000 Lesser of lease term
or useful life
Land 67,000 223,000 --
---------- -----------
16,256,000 16,576,000
Less: Accumulated depreciation
and amortization (6,244,000) (4,927,000)
---------- -----------
Property and equipment, net 10,012,000 11,649,000
========== ===========
In accordance with Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
the Company capitalizes certain costs used for the development of
internal use software. These costs include the costs associated with
coding, software configuration, upgrades and enhancements. The amount
capitalized at June 30, 2002 relating to internal use software is
$31,000 and is included in machinery and equipment. There was no
capitalized internal use software as of June 30, 2001.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method,
in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(h) Revenue Recognition
The Company recognizes revenue at the time services are performed and
fuel is delivered and the customer takes ownership and assumes risk of
loss.
(i) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions. These assumptions, if
not realized, could affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
F-10
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(j) Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash and
cash equivalents, accounts receivable, note receivable from related
party, accounts payable, bank line of credit payable, and long-term
debt, approximate fair value due to their short-term nature or
interest rates that approximate current market rates.
(k) Net Income or Loss Per Share
Net income or loss per share is determined by dividing net income or
loss by the weighted average common shares outstanding. Common stock
equivalents, consisting of employee stock options and common stock
warrants, in the amount of 2,516,852, 2,509,052 and 2,379,052 for the
year ended June 30, 2002, the five-month transition period ended June
30, 2001 and the year ended January 31, 2001, respectively, were
antidilutive and were not included in the computation of net loss per
share in those fiscal years. Certain common stock equivalents,
consisting of employee stock options and common stock warrants in the
amount of 2,423,752 were dilutive and were included in the computation
of net income per share for the year ended January 31, 2000. Other
common stock equivalents in the amount of 240,500 were antidilutive
and were not included in the computation of earnings per share for the
year ended January 31, 2000.
(l) Impairment or Disposal of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." This Statement requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(m) Stock Options
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations including FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation an interpretation of
APB Opinion No. 25" issued in March 2000, to account for its fixed
plan stock options. Under this method, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair value-based method of accounting
for stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
F-11
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(n) Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires that the purchase method of accounting be used for all
business combinations. SFAS No. 141 specifies criteria that intangible
assets acquired in a business combination must meet to be recognized
and reported separately from goodwill. SFAS No. 142 will require that
goodwill and intangible assets with indefinite useful lives no longer
be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption.
The Company adopted the provisions of SFAS No. 141 as of July 1, 2001,
and SFAS No. 142 is effective July 1, 2002. Goodwill and intangible
assets determined to have an indefinite useful life acquired in a
purchase business combination completed after June 30, 2001, but
before SFAS No. 142 is adopted in full, are not amortized. Goodwill
and intangible assets acquired in business combinations completed
before July 1, 2001 continued to be amortized and tested for
impairment prior to the full adoption of SFAS No. 142.
Upon adoption of SFAS No. 142, the Company is required to evaluate its
existing intangible assets and goodwill that were acquired in purchase
business combinations, and to make any necessary reclassifications in
order to conform with the new classification criteria in SFAS No. 141
for recognition separate from goodwill. The Company will be required
to reassess the useful lives and residual values of all intangible
assets acquired, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. If
an intangible asset is identified as having an indefinite useful life,
the Company will be required to test the intangible asset for
impairment in accordance with the provisions of SFAS No. 142 within
the first interim period. Impairment is measured as the excess of
carrying value over the fair value of an intangible asset with an
indefinite life. Any impairment loss will be measured as of the date
of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an
assessment of whether there is an indication that goodwill is impaired
as of the date of adoption. To accomplish this, the Company must
identify its reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as
of July 1, 2002. The Company will then have up to six months from July
1, 2002 to determine the fair value of each reporting unit and compare
it to the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the
reporting unit, an indication exists that the reporting unit goodwill
may be impaired and the Company must perform the second step of the
transitional impairment test. The second step is required to be
completed as soon as possible, but no later than the end of the year
of adoption. In the second step, the Company must compare the implied
fair value of the reporting unit goodwill with the carrying amount of
the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to all of the assets
(recognized and unrecognized) and liabilities of the reporting unit in
a manner similar to a purchase price allocation, in accordance with
SFAS No. 141. The residual fair value after this
F-12
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allocation is the implied fair value of the reporting unit goodwill.
Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement
of income.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires the Company 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 that result from the
acquisition, construction, development and/or normal use of the
assets. The Company also records a corresponding asset which is
depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation.
The Company is required to adopt SFAS No. 143 on July 1, 2002.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. SFAS No. 144 requires companies
to separately report discontinued operations and extends that
reporting to a component of an entity that either has been disposed of
(by sale, abandonment, or in a distribution to owners) or is
classified as held for sale. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. The
Company adopted SFAS No. 144 on July 1, 2001.
