UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OR THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-21825
STREICHER MOBILE FUELING, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0707824
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(State of Incorporation) (IRS Employer Identification Number)
800 WEST CYPRESS CREEK ROAD, SUITE 580,
FORT LAUDERDALE, FLORIDA, 33309
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(Address of principal executive offices) (Zip Code)
(954) 308-4200
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(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]. No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ]. No [X].
As of February 17, 2004 there were 7,248,460 shares of the registrant's
common stock outstanding.
STREICHER MOBILE FUELING, INC.
FORM 10-Q
INDEX
FORM 10-Q PART AND ITEM NO.
Part I Financial Information
Item 1. Condensed Unaudited Consolidated Financial Statements
Condensed Unaudited Consolidated Balance Sheets
as of December 31, 2003 and June 30, 2003................3
Condensed Unaudited Consolidated Statements of
Operations for the three and six-month periods ended
December 31, 2003 and 2002 ..............................4
Condensed Unaudited Consolidated Statements of
Cash Flows for the six-month periods ended
December 31, 2003 and 2002...............................5
Notes to Condensed Unaudited Consolidated
Financial Statements.....................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................22
Item 4. Controls and Procedures.................................22
Part II Other Information
Items 1. thru 6. ...........................................23 - 24
Signature Page...................................................25
Certifications..............................................26 - 27
2
STREICHER MOBILE FUELING, INC. AND SUBSIDIARY
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND JUNE 30, 2003
(in 000's, except share and per share data)
ASSETS December 31, 2003 June 30, 2003
------------------------------------------------- ----------------- -------------
Current assets:
Cash and cash equivalents...................... $ 2,037 $ 211
Restricted cash................................. 54 78
Accounts receivable, net ....................... 6,997 6,113
Inventories .................................... 222 168
Prepaid expenses and other current assets....... 404 387
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Total current assets....................... 9,714 6,957
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Property and equipment, net....................... 8,158 8,741
Deferred debt costs............................... 861 186
Other assets...................................... 63 75
Note receivable from related party ............... -- 52
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Total assets.............................. $ 18,796 $ 16,011
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------------
Current liabilities:
Bank line of credit payable ................... $ 4,412 $ 4,410
Current portion of long-term debt and
subordinated promissory notes................. -- 1,965
Accounts payable and other liabilities ........ 3,145 3,012
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Total current liabilities.................. 7,557 9,387
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Long-term liabilities:
Convertible subordinated promissory notes...... -- 734
Long-term debt, excluding current portion...... 6,925 1,779
Unamortized debt discount, net............... (1,501) --
------------- ------------
Long-term debt, net.......................... 5,424 1,779
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Total liabilities.......................... 12,981 11,900
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Shareholders' equity:
Common stock, par value $.01 per share;
50,000,000 and 20,000,000 shares
authorized; 7,248,460 and 7,234,168
issued and outstanding at December 31,
2003 and June 30, 2003, respectively.......... 72 72
Additional paid-in capital..................... 13,338 11,458
Accumulated deficit............................ (7,595) (7,419)
------------- ------------
Total shareholders' equity................. 5,815 4,111
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Total liabilities and shareholders' equity. $ 18,796 $ 16,011
============= ============
SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
STREICHER MOBILE FUELING, INC. AND SUBSIDIARY
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX-MONTH PERIODS ENDED
DECEMBER 31, 2003 AND 2002
(in 000's, except share and per share data)
Three-Month Periods Six-Month Periods
Ended Ended
December 31, December 31,
2003 2002 2003 2002
--------- --------- --------- ----------
Fuel sales and service revenues....... $ 15,593 $ 12,667 $ 29,861 $ 25,223
Fuel taxes............................ 5,543 4,619 10,692 9,142
--------- --------- --------- ----------
Total revenues...................... 21,136 17,286 40,553 34,365
--------- --------- --------- ----------
Cost of fuel sales and service........ 14,518 11,923 27,964 23,086
Fuel taxes............................ 5,543 4,619 10,692 9,142
--------- --------- --------- ----------
Total costs of sales ............... 20,061 16,542 38,656 32,228
--------- --------- --------- ----------
Gross profit........................ 1,075 744 1,897 2,137
Selling, general and administrative
expenses............................ 1,095 1,376 2,186 2,457
Gain on extinguishment of debt........ -- -- 757 --
--------- --------- --------- ----------
Operating income (loss) ............ (20) (632) 468 (320)
Interest expense...................... (362) (228) (646) (457)
Interest and other income............. -- 2 2 22
--------- --------- --------- ----------
Loss before income taxes............ (382) (858) (176) (755)
Income tax expense.................... -- -- -- --
--------- --------- --------- ----------
Net loss ........................... $ (382) $ (858) $ (176) $ (755)
========= ========= ========= ==========
Basic and diluted net loss per share.. $ (.05) $ (.12) $ (.02) $ (.10)
========= ========= ========= ==========
Basic and diluted weighted average
common shares outstanding........... 7,248,460 7,217,995 7,248,382 7,215,823
========= ========= ========= ==========
SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
STREICHER MOBILE FUELING, INC. AND SUBSIDIARY
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED DECEMBER 31, 2003 AND 2002
(in 000's)
2003 2002
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $ (176) $ (755)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization...................... 667 708
Amortization of deferred debt costs .............. 110 15
Amortization of debt discount .................... 108 --
Gain on extinguishment of debt .................... (757) --
Provision for doubtful accounts.................... 33 198
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash........... 24 (113)
Increase in accounts receivable.................. (1,029) (907)
(Increase) decrease in inventories and other
assets.......................................... (65) 137
Increase (decrease) in accounts payable and other
liabilities .................................... 147 (9)
-------- -------
Net cash used in operating activities.......... (938) (726)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (80) (213)
Proceeds from disposal of equipment................ 112 --
Decrease in note receivable due from related party 52 68
-------- -------
Net cash provided by (used in) investing
activities.................................... 84 (145)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank overdraft......................... -- 105
Net borrowings on line of credit................... 2 853
Proceeds from issuance of long-term debt........... 6,925 --
Proceeds from issuance of convertible
subordinated promissory notes..................... -- 150
Repayment of subordinated debt..................... (1,034) --
Payments of debt and bank line of credit issuance
costs............................................. (526) (132)
Costs associated with the extension of warrants.... -- (9)
Repayments of long-term debt....................... (2,687) (890)
-------- -------
Net cash provided by financing activities...... 2,680 77
-------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............................... 1,826 (794)
CASH AND CASH EQUIVALENTS, beginning of period....... 211 815
-------- -------
CASH AND CASH EQUIVALENTS, end of period............. $ 2,037 $ 21
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest......................................... $ 405 $ 350
======== =======
Income taxes..................................... $ -- $ --
======== =======
SEE ACCOMPANYING NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Streicher Mobile Fueling, Inc., a Florida corporation (the "Company")
was formed in 1996.
