UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: June 30, 2004
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number: 0-21825
STREICHER MOBILE FUELING, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0707824
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 West Cypress Creek Road, Suite 580, Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 308-4200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Redeemable Common Stock Purchase Warrants
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates was
$6,198,991. The aggregate market value was computed by reference to the last
sale price of the registrant's Common Stock on the NASDAQ Stock Market on
September 23, 2004.
As of September 23, 2004 there were 7,367,960 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain Portions of Registrant's Proxy Statement relating to the 2004 Annual
Meeting of Shareholders are incorporated by reference into Part III.
TABLE OF CONTENTS
PAGE
PART I.
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Item 1. Description of Business............................................... 1
Item 2. Description of Property............................................... 9
Item 3. Legal Proceedings..................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders................... 9
PART II.
- --------
Item 5. Market for Common Equity and Related Shareholder Matters.............. 10
Item 6. Selected Financial Data............................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............ 25
Item 8. Financial Statements and Supplementary Data........................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 25
Item 9A. Controls and Procedures............................................... 26
PART III.
- ---------
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 27
Item 11. Executive Compensation................................................ 27
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 27
Item 13. Certain Relationships and Related Transactions........................ 27
Item 14. Principal Accounting Fees and Services................................ 27
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 28
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Streicher Mobile Fueling, Inc., a Florida corporation (the "Company")
formed in 1996, provides mobile fueling and fuel management out-sourced services
to businesses that operate fleets of vehicles and equipment of various sizes,
including governmental agencies, utilities, trucking companies, bus lines,
hauling and delivery services, courier services, construction companies and
others. The Company's specialized truck fleet delivers fuel to customers'
locations on a regularly scheduled or as needed basis, refueling vehicles and
equipment and/or re- supplying fixed-site storage facilities. The Company's
patented proprietary electronic fuel tracking control system is used to measure,
record and track fuel dispensed to each vehicle and tank fueled at a customer
location, allowing verification of the amount and type of fuel delivered and
providing customers with customized fleet fuel data for management analysis and
tax reporting.
The Company's mobile fueling services provide numerous advantages to its
customers, including lower labor and administrative costs associated with
fueling vehicles, centralized control over fuel inventories and usage, tax
reporting benefits, elimination of costs and the risk of environmental
liabilities associated with on-site fuel storage and dispensing facilities,
lower risk of employee theft of fuel, emergency fuel availability, and the
elimination of security risks associated with off-site fueling by employees.
The Company presently operates over 100 custom specialized mobile fueling
trucks from 16 operating locations in California, District of Columbia, Florida,
Georgia, Maryland, North Carolina, Pennsylvania, Tennessee, Texas and Virginia
and continues to increase market penetration in its existing service areas and
to develop its operations in new markets. During the 2004 fiscal year, the
Company entered new markets in the District of Columbia, Maryland, North
Carolina and Virginia, and in August 2004, the Company entered the Pennsylvania
market. The Company intends to continue to enter other new markets where it
believes that mobile fueling or fuel management business can be obtained at
profitable margins. The Company is also actively seeking acquisitions to achieve
additional growth.
THE MOBILE FUELING INDUSTRY
Traditionally, businesses and other entities that operate fleets of
vehicles and equipment have met their fueling requirements by either maintaining
their own supply of fuel in on-site storage tanks or fueling vehicles at retail
stations and other third party facilities.
On-site storage tanks and fueling facilities can be expensive to construct
and maintain, and expose the property owner and operator to potential liability
associated with fuel leaks or spills. In addition, increasingly stringent
federal and state environmental regulation of underground storage tanks may
require businesses that maintain their own fuel supplies to spend significant
amounts to remove, retrofit and/or to maintain underground and aboveground
storage tanks to meet regulatory standards. The Company believes that many fleet
operators currently utilizing on-site storage tanks will choose to meet their
fueling requirements by other means, including mobile fueling, instead of
investing in upgrading and/or maintaining existing facilities.
The fueling of vehicles at retail stations and other third party
facilities by fleet operators can result in a higher cost of operations due to
inefficient use of employee time, the creation of significant unnecessary
paperwork and employee fraud. While large users may be able to negotiate
favorable fuel pricing from retail stations or other fuel suppliers, the labor
cost incurred in connection with employee fueling of vehicles and the costs
associated with management and administration of fuel purchases, can exceed the
benefits associated with price discounts.
Specifically, mobile fueling and fuel management out-sourced services
offer numerous benefits over traditional fueling methods:
o REDUCES OPERATING COSTS AND INCREASES LABOR PRODUCTIVITY. Mobile
fueling enables fleet operators to reduce operating costs, lowering
payroll hours by eliminating the need for their employees to fuel
vehicles either on-site or at local retail stations and other third
party facilities. Overnight fueling prepares fleet vehicles for
operation at the beginning of each workday, increasing labor
productivity by allowing employees to use their vehicles during time
that would otherwise be spent fueling and maximizing vehicle use as
fueling is conducted during non-operating hours. The running fuel
necessary to operate vehicles is reduced as fueling takes place at
customer locations. Mobile fueling also reduces the administrative
burden required to manage fuel programs and monitor vehicle
utilization.
o PROVIDES CENTRALIZED INVENTORY CONTROL AND MANAGEMENT. The Company's
fuel management system provides fleet operators with a central
management data source. Web-based comprehensive reports detail, among
other things, the location, description, fuel type and daily and
weekly fuel consumption of each vehicle or piece of equipment fueled
by the Company. This eliminates customers' need to invest working
capital to carry fuel supplies, allow customers to centralize their
fuel inventory controls, track and analyze vehicle movement and fuel
consumption for management and fuel tax reporting purposes.
o PROVIDES TAX REPORTING BENEFITS. The ability of the Company's fuel
management system to track fuel consumption to specific vehicles and
fuel tanks provides tax benefits to customers who consume fuel in uses
that are tax-exempt, such as for off-road vehicles, government-owned
vehicles and fuel used to operate refrigerator units on vehicles. For
such uses, the customers receive reports which provide them with the
information required to substantiate such tax exemptions.
o ELIMINATES EXPENSES AND LIABILITIES OF ON-SITE STORAGE. Fleet
operators who previously satisfied their fuel requirements using
on-site storage tanks can eliminate the capital and costs relating to
installing, equipping and maintaining fuel storage and dispensing
facilities, including the cost and price volatility associated with
fuel inventories, complying with escalating environmental government
regulations, and carrying increasingly expensive insurance. By
removing on-site storage tanks and relying on mobile fueling,
customers avoid potential liabilities to employees and equipment from
fuel storage and handling. Mobile fueling eliminates customers'
expensive and inefficient use of business space and the diminution of
property values associated with environmental concerns.
o PREVENTS FUEL THEFT. Fleet operators that rely on employees to fuel
vehicles, whether at on-site facilities or at retail stations, often
experience shrinkage of fuel inventories or excess fuel purchases due
to employee fraud. The Company's fuel management system eliminates the
risk of employee theft by dispensing fuel only to authorized vehicles.
Utilizing an independent contractor such as the Company for fueling
services rather than allowing employees to purchase fuel at local
retail stations also eliminates employee fraud due to credit card
abuse.
o PROVIDES EMERGENCY FUEL SUPPLIES AND SECURITY. Emergency
preparedness, including fuel availability, is critical to the
operation of utilities, delivery services and other fleet operators.
The Company provides access to emergency fuel supplies at times and
locations chosen by its customers, allowing customers to react more
quickly and effectively to emergency situations, such as severe
weather conditions and related disasters. Fueling by fleet operators
at their own on-site storage facilities, and/or at retail and other
third party locations may be limited due to power interruption, supply
outages or access and other natural limitations. In addition, security
concerns of fleet operators to terrorism, hijacking and sabotage is
increasing. The mobile fueling of vehicles at the customers'
facilities eliminates security risks to the fleet operators' employees
and equipment associated with fueling at retail service stations and
other third party facilities.
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MARKETING AND CUSTOMERS
The Company markets its mobile fueling services to customers operating all
size fleets of vehicles and equipment in connection with their business,
including governmental agencies, utilities, trucking companies, bus lines,
hauling and delivery services, courier services, construction companies and
others. While large fleet operators offer immediate market penetration on a
regional basis, small fleet operators are equally important accounts because
they provide geographic density which optimizes fuel delivery efficiency and
minimizes cost. Once engaged to provide mobile fueling services, the Company is
usually the exclusive service provider for the fueling of a customer's entire
fleet or of a particular location of vehicles and equipment in a market.
The Company focuses its marketing efforts on fleet operators within
established service areas. Fleet size and type, fuel requirements, fueling
logistics and credit worthiness are factors in identifying potential new
customers for the Company's services. Direct marketing is the primary method of
developing new business. Referrals from existing customers and Company personnel
are also important sources of potential business. In addition, the Company is
actively developing new service markets. A minimum level of business commitments
is required prior to the Company's entry into any new market. The ability to
provide service to an existing customer in a new market and the identification
of local new customers meeting the Company's criteria are strong considerations
in a decision to enter any market.
The Company currently distributes diesel, gasoline and alternative fuels
to approximately 800 customers. Revenue (excluding fuel taxes) from one large
customer, the United States Postal Service, totaled $9.5 million (14% of total
revenue) and $8.5 million (16% of total revenue) in the fiscal years ended June
30, 2004 and 2003, respectively. However, revenue from this customer was
generated from a total of six and nine separate and non-interdependent written
contracts of varying lengths of service and renewal options for the years ended
June 30, 2004 and 2003, respectively. Although the Company has formal, length of
service written contracts with certain of its larger customers, such agreements
are not customary in the mobile fueling business and are not entered into by the
Company with the majority of its customers. Most of the Company's customers can
terminate the Company's mobile fueling services at any time and for any reason,
and the Company can similarly discontinue service to any customer. The Company
would discontinue service to a customer if changes in the service conditions or
other factors cause the Company not to meet its minimum level of margins and
rates, and the Company is unable to re-negotiate its arrangement with the
customer.
The Company competes with other distributors of fuel, including several
regional distributors and numerous small independent operators who provide
mobile fueling services. The Company also competes with retail marketing where
fleet operators have the option of fueling their own equipment at retail
stations and other third-party service locations. The Company's ability to
compete is dependent on numerous factors, including price, delivery
dependability, credit terms, service locations, as well as the level of
reporting and invoicing services provided.
TRUCK FLEET AND OPERATIONS
The Company currently provides its mobile fueling and fuel management
services from 26 locations in California, District of Columbia, Florida,
Georgia, Maryland, North Carolina, Pennsylvania, Tennessee, Texas and Virginia.
The Company delivers fuel utilizing its own fleet of over 100 custom mobile
fueling trucks with multi-compartmented tanks whose fuel carrying capacities
range from 2,800 to 4,400 gallons. Generally, each truck services between five
and fifteen customer locations per night or day, on specified delivery routes,
depending on customer size and fueling logistics. The fuel supply to be
delivered is acquired daily at local third-party terminal storage facilities.
Each truck is operated by a driver who also handles the actual fueling of the
customers' vehicles ("fueler/operator").
FUEL TRACKING AND REPORTING SYSTEM
The Company utilizes a patented proprietary fuel tracking and reporting
management system in its mobile fueling operations. It owns all patents covering
the system, the rights to which are registered with the United States Patent and
Trademark Office. The Company believes its system to be the first and only one
specifically designed to meet the demands and rigors of mobile fueling, and the
only one certified for accuracy by The National Conference
3
on Weights and Measures. Data is derived from the Fuel Tracking Controller
("FTC") Computer which is installed on each truck and is linked to the Company's
fueler/operator by a hand-held radio controlled scanning and transmitting
device. The FTC Computer is programmed to control any variety of truck
configurations, including single or multiple products and any number of pumps
and hoses attached to the truck. The FTC fuel management system electronically
records date, time, customer vehicle identification number, product type and
volume of fuel delivered by the Company's trucks into each customer vehicle. For
security and tracking purposes, the FTC Computer will not permit fuel to be
dispensed from the Company's truck unless both the customer's fleet yard and the
individual vehicle or piece of equipment to be fueled are electronically
verified by the FTC Computer registration. All fueling transactions are recorded
on the truck's FTC Computer, downloaded at the Company's service locations and
transmitted to the Company's corporate headquarters where the data is
assimilated into detailed service reports and invoices for the customer. This
information can be delivered to the customer by a number of methods, including
the internet, and data may also be delivered to the customer at his vehicle
location at the time of fueling.
Because some service applications require both mobile fueling and the use
by the customer of his own on-site storage tanks, the Company has adapted the
FTC Computer to track the use by the customer of its own fixed-site tanks. Upon
installation of an FTC Computer, the Company services and manages fuel delivery
to a customer's on-site storage tank, providing reports detailing fuel dispensed
from the tank into each of the customer's vehicles, either alone or in
combination with the customer's mobile fueling use.
FUEL SUPPLY
Diesel fuel and gasoline are commodities which are refined and distributed
by numerous sources. The Company purchases the fuel delivered to its customers
from multiple suppliers at daily market prices and in some cases qualifies for
discounts. The Company monitors fuel prices and trends in each of its service
markets on a daily basis and seeks to purchase its supply at the lowest prices
and under the most favorable terms. Commodity price risk is mitigated since the
Company purchases and delivers fuel supplies daily and generally utilizes
cost-plus pricing when billing customers. The Company also handles the delivery
of customer and third-party supplied fuel.
EXECUTIVE OFFICERS
The executive officers of the Company as of June 30, 2004 are as follows:
Name Age Position and Office
- ----------------------------- ----- -----------------------------------------------
Richard E. Gathright......... 50 President, Chief Executive Officer and Director
Michael S. Shore............. 36 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
Gary G. Williams............. 48 Senior Vice President, Commercial Operations
Paul C. Vinger............... 34 Senior Vice President, Corporate Planning and
Fleet Operations
Timothy W. Koshollek......... 40 Vice President, Marketing and Sales
MR. GATHRIGHT has been Chief Executive Officer and President of the
Company since November 2000 and a Director since March 2001. He is responsible
for the management of all business affairs of the Company, reporting directly to
the Board of Directors. He was an advisor on operational and financial matters
to the senior management of several domestic and international energy companies
from January 2000 through October 2000. From September 1996 to December 1999, he
was President and Chief Operating Officer of TransMontaigne Inc., a Denver-based
publicly owned company providing logistical services to major energy companies
and large industrial customers; a Director from April 1995 to December 1999;
Executive Vice President from April 1995 to September 1996; and from December
1993 to April 1995 was President and Chief Operating Officer of a predecessor of
TransMontaigne.