SFAS No. 146, Costs Associated with Exit or Disposal Activities, was
issued in June 2002. The Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This statement
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. The
statement is effective for exit or disposal activities that are
initiated after December 31, 2002, and will result in a change in
accounting policy associated with the recognition of liabilities in
connection with future exit and disposal activities.
(o) Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
F-13
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) CAPITAL RESOURCES AND LIQUIDITY
The Company has incurred net losses during its most of its operating
history and has met its working capital and debt service requirements
through the raising of capital and drawing from its bank line of credit.
During the fiscal year ended June 30, 2002, the Company incurred a net loss
of $1.162 million compared to a $2.774 million loss for the fiscal year
ended June 30, 2001.
The Company's business requires it to expend considerable working capital
for fuel, labor and equipment costs prior to payments being received from
the Company's customers. The fuel purchased by the Company for resale to
its customers must generally be paid for within 10 to 15 days of purchase,
with labor costs and related taxes paid bi-weekly, and equipment related
costs generally paid within 30 days. The Company invoices its customers
weekly and generally collects the majority of its accounts within 30 to 45
days. The days sales outstanding at June 30, 2002 was 33 days compared to
42, 39 and 41 days for the five month transition period ended June 30, 2001
and fiscal years ended January 31, 2001 and 2000, respectively.
During the 18-month period from January 2001 through June 2002, the Company
raised $6.0 million in capital through private placements of common stock
and the issuance of subordinated debt. For the fiscal year ended June 30,
2002, the Company raised $700,000 from private placements and $1.7 million
from convertible subordinated promissory notes.
On January 15, 2002, certain holders of the Company's convertible
subordinated promissory notes converted their aggregate $2.617 million in
debt to shares of the Company's common stock at a conversion price of $1.24
per share, for a total of 2,110,322 shares of the Company's common stock.
The convertible subordinated promissory notes converted contained
conversion rates ranging from $1.35 to $1.50 per share. The conversion
resulted in the Company recording a one time, non-cash beneficial
conversion of debt to equity interest expense of $241,000. The beneficial
conversion of debt to equity interest expense had no impact on total
shareholders' equity. See Note 6 for further discussion on convertible
subordinated debt transactions.
The capital raised through private placements and the conversion of $2.617
million of the outstanding $2.9 million in subordinated debt resulted in
the stockholders' equity of $5.676 million at June 30, 2002.
Management instituted a new business plan and a turnaround program
comprised of various substantive changes in operations, management and
reporting which have improved the Company's financial operating results
over the last 17 months by reducing operating costs, increasing net margins
and operating cash flow. In order for the Company to maintain and improve
these positive trends, it must continue to increase volumes at profitable
margins, control costs and continue to generate sufficient cash flow to
support its working capital and debt service requirements. However, there
can be no assurance that the Company will maintain and/or continue to
improve its operating performance in the future, or that it will be able to
raise capital to support any working capital or debt service shortfalls
during any future business downturns, whether the downturn is part of
broader economic conditions or the Company's failure to successfully
execute its business plan.
F-14
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) BANK LINE OF CREDIT PAYABLE
As of June 30, 2002 and 2001, the Company had outstanding borrowings of
$4.68 million and $6.91 million, respectively, under its short-term $10.0
million bank line of credit. Based on eligible receivables outstanding at
June 30, 2002, the Company had $250,000 of cash availability on the bank
line of credit, and was in compliance with all financial covenants required
by the credit facility. The Company had no cash availability on the line of
credit at June 30, 2001. Interest is payable monthly at 2.00% over the
prime rate (6.75% at June 30, 2002), and outstanding borrowings under the
line are secured by substantially all Company assets other than its truck
fleet and related equipment. The Company and its bank entered into an
agreement for a six-month renewal, from April 30, 2002 through October 31,
2002, of this facility. In connection with the renewal, the bank waived an
existing $100,000 facility termination fee.
On September 26, 2002, the Company entered into a new three-year $10
million credit facility with a national financial institution. This line of
credit replaces the short-term $10 million credit facility with a regional
bank. The new line of credit permits the Company to borrow up to 85% of the
total amount of eligible accounts receivable. Interest is payable monthly
at 1.75% over the prime rate (6.50% at September 30, 2002), and outstanding
borrowings under the line are secured by substantially all Company assets
other than its truck fleet and related equipment. The maturity date of the
new line of credit is September 25, 2005, and should the Company elect to
terminate the credit facility prior to such date, prepayment fees of 3%,
1.5% and .5% will apply during year one, two and three, respectively. In
addition, the credit facility may be extended by the mutual consent of the
Company and the bank after year three. Under the terms of the credit
facility, the Company is required to maintain certain financial and
non-financial covenants, which it was in compliance with as of September
30, 2002.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
-----------------------
2002 2001
---------- -----------
Equipment and other loans payable (10.18% weighted
average interest rate at June 30, 2002 and 2001)
due in monthly installments with varying maturities through
January 2006 $ 4,868,000 $ 7,182,000
Less: current portion (2,101,000 (2,154,000)
---------- -----------
Long-term debt, excluding current portion $ 2,767,000 $ 5,028,000
=========== ===========
Future principal payments on long-term debt are due as follows as of June
30, 2002:
Year Ended June 30,
-------------------
2003 $ 2,101,000
2004 1,857,000
2005 904,000
2006 6,000
Thereafter --
----------
$ 4,868,000
==========
F-15
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) ISSUANCES OF EQUITY AND DEBT SECURITIES
In January 2001, the Company issued 531,667 shares of common stock in a
private placement at $1.50 per share. The Company also issued in January
2001, 333,333 shares of common stock to three shareholders upon their
conversion of a promissory note in the principal amount of $500,000, at a
conversion price of $1.50. In February 2001 and March 2001, the Company
issued a total of 846,666 shares of common stock in a private placement at
$1.50 per share.