The Company provides mobile fueling and fuel management out-sourcing
services to businesses that operate all size fleets of vehicles and equipment,
including governmental agencies, utilities, trucking companies, bus lines,
hauling and delivery services, courier services, construction companies and
others. The Company's specialized truck fleet delivers fuel to customers'
locations on a regularly scheduled or as needed basis, refueling vehicles and
equipment and/or re-supplying fixed-site storage facilities. The Company's
patented proprietary electronic fuel tracking control system is used to measure,
record and track fuel dispensed to each vehicle and tank fueled at a customer
location, allowing verification of the amount and type of fuel delivered and
providing customers with customized fleet fuel data for management analysis and
tax reporting. At December 31, 2003, the Company had operations in California,
Florida, Georgia, North Carolina, Tennessee and Texas.
The Company generates substantially all of its revenue from mobile fueling
and fuel management services. Revenue is comprised principally of delivery
service charges and the related sales of diesel fuel and gasoline. Cost of sales
is comprised principally of direct operating expenses and the cost of fuel.
Included in both revenue and cost of sales are federal and state fuel taxes,
which are collected by the Company from its customers, when required, and
remitted to the appropriate taxing authority. The Company provides mobile
fueling and fuel management services at a negotiated rate. Included in the rate
are service charges and the cost of fuel based on market prices. Revenue and
cost of fuel will vary depending on the upward or downward movement of fuel
prices in each market.
In the mobile fueling business, the majority of deliveries are made on
workdays, Monday through Friday, to coincide with customers' fuel service
requirements. The number of workdays in any given month will impact the
quarterly financial performance of the Company. In addition, a downturn in
customer demand generally takes place on and/or in conjunction with national
holidays, resulting in decreased volumes of fuel delivered. This downturn may be
offset during the fiscal year by emergency mobile fueling services and fuel
deliveries to certain customers resulting from impending or actual severe
meteorological or geological events, including hurricanes, tropical storms, ice
and snow storms, forest fires and earthquakes.
(2) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Streicher
Mobile Fueling, Inc. and its wholly owned subsidiary, Streicher Realty, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The condensed unaudited consolidated financial statements included herein
have been prepared in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X, and do not include all the information and footnotes
required by generally accepted accounting principles; however, they do include
all adjustments of a normal recurring nature which, in the opinion of
management, are necessary to present fairly the results of operations of the
Company for the interim periods presented. Certain amounts have been
reclassified to conform with current period presentation. These interim
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended June 30, 2003.
SUPPLEMENTAL CASH FLOW INFORMATION OF NON-CASH ACTIVITIES
For the six-month period ended December 31, 2003, the Company recorded an
unamortized debt discount of $1,608,000 and deferred debt costs of $257,000 for
the broker commission warrants issued, all in connection with the issuance of
the debt securities discussed in Note 6. Additionally, the Company recorded
$14,000 and $10,000 related to the issuance of common stock in lieu of payments
on convertible subordinated promissory notes for the six-month periods ended
December 31, 2003 and 2002, respectively.
6
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(3) CAPITAL RESOURCES AND LIQUIDITY
At December 31, 2003 and June 30, 2003, the Company had a total of cash
and cash availability on its bank line of credit of $2,959,000 and $390,000,
respectively. The increase in the Company's cash and cash availability was
principally due to the August 2003 refinancing which resulted in net proceeds of
$2.9 million.
In August 2003 the Company raised $6.925 million from the issuance of
five-year 10% promissory notes (the "August 2003 refinancing" and the "August
2003 promissory notes") and 2,008,250 five-year warrants to purchase the
Company's common stock at $1.00 per share (the "August 2003 warrants"). The
August 2003 promissory notes are collateralized by a first priority security
interest in the Company's specialized fueling truck fleet and related equipment
and by the patents on its proprietary fuel management system. The resulting
liquidity impact of this financing transaction was the repayment of all
outstanding equipment and subordinated debt; the generation of $2.9 million of
working capital for business expansion; and a $2.8 million improvement in cash
flow resulting from a moratorium of principal payments during the first two
years of the five-year term of the August 2003 promissory notes.
During the quarter ended September 30, 2003, the Company recorded a
pre-tax gain of $757,000 from the prepayment of the outstanding balance owed to
its principal equipment lender and an increase in shareholders' equity of $1.87
million for the value of the 2,008,250 warrants issued in connection with the
August 2003 refinancing.
The Company's material financial commitments, other than fuel purchases,
general expenses and payroll, relate primarily to maintaining its bank line of
credit and servicing its August 2003 promissory notes. The Company is required
to make semi-annual interest payments of 10% per annum on its August 2003
promissory notes which began December 31, 2003; and beginning August 28, 2005,
is required to make six $692,500 semi-annual principal payments, with a balloon
payment due August 28, 2008 of $2,770,000.
The Company's debt agreements contain covenants establishing certain
financial requirements and operating restrictions. The Company's failure to
comply with any covenant or material obligation contained in these debt
agreements, absent a waiver or forbearance from the lenders, would result in an
event of default which could accelerate debt repayment terms under the debt
agreements. Due to cross-default provisions contained in its debt agreements, an
event of default under one agreement could accelerate repayment terms under the
other agreement, which would have a material adverse affect on the Company's
liquidity and capital resources.
The Company's liquidity and ability to meet its financial obligations is
dependent on, among other things, the Company's ability to generate cash flow
from operating activities; obtain or maintain sufficient trade credit from
vendors; maintain compliance with its debt covenants; and/or raise any required
additional capital through the issuance of debt or equity securities or
additional borrowings.
(4) BANK LINE OF CREDIT PAYABLE
The Company has a three-year $10 million credit facility with a national
financial institution which permits the Company to borrow up to 85% of the total
amount of eligible accounts receivable. Interest is payable monthly (5.75% at
December 31, 2003), and outstanding borrowings under the line are secured by
substantially all Company assets other than its truck fleet and related
equipment. The maturity date of the line of credit is September 25, 2005. In
addition, the credit facility may be extended by the mutual consent of the
Company and the bank after September 25, 2005. Effective March 31, 2003, the
Company and its lender revised one of the financial covenants to include all
subordinated debt in the calculation of its effective book net worth.
7
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In August 2003, the Company and its bank line of credit lender amended the
loan and security agreement between them in connection with the Company's August
2003 refinancing which (1) released the lender's lien on patents, patent rights
and patent applications; (2) increased the unused line of credit fee by .50%;
(3) revised the effective book net worth covenant to include the August 2003
promissory notes in its calculation; (4) established a covenant to maintain a
minimum cumulative quarterly fixed charge coverage ratio as defined in the
amended loan agreement; (5) established a covenant for the Company to maintain a
minimum excess availability of $500,000; and (6) eliminated the loan prepayment
fee. The Company utilized a portion of the proceeds of the August 2003
refinancing to pay down the bank line of credit.
