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 MARCH 31, 2004
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.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0707824
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(State of Incorporation) (IRS Employer Identification Number)
800 WEST CYPRESS CREEK ROAD, SUITE 580,
FOR LAUDERDALE, FLORIDA, 33309
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(Address of principal executive offices) (Zip Code)
(954) 308-4200
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(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 May 14, 2004 there were 7,317,960 shares of the registrant's common
stock outstanding.
STREICHER MOBILE FUELING, INC.
FORM 10-Q
INDEX
FORM 10-Q PART AND ITEM NO.
Part I Financial Information
Item 1. Condensed Unaudited Consolidated Financial
Statements
Condensed Unaudited Consolidated Balance
Sheets as of March 31, 2004 and June 30, 2003..........3
Condensed Unaudited Consolidated Statements
of Operations for the three and nine-month
periods ended March 31, 2004 and 2003..................4
Condensed Unaudited Consolidated Statements
of Cash Flows for the nine-month periods
ended March 31, 2004 and 2003..........................5
Notes to Condensed Unaudited Consolidated
Financial Statements...................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.....................................20
Item 4. Controls and Procedures...............................20
Part II Other Information
Items 1. thru 6...............................................21
Signature Page................................................22
Certifications...........................................23 - 25
2
STREICHER MOBILE FUELING, INC. AND SUBSIDIARY
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND JUNE 30, 2003
(IN 000'S, EXCEPT SHARE AND PER SHARE DATA)
ASSETS March 31, 2004 June 30, 2003
- --------------------------------------------------- -------------- -------------
Current assets:
Cash and cash equivalents....................... $ 2,454 $ 211
Restricted cash................................. 194 78
Accounts receivable, net ....................... 7,657 6,113
Inventories .................................... 261 168
Prepaid expenses and other current assets....... 395 387
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Total current assets....................... 10,961 6,957
-------------- -------------
Property and equipment, net....................... 7,886 8,741
Deferred debt costs............................... 814 186
Other assets...................................... 64 75
Note receivable from related party ............... -- 52
-------------- -------------
Total assets............................... $ 19,725 $ 16,011
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------
Current liabilities:
Bank line of credit payable ..................... $ 4,855 $ 4,410
Current portion of long-term debt and
subordinated promissory notes.................. -- 1,965
Accounts payable and other liabilities .......... 4,053 3,012
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Total current liabilities.................... 8,908 9,387
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Long-term liabilities:
Convertible subordinated promissory notes........ -- 734
Long-term debt, excluding current portion........ 6,925 1,779
Unamortized debt discount, net................ (1,444) --
-------------- -------------
Long-term debt, net........................... 5,481 1,779
-------------- -------------
Total liabilities............................ 14,389 11,900
-------------- -------------
Shareholders' equity:
Common stock, par value $.01 per share;
50,000,000 and 20,000,000 shares
authorized; 7,248,460 and 7,234,168
issued and outstanding at March 31,
2004 and June 30, 2003, respectively........... 72 72
Additional paid-in capital....................... 13,324 11,458
Accumulated deficit.............................. (8,060) (7,419)
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Total shareholders' equity................... 5,336 4,111
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Total liabilities and shareholders' equity... $ 19,725 $ 16,011
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SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
STREICHER MOBILE FUELING, INC. AND SUBSIDIARY
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE-MONTH PERIODS ENDED
MARCH 31, 2004 AND 2003
(IN 000'S, EXCEPT SHARE AND PER SHARE DATA)
Three-Month Periods Ended Nine-Month Periods Ended
March 31, March 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Fuel sales and service revenues.................... $ 17,317 $ 14,841 $ 47,176 $ 40,064
Fuel taxes......................................... 5,589 4,628 16,282 13,770
---------- ---------- ---------- ----------
Total revenues................................. 22,906 19,469 63,458 53,834
---------- ---------- ---------- ----------
Cost of fuel sales and service..................... 16,341 13,952 44,304 37,038
Fuel taxes......................................... 5,589 4,628 16,282 13,770
---------- ---------- ---------- ----------
Total costs of sales .......................... 21,930 18,580 60,586 50,808
---------- ---------- ---------- ----------
Gross profit................................... 976 889 2,872 3,026
Selling, general and administrative expenses....... 1,096 1,161 3,281 3,617
Gain on extinguishment of debt..................... -- -- 757 --
---------- ---------- ---------- ----------
Operating income (loss) ....................... (120) (272) 348 (591)
Interest expense, net.............................. (345) (229) (989) (665)
---------- ---------- ---------- ----------
Loss before income taxes....................... (465) (501) (641) (1,256)
Income tax expense................................. -- -- -- --
---------- ---------- ---------- ----------
Net loss ...................................... $ (465) $ (501) $ (641) $ (1,256)
========== ========== ========== ==========
Basic and diluted net loss per share............... $ (.06) $ (.07) $ (.09) $ (.17)
========== ========== ========== ==========
Basic and diluted weighted average
common shares outstanding......................... 7,248,460 7,219,878 7,248,408 7,217,155
========== ========== ========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
STREICHER MOBILE FUELING, INC. AND SUBSIDIARY
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
(IN 000'S)
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $ (641) $ (1,256)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization...................... 999 1,054
Amortization of deferred debt costs .............. 151 30
Amortization of debt discount .................... 164 --
Gain on extinguishment of debt .................... (757) --
Provision (credit) for doubtful accounts........... (37) 215
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash........... (116) 169
Increase in accounts receivable.................. (1,619) (130)
(Increase) decrease in inventories and other
assets......................................... (96) 152
Increase in accounts payable and other
liabilities ................................... 1,055 6
---------- ----------
Net cash (used in) provided by operating
activities................................... (897) 240
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (137) (218)
Proceeds from disposal of equipment................ 112 9
Decrease in note receivable due from related party. 52 103
---------- ----------
Net cash provided by (used in) investing
activities................................... 27 (106)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........... 6,925 --
Repayments of long-term debt....................... (2,687) (1,249)
Repayment of subordinated debt..................... (1,034) --
Payments of debt and bank line of credit
issuance costs................................... (522) (136)
Net borrowings on line of credit................... 445 (212)
Costs associated with the extension of warrants.... (14) (9)
Proceeds from issuance of convertible
subordinated promissory notes.................... -- 450
Increase in bank overdraft......................... -- 207
---------- ----------
Net cash provided by (used in) financing
activities................................... 3,113 (949)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............................... 2,243 (815)
CASH AND CASH EQUIVALENTS, beginning of period....... 211 815
---------- ----------
CASH AND CASH EQUIVALENTS, end of period............. $ 2,454 $ --
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest......................................... $ 448 $ 626
========== ==========
Income taxes..................................... $ -- $ --
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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-sourcing
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 March 31, 2004, the Company has operations in California,
Florida, Georgia, North Carolina, Tennessee and Texas. In April 2004, the
Company added operations in Maryland.
