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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0707824
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2720 N.W. 55TH COURT, FORT LAUDERDALE, FLORIDA 33309
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(Address of principal executive offices) (Zip Code)
(954) 739-3880
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
- ----------------------------------------- ----------------------------
COMMON STOCK, $.01 PAR VALUE CHICAGO STOCK EXCHANGE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS CHICAGO STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B 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 registrant's Common Stock held by
non-affiliates as of April 22, 1998 was $5,806,875 computed by reference to the
closing bid price of the Common Stock on such date.
As of April 22, 1998 there were 2,575,000 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference into
the parts indicated: The registrant's definitive Proxy Statement to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year covered by this report -- Part III.
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ITEM 1. DESCRIPTION OF BUSINESS
This Form 10-K contains "forward-looking statements" which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in Item 7, Management's Discussion and Analysis and
Plan of Operations under the caption "Certain Factors Affecting Future Operating
Results" and elsewhere in this Form 10-K.
The Company provides mobile fueling services, primarily to customers which
operate large fleets of vehicles (such as governmental agencies, utilities,
major trucking lines, hauling and delivery services and national courier
services). Company-owned custom fuel trucks deliver fuel on a regularly
scheduled or as needed basis directly to vehicles at customer locations,
assuring the Company's customers a dependable supply of fuel at competitive
rates. The Company utilizes its proprietary electronic fuel management system to
measure, record and track fuel dispensed to each vehicle fueled at a customer
location. This allows the Company to verify the amount of fuel delivered and
provides its customers with customized fleet fuel data for management analysis
and tax reporting. Additionally, the Company's fuel management system reduces
the risk of employee theft by dispensing fuel only to authorized vehicles. The
Company believes that mobile fueling provides several economic and other
advantages to its customers, including eliminating the costs and potential
environmental liabilities associated with equipping and maintaining fuel storage
and dispensing facilities, reducing labor and administrative costs associated
with fueling vehicles and providing centralized control over fuel inventories
and usage. The Company also believes that federal and state environmental
regulations have created opportunities for the Company to convert to mobile
fueling customers fleet operators that currently utilize underground storage
tanks.
Founded by Stanley H. Streicher, the Company's President and Chief Executive
Officer, the Company's predecessor commenced its mobile fueling operations in
1983. The Company presently has operations in seven locations throughout
Florida, Los Angeles and Hayward, California; Atlanta, Georgia; Chattanooga and
Kingsport, Tennessee; Dallas/Fort Worth, Texas and Kenner and Lake Charles,
Louisiana. During March 1998, the Company operated a fleet of 70 custom fuel
trucks and was delivering fuel at a rate of over 3.5 million gallons per month.
THE MOBILE FUELING INDUSTRY
Traditionally, business and other entities that operate large fleets of
vehicles have met their fueling requirements by either maintaining their own
supply of fuel in on-site storage tanks or fueling vehicles with credit card
purchases or other credit arrangements at local retail gas stations. 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 will require businesses
that maintain their own fuel supplies to spend significant amounts to remove or
retrofit underground storage tanks to meet regulatory standards. For example,
federal regulations designed to protect the nation's soil and groundwater from
contamination by leaking underground petroleum storage tanks currently require
that all new storage tanks and, by December 1998, all existing storage tanks
comply with certain construction standards and contain leak detection systems.
Some states, including Florida, have promulgated their own detailed criteria for
new underground storage tanks and the retrofitting of older underground storage
tanks, and in some instances such criteria are more stringent than the federal
regulations. The Company believes that many fleet operators currently utilizing
underground storage tanks will choose to meet their fueling requirements by
other means, including mobile fueling, instead of investing in upgrading
existing facilities.
Fueling fleet vehicles at retail gas stations is an inefficient use of
employee time, creates a significant amount of unnecessary paperwork and exposes
the fleet operator to an increased risk of employee fraud. In addition, while
large users often are able to negotiate favorable fuel pricing from retail gas
stations, the labor time expended by having employees fuel their own vehicles as
well as the costs associated with management and administration of fuel
purchases can exceed the benefits associated with price discounts.
The Company believes that mobile fueling services, such as those provided by
the Company, offer several benefits over traditional fueling methods:
- Reduced Operating Costs and Increased Labor Productivity. Mobile
fueling enables businesses to reduce operating costs by eliminating the
need for company employees to fuel vehicles either on-site or at local
retail gas stations. Overnight fueling prepares fleet vehicles for
operation at the beginning of each work day and increases labor
productivity by allowing employees to use their
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vehicles during time that would otherwise be spent fueling. Mobile
fueling also reduces the administrative burden required to oversee and
administer fuel purchases and inventories.
- Provides Centralized Inventory Control and Management. The Company's
fuel management system provides customers with weekly reports detailing,
among other things, the location, description and daily and weekly fuel
consumption of each vehicle fueled by the Company. This eliminates
customers' need to invest working capital to maintain adequate fuel
supplies, and allows customers to centralize their fuel inventory
controls and track and analyze vehicle movement and fuel consumption for
management and tax reporting purposes.
- Provides Tax Reporting Benefits. The Company's fuel management
system's ability 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 run refrigerator units on vehicles. For such uses, the
customers receive reports which provide them with the information
required to substantiate such tax exemptions.
- 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 expenditures and operating costs
required to equip and maintain fuel storage and dispensing facilities
and inventory and to comply with increasingly stringent environmental
regulations. In addition, by removing on-site storage tanks and relying
on mobile fueling, customers avoid potential liabilities associated with
the handling and storage of fuel.
- Prevents Fuel Theft. Fleet operators that rely on employees to fuel
vehicles, whether at on-site facilities or at retail gas stations, often
experience shrinkage of fuel inventories or excess fuel purchases due to
employee fraud. The Company's fuel management system reduces 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.
- Emergency Fuel Supplies. 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 to allow customers to respond more effectively
to severe local weather conditions or other emergency situations.
MARKETING AND CUSTOMERS
The Company markets its services primarily to customers which operate large
fleets of vehicles in connection with their business (such as governmental
agencies, utilities, major trucking lines, hauling and delivery services and
national courier services). The Company also seeks to obtain the business of
smaller fleet operators which are in geographical proximity to its larger
customers. Once engaged to provide fueling services, the Company is usually the
exclusive service for the fueling of a customer's entire fleet or a particular
yard of vehicles. For potential customers with larger fleets, the Company
generally obtains approval from regional corporate offices to supply fuel within
a newly designated area. Whereas 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.
The Company's sales representatives focus their marketing efforts on fleet
operators within the Company's established service areas. The Company's sales
representatives identify and directly contact candidates for the Company's
services. Direct marketing, including telephone solicitation, has played a
primary role in the Company's development of new business. Another important
marketing source has been referrals from existing customers.
The Company distributes gas and diesel fuel to approximately 350 customers.
Three customers accounted for more than 30% of the Company's revenue in the
years ended January 31, 1998 and 1997. Although the Company has contracts to
provide mobile fueling services to several of its larger customers, generally
the Company does not obtain written agreements with its customers.
OPERATIONS
The Company currently operates from 15 locations in California, Florida,
Georgia, Tennessee, Louisiana and Texas. The Company delivers fuel utilizing its
own fleet of 70 custom fuel trucks, most of which are equipped with the
Company's proprietary electronic fuel tracking and reporting system. The
Company's vehicles have fuel capacities ranging from 2,800 to 4,400 gallons.
Generally, each vehicle services between five and 15 customer locations per day
or night, depending on size of the customers, market density and the individual
customers' fuel requirements. Generally, the custom fuel trucks acquire fuel
inventory daily at local port facilities or large wholesale gas
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distributor locations and are assigned to a specified delivery route. The
Company conducts all dispatch and billing functions from corporate headquarters.
Route drivers and service personnel operate from all the Company's offices.
The Company's fuel management system derives its data from the Fuel Tracking
Controller (the "FTC Computer"), which is a computer installed on a customized
fuel truck. The FTC Computer can be programmed to control a variety of truck
configurations; single, dual, or triple storage container trucks; and any number
of pumps and hoses attached to the fuel truck. The FTC Computer details fueling
from the Company's trucks to each vehicle in the customer's vehicle fleet to a
measurement of 1/100 of a gallon by reading the state-calibrated meter installed
on the fuel trucks. To accomplish this measurement, the FTC Computer interfaces
with hand-held devices operated by the Company's driver or operator. During
1997, the Company received a patent from the United States Patent and Trademark
Office for its proprietary electronic fuel management system.
