Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OR THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-21825
STREICHER MOBILE FUELING, INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0707824
------------------------ --------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
800 WEST CYPRESS CREEK ROAD, SUITE 580, FORT
LAUDERDALE, FLORIDA, 33309
--------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(954) 308-4200
-------------------------------------------
(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]. No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ]. No [X].
As of November 14, 2002 there were 7,218,887 shares of the registrant's
common stock were outstanding.
STREICHER MOBILE FUELING, INC.
FORM 10-Q
INDEX
FORM 10-Q PART AND ITEM NO.
Part I Financial Information
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
2002 (unaudited) and June 30, 2002...............................3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2002 (unaudited) and
2001 (unaudited).................................................4
Condensed Consolidated Statements of Cash Flows for the
three months ended September 30, 2002 (unaudited) and
2001 (unaudited).................................................5
Notes to Condensed Unaudited Consolidated Financial Statements...6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk......14
Item 4. Controls and Procedures.........................................14
Part II Other Information
Items 1. thru 6. ........................................................15
Signature Page...........................................................16
Certifications........................................................17-18
2
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND JUNE 30, 2002
(IN 000'S, EXCEPT SHARE AND PER SHARE DATA)
September 30, June 30,
ASSETS 2002 2002
- ---------------------------------------------------- ---------- ---------
(Unaudited)
Current assets:
Cash and cash equivalents......................... $ 314 $ 815
Restricted cash................................... 289 245
Accounts receivable, net ......................... 7,689 6,382
Inventories ...................................... 225 363
Prepaid expenses and other current assets......... 239 452
---------- ---------
Total current assets......................... 8,756 8,257
---------- ---------
Property and equipment, net......................... 9,827 10,012
Note receivable from related party ................. 218 200
Other assets........................................ 146 91
---------- ---------
Total assets................................ $ 18,947 $ 18,560
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------
Current liabilities:
Bank line of credit payable ..................... $ 5,542 $ 4,680
Current portion of long-term debt................ 2,038 2,101
Accounts payable and other liabilities .......... 2,974 3,052
---------- ---------
Total current liabilities.................... 10,554 9,833
Long-term liabilities:
Convertible subordinated promissory notes........ 284 284
Long-term debt, excluding current portion........ 2,325 2,767
---------- ---------
Total liabilities............................ 13,163 12,884
---------- ---------
Shareholders' equity:
Common stock, par value $.01 per share;
20,000,000 shares authorized; 7,215,469
and 7,211,751 issued and outstanding at
September 30, 2002 and June 30, 2002,
respectively................................... 72 72
Additional paid-in capital....................... 11,447 11,442
Accumulated deficit.............................. (5,735) (5,838)
---------- ---------
Total shareholders' equity................... 5,784 5,676
---------- ---------
Total liabilities and shareholders' equity... $ 18,947 $ 18,560
========== =========
SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(IN 000'S, EXCEPT SHARE AND PER SHARE DATA)
2002 2001
---------- ----------
Fuel sales and service revenues....................... $ 12,557 $ 12,299
Fuel taxes............................................ 4,522 4,310
---------- ----------
Total revenues.................................... 17,079 16,609
---------- ----------
Cost of fuel sales and service........................ 11,164 11,132
Fuel taxes............................................ 4,522 4,310
---------- ----------
Total cost of sales............................... 15,686 15,442
---------- ----------
Gross profit...................................... 1,393 1,167
Selling, general and administrative expenses.......... 1,080 1,134
---------- ----------
Operating income ................................. 313 33
Interest expense...................................... (230) (353)
Interest and other income............................. 20 13
---------- ----------
Income (loss) before income taxes..................... 103 (307)
Income tax expense.................................... -- --
---------- ----------
Net income (loss)................................. $ 103 $ (307)
========== ==========
Basic net income (loss) per share..................... $ 0.01 $ (0.07)
========== ==========
Diluted net income (loss) per share................... $ 0.01 $ (0.07)
========== ==========
Basic weighted average common shares outstanding...... 7,213,650 4,380,870
========== ==========
Diluted weighted average common shares outstanding.... 9,731,627 4,380,870
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
STREICHER MOBILE FUELING, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
(IN 000'S)
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 103 $ (307)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization........................... 344 370
Gain on disposal of asset .............................. -- (10)
Provision for doubtful accounts......................... 20 25
Changes in operating assets and liabilities:
Increase in restricted cash............................. (44) (15)
Increase in accounts receivable........................ (1,327) (1,034)
Decrease in inventories and other assets............... 296 291
Decrease in accounts payable and other
liabilities ......................................... (268) (582)
-------- --------
Net cash used in operating activities............... (876) (1,262)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (159) (5)
Proceeds from disposal of equipment..................... -- 111
Increase in note receivable due from related party...... (18) (12)
-------- --------
Net cash provided by (used in) investing activities. (177) 94
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft................... 195 (25)
Net borrowings on line of credit........................ 862 417
Proceeds from the issuance of convertible debt.......... -- 1,400
Principal payments on long-term debt.................... (505) (667)
Net proceeds from issuance of common stock
and common stock warrants............................ -- 200
-------- --------
Net cash provided by financing activities........... 552 1,325
-------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS................................... (501) 157
CASH AND CASH EQUIVALENTS, beginning of period............ 815 6
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................. $ 314 $ 163
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest............................................... $ 263 $ 336
======== ========
SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
NOTES TO CONDENSED UNAUDITED 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 September 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) 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.