4
From 1988 to 1993, he was President and Director of North American Operations
for Aberdeen Petroleum PLC, a London-based public company engaged in
international oil and gas operations, also serving on its Board of Directors.
Prior to joining Aberdeen, he held a number of positions in the energy industry
in the areas of procurement, operations and management of oil and gas assets.
MR. SHORE has been Senior Vice President, Chief Financial Officer,
Secretary and Treasurer since February 2002. Prior to joining the Company, he
was CEO and President of Shore Strategic and Financial Consulting, providing
financial, management and information systems technology services to corporate
clients in the United States and Latin America. From 1998 to 2000, he served as
Director of Finance/Controller for the North American Zone Operations of the
Paris-based Club Mediterranee. From 1996 to 1998, he was Vice President of
Finance for Interfoods of America, Inc., the largest Popeyes Fried Chicken &
Biscuits franchisee. From 1994 to 1996, he was the Manager of Accounting for
Arby's, Inc. Mr. Shore began his professional career in 1990 with Arthur
Andersen, LLP where he became a Senior Auditor.
MR. WILLIAMS has been Senior Vice President, Commercial Operations for the
Company since February 2001, responsible for Marketing and Sales and Product
Procurement. From 1995 to February 2001, he was Vice President of Marketing for
the supply, distribution and marketing subsidiary of TransMontaigne Inc.,
managing wholesale marketing functions in the Mid-Continent, Southeast and
Mid-Atlantic and serving on that company's senior risk management committee.
From 1987 to 1995, he was Regional Manager for Kerr-McGee Refining Corporation,
responsible for unbranded petroleum product sales in its southeastern United
States 11 state marketing region. Prior to 1987, Mr. Williams held various
positions in the product procurement, marketing and sales, and trucking sectors
of the petroleum industry.
MR. VINGER has been Vice President, Corporate Planning and Operations for
the Company since August 2001, managing fleet and field operations and
responsible for corporate planning and analysis; and from December 2000 to
August 2001, he was Director of Corporate Planning. He was Senior Analyst of
Corporate Planning and Finance for TransMontaigne Inc., from September 1998 to
December 2000, responsible for operations and acquisitions analyses and the
management of supply scheduling and product allocations. From 1997 to 1998, he
was a Manager of Terminal Operations for TransMontaigne Inc. responsible for
petroleum product and chemical terminals. From 1994 to 1997, he was a Research
Associate for E. I. Dupont. From 1991 to 2001, Mr. Vinger served to the rank of
Captain in the United States Military.
MR. KOSHOLLEK has been Vice President, Marketing for the Company since
March 1998. From October 1996 to March 1998, he was Vice President of Marketing
and Operations for the Company and from 1994 to October 1996 served in the same
position for Streicher Enterprises, Inc., the Company's predecessor. From 1992
to 1993, he was an owner and the General Manager of Premier Wholesale Seafood
Exchange, Inc. From 1989 to 1992, he was the Operations Manager of Streicher
Enterprises, Inc. responsible for its Southeast division fuel delivery
operations. From 1986 to 1988, Mr. Koshollek was Sales and Maintenance Manager
of Kay Yacht Management, Inc., responsible for new customer sales, set-up and
maintenance programs.
EMPLOYEES
At June 30, 2004, the Company had 165 full-time employees.
GOVERNMENTAL REGULATION
The Company's operations are affected by numerous federal, state and local
laws, regulations and ordinances, including those relating to protection of the
environment and worker safety. Various federal, state and local agencies have
broad powers under these laws, regulations and ordinances. In particular, the
operation of the Company's mobile fueling fleet and its transportation of diesel
fuel and gasoline are subject to extensive regulation by the U.S. Department of
Transportation ("DOT") under the Federal Motor Carrier Safety Act ("FMCSA") and
the Hazardous Materials Transportation Act ("HMTA"). The Company is subject to
regulatory and legislative changes that can affect the economics of the industry
by requiring changes in operating practices or influencing the demand for, and
the cost of providing, its services. On January 4, 2004, new federal safety
rules took effect reducing the number of hours truck drivers can be on duty,
including any time spent fueling their trucks or equipment. The
5
Company believes that the changes mandated under the new rules will increase the
attractiveness of using mobile fueling services. Fleet operators may decide to
use their drivers' time more effectively by delivering their product or services
rather than spending time fueling vehicles. In addition, the Company depends on
the supply of diesel fuel and gasoline from the oil and gas industry and,
therefore, is affected by changing taxes, price controls and other laws and
regulations generally relating to the oil and gas industry. The Company cannot
determine the extent to which its future operations and earnings may be affected
by new legislation, new regulations or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct of or conditions caused by others, or for acts of the Company that
were in compliance with all applicable laws at the time such acts were
performed. Sanctions for noncompliance may include revocation of permits,
corrective action orders, administrative or civil penalties and criminal
prosecution. Certain environmental laws provide for joint and several liability
for remediation of spills and releases of hazardous substances. In addition, the
Company may be subject to claims alleging personal injury or property damage as
a result of alleged exposure to hazardous substances, as well as damage to
natural resources.
Although the Company believes that it is in substantial compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred in the future. There could be an adverse
affect upon the Company's operations if there were any substantial violations of
these rules and regulations. Moreover, it is possible that other developments,
such as stricter environmental laws, regulations and enforcement policies
thereunder, could result in additional, presently unquantifiable, costs or
liabilities to the Company.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The following important factors have affected, and may in the future
continue to affect, the Company's business, results of operations and financial
condition, and could cause the Company's operating results to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company elsewhere in this report.
NO ASSURANCES OF FUTURE PROFITABILITY; LOSSES FROM OPERATIONS; NEED FOR
CAPITAL. The Company incurred net losses for the fiscal years ended June 30,
2004, 2003 and 2002. In order for the Company to earn profits in the future, it
needs to increase volumes at profitable margins, control costs and generate
sufficient cash flow to support its working capital and debt service
requirements. There is no assurance that management will be able to accomplish
its business plan, or that it will be able to continue to raise capital at terms
which are acceptable to the Company, to support working capital requirements or
debt service shortfalls during any business downturns. At June 30, 2004, the
Company's working capital was $2.5 million compared to a working capital deficit
of $2.4 million on June 30, 2003. The $4.9 million increase principally relates
to the August 2003 debt refinancing that yielded net proceeds of $2.8 million
and the reduction of the current portion of long-term debt of $2.0 million due
to the two-year principal moratorium. While in the fourth quarter ending
June 30, 2004, net margin per gallon improved to 11.9 cents per gallon versus
2004 annual average net margin per gallon of 9.9 cents, there is no assurance
that this trend will continue in the future. In the event of adverse market
conditions in the mobile fueling industry, negative customer reactions to new or
existing marketing strategies, or negative economic conditions generally,
margins may fail to improve further or even diminish.
TRADING MARKET FOR THE COMPANY'S COMMON STOCK. The Company's common stock
is thinly traded which could make it difficult for shareholders to sell shares
at a predictable price or at all. In addition, there may be volatility in the
market price of the Company's common stock due to factors beyond the Company's
control. The Company's quarterly operating results, changes in general
conditions in the economy, the financial markets or other developments affecting
the Company could cause the market price of the Company's common stock to
fluctuate, making it difficult for shareholders to sell shares at predictable
prices or times.
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GROWTH DEPENDENT UPON EXPANSION; RISKS ASSOCIATED WITH EXPANSION INTO NEW
MARKETS. A significant component of the Company's future growth strategy will be
to expand the Company's business into new service locations. The Company intends
to expand into additional major and secondary metropolitan areas. Expansion will
largely be dependent on the Company's ability to demonstrate the benefits of
mobile fueling to potential new customers; successfully establish and operate
new locations; hire, train and retain qualified management, operating, marketing
and sales personnel; finance capital expenditures and working capital
requirements; secure reliable sources of product supply on a timely basis and on
commercially acceptable credit terms; and successfully manage growth by
effectively supervising operations, controlling costs and maintaining
appropriate quality controls. The Company's growth will depend upon its ability
to achieve greater penetration in existing markets and to successfully enter new
markets. The Company may also seek to expand through the acquisition of existing
companies or their operations and customer bases. During the fiscal year ended
June 30, 2004, the Company commenced operations in new markets in the District
of Columbia, Maryland, North Carolina and Virginia. In August 2004, the Company
entered the Pennsylvania market. There can be no assurance that the Company will
be able to successfully continue to expand its operations beyond these recently
entered new markets.
ACQUISITION AVAILABILITY; INTEGRATING ACQUISITIONS. The Company's future
growth strategy may also involve the acquisition of other mobile fueling
companies, wholesale fuel or petroleum lubricant distributors or related
entities and businesses in existing and new markets. There can be no assurance
that the Company will be able to locate or make suitable acquisitions on
acceptable terms or that any future acquisitions would be effectively and
profitably integrated into the Company's operations. Acquisitions involve risks
that could adversely affect the Company's operating results, including
management commitment; integration of the operations and personnel of the
acquired business; future write downs of acquired intangible assets; and
possible loss of key personnel of the acquired business.
DEPENDENCE ON KEY PERSONNEL. The future success of the Company will be
largely dependent on the continued services and efforts of Richard E. Gathright,
the Company's President and Chief Executive Officer, and other key executive
personnel. The loss of the services of Mr. Gathright or other key executive
personnel could have a material adverse effect on the Company's business and
prospects. The Company's success and plans for future growth will also depend on
its ability to attract and retain additional qualified management, operating,
marketing, sales and financial personnel. There can be no assurance that the
Company will be able to hire or retain such personnel on terms satisfactory to
the Company. Mr. Gathright and the Company have recently extended his existing
employment agreement so that it now expires October 31, 2005. The Company has
also entered into written employment agreements with certain other executive
personnel.
FUEL PRICING; EFFECT ON PROFITABILITY. Diesel fuel and gasoline are
commodities which are refined and distributed by numerous sources. The Company
purchases the fuel delivered to its customers from multiple suppliers at daily
market prices and in some cases qualifies for certain discounts. The Company
monitors fuel prices and trends in each of its service markets on a daily basis
and seeks to purchase its supply at the lowest prices and under the most
favorable terms. Commodity price risk is mitigated since the Company purchases
and delivers its fuel supply daily and generally utilizes cost-plus pricing when
billing its customers. If the Company cannot continue to utilize cost-plus
pricing when billing its customers, margins would likely decrease and a loss
could be incurred. The Company has not engaged in derivatives or futures trading
to hedge fuel price movements.
RISKS ASSOCIATED WITH CUSTOMER CONCENTRATION; ABSENCE OF WRITTEN
AGREEMENTS. Although the Company provides services to an extensive number of
customers, a significant portion of its revenue is generated from a few of its
larger customers. While the Company does have formal, length of service written
contracts with some of these larger customers, such agreements are not customary
in the mobile fueling business and have not been entered into by the Company
with the majority of its customers. As a result, most of the Company's customers
can terminate the Company's mobile fueling services at any time and for any
reason, and the Company can similarly discontinue service to any customer. The
Company may discontinue service to a customer if changes in the service
conditions or other factors cause the Company not to meet its minimum level of
margins and rates, and the pricing or delivery arrangements cannot be
re-negotiated. As a result of this customer concentration and absence of written
agreements, the Company's business, results of operations and financial
condition could be materially adversely affected if one or more of its large
customers were lost or if the Company were to experience a high rate of service
terminations.
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MANAGEMENT OF GROWTH. The Company's future growth strategy is dependent on
effective operational, financial and other internal systems, and the ability to
attract, train, motivate, manage and retain its employees. If the Company is
unable to manage growth effectively, results of operations will be adversely
affected.
COMPETITION. The Company competes with other mobile fueling service
providers, including several regional, and numerous small, independent operators
who provide these services. The Company also competes with retail marketing
where fleet operators have the option of fueling their own equipment at retail
stations and other third-party service locations such as cardlock facilities.
The Company's ability to compete is dependent on numerous factors, including
price, delivery dependability, credit terms, service locations, and reporting
and invoicing services. There can be no assurance that the Company will be able
to continue to compete successfully as a result of these or other factors.
OPERATING RISKS MAY NOT BE COVERED BY INSURANCE. The Company's operations
are subject to all of the operating hazards and risks normally incidental to
handling, storing and transporting diesel fuel and gasoline, which are
classified as hazardous materials. The Company maintains insurance policies in
such amounts and with such coverages and deductibles as the Company believes are
reasonable and prudent. However, there can be no assurance that such insurance
will be adequate to protect the Company from liabilities and expenses that may
arise from claims for personal and property damage arising in the ordinary
course of business or that such levels of insurance will be maintained by the
Company or will be available at economical prices.
GOVERNMENTAL REGULATION. See the discussion of governmental regulations
and their impact on the Company in the "Governmental Regulation" section above.
CHANGES IN ENVIRONMENTAL REQUIREMENTS. The Company expects to derive
future business by converting fleet operators currently utilizing underground
fuel storage tanks for their fueling needs to mobile fueling. The owners of
underground storage tanks have been required to remove or retrofit those tanks
to comply with technical regulatory requirements pertaining to their
construction and operation. If other more economical means of compliance are
developed or adopted by owners of underground storage tanks, the opportunity for
the Company to market its services to such owners may be adversely affected.
8
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth certain information concerning the property
and facilities that are owned or leased by the Company for use in its
operations:
Lease Expiration
Description Location With All Options Notes
----------- -------- ---------------- -----
Office Gardena, California 7/15/05 (1)
Truck yard/parking Gardena, California 3/31/05 (1)
Corporate offices Ft. Lauderdale, Florida 2/28/05 (1)
Truck yard and office Ft. Myers, Florida 90 days to 90 days (1)
Truck yard and office Port Everglades, Florida 2/28/05 (1)
Truck yard and office Jacksonville, Florida 8/31/15 (1)
Truck yard and office Baltimore, Maryland Month to Month (1)
Truck yard and office Melbourne, Florida Month to Month (1)
Truck yard and office Orlando, Florida 6/1/05 (1)
Office Tampa, Florida Month to month (1)
Truck yard Tampa, Florida N/A (2)
Truck yard and office Doraville, Georgia 11/1/05 (1)
Truck yard and office Charlotte, North Carolina Month to month (1)
Truck yard/parking Greensboro, North Carolina Month to Month (1)
Truck yard and office Kingsport, Tennessee Month to Month (1)
Truck yard/parking and office Chattanooga, Tennessee Month to Month (1)
Truck yard and office Houston, Texas 3/31/05 (1)
Truck yard and office Ft. Worth, Texas 12/31/04 (1)
Truck parking Harrisburg, Pennsylvania Month to Month (1)
- ---------------
(1) Leased.