As of December 31, 2003 and June 30, 2003, the Company had outstanding
borrowings of $4.4 million under its $10 million bank line of credit. Based on
eligible receivables outstanding at December 31, 2003, the Company had $868,000
of cash availability on the bank line of credit, and was in compliance with all
financial covenants required by the loan and security agreement.
(5) NET INCOME (LOSS) PER SHARE
Basic income (loss) per share is computed by dividing the net income
(loss) attributable to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted income (loss) per share is
computed by dividing income attributable to common shareholders by the
weighted-average number of common shares outstanding during the period increased
to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. The
dilutive effect of outstanding stock options and warrants is reflected in
diluted earnings per share by application of the treasury stock method.
At December 31, 2003, common stock equivalents consisting of 4,629,202
employee, director and unrelated third party stock options and common stock
warrants, including the August 2003 warrants, were outstanding at prices ranging
from $.86 to $9.49 per share. For the period ended December 31, 2003, none of
these common stock equivalents were dilutive or were included in the computation
of diluted net income per share. At December 31, 2002, common stock equivalents
consisting of 2,558,027 employee and director stock options and common stock
warrants were outstanding at prices ranging from $1.00 to $9.49 per share. For
the period ended December 31, 2002, none of these common stock equivalents were
dilutive and were not included in the computation of diluted net income per
share.
On September 25, 2003, the Company extended from December 11, 2003 to
December 11, 2004 the exercise period for 1,349,900 outstanding common stock
warrants related to the December 11, 1996 initial public offering.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" (as amended by SFAS No. 148). As permitted under the provisions of
SFAS No. 123, the Company applies the principles of APB Opinion 25 and related
interpretations in accounting for its stock option plans. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123, net income and net income
per share would have been reduced to the pro forma amounts indicated in the
table below. The fair value of each option grant was estimated at the date of
grant using the Black-Scholes option-pricing model.
8
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company's net loss, pro forma net loss, net loss per share, pro forma
net loss per share, and related assumptions are as follows:
For the For the For the For the
three three six six
months months months months
ended ended ended ended
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
-------------------------------------------------------------
Net loss as reported $ (382) $ (858) $ (176) $ (755)
Net loss pro forma $ (390) $(1,149) $ (186) $(1,280)
Diluted net loss per share as
reported $ (.05) $ (.12) $ (.02) $ (.10)
Diluted net loss per share
pro forma $ (.05) $ (.16) $ (.02) $ (.18)
Risk free interest rate 4.25% 3% 4.25% 3%
Dividend yield 0% 0% 0% 0%
Expected volatility 100% 100% 100% 100%
Expected life 10 years 10 years 10 years 10 years
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net loss amounts presented
because compensation cost is reflected over the vesting period of the options.
There are no other reconciling items included in the net loss amounts presented.
(6) DEBT SECURITIES
AUGUST 2003 PROMISSORY NOTES
On August 29, 2003, the Company closed a $6.925 million offering to
institutions and other accredited lenders consisting of five-year 10% promissory
notes and five-year warrants to purchase a total 2,008,250 shares of the
Company's common stock at $1.00 per share. The August 2003 promissory notes are
collateralized by a first priority security interest in its specialized fueling
truck fleet and related equipment and by patents on its proprietary fuel
management system. The August 2003 promissory notes provide for (1) no principal
payments until August 28, 2005; (2) six $692,500 semi-annual principal payments
commencing on August 28, 2005 through February 28, 2008; (3) a balloon payment
of $2,770,000 at maturity on August 28, 2008; (4) semi-annual interest payments
on June 30 and December 31 commencing December 31, 2003; and (5) the Company's
right to call after August 1, 2005 at 105% of par plus accrued but unpaid
interest. The net cash proceeds from the financing were $2.9 million, after
payment of related fees and expenses and repayment of all outstanding equipment
and subordinated debt. In connection with the issuance of the August 2003
promissory notes, the Company negotiated a settlement with its primary equipment
lender and received a $757,000 cash discount by prepaying $2,204,800 of the
outstanding balance on August 29, 2003. The transaction costs, including
commissions, professional fees and other costs, totaled $804,000, and are being
amortized over the five-year term of the notes.
The issuance of the two million warrants from the August 2003 refinancing
resulted in the Company recording an increase to shareholders equity of $1.87
million; a $1.61 million debt discount; and an increase to deferred debt costs
of $257,000 for the warrants related to the broker commissions. The Company is
amortizing as interest expense the debt discount and deferred debt costs over
the five-year term of the notes.
The $1.61 million debt discount is a non-cash discount related to the
issuance of the warrants and does not reduce the amount of cash payments
required to be made by the Company for the outstanding balance of $6.925 million
owed at December 31, 2003.
On December 31, 2003, the Company paid its first semi-annual interest
payment on the August 2003 promissory notes on a prorated basis totaling
$224,000.
9
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2002 CONVERSION OF SUBORDINATED DEBT
In January 2002, certain holders of the convertible subordinated
promissory notes converted an aggregate of $2.617 million to unregistered shares
of the Company's common stock at a conversion price of $1.24 per share, for a
total of 2,110,322 shares of common stock. The holders of the remaining $283,600
of convertible subordinated promissory notes issued by the Company who did not
convert their notes in January 2002 waived any conversion price adjustment.
SUBORDINATED PROMISSORY NOTES
On December 23, 2002, the Company issued a $150,000 short-term
promissory note to an affiliated shareholder. The note was due on January 31,
2003, with interest at 5% over the prime interest rate. On January 21, 2003 the
Company and the holder of the note substituted the note for a $150,000
subordinated promissory note due on January 31, 2005, bearing interest at an
annual rate of 9%.
On January 21, 2003, the Company issued $300,000 of subordinated
promissory notes to a director and an affiliated shareholder. The notes were due
on January 31, 2005 and bore interest at an annual rate of 9%.
On May 12, 2003, the Company issued $300,000 of subordinated promissory
notes to a director and an affiliated shareholder. The notes bore interest at an
annual rate of 14% and were payable on demand. The Company repaid $235,500 of
these notes with the proceeds of the May 20, 2003 private placement issuance of
subordinated promissory notes and common stock purchase warrants.
On May 20, 2003, the Company issued $235,500 of subordinated promissory
notes to officers, directors, an affiliated shareholder and certain unaffiliated
shareholders. The notes were due on November 19, 2003 and bore interest at an
annual rate of 14%. The Company also issued warrants to purchase 82,425 shares
of common stock exercisable at $0.86 per share in connection with the notes. The
warrants issued are exercisable for a period of three (3) years from September
30, 2003.
REPAID DEBT SECURITIES
The Company repaid the $1,033,600 outstanding balance of all of the
subordinated convertible and non-convertible promissory notes in September 2003
with the proceeds of the August 2003 refinancing.