The condensed unaudited consolidated financial statements included herein
have been prepared in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X, and do not include all the information and footnotes
required by generally accepted accounting principles; however, they do include
all adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present fairly the results of operations of the
Company for the interim periods presented. Certain amounts have been
reclassified to conform with current period presentation. These interim
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended June 30, 2002.
6
(3) CAPITAL RESOURCES AND LIQUIDITY
The Company has incurred net losses during most of its operating history
and has met its working capital and debt service requirements by raising capital
and drawing on its bank line of credit. For the fiscal years ended June 30, 2002
and 2001, the Company incurred net losses of $1.162 million and $2.774 million,
respectively. However, the Company earned net income in its two most recent
fiscal quarters in the amounts of $63,000 in the fourth quarter of the fiscal
year ended June 30, 2002 and $103,000 in the first quarter ended September 30,
2002. These net earnings compare to net losses of $1.208 million and $307,000
for the quarters ended June 30, 2001 and September 30, 2001, respectively.
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.
During the period of January 2001 through January 2002, the Company raised
$6.0 million in capital through private placements of common stock and the
issuance of subordinated debt. These proceeds have been used by the Company for
working capital in its operations and the implementation of a new business plan
and turnaround program over the 20-month period ending September 30, 2002. No
infusion of working capital has been required by the Company for the last nine
months beginning January 2002.
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
subordinated promissory notes converted contained conversion rates ranging from
$1.35 to $1.50 per share. See Note 6 for further discussion on convertible
subordinated debt transactions.
The capital raised through private placements, the conversion of $2.617
million of the outstanding $2.9 million in subordinated debt, and the net income
of $63,000 and $103,000 generated in the quarters ended June 30, 2002 and
September 30, 2002, respectively, resulted in the stockholders' equity of
approximately $5.8 million at September 30, 2002.
The Company's new business plan and a turnaround program comprised of
various substantive changes in operations, management and reporting have
improved the Company's financial operating results over the last 20 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.
7
(4) BANK LINE OF CREDIT PAYABLE
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. 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.
As of September 30, 2002 and June 30, 2002, the Company had outstanding
borrowings of $5.5 million and $4.68 million, respectively, under its $10.0
million bank line of credit. Based on eligible receivables outstanding at
September 30, 2002, the Company had approximately $311,000 of cash availability
on the bank line of credit, and was in compliance with all financial covenants
required by the credit facility. At June 30, 2002, the Company had $250,000 of
cash availability on the bank line of credit.
(5) NET INCOME OR LOSS PER SHARE
Basic income (loss) per share is computed by dividing the net income (loss)
attributable to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing income attributable to common shareholders by the weighted-average
number of common shares outstanding during the period increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. The dilutive effect of
outstanding stock options and warrants is reflected in diluted earnings per
share by application of the treasury stock method. For loss periods, weighted
average common share equivalents are excluded from the calculation, as their
effect would be antidilutive.