(2) Property owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
On December 15, 2003, the National Labor Relations Board filed an
application for enforcement of its October 31, 2003 order requiring the Company
to bargain with the International Brotherhood of Teamsters, Local 385, AFL-CIO
as the exclusive bargaining representative of the 14 full-time and regular
part-time truck drivers employed by the Company at its Orlando, Florida
facility, and alleging unfair labor practices in connection with that refusal to
bargain [NLRB v. Streicher Mobile Fueling, Inc., No. 03-16340-AA, U.S. Court of
Appeals (11th Cir.)] The Company has answered the application, denying that the
union was properly certified and denying any unfair labor practices. The Company
is vigorously defending the matter on various grounds, including the union's use
of a misleading sample ballot during the certification process. Briefing has
been completed and the Court has scheduled oral argument for December 2004. The
Company believes that the outcome of this issue will not be material to the
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the three months ended June 30,
2004.
9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, par value $.01 ("common stock") and Redeemable
Common Stock Purchase Warrants ("warrants") have traded in the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
Small-Cap Market under the symbols "FUEL" and "FUELW", respectively, since
December 11, 1996, the date of the Company's initial public offering. The
following table sets forth, for the periods indicated, the high and low bid
prices for the common stock and warrants, as reported by NASDAQ.
Common Stock Warrants
---------------------- ----------------------
High Low High Low
Year Ended June 30, 2004
1st quarter $ 1.36 $ 0.80 $ 0.19 $ 0.08
2nd quarter $ 1.55 $ 1.01 $ 0.29 $ 0.03
3rd quarter $ 3.30 $ 1.03 $ 0.35 $ 0.15
4th quarter $ 2.40 $ 1.20 $ 0.26 $ 0.01
Year Ended June 30, 2003
1st quarter $ 1.33 $ 0.80 $ 0.08 $ 0.06
2nd quarter $ 1.40 $ 0.72 $ 0.13 $ 0.01
3rd quarter $ 1.09 $ 0.73 $ 0.11 $ 0.02
4th quarter $ 1.07 $ 0.62 $ 0.27 $ 0.04
Year Ended June 30, 2002
1st quarter $ 1.63 $ 1.10 $ 0.14 $ 0.06
2nd quarter $ 1.40 $ 0.96 $ 0.08 $ 0.03
3rd quarter $ 1.30 $ 0.98 $ 0.11 $ 0.06
4th quarter $ 1.37 $ 1.00 $ 0.11 $ 0.07
On June 30, 2004, the closing bid price of the common stock was $1.27 per
share and the closing bid price of the warrants was $0.17 per warrant. As of
June 30, 2004, there were approximately 45 holders of record of the Company's
common stock and approximately 537 beneficial owners of the Company's common
stock.
The Company has never declared or paid any dividends on its common stock.
The payment of dividends, if any, is within the discretion of the Board of
Directors and will depend upon the Company's earnings, its capital requirements
and financial condition and other relevant factors. The Board of Directors does
not intend to declare dividends in the foreseeable future, but instead intends
to retain any future earnings for use in the Company's business operations.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company and its consolidated
subsidiaries are qualified in their entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected financial table below is for each of the fiscal years
ended June 30, 2004, 2003 and 2002, the transition period ended June 30, 2001,
and the fiscal years ended January 31, 2001, and 2000. Except for the unaudited
financial and statistical information section, and the unaudited selected
financial data for the fiscal year ended June 30, 2001 which is presented for
12-month comparison information only, the selected financial data is derived
from the audited Consolidated Financial Statements of the Company for the fiscal
years ended June 30, 2004, 2003 and 2002, the transition period ended June 30,
2001, and the fiscal years ended January 31, 2001 and 2000.
10
(in thousands, except net margin per gallon and per share data)
- ---------------------------------------------------------------------------------------------------------------------
Five-month
Transition
Period
Ended
June 30, Fiscal Year
Fiscal Years Ended June 30, 2001 Ended January 31,
------------------------------------------- ------------- --------------------
2004 2003 2002 2001 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Selected Income Statement Data: (unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Total revenue 89,997 72,194 60,849 79,486 29,510 86,457 74,171
Gross profit 4,298 4,023 4,591 2,520 740 3,093 4,629
Operating profit (loss) 661 (693) 209 (1,273) (1,386) 241 1,559
Beneficial conversion of debt to
equity interest expense - - (241) - - - -
------------------------------------------------------------------------------
Net (loss) income (698) (1,581) (1,162) (2,774) (1,951) (1,335) 472
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Share Data:
- ---------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share (.10) (0.22) (0.20) (0.84) (0.47) (0.49) 0.17
Diluted net income (loss) per share (.10) (0.22) (0.20) (0.84) (0.47) (0.49) 0.16
Basic weighted average common shares
outstanding (`000) 7,261 7,221 5,698 3,315 4,194 2,717 2,710
Diluted weighted average common
shares outstanding (`000) 7,261 7,221 5,698 3,315 4,194 2,717 2,881
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Selected Balance Sheet Data:
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 2,708 211 815 6 6 447 353
Accounts receivable, net 8,280 6,113 6,382 8,669 8,669 9,638 9,588
Bank line of credit payable 4,919 4,410 4,680 6,905 6,905 7,286 7,679
Long term debt (including
current portion) 5,558 4,478 5,152 8,182 8,182 8,173 8,031
Shareholders' equity 5,348 4,111 5,676 3,332 3,332 5,218 4,289
Total Assets 20,018 16,011 18,560 22,194 22,194 24,645 23,931
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Financial and Statistical Information:
- ---------------------------------------------------------------------------------------------------------------------
EBITDA (1) 1,983 737 1,712 223 (748) 1,659 2,709
Working Capital (deficit) (4) 2,472 (2,430) (1,576) (3,093) (3,093) (1,891) (1,797)
Net Margin (2) 5,428 5,426 6,049 3,946 1,354 4,442 5,713
Net Margin per gallon (in dollars) (3) 0.099 0.115 0.122 0.073 0.062 0.077 0.096
Total Gallons (000's) 54,594 47,294 49,500 54,102 21,800 57,600 59,400
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Non-GAAP Measure Reconciliation
EBITDA Calculation:
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) (698) (1,581) (1,162) (2,774) (1,951) (1,335) 472
Add back:
Interest expense 1,361 915 1,175 1,571 590 1,645 1,152
Beneficial conversion of debt
to equity interest expense - - 241 - - - -
Depreciation and amortization
expense 1,320 1,403 1,458 1,426 613 1,349 1,085
---------- ------ ------- ------- ------- ------- --------
EBITDA 1,983 737 1,712 223 (748) 1,659 2,709
- ---------------------------------------------------------------------------------------------------------------------
(1) EBITDA = Earnings before interest, taxes, depreciation and amortization.
(2) Net Margin = Gross profit plus cost of sales depreciation
(3) Net margin per gallon = Net Margin / Total Gallons
(4) Working Capital (deficit)= current assets - current liabilities
(5) Operating profit, net income and EBITDA for fiscal year ended June 30, 2004,
includes a $757,000 gain on extinguishment of debt
11
UNAUDITED QUARTERLY SELECTED FINANCIAL DATA FOR FISCAL YEAR ENDED JUNE 30, 2004 AND 2003
(in thousands, except net margin per gallon and per share data)
- --------------------------------------------------------------------------------------------------------------------------------
June 30, 2004 June 30, 2003
YTD YTD
Selected Income Statement Data: Q1 Q2 Q3 Q4 2004 Q1 Q2 Q3 Q4 2003
- --------------------------------------------------------------------------------------------------------------------------------
Total revenue 19,417 21,136 22,906 26,539 89,997 17,079 17,286 19,469 18,360 72,194
Gross profit 822 1,074 976 1,426 4,298 1,393 744 889 997 4,023
Operating profit (loss) 487 (20) (120) 314 661 313 (632) (272) (102) (693)
Net income (loss) 206 (382) (465) (57) (698) 103 (858) (501) (325) (1,581)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
- --------------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share 0.03 (0.05) (0.06) (0.01) (0.10) 0.01 (0.12) (0.07) (0.04) (0.22)
Diluted net income (loss) per share 0.03 (0.05) (0.06) (0.01) (0.10) 0.01 (0.12) (0.07) (0.04) (0.22)
Basic weighted average common
shares outstanding (`000) 7,248 7,248 7,248 7,301 7,261 7,214 7,218 7,220 7,232 7,221
Diluted weighted average common
shares outstanding (`000) 7,505 7,248 7,248 7,301 7,261 7,223 7,218 7,220 7,232 7,221
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Selected Balance Sheets Data:
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 2,086 2,037 2,454 2,708 2,708 314 21 - 211 211
Accounts receivable, net 6,119 6,997 7,657 8,280 8,280 7,689 7,091 6,297 6,113 6,113
Bank line of credit payable 3,541 4,412 4,855 4,919 4,919 5,542 5,533 4,468 4,410 4,410
Long term debt (including
current portion) 5,344 5,424 5,481 5,558 5,558 4,647 4,412 4,354 4,478 4,478
Shareholders' equity 6,200 5,815 5,336 5,348 5,348 5,784 4,921 4,424 4,111 4,111
Total Assets 17,932 18,796 19,725 20,018 20,018 18,947 18,005 16,498 16,011 16,011
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Financial and Statistical Information:
- --------------------------------------------------------------------------------------------------------------------------------
EBITDA 824 313 211 635 1,983 677 (266) 77 249 737
Working Capital (Deficit) 2,155 2,157 2,053 2,472 2,472 (1,798) (2,188) (2,243) (2,430) (2,430)
Net Margin 1,107 1,359 1,259 1,703 5,428 1,737 1,108 1,235 1,346 5,426
Net Margin per gallon (in dollars) 0.083 0.099 0.095 0.119 0.099 0.146 0.097 0.107 0.108 0.115
Total Gallons (000's) 13,273 13,746 13,314 14,261 54,594 11,892 11,476 11,496 12,430 47,294
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Non-GAAP Measure Reconciliation
EBITDA Calculation:
- --------------------------------------------------------------------------------------------------------------------------------
Net income/(loss) 206 (382) (465) (57) (698) 103 (858) (501) (325) (1,581)
Add back:
Interest expense 284 362 345 370 1,361 232 226 232 225 915
Depreciation and amortization:
Cost of sales 285 285 283 277 1,130 310 323 297 302 1,232
Sales, general, and
administrative 49 48 48 45 190 32 43 49 47 171
--- --- --- --- ----- --- --- -- --- -----
EBITDA 824 313 211 635 1,983 677 (266) 77 249 737
- --------------------------------------------------------------------------------------------------------------------------------
(1) EBITDA = Earnings before interest, taxes, depreciation and amortization.
(2) Net Margin = Gross profit plus cost of sales depreciation
(3) Net margin per gallon = Net Margin / Total Gallons
(4) Working Capital (deficit)= current assets - current liabilities
(5) June 30, 2004, first quarter operating profit, net income and EBITDA includes a $757,000 gain on extinguishment of debt
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements and related notes included elsewhere
in this Form 10-K.
FORWARD LOOKING STATEMENTS
This report, including but not limited to this Item 7 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 cautions readers of this report that certain important factors may have
affected, and could in the future affect, its actual results and could cause
actual results to differ significantly from those expressed in any
forward-looking statement. The following important factors, in addition to
factors discussed elsewhere in this report and in Item 1 under the caption
"Certain Risk Factors Affecting Future Operating Results," 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:
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
13
OVERVIEW
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
competitive rate for these services plus the cost of fuel and procurement based
on market prices. Revenue levels vary depending on the upward or downward
movement of fuel prices in each market. Although dramatic fuel price changes can
affect customers' demand for fuel or impact the fuel usage costs of the
Company's delivery trucks, the Company's gross profit on sales is not directly
affected by fuel price fluctuations since the Company passes on fuel price
changes to its customers and charges for its services on a per gallon basis
based on a targeted rate per hour. While there may be a perceived correlation
between customer resistance to payment of higher service charges, or margin, to
the Company when fuel prices rise sharply, as they have in recent years, the
Company is essentially marketing labor savings, fuel theft reduction and other
services which reduce or limit the overall cost of fuel supply, and the Company
believes that higher fuel prices do not have a long-term effect on its margins.
During the fiscal year ended June 30, 2004, market prices for fuel were
significantly higher than the fiscal years ended June 30, 2003 and 2002.
Delivered volumes in the current twelve-month period increased primarily due to
the addition of new accounts and market expansion.
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. 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 of sufficient acceptable margin mobile fuel service business in new
and existing markets; the retention of qualified personnel to provide the level
of service required by customers; the generation of acceptable cash flow from
operating activities; the sufficiency of 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.