(7) RELATED PARTY TRANSACTIONS
As previously reported in the Company's 2003 Form 10-K, beginning July
2002, the Company suspended further payments of salary to Stanley H. Streicher,
the Company's former chairman, under his November 7, 2000, employment agreement
because of an unpaid note receivable. As of December 31, 2003, the Company had
set off all the remaining outstanding balance due. Additionally, Mr. Streicher's
November 7, 2000 employment contract expired on October 31, 2003 and was not
extended or renewed.
Each of the: (a) convertible subordinated promissory notes which were
converted in January 2002; (b) December 23, 2002 short-term promissory note; (c)
January 21, 2003 subordinated promissory notes; and (d) May 12, 2003 promissory
notes were issued to a director or other affiliates of the Company. In addition,
a portion of the May 20, 2003 subordinated promissory notes and related warrants
were issued to officers, directors and other affiliates of the Company. These
notes are more fully described in Note 6.
10
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46R, Consolidation of Variable Interest Entities - an
Interpretation of ARB No. 51 ("FIN No. 46R"). FIN No. 46R replaces FIN No. 46
and establishes guidance to identify variable interest entities ("VIEs")
including but not limited to special purpose entities. FIN No. 46R requires VIEs
to be consolidated by the primary beneficiary who is exposed to the VIEs'
expected losses, expected residual returns or both. The Company must apply FIN
No. 46R to any new VIE created after December 31, 2003 immediately. Interests in
entities existing prior to December 31, 2003 shall be accounted for in
accordance with FIN No. 46R as of the first annual period ending after December
15, 2004. This pronouncement is not expected to have a significant impact upon
the Company.
In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised), Employers' Disclosures about Pensions and Other
Postretirement Benefits (SFAS 132R). SFAS 132R revises employers' disclosures
about pension plans and other postretirement benefit plans. It does not change
the measurement or recognition of those plans. Statement 132 (revised) will
retain and revise the disclosure requirements contained in the original
Statement 132. It also requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other postretirement benefit plans. The Statement generally is
effective for fiscal years ending after December 15, 2003. The Company does not
have a Pension Plan or Other Postretirement Benefits as of December 31, 2003
and as such, this pronouncement is not expected to have a significant impact
upon the Company.
FASB Staff Position 150-3, "Effective Date, Disclosures, and Transition
for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities
and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity," (FSP 150-3) defers the effective date for certain
mandatorily redeemable financial instruments issued by a non-SEC registrant from
fiscal periods beginning after December 15, 2003 to fiscal periods beginning
after December 15, 2004 and defers indefinitely for those entities the
classification, measurement, and disclosure provisions of Statement 150 for
other mandatorily redeemable financial instruments. The FSP also defers the
effective date of Statement 150 for certain mandatorily redeemable
noncontrolling interests of all entities. FSP 150-3 is not expected to have a
significant impact upon the Company.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report, including but not limited to this Item 2 and the footnotes to
the financial statements found in Section F, contains "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). These statements concern expectations,
beliefs, projections, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts.
Statements preceded by, followed by, or that include the words "believes,"
"expects," "anticipates," or similar expressions are generally considered to be
forward-looking statements.
The forward-looking statements include the following:
o the Company's beliefs regarding its position in the mobile fueling
industry
o the Company's strategies, plans and objectives and expectations
concerning its future operations, cash flow, margins, revenue,
profitability, liquidity and capital resources
o the Company's efforts to improve operational, financial and management
controls, reporting systems and procedures
The forward-looking statements reflect the Company's current view about
future events and are subject to risks, uncertainties and assumptions. The
Company's actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including those set
forth under the caption "Certain Factors Affecting Future Operating Results,"
included in the Company's filing on Form 10-K for the fiscal year ended June 30,
2003, and in this Form 10-Q. Among the factors that could prevent the Company
from achieving its goals, and cause the assumptions underlying the
forward-looking statements and the actual results to differ materially from
those expressed in or implied by those forward-looking statements are the
following:
o future net losses
o adverse consequences relating to the Company's outstanding debt
o the Company's ability to pay interest and principal on its bank line
of credit, August 2003 promissory notes and pay its accounts payable
and other liabilities when due
o the Company's ability to comply with financial covenants contained in
its $10 million bank line of credit
o the Company's ability to obtain, if necessary, waivers of covenant
violations of its debt agreements
o significant provisions for bad debts on the Company's accounts
receivable
o fluctuations in demand for the Company's mobile fueling services
resulting from changed economic conditions
o the Company's ability to acquire sufficient trade credit from fuel
suppliers and other vendors
o competitive pricing for the Company's services at acceptable net
margins
12
OVERVIEW
The success of the Company and its mobile fueling services business is
largely dependent on the number of gallons delivered and the net margin per
gallon achieved. Since June 30, 2003, the Company has added, on an annualized
basis, over 7.0 million gallons of net new business, which would, if sustained,
result in an expected 54.0 million gallons delivered for the year ending June
30, 2004 or a 15% increase over the 47.5 million gallons delivered in the fiscal
year 2003. For the six months ended December 31, 2003, the net margin per gallon
was 9.1 cents per gallon compared to 11.5 cents per gallon in fiscal 2003,
although net margin improved to 9.9 cents in the second quarter from 8.7 cents
in the current year's first quarter.
The Company attributes the lower net margin per gallon in the same
six-month period this year versus last year to two factors: (1) a lower average
service charge per gallon resulting from the aggressive price-cutting by the
Company's former largest competitor which discontinued operations; and (2)
higher direct operating costs (e.g. personnel training and equipment relocation)
incurred during the first six months of this year due to the expansion of the
Company's business in existing and new markets. Management believes that the
residual effect of this discounting should abate and the pricing for mobile
fueling services will stabilize at more sustainable levels. Other mobile fueling
providers are expected to compete based on service capability and reliability
rather than the self-destructive predatory pricing strategy experienced in the
past.
While the Company incurred a loss in the second quarter of the 2004 fiscal
year, its operating loss and net loss both decreased from the same period in the
prior year by over $600,000 and nearly $500,000, respectively. Additionally, the
Company reduced by $249,000 the operating loss it incurred in the second quarter
of this year as compared to the first quarter when excluding the $757,000 gain
on the extinguishment of debt. The $249,000 reduction of the operating loss in
the current quarter was principally due to the addition of new business volumes
and improved net margins.
OPERATING INCOME (LOSS) BEFORE GAIN ON EXTINGUISHMENT OF DEBT:
Three Three
Months Months
Ended Ended
9/30/03 12/31/03 Change
----------- ----------- ---------
Operating income (loss) $ 488,000 $ (20,000) $ 508,000
Less: Gain on extinguishment
of debt $ (757,000) $ --- $ (757,000)
---------- ---------- ----------
Operating income (loss)
before gain on extinguishment
of debt $ (269,000) $ (20,000) $ 249,000
========== ========== ==========
The Company's financial condition is stable and, after its recent
refinancing transaction, has improved in several ways. The August 2003
refinancing which provided $5.8 million in net proceeds and lowered debt service
requirements over the next two years, better matches the Company's anticipated
cash flow and debt obligations, while providing support for the planned growth
of its business. EBITDA was improved, increasing by over $550,000 in the second
quarter of this year versus a year ago. Availability under the Company's $10
million bank line of credit has also increased.
