UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: JUNE 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number: 0-21825
STREICHER MOBILE FUELING, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0707824
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 WEST CYPRESS CREEK ROAD, SUITE 580, FORT LAUDERDALE, FLORIDA 33309
(Address of principal executive offices) (Zip Code)
(954) 308-4200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates was
$4,108,735. The aggregate market value was computed by reference to the last
sale price of the registrant's Common Stock on the NASDAQ Stock Market on
September 30, 2002.
As of September 30, 2002 there were 7,215,469 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain Portions of Registrant's Proxy Statement relating to the 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Streicher Mobile Fueling, Inc., a Florida corporation (the "Company")
formed in 1996, provides mobile fueling and fuel management out-sourced services
to businesses that operate 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.
The Company believes that mobile fueling provides several economic and
other advantages to its customers, including reducing the labor and
administrative costs associated with fueling vehicles, providing centralized
control over fuel inventories and usage, tax reporting benefits, eliminating the
costs and potential environmental liabilities associated with equipping and
maintaining on-site fuel storage and dispensing facilities, reducing the risk of
employee theft of fuel by dispensing it only to authorized vehicles, providing
fueling services in emergency situations, and eliminating security risks
associated with off-site fueling by employees.
The Company presently operates over 100 custom mobile fueling trucks from
13 service locations in California, Florida, Georgia, Tennessee and Texas and is
seeking to increase market penetration in its existing service areas and to
develop its operations in new markets.
THE MOBILE FUELING INDUSTRY
Traditionally, businesses and other entities that operate fleets of
vehicles and equipment have met their fueling requirements by either maintaining
their own supply of fuel in on-site storage tanks or fueling vehicles at retail
stations and other third party facilities.
On-site storage tanks and fueling facilities can be expensive to construct
and maintain, and expose the property owner and operator to potential liability
associated with fuel leaks or spills. In addition, increasingly stringent
federal and state environmental regulation of underground storage tanks may
require businesses that maintain their own fuel supplies to spend significant
amounts to remove, retrofit and/or to maintain underground and aboveground
storage tanks to meet regulatory standards. The Company believes that many fleet
operators currently utilizing on-site storage tanks will choose to meet their
fueling requirements by other means, including mobile fueling, instead of
investing in upgrading and/or maintaining existing facilities.
The fueling of vehicles at retail stations and other third party facilities
by fleet operators can result in a higher cost of operations due to inefficient
use of employee time, the creation of significant unnecessary paperwork and
employee fraud. While large users may be able to negotiate favorable fuel
pricing from retail stations or other fuel suppliers, the labor cost incurred in
connection with employee fueling of vehicles and the costs associated with
management and administration of fuel purchases, can exceed the benefits
associated with price discounts.
Specifically, the Company believes that the mobile fueling and fuel
management out-sourced services that it offers provide numerous benefits over
traditional fueling methods:
o Reduces Operating Costs and Increases Labor Productivity. Mobile fueling
enables fleet operators to reduce operating costs by eliminating the need
for their employees to fuel vehicles either on-site or at local retail
stations and other third party facilities. Overnight fueling prepares fleet
vehicles for operation at the beginning of each workday and increases labor
productivity by allowing employees to use their 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.
o Provides Centralized Inventory Control and Management. The Company's fuel
management system provides fleet operators with weekly reports detailing,
among other things, the location, description and daily and weekly fuel
consumption of each vehicle or piece of equipment fueled by the Company.