To permit the Company's customers to track their use of fuel, each fleet
vehicle or piece of equipment fueled by the Company is electronically identified
from a list of the customer's asset number previously registered in the
Company's computer. For security and tracking purposes, the FTC Computer will
not permit fuel to be dispensed from the Company's truck unless both the fleet
yard and the individual vehicle to be fueled electronically correspond to the
FTC Computer registration. A hand-held radio connected to a scanning device
links the operator or driver of the fuel truck with the FTC Computer. Only after
verification of both the yard and the truck or piece of equipment will the FTC
Computer allow operation of the fuel pump on the fuel truck to dispense fuel.
All fuel dispensing from a fuel truck is recorded by the FTC Computer and
stored in a tamper free solid state memory cartridge ("SSC") for downloading at
an operations control center where the data is assimilated into reports and
invoices for the customer. The FTC Computer will not allow fuel to be dispensed
unless this removable SSC cartridge is inserted into the FTC Computer. The SSC
has no moving parts and is not susceptible to damage or data loss under normal
conditions. The SSC also is protected by a dual battery back-up system and a
dual disk system to protect data. The Company also maintains a backup computer
system in the event of failure of the primary system.
The Company also has adapted its FTC Computer for use with fixed site tanks.
Upon conversion of a customer tank, the Company services and manages fuel
delivery to the tank and provides the customer with reports detailing fuel
dispensed by the customer from the tank into each fleet vehicle.
FUEL SUPPLY
Gas and diesel fuel are commodities which are processed and sold by various
sources. The Company purchases fuel from several major suppliers at spot market
prices and often qualifies for volume discounts. The Company monitors fuel
prices and price trends in each of its markets on a daily basis and seeks to
purchase at the lowest available prices with the best terms satisfactory to the
Company.
CUSTOM FUEL TRUCK PURCHASES
The Company presently orders and purchases custom fuel trucks from several
manufacturers of trucks suitable for the Company's operations. These companies
provide their customers with the option of purchasing standard equipment fuel
trucks or custom designing a fuel truck to particular specifications. The
typical configuration of the Company's custom fuel trucks is a Kenworth or
International chassis with a 3,400 to 4,400 gallon multi-compartment aluminum
tank, a vapor recovery system and the Company's proprietary FTC Computer, which
records and regulates fuel flow from the storage compartments. For maintenance
of the fuel trucks, the Company relies upon equipment warranties, fixed fee
service contracts and on-site repairs. To date, the Company has not experienced
significant downtime on any of its customized fuel trucks due to maintenance
problems.
COMPETITION
The Company competes with other distributors of fuel, including several
regional distributors and numerous small independent operators. Some of the
Company's competitors have significantly greater financial or marketing
resources than the Company. The Company's competitors also could introduce
services that are superior to the Company's or that achieve greater market
acceptance. The Company also competes for customers whose drivers fuel their own
vehicles at retail gas stations. The Company also could encounter potential
competition from a number of well capitalized companies which distribute fuel
and other similar oil products, some of which are larger, more established and
have greater financial, marketing and other resources than the Company. In
addition, some of the Company's customers are capable of providing the same
services to their vehicles directly. The Company believes that its ability to
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compete depends on a number of factors, including price, reliability, credit
terms, name recognition, delivery time and service and support. There can be no
assurance that the Company will be able to continue to compete successfully with
respect to these factors.
EXECUTIVE OFFICERS
The executive officers of the Company as of April 24, 1998 are as follows:
NAME AGE POSITION
---- --- --------
STANLEY H. STREICHER............ 55 President, Chief Executive Officer, Director
and Founder
WALTER B. BARRETT .............. 40 Vice President, Finance; Chief Financial Officer;
and Treasurer
TIMOTHY W. KOSHOLLEK............ 34 Vice President, Marketing
STEVEN E. ALFORD................ 32 Vice President, Operations
Mr. Streicher has served as President and Chief Executive Officer of the
Company since its inception. Mr. Streicher has also served as the President and
Chief Executive Officer of Streicher Enterprises, Inc. ("Enterprises"), the
Company's predecessor, since its inception in 1983. From 1979 to 1983, Mr.
Streicher operated a mobile fueling business which became the Company's
predecessor. From 1972 to 1979, Mr. Streicher served as supervisor of receiving
of AT&T's Montgomery Material Management Center, where he designed systems to
expedite material and equipment handling. From 1965 to 1972, Mr. Streicher
served to the rank of Captain in the United States Military in various
leadership capacities, including the command of an aviation division together
with the responsibility for scheduling aircraft and their refueling.
Mr. Barrett has served as Vice President, Finance and Chief Financial
Officer of the Company since July 1997. From 1991 to 1997 Mr. Barrett was Vice
President of Finance and Chief Financial Officer of Devcon International Corp.,
a supplier of construction materials and services throughout the Caribbean and
Southeastern Florida.
Mr. Koshollek has served as the Vice President of Marketing of the Company
since March 1998. From 1994 to February 1998, Mr. Koshollek served as Vice
President of Marketing and Operations of Enterprises and the Company. From 1991
to 1994, Mr. Koshollek was responsible for sales and management of a wholesale
seafood company. From 1989 to 1991, he was the operations manager of enterprises
responsible for its Southeast division fuel delivery operations.
Mr. Alford has served as Vice President, Operations of the Company since
March 1998. From December 1992 to February 1998, Mr. Alford was employed by
enterprises and the Company in various supervisory and managerial positions.
EMPLOYEES
At April 17, 1998, the Company had 182 full-time employees, of whom 36 were
involved in executive, managerial, supervisory and sales capacities, 122 were
route drivers and 24 served in various clerical and other capacities. None of
the Company's employees is covered by a collective bargaining agreement or is a
member of a union. The Company considers its relationship with its employees to
be good.
GOVERNMENTAL REGULATION
The Company's operations are affected by numerous federal, state and local
laws, including those relating to protection of the environment and worker
safety. The transportation of gasoline and diesel fuel is subject to regulation
by various federal, state and local agencies, including the U.S. Department of
Transportation ("DOT"). These regulatory authorities have broad powers, and 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. The
regulations provide that, among other things, the Company's drivers must possess
a commercial drivers license with a hazardous materials endorsement thereon. The
Company is also subject to the rules and regulations of the Hazardous Materials
Transportation Act. For example, the Company's drivers and their equipment must
comply with DOT's pre-trip inspection rules, documentation regulations
concerning hazardous materials (i.e., certificates of shipments which describe
type and amount of product transported), and limitations on the amount of fuel
transported as well as driver time limitations. Additionally, the Company is
subject to DOT inspections which occur at random intervals. Any material
violation of DOT rules or the Hazardous Materials Transportation Act may result
in citations and/or fines upon the Company. In addition, the Company depends on
the supply of gasoline and diesel fuel from the oil and gas industry and,
therefore, is affected by changing taxes, price controls and other laws
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and regulations relating to the oil and gas industry generally. 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,
companies 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 continuing 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.
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
----------- -------- ---------------- -----
Principal executive offices, truck yard
and warehouse space Ft. Lauderdale, Florida 7/31/14 (1)
Truck yard and office Ft. Myers, Florida 1/1/00 (2)
Truck yard and office Jacksonville, Florida 8/31/15 (1)
Truck yard and office Orlando, Florida 1/31/00 (1)
Truck yard and office Tampa, Florida -- (3)
Truck yard Tallahassee, Florida Month to Month (2)
Truck yard and office Atlanta, Georgia 5/31/98 (2) (4)
Truck yard and office Kingsport, Tennessee 7/31/98 (2)
Truck yard and office Kenner, Louisiana 7/31/00 (1) (4)
Truck yard and office Lake Charles, Louisiana 9/30/98 (2)
Truck yard and office Ft. Worth, Texas Month to Month (2) (4)
Truck yard and office Gardena, California Month to Month (2)
Truck yard and office Hayward, California 10/1/98 (2)
- ----------
(1) Leased from Stanley H. Streicher, Company President and Chief Executive Officer.
(2) Leased
(3) Property owned by the Company
(4) The Company is currently planning to purchase land parcels in Atlanta,
Georgia; Ft. Worth, Texas; and Kenner, Louisiana for its operations.
Leases in those locations will be terminated when the parcels are
purchased.
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ITEM 3. LEGAL PROCEEDINGS
The Company has no material legal proceedings pending. From time to time,
the Company may become a party to litigation incidental to its business. There
can be no assurance that any future legal proceedings will not have a material
adverse effect on the Company's business, reputation, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $.01 ("Common Stock") and Redeemable
Common Stock Purchase Warrants ("Warrants") have traded in the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
Small-Cap Market under the symbols "FUEL" and "FUELW", respectively, since
December 11, 1996, the date of the Company's initial public offering. The
Company's securities are also traded on the Chicago Stock Exchange. The
following table sets forth, for the periods indicated, the high and low closing
bid quotations for the Common stock and Warrants, as reported by NASDAQ. The
NASDAQ quotations represent quotations between dealers without adjustment for
retail markups, markdowns or commissions and may not necessarily represent
actual transactions.