In August 2001, the Company issued 133,333 shares of common stock in a
private placement at $1.50 per share. In January 2002, the Company issued
476,190 shares of common stock in a private placement at $1.05 per share.
As a result of the reduction in the offering price in January 2002 to $1.05
per share, 57,143 additional shares were issued to the August 2001 investor
in January 2002, resulting in an effective price of $1.05 for all
purchasers in the offering.
In April 2001, the Company issued $1.0 million of convertible subordinated
promissory notes to four shareholders. The notes are due on August 31, 2003
and bear interest at 1% over the prime interest rate announced from time to
time by the Company's principal lender. At the Company's option, the
interest on the notes may be paid in Company stock, with the stock value
based on the average market price of the stock for the quarter in which
interest is due. The notes contain a conversion feature entitling the note
holder to convert the note balance into common stock of the Company at the
rate of $1.35 per share.
In July 2001, the Company issued $600,000 of convertible subordinated
promissory notes to three shareholders. The notes are due on August 31,
2003 and bear interest at 1% over the prime interest rate announced from
time to time by the Company's principal lender. With the consent of the
Payee, the interest on the notes may be paid in Company stock, with the
stock value based on the average market price of the stock for the quarter
in which interest is due. The notes provide the note holder the right and
option to request a prepayment of the outstanding principal amount and
accrued interest thereon from the net proceeds of any issuance or sale by
the Company of equity or debt securities from and after July 6, 2001. The
notes contain a conversion feature entitling the note holder to convert the
note balance into common stock of the Company at the rate of $1.35 per
share.
In September 2001, the Company issued $800,000 of convertible subordinated
promissory notes to five shareholders. The notes are due on August 31, 2003
and bear interest at 3% over the prime interest rate announced from time to
time by the Company's principal lender. With the consent of the Payee, the
interest on the notes may be paid in Company stock, with the stock value
based on the average market price of the stock for the quarter in which
interest is due. The notes provide the note holder the right and option to
request a prepayment of the outstanding principal amount and accrued
interest thereon from the net proceeds of any issuance or sale by the
Company of equity or debt securities from and after July 6, 2001. The notes
contain a conversion feature entitling the note holder to convert the note
balance into common stock of the Company at the rate of $1.35 per share.
In October 2001, the Company issued $300,000 of convertible subordinated
promissory notes to three shareholders. The notes are due on August 31,
2003 and bear interest at 3% over the prime interest rate announced from
time to time by the Company's principal lender. With the consent of the
Payee, the interest on the notes may be paid in Company stock, with the
stock value based on the average market price of the stock for the quarter
in which interest is due. The notes provide the note holder the right and
option to request a prepayment of the outstanding principal amount and
accrued interest thereon from the net proceeds of any issuance or sale by
the Company of equity or debt securities from and after July 6, 2001. The
notes contain a conversion feature entitling the note holder to convert the
note balance into common stock of the Company at the rate of $1.35 per
share.
F-16
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2002, certain holders of the convertible subordinated promissory
notes converted an aggregate of $2.617 million to shares of the Company's
common stock at a conversion price of $1.24 per share, for a total of
2,110,322 shares of the Company's common stock. The notes converted
contained conversion rates ranging from $1.35 to $1.50 per share. The
conversion resulted in the Company recording a one time, non-cash
beneficial conversion of debt to equity interest expense of $241,000 during
the quarter ended March 31, 2002. The holders of the remaining $283,600 of
convertible subordinated promissory notes issued by the Company who did not
elect to so convert their notes in January 2002 waived any conversion price
adjustment. In September 2002, the maturity dates of these non-converted
notes were extended for one year to August 31, 2004.
(7) SIGNIFICANT CUSTOMERS
Revenue from one significant customer, excluding fuel taxes, totaled $ 8.4
million or 19% of total revenue, excluding fuel taxes, in the fiscal year
ended June 30, 2002. However, revenue from this customer was generated from
a total of 10 separate and non-dependent written contracts of varying
lengths of service and renewal options. Accounts receivable from this
customer totaled $1.3 million and $1.7 million at June 30, 2002 and 2001,
respectively. Revenue from two significant customers, excluding fuel taxes,
totaled approximately $5.8 million or 26% of total revenue, excluding fuel
taxes, in the five-month period ended June 30, 2001. Revenue from three
significant customers, excluding fuel taxes, totaled $12.1 million or 19%
and $13.4 million or 26% of the total revenue, excluding fuel taxes in the
fiscal years ended January 31, 2001 and 2000, respectively.