This eliminates customers' need to invest working capital to maintain
adequate fuel supplies, allows customers to centralize their fuel inventory
controls, track and analyze vehicle movement and fuel consumption for
management and tax reporting purposes.
o Provides Tax Reporting Benefits. The ability of the Company's fuel
management system to track fuel consumption to specific vehicles and fuel
tanks provides tax benefits to customers who consume fuel in uses that are
tax-exempt, such as for off-road vehicles, government-owned vehicles and
fuel used to operate refrigerator units on vehicles. For such uses, the
customers receive reports which provide them with the information required
to substantiate such tax exemptions.
o Eliminates Expenses and Liabilities of On-site Storage. Fleet operators who
previously satisfied their fuel requirements using on-site storage tanks
can eliminate the capital and costs relating to equipping and maintaining
fuel storage and dispensing facilities, including carrying fuel inventory
and complying with increasingly stringent environmental regulations. By
removing on-site storage tanks and relying on mobile fueling, customers
avoid potential liabilities associated with the handling and storage of
fuel.
o Prevents Fuel Theft. Fleet operators that rely on employees to fuel
vehicles, whether at on-site facilities or at retail stations, often
experience shrinkage of fuel inventories or excess fuel purchases due to
employee fraud. The Company's fuel management system eliminates the risk of
employee theft by dispensing fuel only to authorized vehicles. Utilizing an
independent contractor such as the Company for fueling services rather than
allowing employees to purchase fuel at local retail stations also
eliminates employee fraud due to credit card abuse.
o Provides Emergency Fuel Supplies and Security. Emergency preparedness,
including fuel availability, is critical to the operation of utilities,
delivery services and other fleet operators. The Company provides access to
emergency fuel supplies at times and locations chosen by its customers,
allowing customers to react more quickly and effectively to emergency
situations, such as severe weather conditions. Fueling by fleet operators
at their own on-site storage facilities, and/or at retail and other third
party locations may be limited due to power interruption, supply outages or
access and other natural limitations. In addition, security concerns of
fleet operators to terrorism, hijacking and sabotage is increasing. The
mobile fueling of vehicles at the customers' facilities eliminates security
risks to the fleet operators' employees and equipment associated with
fueling at retail service stations and other third party facilities.
MARKETING AND CUSTOMERS
The Company markets its services to customers operating all size fleets of
vehicles and equipment in connection with their business, including governmental
agencies, utilities, trucking companies, bus lines, hauling and delivery
services, courier services, construction companies and others. While large fleet
operators offer immediate market penetration on a regional basis, small fleet
operators are equally important accounts because they provide geographic density
which optimizes fuel delivery efficiency and minimizes cost. Once engaged to
provide fueling services, the Company is usually the exclusive service provider
for the fueling of a customer's entire fleet or of a particular location of
vehicles and equipment in a market.
The Company focuses its marketing efforts on fleet operators within
established service areas. Its representatives identify and directly contact
candidates for the Company's services. Fleet size and type, fuel requirements,
fueling logistics and credit worthiness are factors in identifying candidates
for the Company's services. Direct marketing is the primary method of developing
new business. Referrals from existing customers and Company personnel are also
important sources of potential business. In addition, the Company is actively
developing new service markets. A minimum level of business commitments is
required prior to the Company's entry into any new market. The ability to
provide service to an existing customer in a new market and the
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identification of local candidates meeting the Company's criteria are strong
considerations in a decision to enter any market.
The Company currently distributes diesel, gasoline and alternative fuels to
approximately 700 customers. Revenue from one large customer, excluding fuel
taxes, totaled $8.4 million or 19% of total revenue, excluding fuel taxes, in
the fiscal year ended June 30, 2002. However, revenue from this customer was
generated from a total of 10 separate and non-dependent written contracts of
varying lengths of service and renewal options. Revenue from two large
customers, excluding fuel taxes, totaled approximately $5.8 million or 26% of
total revenue, excluding fuel taxes, in the five-month period ended June 30,
2001. Revenue from three large customers, excluding fuel taxes, totaled $12.1
million or 19% and $13.4 million or 26% of the total revenue, excluding fuel
taxes in the fiscal years ended January 31, 2001 and 2000, respectively.
Although the Company does have formal, length of service written contracts with
certain of its larger customers, such agreements are not customary in the mobile
fueling business and have not been entered into by the Company with the majority
of its customers. Therefore, most of the Company's customers can terminate the
Company's mobile fueling services at any time and for any reason, and the
Company can similarly discontinue service to any customer. The Company would
discontinue service to a customer if changes in the service conditions or other
factors cause the Company not to meet its minimum level of margins and rates,
and the Company is unable to re-negotiate its arrangement with the customer.