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 negotiated rate. Included in the rate
are 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. 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 subsidiary, Streicher Realty, Inc. 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, 2003.
SUPPLEMENTAL CASH FLOW INFORMATION OF NON-CASH ACTIVITIES
For the nine-month period ended March 31, 2004, the Company recorded an
unamortized debt discount of $1,608,000 and deferred debt costs of $257,000 for
the broker commission warrants issued, all in connection with the issuance of
the debt securities discussed in Note 6. Additionally, the Company recorded
$14,000 related to the issuance of common stock in lieu of payments on
convertible subordinated promissory notes for the nine-month
6
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
periods ended March 31, 2004 and 2003, respectively. The convertible
subordinated promissory notes were fully repaid in the first quarter ended
September 30, 2003, see Note 6 for further discussion.
(3) CAPITAL RESOURCES AND LIQUIDITY
At March 31, 2004 and June 30, 2003, the Company had a total of cash and
cash availability on its bank line of credit of $3,512,000 and $390,000,
respectively. The increase in the Company's cash and cash availability was
principally due to the August 2003 refinancing which resulted in net proceeds of
$2.9 million.
In August 2003, the Company raised $6.925 million from the issuance of
five-year 10% promissory notes (the "August 2003 refinancing" and the "August
2003 promissory notes") and 2,008,250 five-year warrants to purchase the
Company's common stock at $1.00 per share (the "August 2003 warrants"). The
August 2003 promissory notes are collateralized by a first priority security
interest in the Company's specialized fueling truck fleet and related equipment
and by the patents on its proprietary fuel management system. The resulting
liquidity impact of this financing transaction was the repayment of all
outstanding equipment and subordinated debt; the generation of $2.9 million of
working capital for business expansion; and a $2.8 million improvement in cash
flow resulting from a moratorium of principal payments during the first two
years of the five-year term of the August 2003 promissory notes.
During the quarter ended September 30, 2003, the Company recorded a
pre-tax gain of $757,000 from the prepayment of the outstanding balance owed to
its former principal equipment lender and an increase in shareholders' equity of
$1.87 million for the value of the 2,008,250 warrants issued in connection with
the August 2003 refinancing. In April 2004, 62,500 of these warrants were
exercised and resulted in a $62,500 increase in cash and shareholders' equity,
respectively.
The Company's material financial commitments, other than fuel purchases,
general expenses and payroll, relate primarily to maintaining its bank line of
credit and servicing its August 2003 promissory notes. The Company is required
to make semi-annual interest payments of 10% per annum on its August 2003
promissory notes which began December 31, 2003; and beginning August 28, 2005,
is required to make six $692,500 semi-annual principal payments, with a balloon
payment due August 28, 2008 of $2,770,000.
The Company's debt agreements contain covenants establishing certain
financial requirements and operating restrictions. The Company's failure to
comply with any covenant or material obligation contained in these debt
agreements, absent a waiver or forbearance from the lenders, would result in an
event of default which could accelerate debt repayment terms under the debt
agreements. Due to cross-default provisions contained in its debt agreements, an
event of default under one agreement could accelerate repayment terms under the
other agreement, which would have a material adverse affect on the Company's
liquidity and capital resources.
The Company's liquidity and ability to meet its financial obligations is
dependent on, among other things, the Company's ability to generate cash flow
from operating activities; obtain or maintain sufficient trade credit from
vendors; maintain compliance with its debt covenants; and/or raise any required
additional capital through the issuance of debt or equity securities or
additional borrowings.
(4) BANK LINE OF CREDIT PAYABLE
The Company has a three-year $10 million credit facility with a national
financial institution which permits the Company to borrow up to 85% of the total
amount of eligible accounts receivable. Interest is payable monthly (5.75% at
March 31, 2004), 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 line of credit is September 25, 2005. In
addition, the credit facility may be extended by the mutual consent of the
Company and the bank after September 25, 2005.
7
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In August 2003, the Company and its bank line of credit lender amended the
loan and security agreement between them in connection with the Company's August
2003 refinancing which (1) released the lender's lien on patents, patent rights
and patent applications; (2) increased the unused line of credit fee by .50%;
(3) revised the effective book net worth covenant to include the August 2003
promissory notes in its calculation; (4) established a covenant to maintain a
minimum cumulative quarterly fixed charge coverage ratio as defined in the
amended loan agreement; (5) established a covenant for the Company to maintain a
minimum excess availability of $500,000; and (6) eliminated the loan prepayment
fee. The Company utilized a portion of the proceeds of the August 2003
refinancing to pay down the bank line of credit.
