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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
COMMISSION FILE NUMBER 0-21825
STREICHER MOBILE FUELING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0707824
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2720 N.W. 55TH COURT, FORT LAUDERDALE, FLORIDA 33309
(Address of principal executive offices) (Zip Code)
(954) 739-3880
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
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 21, 1999 was $4,994,000 computed by reference to the
closing bid price of the Common Stock on such date.
As of April 21, 1999 there were 2,575,000 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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 operates at seven Florida locations; Los Angeles and
San Jose, California; Atlanta, Georgia; Chattanooga and Kingsport, Tennessee;
Dallas/Fort Worth, Houston and San Antonio, Texas; and Kenner, Louisiana. During
April 1999, the Company operated a fleet of 80 custom fuel trucks and was
delivering fuel at a rate of over 4.8 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 new and 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 640 customers.
Three customers accounted for approximately 23% of the Company's revenue in the
years ended January 31, 1999 and 30% of the company's revenue in 1998. 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 16 locations in California, Florida,
Georgia, Tennessee, Louisiana and Texas. The Company delivers fuel utilizing its
own fleet of 80 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 fifteen customer locations per
day or night, depending on size of the customers, market density and the
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individual customers' fuel requirements. Generally, the custom fuel trucks
acquire fuel inventory daily at local port facilities or large wholesale gas
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 down-time 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
4
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.
EXECUTIVE OFFICERS
The executive officers of the Company as of April 21, 1999 are as follows:
NAME AGE POSITION
---- --- --------
Stanley H. Streicher............ 56 President and Chief Executive Officer
Walter B. Barrett .............. 41 Vice President, Finance; Chief Financial Officer;
and Treasurer
Timothy W. Koshollek............ 35 Vice President, Marketing
Steven M. Alford................ 33 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 21, 1999, the Company had 222 full-time employees, of whom 35 were
involved in executive, managerial, supervisory and sales capacities, 164 were
route drivers and 23 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
5
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 and office Tallahassee, Florida 8/31/99 (2)
Truck yard and office Atlanta, Georgia 8/31/99 (2)
Truck yard and office Kingsport, Tennessee 3/31/00 (2)
Truck yard and office Kenner, Louisiana 7/31/00 (1)
Truck yard and office Houston, Texas 9/30/99 (2)
Truck yard and office Ft. Worth, Texas -- (3)
Truck yard and office San Antonio, Texas 7/31/99 (2)
Truck yard and office Gardena, California 6/30/99 (2)
Truck yard and office San Jose, California 10/1/99 (2)
(1) Leased from Stanley H. Streicher, Company President and Chief
Executive Officer.
(2) Leased
(3) Property owned by the Company.
6
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
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
--------------------- -------------------
YEAR ENDED JANUARY 31, 1999 HIGH LOW HIGH LOW
--------------------------- ---- --- ---- ---
1st quarter $5.13 $3.38 $1.38 $0.75
2nd quarter $4.88 $3.06 $0.81 $0.63
3rd quarter $3.50 $2.13 $0.64 $0.28
4th quarter $3.62 $2.06 $0.41 $0.13
YEAR ENDED JANUARY 31, 1998
---------------------------
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
As of April 21, 1999, there were 19 holders of record of the Company's
Common Stock and approximately 500 beneficial owners of the Company's Common
Stock. On April 21, 1999, the closing bid price of the Common Stock was $4.00
per share and the closing bid price of the Warrants was $.438 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 5 years in the period ended January 31,
1999, 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 KPMG LLP, independent certified public accountants
for the fiscal year ended January 31, 1999 and by Arthur Andersen LLP,
independent certified public accountants, for the fiscal years ended January 31,
1998, 1997, 1996, and 1995. The Consolidated Financial Statements of the Company
as of January 31, 1999 and 1998 and for each of the years in the three year
period ended January 31, 1999 and the report thereon appear elsewhere herein.
EARNINGS STATEMENT DATA: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Revenues .......................................... $ 47,375,571 $ 43,041,814 $ 33,844,969 $ 23,989,358 $ 16,663,371
Cost of sales ..................................... 43,821,496 39,736,507 31,458,794 21,752,350 15,217,945
------------ ------------ ------------ ------------ ------------
Gross profit ................................... 3,554,075 3,305,307 2,386,175 2,237,008 1,445,426
Operating expenses ................................ 3,601,278 3,575,368 2,640,609 1,752,485 1,348,028
------------ ------------ ------------ ------------ ------------
Operating income (loss) ......................... (47,203) (270,061) (254,434) 484,523 97,398
Loss on asset disposal ............................ (6,877) (62,399) (5,928) -- --
Interest expense .................................. (839,907) (474,923) (432,498) (343,967) (168,991)
Interest and other income ......................... 73,391 178,811 31,071 33,219 13,504
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes ................. (820,596) (628,572) (661,789) 173,775 (58,089)
Income tax benefit (expense) ...................... (261,018) 153,146 232,551 (75,169) 7,915
------------ ------------ ------------ ------------ ------------
Basic and diluted net income (loss) ............... $ (1,081,614) $ (475,426) $ (429,238) $ 98,606 $ (50,174)
============ ============ ============ ============ ============
Basic and diluted net income (loss) per share ..... $ (.42) $ (.18) $ (.26) $ .07 $ (.03)
============ ============ ============ ============ ============
Basic and diluted weighted average
common shares outstanding ........................ 2,575,000 2,575,000 1,631,250 1,500,000 1,500,000
============ ============ ============ ============ ============
BALANCE SHEET DATA: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital $(2,324,495) $ 3,392,012 $ 2,495,181 $ 737,419 $ 267,132
Total assets $16,194,149 $13,995,540 $11,402,970 $6,357,936 $4,352,732
Long term debt $ 4,284,271 $ 5,915,049 $ 1,123,498 $3,172,737 $2,029,723
Total stockholders' equity $ 3,359,636 $ 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 51.5% 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.
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
8
(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, 1999 TO FISCAL YEAR ENDED JANUARY
31, 1998
REVENUES
Revenue increased $4.3 million, or 10.1%, for the year ended January 31, 1999
("fiscal 1999") compared to the year ended January 31, 1998 ("fiscal 1998"). The
Company delivered 41.9 million gallons of fuel to its customers in fiscal 1999,
an increase of 25.8% over the 33.3 million gallons delivered in fiscal 1998. 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 lower average sales prices due to declines in the wholesale price of
gasoline and diesel fuel.