Increasing EBITDA is reflective of the improvement in cash flow being
generated from the Company's business operations before debt service and
depreciation, and is a key indicator used by management and the financial
community to gauge the Company's financial performance utilizing its capital
resources. Since the Company has 30 trucks available for immediate service to
support its expansion program in presently served and new markets, management
believes that it is in a position to add significant new business volumes,
generating continued strong growth in EBITDA with limited capital expenditures.
The Company plans to meet its income objectives by delivering increased
volumes of fuel and generating higher margins in both existing and new markets
through improved operating efficiencies. Labor costs are a primary consideration
by existing and prospective customers in the use of mobile fueling services and
the Company anticipates the expansion of the demand for its services as these
labor costs continue to escalate. On January 4,
13
2004, new federal safety rules took effect reducing the number of hours truck
drivers can be on duty, including any time spent fueling their trucks or
equipment. The Company believes that the changes mandated under the new rules
will increase the attractiveness of using mobile fueling services. Fleet
operators may decide to use their drivers' time more effectively by delivering
their product or services rather than spending time fueling vehicles.
GENERAL
The Company generates substantially all of its revenue from providing
mobile fueling and fuel management services. Revenue is comprised principally of
delivery service charges and the related sale of diesel fuel and gasoline. Cost
of sales is comprised principally of direct operating expenses and the cost of
fuel. Included in both revenue and cost of sales are federal and state fuel
taxes, which are collected by the Company from its customers, when required, and
remitted to the appropriate taxing authorities.
The Company provides mobile fueling and fuel management services at a
negotiated rate for service plus the cost of fuel based on market prices.
Revenue levels will vary depending on the upward or downward movement of fuel
prices in each market. In the absence of dramatic price changes that affect
customers' actual demand for fuel or materially affect the fuel usage costs of
the Company's own fuel delivery trucks, the Company's gross margin on sales is
not materially affected by fuel price fluctuations because the Company generally
passes all fuel price changes to its customers and charges for its own services
on a flat per gallon basis. For the three and six months ended December 31,
2003, market prices for fuel were higher than for the three and six months ended
December 31, 2002, and delivered volumes increased in the current quarter due
primarily to the addition of new accounts. As a result, revenues increased for
the three and six months ended December 31, 2003, as compared to the three and
six months ended December 31, 2002.
In July 2003, the Company's largest competitor in the markets served by
the Company discontinued operations. The Company has added through its marketing
efforts some of the business of the former competitor and anticipates further
additions in the future. The Company believes that the failure of this
competitor provides it with the opportunity to further increase deliveries and
generate improved margins in those locations where it previously directly
competed. The Company also intends to enter other locations, including but not
limited to those previously served by this former competitor, where it believes
that market share can be obtained at profitable margins.
In the mobile fueling business, the majority of deliveries are made on
workdays, Monday through Friday, to coincide with customers' fuel service
requirements. The number of workdays in any given month will impact the
financial performance of the Company. In addition, a downturn in customer demand
generally takes place on and/or in conjunction with national holidays, resulting
in decreased volumes of fuel delivered. This downturn may be offset during the
fiscal year by emergency mobile fueling services and fuel deliveries to certain
customers resulting from impending or actual severe weather and other events,
including hurricanes, tropical storms, ice and snow storms, forest fires and
earthquakes.
The Company believes that there are significant opportunities to increase
the size of its mobile fueling and fuel management services business and the
volumes of fuel sold and delivered in conjunction with it. The Company`s
marketing and sales function is committed to grow the Company's business.
However, this growth is dependent upon a number of business and economic
factors, including the success of the Company's sales and marketing and other
business strategies; the availability in new and existing markets of sufficient
acceptable margin mobile fuel service business; the availability of qualified
workers to provide the level of service required by customers; the continuation
of cash flow from operating activities; the availability of sufficient debt or
equity capital to meet the Company's financing requirements; and changes in
market conditions in the related transportation or petroleum industries, some of
which factors are beyond the Company's control.
CAPITAL RESOURCES AND LIQUIDITY
At December 31, 2003 and June 30, 2003, the Company had a total of cash
and cash availability on its bank line of credit of $2,959,000 and $390,000,
respectively. The increase in the Company's cash and cash availability was
principally due to the August 2003 refinancing which resulted in net proceeds of
$2.9 million.
14
In August 2003 the Company raised $6.925 million from the issuance of
five-year 10% promissory notes (the "August 2003 refinancing" and the "August
2003 promissory notes") and 2,008,250 five-year warrants to purchase the
Company's common stock at $1.00 per share (the "August 2003 warrants"). The
August 2003 promissory notes are collateralized by a first priority security
interest in the Company's specialized fueling truck fleet and related equipment
and by the patents on its proprietary fuel management system. The resulting
liquidity impact of this financing transaction has been the repayment of all
outstanding equipment and subordinated debt; the generation of $2.9 million of
working capital for business expansion; and a $2.8 million improvement in cash
flow resulting from a moratorium of principal payments during the first two
years of the five-year term of the August 2003 promissory notes.
The August 2003 refinancing has significantly strengthened the Company's
financial position, enabling it to achieve a stronger balance sheet and improve
cash flow resulting from the two-year principal moratorium on principal payments
under the August 2003 promissory notes. The Company believes that this
transaction enhances its business credibility with present and prospective
customers, fuel suppliers, trade creditors, other lenders and the investment
community, and its ability to compete in its business sector.
During the quarter ended September 30, 2003, the Company recorded a
pre-tax gain of $757,000 from the prepayment of the outstanding balance owed to
its principal equipment lender and an increase in shareholders' equity of $1.87
million for the value of the 2,008,250 warrants issued in connection with the
August 2003 refinancing.
The Company's debt agreements contain covenants establishing certain
financial requirements and operating restrictions. The Company's failure to
comply with any covenant or material obligation contained in these debt
agreements, absent a waiver or forbearance from the lenders, would result in an
event of default which could accelerate debt repayment terms under the debt
agreements. Due to cross-default provisions contained in its debt agreements, an
event of default under one agreement could accelerate repayment terms under the
other agreements, which would have a material adverse effect on the Company's
liquidity and capital resources.
The Company's mobile fueling business requires it to utilize considerable
working capital for fuel, labor and equipment costs prior to receiving payments
from customers. The fuel purchased by the Company for resale to customers
generally must be paid for in 10-15 days of purchase, with labor costs and taxes
paid bi-weekly and equipment related costs generally paid within 30 days. The
Company invoices customers both daily and weekly and generally collects its
accounts within 30 to 45 days. The days sales outstanding at December 31, 2003
and June 30, 2003 was 30 days.