(8) RELATED PARTY TRANSACTIONS
As previously reported, the Company had an account receivable from
Streicher Enterprises, Inc. ("Enterprises"), an entity wholly owned by the
Company's Chairman, Stanley H. Streicher, amounting to approximately
$204,000 and $583,000 at June 30, 2002 and 2001, respectively, and $540,000
and $501,000 at January 31, 2001 and 2000, respectively, and bearing
interest at 8.25 percent per annum. Two promissory notes to the Company,
one dated January 31, 1997, in the amount of $319,043 due January 31, 2007,
and the second in the amount of $94,850 dated January 31, 1998 due January
31, 2007 (the "Notes"), represented the bulk of the above referenced
account. Mr. Streicher personally guaranteed the principal of, and interest
on, the Notes. Such amounts represented tax benefits of the Company used by
Enterprises, certain expenses of Enterprises paid by the Company prior to
its initial public offering and cash advances to Enterprises prior to the
Company's initial public offering. Interest income on the account included
approximately $41,000 and $18,000 for the year ended June 30, 2002 and the
transition period, respectively, and approximately $42,000 and $37,000 for
the fiscal years ended 2001 and 2000 relating to the account receivable
from Enterprises. Enterprises was required to make annual payments of
interest only with a final payment of all accrued interest and unpaid
principal due on January 31, 2007. The account receivable was secured by a
pledge of 360,213 shares of the Company's common stock owned by Supreme Oil
Company, another entity wholly owned by Mr. Streicher.
The Company had leased its former corporate headquarters from Mr.
Streicher, from which a portion of the above referenced account receivable
had arisen (see Note 10(a), Commitments and Contingencies, Operating
Leases). Mr. Streicher and the Company entered into a Lease Cancellation
and Assignment of Sublease dated February 1, 2002, whereby Mr. Streicher
agreed to pay to the Company the net book value of certain leasehold
improvements which were paid by, and carried on the books of, the Company
as of April 30, 2001, in the amount of $59,600 (the "Leasehold Improvements
Debt") on or before March 31, 2002.
F-17
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 1, 2002, Mr. Streicher and Supreme Oil Company Inc. and the
Company entered into an agreement with respect to the repayment by Mr.
Streicher and Supreme of the Leasehold Improvements Debt and the Notes
(collectively, the "Debt"). In connection therewith, Supreme delivered to
the Company additional shares of the Company's stock owned by Supreme, so
that an aggregate of 533,088 shares of the Company's common stock owned by
Supreme (the " Certificates") were pledged as security for the Debt.
In the April 1, 2002, agreement, Mr. Streicher and Supreme agreed to
accelerate the due date of the Notes to September 30, 2003, to make
quarterly payments of interest on the Debt, and waived any defenses to
foreclosure on the Certificates if the Debt remained unpaid on September
30, 2003. The Company agreed to defer any such foreclosure on the
Certificates until that date in exchange for the pledge by Supreme of
additional shares of the Company's common stock owned by Supreme and the
waiver of defenses to any such foreclosure on all pledged stock if and to
the extent that the Debt was not repaid prior to the expiration of such
eighteen month period (the "Acceleration Period"). Supreme also agreed to
pledge additional shares of the Company's common stock if the Company
deemed itself insecure during the Acceleration Period. Mr. Streicher and
Supreme also agreed that, in order to ensure that the Debt was repaid
before the end of the Acceleration Period, Supreme would conduct an orderly
liquidation of Supreme's shares of the Company's common stock which were
not pledged to the Company and then to pay the entire net proceeds of such
liquidation, if any, to the Company.
On June 12, 2002, Supreme sold 613,000 shares of the Company's common stock
for aggregate gross proceeds of $711,080 and net proceeds of at least
$680,000. According to the April 1, 2002, agreement, Mr. Streicher and
Supreme were thereby obligated to repay the entire balance of the Debt,
then approximately $680,000. On June 29, 2002, Mr. Streicher tendered
$480,000 to the Company as partial repayment of the Debt.
Mr. Streicher and Supreme informed the Company that they now question the
validity of certain portions of the debt and therefore declined to tender
the balance of approximately $200,000 required by the April 1, 2002
agreement. The Company informed Mr. Streicher and Supreme that it
considered the failure to pay the $200,000 to be a breach of the April 1,
2002 agreement and demanded immediate payment.
On July 19, 2002, after Mr. Streicher and Supreme refused the Company's
demand, the Company suspended further payments of salary to Mr. Streicher
under his November 1, 2000 employment agreement. The Company believes that
the withholding of the $200,000 by Mr. Streicher and Supreme was also a
breach of Mr. Streicher's November 1, 2000 employment agreement,
constituting grounds for the Company to terminate that agreement for cause.