COMMON STOCK WARRANTS
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YEAR ENDED JANUARY 31, 1998 HIGH LOW HIGH LOW
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1st quarter $ 11.00 $6.50 $4.50 $ 1.63
2nd quarter $ 8.25 $3.25 $2.50 $ .63
3rd quarter $ 4.75 $2.75 $1.38 $ .75
4th quarter $ 5.69 $2.75 $2.00 $ .38
YEAR ENDED JANUARY 31, 1997
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4th quarter $8.625 $7.75 $3.25 $1.88
As of April 22, 1998, there were 17 holders of record of the Company's
Common Stock. The Company believes there are in excess of 500 beneficial owners
of the Company's Common Stock. On April 22, 1998, the closing bid price of the
Common Stock was $4.75 per share and the closing bid price of the Warrants was
$1.25 per Warrant.
To date, the Company has not declared or paid any dividends on its Common
Stock. The payment of dividends, if any, is within the discretion of the Board
of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition and other relevant factors. The Board of
Directors does not intend to declare any dividends in the foreseeable future,
but instead intends to retain future earnings for use in the Company's business
operations.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company and its consolidated
subsidiaries are qualified in their entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The data for each of the 4 years in the period ended January 31,
1998, are derived from the Consolidated Financial Statements of the Company or
the financial statements of the Mobile Fueling Division of Streicher
Enterprises, Inc. audited by Arthur Andersen LLP, independent certified public
accountants. The Consolidated Financial Statements of the Company as of January
31, 1998 and 1997 and for each of the years in the three year period ended
January 31, 1998 and the report thereon appear elsewhere herein.
EARNINGS STATEMENT DATA: 1998 1997 1996 1995
------------ ------------ ------------ ------------
Total revenues $ 43,041,814 $ 33,844,969 $ 23,989,358 $ 16,663,371
Cost of sales 39,736,507 31,458,794 21,752,350 15,217,945
------------ ------------ ------------ ------------
Gross profit 3,305,307 2,386,175 2,237,008 1,445,426
Operating expenses 3,575,368 2,640,609 1,752,485 1,348,028
------------ ------------ ------------ ------------
Operating income (loss) (270,061) (254,434) 484,523 97,398
Loss on asset disposal (62,399) (5,928) -- --
Interest expense (474,923) (432,498) (343,967) (168,991)
Interest and other income 178,811 31,071 33,219 13,504
------------ ------------ ------------ ------------
Income (loss) before income taxes (628,572) (661,789) 173,775 (58,089)
Income tax benefit (expense) 153,146 232,551 (75,169) 7,915
------------ ------------ ------------ ------------
Basic and diluted net income (loss) $ (475,426) $ (429,238) $ 98,606 $ (50,147)
============ ============ ============ ============
Basic and diluted net income (loss) per share $ (.18) $ (.26) $ .0 $ (.03)
============ ============ ============ ============
Basic and diluted weighted average
common shares outstanding 2,575,000 1,631,250 1,500,000 1,500,000
============ ============ ============ ============
BALANCE SHEET DATA: 1998 1997 1996 1995
------------ ------------ ------------ ------------
Working capital $ 3,392,012 $ 2,495,181 $ 737,419 $ 267,132
Total assets $ 13,995,540 $ 11,402,970 $ 6,357,936 $ 4,352,732
Long term debt $ 5,915,049 $ 1,123,498 $ 3,172,737 $ 2,029,723
Total stockholders' equity $ 4,441,250 $ 4,961,413 $ 385,066 $ 280,140
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Plan of Operations contains "forward-looking statements" which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including those set forth under the caption "Certain Factors Affecting Future
Operating Results," below, and elsewhere in this Form 10-K. The following
discussion also should be read in conjunction with the Company's financial
statements and notes thereto included elsewhere in this Form 10-K.
GENERAL
The Company was incorporated in the State of Florida in October 1996. Prior to
the effective date of the Company's registration statement for its initial
public offering on December 11, 1996, the Company's business was conducted
through the Mobile Fueling Division of Streicher Enterprises, Inc., which began
mobile fueling operations in 1983. Streicher Enterprises, Inc. ("Enterprises")
completed a corporate reorganization as of such effective date, pursuant to
which the Mobile Fueling Division of Enterprises transferred its assets,
liabilities and operations to the Company. Enterprises is wholly owned by the
president of the Company and currently owns 52.4% of the outstanding common
stock of the Company. This corporate reorganization has been retroactively
reflected in the Company's Financial Statements and notes thereto as if such
transfer had occurred at inception of the former Mobile Fueling Division. See
Note 1 of Notes to the Company's Financial Statements included elsewhere in this
Form 10-K.
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The Company derives all of its revenue from selling fuel and providing mobile
fueling services. Revenue is comprised principally of sales of gasoline and
diesel fuel and related service charges. Cost of sales is comprised principally
of the cost of fuel and transportation costs (primarily payroll). 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.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR ENDED JANUARY 31, 1998 TO FISCAL YEAR ENDED JANUARY
31, 1997
REVENUES
Revenue increased $9.2 million, or 27.2%, for the year ended January 31, 1998
("fiscal 1998") compared to the year ended January 31, 1997 ("fiscal 1997"). The
Company delivered 33.3 million gallons of fuel to its customers in fiscal 1998,
an increase of 41.1% over the 23.6 million gallons delivered in fiscal 1997. The
increase in revenue resulted from a higher volume of fuel sales to existing
customers, acquisition of new customers in existing locations, and the
introduction of mobile fueling operations into additional metropolitan areas,
offset by declines in the wholesale price of gasoline and diesel fuel.
GROSS PROFIT
Gross profit increased $919,000 or 38.5% in fiscal 1998 compared to fiscal 1997,
primarily as a result of increases in revenue, fuel price increases and certain
cost reductions. The gross profit per gallon on fuel sold in fiscal 1998 was 4.3
cents per gallon compared to a gross profit in fiscal 1997 of 5.5 cents per
gallon. The Company achieved a gross profit on mobile refueling operations in
fiscal 1998 of 22.3% compared to a gross profit of 17.2% in fiscal 1997. The
decrease in fuel gross profit from fiscal 1997 to fiscal 1998 was due primarily
to reduction in markup on fuel sales, while the improvement in mobile refueling
gross profit was due primarily to certain cost reductions and improvements in
operating efficiency.
OPERATING EXPENSES
Operating expenses increased $935,000, or 35.4%, in fiscal 1998 compared to
fiscal 1997. As a percentage of revenue, operating expenses increased from 7.8%
in fiscal 1997 to 8.3% in fiscal 1998. The increase in operating expenses
primarily resulted from an increase in payroll and related administrative costs
associated with the addition of personnel to support expansion of the Company's
mobile fueling operations.
INTEREST EXPENSE
Interest expense increased $42,000, or 9.7%, in fiscal 1998 compared to fiscal
1997 as a result of increased borrowings to fund the Company's expansion into
new markets and to acquire new custom fuel trucks for existing and new
locations.
INCOME TAXES
The Company recorded an income tax benefit of $153,000 in fiscal 1998 compared
to an income tax benefit of $233,000 in fiscal 1997. Income taxes were recorded
at effective tax rates of 24.4% and 35.1% in fiscal 1998 and fiscal 1997,
respectively. The effective tax benefit rate reflects the Company's best
estimate of its annual tax rate for each fiscal year.
NET LOSS
The Company had a net loss of $475,000, or $.18 per share, in fiscal 1998 and a
net loss of $429,000, or $.26 per share, in fiscal 1997. The Company's net
losses in fiscal 1998 and 1997 resulted primarily from the Company's expansion
into new markets, underutilization of equipment in such markets and increases in
personnel, equipment and facilities to support current and future growth.
COMPARISON OF FISCAL YEAR ENDED JANUARY 31, 1997 TO FISCAL YEAR ENDED JANUARY
31, 1996
REVENUES
Revenue increased $9.9 million, or 41.1%, for fiscal 1997 compared to the
year ended January 31, 1996 ("fiscal 1996"). The Company delivered approximately
23.6 million gallons of fuel to its customers in fiscal 1997, an increase of
18.6% over the approximately 19.9 million gallons delivered in fiscal 1996. The
increase in revenue resulted from a higher volume of fuel sales and services to
existing customers, acquisition of new customers in existing locations, the
introduction of mobile fueling operations into additional metropolitan areas and
an overall increase in the wholesale price of gasoline and diesel fuel.