The Company competes with other distributors of fuel, including several
regional distributors and numerous small independent operators who provide
mobile fueling services. The Company also competes with retail marketing where
fleet operators have the option of fueling their own equipment at retail
stations and other third-party service locations. The Company's ability to
compete is dependent on numerous factors, including price, delivery
dependability, credit terms, service locations, as well as the level of
reporting and invoicing services provided.
TRUCK FLEET AND OPERATIONS
The Company currently operates from 13 service locations in California,
Florida, Georgia, Tennessee, and Texas. The Company delivers fuel utilizing its
own fleet of over 100 custom mobile fueling trucks with multi-compartmented
tanks whose fuel carrying capacities range from 2,800 to 4,400 gallons. These
trucks are equipped with the Company's patented proprietary electronic fuel
management system which records and regulates fuel flow into the customers'
vehicles. Generally, each truck services between five and fifteen customer
locations per night or day, on specified delivery routes, depending on customer
size and fueling logistics. The fuel supply to be delivered is acquired daily at
local third-party terminal storage facilities. Each truck is operated by a
driver who also handles the actual fueling of the customers' vehicles
("fueler/operator").
FUEL TRACKING AND REPORTING SYSTEM
The Company utilizes a patented proprietary fuel tracking and reporting
management system in its mobile fueling operations. It owns all patents covering
the system, the rights to which are registered with the United States Patent and
Trademark Office. Data is derived from the Fuel Tracking Controller ("FTC")
Computer which is installed on each truck and is linked to the Company's
fueler/operator by a hand-held radio controlled scanning and transmitting
device. The FTC Computer is programmed to control any variety of truck
configurations, including single or multiple products and any number of pumps
and hoses attached to the truck. The FTC fuel management system electronically
records date, time, customer vehicle identification number, product type and
volume of fuel delivered by the Company's trucks into each customer vehicle. For
security and tracking purposes, the FTC Computer will not permit fuel to be
dispensed from the Company's truck unless both the customer's fleet yard and the
individual vehicle or piece of equipment to be fueled are electronically
verified by the FTC Computer registration. All fueling transactions are recorded
on the truck's FTC Computer, downloaded at the Company's service locations and
transmitted to the Company's corporate headquarters where the data is
assimilated into detailed service reports and invoices for the customer. This
information can be delivered to the customer by a number of methods, including
the internet, and certain data may also be delivered to the customer at his
vehicle location at the time of fueling.
As some service applications require both mobile fueling and the use by the
customer of his own on-site storage tanks, the Company has adapted the FTC
Computer to track the use by the customer of its own fixed-site
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tanks. Upon installation of an FTC Computer, the Company services and manages
fuel delivery to a customer's on-site storage tank, providing reports detailing
fuel dispensed from the tank into each of the customer's vehicles, either alone
or in combination with the customer's mobile fueling use.
FUEL SUPPLY
Diesel fuel and gasoline are commodities which are refined and distributed
by numerous sources. The Company purchases the fuel delivered to its customers
from multiple suppliers at daily market prices and in some cases qualifies for
volume discounts. The Company monitors fuel prices and trends in each of its
service markets on a daily basis and seeks to purchase its supply at the lowest
prices and under the most favorable terms. Commodity price risk is mitigated as
the Company purchases and delivers its fuel supply daily and utilizes cost-plus
pricing to its customers. The Company also handles the delivery of customer and
third-party supplied fuel.