GROSS PROFIT
Gross profit increased $249,000 or 7.5% in fiscal 1999 compared to fiscal 1998,
primarily as a result of increases in volume, fuel prices charged to customers,
and certain cost reductions. The increase in gross profit from fiscal 1998 to
fiscal 1999 was due primarily an increase in volume, offset by a reduction in
markup on fuel sales and additional payroll and equipment costs associated with
the Company's growth during fiscal 1999.
OPERATING EXPENSES
Operating expenses increased $26,000, or 0.7%, in fiscal 1999 compared to fiscal
1998. As a percentage of revenue, operating expenses decreased to 7.6% in fiscal
1999 from 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, offset by reductions in debt guarantee fees, consulting
expenses and professional fees.
INTEREST EXPENSE
Interest expense increased $365,000, or 76.8%, in fiscal 1999 compared to fiscal
1998 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 charge of $261,000 in fiscal 1999 compared to
an income tax benefit of $153,000 in fiscal 1998. The increase in tax expense in
fiscal 1999 resulted from the Company fully reserving a net deferred tax asset.
NET LOSS
The Company had a net loss of $1,082,000, or $.42 per share, in fiscal 1999 and
a net loss of $475,000, or $.18 per share, in fiscal 1998. The Company's net
losses in fiscal 1999 and 1998 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, and
the reserving, in fiscal 1999, of a net deferred tax asset.
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 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 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.
9
GROSS PROFIT
Gross profit increased $919,000 or 38.5% in fiscal 1998 compared to fiscal 1997.
This increase was due primarily to increases in volume, offset by increases in
driver payroll costs, repair and maintenance costs and other costs associated
with the Company's expansion into new markets in fiscal 1998.
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 benefits 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 loss
in fiscal 1998 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 the majority of its accounts within 35 to 40 days. Days sales
outstanding at January 31, 1999 totaled 40 days as compared to 41 days sales
outstanding at January 31, 1998.
During the past two years, the Company has relied on bank borrowings and the
proceeds of its December 1996 initial public offering to fund increases in
accounts receivable, provide the funds necessary to acquire additional custom
fuel delivery trucks and fund its ongoing operating losses. The Company has
operated profitably since January 1999 and anticipates that its cash reserves of
approximately $600,000 as of April 21, 1999 and line of credit availability will
provide sufficient working capital to operate for the next twelve months. The
Company has received a committment from its current lender to increase its
working capital line of credit to $7.5 million, and to extend the due date of
the facility to April 30, 2001.
The Company has outstanding borrowings of $4.6 million as of January 31, 1999
under its $5.0 million line of credit. This line permits the Company to borrow
up to 85% of the total amount of eligible accounts receivable. Based on eligible
receivables outstanding at January 31, 1999 the line has been fully drawn as of
that date. Interest is payable monthly at .75% over the prime rate (7.75% as of
January 31, 1999). 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, 1999, the
Company was not in compliance with the minimum net worth and debt to equity
requirements. The Company has received waivers of these violations from the
lender.
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 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 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, 1999, the Company had purchase commitments, to be
executed over the next three months, for 3 custom fuel delivery vehicles costing
approximately $475,000. 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.
Historically, certain computer programs, as well as certain hardware were
designed to utilize a two-digit date field and consequently, they may not be
able to properly recognize dates in the Year 2000. This could result in
significant system failures. The Company relies on its computer-based equipment
in conducting its normal business activities. Certain of these computer-based
programs and equipment may not have been designed to function properly with
respect to the application of dating systems relating to the Year 2000.
10
In response, the Company has developed a "Year 2000" Plan and established an
internal group to identify and assess potential areas of risk and to make any
required modifications to its computer systems and equipment used in its product
supply and distribution activities. The Year 2000 Plan is comprised of various
phases, including assessment, remediation, testing and contingency plan
development. After the assessment phase has been completed and evaluated, the
remediation, testing and certification phases will be implemented to ensure that
business activities will continue to operate safely, reliably, and without
interruption after 1999. Based upon the results of these assessments contingency
plans will be developed to the extent deemed necessary.
The Company is also monitoring the compliance efforts of significant suppliers
and other third parties with whom it does business to ensure that operations
will not be adversely affected by the Year 2000 compliance problems of others.
There is no assurance that there will not be an adverse effect on the Company if
vendors, suppliers, customers, state and federal governmental authorities and
other third parties do not convert their respective systems in a timely manner
and in a way that is compatible with the Company's information systems. However,
management believes that ongoing communication with and assessment of the
compliance efforts and status of these third parties will minimize these risks.
The Company believes that it can provide the resources necessary to ensure Year
2000 compliance and expects to complete its Year 2000 Plan within a time frame
that will enable its computer-based programs and equipment to function without
significant disruption in the Year 2000. The Company believes that the
assessment phase of its Year 2000 Plan is now complete. It is anticipated that
the remediation phase will be completed by June 1, 1999 and the testing phase by
June 30, 1999. Thereafter, contingency plans, if necessary and appropriate, will
be developed as needed.
At January 31, 1999, the Company has incurred third party costs of approximately
$5,500 related to Year 2000 compliance matters and estimates that the total
future third party software and equipment costs related to Year 2000 compliance
activities, based upon information developed to date, will be approximately
$12,500, which will be expensed as incurred. These costs have been and will
continue to be funded through operating cash flows and are not deemed material
to the operations of the Company. The cost of the remediation activities and the
completion dates are based on management's best estimates.
Although the Company anticipates minimal business disruption will occur as a
result of Year 2000, in the event the computer based programs and equipment of
the Company, or that owned and operated by third parties, should fail to
function properly, possible consequences include but are not limited to, loss of
communications link with field offices; loss of electric power; an inability to
timely process commercial transactions or engage in normal automated or
computerized business activities.
To date, the Company has not established a contingency plan for possible Year
2000 issues. As noted above, in the event the Company, after completion of the
assessment, remediation and testing phases of the Year 2000 Plan and review of
the results of monitoring the compliance efforts and status of third parties,
determines that contingency plans are necessary, the Company will establish
contingency plans based on its assessment of outside risks. The Company
anticipates that contingency plans, if determined to be necessary, will be in
place by July 31, 1999.