(All amounts in thousands of dollars, except share and volume data)
3 Months Ended (Unaudited) 12 Months Ended
-------------------------- ---------------
Increase Increase Increase Increase
-------- -------- -------- --------
6/30/2004 6/30/2003 (Decrease) (Decrease) 6/30/2004 6/30/2003 (Decrease) (Decrease)
--------- --------- ---------- ---------- --------- --------- ---------- ----------
Total revenues 26,539 18,360 8,179 45 % 89,997 72,194 17,803 25 %
Gross profit 1,426 997 429 43 % 4,298 4,023 275 7 %
Operating profit (loss) 1 314 (102) 416 408 % 661 (693) 1,354 195 %
Net loss 1 (57) (325) 268 82 % (698) (1,581) 883 56 %
EBITDA 1, 2 635 249 386 155 % 1,983 737 1,246 169 %
Basic and diluted net
loss per share (0.01) (0.04) 0.03 75 % (0.10) (0.22) 0.12 59 %
Weighted avg shares
outstanding 7,300,548 7,231,888 68,660 1 % 7,261,372 7,221,070 40,302 1 %
Depreciation and
amortization 3 322 349 (27) (8)% 1,320 1,403 (83) (6)%
Total assets 20,018 16,011 4,007 25 % 20,018 16,011 4,007 25 %
Shareholders' equity 5,348 4,111 1,237 30 % 5,348 4,111 1,237 30 %
Volume (gallons in
thousands) 14,261 12,430 1,831 15 % 54,594 47,294 7,300 15 %
Avg net margin per
gallon (in cents) 4 11.9 10.8 1.1 10 % 9.9 11.5 (1.6) (14)%
- -----------------------------------------------------------------------------------------------------------------------------------
1 Includes $757,000 gain on extinguishment of debt during the first quarter ended September 30, 2003
2 EBITDA is defined as earnings before interest, taxes, depreciation and amortization and is a non-GAAP measure
3 Depreciation and amortization included in cost of sales was $277,000, $299,000, $1,130,000 and $1,232,000 for the respective
periods noted
4 Net margin per gallon equals Gross profit plus cost of sales depreciation and amortization divided by number of gallons
14
5 Non-GAAP Measure Reconciliation EBITDA Reconciliation Table:
3 Months Ended 12 Months Ended
-------------- ---------------
Increase Increase Increase Increase
-------- -------- -------- --------
6/30/2004 6/30/2003 (Decrease) (Decrease) 6/30/2004 6/30/2003 (Decrease) (Decrease)
--------- --------- ---------- ---------- --------- -------------------- ----------
Net income (loss) (57) (325) 268 82% (698) (1,581) 883 56 %
Add back:
Interest expense 370 225 145 64% 1,361 915 446 49 %
Depreciation and amortization:
Cost of sales 277 302 (25) (8)% 1,130 1,232 (102) (8) %
Sales, general, and administrative 45 47 (2) (4)% 190 171 19 11 %
--- --- --- ----- --- -----
EBITDA 635 249 386 155% 1,983 737 1,246 169 %
The $17.8 million, or 24.7% increase in revenue from the year ended
June 30, 2004, from the year ended June 30, 2003 was principally due to a 15.4%
increase in net new business and a 12-cent per gallon higher average product
fuel price as well as an increase in gallons of fuel sold in fiscal 2004 to 54.6
million gallons from 47.3 million gallons in fiscal 2003. The increase in gross
profit was principally due to the $173,000 net impact of the 15% increase in net
new business offet by a lower net margin per gallon of 1.6 cents per gallon and
a $102,000 reduction in cost of sales depreciation. The $698,000 net loss for
fiscal 2004 was $883,000 lower than the $1,581,000 loss for fiscal 2003
principally as a result of the gain of $757,000 for extinguishment of debt in
conection with the Company's August 2003 refinancing.
During the fiscal year ending June 30, 2004, the Company added
approximately 7.3 million gallons of net new business, representing a 15%
increase over the fiscal year ending June 30, 2003. The net margin generated
from the increase in annual volume principally offset the overall 1.6 cents per
gallon decrease in the annual net margin per gallon of 9.9 cents from 11.5 cents
in the prior year. This lower annual net margin per gallon related to the higher
direct operating costs, including personnel training and equipment relocation
expense, attributable to the Company's expansion in existing markets and into
new markets and the lower average annual service charge per gallon originally
caused by the aggressive price-cutting of a now defunct competitor.
In the fourth quarter ending June 30, 2004, net margin per gallon improved
to 11.9 cents per gallon representing a 20% increase over the fiscal year ending
2004 annual average net margin per gallon of 9.9 cents. This increase resulted
from the Company's ability to lower its operating costs and the continued market
place acceptance of overall higher margins for the service provided by the
Company. Although this recent trend is positive, it is still lower than the net
margin per gallon level of 14.6 cents achieved in the fourth quarter of the year
ended June 30, 2002; and there is no assurance that the net margin improvement
trend will continue in the future and margins may even diminish.
Earnings before interest, taxes, depreciation and amortization, "EBITDA,"
improved $1,246,000 and $386,000 respectively, in both the comparable fiscal
years and fourth quarters ending June 30, 2004 and 2003. The fiscal year
increase related principally to the $757,000 gain on extinguishment of debt and
higher operating profit and the fourth quarter increases attributable to
$357,000 related to the 1.1-cent increase in the net margin per gallon. EBITDA
is determined before providing for debt service payments and capital
expenditures. EBITDA is a key indicator used by management and the financial
community to gauge financial performance of the actual operations of a business
without considering the impact of non-cash charges for equipment aging, its debt
financing expenses, and income taxes. EBITDA isolates actual financial
performance of operations independent of the utilization of its capital
resources, level of debt financing and the tax situation of the buisness owning
those operations.
The Company believes that pricing for mobile fueling services will
continue to increase as below cost pricing of mobile fueling services declines
and existing and potential customers recognize that these services represent a
net cost savings when compared to other refueling alternatives.
CAPITAL RESOURCES AND LIQUIDITY
At June 30, 2004 and 2003, the Company had total cash and cash
availability on its bank line of credit of $3,818,000 and $390,000,
respectively. The increase in the Company's cash and cash availability was
principally due to the infusion of cash from the August 2003 refinancing
(described below) which resulted in cash net proceeds of $2.8 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 liquidity
impact of this financing transaction was the repayment of all outstanding
equipment and subordinated debt; the generation of
15
$2.8 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.
The August 2003 refinancing significantly strengthened the Company's
financial position, enabling it to achieve a stronger balance sheet as well as
to improve cash flow as a result of the two-year moratorium on principal
payments under the August 2003 promissory notes. The Company believes that this
enhanced its business credibility with present and prospective customers, fuel
suppliers, trade creditors, other lenders and the investment community, and its
ability to compete more effectively.
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. In addition, it recorded 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 resulting in a $62,500 increase in cash and
shareholders' equity, respectively. In September 2004, 50,000 warrants were
exercised, resulting in a $50,000 increase in cash and shareholders' equity,
respectively.
The Company's debt agreements have 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 employ substantial
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 within 10 to 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. Days of sales outstanding at June
30, 2004 and 2003 was 28 days and 30 days, respectively.
During the fiscal year ending June 30, 2004, the Company had cash used in
operating activities of $738,000 compared to cash provided by operating
activities of $445,000 in the prior year, representing a change of $1.2 million.
This use of working capital relates to the increase in accounts receivable over
accounts payable of $1.0 million. The higher receivable balance at June 30,
2004, compared to June 30, 2003, was due to the 15% increase in net new business
and the overall higher fuel prices of 12 cents per gallon, notwithstanding
overall improvements in collections and days sales outstanding.
The Company's material financial commitments, other than fuel purchases,
payroll and general expenses, primarily relate to maintaining its bank line of
credit and servicing its August 2003 promissory notes. The Company is required
to make semi-annual interest payments at a rate of 10% per annum on its August
2003 promissory notes which began December 31, 2003. Beginning August 28, 2005,
the Company will be required to make six $692,500 semi-annual principal
payments, with a balloon payment of $2,770,000 due August 28, 2008.
The Company's liquidity and ability to meet its financial obligations is
dependent on, among other things, its generation of cash flow from operating
activities; obtaining or maintaining sufficient trade credit from vendors;
complying with its debt covenants; and/or raising any required additional
capital through the issuance of debt or equity securities or additional
borrowings.
The Company believes the additional working capital obtained 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, although 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
16
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.
At June 30, 2004, the Company had cash and cash equivalents of $2,708,000
as compared to $211,000 at June 30, 2003. The Company had $1,097,000 available
on its bank line of credit as of June 30, 2004.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes the Company's contractual obligations and
commitments as of the fiscal year ended June 30, 2004.
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 Year 1-3 Years 4 Years 5 Years
--------------------------- ----------- ---------- ----------- ------------ -----------
Long-term debt $ 6,925,000 $ -0- $ 4,155,000 $ 2,770,000 $
Operating leases for real
estate and equipment 563,000 365,000 92,000 15,000 91,000
Employment Agreement 314,000 210,000 104,000 -- --
Bank line of credit 4,919,000 4,919,000 -- -- --
----------- ---------- ----------- ------------ -----------
Total $ 12,721,000 $ 5,494,000 $ 4,351,000 $ 2,785,000 $ 91,000
=========== ========== =========== ============ ===========
The contractual obligations and commitments should be read in conjunction
with the notes to the Company's consolidated financial statements. To highlight
the table above:
o The long-term debt principal payments commence on August 28, 2005,
payable in six semi-annual payments of $692,500 with a $2,770,000
balloon due August 28, 2008. Anticipated interest payments associated
with the long-term debt obligation are not included in the table above.
o The payment obligations shown in the table for real estate and
equipment operating leases are lower in future years due to the
short-term nature of the current contracted operating leases.
Currently the largest operating lease payment is for the corporate
offices located in Fort Lauderdale, Florida. The lease term for those
offices ends in February of 2005. The table above only reflects the
corporate office lease payments due through the end of the current
lease. While there can be no assurance, the Company presently expects
to enter into a new lease during the next few months with either a new
lessor or the current lessor at a similar lease rate per square foot
and an estimated lease payment of $170,000-$250,000 per year dependent
on square footage. The length of any such lease term is not presently
known. The table above only reflects the corporate office lease
payments due through the end of the current lease term.
o The Company has a $10,000,000 bank line of credit security agreement
until September 25, 2005 with a financial institution that is
collateralized by accounts receivables. The line of credit balance
fluctuates daily and therefore can differ significantly from the
June 30, 2004 balance shown above. The line of credit bears interest
at variable interest rates but the table above does not reflect any
anticipated future payments of interest. The Company anticipates
renewing this bank line of credit with the same or an alternative
financial institution under similar terms and conditions. While there
can be no assurance that the Company will be able to renew this bank
line of credit or that any such renewal will be on terms acceptable to
the Company, any such new bank line of credit will likely extend past
the present termination date when it is renewed. Lastly, due to the
lock box arrangement the Company has with its bank related to this
line of credit the amount is shown due in the less than one-year
column and not when it matures.
o The table above includes the employment contract anticipated costs of
the Company's Chief Executive Officer including $14,000 of payroll
taxes and health insurance costs.
17
$10 MILLION 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 June 30, 2004) and outstanding borrowings under the line are secured by
substantially all of the Company's 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 lender after September 25, 2005.
In August 2003, the Company and its 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 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 June 30, 2004 and 2003, the Company had outstanding borrowings of
$4.9 and $4.4 million, respectively, under its $10 million bank line of credit.
Based on eligible receivables outstanding at June 30, 2004, the Company had $1.1
million of cash availability on the line of credit, and was in compliance with
all financial covenants required by the loan and security agreement.
Management believes, that though there is no assurance, the Company's
line of credit and cash on hand should provide the working capital needed to
maintain and grow its business and to accomplish its business plan. If
additional financing is required, there can be no assurance that the Company
will be able to obtain such financing from its present line of credit or another
lender at acceptable terms, or at all. Since the Company's borrowings under its
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 of 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 payments 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 was $2.8 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 $824,000 and
are being amortized over the five-year term of the notes. The $757,000 cash
discount was accounted for as a gain on extinguishment of debt in the first
quarter of fiscal 2004.
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
18
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 June 30, 2004.
REPAYMENT OF DEBT SECURITIES
The Company also used a portion of the proceeds of the August 2003
refinancing to repay outstanding subordinated convertible and non-convertible
promissory notes totaling $1,033,600. The repaid debt securities are detailed
below:
JANUARY 2002 CONVERSION OF SUBORDINATED DEBT - total outstanding and
repaid $283,600
o 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 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 convert their notes in January 2002 waived any conversion
price adjustment. With the consent of the holder, interest on two of
these notes may be paid in the Company's common stock, with the stock
value based on the average closing price of the stock during the most
recent quarter. In September 2002, the maturity dates of these
non-converted notes were extended to August 31, 2004.
SUBORDINATED PROMISSORY NOTES - total outstanding and repaid $750,000
o On December 23, 2002, the Company issued a $150,000 short-term
promissory note to a 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%. With the consent of the holder,
interest on the note may be paid in unregistered shares of the
Company's common stock, with the stock value based on the closing bid
price of the stock for the five trading days before the last day of
the quarter in which the interest is due but in no event less than the
closing bid price at the time of issuance or the average of the
closing bid prices for the five trading days prior to such time,
whichever is lower.
o On January 21, 2003, the Company issued $300,000 of subordinated
promissory notes to two shareholders. The notes are due on January 31,
2005 and bear interest at an annual rate of 9%. With the consent of
the holders, interest on the notes may be paid in the Company's common
stock, with the stock value based on the closing bid price of the
stock for the five trading days before the last day of the quarter in
which the interest is due but in no event less than the closing bid
price at the time of issuance or the average of the closing bid prices
for the five trading days prior to such time, whichever is lower.
o On May 12, 2003, the Company issued $300,000 of subordinated
promissory notes to certain shareholders. The notes bear interest at
an annual rate of 14% and are 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. The exercise price of the warrants is $0.86 per
share.
o On May 20, 2003, the Company issued $235,500 of subordinated
promissory notes to officers, directors and certain shareholders. The
notes are due on November 19, 2003 and bear interest at an annual rate
of 14%. With the consent of the holders, the Company may elect to pay
interest on the
19
notes in shares of the Company's common stock, with the stock value
based on the most recent closing bid price of the stock at the time
the notes were executed or for the five trading days before such date,
whichever is lower. 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 and after the date on which the notes
are repaid or otherwise surrendered to the Company, but in no event
later than November 19, 2006.
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. Additionally in September 2004 50,000 warrants related
to the August 2003 debt issuances were exercised. Total warrants exercised from
these two debt issuances generated $118,520 of additional cash and shareholders'
equity .
NEW ACCOUNTING STANDARDS AND CRITICAL ACCOUNTING POLICIES AND ESTIMATES
RECENT 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has identified the policies outlined below as critical to its
business operations and an understanding of the results of operations. The
listing is not intended to be a comprehensive list of all accounting policies.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States, with no need for management's judgment in their application. The impact
and any associated risks related to these policies on business operations are
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 2 in the Notes to the Consolidated Financial
Statements in Item 8 on Form 10-K. Note that the preparation of this Form 10-K
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. There can be no assurance that
actual results will not differ from those estimates.
Revenue Recognition
The Company recognizes revenue at the time services are performed which is
when the fuel is delivered and the customer takes ownership and assumes risk of
loss. Collections are reasonably assured at the time of delivery.
Accounts Receivable and Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customers' current
credit worthiness, as determined by a review of their current credit
information. Management continuously monitors collections and payments from
customers and maintains a provision for estimated credit losses based upon
historical experience and any specific customer collection issues that are
identified. While such credit losses have historically been within expectations
and the provisions established, the Company cannot assure that it will continue
to experience the same credit loss rates that have occurred in the past. The
Company's accounts receivable as of June 30, 2004 and 2003 were $8.3 and $6.1
million, respectively, net of an
20
allowance for doubtful accounts of $426,000 and $530,000. The increase relates
to higher prices and more volume being delivered with improvements in
collections as previously discussed.