EXECUTIVE OFFICERS
The executive officers of the Company as of September 30, 2002 are as
follows:
Name Age Position and Office
- ------------------------ --- ---------------------------------------
Richard E. Gathright.... 48 President and Chief Executive Officer,
Director
Michael S. Shore........ 34 Senior Vice President, Chief Financial
Officer and Chief Information Officer
Gary G. Williams........ 46 Senior Vice President, Commercial
Operations
Paul C. Vinger.......... 32 Vice President, Corporate Planning and
Operations
Timothy W. Koshollek.... 38 Vice President, Marketing
MR. GATHRIGHT has been Chief Executive Officer and President of the Company
since November 2000 and a Director since March 2001. He is responsible for the
management of all business affairs of the Company, reporting directly to the
Board of Directors. He was an advisor on operational and financial matters to
the senior management of several domestic and international energy companies
from January 2000 through October 2000. From September 1996 to December 1999, he
was President and Chief Operating Officer of TransMontaigne Inc., a Denver-based
publicly owned company providing logistical services to major energy companies
and large industrial customers; a Director from April 1995 to December 1999;
Executive Vice President from April 1995 to September 1996; and from December
1993 to April 1995 was President and Chief Operating Officer of a predecessor of
TransMontaigne. From 1988 to 1993, he was President and Director of North
American Operations for Aberdeen Petroleum PLC, a London-based public company
engaged in international oil and gas operations, also serving on its Board of
Directors. Prior to joining Aberdeen, he held a number of positions in the
energy industry in the areas of procurement, operations and management of oil
and gas assets.
MR. SHORE has been Senior Vice President, Chief Financial Officer and Chief
Information Officer since February 2002. Prior to joining the Company, he was
CEO and President of Shore Strategic and Financial Consulting, providing
financial, management and information systems technology services to corporate
clients in the United States and Latin America. From 1998 to 2000, he served as
Director of Finance/Controller for the North American Zone Operations of
Paris-based Club Mediterranee. From 1996 to 1998, he was Vice President of
Finance/Controller for Interfoods of America, Inc., the largest Popeyes Fried
Chicken & Biscuits franchisee. From 1994 to 1996, he was the Manager of
Accounting for Arby's, Inc. Mr. Shore began his professional career in 1990 with
Arthur Andersen & Company where he became a Senior Auditor.
MR. WILLIAMS has been Senior Vice President, Commercial Operations for the
Company since February 2001, responsible for Marketing and Sales and Product
Procurement. From 1995 to February 2001, he was Vice President of Marketing for
the supply, distribution and marketing subsidiary of TransMontaigne Inc.,
managing wholesale marketing functions in the Mid-Continent, Southeast and
Mid-Atlantic and serving on that company's senior risk management committee.
From 1987 to 1995, he was Regional Manager for Kerr-McGee Refining Corporation,
responsible for unbranded petroleum product sales in its southeastern United
States 11 state marketing region. Prior to 1987, Mr. Williams held various
positions in the product procurement, marketing and sales, and trucking sectors
of the petroleum industry.
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MR. VINGER has been Vice President, Corporate Planning and Operations for
the Company since August 2001, managing fleet and field operations and
responsible for corporate planning and analysis; and from December 2000 to
August 2001, he was Director of Corporate Planning. He was Senior Analyst of
Corporate Planning and Finance for TransMontaigne Inc., from September 1998 to
December 2000, responsible for operations and acquisitions analyses and the
management of supply scheduling and product allocations. From 1997 to 1998, he
was a Manager of Terminal Operations for TransMontaigne Inc. responsible for
petroleum product and chemical terminals. From 1994 to 1997, he was a Research
Associate for E. I. Dupont. From 1991 to 2001, Mr. Vinger served to the rank of
Captain in the United States Military.
MR. KOSHOLLEK has been Vice President, Marketing for the Company since
March 1998. From October 1996 to March 1998, he was Vice President of Marketing
and Operations for the Company and from 1994 to October 1996 served in the same
position for Streicher Enterprises, Inc., the Company's predecessor. From 1992
to 1993, he was an owner and the General Manager of Premier Wholesale Seafood
Exchange, Inc. From 1989 to 1992, he was the Operations Manager of Streicher
Enterprises, Inc. responsible for its Southeast division fuel delivery
operations. From 1986 to 1988, Mr. Koshollek was Sales and Maintenance Manager
of Kay Yacht Management, Inc., responsible for new customer sales, set-up and
maintenance programs.