As of March 31, 2004 and June 30, 2003, the Company had outstanding
borrowings of $4.9 million under its $10 million bank line of credit. Based on
eligible receivables outstanding at March 31, 2004, the Company had $864,000 of
cash availability on the bank line of credit, and was in compliance with all
financial covenants required by the loan and security agreement.
(5) NET INCOME (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 income (loss) 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.
At March 31, 2004, common stock equivalents consisting of 4,726,152
employee, director and unrelated third party stock options and common stock
warrants were outstanding at prices ranging from $.86 to $9.49 per share. For
the period ended March 31, 2004, none of these common stock equivalents were
dilutive or were included in the computation of diluted net income per share. At
March 31, 2003, common stock equivalents consisting of 2,523,227 employee,
director and unrelated third party stock options and common stock warrants were
outstanding at prices ranging from $1.00 to $9.49 per share. For the period
ended March 31, 2003, none of these common stock equivalents were dilutive and
were not included in the computation of diluted net income per share.
On September 25, 2003, the Company extended from December 11, 2003 to
December 11, 2004 the exercise period for 1,349,900 outstanding common stock
warrants related to the December 11, 1996 initial public offering. The costs
associated with the extension were $14,000.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" (as amended by SFAS No. 148). 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 and net income
per share would have been reduced 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.
8
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company's net loss, pro forma net loss, net loss per share, pro forma
net loss per share, and related assumptions are as follows:
For the three For the three For the nine For the nine
months ended months ended months ended months ended
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
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Net loss as reported $ (465) $ (501) $ (641) $ (1,256)
Net loss pro forma $ (471) $ (534) $ (657) $ (1,815)
Diluted net loss per share as reported $ (.06) $ (.07) $ (.09) $ (.17)
Diluted net loss per share pro forma $ (.06) $ (.07) $ (.09) $ (.25)
Risk free interest rate 4.08% 3% 4.08% 3%
Dividend yield 0% 0% 0% 0%
Expected volatility 100% 100% 100% 100%
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 net loss amounts presented
because compensation cost is reflected over the vesting period of the options.
There are no other reconciling items included in the net loss amounts presented.
(6) DEBT SECURITIES
AUGUST 2003 PROMISSORY NOTES
On August 29, 2003, the Company closed a $6.925 million offering to
institutions and other accredited lenders consisting of five-year 10% promissory
notes and five-year warrants to purchase a total 2,008,250 shares of the
Company's common stock at $1.00 per share. The August 2003 promissory notes are
collateralized by a first priority security interest in its specialized fueling
truck fleet and related equipment and by patents on its proprietary fuel
management system. The August 2003 promissory notes provide for (1) no principal
payments until August 28, 2005; (2) six $692,500 semi-annual principal payments
commencing on August 28, 2005 through February 28, 2008; (3) a balloon payment
of $2,770,000 at maturity on August 28, 2008; (4) semi-annual interest payments
on June 30 and December 31 which commenced on December 31, 2003; and (5) the
Company's right to call after August 1, 2005 at 105% of par plus accrued but
unpaid interest. The net cash proceeds from the financing were $2.9 million,
after payment of related fees and expenses and repayment of all outstanding
equipment and subordinated debt. In connection with the issuance of the August
2003 promissory notes, the Company negotiated a settlement with its former
primary equipment lender and received a $757,000 cash discount by prepaying
$2,204,800 of the outstanding balance on August 29, 2003. The transaction costs,
including commissions, professional fees and other costs, totaled $815,000, and
are being amortized over the five-year term of the notes.
The issuance of the two million warrants from the August 2003 refinancing
resulted in the Company recording an increase to shareholders' equity of $1.87
million; a $1.61 million debt discount; and an increase to deferred debt costs
of $257,000 for the warrants related to the broker commissions. The Company is
amortizing as interest expense the debt discount and deferred debt costs over
the five-year term of the notes.
The $1.61 million debt discount is a non-cash discount related to the
issuance of the warrants and does not reduce the amount of cash payments
required to be made by the Company for the outstanding balance of $6.925 million
owed at March 31, 2004.
On December 31, 2003, the Company paid its first semi-annual interest
payment on the August 2003 promissory notes on a prorated basis totaling
$224,000.
9
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2002 CONVERSION OF SUBORDINATED DEBT
In January 2002, certain holders of the convertible subordinated
promissory notes converted an aggregate of $2.617 million to unregistered 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 common stock. The holders of the remaining $283,600
of convertible subordinated promissory notes issued by the Company who did not
convert their notes in January 2002 waived any conversion price adjustment.
SUBORDINATED PROMISSORY NOTES
On December 23, 2002, the Company issued a $150,000 short-term promissory
note to an affiliated shareholder. The note was due on January 31, 2003, with
interest at 5% over the prime interest rate. On January 21, 2003 the Company and
the holder of the note substituted the note for a $150,000 subordinated
promissory note due on January 31, 2005, bearing interest at an annual rate of
9%.
On January 21, 2003, the Company issued $300,000 of subordinated
promissory notes to a director and an affiliated shareholder. The notes were due
on January 31, 2005 and bore interest at an annual rate of 9%.
On May 12, 2003, the Company issued $300,000 of subordinated promissory
notes to a director and an affiliated shareholder. The notes bore interest at an
annual rate of 14% and were payable on demand. The Company repaid $235,500 of
these notes with the proceeds of the May 20, 2003 private placement issuance of
subordinated promissory notes and common stock purchase warrants.