A-9
GROSS PROFIT
Gross profit increased $149,000 or 6.7% in fiscal 1997 compared to fiscal
1996. This increase was due primarily to increases in revenues, improvements in
the gross margin on fuel sold, offset by a decline in the gross profit margin on
mobile refueling services. The gross profit per gallon of fuel sold in fiscal
1997 was 5.5 cents per gallon compared to a gross profit of 1.1 cents per gallon
in fiscal 1996. The Company achieved a gross profit on mobile refueling
operations of 17.2% in fiscal 1997 compared to a gross profit of 33.1% in fiscal
1996. The improvement in fuel gross margin from fiscal 1996 to fiscal 1997 was
due to a combination of price increases and improvements in purchasing. The
decline in mobile refueling gross margin from fiscal 1996 to fiscal 1997 is due
primarily to increases in driver payroll costs, repair and maintenance costs and
other costs associated with the Company's expansion into new markets in fiscal
1997.
OPERATING EXPENSES
Operating expenses increased $888,000, or 50.7%, in fiscal 1997 compared to
fiscal 1996. As a percentage of revenue, operating expenses increased from 7.3%
in fiscal 1996 to 7.8% in fiscal 1997. The increase in operating expenses
primarily resulted from an increase in payroll and related administrative costs
associated with the addition of personnel to support expansion of the Company's
mobile fueling operations.
INTEREST EXPENSE
Interest expense increased $88,500, or 25.7%, in fiscal 1997 compared to
fiscal 1996 as a result of increased borrowings to fund the Company's expansion
into new markets and to acquire new custom fuel trucks for existing and new
locations.
INCOME TAXES
The Company recorded an income tax benefit of $233,000 in fiscal 1997
compared to an income tax provision of $75,000 in fiscal 1996. Income taxes were
recorded at effective tax rates of 35.1% and 43.3% in fiscal 1997 and fiscal
1996, respectively. The effective tax benefit rate reflects the Company's best
estimate of its annual tax rate for each fiscal year.
NET INCOME (LOSS)
The Company had a net loss of $429,000, or $.26 per share, in fiscal 1997
and net income of $99,000, or $.07 per share, in fiscal 1996. The Company's net
loss in fiscal 1997 resulted primarily from the Company's expansion into new
markets, underutilization of equipment in such markets and increases in
personnel, equipment and facilities to support current and future growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires it to expend considerable amounts of funds
for fuel, labor and equipment costs before any payments are received from the
Company's customers. The fuel purchased by the Company for resale to its
customers must generally be paid for within 10 to 15 days of purchase, labor
costs and related taxes are funded bi-weekly and equipment related costs are
generally satisfied within 30 days. The Company bills its customers weekly and
generally collects its accounts within 35 to 40 days. Days sales outstanding at
January 31, 1998 totaled 41 days as compared to 48 days sales outstanding at
January 31, 1997.
Continued revenue growth for the Company is dependent on its ability to
obtain necessary working capital from bank borrowings, equity transactions and
retained earnings in order to fund increases in accounts receivable and provide
the funds necessary to acquire additional custom fuel delivery trucks. To date,
the Company has relied on bank borrowings and sales of equity securities to
finance its growth. At January 31, 1998, the Company had $1.7 million of
availability under its $5.0 million line of credit and $1.4 million of cash and
cash equivalents. The Company intends to seek the additional working capital it
needs to finance its growth by a combination of vendor financing, continued
expansion of its existing credit facility, and the use of its cash and cash
equivalents on hand. While the Company believes it can successfully obtain
additional vendor and bank financing to finance its growth, there is no
assurance that any such financing can be obtained or will be obtained on terms
acceptable to the Company. The Company anticipates, based on its current revenue
levels, that its existing cash and cash equivalents as well as existing lines of
credit will be adequate to meet its needs for working capital and capital
expenditures for at least the next twelve months.
The Company has outstanding borrowings of $3.3 million as of January 31,
1998 under its $5.0 million line of credit. Interest is payable monthly at .75%
over the prime rate (8.5% as of January 31, 1998). The line of credit matures on
October 31, 1999 and is secured by substantially all of the Company's assets.
The credit agreement contains customary covenants such as the maintenance of
certain financial ratios and minimum net worth and working capital requirements.
As of January 31, 1998, the Company was in compliance with these financial
covenants and restrictions.
Custom fuel trucks are ordered in advance of need and require a minimal down
payment with the balance due upon delivery. It is expected that this balance
will be funded through a combination of available cash and vendor financing. In
the past, the Company has financed approximately 85% to 95% of the purchase
price of fuel trucks. The Company is unable to estimate the amount of cash
required
A-10
for the acquisition of fuel trucks as such amount is dependent upon the terms
and conditions of financing available, if any, to the Company at the time of
delivery. At January 31, 1998, the Company had purchase commitments for 27
custom fuel delivery vehicles aggregating approximately $3.0 million.
A significant portion of the Company's outstanding debt bears interest at
variable interest rates. The Company's financial results will be impacted by
significant increases or decreases in interest rates.
YEAR 2000 ISSUE
The Company has developed plans to address the possible exposures related to
the impact on its computer systems to be Year 2000 compliant. The plan provides
for the conversion efforts to be completed by the end of fiscal 1999. The year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Management does not expect the
financial impact of making the required system changes to be material to the
Company's consolidated financial position, results of operations or cash flows.
The Company is expensing all costs associated with these systems changes as the
costs are incurred.
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.
LOSSES FROM OPERATIONS; ACCUMULATED DEFICIT; NO ASSURANCES OF PROFITABILITY.
Although the Company operated profitably in the fiscal year ended January 31,
1996, the Company experienced net losses in the years ended January 31, 1998 and
1997 of $475,426 and $429,238, respectively, and there can be no assurance that
the Company will not incur net losses in the future. The Company's expansion
over the past several years and its negative cash flows from operating
activities have been financed by additional bank borrowings and, subsequent to
the Company's initial public offering, the net proceeds from the issuance of
Common Stock and Warrants in that offering. The Company's operating expenses
have increased as its business has grown and can be expected to increase as a
result of the Company's expansion efforts into new markets. There can be no
assurance that the Company will be able to generate sufficient revenue to meet
its operating expenditures or to operate profitably.
NEED FOR CAPITAL. The mobile fueling business is capital intensive and the
Company will continue to require substantial capital in order to operate and
expand its business. The Company's primary long-term and working capital
requirements have been to fund capital expenditures for custom fuel trucks and
related equipment and working capital for the financing of customer accounts
receivable. Historically, the Company has depended primarily on debt financing
for its purchases of custom fuel trucks. If the Company is unable to obtain
additional equity or debt financing in the future, the Company may have to limit
its growth. The Company expects that its debt will increase in the future as the
Company utilizes borrowed funds to acquire new vehicles, for acquisitions,
working capital or other corporate purposes.
GROWTH DEPENDENT UPON EXPANSION; RISKS ASSOCIATED WITH EXPANSION INTO NEW
MARKETS. A significant element of the Company's future growth strategy involves
the expansion of the Company's business into new markets. The Company intends to
expand its business into additional major metropolitan areas. Expansion of the
Company's operations will be dependent on, among other things, the Company's
ability to demonstrate the benefits of mobile fueling to potential new
customers; successfully establish and operate new locations; hire and retain
qualified management; marketing and other personnel; obtain adequate financing
for vehicle purchases and working capital purposes; secure adequate sources of
supply on a timely basis and on commercially reasonable terms and successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective quality controls). The Company's growth prospects will be
largely dependent upon its ability to achieve greater penetration in new
markets. The Company may also seek to expand its operations through the
acquisition of existing companies or their customer bases. There can be no
assurance that the Company will be able to successfully expand its operations.
POTENTIAL ACQUISITIONS; DIFFICULTY IN ASSIMILATING ACQUISITIONS. The Company
intends to pursue acquisition opportunities as a means of achieving its growth
objectives, although there can be no assurance that the Company will be able to
locate or acquire suitable acquisition candidates on acceptable terms or that
future acquired operations will be effectively and profitably integrated into
the Company. Acquisitions involve a number of risks that could adversely affect
the Company's operating results, including diverting management attention, the
assimilation of the operations and personnel of the acquired operations, the
amortization of acquired intangible assets and the potential loss of key
employees of the acquired operations. Properly managing any growth through
acquisitions, avoiding the problems often attendant therewith, and continuing to
operate in the manner which has proven successful to the Company to date will be
important to the future success of the Company's business.
RISKS ASSOCIATED WITH CUSTOMER CONCENTRATION; ABSENCE OF WRITTEN AGREEMENTS.