EMPLOYEES
At September 30, 2002, the Company had 154 full-time employees. None of the
Company's employees are 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, regulations and ordinances, including those relating to protection of the
environment and worker safety. Various federal, state and local agencies have
broad powers under these laws, regulations and ordinances. In particular, the
operation of the Company's mobile fueling fleet and its transportation of diesel
fuel and gasoline are subject to extensive regulation by the U.S. Department of
Transportation ("DOT") under the Federal Motor Carrier Safety Act ("FMCSA") and
the Hazardous Materials Transportation Act ("HMTA"). The Company is subject to
regulatory and legislative changes that can affect the economics of the industry
by requiring changes in operating practices or influencing the demand for, and
the cost of providing, its services. In addition, the Company depends on the
supply of diesel fuel and gasoline from the oil and gas industry and, therefore,
is affected by changing taxes, price controls and other laws and regulations
generally relating to the oil and gas industry. The Company cannot determine the
extent to which its future operations and earnings may be affected by new
legislation, new regulations or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct of or conditions caused by others, or for acts of the Company that
were in compliance with all applicable laws at the time such acts were
performed. Sanctions for noncompliance may include revocation of permits,
corrective action orders, administrative or civil penalties and criminal
prosecution. Certain environmental laws provide for joint and several liability
for remediation of spills and releases of hazardous substances. In addition, the
Company may be subject to claims alleging personal injury or property damage as
a result of alleged exposure to hazardous substances, as well as damage to
natural resources.
Although the Company believes that it is in substantial compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred in the future. There could be an adverse
affect upon the Company's operations if there were any substantial violations of
these rules and regulations. Moreover, it is possible that other developments,
such as stricter environmental laws, regulations and enforcement policies
thereunder, could result in additional, presently unquantifiable, costs or
liabilities to the Company.
5
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The following important factors have affected, and may in the future
continue to affect, the Company's business, results of operations and financial
condition, and could cause the Company's operating results to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company elsewhere in this report.
NO ASSURANCES OF FUTURE PROFITABILITY; LOSSES FROM OPERATIONS; NEED FOR
CAPITAL. The Company incurred net losses for the fiscal year ended June 30,
2002, the transition period ended June 30, 2001 and the fiscal year ended
January 31, 2001. The Company earned a profit in the fiscal year ended January
31, 2000 and in the fourth quarter ended June 30, 2002. The Company's
"turnaround" in financial and operating performance in the fourth quarter ended
June 30, 2002 and over the last 12 months ended June 30, 2002 has resulted from
the execution by the Company's of its new business plan, as more fully described
in Management's Discussion and Analysis of Financial Conditions and Results of
Operations. In order for the Company to continue recent positive trends, it
needs to continue to increase volumes at profitable margins, control costs and
generate sufficient cash flow to support its working capital and debt service
requirements. There is no assurance that management will be able to continue to
execute its turnaround program, or that it will be able to raise capital to
support any working capital or debt service shortfalls during any business
downturns.
TRADING MARKET FOR THE COMPANY'S COMMON STOCK. The Company's common stock
is thinly traded which might make it difficult for investors to sell their
shares at a predictable price or at all. Additionally, there may be volatility
in the market price of the Company's common stock due to factors beyond the
Company's control. The Company's quarterly operating results, changes in general
conditions in the economy, the financial markets or other developments affecting
the Company could cause the market price of the Company's common stock to
fluctuate, thus making it difficult for shareholders to sell their shares.