The Company's material financial commitments, other than fuel purchases,
payroll and general expenses, relate primarily to maintaining its bank line of
credit and servicing its August 2003 promissory notes. The Company will make
semi-annual interest payments of 10% per annum on its August 2003 promissory
notes which began December 31, 2003; and beginning August 28, 2005, will make
six $692,500 semi-annual principal payments, with a balloon payment due August
28, 2008 of $2,770,000.
The Company's liquidity and ability to meet its financial obligations is
dependent on, among other things, the Company's ability to generate cash flow
from operating activities; obtain or maintain sufficient trade credit from
vendors; maintain compliance with its debt covenants; and/or raise any required
additional capital through the issuance of debt or equity securities or
additional borrowings.
The Company believes that cash flow from operations; the additional
working capital from the August 2003 refinancing; and the remaining 18 months of
the two-year principal payment moratorium on the August 2003 promissory notes
will satisfy its anticipated liquidity requirements for the foreseeable future.
However, it may seek additional sources of financing if a cash flow deficiency
were to arise in the future. There is no assurance that additional financing
would be available to the Company on acceptable terms, or at all. If the Company
does not comply with the covenants in its debt agreements, or if adequate funds
are not available to finance operations or to pay debt service obligations as
they become due, the Company may be required to significantly alter its
operations.
15
$10 MILLION THREE-YEAR CREDIT FACILITY
The Company has a three-year $10 million credit facility with a national
financial institution, which permits the Company to borrow up to 85% of the
total amount of eligible accounts receivable. Interest is payable monthly (5.75%
at December 31, 2003) and outstanding borrowings under the line are secured by
substantially all Company assets other than its truck fleet and related
equipment. The maturity date of the line of credit is September 25, 2005. In
addition, the credit facility may be extended by the mutual consent of the
Company and the bank after September 25, 2005. Effective March 31, 2003, the
Company and its lender revised one of the financial covenants to include all
subordinated debt in the calculation of its effective book net worth.
In August 2003, the Company and its bank line of credit lender amended the
loan and security agreement for the credit facility in connection with the
Company's August 2003 refinancing which (1) released the lender's lien on
patents, patent rights and patent applications; (2) increased the unused line of
credit fee by .50%; (3) revised the effective book net worth covenant to include
the August 2003 promissory notes in its calculation; (4) established a covenant
to maintain a minimum cumulative quarterly fixed charge coverage ratio as
defined in the amended loan agreement; (5) established a covenant for the
Company to maintain a minimum excess availability of $500,000; and (6)
eliminated the loan prepayment fee. The Company utilized a portion of the
proceeds of the August 2003 refinancing to pay down the bank line of credit. The
proceeds that were used to pay down the outstanding line of credit balance are
available to the Company for future working capital purposes.
As of December 31, 2003 and June 30, 2003, the Company had outstanding
borrowings of $4.4 million under its $10 million bank lines of credit. Based on
eligible receivables outstanding at December 31, 2003, the Company had $868,000
of cash availability on the bank line of credit, and was in compliance with all
financial covenants required by the loan and security agreement.
Management believes that the Company's bank line of credit will provide
the working capital needed to maintain and grow its business and to accomplish
its business plan. However, if additional financing is required, there can be no
assurance that the Company will be able to obtain such financing from its
present bank line of credit or another lender at acceptable terms, or at all.
Further, since the Company's borrowings under its bank line of credit bear
interest at variable interest rates and represent a large portion of the
Company's outstanding debt, the Company's financial results could be materially
affected by significant increases or decreases in interest rates.
DEBT SECURITIES
AUGUST 2003 PROMISSORY NOTES
On August 29, 2003, the Company closed a $6.925 million offering to
institutions and other accredited lenders consisting of five-year 10% promissory
notes and five-year warrants to purchase a total 2,008,250 shares of the
Company's common stock at $1.00 per share. The August 2003 promissory notes are
collateralized by a first priority security interest in its specialized fueling
truck fleet and related equipment and by patents on its proprietary fuel
management system. The August 2003 promissory notes provide for (1) no principal
payments until August 28, 2005; (2) six $692,500 semi-annual principal payments
commencing on August 28, 2005 through February 28, 2008; (3) a balloon payment
of $2,770,000 at maturity on August 28, 2008; (4) semi-annual interest payments
on June 30 and December 31 commencing December 31, 2003; and (5) the Company's
right to call after August 1, 2005 at 105% of par plus accrued but unpaid
interest. The net cash proceeds from the financing were $2.9 million, after
payment of related fees and expenses and repayment of all outstanding equipment
and subordinated debt. In connection with the issuance of the August 2003
promissory notes, the Company negotiated a settlement with its primary equipment
lender and received a $757,000 cash discount by prepaying the $2,204,800
outstanding balance on August 29, 2003. The transaction costs, including
commissions, professional fees and other costs, totaled $804,000, and are being
amortized over the five-year term of the notes.
16
The issuance of the two million warrants from the August 2003 refinancing
resulted in the Company recording an increase to shareholders equity of $1.87
million; a $1.61 million debt discount; and an increase to deferred debt costs
of $257,000 for the warrants related to the broker commissions. The Company is
amortizing as interest expense the debt discount and deferred debt costs over
the five-year term of the notes.
The $1.61 million debt discount is a non-cash discount related to the
issuance of the warrants and does not reduce the amount of cash payments
required to be made by the Company for the outstanding balance of $6.925 million
owed at December 31, 2003.
REPAID DEBT SECURITIES
In September 2003, the Company repaid the $1,033,600 outstanding balance
of all of the subordinated convertible and non-convertible promissory notes with
a portion of the proceeds of the August 2003 refinancing.
INTEREST EXPENSE SUMMARY
As a result of the August 2003 refinancing, the Company's components of
interest expense has changed. The table below shows the interest expense (in
thousands) recorded for the three and six-month periods below, as well as the
portions that are recurring and other:
Three-Month Periods Six-Month Periods
Ended Ended
December 31, December 31,
2003 2002 2003 2002
------- ------ ------- -------
STATED RATE INTEREST EXPENSE:
-----------------------------
Bank line of credit $ 51 $ 99 $ 114 $ 205
Long term equipment debt 173 108 277 223
Subordinated debt -- 5 20 9
Other 7 -- 13 --
------- ------ ------- -------
Total stated rate interest expense 231 212 424 437
NON-CASH INTEREST AMORTIZATION:
-------------------------------
Amortization of deferred debt costs 53 16 91 20
Amortization of debt discount 78 -- 108 --
------- ------ ------- -------
Total amortization of interest expense 131 16 199 20
------- ------ ------- -------
Total recurring interest expense 362 228 623 457
Total other interest expense -- -- 23 --
------- ------ ------- -------
Total interest expense $ 362 $ 228 $ 646 $ 457
======= ====== ======= =======
The primary increase in the recurring interest expense of $134,000 and
$166,000 for the three and six months ended December 31, 2003 versus the three
and six months ended December 31, 2002, respectively, relates to the higher
non-cash interest amortization of $40,000 per month as well as higher equipment
debt outstanding in the three and six month periods ended December 31, 2003,
offset by the lower average balance on the Company's bank line of credit for the
three and six months ended December 31, 2003 versus the three and six months
ended December 31, 2002, respectively.