On May 20, 2003, the Company issued $235,500 of subordinated promissory
notes to officers, directors, an affiliated shareholder and certain unaffiliated
shareholders. The notes were due on November 19, 2003 and bore interest at an
annual rate of 14%. The Company also issued warrants to purchase 82,425 shares
of common stock exercisable at $0.86 per share in connection with the notes. The
warrants issued are exercisable for a period of three (3) years from September
30, 2003.
REPAID DEBT SECURITIES
The Company repaid all of the outstanding subordinated convertible and
non-convertible promissory notes in September 2003 with the proceeds of the
August 2003 refinancing.
WARRANTS EXERCISED
In April 2004, certain note holders of the May 20, 2003 and August 2003
debt issuances exercised 69,500 warrants for $68,520, in which 62,500 warrants
were related to the $1.00 warrants issued in conjunction with the August 2003
refinancing and 7,000 warrants related to the $0.86 warrants issued in the May
20, 2003 debt issuance. The $68,520 will increase cash and shareholders' equity
in the fiscal fourth quarter of 2004.
(7) RELATED PARTY TRANSACTIONS
As previously reported in the Company's 2003 Form 10-K, beginning July
2002, the Company suspended further payments of salary to Stanley H. Streicher,
the Company's former chairman, under his November 7, 2000, employment agreement
because of an unpaid note receivable. As of December 31, 2003, the Company had
set off all the remaining outstanding balance due. Additionally, Mr. Streicher's
November 7, 2000 employment contract expired on October 31, 2003 and was not
extended or renewed.
Each of the: (a) convertible subordinated promissory notes which were
converted in January 2002; (b) December 23, 2002 short-term promissory note; (c)
January 21, 2003 subordinated promissory notes; and (d) May 12, 2003 promissory
notes were issued to a director or other affiliates of the Company. In addition,
a portion of the May 20, 2003 subordinated promissory notes and related warrants
were issued to officers, directors and other affiliates of the Company. These
notes are more fully described in Note 6.
10
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FASB Staff Position 150-3, "Effective Date, Disclosures, and Transition
for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities
and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity," (FSP 150-3) defers the effective date for certain
mandatorily redeemable financial instruments issued by a non-SEC registrant from
fiscal periods beginning after December 15, 2003 to fiscal periods beginning
after December 15, 2004 and defers indefinitely for those entities the
classification, measurement, and disclosure provisions of Statement 150 for
other mandatorily redeemable financial instruments. The FSP also defers the
effective date of Statement 150 for certain mandatorily redeemable
noncontrolling interests of all entities. FSP 150-3 is not expected to have a
significant impact upon the Company.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report, including but not limited to this Item 2 and the footnotes to
the financial statements found in Section F, contains "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). These statements concern expectations,
beliefs, projections, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts.
Statements preceded by, followed by, or that include the words "believes,"
"expects," "anticipates," or similar expressions are generally considered to be
forward-looking statements.
The forward-looking statements include the following:
o the Company's beliefs regarding its position in the mobile fueling
industry
o the Company's strategies, plans and objectives and expectations
concerning its future operations, cash flow, margins, revenue,
profitability, liquidity and capital resources
o the Company's efforts to improve operational, financial and management
controls, reporting systems and procedures
The forward-looking statements reflect the Company's current view about
future events and are subject to risks, uncertainties and assumptions. 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,
2003, and in this Form 10-Q. Among the factors that could prevent the Company
from achieving its goals, and cause the assumptions underlying the
forward-looking statements and the actual results to differ materially from
those expressed in or implied by those forward-looking statements are the
following:
o future net losses
o adverse consequences relating to the Company's outstanding debt
o the Company's ability to pay interest and principal on its bank line
of credit, August 2003 promissory notes and pay its accounts payable
and other liabilities when due
o the Company's ability to comply with financial covenants contained in
its $10 million bank line of credit
o the Company's ability to obtain, if necessary, waivers of covenant
violations of its debt agreements
o significant provisions for bad debts on the Company's accounts
receivable
o fluctuations in demand for the Company's mobile fueling services
resulting from changed economic conditions
o the Company's ability to acquire sufficient trade credit from fuel
suppliers and other vendors
o competitive pricing for the Company's services at acceptable net
margins
12
OVERVIEW
The Company's mobile fueling services business continues to be largely
dependent on the number of gallons of fuel delivered and the net margin per
gallon achieved ("net margin" defined as gross profit plus depreciation included
in cost of sales divided by gallons delivered). Since June 30, 2003, the Company
has added, on an annualized basis, approximately 8.0 million gallons of net new
business, which would, if sustained, result in an expected 55.0 million gallons
delivered for the year ending June 30, 2004, a 16% increase over the 47.5
million gallons delivered in the fiscal year 2003.
For the nine months ended March 31, 2004, the net margin per gallon was
9.3 cents per gallon compared to 11.5 cents per gallon in fiscal 2003. The
Company attributes the lower net margin per gallon this year to two factors: (1)
a lower average service charge per gallon; and (2) higher direct operating costs
(including personnel training and equipment relocation expense) arising from the
Company's expansion in existing markets and into new markets. The lower average
service charge per gallon was originally caused by aggressive price-cutting by a
financially distressed competitor, which has since discontinued business, but
the effect on market prices persists today. Management believes that this
residual effect lingers because of steadily rising fuel prices, which have put
pressure on mobile fueling customers to control costs by resisting service fee
increases. The Company continues to believe, however, that pricing for mobile
fueling services will increase and should stabilize at more sustainable levels.