Property and Equipment
The Company records property and equipment at cost and depreciates that
cost over the estimated useful life of the asset on a straight-line basis.
Ordinary maintenance and repairs are expensed as incurred and improvements that
significantly increase the useful life of property and equipment are
capitalized.
Impairment of Long-Lived Assets
The Company tests property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. The conditions that would trigger an impairment assessment of
property, plant and equipment would include, but not be limited to, a
significant, sustained negative trend in operating results or cash flows; a
decrease in demand for the Company's services; a change in the competitive
environment; and other industry and economic factors. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of the
asset to future net cash flows expected to be generated by the asset. If such
assets are deemed to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets based on the projected net cash flows discounted at a rate
commensurate with the risk of the assets.
Income Taxes
In connection with the preparation of the Company's financial statements,
income taxes are required to be estimated. This process involves estimating
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included on the balance sheet. The likelihood that deferred tax assets will be
recovered from future taxable income is assessed and to the extent that recovery
is not likely, a valuation allowance is established. To the extent a valuation
allowance is established or an increase in the allowance is recorded in a
period, a tax is provided in the statement of operations. Management judgment is
required in determining the provision for income taxes, the deferred tax assets
and liabilities and any valuation allowance recorded against net deferred tax
assets. A valuation allowance of approximately $3.5 million was recorded as of
June 30, 2004, due to uncertainties related to utilizing some of the deferred
tax assets, primarily consisting of certain net operating losses carried
forward, before they expire. The valuation allowance is based on estimates of
taxable income and the period over which deferred tax assets will be
recoverable. In the event that actual results differ from these estimates, or
these estimates are adjusted in future periods, it may be necessary to establish
an additional valuation allowance which could materially impact the Company's
financial position and results of operations. The net deferred tax asset as of
June 30, 2004 was zero, net of the valuation allowance.
RESULTS OF OPERATIONS:
COMPARISON OF YEAR ENDED JUNE 30, 2004 TO YEAR ENDED JUNE 30, 2003
REVENUES
Revenues increased $17.8 million, or 24.7%, in the year ended June 30,
2004 compared to the year ended June 30, 2003. This increase was principally due
to a 15.4 % increase in net new business and a 12-cent per gallon higher average
product fuel price. The Company sold 54.6 million gallons of fuel in the year
ended June 30, 2004, compared to the 47.3 million gallons in the year ended June
30, 2003, a 7.3 million gallon increase of net new business. The increase in
fuel product prices was directly attributable to the volatility of world fuel
market and economic conditions, including higher crude oil prices and greater
global fuel demand.
21
GROSS PROFIT
The increase in gross profit was principally due to the $173,000 net
impact of the 15% increase in net new business offset by a lower net margin per
gallon of 1.6 cents per gallon. The remaining increase related to an $102,000
reduction in depreciation included in cost of sales attributable to the
Company's specialized equipment fleet. Net margin per gallon was 9.9 cents for
the year ended June 30, 2004 compared to 11.5 cents for the prior year. The
decrease in net margin per gallon related to the residual effect of the
aggressive price-cutting of the Company's former competitor which has ceased
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased approximately
$321,000, or 6.8%, in the year ended June 30, 2004 compared to the year ended
June 30, 2003. This decrease primarily resulted from a reduction in the
provision for bad debt expense of $317,000; lower insurance expense of $68,000;
and a decrease in sales and marketing payroll costs of $40,000; which were
offset by increases in financial consulting, audit and tax preparation fees of
$91,000.
INTEREST EXPENSE
As a result of the August 2003 refinancing, the components of interest
expense has changed. The table below shows the interest expense (in thousands)
recorded for the twelve months ending June 30, 2004 and 2003:
Year Ended
June 30,
2004 2003
----------- ----------
Stated Rate Interest Expense:
Bank line of credit $ 246 $ 389
Long term debt 623 428
Subordinated debt 20 47
Other 44 --
----------- ----------
Total stated rate interest expense 933 864
Non-Cash Interest Amortization:
Amortization of deferred debt costs 187 51
Amortization of debt discount 241 --
----------- ----------
Total amortization of interest expense 428 51
----------- ----------
Total interest expense $ 1,361 $ 915
=========== ==========
The interest expense increase of $446,000 for the year ended June 30, 2004
was primarily due to the non-cash interest amortization related to the August
2003 refinancing as well as the increase in long term debt outstanding offset by
the lower average balance on the Company's bank line of credit during the year.
INCOME TAXES
The Company recorded no income tax expense for the years ended June 30,
2004. The net operating loss carryforward at June 30, 2004 was $14.3 million.
NET LOSS
The $698,000 net loss for fiscal 2004 was $883,000 lower than the
$1,581,000 loss for fiscal 2003 principally as a result of the gain of $757,000
for extinguishment of debt in connection with the Company's August 2003
refinancing as well as a $173,000 improvement in gross profit and a $321,000
reduction in sales, general and administrative expense offset by an increase of
$446,000 in additional interest expense.
EBITDA-NON-GAAP MEASURE
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
was $1,983,000 for the year ended June 30, 2004 compared to $737,000 for the
year ended June 30, 2003, an increase of $1,246,000. The increase was primarily
due to the $757,000 gain on extinguishment of debt included in the current
year's net loss and
22
the $377,000 increase in non-cash interest expense related to the amortization
of debt discount and deferred debt costs associated with the August 2003
financing. The components of EBITDA for the years ended June 30, 2004 and 2003
are as follows:
2004 2003
------------- -------------
Net loss $ (698,000) $ (1,581,000)
Add back:
Interest expense 1,361,000 915,000
Depreciation and amortization expense 1,320,000 1,403,000
------------- -------------
EBITDA $ 1,983,000 $ 737,000
============= =============
COMPARISON OF YEAR ENDED JUNE 30, 2003 TO YEAR ENDED JUNE 30, 2002
REVENUES
Revenue increased $11.3 million, or 18.6%, in the year ended June 30, 2003
compared to the year ended June 30, 2002. The increase in revenue resulted from
extraordinary increases in the wholesale price of diesel fuel and gasoline,
offset by a decline in gallons delivered. The Company delivered 47.3 million
gallons of fuel to its customers in the year ended June 30, 2003, a decrease of
4.4% compared to the 49.5 million gallons delivered in the year ended June 30,
2002. The decrease in gallons was due to reduced demand by certain customers
arising from depressed economic conditions throughout the year; modifications of
certain customers' mobile fueling programs in response to substantially
increased fuel prices; termination of unprofitable mobile fueling service
accounts; and elimination of bulk delivery services in northern California. The
discontinued bulk delivery service in northern California accounted for 5.6
million gallons of the total 49.5 million gallons delivered in the prior fiscal
year ending June 30, 2002. Notwithstanding the aforementioned, the Company
delivered 3.4 million or 7.7% more mobile fueling gallons than the prior fiscal
year.
GROSS PROFIT
Gross profit decreased approximately $568,000, or 12.4%, in the year ended
June 30, 2003 compared to the year ended June 30, 2002. The average net margin
per delivered gallon of fuel in the year ended June 30, 2003 decreased to 11.5
cents compared to 12.2 cents in the year ended June 30, 2002. The decrease in
gross profit was due to increases in the cost of fuel used to operate the
Company's delivery fleet of $99,000; higher fixed costs associated with an
increase in property and liability insurance of $214,000; and decreases in other
service charges revenue of $82,000. The remaining decrease is attributable to
the Company's largest competitor driving down service margins during the current
year, which resulted in the Company lowering prices it charges to some of its
customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately
$334,000, or 7.6%, in the year ended June 30, 2003 compared to the year ended
June 30, 2002. The increase in these expenses primarily resulted from an
increase in professional fees of $169,000; an increase in insurance expense of
$193,000; an increase in sales and marketing costs of $37,000; an increase in
temporary labor expense of $60,000; and an increase in depreciation expense of
$57,000; offset by a decrease in provision for bad debts of $161,000.
INTEREST EXPENSE
Interest expense decreased approximately $260,000, or 22.1%, in the year
ended June 30, 2003 compared to the year ended June 30, 2002 as a result of
lower interest rates on variable rate debt and decreased borrowings resulting
from the scheduled repayment of existing equipment debt; reduced bank line of
credit advances; and conversion of subordinated debt to equity.
23
The Company incurred in January 2002 in connection with the conversion of
its convertible subordinated promissory notes to equity, a non-cash charge
related to accounting for convertible securities with beneficial conversion
features. This charge was $241,000 and recorded as a beneficial conversion of
debt to equity interest expense in the year ended June 30, 2002.
INCOME TAXES
The Company recorded no income tax expense for the years ended June 30,
2003 or 2002. The Company has net operating loss carryforwards of $13.0 million
at June 30, 2003.
NET LOSS
The $1,581,000 net loss for fiscal 2003 was $419,000 higher than the
$1,162,000 loss for fiscal 2002 principally as a result of a $568,000 decrease
in gross profit, an increase of $334,000 in sales, general and administrative
expense offset by a $260,000 decrease in interest expense.
EBITDA NON-GAAP MEASURE
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
was $737,000 for the year ended June 30, 2003, a decrease of $975,000 from
$1,712,000 for the year ended June 30, 2002. The decrease was primarily due to
the higher net loss during fiscal year ended June 30, 2003, offset by reduced
interest expense in the current year. The components of EBITDA for the years
ended June 30, 2003 and 2002 are as follows:
2003 2002
------------- -------------
Net loss $ (1,581,000) $ (1,162,000)
Add back:
Interest expense 915,000 1,175,000
Beneficial conversion of debt to
equity interest expense -- 241,000
Depreciation and amortization expense 1,403,000 1,458,000
------------- -------------
EBITDA $ 737,000 $ 1,712,000
============= =============
COMPARISON OF YEAR ENDED JUNE 30, 2002 TO YEAR ENDED JUNE 30, 2001
REVENUES
Revenue decreased $18.6 million, or 23.4%, for the year ended June 30,
2002 compared to the year ended June 30, 2001. The decrease in revenue resulted
from a substantial decrease in the wholesale price of diesel fuel and gasoline
as well as a decline in gallons delivered. The Company delivered 49.5 million
gallons of fuel to its customers in the year ended June 30, 2002, a decrease of
8.5% compared to the 54.1 million gallons delivered in the year ended June 30,
2001. The decrease in gallons delivered resulted primarily from the elimination
of non-profitable markets and accounts, as well as volume declines of certain
customers whose levels of business activity have been adversely impacted by the
current economic downturn.
GROSS PROFIT
Gross profit increased approximately $2.1 million, or 82.2%, in the year
ended June 30, 2002 compared to the year ended June 30, 2001. The average net
margin per delivered gallon of fuel in the year ended June 30, 2002 improved to
12.2 cents compared to 7.3 cents in the year ended June 30, 2001. The increase
in gross profit was due to the results of the business initiatives started
February 2001, yielding reduced direct operating expenses, improved margins on
existing accounts and new, higher-margin accounts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately
$589,000, or 15.5%, in the year ended June 30, 2002 compared to the year ended
June 30, 2001. The increase in these expenses primarily resulted from increases
in payroll costs associated with the reestablishment of a marketing and sales
department and program (including direct marketing) which had been previously
eliminated, together with the restructuring of the
24
management, operations, and information technology departments and related
personnel; increases in insurance expense and legal fees; and an increase in the
allowance for doubtful accounts.
INTEREST EXPENSE
Interest expense decreased approximately $396,000, or 25.2%, in the year
ended June 30, 2002 compared to the year ended June 30, 2001 as a result of
lower interest rates on variable rate debt and decreased borrowings, primarily
due to repayment of existing equipment debt, credit facility and the conversion
of the subordinated promissory notes to equity.
The Company incurred, in connection with the conversion of its convertible
subordinated promissory notes to equity in January 2002, a non-cash charge
related to accounting for convertible securities with beneficial conversion
features. This charge was $241,000 and classified as beneficial conversion of
debt to equity interest expense for the year ended June 30, 2002.
INCOME TAXES
The Company recorded no income tax expense for the years ended June 30,
2002 or 2001. The Company has net operating loss carryforwards of $12.2 million
at June 30, 2002.
NET LOSS
The $1,162,000 net loss for fiscal 2002 was $1,612,000 lower than the
$2,774,000 loss for fiscal 2001 principally as a result of a $2,100,000 increase
in gross profit and a decrease of $396,000 in interest expense offset by an
increase of $589,000 in sales, general and administrative expense.
EBITDA-NON-GAAP MEASURE
EBITDA increased by $1.5 million to $1.7 million for the year ended
June 30, 2002 from $223,000 for the year ended June 30, 2001. The increase was
primarily due to higher net margins and operating profit. The components of
EBITDA for the years ended June 30, 2002 and 2001 are as follows:
2002 2001
------------- -------------
(unaudited)
Net loss $ (1,162,000) $ (2,774,000)
Add back:
Interest expense 1,175,000 1,571,000
Beneficial conversion of debt to
equity interest expense 241,000 --
Depreciation and amortization expense 1,458,000 1,426,000
------------- -------------
EBITDA $ 1,712,000 $ 223,000
============= =============
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk is limited primarily to the
fluctuating interest rates associated with variable rate debt outstanding to
finance working requirements. This debt bears interest at the United States
prime interest rate plus a fixed markup and is 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. The interest on the Company's $6.925 subordinated
convertible promissory notes is fixed for the life of the notes at 10% per
annum. The interest on the Company's bank line of credit of up to $10,000,000 is
variable and may increase or decrease with future changes in interest rates but
interest rates are not the only factor which could affect interest expense on
the bank line of credit. For example, interest expense on the bank line of
credit for fiscal 2004 was $246,000, $143,000 lower than the $389,000 in fiscal
2003, on account of the pay down of the line with the proceeds of the August
2003 refinancing and improved collections offset by an increase in the average
fuel prices and gallons sold. If the Company's bank line of credit average
outstanding balance was $2.5 million, an increase of 1% in the variable interest
rate would result in additional interest expense of $25,000 per annum.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company required by Form 10-K are attached
following Part III of this report, commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
ITEM 9A. 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 June 30, 2004, or in other factors that could
significantly affect internal controls subsequent to the date of the evaluation
described above.