17
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 2003 TO THREE MONTHS ENDED
DECEMBER 31, 2002
REVENUES
Revenue increased approximately $3.8 million, or 22.3%, for the three
months ended December 31, 2003 compared to the three months ended December 31,
2002. The increase in revenue resulted primarily from higher wholesale fuel
prices and additional higher priced mobile fueling deliveries of 2.0 million
gallons during the current period. The Company delivered 13.7 million gallons of
fuel to its customers in the three months ended December 31, 2003, an increase
of 2.2 million gallons or 19.1% over the 11.5 million gallons delivered in the
three months ended December 31, 2002. The increase in volume in the current
period was primarily due to the net addition of new accounts.
GROSS PROFIT
Gross profit increased by $331,000, or 44.4%, in the three months ended
December 31, 2003 compared to the three months ended December 31, 2002. This
increase resulted from more volume delivered of 2.2 million gallons totaling
$622,000 during the three months ended December 31, 2003. The gross profit
generated from the added volume delivered during the period was offset by
$78,000 or 0.7 cents per gallon related to the decrease in the average service
charge of fuel delivered and the related direct operating expenses of $213,000.
The decrease in the average service charge resulted from the Company lowering
its service charges to many of its customers which was necessary to counter an
extremely aggressive pricing scheme undertaken by the Company's largest
competitor from October 2002 until it discontinued its operations in July 2003.
The average net margin per delivered gallon of fuel (defined as gross
profit plus depreciation related to cost of sales divided by gallons delivered)
increased from 9.3 cents for the three months ended December 31, 2002 to 9.9
cents for the three months ended December 31, 2003. This increase in net margin
per gallon resulted primarily from improvements in delivery efficiencies on a
per gallon basis in the three months ended December 31, 2003 compared to the
same period a year ago, even though the Company incurred higher direct operating
costs (e.g. personnel training and equipment relocation) in this year's second
quarter, which were largely attributable to costs directly related to its
expansion in existing markets and into new locations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses decreased approximately
$281,000, or 20.4%, in the three months ended December 31, 2003 compared to the
three months ended December 31, 2002. The decrease in these expenses resulted
primarily from a $148,000 decrease in provisions for bad debts, a $82,000
decrease in payroll and temporary labor expenses and a decrease in other general
and administrative costs of $51,000.
INTEREST EXPENSE
Interest expense increased approximately $134,000, or 58.8%, in the three
months ended December 31, 2003 compared to the three months ended December 30,
2002. The increase was primarily due to the debt discount and deferred debt
costs amortization of $131,000.
INCOME TAXES
The Company recorded no income tax expense in the three-month periods
ended December 31, 2003 or December 31, 2002. The Company has $13.9 million in
net operating loss carryforwards which may be available to offset future taxable
income.
18
NET LOSS
Net loss for the three months ended December 31, 2003 was $382,000
compared to $858,000 for the prior year period, an improvement of $476,000 or
55.5% resulting primarily from $331,000 of higher gross profit during the
three month period ended December 31, 2003, and from lower selling, general, and
administrative expenses of $281,000, which was partially offset by higher
interest expense of $134,000.
EBITDA
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
of $313,000 increased approximately $579,000 in the three months ended December
31, 2003 compared to the three months ended December 31, 2002. The increase in
EBITDA was primarily due to the increase in gross profit of $331,000 as well as
a decrease in selling, general, and administrative expenses of $281,000.
Components of EBITDA for the three months ended December 31, 2003 and 2002
are as follows:
December 31, December 31,
2003 2002
---------- ----------
Net loss $ (382,000) $ (858,000)
Add back:
Interest expense 231,000 212,000
Non-cash interest expense 131,000 16,000
Depreciation and amortization expense:
Cost of sales 285,000 323,000
Selling, general and administrative 48,000 41,000
---------- ----------
EBITDA $ 313,000 $ (266,000)
========== ==========
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 2003 TO SIX MONTHS ENDED
DECEMBER 31, 2002
REVENUES
Revenue increased approximately $6.2 million, or 18.0%, for the six months
ended December 31, 2003 compared to the six months ended December 31, 2002. The
increase in revenue resulted primarily from substantially higher wholesale
prices and additional higher priced mobile fueling deliveries of 3.0 million
gallons during the current period. The Company delivered 27.0 million gallons of
fuel to its customers in the six months ended December 31, 2003, an increase of
15.4% compared to the 23.4 million gallons delivered in the six months ended
December 31, 2002. The increase in volume in the current period was primarily
due the addition of net new accounts.
GROSS PROFIT
Gross profit decreased $240,000, or 11.2%, in the six months ended
December 31, 2003 compared to the six months ended December 31, 2002. Of the
decrease, $630,000 or 2.7 cents per gallon resulted from a decrease in the
average service charge of fuel delivered. This decrease in the average service
charge resulted from the Company's lowering of service charges to many of its
customers which was necessary to counter an extremely aggressive pricing scheme
undertaken by the Company's largest competitor from October 2002 until it
discontinued its operations in July 2003. Furthermore, the impact of the lower
service charge revenue was offset by $390,000 related to the delivering of 3.6
million more gallons net of the related direct operating expenses during this
period versus a year ago.
The average net margin per delivered gallon of fuel (defined as gross
profit plus depreciation related to cost of sales divided by gallons delivered)
decreased from 11.9 cents for the six months ended December 31, 2002 to 9.1
cents for the six months ended December 31, 2003. This decrease in net margin
per gallon resulted from the competitive pressure caused by our former largest
competitor to lower the average selling price per gallon. Although
19
the average net margin per gallon was higher last fiscal year principally due to
higher average service charges, the Company incurred higher direct operating
costs (e.g. personnel training and equipment relocation) in this year's second
quarter, which were largely attributable to costs directly related to its
expansion in existing markets and into new locations, the contribution of the
new volumes resulted in a $249,000 decrease in the current operating loss
excluding the $757,000 gain on extinguishment of debt versus the prior quarter
ending September 30, 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses decreased approximately
$272,000, or 11.0%, in the six months ended December 31, 2003 compared to the
six months ended December 31, 2002. The decrease was primarily due to a
reduction of provisions for bad debts of $165,000 which were incurred in the
prior year related to the Company's billing system conversion, a reduction of
professional fees of $48,000, and reductions of payroll expense of $50,000.
GAIN ON EXTINGUISHMENT OF DEBT
In connection with the issuance of the August 2003 promissory notes, the
Company negotiated a settlement with its primary equipment lender and received a
$757,000 cash discount by prepaying $2,204,800 of the outstanding balance on
August 29, 2003. This discount was recorded as gain on extinguishment of debt
and is included in operating income and net income for the six months ended
December 31, 2003.