In the third quarter of the 2004 fiscal year, the Company's operating loss
and net loss both decreased from the same period in the prior year by over
$150,000 and nearly $40,000, respectively. For the nine-month period ended March
31, 2004 compared to March 31, 2003 operating income improved by $939,000 and
net loss decreased by $615,000. This improvement was principally due to the
$757,000 gain on extinguishment of debt and higher volumes delivered during the
nine-month period.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
also improved, increasing by over $135,000 and $875,000 in the three and
nine-month periods compared to a year ago (see EBITDA table in Results of
Operations section). The Company's increased EBITDA reflects the improvement in
cash flow being generated from the Company's business operations before debt
service payments and capital expenditures. EBITDA is a key indicator used by
management and the financial community to gauge the Company's financial
performance utilizing its capital resources. The Company has 30 trucks available
for service to support its continuing expansion program in presently served and
new markets, and is in a position to add significant new business volumes,
generating continued EBITDA improvement with limited capital expenditures.
The Company's financial condition is stable and, after its August 2003
refinancing transaction, has improved in several ways. This refinancing which
provided $5.8 million in net proceeds and lowered debt service requirements over
the next two years, better matches the Company's anticipated cash flow and debt
obligations, while providing support for the planned growth of its business.
Cash availability under the Company's $10 million bank line of credit also
increased.
The Company believes that it will meet its income and cash flow objectives
by delivering increased fuel volumes in both existing and new markets and
generating higher net margins through improved operating efficiencies, including
those resulting from absorbing fixed overhead costs in a growing revenue stream.
Labor costs are a primary consideration by existing and prospective customers in
the use of mobile fueling services and the Company anticipates an increase in
the demand for its services as these labor costs continue to escalate. In
January 2004, new federal safety rules became effective reducing the hours truck
drivers can be on duty, including time spent fueling their trucks or equipment.
The Company believes that these mandated changes should increase the use of
mobile fueling services. Fleet operators may decide to use their drivers' time
more cost effectively by delivering their product or services rather than using
labor to fuel vehicles. During April 2004, the Company expanded its operations
in North Carolina and commenced service in the State of Maryland. The Company
now conducts business in seven states from 17 operating locations.
13
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 the services plus the cost of fuel based on market prices.
Revenue levels vary depending on the upward or downward movement of fuel prices
in each market. In the absence of dramatic fuel price changes that affect
customers' actual demand for fuel or materially affect the fuel usage costs of
the Company's own fuel delivery trucks, the Company's gross profit on sales is
not materially affected by fuel price fluctuations because the Company generally
passes all fuel price changes to its customers and charges for its own services
on a flat per gallon basis. For the three and nine months ended March 31, 2004,
market prices for fuel were higher than for the three and nine months ended
March 31, 2003, and delivered volumes increased in the nine-month period due
primarily to the addition of new accounts. As a result, revenues increased for
the three and nine months ended March 31, 2004, as compared to the three and
nine months ended March 31, 2003.
In the mobile fueling business, the majority of deliveries are made at
night on workdays, Monday through Friday, to coincide with customers' fuel
service requirements. The number of workdays in any given month will impact the
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 weather and other events,
including hurricanes, tropical storms, ice and snow storms, forest fires and
earthquakes.
The Company believes that significant opportunities exist 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`s marketing and
sales function responsibility is to grow the Company's business. However, this
growth is dependent upon a number of business and economic factors, including
the success of the Company's sales and marketing and other business strategies;
the availability in new and existing markets of sufficient acceptable margin
mobile fuel service business; the availability of qualified personnel to provide
the level of service required by customers; acceptable cash flow from operating
activities; the availability of sufficient debt or equity capital to meet the
Company's financing 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
At March 31, 2004 and June 30, 2003, the Company had a total of cash and
cash availability on its bank line of credit of $3,512,000 and $390,000,
respectively. The increase in the Company's cash and cash availability was
principally due to the August 2003 refinancing which resulted in net proceeds of
$2.9 million.
In August 2003, the Company raised $6.925 million from the issuance of
five-year 10% promissory notes (the "August 2003 refinancing" and the "August
2003 promissory notes") and 2,008,250 five-year warrants to purchase the
Company's common stock at $1.00 per share (the "August 2003 warrants"). The
August 2003 promissory notes are collateralized by a first priority security
interest in the Company's specialized fueling truck fleet and related equipment
and by the patents on its proprietary fuel management system. The resulting
liquidity impact of this financing transaction was the repayment of all
outstanding equipment and subordinated debt; the generation of $2.9 million of
additional working capital for business expansion; and a $2.8 million
improvement in cash flow resulting from a moratorium of principal payments
during the first two years of the five-year term of the August 2003 promissory
notes.
14
The August 2003 refinancing significantly strengthened the Company's
financial position, enabling it to achieve a stronger balance sheet and improve
cash flow resulting from the two-year principal moratorium on principal payments
under the August 2003 promissory notes. The Company believes that this
transaction enhances its business credibility with present and prospective
customers, fuel suppliers, trade creditors, other lenders and the investment
community, and its ability to compete in its business sector.
During the quarter ended September 30, 2003, the Company recorded a
pre-tax gain of $757,000 from the prepayment of the outstanding balance owed to
its former principal equipment lender and an increase in shareholders' equity of
$1.87 million for the value of the 2,008,250 warrants issued in connection with
the August 2003 refinancing. In April 2004, 62,500 of these warrants were
exercised and resulted in a $62,500 increase in cash and shareholders' equity,
respectively.