GROWTH DEPENDENT UPON EXPANSION; RISKS ASSOCIATED WITH EXPANSION INTO NEW
MARKETS. A significant component of the Company's future growth strategy will be
to expand the Company's business into new service markets. The Company intends
to expand into additional major and secondary metropolitan areas. Expansion will
largely be dependent on the Company's ability to demonstrate the benefits of
mobile fueling to potential new customers; successfully establish and operate
new locations; hire and retain qualified management, operating, marketing and
sales personnel; obtain financing for capital expenditures and working capital
purposes; secure reliable sources of product supply on a timely basis and on
commercially acceptable credit terms; and successfully manage growth by
effectively supervising operations, controlling costs and maintaining
appropriate quality controls. The Company's growth will depend upon its ability
to achieve greater penetration in existing markets and to successfully penetrate
new markets. The Company may also seek to expand 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.
ACQUISITION AVAILABILITY; INTEGRATING ACQUISITIONS. The Company's future
growth strategy may involve the acquisition of fuel distributors in existing and
new markets. There can be no assurance that the Company will be able to locate
or acquire suitable acquisition candidates on acceptable terms or that future
acquisitions will be effectively and profitably integrated into the Company.
Acquisitions involve risks that could adversely affect the Company's operating
results, including management commitment; integration of the operations and
personnel of the acquired operations; amortization of acquired intangible
assets; and possible loss of key employees of the acquired operations.
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DEPENDENCE ON KEY PERSONNEL. The future success of the Company will be
largely dependent on the continued services and efforts of Richard E. Gathright,
the Company's President and Chief Executive Officer, and other key personnel.
The loss of the services of Mr. Gathright or other key personnel could have a
material adverse effect on the Company's business and prospects. The Company's
success and plans for future growth will also depend on its ability to attract
and retain additional qualified management, operating, marketing, sales and
financial personnel. There can be no assurance that the Company will be able to
hire or retain such personnel on terms satisfactory to the Company. Mr.
Gathright and the Company have entered into a three year employment agreement.
FUEL PRICING; EFFECT ON PROFITABILITY. Diesel fuel and gasoline are
commodities which are refined and distributed by numerous sources. The Company
purchases the fuel delivered to its customers from multiple suppliers at daily
market prices and in some cases qualifies for volume discounts. The Company
monitors fuel prices and trends in each of its service markets on a daily basis
and seeks to purchase its supply at the lowest prices and under the most
favorable terms. Commodity price risk is mitigated as the Company purchases and
delivers its fuel supply daily and utilizes cost-plus pricing to its customers.
If the Company cannot pass on the cost-plus pricing to its customers, margins
would decrease and a loss could be incurred. The Company has not engaged in
derivatives or futures trading to hedge fuel price movements.
RISKS ASSOCIATED WITH CUSTOMER CONCENTRATION; ABSENCE OF WRITTEN
AGREEMENTS. Although the Company provides services an extensive number of
customers, a significant portion of its revenue is generated from certain of its
larger customers. While the Company does have formal, length of service written
contracts with certain of its larger customers, such agreements are not
customary in the mobile fueling business and have not been entered into by the
Company with the majority of its customers. Therefore, most of the Company's
customers can terminate the Company's mobile fueling services at any time and
for any reason, and the Company can similarly discontinue service to any
customer. The Company would discontinue service to a customer if changes in the
service conditions or other factors cause the Company not to meet its minimum
level of margins and rates, and the Company is unable to re-negotiate its
arrangement with the customer. 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 large customers or if the Company were to experience a high rate of
contract terminations.
MANAGEMENT OF GROWTH. The Company's future growth strategy is dependent on
the continuing improvement of its operational, financial and other internal
systems, and the ability to attract, train, motivate, manage and retain its
employees. If the Company is unable to manage growth effectively, the Company's
results of operations will be adversely affected.
COMPETITION. The Company competes with other distributors of fuel,
including several regional distributors and numerous small independent operators
who provide mobile fueling services. The Company also competes with retail
marketing where fleet operators have the option of fueling their own equipment
at retail stations and other third-party service locations. The Company's
ability to compete is dependent on numerous factors, including price, delivery
dependability, credit terms, service locations, and reporting and invoicing
services. There can be no assurance that the Company will be able to continue to
compete successfully as a result of these or other factors.