F-18
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INCOME TAXES
The actual tax benefit (provision) of the Company for the year ended June
30, 2002, the five-month transition period ended June 30, 2001 and years
ended January 31, 2001 and 2000 differs from the statutory Federal tax rate
of 34% due to the following:
Transition
Fisacal Year Period Fiscal Year Fiscal Year
June 30, June 30, January 31, January 31,
2002 2001 2001 2000
--------------------------------------------------
Expected benefit (provision) for income
taxes at statutory Federal income tax rates $ 395,000 $ 663,000 $ 454,000 $ (161,000)
State income taxes, net of federal benefit 42,000 70,000 50,000 (18,000)
Other (59,000) 2,000 (89,000) 10,000
Nondeductible expenses (102,000) (5,000) (22,000) (17,000)
Deferred tax valuation allowance (276,000) (730,000) (393,000) 186,000
--------- --------- --------- ----------
Benefit (provision) for income taxes $ -- $ -- $ -- $ --
========= ========= ========= ==========
Deferred income taxes reflect the net effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and their income tax bases, and (b) operating loss
carryforwards.
The tax effects of temporary differences and operating loss carryforwards
that give rise the significant portions of the deferred tax assets and
liabilities at June 30, 2002 and 2001 are presented below:
June 30,
-----------------------------------
2002 2001
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 4,620,000 $ 4,134,000
Asset basis adjustment for Reorganization 307,000 339,000
Other 55,000 9,000
----------- -----------
Total gross deferred tax assets 4,982,000 4,482,000
Less: valuation allowance $(2,284,000) $(2,008,000)
----------- -----------
Total deferred tax assets 2,698,000 2,474,000
=========== ===========
Deferred tax liabilities:
Property and equipment $(2,698,000) $(2,474,000)
----------- -----------
Total deferred tax liabilities (2,698,000) (2,474,000)
Net deferred tax assets $ -- $ --
=========== ===========
Realization of deferred tax assets is dependent upon generating sufficient
taxable income in future periods. Management believes that these net
operating loss and credit carryforwards may expire unused and will not meet
the "more likely than not" criteria of SFAS No. 109, and, accordingly has
established a valuation allowance for the excess of deferred tax assets
over deferred tax liabilities.
The net change in the valuation allowance for the year ended June 30, 2002,
the five-month transition period ended June 30, 2001 and years ended
January 31, 2001 and 2000 was an increase of $276,000, an increase of
$730,000, an increase of $393,000 and a decrease of $186,000, respectively.
All increases and decreases to the valuation allowance during these periods
were recorded through the provision for taxes. As of June 30, 2002, the
Company has net operating loss carryforwards of approximately $12.2 million
which will begin to expire in the year 2011.
F-19
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases real property and buildings under operating leases
that expire at various times through the year 2015. Future minimum
lease payments under non-cancelable operating leases as of June 30,
2002, including the related party leases discussed in Note 8 (Related
Party Transactions) are as follows:
Year Ended Operating
June 30, Lease
Payments
2003 367,000
2004 180,000
2005 31,000
2006 15,000
2007 15,000
Thereafter 120,000
-------------
$ 728,000
=============
In April 2001, the Company relocated its corporate offices and
simultaneously entered into a lease agreement for its new corporate
offices. At that time the Company was obligated under a July 31, 1993
lease agreement covering the former corporate offices with the
Company's Chairman, Stanley H. Streicher, the expiration of which
lease was July 31, 2013. In May 2001, the Company entered into a
sub-lease agreement with an unrelated third party for the lease of the
Company's former corporate offices. In January 2002, Mr. Streicher
canceled the lease covering the Company's former corporate offices and
the Company assigned the sublease to Mr. Streicher, effective February
1, 2002. Under the terms of the lease cancellation and assignment of
sublease, it was provided that Mr. Streicher would reimburse the
Company on or before March 31, 2002 for the net book value of all
leasehold improvements to its former corporate offices paid for by and
carried on the books of the Company, as of April 30, 2001, which
amount was $59,600 (see Note 8, Related Party Transactions).
The Company has also been obligated to Mr. Streicher under two
operating leases covering property utilized for division truck yards
and offices, of which one lease expired in April 2002, and the other
expires in August of 2015. Rent expense paid to Mr. Streicher by the
Company for the lease of its former corporate offices and the two
division facilities was $30,000, $23,000, $88,000, and $88,000, for
the fiscal year ended June 30, 2002, the transition period ended June
30, 2001, and the fiscal years ended January 31, 2001 and 2000,
respectively.