Revenue from three major customers totaled approximately $13.8 million, $12.6
million, and $10.5 million in fiscal 1998, 1997 and 1996 respectively. Although
the Company has contracts to provide mobile fuel services to several of its
larger customers, 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. As a result of this customer concentration and absence
of written agreements, the Company's business, results of operations and
financial condition could be materially adversely affected by the loss of one or
more of its major customers or if the Company were to experience a high rate of
contract terminations.
A-11
LIMITED AVAILABILITY OF MANAGERIAL PERSONNEL. The Company has experienced
significant growth over the past several years. For the Company to be able to
continue to grow effectively it will need to continue to improve its
operational, financial and other internal systems, and to attract, train,
motivate, manage and retain its employees. If the Company is unable to manage
growth effectively, the Company's results of operations will be adversely
affected.
COMPETITION. The Company competes directly and indirectly with other
distributors of fuel, including several regional distributors and numerous small
independent operators. Some of the Company's competitors have significantly
greater financial or marketing resources than the Company. The Company's
competitors also could introduce services that are superior to the Company's or
that achieve greater market acceptance. The Company also competes for customers
whose drivers fuel their own vehicles at retail gas stations. The Company could
encounter potential competition from a number of well capitalized companies
which distribute fuel and other similar oil products, some of which are larger,
more established and have greater financial, marketing and other resources than
the Company. In addition, some of the Company's customers are capable of
providing the same services to their vehicles directly. The Company believes
that its ability to compete depends on a number of factors, including price,
reliability, credit terms, name recognition, delivery time and service and
support. There can be no assurance that the Company will be able to continue to
compete successfully with respect to these 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 gasoline and diesel fuel, 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. The Company's operations are affected by numerous
federal, state and local laws, including those relating to protection of the
environment and worker safety. The transportation of gasoline and diesel fuel is
subject to regulation by various federal, state and local agencies, including
the DOT. These regulatory authorities have broad powers, and 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. The regulations provide
that, among other things, the Company's drivers must possess a commercial
drivers license with a hazardous materials endorsement thereon. The Company is
also subject to the rules and regulations of the Hazardous Materials
Transportation Act. For example, the Company's drivers and their equipment must
comply with DOT's pre-trip inspection rules, documentation regulations
concerning hazardous materials (i.e., certificates of shipments which describe
type and amount of product transported), and limitations on the amount of fuel
transported as well as driver time limitations. Additionally, the Company is
subject to DOT inspections which occur at random intervals. Any material
violation of DOT rules or the Hazardous Materials Transportation Act may result
in citations and/or fines upon the Company. In addition, the Company depends on
the supply of gasoline and diesel fuel from the oil and gas industry and,
therefore, is affected by changing taxes, price controls and other laws and
regulations relating to the oil and gas industry generally. 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,
companies 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 continuing 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.
CHANGES IN ENVIRONMENTAL REQUIREMENTS. The Company expects to derive a
significant amount of its future business by converting to mobile fueling
customers fleet operators that currently utilize underground fuel storage tanks
for their fueling needs. Under current federal regulations, the owners of such
underground storage tanks are required, by December 1998, to remove or retrofit
such tanks to comply with technical requirements pertaining to their
construction and operation. If the date for compliance with such regulations is
extended, or 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 persons may be adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
A-12
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.
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 1998 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 1998 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 1998 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 1998 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBITS DESCRIPTION
3.1 Articles of Incorporation (1
3.2 By Laws (1)
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 between the RegistrantaAnd Stanley H.
Streicher (1)(2)
10.2 Registrant's Stock Option Plan (1)(2)
10.3 $5,000,000 Loan Agreement, dated December 31, 1997, between the
Registrant and Bank Atlantic (3)
A-13
10.4 Master Security Agreement, dated July 24, 1997, between the
Registrant and General Electric Capital Corporation (3)
10.5 Form of Promissary Note with General Electric Capital
Corporation (3)
10.6 Form of Collateral Schedule with General Electric Capital
Corporation (3)
- --------------------------------------------------------------------------------
(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) Filed herewith
(B) REPORTS ON FORM 8-K
None.
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.
STREICHER MOBILE FUELING, INC.
Dated: April 24, 1998 By: /s/ STANLEY H. STREICHER
------------------------
Stanley H. Streicher, Chairman of the
Board and Chief Executive Officer
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.
Dated: April 24, 1998 By: /s/ STANLEY H. STREICHER
--------------------------
Stanley H. Streicher, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
Dated: April 24, 1998 By: /s/ WALTER B. BARRETT
--------------------------
Walter B. Barrett, Vice President,
Finance and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: April 24, 1998 By: /s/ E. SCOTT GOLDEN
--------------------------
E. Scott Golden, Director
Dated: April 24, 1998 By: /s/ JOSEPH M. MURPHY
--------------------------
Joseph M. Murphy, Director
Dated: April 24, 1998 By: /s/ JOHN H. O'NEIL, JR.
--------------------------
John H. O'Neil, Director
Dated: April 24, 1998 By: /s/ L. PHILLIPS REAMES
--------------------------
L. Phillips Reames, Director
A-14
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of January 31, 1998 and 1997 F-3
Consolidated Statements of Operations for Each of the Years in the Three Year
Period Ended January 31, 1998 F-5
Consolidated Statements of Shareholders' Equity for Each of the Years in the Three
Year Period Ended January 31, 1998 F-6
Consolidated Statements of Cash Flows for Each of the Years in the Three Year
Period Ended January 31, 1998 F-7
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Streicher Mobile Fueling, Inc.:
We have audited the accompanying consolidated balance sheets of Streicher Mobile
Fueling, Inc. (a Florida corporation) and subsidiaries as of January 31, 1998
and 1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three year period ended
January 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 January 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three year
period ended January 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
April 10, 1998.
F-2
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1997
ASSETS 1998 1997
------- ------------ ------------
Current Assets:
Cash and cash equivalents $ 1,411,134 $ 2,848,000
Investments 69,227 115,751
Accounts receivable, net of allowance for doubtful
accounts of $148,000 and $51,000, respectively 5,065,437 4,352,761
Inventories 133,924 76,961
Prepaid expenses and other 351,531 254,548
------------ ------------
Total current assets 7,031,253 7,648,021
Property and Equipment:
Land 59,996 --
Leasehold improvements 152,664 91,070
Fuel trucks and automobiles 6,305,637 3,586,670
Machinery and equipment 799,858 613,583
Furniture and fixtures 66,139 37,250
Construction in process 173,797 6,280
------------ ------------
7,558,091 4,334,853
Less accumulated depreciation and amortization (1,357,368) (966,074)
------------ ------------
6,200,723 3,368,779
Deferred income tax assets (Note 8) 254,848 --
Note receivable from related party (Note 7) 451,806 319,043
Other assets 56,910 67,127
------------ ------------
Total assets $ 13,995,540 $ 11,402,970
============ ============
(Continued)
F-3
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1997
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------ ------------
Current Liabilities:
Bank line of credit payable $ -- $ 1,404,469
Current portion of long-term debt (Note 5) 790,101 740,852
Accounts payable 2,313,581 2,411,031
Accrued expenses 415,664 426,818
Customer deposits 119,895 169,670
------------ ------------
Total current liabilities 3,639,241 5,152,840
Long-term Liabilities:
Bank line of credit payable (Note 4) 3,269,713 --
Long-term debt, excluding current portion (Note 5) 2,645,336 1,123,498
Deferred income taxes (Note 8) -- 165,219
------------ ------------
Total liabilities 9,554,290 6,441,557
------------ ------------
Commitments and Contingencies (Note 9)
Shareholders' Equity: (Notes 3, 10 and 11)
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
2,575,000 shares issued and outstanding 25,750 25,750
Additional paid-in capital 5,195,758 5,220,758
Unrealized gain on investment -- 19,737
Accumulated deficit (780,258) (304,832)
------------ ------------
Total shareholders' equity 4,441,250 4,961,413
------------ ------------
Total liabilities and shareholders' equity $ 13,995,540 $ 11,402,970
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED JANUARY 31, 1998
1998 1997 1996
------------ ------------ ------------
Fuel sales revenues 21,028,667 17,489,356 9,691,916
Mobile fueling service revenues 8,370,880 6,265,534 6,102,442
Fuel taxes 13,642,267 10,090,079 8,195,000