The Company's debt agreements contain covenants establishing certain
financial requirements and operating restrictions. The Company's failure to
comply with any covenant or material obligation contained in these debt
agreements, absent a waiver or forbearance from the lenders, would result in an
event of default which could accelerate debt repayment terms under the debt
agreements. Due to cross-default provisions contained in its debt agreements, an
event of default under one agreement could accelerate repayment terms under the
other agreements, which would have a material adverse effect on the Company's
liquidity and capital resources.
The Company's mobile fueling business requires it to utilize considerable
working capital for fuel, labor and equipment costs prior to receiving payments
from customers. The fuel purchased by the Company for resale to customers
generally must be paid for in 10-15 days of purchase, with labor costs and taxes
paid bi-weekly and equipment related costs generally paid within 30 days. The
Company invoices customers both daily and weekly and generally collects its
accounts within 30 to 45 days. The days sales outstanding at March 31, 2004 and
June 30, 2003 was 30 days.
The Company's material financial commitments, other than fuel purchases,
payroll and general expenses, relate primarily to maintaining its bank line of
credit and servicing its August 2003 promissory notes. The Company is required
to make semi-annual interest payments of 10% per annum on its August 2003
promissory notes which began December 31, 2003; and beginning August 28, 2005,
is required to make six $692,500 semi-annual principal payments, with a balloon
payment due August 28, 2008 of $2,770,000.
The Company's liquidity and ability to meet its financial obligations is
dependent on, among other things, the Company's ability to generate cash flow
from operating activities; obtain or maintain sufficient trade credit from
vendors; maintain compliance with its debt covenants; and/or raise any required
additional capital through the issuance of debt or equity securities or
additional borrowings.
The Company believes that cash flow from operations; the additional
working capital from the August 2003 refinancing and the two-year principal
payment moratorium on the August 2003 promissory notes will satisfy its
anticipated liquidity requirements for the foreseeable future. However, it may
seek additional sources of financing if a cash flow deficiency were to arise in
the future. There is no assurance that additional financing would be available
to the Company on acceptable terms, or at all. If the Company does not comply
with the covenants in its debt agreements, or if adequate funds are not
available to finance operations or to pay debt service obligations as they
become due, the Company may be required to significantly alter its operations.
$10 MILLION THREE-YEAR CREDIT FACILITY
The Company has a three-year $10 million credit facility with a national
financial institution, which permits the Company to borrow up to 85% of the
total amount of eligible accounts receivable. Interest is payable monthly (5.75%
at March 31, 2004) 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 line of credit is September 25, 2005. In
addition, the credit facility may be extended by the mutual consent of the
Company and the bank after September 25, 2005.
15
In August 2003, the Company and its bank line of credit lender amended the
loan and security agreement for the credit facility in connection with the
Company's August 2003 refinancing which (1) released the lender's lien on
patents, patent rights and patent applications; (2) increased the unused line of
credit fee by .50%; (3) revised the effective book net worth covenant to include
the August 2003 promissory notes in its calculation; (4) established a covenant
to maintain a minimum cumulative quarterly fixed charge coverage ratio as
defined in the amended loan agreement; (5) established a covenant for the
Company to maintain a minimum excess availability of $500,000; and (6)
eliminated the loan prepayment fee. The Company utilized a portion of the
proceeds of the August 2003 refinancing to pay down the bank line of credit. The
proceeds that were used to pay down the outstanding line of credit balance are
available to the Company for future working capital purposes.
As of March 31, 2004 and June 30, 2003, the Company had outstanding
borrowings of $4.9 and $4.4 million, respectively, under its $10 million bank
lines of credit. Based on eligible receivables outstanding at March 31, 2004,
the Company had $864,000 of cash availability on the bank line of credit, and
was in compliance with all financial covenants required by the loan and security
agreement.
Management believes that the Company's bank line of credit should provide
the working capital needed to maintain and grow its business and to accomplish
its business plan. However, if additional financing is required, there can be no
assurance that the Company will be able to obtain such financing from its
present bank line of credit or another lender at acceptable terms, or at all.
Further, since the Company's borrowings under its bank line of credit bear
interest at variable interest rates and represent a large portion of the
Company's outstanding debt, the Company's financial results could be materially
affected by significant increases or decreases in interest rates.
DEBT SECURITIES
AUGUST 2003 PROMISSORY NOTES
On August 29, 2003, the Company closed a $6.925 million offering to
institutions and other accredited lenders consisting of five-year 10% promissory
notes and five-year warrants to purchase a total 2,008,250 shares of the
Company's common stock at $1.00 per share. The August 2003 promissory notes are
collateralized by a first priority security interest in its specialized fueling
truck fleet and related equipment and by patents on its proprietary fuel
management system. The August 2003 promissory notes provide for (1) no principal
payments until August 28, 2005; (2) six $692,500 semi-annual principal payments
commencing on August 28, 2005 through February 28, 2008; (3) a balloon payment
of $2,770,000 at maturity on August 28, 2008; (4) semi-annual interest payments
on June 30 and December 31 which commenced on December 31, 2003; and (5) the
Company's right to call after August 1, 2005 at 105% of par plus accrued but
unpaid interest. The net cash proceeds from the financing were $2.9 million,
after payment of related fees and expenses and repayment of all outstanding
equipment and subordinated debt. In connection with the issuance of the August
2003 promissory notes, the Company negotiated a settlement with its former
primary equipment lender and received a $757,000 cash discount by prepaying the
$2,204,800 outstanding balance on August 29, 2003. The transaction costs,
including commissions, professional fees and other costs, totaled $814,000, and
are being amortized over the five-year term of the notes.
The issuance of the two million warrants from the August 2003 refinancing
resulted in the Company recording an increase to shareholders' equity of $1.87
million; a $1.61 million debt discount; and an increase to deferred debt costs
of $257,000 for the warrants related to the broker commissions. The Company is
amortizing as interest expense the debt discount and deferred debt costs over
the five-year term of the notes.