(b) Governmental Regulation
Numerous federal, state and local laws, regulations and ordinances,
including those relating to protection of the environment and worker
safety, affect the Company's operations. Various federal, state and
local agencies have broad powers under these laws, regulations and
ordinances. In particular, the operation of the Company's mobile
fueling fleet and its transportation of diesel fuel and gasoline are
subject to extensive regulation by the U.S. Department of
Transportation ("DOT") under the Federal Motor Carrier Safety Act
("FMCSA") and the Hazardous Materials Transportation Act ("HMTA"). The
Company is subject to regulatory and legislative changes that can
affect the economics of the industry by requiring changes in operating
practices or influencing
F-20
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the demand for, and the cost of providing, its services. In addition,
the Company depends on the supply of diesel fuel and gasoline from the
oil and gas industry and, therefore, is affected by changing taxes,
price controls and other laws and regulations generally relating to
the oil and gas industry. The Company cannot determine the extent to
which its future operations and earnings may be affected by new
legislation, new regulations or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose
penalties or sanctions for damages to natural resources or threats to
public health and safety. Such laws and regulations may also expose
the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. Sanctions for
noncompliance may include revocation of permits, corrective action
orders, administrative or civil penalties and criminal prosecution.
Certain environmental laws provide for joint and several liability for
remediation of spills and releases of hazardous substances. In
addition, the Company may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources.
In the opinion of management, the Company is in substantial compliance
with existing laws and regulations, there can be no assurance that
substantial costs for compliance will not be incurred in the future.
Moreover, it is possible that other developments, such as stricter
environmental laws, regulations and enforcement policies thereunder,
could result in additional, presently unquantifiable, costs or
liabilities to the Company.
(c) Employment Agreements
The Company entered into a three-year employment agreement with
Stanley H. Streicher on November 1, 2000, pursuant to which Mr.
Streicher serves as Chairman of the Board of Directors and performs
other functions requested by the Company. The agreement provides for
an annual salary of $300,000, bonuses, if any, as determined by the
Board and that 980,000 stock options held by Mr. Streicher will be
forfeited to the Company, without additional consideration, upon the
request of the Board. On December 21, 2000, Mr. Streicher forfeited
these stock options in response to such a request. The agreement
further provides that it may be terminated by the Company at any time
and for any reason. If the agreement is terminated without cause, Mr.
Streicher is entitled to receive his base salary until the later of
eighteen months following the actual date of termination or October
31, 2002. If the agreement is terminated for cause, Mr. Streicher is
not be entitled to any further salary or other compensation.
By agreement dated April 1, 2002, the Company, Mr. Streicher and a
company wholly owned by Mr. Streicher, Supreme Oil Company, agreed
that Mr. Streicher would undertake an orderly liquidation of his and
Supreme's shares of the Company's common stock, directly or
indirectly, and use the net proceeds of any sales of such stock to
repay approximately $680,000 which he and Supreme owed to the Company.
On or about June 13, 2002, Supreme sold 613,000 shares of the stock
for net proceeds of approximately $680,000. Mr. Streicher has paid
$480,000 of the proceeds of that sale to the Company but has
challenged the validity of portions of the underlying debt and has
therefore declined to pay the balance of approximately $200,000 to the
Company. As a result of Mr. Streicher's actions, effective July 19,
2002, the Company suspended further payments of salary to Mr.
Streicher under his November 1, 2000 employment agreement. The Company
believes that Mr. Streicher's retention of the $200,000 was a breach
of the April 1, 2002 debt repayment agreement between him and the
Company and constitutes grounds for termination of Mr. Streicher's
employment agreement for cause. As of September 30, 2002, the Company
has not terminated Mr. Streicher for cause under his employment
agreement. If the Company does so,
F-21
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
it will no longer be obligated to pay any salary or other compensation
to him under that agreement. Any such termination would not affect the
obligation of Mr. Streicher and Supreme to repay the $200,000 (see
Note 8, Related Party Transactions).
The Company entered into an employment agreement with Richard E.
Gathright on October 26, 2000 pursuant to which Mr. Gathright serves
as President and Chief Executive Officer of the Company. The agreement
has a term of three years, commencing on October 26, 2000, provides
for an annual base salary of $300,000, participation, with other
members of management, in a bonus program, whereby up to 10% of the
Company's pretax profits will be set aside for bonus payments, and the
grant of 500,000 options to purchase shares of the Company's common
stock at a price of $1.50 per share. The agreement further provides
that it may be terminated by the Company at any time and for any
reason. If the agreement is terminated by the Company without cause,
Mr. Gathright shall be due the greater of all base salary due through
October 31, 2003 or eighteen months base salary. If the agreement is
terminated for cause, as defined, Mr. Gathright will not be entitled
to the severance payments specified.
The Company has also entered into written employment agreements with
certain other company officers. The agreements vary in terms up to one
year and automatically renew for successive periods unless notice of
termination is given by the Company prior to a renewal period.
(d) Absence of Written Agreements
Most of the Company's customers do not have written agreements with
the Company and can terminate the Company's mobile fueling services at
any time and for any reason. If the Company were to experience a high
rate of terminations, the Company's business and financial performance
could be adversely affected.
(e) Litigation
The Company may be subject to legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management
no litigation or claims exist that would have a material effect on the
consolidated financial position or results of operations of the
Company.
(f) Other Commitments
At June 30, 2002, the Company had no purchase commitments.