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 compliance contains forward-looking statements. Presently, the
Company does not anticipate that the Year 2000 issues will have a material
adverse effect on the operations or financial performance of the Company.
However, there can be no assurance that the Year 2000 will not adversely affect
the Company and its business.
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.
The Company incurred net losses in the years ended January 31, 1999, 1998
and 1997 of $1,081,614, $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,
11
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 $10.8 million, $13.8
million and $12.6 million in fiscal 1999, 1998, and 1997 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.
MANAGEMENT OF GROWTH. 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
12
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 were 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.
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
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AND ADDRESS AGE POSITION AND OFFICE
---------------- --- -------------------
Stanley H. Streicher 56 President and Chief Executive Officer, Director
Walter B. Barrett 41 Vice President, Finance; Chief Financial Officer
and Treasurer
Steven M. Alford 33 Vice President, Operations
Timothy W. Koshollek 35 Vice President, Marketing
E. Scott Golden 43 Director
Joseph M. Murphy 52 Director
John H. O'Neil, Jr. 69 Director
L. Phillips Reames 55 Director
Mr. Streicher has served as President and Chief Executive Officer of
the Company since its inception in October 1996. 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. During
the period 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
13
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. 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.
Mr. Koshollek has served as the Vice President of Marketing since March
1998. Prior to that and from October 1996 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. Golden has served as a Director of the Company since January 1997.
Mr. Golden has maintained his own law office since 1988. From 1983 to 1988, Mr.
Golden was an attorney at Buck & Golden, P.A., where he was vice president.
Mr. Murphy has served as a Director of the Company since January 1997.
Since August 1983 Mr. Murphy has served as President and Chief Executive Officer
of Murphy Management, a management consulting and executive search firm he
founded, which specializes in the retail, general merchandise, supermarket and
food industries.
Mr. O'Neil, Jr. has served as a Director of the Company since January
1997. Since February 1998, Mr. O'Neil has served as Chairman of Health
Foundation of South Florida, a non-profit charitable foundation, and has served
as its Chief Executive Officer since February 1996. Mr. O'Neil has served as
Chairman of Cedars Medical Center since May 1992.
Mr. Reames has served as a Director of the Company since January 1997.
Since 1991, Mr. Reames has served as the Chairman of Argent Securities, Inc.
("Argent"), an investment banking firm.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers and persons who
won more than ten percent of the Company's Common Stock, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock. Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during the fiscal year ending January 31, 1999, all of the
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with except that Form
4's (Statement of Changes in Beneficial Ownership) were not filed on a timely
basis for stock option grants made to E. Scott Golden, Joseph M. Murphy, John H.
O'Neil, Jr. and L. Phillips Reames.
14
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of the Company's Chief Executive Officer and Chief Financial Officer (the "Named
Executive Officers") for the fiscal years ended January 31, 1999, 1998, and
1997. No other executive officer's salary and bonus equaled or exceeded $100,000
for such years.
SUMMARY COMPENSATION TABLE
NAME AND FISCAL YEAR ALL OTHER
PRINCIPAL POSITION ENDED 1/31 SALARY BONUS COMPENSATION (1)
------------------ ----------- ------ ----- ----------------
Stanley H. Streicher, 1999 $270,240 -- --
President & Chief Executive 1998 $275,000 -- --
Officer 1997 $246,550 -- --
Walter B. Barrett, 1999 $136,539 -- --
Vice President of Finance 1998 $ 75,885 -- --
& Chief Financial Officer 1997 -- -- --
----------------
(1) The column for "Other Annual Compensation" has been omitted because
there is no compensation required to be reported in such columns. The
aggregate amount of perquisites and other personal benefits provided to
each named Executive Officer is less that 10% of the total annual salary
and bonus of such officer.
EMPLOYMENT CONTRACTS
The Company entered into an employment agreement with Stanley H. Streicher
effective December 11, 1996, pursuant to which Mr. Streicher serves as President
and Chief Executive Officer of the Company. The term of the agreement is five
years. The term of agreement will automatically renew for two successive
two-year terms, unless notice of termination is given prior to a renewal period.
The agreement provides that Mr. Streicher shall receive an initial annual base
salary of $275,000 which shall be increased to reflect the change of the cost of
living, based upon the change, from the preceding January 1, in the consumer
price index for All Urban Consumers, as published by the U.S. Bureau of Labor
Statistics. In addition to salary, Mr. Streicher will be eligible to participate
in a bonus pool which will provide him additional compensation of up to 10% of
the Company's pre-tax earnings.
The agreement provides that if Mr. Streicher'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 termination and a
prorated amount of any bonuses. The agreement also provides that in the event
Mr. Streicher's employment is terminated "without cause" or for "good reason,"
Mr. Streicher 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 and three times the then-existing
salary and most recent annual bonus. The agreement further provides that Mr.
Streicher will not compete with the Company (i) while employed by the Company,
and (ii) 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 Mr. Streicher shall
become immediately exercisable. The Company may terminate the agreement for
"justifiable cause" which as defined therein means Mr. Streicher's conviction of
felony involving moral turpitude, fraud, dishonesty, or any crime in connection
with his employment which causes the Company substantial detriment; continual
gross neglect of his duties; unauthorized dissemination or use of confidential
information of the company; or engaging in competition with the Company during
the term of the agreement. Pursuant to the agreement, the Company is obligated
to pay all legal expenses associated with any legal proceedings concerning the
interpretation of the agreement.
The agreement further provides Mr. Streicher with stock options that will
enable him to acquire up to an aggregate of 1,000,000 shares of Common Stock at
an exercise price equal to the initial offering price of the Company following
the closing of the Company's Public Offering. The exercise 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-ended 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 of
$.36, $.43, $.52, $.62 and $.74 for the fiscal years ended 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. 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
15
such subsequent fiscal year shall vest and become exercisable. If any of the
Company's publicly traded 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 Mr. Streicher shall
vest and become exercisable ten years from the date of the grant.
The Company entered into an employment agreement with Walter B. Barrett
effective July 7, 1997, pursuant to which Mr. Barrett serves as Vice President
of Finance and Chief Financial Officer of the Company. The term of the agreement
is for one year and automatically renews for successive one year terms unless
notice of termination is given by either party within 30 days of the annual
renewal date. The agreement provides that Mr. Barrett will receive an annual
base salary of $140,000, reimbursement for certain professional and educational
expenses, and a grant of 50,000 stock options which vest ratably over a four
year period. The agreement provides that if Mr. Barrett's employment is
terminated, due to non-renewal of the agreement or without cause, he will
receive as compensation the greater of all salary remaining due under the
agreement until its expiration or five months salary. In addition, the unvested
portion of any stock options will immediately vest and become exercisable.