26
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 2004 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 2004 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 2004 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 2004 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 2004 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
27
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Exhibits
Exhibits Description
-------- -----------
3.1 Restated Articles of Incorporation (17)
3.2 Amended and Restated Bylaws (18)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Redeemable Common Stock Purchase Warrant (1)
4.3 Underwriters' Purchase Option Agreement between the Registrant and
Argent Securities, Inc. (1)
4.4 Warrant Agreement between the Registrant and American Stock Transfer & Trust Company (1)
10.1 Employment Agreement, dated November 1, 2000 between the Registrant and
Stanley H. Streicher (2)(6) 10.2 Registrant's 1996 Stock Option Plan (1)(2)
10.3 $10,000,000 Amended and Restated Loan Agreement, dated May 25, 1999, between the Registrant and
Bank Atlantic and First Amendment, dated December 22, 1999, to Amended and Restated Loan Agreement (5)
10.4 Amended and Restated $10,000,000 Promissory Note, dated May 9, 2001, between the
Registrant and Bank Atlantic (7)
10.5 Registrant's 2000 Stock Option Plan (2)(8)
10.6 Employment Agreement, dated October 26, 2000 between the Registrant and Richard E. Gathright (2)(9)
10.7 Second Amendment, dated May 9, 2001, to Amended and Restated Loan Agreement, dated May 25, 1999 (10)
10.8 Promissory Note, dated July 7, 2000, between the Registrant and C. Rodney O'Connor (11)
10.9 Form of Convertible Subordinated Promissory Note (12)
10.10 Streicher Mobile Fueling, Inc. 2001 Directors Stock Option Plan (13)
10.11 Agreement dated April 1, 2002 between Stanley H. Streicher, individually, and Supreme Oil Company Inc.
("Supreme"), a company wholly owned by Mr. Streicher and the Company with respect to the repayment by
Supreme of certain debts owned to the Company by Supreme (14)
10.12 Loan and Security Agreement with Congress Financial Corporation dated September 26, 2002 (15)
10.13 First Amendment to Loan and Security Agreement with Congress Financial Corporation dated
March 31, 2003 (17)
28
10.14 Indenture with The Bank of Cherry Creek dated August 29, 2003 (17)
10.15 Security Agreement with The Bank of Cherry Creek dated August 29, 2003 (17)
10.16 Second Amendment to Loan and Security Agreement with Congress Financial Corporation dated
August 29, 2003 (19)
23.1 Consent of KPMG LLP (16)
31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (16)
31.2 Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (16)
32.1 Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002 (16)
- ---------------
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form SB-2 (No. 333-11541)
(2) Management Contract or Compensatory Plan
(3) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 1998.
(4) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 1999.
(5) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 2000.
(6) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 2001.
(7) Incorporated by reference to Exhibit 10.5 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(8) Incorporated by reference to Exhibit 10.6 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(9) Incorporated by reference to Exhibit 10.7 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(10) Incorporated by reference to Exhibit 10.8 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(11) Incorporated by reference to Exhibit 10.9 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(12) Incorporated by reference to Exhibit 10.10 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(13) Incorporated by reference to Exhibit A of the Proxy Statement filed by the
Company for the Annual Meeting of Shareholders held on July 19, 2001
(14) Incorporated by reference to Exhibit 99.1 of the Form 8-K dated June 12,
2002 filed by the Company
(15) Incorporated by reference to Exhibit 99.1 of the Form 8-K dated
September 30, 2002 filed by the Company
29
(16) Filed herewith.
(17) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended June 30, 2003.
(18) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-Q for the period ended December 31, 2003.
(19) Incorporated by reference to Exhibit 10.1 filed by the Company with Form
10-Q for the period ended September 30, 2003.
(b) Financial Statement Schedule
(c) Reports on Form 8-K
The Company filed a Form 8-K dated May 14, 2004, under Item 12,
reporting the issuance of a press release covering the operating
results for the third quarter ending March 31, 2004.
30
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: September 28, 2004 STREICHER MOBILE FUELING, INC.
By: /s/ Richard E. Gathright
--------------------------------
Richard E. Gathright, Chief
Executive Officer and President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
---- ----- ----
By:/s/ Richard E. Gathright Chairman of the Board, Chief Executive September 28, 2004
-------------------------- Officer and President (Principal
Richard E. Gathright Executive Officer)
By:/s/ Michael S. Shore Senior Vice President - Chief Financial September 28, 2004
-------------------------- Officer (Principal Financial and
Michael S. Shore Accounting Officer)
By:/s/ Wendell R. Beard Director September 28, 2004
--------------------------
Wendell R. Beard
By:/s/ Larry S. Mulkey Director September 28, 2004
--------------------------
Larry S. Mulkey
By:/s/ Richard N. Hamlin Director September 28, 2004
--------------------------
Richard N. Hamlin
By:/s/ C. Rodney O'Connor Director September 28, 2004
--------------------------
C. Rodney O'Connor
By:/s/ Robert S. Picow Director September 28, 2004
--------------------------
Robert S. Picow
By:/s/ W. Greg Ryberg Director September 28, 2004
--------------------------
W. Greg Ryberg
31
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm................................ F-2
Consolidated Balance Sheets as of June 30, 2004 and 2003............................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 2004,
2003 and 2002..................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended June 30,
2004, 2003 and 2002............................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 2004,
2003 and 2002..................................................................... F-6
Notes to Consolidated Financial Statements............................................. F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Streicher Mobile Fueling, Inc.:
We have audited the accompanying consolidated balance sheets of Streicher Mobile
Fueling, Inc. and subsidiaries as of June 30, 2004 and 2003, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Streicher Mobile
Fueling, Inc. and subsidiaries as of June 30, 2004 and 2003, and the results of
their operations and their cash flows for each of the years in the three year
period ended June 30, 2004 in conformity with United States generally accepted
accounting principles.
KPMG LLP
Fort Lauderdale, Florida
September 13, 2004
F-2
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND 2003
( in 000's, except share and per share data)
ASSETS June 30, 2004 June 30, 2003
- -------------------------------------------------- ------------- -------------
Current assets:
Cash and cash equivalents....................... $ 2,708 $ 211
Restricted cash................................. 13 78
Accounts receivable, net ....................... 8,280 6,113
Inventories .................................... 183 168
Prepaid expenses and other current assets....... 400 387
------------ -------------
Total current assets....................... 11,584 6,957
Property and equipment, net....................... 7,602 8,741
Deferred debt costs .............................. 770 186
Other assets ..................................... 62 75
Note receivable from related party ............... -- 52
------------ -------------
Total assets.............................. $ 20,018 $ 16,011
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------
Current liabilities:
Bank line of credit payable ................... $ 4,919 $ 4,410
Current portion of long-term debt.............. -- 1,965
Accounts payable and other liabilities ........ 4,193 3,012
------------ -------------
Total current liabilities.................. 9,112 9,387
Long-term liabilities:
Promissory Notes............................... 6,925 --
Unamortized debt discount, net................. (1,367) --
Equipment debt, excluding current portion...... -- 1,779
Subordinated promissory notes.................. -- 734
------------ -------------
Long term debt, net ........................... 5,558 2,513
Total liabilities.......................... 14,670 11,900
------------ -------------
Commitments and contingencies ....................
Shareholders' equity:
Common stock, par value $.01 per share; 50,000,000
shares authorized; 7,317,960 and 7,234,168 issued
and outstanding at June 30, 2004 and 2003,
respectively................................... 73 72
Additional paid-in capital..................... 13,392 11,458
Accumulated deficit............................ (8,117) (7,419)
------------ -------------
Total shareholders' equity................. 5,348 4,111
------------ -------------
Total liabilities and shareholders' equity. $ 20,018 $ 16,011
============ =============
See accompanying notes to consolidated financial statements.
F-3
STREICHER MOBILE FUELING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(in 000's, except share and per share data)
Fiscal Year Fiscal Year Fiscal Year
June 30, 2004 June 30, 2003 June 30, 2002
------------- ------------- -------------
Fuel sales and service revenues.. $ 67,663 $ 53,579 $ 43,538
Fuel taxes....................... 22,334 18,615 17,311
--------- ---------- ----------
Total revenues................ 89,997 72,194 60,849
Cost of fuel sales and service... 63,365 49,556 38,947
Fuel taxes....................... 22,334 18,615 17,311
--------- ---------- ----------
Total cost of sales........... 85,699 68,171 56,258
Gross profit................ 4,298 4,023 4,591
Selling, general and
administrative expenses........ 4,394 4,716 4,382
Gain on extinguishment of debt... 757 -- --
--------- ---------- ----------
Operating income (loss)..... 661 (693) 209
Interest expense................. (1,361) (915) (1,175)
Interest and other income........ 2 27 45
Beneficial conversion of debt to
equity interest expense ....... -- -- (241)
--------- ---------- ----------
Loss before income taxes.... (698) (1,581) (1,162)
Income tax expense............... -- -- --
Net loss.................... $ (698) $ (1,581) $ (1,162)
========= ========== ==========
Basic and diluted net loss per
share.......................... $ (.10) $ (.22) $ (.20)
========= ========== ==========
Basic and diluted weighted
average common shares
outstanding.................... 7,261,372 7,221,070 5,698,147
========= ========== ==========
See accompanying notes to consolidated financial statements.
F-4
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(in 000's, except share data)
Common Stock Additional
------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- -------- -------------- ----------- --------
BALANCE, June 30, 2001.... 4,367,537 $ 44 $ 7,964 $ (4,676) $ 3,332
Net loss.................. -- -- -- (1,162) (1,162)
Net proceeds from private
placement of stock...... 666,666 7 573 -- 580
Issuance of stock in lieu
of debt................. 67,226 -- 91 -- 91
Conversion of note
payable to equity....... 2,110,322 21 2,814 -- 2,835
---------- ---------- ---------- --------- --------
BALANCE, June 30, 2002.... 7,211,751 72 11,442 (5,838) 5,676
Net loss.................. -- -- -- (1,581) (1,581)
Cost associated with
extension of warrants... -- -- (9) -- (9)
Issuance of stock in lieu
of debt................. 22,417 -- 25 -- 25
---------- ---------- ---------- --------- --------
BALANCE, June 30, 2003.... 7,234,168 $ 72 $ 11,458 $ (7,419) $ 4,111
Net loss.................. -- -- -- (698) (698)
Issuance of stock in
lieu of debt............ 14,292 -- 14 -- 14
Exercise of warrants...... 69,500 1 68 -- 69
Issuance of warrants...... -- -- 1,866 -- 1,866
Cost associated with
extension of warrants... -- -- (14) -- (14)
---------- ---------- ---------- --------- --------
BALANCE, June 30, 2004.... 7,317,960 $ 73 $ 13,392 $ (8,117) $ 5,348
========== ========== ========== ========= ========
See accompanying notes to consolidated financial statements.
F-5
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(in 000's, except supplemental disclosure and share data)
Fiscal Year Fiscal Year Fiscal Year
June 30, June 30, June 30,
2004 2003 2002
------------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................... $ (698) $ (1,581) $ (1,162)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss on asset disposal...................... -- -- 9
Depreciation and amortization:
Cost of sales.......................... 1,130 1,232 1,318
Sales, general and administrative...... 190 171 140
Amortization of deferred debt cost.......... 195 47 108
Amortization of debt discount............... 241 -- --
Gain on extinguishment of debt.............. (757) -- --
Interest expense from beneficial
conversion of debt to equity........... -- -- 241
(Decrease) increase in allowance
for doubtful accounts.................. (54) 263 637
Changes in operating assets
and liabilities:
Decrease (increase) in restricted cash... 65 167 (21)
Decrease (increase) in accounts
receivable............................. (2,225) 118 1,650
Decrease (increase) in inventories,
prepaid expenses and other assets...... (21) 43 35
(Increase) decrease in accounts
payable and other liabilities.......... 1,196 (15) (456)
----------- ----------- --------
Net cash (used in) provided by
operating activities................... (738) 445 2,499
----------- ----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (175) (248) (152)
Proceeds from disposal of equipment........... 112 4 276
Decrease (increase) note receivable
from related party........................ 52 148 443
----------- ----------- --------
Net cash (used in) provided by
investing activities....................... (11) (96) 567
----------- ----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of promissory notes..... 6,925 -- --
Net repayments on bank line of
credit payable............................... 509 (270) (2,225)
Net proceeds (costs) from issuance of
common stock and common stock warrants....... 55 (9) 700
Repayments on subordinated promissory notes.... (522) (155) --
Repayment of subordinated debt................. (1,034) -- --
Principal payments on long-term debt........... (2,687) (1,424) (2,114)
Proceeds from the issuance of
subordinated promissory notes................ -- 905 --
Proceeds from the issuance of
subordinated debt............................ -- -- 1,700
Change in bank overdraft....................... -- -- (318)
----------- ----------- --------
Net cash provided by (used in)
financing activities....................... 3,246 (953) (2,257)
----------- ----------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 2,497 (604) 809
CASH AND CASH EQUIVALENTS,
beginning of period.......................... 211 815 6
----------- ----------- --------
CASH AND CASH EQUIVALENTS,
end of period................................ $ 2,708 211 $ 815
=========== =========== ========
See accompanying notes to consolidated financial statements.
F-6
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(in 000's, except supplemental disclosure and per share data)
(Continued)
Fiscal Year Fiscal Year Fiscal Year
June 30, June 30, June 30,
2004 2003 2002
------------- ------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for-
Interest.............................. $ 826 $ 880 $ 1,193
------------ ----------- ----------
Income taxes.......................... $ -- $ -- $ --
------------ ----------- ----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
FISCAL YEAR ENDED JUNE 30, 2004:
In connection with the Company issuance of the August 2003 refinancing;
Recorded $1.61 million of unamortized debt discount and $824,000
deferred debt costs Issuance of 14,292 shares of common stock in lieu
of payments on convertible promissory notes
FISCAL YEAR ENDED JUNE 30, 2003:
Issuance of $25,000 of common stock in lieu of payment of interest on
subordinated convertible promissory notes
Transfer of $112,000 of fixed assets to account receivable from third party
relating to disposal of vehicle
FISCAL YEAR ENDED JUNE 30, 2002:
Conversion of $2,617,000 of subordinated convertible promissory notes into
common stock resulting in a non-cash charge to interest expense
of $241,000
Issuance of $91,000 of common stock in lieu of payment on subordinated
convertible promissory notes Transfer of $60,000 of fixed assets to note
receivable from related party
See accompanying notes to consolidated financial statements.
F-7
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Streicher Mobile Fueling, Inc., a Florida corporation (the "Company") was
formed in 1996.