(11) EMPLOYEE BENEFIT PLAN
In May 1998, the Company adopted a 401(k) plan for all employees over the
age of 21 with 1,000 hours of service in the previous six months of
employment. The Company terminated its 401(k) plan as of December 31, 2001
and final liquidation of Plan assets was made in April 2002. The Plan
provided for a discretionary match of employee contributions as determined
by the Board of Directors. No Company contributions were made for the year
ended June 30, 2002, the five-month transition period ended June 30, 2001
or the years ended January 31, 2001 and 2000.
F-22
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) WARRANTS AND UNDERWRITER'S OPTION
(a) Warrants
The Company issued 1,150,000 common stock warrants in conjunction with
its initial public offering in December 1996. Each warrant entitles
the holder to purchase one share of common stock at a exercise price
of $6.90 per share. In November 2001, the Company extended the
expiration date of the warrants from December 11, 2001 to December 11,
2002. The common stock underlying the warrants has been registered
with the Securities and Exchange Commission.
The number of shares of common stock that may be purchased upon
exercise of the warrants will be adjusted if the Company makes a
dividend distribution to its stockholders or subdivide, combine or
reclassify its outstanding shares of common stock. In addition, the
exercise price of the warrants will be adjusted, subject to certain
exceptions, if the Company issues additional common stock or rights to
acquire common stock at a price per share that is less than the
current market price per share of common stock. For this purpose, the
term "current market price" means the average of the daily closing
prices for the twenty consecutive trading days ending three days prior
to the issuance or record date. The exercise price of the warrants
will also be adjusted if the Company consolidates or merges and make a
distribution to its stockholders of assets or evidences of
indebtedness (other than cash or stock dividends).
The Company may redeem the warrants, at a redemption price of $0.01
per warrant, at any time upon thirty days' prior written notice, if
the average closing bid price of its common stock equals or exceeds
$10.50 per share for twenty consecutive trading days.
The Company may further extend the exercise period of the warrants at
any time. If the Company does so, it will give written notice of the
extension to the warrant holders prior to the expiration date in
effect at the time of the extension. Also, the Company may reduce the
exercise price of the warrants for limited periods or through the end
of the exercise period if its Board of Directors deems it appropriate.
The Company has not made any determination at this time as to a
further extension of the exercise period or a reduction in the
exercise price of the warrants.
(b) Underwriter's Option
In connection with the initial public offering the Company sold the
underwriter an option to purchase up to 100,000 shares of common stock
at $9.30 per share and warrants at an exercise price of $.19375 to
purchase an additional 100,000 shares, at an exercise price of $9.30
per share. The underwriter's option was extended concurrent with the
warrants and currently expires on December 11, 2002. The exercise
price of the warrants subject to the underwriter's option and the
number of shares of common stock covered by these warrants, are
subject to adjustment on similar terms as the Company's other
outstanding warrants.
F-23
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) STOCK OPTIONS
(a) Employee Stock Options
The Company has adopted two stock option plans (the "1996 Plan" and
the "2000 Plan") under which options to purchase shares of the
Company's common stock may be granted to employees. The purpose of the
1996 Plan and the 2000 Plan is to provide an incentive to attract,
motivate and retain qualified competent employees whose efforts and
judgment are important to the Company's success through the
encouragement of the ownership of stock by such persons.
Under the 1996 Plan 500,000 shares of common stock are reserved for
issuance upon exercise of options granted. Under the 2000 Plan,
1,000,000 shares of common stock are reserved for issuance upon the
exercise of options, with the amount reserved being increased each
year by ten percent of the total shares subject to the 2000 Plan at
the end of the previous calendar year. Options to purchase 307,048
shares of stock are outstanding under the 1996 Plan and options to
purchase 216,000 shares of stock are available to be granted under the
2000 Plan. The Board of Directors has determined that no additional
options will be granted under the 1996 Plan.