There were no stock option grants to the named executive officers in the
fiscal year ending January 31, 1999.
STOCK OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning option
exercises in fiscal year ending January 31, 1999, the number of options held by
the Named Executive Officers as of January 31, 1999 and the value (based on the
fair market value of a share of stock at fiscal year-end) of in-the-money
options outstanding as of such date.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
NUMBER OF OPTIONS AT MONEY OPTIONS AT
SHARES JANUARY 31, 1999 JANUARY 31, 1999 (1)
ACQUIRED VALUE ----------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Stanley H. Streicher.. 0 -- 200,000 800,000 -- --
Walter B. Barrett..... 0 -- 12,500 37,500 -- --
-----------
(1) The closing sale price for the Company's Common Stock as reported on the
NASDAQ SMALLCAP MARKET on January 29, 1999 was $2.06. Value is
calculated by multiplying (a) the difference between $2.06 and the
option exercise price by (b) the number of shares of Common Stock
underlying the option.
BOARD REPORT ON COMPENSATION
The Company's executive compensation program is administered by the
Board of Directors. The Board's general philosophy with respect to compensation
of the Company's executive officers has been to offer competitive compensation
designed to attract and retain key executives critical to the long-term success
of the Company and to recognize and individual's contribution and personal
performance. The principal component of executive compensation has been base
salary. Executive officers may also be granted bonuses and stock options.
BASE SALARIES. Base salaries are initially determined by evaluating the
responsibilities of the position held and by reference to the competitive
marketplace for executive talent through review of an individual's background
and overall expertise in the Company's line of business and the salaries of
similarly situated executives. The Company believes that it is competitive with
respect to initial base salaries. Increases to base salaries are also influenced
by the performance of the Company and the individual against established goals
and objectives.
ANNUAL BONUS. The Company maintains an annual incentive bonus program
which provides for the payment of cash bonuses to executive officers and other
key employees of the Company based upon the Company's financial performance and
individual performance. While these bonus awards are based upon the Company's
pre-tax earnings, the Committee strived to align the bonus plan targets with the
Company's long-term goals so that strategic focus is maintained. No bonuses were
paid to the Company's executive officers during the fiscal year ended January
31, 1999.
OPTIONS. The Company's Stock Option Plan provides such an incentive
through the award of stock options to executive officers and other key
employees. The Stock Option Plan is administered by the Board of Directors.
Fifty thousand stock options were granted to two of the Company's executive
officers and 3,552 stock options were granted to four outside directors during
the fiscal year ended January 31, 1999.
EMPLOYMENT AGREEMENTS. In December of 1996, the Company entered into an
employment agreement with Stanley H. Streicher, the Company's President and
Chief Executive Officer. In July of 1997, the Company entered into an employment
agreement with Walter B. Barrett, the Company's Vice President of Finance and
Chief Financial Officer. Accordingly, the compensation payable to Mr. Streicher
and Mr. Barrett for fiscal 1999 and subsequent years will be determined pursuant
to their employment agreements. See "Executive Compensation -- Employment
Contracts." The Company also has entered into employment agreements with its
other two executive officers.
Stanley H. Streicher
E. Scott Golden
Joseph M. Murphy
John H. O'Neil, Jr.
L. Phillips Reames
16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not presently have a Compensation Committee.
Stanley H. Streicher, the Company's President and Chief Executive Officer, is a
member of the Board of Directors and participated in deliberations of the Board
concerning executive officer compensation or performance. Mr. Streicher does not
participate in discussions regarding his own compensation or performance
appraisals.
DIRECTOR COMPENSATION
The Company compensates each non-employee director a director's fee of
$500 per month. In addition, the company's directors are reimbursed for any
out-of-pocket expense incurred by them for attendance at meetings of the Board
of Directors or committees thereof. In February 1997, each non-employee director
was granted options to purchase 12,000 shares of common stock. On February 18,
1998, the Board of Directors lowered the exercise price of such options from
$8.375 per share to $3.69 per share (the closing price of the common stock on
the date of such action). Such options are callable by the Company at any time
(i) after February 1, 2002 or (ii) when the bid price for the common stock is at
least $20.00 per share.
On July 30, 1998, each non-employee director was granted options to
purchase 888 shares of common stock at $3.375 per share. Such options are
callable by the Company at any time (i) after July 30, 2003 or (ii) when the bid
price for the common stock is at least $20.00 per share.
PERFORMANCE TABLE
The following table shows the cumulative total shareholder return of the
Company's Common Stock over the fiscal periods ended January 31, 1999, 1998 and
1997 as compared to the total returns of the NASDAQ Stock Market Index and
Rusell 2000 Index. Returns are based on the change in year-end to year-end price
and assume reinvested dividends. The table assumes $100 was invested on December
11, 1996 (the date of the Company's inception) in the Company's common stock,
NASDAQ Stock Market Index and Russell 2000 Index.
1/99 1/98 1/97 12/11/96
---- ---- ---- --------
Streicher Mobile Fueling, Inc. $26.00 $47.00 $108.00 $100.00
NASDAQ Stock Market-- US $198.00 $126.00 $107.00 $100.00
Russell 2000 Index $126.00 $124.00 $105.00 $100.00
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of April 21, 1999 by (a) each person
known to the Company to own beneficially more than five percent of the Company's
outstanding Common Stock, (b) each director (including nominees) who owns any
such shares, (c) each Named Executive Officer and (d) the directors and
executive officers of the Company as a group:
COMMON STOCK
BENEFICIALLY OWNED (2)
-------------------------
NAME OF BENEFICIAL OWNER(1) SHARES PERCENT
--------------------------- ------ -------
Stanley H. Streicher (3)..................................................... 1,600,000 60.4%
Walter B. Barrett (4)........................................................ 12,500 *
E. Scott Golden (5).......................................................... 13,888 *
Joseph M. Murphy (6)......................................................... 12,888 *
John H. O'Neil, Jr (6)....................................................... 12,888 *
L. Phillips Reames (6)....................................................... 12,888 *
All directors and executive officers as a group (8 persons) (7).............. 1,675,052 58.8%
-----------
* Less than one percent.