------------ ------------ ------------
Total revenues (Note 6) 43,041,814 33,844,969 23,989,358
Cost of fuel sales 19,588,275 16,182,039 9,473,738
Cost of mobile fueling service sales 6,505,965 5,186,676 4,083,612
Fuel taxes 13,642,267 10,090,079 8,195,000
------------ ------------ ------------
Total cost of sales 39,736,507 31,458,794 21,752,350
Gross profit 3,305,307 2,386,175 2,237,008
Operating expenses 3,575,368 2,640,609 1,752,485
------------ ------------ ------------
Operating income (loss) (270,061) (254,434) 484,523
Loss on asset disposal (62,399) (5,928) --
Interest expense (474,923) (432,498) (343,967)
Interest and other incomE 178,811 31,071 33,219
------------ ------------ ------------
Income (loss) before benefit (provision)
for income taxes (628,572) (661,789) 173,775
Income tax benefit (provision) 153,146 232,551 (75,169)
------------ ------------ ------------
Net income (loss) $ (475,426) $ (429,238) $ 98,606
============ ============ ============
Basic and diluted net income (loss) per share $ (0.18) $ (0.26) $ 0.07
============ ============ ============
Basic and diluted weighted average
common shares outstanding 2,575,000 1,631,250 1,500,000
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED JANUARY 31, 1998
COMMON STOCK ADDITIONAL UNREALIZED RETAINED
-------------------------- PAID-IN GAIN ON (DEFICIT)
SHARES AMOUNT CAPITAL INVESTMENT EARNINGS TOTAL
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1995 1,500,000 $ 15,000 $ 238,588 $ 2,335 $ 25,800 $ 281,723
Net income -- -- -- -- 98,606 98,606
change in unrealized gain on investment -- -- -- 4,737 -- 4,737
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1996 1,500,000 15,000 238,588 7,072 124,406 385,066
Net loss -- -- -- -- (429,238) (429,238)
change in unrealized gain on investment -- -- -- 12,665 -- 12,665
net proceeds from issuance of common
stock and common stock warrants 1,075,000 10,750 4,982,170 -- -- 4,992,920
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1997 2,575,000 25,750 5,220,758 19,737 (304,832) 4,961,413
----------- ----------- ----------- ----------- ----------- -----------
Net loss -- -- -- -- (475,426) (475,426)
additional common stock offering expenses -- -- (25,000) -- -- (25,000)
change in unrealized gain on investment -- -- -- (19,737) -- (19,737)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1998 $ 2,575,000 $ 25,750 $ 5,195,758 $ -- $ (780,258) $ 4,441,250
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED JANUARY 31, 1998
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (475,426) $ (429,238) $ 98,606
Adjustments to reconcile net income (loss) to net cash
used in operating activities-
Loss on disposal of equipment 62,399 5,928 --
Gain on sale of investments (44,621) -- --
Depreciation and amortization 510,901 391,894 304,796
Deferred income tax (benefit) provision (153,146) (208,540) 110,641
Provision for doubtful accounts 65,000 82,146 20,852
Changes in operating assets and liabilities:
Accounts receivable (777,676) (1,842,348) (1,126,012)
Inventories (56,963) 232 (9,119)
Prepaid expenses and other current assets (121,983) (153,758) (14,239)
Deferred income tax asset (266,921) -- --
Other assets 10,217 (31,265) (74,055)
Accounts payable and accrued expenses (108,604) 1,178,489 389,742
Customer deposits (49,775) 5,826 640
----------- ----------- -----------
Net cash used in operating activities (1,406,598) (1,000,634) (298,148)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment 74,933 100,657 --
Purchase of investment (3,525) -- (70,432)
Purchases of property and equipment (3,492,706) (694,919) (1,103,536)
Proceeds from disposal of equipment 87,462 54,301 --
Note receivable due from related party (132,763) (286,745) 85,852
Net cash used in investing activities (3,466,599) (826,706) (1,088,116)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit 1,865,244 (398,326) 768,230
Borrowings under long-term debt 4,322,594 1,499,655 1,009,433
Principal payments on long-term debt (2,751,507) (1,608,417) (460,033)
Net proceeds from issuance of common stock and common
stock warrants -- 4,992,920 --
----------- ----------- -----------
Net cash provided by financing activities 3,436,331 4,485,832 1,317,630
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,436,866) 2,658,492 (68,634)
CASH AND CASH EQUIVALENTS, beginning of year 2,848,000 189,508 258,142
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,411,134 $ 2,848,000 $ 189,508
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for-
Interest $ 453,786 $ 457,153 $ 326,661
=========== =========== ===========
Income taxes $ 234,296 $ 85,256 $ 53,916
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations originated $ -- $ -- $ 96,323
=========== =========== ===========
Unrealized gain on investment $ -- $ 12,665 $ 4,737
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
(1) NATURE OF OPERATIONS
Streicher Mobile Fueling, Inc. (the "Company") was incorporated in the State of
Florida in October 1996. Prior to the effective date of the Company's
registration statement for its initial public offering on December 11, 1996, the
Company's business was conducted through the Mobile Fueling Division of
Streicher Enterprises, Inc. ("Enterprises"), which began mobile fueling
operations in 1983. Enterprises completed a corporate reorganization as of such
effective date, pursuant to which the Mobile Fueling Division of Enterprises
transferred its assets, liabilities and operations to the Company. Such
corporate reorganization has been retroactively reflected in the accompanying
financial statements and notes thereto as if such transfer had occurred at
inception of the former Mobile Fueling Division. Accordingly, retained deficit
includes the cumulative results of the former Mobile Fueling Division.
Enterprises is wholly owned by the president of the Company and currently owns
52.4% of the outstanding common stock of the Company.
The Company delivers mechanized mobile fleet fueling and electronic fuel
management primarily to customers that operate large fleets of vehicles (such as
governmental agencies, utilities, major trucking lines, hauling and delivery
services, and national courier services). The Company currently has operations
in Florida, Georgia, Louisiana, Tennessee, California and Texas.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Streicher Mobile
Fueling, Inc. and its wholly owned subsidiaries, Streicher West, Inc., Streicher
Realty, Inc., and Mobile Computer Systems, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements include the operations of the
former Mobile Fueling Division of Enterprises on a retroactive basis as if the
transfer discussed in Note 1 had occurred at the date of inception of the former
Mobile Fueling Division.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Included in cash and cash
equivalents in the accompanying balance sheets is interest bearing cash of
approximately $1.4 million and $2.5 million as of January 31, 1998 and 1997,
respectively.
(c) Investments
Investments consist of a certificate of deposit, with a maturity of greater than
three months carried at cost which approximates market. The certificate of
deposit is collateral for an irrevocable letter of credit issued under an
agreement entered into with a vendor, on behalf of a customer, for the issuance
of credit instruments to purchase selected products and services. The letter of
credit and collateralized certificate of deposit are required until the credit
instruments are returned to the vendor for cancellation.
(d) Accounts Receivable
Accounts receivable are due from companies within a broad range of industries
and are generally unsecured. The Company provides for credit losses based on
management's evaluation of collectibility based on current and historical
performance of the customer.
F-8
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
(e) Inventories
Inventories, consisting of gasoline and diesel fuel, are carried at cost which
approximates the first-in, first-out method.
(f) Property and Equipment
Property and equipment is 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 is depreciated or
amortized using the straight-line method over the following estimated useful
lives:
YEARS
-----
Mobile fuel delivery trucks 10
Mobile fuel delivery tanks 25
Machinery and equipment 5
Furniture and fixtures 10
Leasehold improvements Lesser of lease
term or useful life
(g) Income Taxes
The Company provides Federal and state income taxes at the applicable Federal
and state statutory rates. Deferred income taxes are recorded to reflect the tax
consequences in future years of differences between the tax bases of assets and
liabilities and the amounts recorded for financial reporting purposes. Income
taxes are provided as if the Company had been a separate taxable entity since
inception of the former Mobile Fueling Division.
(h) Revenue Recognition
The Company recognizes revenue at the time services are performed and fuel is
delivered.
(i) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(j) Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash and cash
equivalents, investments, accounts receivable, note receivable from related
party, accounts payable, bank line of credit payable, and long-term debt,
approximate fair value due to their short-term nature or interest rates that
approximate market.
F-9
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
(k) Net Income (Loss) Per Share
Net income (loss) per share is determined by dividing net income (loss) by the
weighted average common shares outstanding. For all periods presented,
outstanding common shares reflect the reorganization of Enterprises discussed in
Note 1 and the initial issuance of common stock by the Company as if such
reorganization had occurred at inception of the former Mobile Fueling Division.
Common stock equivalents, consisting of employee stock options and common stock
warrants in fiscal 1998 and 1997, were antidilutive and accordingly, were not
included in the calculation of net loss per share in fiscal 1998 and 1997. No
common stock equivalents existed in fiscal 1996. In fiscal 1998, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share" which simplifies the accounting for earnings per share by presenting
basic earnings per share including only outstanding common stock and diluted
earnings per share including the effect of dilutive common stock equivalents.