INTEREST EXPENSE
Interest expense increased approximately $189,000, or 41.3%, in the six
months ended December 31, 2003 compared to the six months ended December 31,
2002. The increase was primarily due to the amortization of debt discount and
debt costs of $199,000 offset by less interest on the bank line of credit.
INCOME TAXES
The Company recorded no income tax expense in the six-month periods ended
December 31, 2003 or December 31, 2002. The Company has $13.9 million in net
operating loss carryforwards which may be available to offset future taxable
income.
NET LOSS
Net loss for the six months ended December 31, 2003 was $176,000 compared
to $755,000 for the prior year period, an increase of $579,000 or 76.7%
resulting primarily from the August 2003 $757,000 gain on extinguishment of
debt, which was partially offset by the lower gross profit of $240,000 during
the six-month period ended December 31, 2003.
EBITDA
Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
of $1,137,000 increased approximately $727,000 in the six months ended December
31, 2003, compared to $410,000 in the six months ended December 31, 2002. The
increase in EBITDA was primarily due to the gain on extinguishment of debt of
$757,000, the decrease in selling general and administrative expenses of
$272,000, offset by a decrease in gross profit of $241,000.
20
Components of EBITDA for the six months ended December 31, 2003 and 2002
are as follows:
December 31, December 31,
2003 2002
------------ ------------
Net loss $ (176,000) $ (755,000)
Add back:
Interest expense 424,000 437,000
Non-cash interest expense 222,000 20,000
Depreciation and amortization expense:
Cost of sales 570,000 637,000
Selling, general and
administrative 97,000 71,000
----------- ----------
EBITDA $ 1,137,000 $ 410,000
=========== ==========
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk is limited primarily to the
fluctuating interest rates associated with variable rate debt outstanding to
finance working capital needs and a portion of the Company's mobile fueling
truck fleet. These debts bear interest at the United States prime interest rate
plus a fixed markup and are subject to change based upon interest rate changes
in the United States. The Company does not currently use, and has not
historically used, derivative instruments to hedge against such market interest
rate risk. Increases or decreases in market interest rates could have a material
impact on the financial condition, results of operations and cash flows of the
Company. In the absence of dramatic price changes that affect customers' actual
demand for fuel or materially affect the fuel usage costs of the Company's own
fuel delivery trucks, the Company's gross margin on sales is not materially
affected by fuel price fluctuations because the Company generally passes all
fuel price changes to its customers and charges for its own services on a flat
per gallon basis.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period reported on in this report, we have undertaken
an evaluation under the supervision and with the participation of our
management, including our Chief Executive Office and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective, in all
material respects, with respect to the recording, processing, summarizing and
reporting, within the time periods specified in the SEC's rules and forms, of
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act.
There have been no significant changes in our internal controls during the
quarter ended December 31, 2003, or in other factors that could significantly
affect internal controls subsequent to the date of the evaluation described
above.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 15, 2003, the National Labor Relations Board filed an
application for enforcement of its October 31, 2003 order requiring the Company
to bargain with the International Brotherhood of Teamsters, Local 385, AFL-CIO
as the exclusive bargaining representative of the 14 full-time and regular
part-time truck drivers employed by the Company at its Orlando, Florida
facility, and alleging unfair labor practices in connection with that refusal to
bargain. NLRB v. Streicher Mobile Fueling, Inc., No. 03-16340A, U.S. Court of
Appeals (11th Cir.). The Company has answered the application, denying that the
union was properly certified and denying any unfair labor practices. The Company
intends to defend itself vigorously on various grounds, including the union's
use of a misleading sample ballot during the certification process. The Company
believes that the outcome of this matter will not be material to the results of
operations or financial condition.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2003 Annual Meeting of Shareholders of Streicher Mobile Fueling, Inc.
was held at the Sheraton Suites Cypress Creek, 555 NW 62nd Street, Fort
Lauderdale, Florida, on December 11, 2003. At the meeting, the shareholders
approved the following two proposals with the vote as set forth thereunder:
o Election of six directors to the Company's Board of Directors to serve
until the next Annual Meeting of Shareholders or until their
successors are elected
DIRECTOR FOR AGAINST ABSTAINED UNVOTED
-------------------- --------- --------- --------- ---------
Wendell R. Beard 5,904,268 26,507 -0- -0-
--------- --------- --------- ---------
Richard E. Gathright 5,904,268 26,507 -0- -0-
--------- --------- --------- ---------
Larry S. Mulkey 5,904,268 26,507 -0- -0-
--------- --------- --------- ---------
C. Rodney O'Connor 5,904,268 26,507 -0- -0-
--------- --------- --------- ---------
Robert S. Picow 5,904,268 26,507 -0- -0-
--------- --------- --------- ---------
W. Greg Ryberg 5,904,268 26,507 -0- -0-
--------- --------- --------- ---------
o Ratification of the Company's Private Placement of 2,008,250 common
stock purchase warrants in connection with the sale of $6.925 million
of senior secured promissory notes
FOR AGAINST ABSTAINED UNVOTED
--------------- ------------ ------------- ------------
4,797,203 7,607 3,950 1,122,015
--------------- ------------ ------------- ------------
Abstentions and broker non-votes were counted for purposes of establishing
a quorum only. Only those votes cast for the proposals were counted as
voted in favor or affirmative votes.
23
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit No. Description
----------- -----------
3.2 Amended and Restated Bylaws
31.1 Certificate of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (16)
31.2 Certificate of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (16)
32.1 Certificate of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002 (16)
(B) REPORTS ON FORM 8-K
1) The Company filed a report on Form 8-K under Item 7,
Financial Statements, Pro Forma Financial Information and
Exhibits, and under Item 12, Results of Operations and
Financial Condition, dated October 6, 2003 reporting the
operating results for the fiscal year and three months ended
June 30, 2003
2) The Company filed a Form 8-K, under Item 5, Other Events,
dated October 28, 2003 to report the extension of the
Warrant exercise period for its Redeemable Common Share
Purchase Warrants from December 11, 2003 to December 11,
2004
3) The Company filed a report on Form 8-K under Item 12,
Results of Operations and Financial Condition, dated
November 14, 2003 reporting the operating results for the
first quarter ended September 30, 2003
4) The Company filed a report on Form 8-K under Item 5, Other
Events, and under Item 7, Financial Statements, Pro Forma
Financial Information and Exhibits, dated December 17, 2003
announcing that Richard N. Hamlin was elected to serve as a
member of the Board of Directors
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STREICHER MOBILE FUELING, INC.
February 17, 2004 By: /S/ RICHARD E. GATHRIGHT
------------------------------------
Richard E. Gathright
Chief Executive Officer and President
By: /S/ MICHAEL S. SHORE
------------------------------------
Michael S. Shore
Senior Vice President and
Chief Financial Officer