17
(1) Unless otherwise indicated, the address of each of the beneficial
owners identified is c/o Streicher Mobile Fueling, Inc., 2720 N.W. 55th
Court, Fort Lauderdale, Florida 33309.
(2) Based on 2,575,000 shares of Common Stock outstanding. Pursuant to the
rules of the Securities and Exchange Commission (the"Commission"),
certain shares of Common Stock which a person has the right to acquire
within 60 days of April 21, 1999 pursuant to the exercise of stock
options are deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Includes (i) 1,326,500 shares owned by Supreme Oil Company, Inc.
("Supreme"), of which Stanley H. Streicher owns 100% of the outstanding
capital stock, (ii) 200,000 shares issuable upon the exercise of
options that are presently exercisable, and (iii) 73,500 shares owned
by a third party, whose voting rights have been assigned to Mr.
Streicher until December 11, 2001. Excludes 800,000 shares issuable
upon exercise of stock options held by Mr. Streicher that are not
exercisable within 60 days of April 21, 1999.
(4) Includes 12,500 shares issuable upon the exercise of options that are
presently exercisable. Excludes 37,500 shares issuable upon the
exercise of options that are not presently exercisable.
(5) Includes (i) 1,000 shares owned directly by Mr. Golden and (ii) 12,888
shares issuable upon the exercise of options that are presently
exercisable.
(6) Includes 12,888 shares subject to presently exercisable options.
(7) Includes 10,000 shares issuable upon the exercise of options that are
presently exercisable. Excludes 40,000 shares issuable upon the
exercise of options that are not presently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated 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. On December 11, 1996, Enterprises completed a
corporate reorganization pursuant to which Enterprises transferred to the
Company all assets, liabilities and operations of its Mobile Fueling Division.
At January 31, 1999, the Company had a note receivable from Enterprises in the
amount of $445,956, which represents tax benefits of the Company used by
Enterprises and certain expenses of Enterprises paid by the Company prior to its
initial public offering. The note receivable bears interest at 8.25% per annum
and requires payment of interest only until January 31, 2007, when all accrued
interest and unpaid principal will become due and payable.
The Company has entered into four operating leases with Mr. Streicher
for the lease of the Company's headquarters and three division offices. These
leases expire at varying times through August 2015. Rental payments totaling
approximately $99,000 for the year ended January 31, 1999 were paid to Mr.
Streicher.
Mr. Streicher's employment agreement provides that two percent per
annum of the outstanding balance of any Company debt personally guaranteed by
Mr. Streicher be paid to him in quarterly installments. These payments totaled
$76,000 for the year ended January 31, 1998. As of January 31, 1998, Mr.
Streicher had been released from all personal guarantees of the Company's debt.
Mr. Golden performed legal services for the Company during the fiscal
year ended January 31, 1999 and may be retained to provide legal advice to the
Company from time to time in the future.
Argent served as the Company's underwriters in its initial public
offering. In connection with the offering, Argent was granted an option to
purchase up to 100,000 shares of Common Stock at a price of $9.30 per share and
100,000 Warrants at a price of $.19375 per Warrant. Each Warrant shall entitle
Argent to purchase one share of Common Stock at $9.30 per share. Argent's option
is exercisable for a period of four years, commencing December 11, 1997.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBITS DESCRIPTION
3.1 Articles of Incorporation (1)
3.2 Bylaws (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 Registrant and 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)
10.4 Master Security Agreement, dated July 24, 1997, between the Registrant and
General Electric Capital Corporation (3)
10.5 Form of Promissory Note with General Electric Capital Corporation (3)
18
10.6 Employment Agreement between the Registrant and Walter B. Barrett (4)
10.7 Amendment #1, dated May 29, 1998 to the $5,000,000 Loan Agreement between
the Registrant and Bank Atlantic (4)
10.8 Amendment #2, dated January 26, 1999 to the $5,000,000 Loan Agreement
between the Registrant and Bank Atlantic (4)
27.1 Financial Data Schedule
- ----------------------
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form SB-2 (No. 333-11541)
(2) Management Contract or Compensatory Plan
(3) Incorporated by reference to the exhibit of the same number filed by
the Company with Form 10K for the fiscal year ended January 31, 1998.
(4) Filed herewith
(B) REPORTS ON FORM 8-K
None.
19
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 21, 1999 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 21, 1999 By: /s/ Stanley H. Streicher
---------------------------------------
Stanley H. Streicher, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
Dated: April 21, 1999 By: /s/ Walter B. Barrett
---------------------------------------
Walter B. Barrett, Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: April 21, 1999 By: /s/ E. Scott Golden
---------------------------------------
E. Scott Golden, Director
Dated: April 21, 1999 By: /s/ Joseph M. Murphy
---------------------------------------
Joseph M. Murphy, Director
Dated: April 21, 1999 By: /s/ John H. O'Neil, Jr.
---------------------------------------
John H. O'Neil, Director
Dated: April 21, 1999 By: /s/ L. Phillips Reames
---------------------------------------
L. Phillips Reames, Director
20
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants F-2
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheets as of January 31, 1999 and 1998 F-4
Consolidated Statements of Operations for Each of the Years in the Three Year
Period Ended January 31, 1999 F-6
Consolidated Statements of Shareholders' Equity for Each of the Years in the Three
Year Period Ended January 31, 1999 F-7
Consolidated Statements of Cash Flows for Each of the Years in the Three Year
Period Ended January 31, 1999 F-8
Notes to Consolidated Financial Statements F-9
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 sheet of Streicher Mobile
Fueling, Inc. (a Florida corporation) and subsidiaries as of January 31, 1999
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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, 1999 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG LLP
Fort Lauderdale, Florida,
April 7, 1999, except as to the
second paragraph of Note 4,
which is April 28, 1999
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Streicher Mobile Fueling, Inc.:
We have audited the accompanying consolidated balance sheet of Streicher Mobile
Fueling, Inc. (a Florida corporation) and subsidiaries as of January 31, 1998
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the two 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 the results of their
operations and their cash flows for each of the years in the two year period
ended January 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
April 10, 1998.