At September 30, 2002, common stock equivalents consisting of 2,517,977
employee and director stock options and common stock warrants were outstanding
at prices ranging from $1.07 to $9.49 per share. For the period ended September
30, 2002 these common stock equivalents were dilutive and were included in the
computation of diluted net income per share. At September 30, 2001, common stock
equivalents consisting of 2,448,352 employee and director stock options and
common stock warrants were outstanding at prices ranging from $1.50 to $9.49 per
share. For the period ended September 30, 2001, these common stock equivalents
were antidilutive and not included in the computation of net loss per share. For
the periods ended September 30, 2002 and 2001, the Company earned a net income
of $103,000 or $0.01 per diluted share compared to a net loss of $307,000 or
$0.07 per share, respectively.
On October 29, 2002, the Company extended the exercise period for all
outstanding common stock warrants from December 11, 2002 to December 11, 2003.
(6) ISSUANCES OF EQUITY AND DEBT SECURITIES
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 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.
8
(7) 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 $218,000
and $204,000 at September 30, 2002 and June 30, 2002, 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 $18,000 and $12,000 for the
quarters ended September 30, 2002 and 2001, respectively, 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. 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 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 would then 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 question the validity of certain portions of the Debt and therefore
declined to subsequently 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.
9
(8) RECENTLY ISSUED 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. The Company adopted
the provisions of SFAS 142 in full during the quarter ended September 30, 2002
and there was no material impact to the Company's financial statements
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 adopted SFAS No. 143 during the quarter
ended September 30, 2002. There was no material impact to the Company's
financial statements.
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.
10
ITEM 2. 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 those set forth under the caption "Certain Factors Affecting
Future Operating Results," included in the Company's filing on Form 10-K for the
fiscal year ended June 30, 2002, and in this Form 10-Q. The following discussion
also should be read in conjunction with the Company's consolidated financial
statements and notes thereto included in the above referenced 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 quarter ended September 30, 2002, market
prices for fuel were slightly lower than for the quarter ended September 30,
2001, and volumes declined in the comparable periods due primarily to the
elimination of non-profitable markets and accounts. However, revenues increased
for the quarter ended September 30, 2002, as compared to the quarter ended
September 30, 2001, as the Company delivered greater higher margin mobile
fueling volumes and reduced low margin bulk deliveries.
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 period of January 2001 through January 2002, the Company raised
$6.0 million in capital through private placements of common stock and the
issuance of subordinated debt. These proceeds have been used by the Company for
working capital in its operations and the implementation of a new business plan
and turnaround program over the 20-month period ending September 30, 2002.
11
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 in the quarter ended March 31, 2002. The beneficial
conversion of debt to equity interest expense had no impact on total
shareholders' equity.
The capital raised through private placements, the conversion of $2.617
million of the outstanding $2.9 million in subordinated debt, and the net income
of $63,000 and $103,000 generated in the quarters ended June 30, 2002 and
September 30, 2002, respectively, resulted in the attainment of stockholders'
equity of $5.8 million at September 30, 2002, the highest 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.
The Company has incurred net losses during most of its operating history
and has met its working capital and debt service requirements by the raising of
capital and drawing on its bank line of credit. However, for the fiscal year
ended June 30, 2002 the Company reduced its net loss to $1.162 million ($921,000
when excluding the non-cash beneficial conversion of debt to equity interest
expense of $241,000) from a net loss of $2.774 million incurred for the prior
year ended June 30, 2001. Further, the Company earned net income in its two most
recent fiscal quarters in the amounts of $63,000 in the fourth quarter of the
fiscal year ended June 30, 2002 and $103,000 in the first quarter ended
September 30, 2002. These net earnings compare to net losses of $1.208 million
and $307,000 for the quarters ended June 30, 2001 and September 30, 2001,
respectively.
The Company's improved performance in the fiscal year ended June 30, 2002
and in the quarters ended June 30, 2002 and September 30, 2002 is the result of
extensive structural changes to its operations and management. During the 20
months ended September 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.
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.
NEW THREE-YEAR $10 MILLION CREDIT 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 replaced the Company's prior 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.
12
As of September 30, 2002 and June 30, 2002, the Company had outstanding
borrowings of $5.5 million and $4.68 million, respectively, under its $10.0
million bank line of credit. Based on eligible receivables outstanding at
September 30, 2002, the Company had approximately $311,000 of cash availability
on the bank line of credit, and was in compliance with all financial covenants
required by the credit facility. At June 30, 2002, the Company had $250,000 of
cash availability on the bank line of credit.