The Company's basic and diluted earnings per share are the same, as the
Company's common stock equivalents are antidilutive. In addition, the Company's
basic and diluted earnings per share are the same as that computed under APB No.
15, "Earnings Per Share", as presented in the accompanying statements of
operations.
(l) Accounting for Long-Lived Assets
In fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121
establishes accounting standards to account for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. There was no effect on the Company's financial
position or results of operations upon the adoption of SFAS No. 121.
(m) Reclassifications
Certain prior years amounts have been reclassified to conform with the current
year presentation.
(3) STOCK OPTION PLAN
In December 1996, the Company adopted a Stock Option Plan (the "Plan"), under
which 100,000 shares of common stock are reserved for issuance upon exercise of
options. In June 1997 the shareholders of the Company increased the number of
shares available under the Plan to 250,000. The Plan is designed to serve as an
incentive for retaining qualified and competent employees. The Company's Board
of Directors administers the Plan and is authorized to grant options thereunder
to all eligible employees of the Company, including officers and directors
(whether or not employees) of the Company and consultants. The Plan provides for
the granting of both "incentive stock options" (as defined in Section 422A of
the Internal Revenue Code) and nonqualified stock options. Options are granted
under the Plan on such terms and at such prices as determined by the Board of
Directors, except that the per share exercise price of incentive stock options
cannot be less than the fair market value of the common stock on the date of
grant and the per share exercise price of nonqualified stock options will not be
less than 85% of the fair market value on the date of grant. Each option is
exercisable after the period or periods specified in the option agreement, but
no option can be exercised until six months after the date of grant or after the
expiration of 10 years from the date of grant. Options granted under the Plan
are not transferable other than by will or by the laws of descent and
distribution. The Plan also authorizes the Company to make loans to optionees to
enable them to exercise their options and to allow them to use common stock to
pay for the exercise of their options. Such loans must (i) provide for recourse
to the optionee, (ii) bear interest at a rate no less than the rate of interest
payable by the Company to its principal lender at the time the loan is made, and
(iii) be secured by the shares of common stock purchased. The following table
summarizes stock option activity for the periods indicated:
F-10
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
WEIGHTED AVERAGE
EXERCISE
SHARES PRICE
------ ----------------
Options granted as of 1/31/97 --
Granted 98,000 $3.34
=====
Exercised --
Expired --
--------
Balance as of 1/31/98 98,000 $3.34
======== =====
Exercisable 48,000 $3.69
======== =====
Available for future grant 152,000
========
An employment agreement with the Company's president provides for the issuance
of options to acquire 1,000,000 shares of common stock at $6 per share. The
timing of vesting of the stock options is contingent upon the Company achieving
either a specified earnings per share level or a specified stock price level
(the "performance threshold"), for the corresponding fiscal year end. Commencing
with fiscal year ending January 31, 1998 and at each of the four fiscal year
ends thereafter, 200,000 of such options will become exercisable if the Company
achieves earnings per share, as defined in the agreement, of $.36, $.43, $.52,
$.62 and $.74 for the fiscal years ending January 31, 1998, 1999, 2000, 2001 and
2002, respectively, (or cumulative earnings per share after fiscal 1998 of $.66,
$1.09, $1.61, $2.23 and $2.97, respectively), or the closing bid price of the
Company's common stock on any 20 consecutive trading days during such fiscal
year is $7.25, $8.75, $10.50, $12.50 and $15.00, respectively, or the Company
has cumulative net income of $2 million, $3 million, $4 million, $5 million and
$6 million, respectively, as defined. For the fiscal year ended January 31, 1998
the Company's stock closing price exceeded $7.25 for more than 20 consecutive
trading days and thus 200,000 of the options became excersiable. For any fiscal
year after January 31, 1998 in which the Company attains the foregoing earnings,
per share stock price or cumulative net income targets, any options eligible for
vesting in prior years which were not vested and exercisable because the targets
for such fiscal years were not achieved, shall become exercisable. In addition,
for any fiscal year in which the Company attains the earnings per share, stock
price or cumulative net income targets applicable to a subsequent fiscal year,
all options eligible for vesting in such subsequent fiscal year shall vest and
become exercisable. If any of the warrants are exercised, the options shall vest
and become exercisable pro rata (based on the number of warrants exercised) to
the extent not already vested in accordance with the foregoing. Regardless of
the Company's performance, all of the stock options granted to the president
shall vest and become exercisable ten years from the date of the grant.
Pro forma information required by SFAS No. 123 has been determined as if the
Company had accounted for its stock-based compensation plans under the fair
value method. The fair value of each option grant was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for all grants made to date: risk-free
interest rate of 7%, dividend yield of 0%, expected volatility of 50% and
expected life of 10 years. The Company's pro forma information for fiscal 1998,
1997 and 1996 is as follows:
1998 1997 1996
----------- ---------- --------
Net income (loss) - as reported $ (475,426) $ (429,238) $ 98,606
Pro forma net income (loss) $(1,450,911) $ (483,363) $ 98,606
Income (loss) per share - as reported (0.18) (0.26) $ 0.07
Pro forma net income (loss) per s$are (0.56) (0.30) $ 0.07
F-11
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
Pro forma net income (loss) reflects only options granted in 1998 and 1997. The
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma loss amounts presented because
compensation cost is reflected over the expected life of the options.
(4) BANK LINE OF CREDIT PAYABLE
At January 31, 1998, the Company had borrowings of $3,269,713 under a $5,000,000
line of credit agreement with a bank. Interest is payable monthly at .75% over
the prime rate (8.5% as of January 31, 1998). The line of credit matures in
October 1999. Borrowings are secured by substantially all of the assets of the
Company. Under the terms of the credit agreement, the Company is required to
comply with certain financial covenants and restrictions. As of January 31,
1998, the Company was in compliance with these financial covenants and
restrictions.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
JANUARY 31,
1998 1997
----------- -----------
Equipment loans payable (9.67% weighted average
fixed interest rate at January 31, 1998) due in monthly
installments with varying maturities through January 2003 $ 3,435,437 $ 1,311,883
Promissory notes payable refinanced
or repaid -- 552,467
Total long-term debt 3,435,437 1,864,350
Less: current portion (790,101) (740,852)
----------- -----------
Long-term debt, excluding current portion $ 2,645,336 1,123,498
=========== ===========
Future principal payments on long-term debt are due as follows as of January 31,
1998:
YEAR ENDING JANUARY 31,
1999 $ 790,101
2000 815,772
2001 885,892
2002 770,432
2003 173,240
----------
$ 3,435,437
(6) MAJOR CUSTOMERS
Revenue from three major customers was approximately $13.8 million, $12.6
million and $10.5 million in fiscal 1998, 1997 and 1996 respectively.
F-12
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
(7) RELATED PARTY TRANSACTIONS
The Company engages in certain transactions with Enterprises. A note receivable
from Enterprises totaled $451,806 and $319,043 as of January 31, 1998 and 1997,
respectively, and bears interest at 8.25 percent annually. Such amounts
represent tax benefits of the Company used by Enterprises, cash advances to
Enterprises and certain expenses of Enterprises paid by the Company prior to its
initial public offering. Interest income includes approximately $25,000 in
fiscal 1998, $13,000 in fiscal 1997, and $16,000 in fiscal 1996 relating to the
note receivable from Enterprises. The repayment terms of the note receivable
from Enterprises require annual payments of interest only with a final payment
of all accrued interest and unpaid principal due on January 31, 2007. The
primary asset of Enterprises to support such repayment is its 52.4% ownership
interest in the Company's common stock, which is presently restricted from sale
or pledging through December 2001.
The Company has entered into four operating leases with the sole shareholder of
Enterprises for the lease of the Company's headquarters and three division
offices. These leases expire at varying times through August 2015. Total rent
expense under these leases will average approximately $83,000 for each of the
next five years and will total approximately $851,000 thereafter. Rent expense
totaling approximately $95,000, $70,000 and $64,000 for the years ended January
31, 1998, 1997 and 1996, respectively, was paid to the sole shareholder of
Enterprises.