F-3
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND 1998
ASSETS 1999 1998
------ ------------ -------------
Current Assets:
Cash and cash equivalents $ 122,961 $ 1,411,134
Investments -- 69,227
Accounts receivable, net of allowance for doubtful
accounts of $79,900 and $148,000, respectively 5,774,912 5,065,437
Inventories 81,336 133,924
Prepaid expenses and other 246,538 351,531
------------ ------------
Total current assets 6,225,747 7,031,253
Property and Equipment:
Land 233,803 59,996
Leasehold improvements 189,684 152,664
Fuel trucks and automobiles 10,150,453 6,305,637
Machinery and equipment 894,146 799,858
Furniture and fixtures 69,779 66,139
Construction in process 138,910 173,797
------------ ------------
11,676,775 7,558,091
Less accumulated depreciation and amortization (2,186,515) (1,357,368)
============ ============
9,490,260 6,200,723
Deferred income tax assets (Note 8) -- 254,848
Note receivable from related party (Note 7) 445,956 451,806
Other assets 32,186 56,910
------------ ------------
Total assets $ 16,194,149 $ 13,995,540
============ ============
(Continued)
F-4
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND 1998
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
- ------------------------------------ ------------ ------------
Current Liabilities:
Bank line of credit payable $ 4,570,789 $ --
Current portion of long-term debt (Note 5) 1,411,984 790,101
Accounts payable 1,970,099 2,313,581
Accrued expenses 477,475 415,664
Customer deposits 119,895 119,895
----------- -----------
Total current liabilities 8,550,242 3,639,241
Long-term Liabilities:
Bank line of credit payable (Note 4) -- 3,269,713
Long-term debt, excluding current portion (Note 5) 4,284,271 2,645,336
----------- -----------
Total liabilities 12,834,513 9,554,290
----------- -----------
Commitments and Contingencies (Note 9)
Shareholders' Equity: (Notes 11 and 12)
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 5,195,758
Accumulated deficit (1,861,872) (780,258)
----------- -----------
Total shareholders' equity 3,359,636 4,441,250
----------- -----------
Total liabilities and shareholders' equity $16,194,149 $13,995,540
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
F-5
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED JANUARY 31, 1999
1999 1998 1997
---- ---- ----
Fuel sales and service revenues $ 30,331,571 $ 29,399,547 $ 23,754,890
Fuel taxes 17,044,000 13,642,267 10,090,079
------------ ------------ ------------
Total revenues (Note 6) 47,375,571 43,041,814 33,844,969
Cost of fuel sales and service 26,777,496 26,094,240 21,368,715
Fuel taxes 17,044,000 13,642,267 10,090,079
------------ ------------ ------------
Total cost of sales 43,821,496 39,736,507 31,458,794
Gross profit 3,554,075 3,305,307 2,386,175
Operating expenses 3,601,278 3,575,368 2,640,609
------------ ------------ ------------
Operating loss (47,203) (270,061) (254,434)
Loss on asset disposal (6,877) (62,399) (5,928)
Interest expense (839,907) (474,923) (432,498)
Interest and other income 73,391 178,811 31,071
------------ ------------ ------------
Loss before benefit (provision)
for income taxes (820,596) (628,572) (661,789)
Income tax benefit (provision) (261,018) 153,146 232,551
------------ ------------ ------------
Net loss $ (1,081,614) $ (475,426) $ ( 429,238)
============ ============ ============
Basic and diluted net loss per share $ (0.42) $ (0.18) $ (0.26)
============ ============ ============
Basic and diluted weighted average
common shares outstanding 2,575,000 2,575,000 1,631,250
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
F-6
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED JANUARY 31, 1999
COMMON STOCK ADDITIONAL
-------------------- PAID-IN COMPREHENSIVE
SHARES AMOUNT CAPITAL LOSS
------ ------ ---------- -------------
BALANCE, JANUARY 31, 1996 1,500,000 $ 15,000 $ 238,588
Comprehensive loss:
Net loss -- -- -- $(429,238)
Change in unrealized gain on investment -- -- -- 12,665
---------
Comprehensive loss (416,573)
Net proceeds from issuance of common
stock and common stock warrants 1,075,000 10,750 4,982,170 --
----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1997 2,575,000 25,750 5,220,758
Comprehensive loss:
Net loss -- -- -- (475,476)
Change in unrealized gain on investment -- -- -- (19,737)
---------
Comprehensive loss (495,163)
Additional common stock offering expenses -- -- (25,000) --
BALANCE, JANUARY 31, 1998 2,575,000 25,750 5,195,758
Net loss -- -- --
----------- ----------- ----------- -----------
BALANCE, JANUARY 31, 1999 $ 2,575,000 $ 25,750 $ 5,195,758 $
=========== =========== =========== ===========
ACCUMULATED
OTHER RETAINED
COMPREHENSIVE (DEFICIT)
INCOME EARNINGS TOTAL
------------- --------- -----
BALANCE, JANUARY 31, 1996 $ 7,072 $ 124,406 $ 385,066
Comprehensive loss:
Net loss -- (429,238) (429,238)
Change in unrealized gain on investment 12,665 -- 12,665
Comprehensive loss
Net proceeds from issuance of common
stock and common stock warrants -- -- 4,992,920
----------- ----------- -----------
BALANCE, JANUARY 31, 1997 19,737 (304,832) 4,961,413
Comprehensive loss:
Net loss -- (475,426) (475,426)
Change in unrealized gain on investment (19,737) -- (19,737)
Comprehensive loss
Additional common stock offering expenses -- -- (25,000)
BALANCE, JANUARY 31, 1998 -- (780,258) 4,441,250
Net loss -- (1,081,614) (1,081,614)
----------- ----------- -----------
BALANCE, JANUARY 31, 1999 $ -- $(1,861,872) $ 3,359,636
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
F-7
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED JANUARY 31, 1999
1999 1998 1997
---------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,081,614) $ (475,426) $ (429,238)
Adjustments to reconcile net loss to net cash
used in operating activities-
Loss on disposal of equipment 6,877 62,399 5,928
Gain on sale of investments -- (44,621) --
Depreciation and amortization 833,851 510,901 391,894
Deferred income tax (benefit) provision 259,392 (153,146) (208,540)
Provision for doubtful accounts 65,000 65,000 82,146
Changes in operating assets and liabilities:
Increase in accounts receivable (774,475) (777,676) (1,842,348)
(Increase) Decrease in inventories 52,588 (56,963) 232
(Increase) Decrease in prepaid expenses and
other current assets 104,993 (121,983) (153,758)
(Increase) Decrease in deferred income tax asset (4,544) (266,921) --
(Increase) Decrease in other assets 24,724 10,217 (31,265)
(Decrease) Increase in accounts payable and
accrued expenses (281,670) (108,604) 1,178,489
(Decrease) Increase in customer deposits -- (49,775) 5,826
----------- ----------- -----------
Net cash used in operating activities (794,878) (1,406,598) (1,000,634)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment -- 74,933 100,657
Purchase of investment 69,227 (3,525) --
Purchases of property and equipment (4,143,742) (3,492,706) (694,919)
Proceeds from disposal of equipment 13,477 87,462 54,301
Note receivable due from related party 5,850 (132,763) (286,745)
----------- ----------- -----------
Net cash used in investing activities (4,055,188) (3,466,599) (826,706)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit 1,301,076 1,865,244 (398,326)
Borrowings under long-term debt 3,424,166 4,322,594 1,499,655
Principal payments on long-term debt (1,163,349) (2,751,507) (1,608,417)
Net proceeds from issuance of common stock and common
stock warrants -- -- 4,992,920
----------- ----------- -----------