Options granted under the 1996 Plan and the 2000 Plan expire no later
than ten years from the date of grant. Options granted under the 1996
Plan and the 2000 Plan are not exercisable after the period or periods
provided in the respective option agreements. The following table
summarizes stock option activity for both plans for the periods
indicated:
Weighted Average
1996 and 2000 Plans Exercise Price
------------------- ----------------
Options outstanding as of January 31, 1999............... 210,052 $ 3.49
========= =======
Granted................................................ 159,000 $ 5.49
Cancelled.............................................. (32,200) $ 4.60
Exercised.............................................. (60,300) $ 3.44
--------- --------
Options outstanding as of January 31, 2000............... 276,552 $ 4.55
========= ========
Granted................................................ 738,000 $ 1.50
Cancelled.............................................. (13,200) $ 5.16
Exercised.............................................. (2,200) $ 3.69
--------- --------
Options outstanding as of January 31, 2001............... 999,152 $ 2.30
========= ========
Granted................................................ 240,000 $ 1.50
Cancelled.............................................. (35,700) $ 2.68
Exercised.............................................. -- $ --
--------- --------
Options outstanding as of June 30, 2001.................. 1,203,452 $ 2.13
========= ========
Granted................................................ 190,000 $ 1.32
Cancelled.............................................. (379,000) $ 2.31
Exercised.............................................. -- $ --
--------- --------
Options outstanding as of June 30, 2002.................. 1,014,452 $ 1.89
========= ========
Exercisable 303,922 $ 2.42
Available for future grant (2000 Plan only).............. 216,000
=========
F-24
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options
outstanding under both plans as of June 30, 2002:
Weighted
Average Weighted Weighted
Remaining Average Number Average
Exercise Number Contractual Exercise of Shares Exercise
Price Outstanding Life (years) Price Exercisable Price
- ------------------ ----------- ------------ -------- ----------- --------
$1.07 to $3.00 884,000 8.70 $1.46 205,450 $1.50
$3.37 to $4.13 92,952 5.36 $3.75 81,172 $3.72
$6.00 to $7.63 37,500 7.17 $7.30 17,300 $7.20
--------- -------
TOTALS 1,014,452 303,922
========= =======
(b) Director Stock Options
The Company has adopted effective as of May 2001 a separate stock
option plan for non-employee members of the Company's Board of
Directors (the "Directors Plan"). The purpose of the Directors Plan is
to provide an additional incentive to attract and retain qualified
competent directors upon whose efforts and judgment are important to
the Company's success through the encouragement of the ownership of
stock by such persons.
Under the Directors Plan, 250,000 shares of common stock are reserved
for issuance upon the exercise of options granted. Each non-employee
who serves as a member of the Company's board of directors as of the
effective date of the Directors Plan, and each non-employee who is
elected or otherwise appointed as one of the Company's directors
thereafter, will receive a fully vested option to purchase 20,000
shares of stock. On the last day of each fiscal quarter while the
Directors Plan is in effect, each non-employee director will receive
an additional grant of an option to purchase 625 shares of stock.
Further, in accordance with the Directors Plan, additional options may
be granted to non-employee directors from time to time. Options to
purchase 152,500 shares of common stock are currently outstanding
under the Directors Plan and 97,500 shares of stock are available to
be granted in the future.
Options granted under the Directors Plan expire no later than ten
years from the date of grant and are with limited exceptions
exercisable as of the grant date.
F-25
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the stock option activity under the
Directors' Plan for the periods indicated:
Weighted
Directors Average
Plan Exercise Price
--------- --------------
Options outstanding as of
January 31, 2001................. -- $ --
Granted........................ 100,000 $ 1.60
Cancelled...................... -- $ --
Exercised...................... -- $ --
Options outstanding as of
June 30, 2001.................... 100,000 $ 1.60
======= ========
Granted........................ 52,500 $ 1.52
Cancelled...................... -- $ --
Exercised...................... -- $ --
------- --------
Options outstanding as of
June 30, 2002.................... 152,500 $ 1.57
======= ========
Exercisable 152,500 $ 1.57
======= ========
Available for future grant 97,500
=======
The following table summarizes information about the Directors stock
options outstanding under the Plan as of June 30, 2002:
Weighted
Average Weighted Weighted
Remaining Average Number Average
Exercise Number Contractual Exercise of Shares Exercise
Price Outstanding Life (years) Price Exercisable Price
- ------------------ ----------- ------------ -------- ----------- --------
$1.11 3,125 9.75 $1.11 3,125 $1.11
$1.24 to $1.25 6,250 9.75 $1.25 6,250 $1.25
$1.50 to $1.60 143,125 8.92 $1.60 143,125 $1.60
------- -------
TOTALS 152,500 152,500
======= =======
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted under the provisions of SFAS No. 123, the
Company applies the principles of APB Opinion 25 and related
interpretations in accounting for its stock option plans. If the Company
had elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by SFAS No. 123, net income
(loss) and income (loss) per share would have been reduced (increased) to
the pro forma amounts indicated in the table below. The fair value of each
option grant was estimated at the date of grant using the Black-Scholes
option pricing model.
F-26
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's net income or loss, pro forma net loss, net income or loss
per share, pro forma net loss per share, and related assumptions are as
follows:
FISCAL YEAR TRANSITION FISCAL YEAR FISCAL YEAR
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
2002 2001 2001 2000
------------- ----------- ------------ -----------
Net income (loss) as reported $ (1,162) $ (1,951) $ (1,335) $ 472
Net income (loss) pro forma $ (1,287) $ (2,144) $ (1,509) $ (38)
Fully diluted net income $ (.20) $ (.47) $ (.49) $ .16
(loss per share as reported
Fully diluted net income $ (.23) $ (.51) $ (.56) $ .01
(loss) per share pro forma
Risk free interest rate 3% 3.5% 7% 7%
Dividend yield 0% 0% 0% 0%
Expected volatility 100% 100% 50% 50%
Expected life 10 years 10 years 10 years 10 years
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma loss amounts presented
because compensation cost is reflected over the vesting period of the
options.
F-27