Management believes that the Company's three-year credit facility 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. Further, as the Company's borrowings under its bank line of
credit bear interest at variable interest rates and represent a significant
portion of the Company's outstanding debt, the Company's financial results will
be impacted by significant increases or decreases in interest rates.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
REVENUES
The Company's revenues increased by $470,000 or 2.8% on deliveries of 11.9
million gallons of fuel during the three months ended September 30, 2002,
compared with 15.5 million gallons delivered in the three months ended September
30, 2001. The volume decrease of 3.6 million gallons, or 23% in the current
quarter was due to the elimination of low margin bulk fuel deliveries and
non-profitable accounts totalling 4.9 million gallons in the quarter ended
September 30, 2001. However, profitable mobile fueling deliveries increased by
1.3 million gallons in the three months ended September 30, 2002 versus the same
period ended a year ago.
GROSS PROFIT
Gross profit increased approximately $226,000, or 19.4%, in the three
months ended September 30, 2002 compared to the three months ended September 30,
2001. The average net margin per delivered gallon of fuel in the three months
ended September 30, 2001 was 14.4 cents compared to 9.2 cents in the three
months ended September 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 decreased approximately
$54,000, or 4.8%, in the three months ended September 30, 2002 compared to the
three months ended September 30, 2001. The decrease in these expenses primarily
resulted from reductions in payroll costs associated with the restructuring of
the management, operations, and information technology departments and related
personnel.
INTEREST EXPENSE
Interest expense decreased approximately $123,000, or 34.8%, in the three
months ended September 30, 2002 compared to the three months ended September 30,
2001 as a result of lower interest rates on variable rate debt and decreased
borrowings, primarily due to repayment of existing equipment debt, a reduction
of the outstanding borrowings under the credit facility and the conversion of
the subordinated promissory notes to equity.
INCOME TAXES
The Company recorded no income tax expense in the three months ended
September 30, 2002 or 2001. The Company had net operating loss carryforwards of
approximately $12.2 million at September 30, 2002 which begin to expire in the
year 2011.
13
EBITDA
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
increased by $261,000 to $677,000 for the three months ended September 30, 2002
from $416,000 for the three months ended September 30, 2001. The increase in
EBITDA was primarily 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.
The components of EBITDA for the three months ended September 30, 2002 and
2001 are as follows:
September 30, September 30,
2002 2001
-------------- ------------
Net income (loss) $ 103,000 $ (307,000)
Add back:
Interest expense 230,000 353,000
Depreciation and amortization
expense 344,000 370,000
-------------- ------------
EBITDA $ 677,000 $ 416,000
============== ============
ITEM 3. 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 mobile fueling
truck fleet. 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 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and participation of the Company's
Chief Executive Officer and Chief Financial Officer (the "Officers") of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that
evaluation, the Officers concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in the Company's periodic SEC
filings, including this report.
INTERNAL CONTROLS
There were no significant changes made in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the three months ending September 30, 2002, the Company issued 3,718
shares of common stock to the holders of four subordinated convertible
promissory notes for interest earned to date at a price of $1.35 per share. The
offer and sale of the convertible 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-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit No. Description
----------- -----------
99.1 Certification of the President and Chief Executive
Officer, and the Senior Vice President and Chief
Financial Officer
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K under Item 5 on September
30, 2002 to report the closing of a new long-term credit
facility.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STREICHER MOBILE FUELING, INC.
November 14, 2002 By: /S/ RICHARD E. GATHRIGHT
------------------------------------
Richard E. Gathright
Chief Executive Officer and President
By: /S/ MICHAEL S. SHORE
------------------------------------
Michael S. Shore
Senior Vice President and Chief
Financial Officer
16
CERTIFICATIONS
I, Richard E. Gathright, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Streicher Mobile
Fueling, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/S/ RICHARD E. GATHRIGHT
- -------------------------------------
Richard E. Gathright
President and Chief Executive Officer
17
I, Michael S. Shore, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Streicher Mobile
Fueling, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/S/ MICHAEL S. SHORE
- --------------------------------
Michael S. Shore
Senior Vice President and Chief
Financial Officer
18