Net cash provided by financing activities 3,561,893 3,436,331 4,485,832
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,288,173) (1,436,866) 2,658,492
CASH AND CASH EQUIVALENTS, beginning of year 1,411,134 2,848,000 189,508
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 122,961 $ 1,411,134 $ 2,848,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for-
Interest $ 800,222 $ 453,786 $ 457,153
=========== =========== ===========
Income taxes $ 4,544 $ 234,296 $ 85,256
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Unrealized gain on investment $ -- $ -- $ 12,665
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements
F-8
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(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
consolidated financial statements and notes thereto as if such transfer had
occurred at inception of the former Mobile Fueling Division. Accordingly,
accumulated deficit includes the cumulative results of the former Mobile Fueling
Division. Enterprises is wholly owned by the president of the Company and
through an affiliate company currently owns 51.5% 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 since these entities were under common control before
and after the reorganization.
(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 $123,000 and $1.4 million as of January 31, 1999 and 1998,
respectively.
(c) Investments
Investments consist of a certificate of deposit with a maturity of greater than
three months. The certificate was carried at cost, which approximates market and
was 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. During the year ended January 31,
1999, the letter of credit was released by the vendor and certificate of deposit
was redeemed.
(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-9
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(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 3-5
Furniture and fixtures 10
Leasehold improvements Lesser of lease
term or useful life
(g) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Income taxes are provided
as if the Company had been a separate taxable entity since the 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.
These assumptions, if not realized could affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
(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-10
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(k) Net Loss Per Share
Net loss per share is determined by dividing net 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 1999,
1998 and 1997, were antidilutive and were not included in the calculation of net
loss per share in fiscal 1999, 1998 and 1997. 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, for fiscal
1997 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 for the
fiscal years ended January 31, 1999, 1998 or 1997.
(m) Reclassifications
Certain prior years amounts have been reclassified to conform with the current
year presentation.
(n) New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. This Statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income, be reported in a financial statement that is displayed with the same
prominence as other financial statements. This Statement is effective for fiscal
years beginning after December 15, 1997. For the year ended January 31, 1999,
comprehensive loss equaled net loss. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"), which establishes standards for reporting
information about operating segments in annual financial statements and requires
that selected information about operating segments be reported in interim
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The adoption
of this pronouncement did not have a significant effect on the Company's
consolidated financial position, results of operations or cash flows. The
Company operates in one reporting segment as determined under the guidance in
SFAS No. 131.
(3) LIQUIDITY AND WORKING CAPITAL
The Company has incurred significant net losses and negative cash flows from
operations over the last three fiscal years as a result of the expansion of the
business operations of the Company into new markets and the resulting costs
associated with that expansion. These losses have been funded primarily by the
net proceeds of the Company's initial public offering in December 1996. At
January 31, 1999, the Company had net cash reserves of approximately $123,000
available.
In response to these conditions, management's plans include the following
actions:
1. Refinancing of the Company's bank line of credit, discussed more fully
in Note 4.
2. Build cash reserves by limiting the opening of new locations and other
significant capital expenditures until a sustained trend in
profitability is clear.
3. Increase profitability by increasing fleet utilization, increase billing
price on specific accounts and by instituting certain operating cost
reductions.
Management believes that the anticipated refinancing of the Company's bank line
of credit and the continued implementation of the Company's fiscal year 2000
operating plan will enable the Company to continue as a going concern for the
foreseeable future. The Company's ability to successfully implement its plans to
improve its operations is dependent upon a number of factors some of which are
beyond its control. There can be no assurance that the Company's operating
results or financial conditions will improve in fiscal year 2000.
F-11
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(4) BANK LINE OF CREDIT PAYABLE
The Company has outstanding borrowings of $4.6 million as of January 31, 1999
under its $5.0 million line of credit. This line permits the Company to borrow
up to 85% of the total amount of eligible accounts receivable. Based on eligible
receivables outstanding at January 31, 1999 the line has been fully drawn as of
that date. Interest is payable monthly at .75% over the prime rate (7.75% as of
January 31, 1999). 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, 1999, the
Company was not in compliance with the minimum net worth and debt to equity
requirements. The Company has received waivers of these violations from the
lender.
The Company has received a commitment from its current lender to increase its
working capital line of credit to $7.5 million, modify the required financial
covenants and ratios and to extend the due date of the facility to April 30,
2001.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
JANUARY 31,
-------------------------
1999 1998
------------ ------------
Equipment loans payable (9.74% weighted average
interest rate at January 31, 1999) due in monthly
installments with varying maturities through January 2004 $5,696,255 $3,435,437
Less: current portion (1,411,984) (790,101)
---------- ----------
Long-term debt, excluding current portion $4,284,271 $2,645,336
========== ==========
F-12
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
Future principal payments on long-term debt are due as follows as of January 31,
1999:
YEAR ENDING JANUARY 31,
------------------------
2000 $1,411,984
2001 1,482,596
2002 1,482,431
2003 936,129
2004 383,115
----------
$5,696,255
==========
(6) MAJOR CUSTOMERS
Revenue from three major customers was approximately $10.8 million, $13.8
million and $12.6 million in fiscal 1999, 1998 and 1997 respectively. Accounts
receivable from these customers totalled $1.2 million at January 31, 1999 and
$1.0 million at January 31, 1998.