The $1.61 million debt discount is a non-cash discount related to the
issuance of the warrants and does not reduce the amount of cash payments
required to be made by the Company for the outstanding balance of $6.925 million
owed at March 31, 2004.
REPAID DEBT SECURITIES
In September 2003, the Company repaid all of the outstanding subordinated
convertible and non-convertible promissory notes with a portion of the proceeds
of the August 2003 refinancing.
16
WARRANTS EXERCISED
In April 2004, certain note holders of the May 20, 2003 and August 2003
debt issuances exercised 69,500 warrants for $68,520, of which 62,500 warrants
were related to the $1.00 warrants issued in conjunction with the August 2003
refinancing and 7,000 warrants related to the $0.86 warrants issued in the May
20, 2003 debt issuance. The $68,520 will increase cash and shareholders' equity
in the fourth quarter of fiscal 2004.
INTEREST EXPENSE, NET SUMMARY
As a result of the August 2003 refinancing, the Company's components of
net interest expense has changed. The table below shows the net interest expense
(in thousands) recorded for the three and nine-month periods:
Three-Month Periods Ended Nine-Month Periods Ended
March 31, March 31,
2004 2003 2004 2003
--------- --------- -------- --------
Stated Rate Interest Expense:
- -----------------------------
Bank line of credit $ 69 $ 107 $ 183 $ 312
Long term equipment debt 173 99 450 322
Subordinated debt -- 12 20 21
Other 3 -- 16 --
--------- --------- -------- --------
Total stated rate interest expense 245 218 669 655
Non-cash Interest Amortization:
- -------------------------------
Amortization of deferred debt costs 43 14 134 35
Amortization of debt discount 57 -- 165 --
--------- --------- -------- --------
Total amortization of interest expense 100 14 299 35
--------- --------- -------- --------
Total other interest expense (income) -- (3) 21 (25)
--------- --------- -------- --------
Total interest expense, net $ 345 $ 229 $ 989 $ 665
========= ========= ======== ========
The increase in the interest expense of $116,000 and $324,000
for the three and nine months ended March 31, 2004 compared to the three and
nine months ended March 31, 2003, respectively, relates primarily to the higher
non-cash interest amortization relating to the August 2003 refinancing as well
as higher equipment debt outstanding in the three and nine-month periods ended
March 31, 2004, offset by the lower average balance on the Company's bank line
of credit for the three and nine months ended March 31, 2004 compared to the
three and nine months ended March 31, 2003, respectively.
17
RESULTS OF OPERATIONS
The following is a summary of the Company's selected condensed
consolidated results of operations for the three and nine-month periods
ending March 31, 2004 and 2003 (in 000s):
Three-Month Periods Ended March 31, Nine-Month Periods Ended March 31,
------------------------------------------ ---------------------------------------------
Increase (decrease) Increase (decrease)
-------------------- ----------------------
2004 2003 Dollars Percent 2004 2003 Dollars Percent
--------- --------- --------- --------- --------- --------- ---------- ----------
Total revenues $ 22,906 $ 19,469 $ 3,437 17.7 % $ 63,458 $ 53,834 $ 9,624 17.9 %
Total cost of sales and services 21,930 18,580 3,350 18.0 % 60,586 50,808 9,778 19.2 %
--------- --------- --------- --------- --------- --------- ---------- ----------
Gross profit 976 889 87 9.8 % 2,872 3,026 (154) (5.1)%
Selling, general, and administrative
expenses (1,096) (1,161) (65) (5.6)% (3,281) (3,617) (336) (9.3)%
Gain on extinguishment of debt -- -- -- -- 757 -- 757 --
Interest expense, net (345) (229) 116 50.7 % (989) (665) 324 48.7 %
Income tax expense -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------- ----------
Net loss $ (465) $ (501) $ (36) (7.2)% $ (641) $ (1,256) $ (615) (49.0)%
========= ========= ========= ========= ========= ========= ========== ==========
Gallons Delivered 13,315 11,496 1,819 15.8 % 40,332 34,863 5,469 15.7 %
========= ========= ========= ========= ========= ========= ========== ==========
COMPARISON OF THREE AND NINE MONTHS ENDED MARCH 31, 2004 TO MARCH 31, 2003
REVENUES
Revenue increased $3.4 million and $9.6 million for the three and nine
months ended March 31, 2004 compared to the three and nine months ended March
31, 2003. The increase in revenue resulted primarily from higher wholesale fuel
prices and additional higher priced mobile fueling deliveries of 1.8 million and
5.5 million gallons during the respective three and nine month periods. The
increase in volume during the respective three and nine month periods was
primarily due to the net addition of new accounts.
GROSS PROFIT
Gross profit increased by $87,000 and decreased by $154,000 in the three
and nine months ended March 31, 2004, respectively, compared to the three and
nine months ended March 31, 2003. The variance in the three and nine-month
periods resulted primarily from the additional revenues attributable to the
increase in volume delivered in the current year of 1.8 million gallons and 5.5
million gallons, respectively, which was offset by decreases in the average
service charge per gallon and increases in direct operating expenses relating to
higher delivery costs for the new volume added during the periods. The decrease
in the average service charge of fuel delivered for the nine months ended March
31, 2004 was $.023 per gallon, or $781,000. This decrease in the average service
charge resulted from the Company lowering its service charges to many of its
customers to counter aggressive discounting scheme undertaken by a former
competitor which has since discontinued business. The Company's ability to
recapture that decrease has been hampered by steadily rising fuel prices, which
have fostered customer resistance to higher mobile fueling service fees
The average net margin per delivered gallon of fuel decreased from 10.3
cents for the three months ended March 31, 2003 to 9.4 cents for the three
months ended March 31, 2004 and from 11.5 cents for the nine months ended March
31, 2003 to 9.3 cents for the nine months ended March 31, 2004. The decrease in
net margin per gallon resulted primarily from the decrease in average service
charge per gallon and higher direct operating expenses related to the
mobilization of more equipment and personnel to deliver the increased gallons.