(8) INCOME TAXES
Income taxes are determined as if the Company had been a separate tax paying
entity since inception of the former Mobile Fueling Division. Beginning in
December 1996, the Company became a separate tax paying entity. As of January
31, 1998, the Company also has net operating loss carryforwards of approximately
$1.1 million, relating to the period subsequent to the reorganization discussed
in Note 1, available to offset future taxable income through 2013. The benefit
(provision) for income taxes consists of the following for the years ended
January 31, 1998, 1997 and 1996:
1998 1997 1996
--------- --------- ---------
Federal $ 118,625 $ 198,767 $ (64,183)
State 34,521 33,784 (10,986)
--------- --------- ---------
$ 153,146 $ 232,551 $ (75,169)
========= ========= =========
Current $ -- $ 24,011 $ 35,472
Deferred 153,146 208,540 (110,641)
--------- --------- ---------
$ 153,146 $ 232,551 $ (75,169)
========= ========= =========
The actual tax benefit (provision) of the Company for the years ended January
31, 1998, 1997 and 1996 differs from the statutory Federal tax rate of 34% due
to the following:
1998 1997 1996
--------- --------- ---------
Expected benefit (provision) for income
taxes at statutory Federal income tax rates $ 213,714 $ 225,008 $ (59,084)
State income taxes 22,783 22,297 (7,251)
Other (66,439) -- --
Nondeductible expenses (16,912) (14,754) (8,834)
--------- --------- ---------
Actual benefit (provision) for income taxe $ 153,146 $ 232,551 $ (75,169)
========= ========= =========
F-13
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
The following table represents the significant components of deferred income tax
assets (liabilities) at January 31, 1998 and January 1997:
1998 1997
--------- ---------
Book/tax basis differences
of property and equipment $(196,860) $(680,225)
Net operating loss carryforwards 412,031 56,846
Asset basis adjustment from reorganization 433,947 433,947
Other, net (68,000) 24,213
--------- ---------
581,118 (165,219)
Valuation allowance (326,270) --
$ 254,848 $(165,219)
========= =========
Management has recorded a valuation allowance for the portion of the deferred
income tax asset that does not meet the "more likely than not" criteria of SFAS
No. 109. Realization of the remaining net deferred income tax asset has been
guaranteed by Enterprises, as it resulted from the reorganization of the Company
in fiscal 1997.
(9) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
In addition to the operating leases for property owned by the sole shareholder
of Enterprises discussed in Note 7, the Company has other operating leases from
third parties for division offices that expire through December 1999. Rent
expense under these operating leases for the fiscal years ended January 31,
1998, 1997 and 1996 was approximately $60,000, $56,000 and $40,000,
respectively. Remaining payments relating to these properties are approximately
$61,000, primarily payable over the next year.
(b) Governmental Regulation
The Company's operations are affected by numerous Federal, state and local laws,
including those relating to protection of the environment and worker safety. The
transportation of gasoline and diesel fuel is subject to regulation by various
Federal, state and local agencies. These regulatory authorities have broad
powers, and 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. The Company is also subject to the rules and regulations of the
Hazardous Materials Transportation Act. In addition, the Company depends on the
supply of gasoline and diesel fuel from the oil and gas industry and, therefore,
is affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry. The Company cannot determine the extent to
which its future operations and results 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 redemption of spills and releases of hazardous substances. In addition,
companies 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. The Company carries liability insurance of $10,000,000 in the
event of such occurrences.
F-14
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
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. 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 Agreement
In December 1996, the Company entered into an employment agreement with its
president. The term of the agreement is five years and will automatically renew
for two successive two-year terms, unless notice of termination is given by the
Company prior to a renewal period. The agreement provides that if the
president's employment is terminated as a result of his death or disability, he
or his estate will receive for a period of six months, his base salary in effect
as of the date of such termination and a prorated amount of any bonuses. The
agreement also provides that in the event the president's employment is
terminated "without cause" the president will receive, in addition to any
salary, bonus and other compensation accrued through the date of termination, a
lump sum equal to the greater of the full amount of salary, bonuses and other
compensation due under the agreement for the remainder of the term or three
times the then-existing salary and most recent annual bonus. The agreement
further provides that the president will not compete with the Company while
employed by the Company and for a period of two years following termination of
employment. In the event that his employment is terminated without cause, as a
result of his death or disability, or upon a change of control (as defined in
the employment agreement), all options to purchase common stock held by the
president shall become immediately exercisable.
The agreement also provides for two percent per annum of the outstanding balance
of any Company debt personnally guaranteed by the president to be paid to the
president in quarterly installments. Such amounts approximated $76,000 for the
year ended January 31, 1998 and $8,000 for the year ended January 31, 1997. As
of January 31, 1998, all debts guaranteed by the president of the Company have
been repaid or the guarantees have been released by the lender.
The Company has also entered into written employment agreements with certain
other company officers. The agreements vary in term from one to three years and
automatically renew for successive one year periods unless notice of termination
is given by the Company prior to a renewal period.
(d) Absence of Written Agreements
Most of the Company's customers do not have written agreements with the Company
and can terminate the Company's mobile fueling services at any time and for any
reason. If the Company were to experience a high rate of terminations, the
Company's business and financial performance could be adversely affected.
(e) Litigation
The Company may be subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, no litigation or
claims exist that would have a material effect on the consolidated financial
position or results of operations of the Company as of January 31, 1998.
(f) Other Commitments
The Company has entered into a consulting agreement with a minority shareholder
for consulting services to be rendered to the Company. Payments for consulting
services rendered under the agreement totaled approximately $120,000 in fiscal
1998 and $124,000 in fiscal 1997. As of January 31, 1998, remaining payments due
under the consulting agreement totaled $40,000, which are payable at the rate of
$10,000 per month. The agreement also provides for the minority shareholder to
receive a fee of 2.5% of any merger transaction which he brokers for the
Company, as defined.
F-15
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
In August 1996, the Company entered into a consulting agreement with its
underwriter to provide financial and investor relations services, public
relations services and corporate communications services for a period of two
years. Total costs of $100,000 were paid from the net proceeds of the offering,
of which $49,300 was charged to expense in fiscal 1998 and $26,000 was expensed
in fiscal 1997.
At January 31, 1998, the Company had purchase commitments for 27 custom fuel
delivery vehicles aggregating approximately $3.0 million.
(10) SHAREHOLDERS' EQUITY
In October 1996, the Company amended its articles of incorporation to authorize
the issuance of 1,000,000 shares of preferred stock with such designations,
rights and preferences as may be determined by the Board of Directors of the
Company. At January 31, 1998, there were no preferred shares issued or
outstanding.
In December 1996, the Company completed an initial public offering of 1,075,000
shares of common stock and 1,150,000 common stock warrants providing net
proceeds to the Company of approximately $4,993,000.
(11) COMMON STOCK 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 price of $6.90 per share for a period of
four years commencing in December 1997 (the "First Exercise Date"). Each warrant
is redeemable by the Company at a redemption price of $0.01 per warrant, at any
time after the First Exercise Date, upon thirty days' prior written notice to
the holders, if the average closing bid price of the common stock, as reported
on the principal exchange on which the common stock is traded, equals or exceeds
$10.50 per share for 20 consecutive trading days ending three days prior to the
date of the notice of redemption. Any warrant holder who does not exercise prior
to the redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the common stock underlying the warrants, and
after the redemption date or upon conclusion of the exercise period any
outstanding warrants will become void and be of no further force or effect,
unless extended by the Board of Directors of the Company.
The number of shares of common stock that may be purchased is subject to
adjustment upon the occurrence of certain events including a dividend
distribution to the Company's shareholders, or a subdivision, combination or
reclassification of the outstanding shares of common stock. Further, the warrant
exercise price is subject to adjustment in the event the Company issues
additional stock or rights to acquire stock at a price per share that is less
than the current market price per share of common stock on the record date
established for the issuance of additional stock or rights to acquire stock. The
term "current market price," is defined as the average of the daily closing
prices, will not be adjusted in the case of the issuance or exercise of options
pursuant to the Company's stock option plans, the issuance or exercise of the
underwriter's warrants (or the warrants included therein) or any other options
or warrants outstanding as of December 1996. The warrant exercise price is also
subject to adjustment in the event of a consolidation or merger where a
distribution by the Company is made to its stockholders of the Company`s assets
or evidences of the indebtedness (other than cash or stock dividends) or
pursuant to certain subscription rights or other rights to acquire common stock.
The Company may at any time, and from time to time, extend the exercise period
of the warrants, provided that written notice of such extension is given to the
warrant holders prior to the expiration of the date then in effect. Also, the
Company may reduce the exercise price of the warrants for limited periods or
through the end of the exercise period in accordance with the terms of the
Company's warrant agreement with the transfer agent if deemed appropriate by the
Board of Directors. The Company does not presently contemplate any extension of
the exercise period nor does it contemplate any reduction in exercise price of
the warrants.
F-16
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.3 $5,000,000 Loan Agreement, dated December 31, 1997, between the
Registrant and Bank Atlantic
10.4 Master Security Agreement, dated July 24, 1997, between the
Registrant and General Electric Capital Corporation
10.5 Form of Promissary Note with General Electric Capital Corporation
10.6 Form of Collateral Schedule with General Electric Capital Corporation