(7) RELATED PARTY TRANSACTIONS
The Company engages in certain transactions with Enterprises. A note receivable
from Enterprises totaled $445,956 and $451,806 as of January 31, 1999 and 1998,
respectively, and bears interest at 8.25 percent annually. Such amounts
represent tax benefits of the Company used by Enterprises, certain expenses of
Enterprises paid by the Company prior to its initial public offering and cash
advances to Enterprises prior to the Company's initial public offering. Interest
income includes approximately $35,500 in fiscal 1999, $25,000 in fiscal 1998,
and $13,000 in fiscal 1997 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 note is secured by a pledge of 100,000
shares of the Company's common stock, which is owned by an affiliate of
Enterprises.
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. Rent expense
totaling approximately $99,000, $95,000 and $70,000 for the years ended January
31, 1999, 1998 and 1997, respectively, was paid to the sole shareholder of
Enterprises.
(8) INCOME TAXES
Income taxes for the period ended January 31, 1997 were 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, 1999, the Company has net
operating loss carryforwards of approximately $2.9 million, relating to the
period subsequent to the reorganization discussed in Note 1, available to offset
future taxable income through 2014. The benefit (provision) for income taxes
consists of the following for the years ended January 31, 1999, 1998 and 1997:
1999 1998 1997
--------- --------- ----------
Federal $(236,725) $ 118,625 $ 198,767
State (24,293) 34,521 33,784
--------- --------- ----------
$(261,018) $ 153,146 $ 232,551
========= ========= ==========
Current $ (1,626) $ -- $ 24,011
Deferred (259,392) 153,146 208,540
--------- -------- ----------
$(261,018) $153,146 $ 232,551
========= ======== ==========
F-13
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
The actual tax benefit (provision) of the Company for the years ended January
31, 1999, 1998 and 1997 differs from the statutory Federal tax rate of 34% due
to the following:
1999 1998 1997
------------ ---------- -------
Expected benefit (provision) for income
taxes at statutory Federal income tax rates $ 279,555 $ 213,714 $ 225,008
State income taxes 30,940 22,783 22,297
Other 35,547 (66,439) --
Deferred tax valuation allowance (594,822) -- --
Nondeductible expenses (12,238) (16,912) (14,754)
--------- -------- ---------
Actual benefit (provision) for income taxes $(261,018) $ 153,146 $ 232,551
========= ========= =========
The following table represents the significant components of deferred income tax
assets (liabilities) at January 31, 1999 and 1998:
1999 1998
------ -------
Book/tax basis differences
of property and equipment $ (406,273) $(196,860)
Net operating loss carryforwards 1,078,758 412,031
Asset basis adjustment from reorganization 416,241 433,947
Other, net (18,815) (68,000)
--------- ---------
1,069,911 581,118
Valuation allowance (1,069,911) (326,270)
--------- ---------
$ -- $ 254,848
========== =========
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.
(9) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases real property and buildings under operating leases that
expire at various time through the year 2015. Future minimum lease payments
under non cancelable operating leases, including the related party leases
discussed in Note 7, as of January 31, 1999 are as follows:
YEAR ENDING OPERATING LEASE
JANUARY 31 PAYMENTS
----------- ---------------
2000 $201,328
2001 98,545
2002 77,281
2003 73,209
2004 73,209
Thereafter 746,787
----------
$1,270,359
==========
F-14
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(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 clean up 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 $20,000,000 in the
event of such occurrences.
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 Agreements
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.
F-15
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(d) Absence of Written Agreements
Most of the Company's customers do not have written agreements with the Company
and can terminate the Company's mobile fueling services at any time and for any
reason. If the Company were to experience a high rate of terminations, the
Company's business and financial performance could be adversely affected.
(e) Litigation
The Company may be subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management no litigation or
claims exist that would have a material effect on the consolidated financial
position or results of operations of the Company.
(f) Other Commitments
At January 31, 1999, the Company had purchase commitments for 3 custom fuel
delivery vehicles aggregating approximately $475,000.
(10) EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) plan for all employees over the age of 21 with
1,000 hours of service in the previous six months of employment. The Plan
provides for a discretionary match of employee contributions as determined by
the Board of Directors. No Company contributions were made for the fiscal years
ended January 31, 1999, 1998, or 1997.
(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.
F-16
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
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.
(12) 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
F-17
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
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:
WEIGHTED AVERAGE
EXERCISE
SHARES PRICE
------ -------
Options outstanding as of January 31, 1997 --
Granted 98,000 $3.34
=====
Exercised --
Expired --
-------
Options outstanding as of January 31, 1998 98,000
Granted 108,500 $3.69
=====
Exercised --
Expired --
-------
Options outstanding as of January 31, 1999 206,500 $3.52
======= =====
Exercisable 60,500
=======
Available for future grant 43,500
======
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 exercisable. 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.
In connection with the Company's public offering in December 1996, the
underwriter was granted an option to purchase up to 100,000 shares of common
stock at $9.30 per share and 100,000 warrants at a price of $.19375 per warrant.
Each warrant shall entitle the underwriter to purchase one share of common stock
at $9.30 per share. The underwriter options are exercisable for a period of four
years, commencing on December 11, 1997.
F-18
STREICHER MOBILE FUELING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
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 1999,
1998 and 1997 is as follows:
1999 1998 1997
---- ---- ----
Net loss as reported $ (1,081,614) $ (475,426) $(429,238)
Net loss pro forma $ (1,526,401) $(1,450,911) $(483,363)
Net loss per share as reported $ (.42) $ (.18) $ (.26)
Net loss per share pro forma $ (.59) $ (.56) $ (.30)
Pro forma net loss reflects only options granted in fiscal 1999, 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 vesting period of the options.
F-19
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.6 Employment Agreement between the Registrant and Walter B. Barrett (4)
10.7 Amendment #1, dated May 29, 1998 to the $5,000,000 Loan Agreement
between the Registrant and Bank Atlantic (4)
10.8 Amendment #2, dated January 26, 1999 to the $5,000,000 Loan
Agreement between the Registrant and Bank Atlantic (4)
27.1 Financial Data Schedule