The Company provides mobile fueling and fuel management out-sourced
services to businesses that operate all size fleets of vehicles and
equipment, including governmental agencies, utilities, trucking companies,
bus lines, hauling and delivery services, courier services, construction
companies and others. The Company's specialized truck fleet delivers fuel
to customers' locations on a regularly scheduled or as needed basis,
refueling vehicles and equipment and/or re-supplying fixed-site storage
facilities. The Company's patented proprietary electronic fuel tracking
control system is used to measure, record and track fuel dispensed to each
vehicle and tank fueled at a customer location, allowing verification of
the amount and type of fuel delivered and providing customers with
customized fleet fuel data for management analysis and tax reporting. At
June 30, 2004, the Company had operations in California, District of
Columbia, Florida, Georgia, Maryland, North Carolina, Tennessee, Texas and
Virginia. In August 2004, the Company opened an additional market in
Pennsylvania.
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, the cost of
fuel and depreciation of the fleet. 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 delivery service charges are at a negotiated rate and the
cost of fuel is based on market prices. Revenue and cost of fuel will vary
depending on the upward or downward movement of fuel prices in each
market.
In the mobile fueling business, the majority of deliveries are made on
workdays, Monday through Friday, to coincide with customers' fuel service
requirements. Thus, the number of workdays in any given month will impact
the quarterly financial performance of the Company. In addition, a
downturn in customer demand generally takes place on and/or in conjunction
with national holidays, resulting in decreased volumes of fuel delivered.
This downturn may be offset during the fiscal year by emergency mobile
fueling services and fuel deliveries to certain customers resulting from
impending or actual severe meteorological or geological events, including
hurricanes, tropical storms, ice and snow storms, forest fires and
earthquakes.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of
Streicher Mobile Fueling, Inc. and its wholly owned subsidiary,
Streicher Realty, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash and
cash equivalents in the accompanying consolidated balance sheets is
$2,708,000 and $211,000 as of June 30, 2004 and 2003, respectively.
The Company has cash deposited with a financial institution above
the FDIC insurance coverage limit.
F-8
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Restricted Cash
Restricted cash at June 30, 2004 and 2003 consists of $13,000 and
$78,000, respectively, in collections on customer accounts
receivable, which were deposited in a restricted account and used to
repay advances made to the Company on its bank line of credit.
(d) Accounts Receivable
Accounts receivable are due from customers within a broad range of
industries and are generally unsecured. Additionally, accounts
receivable are composed of refunds from state and federal
governments for fuel taxes which are not billable to certain
customers, yet have been paid to vendors by the Company. The Company
provides for credit losses based on management's evaluation of
collectibility using current and historical performance of each
customer and from state and federal governments from whom refunds
are expected. At June 30, 2004 and 2003, the Company days sales
outstanding was 28 and 30 days.
A roll-forward of the activity in the allowance for doubtful
accounts for the indicated periods is as follows:
Fiscal Year Fiscal Year Fiscal Year
June 30, June 30, June 30,
2004 2003 2002
---------------------------------------------
Balance - beginning of period $ 530,000 $ 509,000 $ 78,000
(Decrease) increase in
provision for bad debts (54,000) 263,000 637,000
Write-offs, net of recoveries (50,000) (242,000) (206,000)
---------------------------------------------
Balance - end of period $ 426,000 $ 530,000 $ 509,000
=============================================
(e) Inventories
Inventories, consisting primarily of diesel fuel and gasoline, are
stated at the lower of cost or market and include federal and state
fuel taxes payable to vendors. Cost is determined using the
first-in, first-out method.
(f) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Ordinary maintenance and repairs are
expensed as incurred. Improvements which significantly increase the
value or useful life of property and equipment are capitalized.
Property and equipment are depreciated or amortized using the
straight-line method over the asset's estimated useful lives.
Property and equipment balances and the estimated useful lives
were as follows at the indicated dates:
F-9
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, Estimated Useful
--------------------------------
2004 2003 Life
-------------- -- -------------- ---------------------------------------
Fuel trucks, tanks and vehicles 14,395,000 14,450,000 5 - 25 years
Machinery and equipment 346,000 302,000 3 - 5 years
Furniture and fixtures 262,000 260,000 5 - 10 years
Leasehold improvements 22,000 22,000 Lesser of lease term or useful life
Software 351,000 270,000 3 years
Land 67,000 67,000 --
-------------- --------------
15,443,000 15,371,000
Less: Accumulated depreciation
and amortization (7,841,000) (6,630,000)
-------------- --------------
Property and equipment, net 7,602,000 8,741,000
============== ==============
In accordance with Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
the Company capitalizes certain costs used in the development of
internal use software. These costs include the costs associated with
coding, software configuration, upgrades and enhancements. The
amount capitalized at June 30, 2004 and 2003 relating to internal
use software is $343,000 and $252,000, respectively.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method,
in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). Deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(h) Revenue Recognition
The Company recognizes revenue at the time services are performed
which is when the fuel is delivered and the customer takes ownership
and assumes risk of loss. Collections are reasonably assured at the
time of delivery.
(i) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions. These
assumptions, if not realized, could affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
F-10
(j) Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash
and cash equivalents, accounts receivable, accounts payable, bank
line of credit payable, promissory notes, equipment debt and
long-term debt, approximate fair value due to their short-term
nature or interest rates that approximate current market rates.
(k) Debt Issuance Cost and Debt Discount
The Company is amortizing as interest expense its debt discount and
debt issuance costs over the respective term of the debt issued
under the effective interest method. Accumulated amortization of
the debt discount at June 30, 2004 was $241,000.
(l) Net Loss Per Share
Net loss per share is determined by dividing net loss by the
weighted average common shares outstanding. Common stock
equivalents, consisting of employee stock options and common stock
warrants, in the amount of 4,675,402, 2,604,477 and 2,516,852 for
the years ended June 30, 2004, 2003 and 2002, respectively, were
antidilutive and were not included in the computation of net loss
per share in those fiscal years.
(m) Impairment or Disposal of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement requires that
long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount
by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(n) Stock Options
SFAS 123, "Accounting for Stock Based Compensation," as amended
by SFAS 148, "Accounting for Stock Based Compensation-Transition
and Disclosure", allows entities to choose between a fair value
based method of accounting for employee stock options or similar
equity instruments and the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion 25
(APB 25"), "Accounting for Stock Issued to Employees." Entities
electing to account for employee stock options or similar equity
instruments under APB 25 must make pro forma disclosures of net
income and earnings per share as if the fair value method of
accounting had been applied. The Company has elected to apply the
provisions of APB 25 in the preparation of its consolidated
financial statements and provide pro forma disclosure of net
income and earnings per share as required under SFAS 123 (dollars
in thousands, except share data).
F-11
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year Ended June 30,
2004 2003 2002
--------------- ---------------- -----------------
Net loss - as reported $ (698) $ (1,581) $ (1,162)
Stock-based employee compensation
expense not included in reported
net loss, net of tax (194) (556) (125)
------- -------- --- ----
Net loss - pro forma $ (892) $ (2,137) $ (1,287)
======= ======== ========
Basic and diluted net loss
per share - as reported $ (.10) $ (.22) $ (.20)
Basic and diluted net loss
per share - pro forma $ (.12) $ (.30) $ (.23)
Risk free interest rate 3% 3% 3%
Dividend yield 0% 0% 0%
Expected volatility 100% 100% 100%
Expected life 10 years 10 years 10 years
The full impact of calculating compensation cost for stock
options (fixed awards) is not reflected in the pro forma loss
amounts presented because compensation cost is reflected over the
prorata vesting period of the options.
(o) Recent 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.
(p) Reclassifications
Certain prior period amounts have been reclassified to conform to
the current year presentation.
(3) 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 June 30, 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.
F-12
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
As of June 30, 2004 and 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 June 30, 2004, the Company had $1.1
million of cash availability on the bank line of credit, and was in compliance
with all financial covenants required by the loan and security agreement.
(4) LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
---------------------------
2004 2003
----------- -----------
Promissory Notes (10% interest due semi-annually, December 31 and
June 30); principal beginning August 28, 2005, semi-annually on
August 28 February 28; balloon of $2,770,000 at maturity
and on August 28, 2008 $ 6,925,000 $ --
Convertible subordinated debt (issued in April and September 2001) -- 283,600
Subordinated Promissory Notes (issued January 21, 2003)
-- 150,000
Subordinated Promissory Notes (issued January 21, 2003)
-- 300,000
Subordinated Promissory Notes (issued May 12, 2003)
-- 64,500
Subordinated Promissory Note (issued May 20, 2003)
-- 235,500
Equipment debt (10.18% weighted average interest rate at June 30,
2003 and 2002) due in monthly installments with varying
maturities through October 2005 -- 3,444,000
Less: current portion -- (1,965,000)
----------- -----------
Long-term debt, excluding current portion $ 6,925,000 $ 2,512,600
=========== ===========
F-13
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future principal payments on long-term debt are due as follows as of
June 30, 2004:
Year Ended June 30,
-------------------
2005 $ --
2006 1,385,000
2007 1,385,000
2008 1,385,000
2009 2,770,000
----------
Total $ 6,925,000
==========
During August and September 2003, the Company repaid all the remaining
long-term and current portions of equipment debt, convertible subordinated debt
and promissory notes outstanding at June 30, 2003 from the proceeds of the
August 2003 refinancing. The former equipment lender was repaid in full. The
Company received a $757,000 cash discount from the lender in consideration of
the prepayment of the equipment debt. The current 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.
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 was $2.8 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 related
to these promissory notes included commissions, professional fees and other
costs, totaling $824,000 and are being amortized 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 June 30, 2004.
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 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 in April and September 2001 who did not convert their notes in January
2002 waived any conversion price adjustment. With the consent of the holder,
interest on two of these notes may be paid in the Company's common stock, with
the stock value based on the average closing price of the stock during the most
recent quarter. In September 2002, the maturity dates of these non-converted
notes were extended to August 31, 2004.
F-14
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUBORDINATED PROMISSORY NOTES
On December 23, 2002, the Company issued a $150,000 short-term promissory
note to a 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%. With the consent of
the holder, interest on the note may be paid in unregistered shares of the
Company's common stock, with the stock value based on the closing bid price of
the stock for the five trading days before the last day of the quarter in which
the interest is due but in no event less than the closing bid price at the time
of issuance or the average of the closing bid prices for the five trading days
prior to such time, whichever is lower.
On January 21, 2003, the Company issued $300,000 of subordinated
promissory notes to two shareholders. The notes are due on January 31, 2005 and
bear interest at an annual rate of 9%. With the consent of the holders, interest
on the notes may be paid in the Company's common stock, with the stock value
based on the closing bid price of the stock for the five trading days before the
last day of the quarter in which the interest is due but in no event less than
the closing bid price at the time of issuance or the average of the closing bid
prices for the five trading days prior to such time, whichever is lower.
On May 12, 2003, the Company issued $300,000 of subordinated promissory
notes to certain shareholders. The notes bear interest at an annual rate of 14%
and are 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. The exercise price of the
warrants is $0.86 per share.
On May 20, 2003, the Company issued $235,500 of subordinated promissory
notes to officers, directors and certain shareholders. The notes are due on
November 19, 2003 and bear interest at an annual rate of 14%. With the consent
of the holders, the Company may elect to pay interest on the notes in shares of
the Company's common stock, with the stock value based on the most recent
closing bid price of the stock at the time the notes were executed or for the
five trading days before such date, whichever is lower. 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 and after the date on which the notes are repaid
or otherwise surrendered to the Company, but in no event later than November 19,
2006.
The Company's debt agreements have 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.
(5) WARRANTS AND UNDERWRITER'S OPTION
(a) Public Offering Warrants
The Company issued 1,150,000 common stock warrants in conjunction
with its initial public offering in December 1996. Each warrant
entitles the holder to purchase one share of common stock at a
exercise price of $6.90 per share. In October 2003, the Company
extended the expiration date of the warrants from December 11, 2003
to December 11, 2004. The common stock underlying the warrants has
been registered with the Securities and Exchange Commission. As of
June 30, 2004, none of these warrants have been exercised.
F-15
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The number of shares of common stock that may be purchased upon
exercise of the warrants will be adjusted if the Company makes a
dividend distribution to its shareholders or subdivide, combine or
reclassify its outstanding shares of common stock. In addition, the
exercise price of the warrants will be adjusted, subject to certain
exceptions, if the Company issues additional common stock or rights
to acquire common stock at a price per share that is less than the
current market price per share of common stock. For this purpose,
the term "current market price" means the average of the daily
closing prices for the twenty consecutive trading days ending three
days prior to the issuance or record date. The exercise price of the
warrants will also be adjusted if the Company consolidates or merges
and make a distribution to its shareholders of assets or evidences
of indebtedness (other than cash or stock dividends).
The Company may redeem the warrants, at a redemption price of $0.01
per warrant, at any time upon thirty days' prior written notice, if
the average closing bid price of its common stock equals or exceeds
$10.50 per share for twenty consecutive trading days.
The Company may further extend the exercise period of the warrants
at any time. If the Company does so, it will give written notice of
the extension to the warrant holders prior to the expiration date in
effect at the time of the extension. Also, the Company may reduce
the exercise price of the warrants for limited periods or through
the end of the exercise period if its Board of Directors deems it
appropriate. The Company has not made any determination at this time
as to a further extension of the exercise period or a reduction in
the exercise price of the warrants.
(b) Underwriter's Option
In connection with the initial public offering the Company sold the
underwriter an option to purchase up to 100,000 shares of common
stock at $9.30 per share and warrants at an exercise price of
$.19375 to purchase an additional 100,000 shares, at an exercise
price of $9.30 per share. The underwriter's option was extended
concurrent with the warrants and currently expires on December 11,
2004. The exercise price of the warrants subject to the
underwriter's option and the number of shares of common stock
covered by these warrants, are subject to adjustment on similar
terms as the Company's other outstanding warrants. As of June 30,
2004, none of these warrants have been exercised.
(c) May 2003 Warrants
On May 20, 2003, the Company issued $235,500 of subordinated
promissory notes to officers, directors and certain shareholders.
The notes were due on November 19, 2003 and bear interest at an
annual rate of 14%. The Company also issued non-detachable warrants
to purchase 82,425 shares of common stock exercisable at $0.86 per
share in connection with the notes. The Company repaid these notes
in September 2003 with the proceeds of the August 2003 refinancing.
As of June 30, 2004, 7,000 of these warrants were exercised and the
remaining 75,425 are exercisable.
The number of shares of common stock that may be purchased upon
exercise of the warrants will be adjusted if the Company makes a
dividend distribution to its shareholders or subdivide, combine or
reclassify its outstanding shares of common stock. The exercise
price of the warrants will also be adjusted if the Company
consolidates or merges.