18
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses decreased $65,000 and
$336,000 in the three and nine months ended March 31, 2004 compared to the three
and nine months ended March 31, 2003, respectively. The decrease in these
expenses in the three-month period resulted primarily from a $67,000 decrease in
the provision for bad debts. The decrease in the nine month period was primarily
due to a reduction of the provision for bad debts of $233,000 which was incurred
in the prior year and related to the Company's billing system conversion; a
reduction of professional fees of $54,000; and reductions in payroll expense of
$91,000.
INTEREST EXPENSE, NET
Interest expense, net, increased $116,000 and $324,000 in the three and
nine-month periods ended March 31, 2004, respectively, compared to the three and
nine-month periods ended March 31, 2003. The increases were primarily due to the
debt discount and deferred debt costs amortization of $86,000 and $264,000
during the respective three and nine month periods and additional interest on
the outstanding long term equipment debt of $74,000 and $128,000 during the
respective three and nine month periods and were partially offset by decreases
in interest expense on the bank line of credit of $38,000 and $129,000 during
the respective three and nine month periods.
INCOME TAXES
The Company recorded no income tax expense in the three and nine-month
periods ended March 31, 2004 or March 31, 2003. The Company has $13.9 million in
net operating loss carryforwards which may be available to offset future taxable
income.
EBITDA
EBITDA increased $137,000 and $882,000 in the three and nine months ended
March 31, 2004 compared to the three months ended March 31, 2003, respectively.
The increase in EBITDA for the three-month period was primarily due to the
increase in gross profit of $87,000 and the decrease in selling, general, and
administrative expenses of $65,000. The increase in EBITDA for the nine-month
period was primarily due to the gain on extinguishment of debt of $757,000
relating to the August 2003 refinancing, higher volumes delivered, and decreases
in selling, general and administrative expenses of $336,000, which was offset by
the decrease in gross profit of $154,000.
Components of EBITDA for the three and nine months ended March 31, 2004
and 2003 are as follows:
Three-months Ended Nine-months Ended
----------------------- --------------------------
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
---------- ---------- ----------- ------------
Net loss $ (465,000) $ (501,000) $ (641,000) $ (1,256,000)
Add back:
Interest expense 245,000 215,000 690,000 630,000
Non-cash interest expense 100,000 14,000 299,000 35,000
Depreciation and
amortization expense:
Cost of sales 283,000 297,000 853,000 933,000
Selling, general and
administrative 48,000 49,000 145,000 122,000
---------- ---------- ----------- ------------
EBITDA $ 211,000 $ 74,000 $ 1,346,000 $ 464,000
========== ========== =========== ============
19
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. In the absence of dramatic price changes that affect customers' actual
demand for fuel or materially affect the fuel usage costs of the Company's own
fuel delivery trucks, the Company's gross profit on sales is not directly
affected by fuel price fluctuations because the Company generally passes all
fuel price changes to its customers and charges for its own services on a flat
per gallon basis. On the other hand, the Company believes that recent increases
in fuel prices may be contributing to customer resistance to higher service
fees.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period reported on in this report, the Company has
undertaken an evaluation under the supervision and with the participation of the
Company's management, including our Chief Executive Office and Chief Financial
Officer, of the effectiveness of the design and operation of disclosure controls
and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective, in
all material respects, with respect to the recording, processing, summarizing
and reporting, within the time periods specified in the SEC's rules and forms,
of information required to be disclosed in the reports that are filed or
submitted under the Exchange Act.
There have been no significant changes in the Company's internal controls
during the quarter ended March 31, 2004, or in other factors that could
significantly affect internal controls subsequent to the date of the evaluation
described above.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
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
31.1 Certificate of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002)
32.1 Certificate of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002
(B) REPORTS ON FORM 8-K
1) The Company filed a report on Form 8-K under Item 12, Results of
Operations and Financial Position, dated February 17, 2004
announcing the issuance of a press release on February 17, 2004,
reporting operating results for the second quarter ended
December 31, 2003.
21
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.
May 14, 2004 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
22
EXHIBIT 31.1
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
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 report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
controls over financial reporting that occurred during the registrant's
third fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 14, 2004
/S/ RICHARD E. GATHRIGHT
- -------------------------------------
Richard E. Gathright
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
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 report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
controls over financial reporting that occurred during the registrant's
third fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weakness in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 14, 2004
/S/ MICHAEL S. SHORE
- -------------------------------------------------
Michael S. Shore
Senior Vice President and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Streicher Mobile Fueling, Inc.
(the "Company") on Form 10-Q for the quarterly period ended March 31, 2004, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), each of the undersigned hereby certifies, pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss. 906 of The Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
A signed original of this written statement required by Section 906 has
been provided to Streicher Mobile Fueling, Inc. and will be retained by
Streicher Mobile Fueling, Inc. and furnished to the Securities and Exchange
commission or its staff upon request.
/S/ RICHARD E. GATHRIGHT
- -------------------------------------------------
Richard E. Gathright
President and Chief Executive Officer
May 14, 2004
/S/ MICHAEL S. SHORE
- -------------------------------------------------
Michael S. Shore
Senior Vice President and Chief Financial Officer
May 14, 2004