F-16
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) August 2003 Warrants
As a result of the August 2003 refinancing, the Company raised
$6.925 million and issued 2,008,250 five-year warrants to purchase
the Company's common stock at $1.00 per share. As of June 30, 2004,
62,500 warrants were exercised. Additionally, in September 2004
there were 50,000 shares exercised.
(6) STOCK OPTIONS
(a) Employee Stock Options
The Company has adopted two stock option plans (the "1996 Plan" and
the "2000 Plan") under which options to purchase shares of the
Company's common stock may be granted to employees. The purpose of
the 1996 Plan and the 2000 Plan is to provide an incentive to
attract, motivate and retain qualified competent employees whose
efforts and judgment are important to the Company's success through
the encouragement of the ownership of stock by such persons.
Under the 1996 Plan 500,000 shares of common stock are reserved for
issuance upon exercise of options granted. Under the 2000 Plan,
1,000,000 shares of common stock are reserved for issuance upon the
exercise of options, with the amount reserved being increased each
year by ten percent of the total shares subject to the 2000 Plan at
the end of the previous calendar year. Options to purchase 0 shares
of stock are outstanding under the 1996 Plan and options to purchase
362,000 shares of stock are available to be granted under the 2000
Plan. The Board of Directors has determined that no additional
options will be granted under the 1996 Plan.
Options granted under the 1996 Plan and the 2000 Plan expire no
later than ten years from the date of grant. Options granted under
the 1996 Plan and the 2000 Plan are not exercisable after the period
or periods provided in the respective option agreements. The
following table summarizes stock option activity for both plans for
the periods indicated:
F-17
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted
1996 and 2000 Average
Plans Exercise Price
------------- --------------
Options outstanding as of
January 31, 1999..................... 210,052 $ 3.49
========== =======
Granted............................ 159,000 $ 5.49
Cancelled.......................... (32,200) $ 4.60
Exercised.......................... (60,300) $ 3.44
---------- -------
Options outstanding as of
January 31, 2000..................... 276,552 $ 4.55
========== =======
Granted............................ 738,000 $ 1.50
Cancelled.......................... (13,200) $ 5.16
Exercised.......................... (2,200) $ 3.69
---------- -------
Options outstanding as of
January 31, 2001..................... 999,152 $ 2.30
========== =======
Granted............................ 240,000 $ 1.50
Cancelled.......................... (35,700) $ 2.68
Exercised.......................... -- $ --
---------- -------
Options outstanding as of
June 30, 2001........................ 1,203,452 $ 2.13
========== =======
Granted........................... 190,000 $ 1.32
Cancelled......................... (379,000) $ 2.31
Exercised......................... -- $ --
---------- -------
Options outstanding as of
June 30, 2002........................ 1,014,452 $ 1.89
========== =======
Granted........................... -- $ --
Cancelled......................... (27,000) $ 2.08
Exercised......................... -- $ --
---------- -------
Options outstanding as of
June 30, 2003........................ 987,452 $ 1.88
========== =======
Granted........................... 120,000 $ 1.30
Cancelled......................... (22,500) $ 3.95
Exercised......................... -- $ --
---------- -------
Options outstanding as of
June 30, 2004........................ 1,084,952 $ 1.77
========== =======
Exercisable....................... 896,952 $ 1.87
==========
Available for future grant (2000
Plan only)........................... 362,000
==========
F-18
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
under both plans as of June 30, 2004:
Weighted
Average Weighted Weighted
Remaining Average Number Average
Exercise Number Contractual Exercise of Shares Exercise
Price Outstanding Life (Years) Price Exercisable Price
-------------- ----------- ------------ -------- ----------- ---------
$1.07 to $1.74 969,000 6.95 1.44 781,000 1.44
$3.37 to $4.13 89,952 3.31 3.75 89,952 3.75
$6.56 to $7.63 26,000 5.12 7.40 26,000 7.40
------ ------
1,084,952 896,952
========== =========
TOTALS
(b) Director Stock Options
The Company adopted effective as of May 2001 a separate stock option
plan for non-employee members of the Company's Board of Directors
(the "Directors Plan"). The purpose of the Directors Plan is to
provide an additional incentive to attract and retain qualified
competent directors upon whose efforts and judgment are important to
the Company's success through the encouragement of the ownership of
stock by such persons.
Under the Directors Plan, 250,000 shares of common stock are
reserved for issuance upon the exercise of options granted. Each
non-employee who serves as a member of the Company's board of
directors as of the effective date of the Directors Plan, and each
non-employee who is elected or otherwise appointed as one of the
Company's directors thereafter, will receive a fully vested option
to purchase 20,000 shares of stock. On the last day of each fiscal
quarter while the Directors Plan is in effect, each non-employee
director will receive an additional grant of an option to purchase
625 shares of stock. Further, in accordance with the Directors Plan,
additional options may be granted to non-employee directors from
time to time. Options to purchase 219,375 shares of common stock are
currently outstanding under the Directors Plan and 30,625 shares of
stock are available to be granted in the future.
Options granted under the Directors Plan expire no later than ten
years from the date of grant and are with limited exceptions
exercisable as of the grant date.
The following table summarizes the stock option activity under the
Directors' Plan for the periods indicated:
F-19
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted Average
Directors Plan Exercise Price
-------------- ----------------
Options outstanding as of January 31, 2001....... -- $ --
Granted........................................ 100,000 $ 1.60
Cancelled...................................... -- $ --
Exercised...................................... -- $ --
---------- -------
Options outstanding as of June 30, 2001.......... 100,000 $ 1.60
========== =======
Granted........................................ 52,500 $ 1.52
Cancelled...................................... -- $ --
Exercised...................................... -- $ --
---------- -------
Options outstanding as of June 30, 2002.......... 152,500 $ 1.57
========== =======
Granted........................................ 53,125 $ 1.21
Cancelled...................................... (20,625) $ 1.25
Exercised...................................... -- $ --
---------- -------
Options outstanding as of June 30, 2003.......... 185,000 $ 1.51
========== =======
Granted........................................ 34,375 $ 1.41
Cancelled...................................... -- $ --
Exercised...................................... -- $ --
---------- -------
Options outstanding as of June 30, 2004.......... 219,375 $ 1.50
========== =======
Exercisable 219,375 $ 1.50
==========
Available for future grant 30,625
==========
The following table summarizes information about the Directors stock
options outstanding under the Plan as of June 30, 2004:
Weighted
Average Weighted Weighted
Remaining Average Number Average
Exercise Number Contractual Exercise of Shares Exercise
Pricese Outstanding Life (Years) Price Exercisable Price
-------------- ----------- ------------ -------- ----------- ---------
$.92 to $1.11 12,500 8.38 1.02 12,500 1.02
$1.21 to $1.36 40,000 8.48 1.27 40,000 1.27
$1.40 to $1.85 166,875 7.19 1.58 166,875 1.58
------- -------
219,375 219,375
======= =======
TOTALS
(7 SIGNIFICANT CUSTOMERS
Revenue (excluding fuel taxes) from one significant customer, the United
States Postal Service, totaled $9.5 million or 14%, $8.5 million or 16%,
and $8.4 or 19% of total revenue in the fiscal years ended June 30, 2004,
2003 and 2002, respectively. However, revenue from this customer was
generated from a total of 6 and 9 separate and independent written
contracts of varying lengths of service and renewal options for the years
ended June 30, 2004 and 2003, respectively.
F-20
(8) RELATED PARTY TRANSACTIONS
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.
(9) INCOME TAXES
The actual tax benefit of the Company for the years ended June 30,
2004, 2003 and 2002 differs from the statutory Federal tax rate of 34%
due to the following:
Fiscal Year Fiscal Year Fiscal Year
June 30, June 30, June 30,
2004 2003 2002
------------- ------------ -------------
Expected benefit for income taxes at the
statutory Federal income tax rate of 34% $ 237,000 $ 538,000 $ 395,000
Net operating loss carryforward adjustment 133,000 - -
Change in tax rate 172,000 - -
State income taxes, net of federal benefit 59,000 37,000 42,000
Other 14,000 13,000 (59,000)
Nondeductible expenses (12,000) (9,000) (102,000)
Deferred tax valuation allowance (603,000) (579,000) (276,000)
--------- --------- ---------
Benefit (provision) for income taxes $ -- $ -- $ --
========= ========= =========
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and their income tax bases, and operating loss
carryforwards
The tax effects of temporary differences and operating loss carryforwards
that give rise the significant portions of the deferred tax assets and
liabilities at June 30, 2004 and 2003 are presented below:
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June 30,
------------------------------------------
2004 2003
------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 5,684,000 $ 4,880,000
Asset basis adjustment for Reorganization 257,000 275,000
Allowance for doubtful accounts 170,000 200,000
Accrued expenses 42,000 32,000
Contributions carryover 2,000 3,000
------------ -----------
Total gross deferred tax assets 6,155,000 5,390,000
Less: valuation allowance (3,466,000) (2,863,000)
------------ -----------
Total deferred tax assets 2,689,000 2,527,000
============ ===========
Deferred tax liabilities:
Property and equipment (2,666,000) (2,438,000)
Software development costs (23,000) (89,000)
------------ -----------
Total deferred tax liabilities (2,689,000) (2,527,000
============ ===========
Net deferred tax assets $ -- $ --
============ ===========
Realization of deferred tax assets is dependent upon generating sufficient
taxable income in future periods. Management believes that these net
operating loss and credit carryforwards may expire unused and will not
meet the "more likely than not" criteria of SFAS No. 109, and, accordingly
has established a valuation allowance for the excess of deferred tax
assets over deferred tax liabilities.
The net change in the valuation allowance for the years ended June 30,
2004, 2003 and 2002 was an increase of $603,000, $579,000, $276,000,
respectively. All increases to the valuation allowance during these
periods were recorded through the provision for taxes. As of June 30,
2004, the Company has net operating loss carryforwards of approximately
$14.3 million which will begin to expire in the year 2011.
(10) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases real property and equipment under operating
leases that expire at various times through the year 2015. Future
minimum lease payments under non-cancelable operating leases as of
June 30, 2004 are:
Operating
Year ended Lease
June 30, Payments
----------- -------------
2005 365,000
2006 56,000
2007 21,000
2008 15,000
2009 15,000
Thereafter 91,000
-------------
563,000
=============
F-22
The Company was obligated to Mr. Streicher under two operating
leases covering property utilized for division truck yards and
offices, one of which expired in April 2002. While the second lease
does not expire until August of 2015, Mr. Streicher sold the
property covered by it to an unrelated third party in April 2003. In
conjunction with the sale, Mr. Streicher assigned the lease to the
purchaser of the property extinguishing any further obligation of
the Company to Mr. Streicher under it. Rent expense paid to Mr.
Streicher by the Company for the lease of its former corporate
offices and the two division facilities was $0, $12,000 and $30,000
for the fiscal years ended June 30, 2004, 2003 and 2002.
(b) Governmental Regulation
Numerous federal, state and local laws, regulations and ordinances,
including those relating to protection of the environment and worker
safety, affect the Company's operations. Various federal, state and
local agencies have broad powers under these laws, regulations and
ordinances. In particular, the operation of the Company's mobile
fueling fleet and its transportation of diesel fuel and gasoline are
subject to extensive regulation by the U.S. Department of
Transportation ("DOT") under the Federal Motor Carrier Safety Act
("FMCSA") and the Hazardous Materials Transportation Act ("HMTA").
The Company is subject to regulatory and legislative changes that
can affect the economics of the industry by requiring changes in
operating practices or influencing the demand for, and the cost of
providing, its services. On January 4, 2004, new federal safety
rules took effect reducing the number of hours truck drivers can be
on duty, including any time spent fueling their trucks or equipment.
In addition, the Company depends on the supply of diesel fuel and
gasoline from the oil and gas industry and, therefore, is affected
by changing taxes, price controls and other laws and regulations
generally relating to the oil and gas industry. The Company cannot
determine the extent to which its future operations and earnings may
be affected by new legislation, new regulations or changes in
existing regulations.
Complying with the technical requirements of these laws and
regulations is becoming increasingly expensive, complex and
stringent. These laws may impose penalties or sanctions for damages
to natural resources or threats to public health and safety. Such
laws and regulations may also expose the Company to liability for
the conduct of or conditions caused by others, or for acts of the
Company that were in compliance with all applicable laws at the time
such acts were performed. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or
civil penalties and criminal prosecution. Certain environmental laws
provide for joint and several liability for remediation of spills
and releases of hazardous substances. In addition, the Company may
be subject to claims alleging personal injury or property damage as
a result of alleged exposure to hazardous substances, as well as
damage to natural resources.
In the opinion of management, the Company is in substantial
compliance with existing laws and regulations, although there can be
no assurance that substantial costs for compliance will not be
incurred in the future. Moreover, it is possible that other
developments, such as stricter environmental laws, regulations and
enforcement policies thereunder, could result in additional,
presently unquantifiable, costs or liabilities to the Company.
(c) Employment Agreements
The Company entered into an employment agreement with Richard E.
Gathright on October 26, 2000 pursuant to which Mr. Gathright serves
as President and Chief Executive Officer of the Company. The
agreement has a term of three years, commencing on October 26, 2000,
provides for an annual base salary of $300,000, participation, with
other members of management, in a bonus program, whereby up to 10%
of the Company's pretax profits will be set aside for bonus
F-23
payments, and the grant of 500,000 options to purchase shares of the
Company's common stock at a price of $1.50 per share. The agreement
further provides that it may be terminated by the Company at any
time and for any reason. If the agreement is terminated by the
Company without cause, Mr. Gathright shall be due the greater of all
base salary payable through the term of the agreement or eighteen
months base salary. If the agreement is terminated for cause, as
defined, Mr. Gathright will not be entitled to the severance
payments specified. On September 25, 2003, the Company and Mr.
Gathright amended the terms of the agreement extending it from three
to four years. Additionally, this Agreement was extended an
additional year expiring October 31, 2005.
The Company has also entered into written employment agreements with
certain other Company officers. The agreements vary in terms up to
one year and automatically renew for successive periods unless
notice of termination and severance are given by the Company prior
to a renewal period.
(d) Absence of Written Agreements
Most of the Company's customers do not have written agreements with
the Company and can terminate the Company's mobile fueling services
at any time and for any reason. If the Company were to experience a
high rate of terminations, the Company's business and financial
performance could be adversely affected.
(e) Litigation
The Company may be subject to legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of
management, after consulting with legal counsel, no litigation or
claims exist that should have a material effect on the
consolidated financial position or results of operations of the
Company as of June 30, 2004.
F-24