OPERATING RISKS MAY NOT BE COVERED BY INSURANCE. The Company's operations
are subject to all of the operating hazards and risks normally incidental to
handling, storing and transporting diesel fuel and gasoline, which are
classified as hazardous materials. The Company maintains insurance policies in
such amounts and with such coverages and deductibles as the Company believes are
reasonable and prudent. However, there can be no assurance that such insurance
will be adequate to protect the Company from liabilities and expenses that may
arise from claims for personal and property damage arising in the ordinary
course of business or that such levels of insurance will be maintained by the
Company or will be available at economical prices.
GOVERNMENTAL REGULATION. See the discussion of governmental regulations and
their impact on the Company in the "Government Regulation" section set forth
above.
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CHANGES IN ENVIRONMENTAL REQUIREMENTS. The Company expects to derive future
business by converting to mobile fueling fleet operators currently utilizing
underground fuel storage tanks for their fueling needs. The owners of
underground storage tanks have been required to remove or retrofit those tanks
to comply with technical requirements pertaining to their construction and
operation. If other more economical means of compliance are developed or adopted
by owners of underground storage tanks, the opportunity for the Company to
market its services to such operator may be adversely affected.
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
----------- -------- ----------------- -----
Corporate offices Ft. Lauderdale, Florida 3/1/04 (2)
Truck yard and office Port Everglades, Florida 3/1/04 (2)
Truck yard and office Ft. Myers, Florida Month to Month (2)
Truck yard and office Jacksonville, Florida 8/31/15 (1)
Truck yard and office Orlando, Florida 6/1/05 (2)
Truck yard and office Tampa, Florida N/A (3)
Truck yard and office Melbourne, Florida Month to Month (2)
Truck yard and office Doraville, Georgia Month to Month (2)
Truck yard and office Kingsport, Tennessee Month to Month (2)
Truck yard and office Chattanooga, Tennessee Month to Month (2)
Truck yard and office Houston, Texas Month to Month (2)
Truck yard and office Ft. Worth, Texas 12/31/04 (2)
Truck yard and office Gardena, California 1/15/03 (2)
Truck yard and office Riverside, California Month to Month (2)
- ---------------
(1) Leased from Stanley H. Streicher, the Company's Chairman of the Board.
(2) Leased.
(3) Property owned by the Company.
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
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the three months ended June 30,
2002.
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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
prices for the common stock and warrants, as reported by NASDAQ.
Common Stock Warrants
----------------- -----------------
High Low High Low
-------- ------- ------- --------
Year Ended June 30, 2002
------------------------
1st quarter $1.74 $1.11 $0.14 $0.08
2nd quarter $1.58 $ .97 $0.08 $0.03
3rd quarter $1.34 $1.00 $0.12 $0.07
4th quarter $1.46 $1.00 $0.10 $0.08
Transition Period Ended
June 30, 2001
-----------------------
1st quarter $2.23 $1.00 $0.44 $0.12
2 month $1.97 $1.30 $0.20 $0.12
Year Ended January 31,
2001
-----------------------
1st quarter $7.19 $4.13 $1.16 $ .50
2nd quarter $4.50 $2.25 $ .56 $ .25
3rd quarter $4.00 $1.50 $ .50 $ .13
4th quarter $2.47 $1.25 $ .44 $ .06
On September 30, 2002, the closing price of the common stock was $1.35 per
share and the closing price of the warrants was $0.08 per Warrant. As of
September 30, 2002, there were 50 holders of record of the Company's common
stock and approximately 521 beneficial owners of the Company's common stock.
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.
ISSUANCES OF UNREGISTERED SECURITIES
In January 2001, the Company issued 531,667 shares of common stock in a
private placement at $1.50 per share. The Company also issued in January 2001,
333,333 shares of common stock to three shareholders upon their conversion of a
promissory note in the principal amount of $500,000, at a conversion price of
$1.50. In February 2001 and March 2001, the Company issued a total of 846,666
shares of common stock in a private placement at $1.50 per share. While these
shares were sold in private offerings to "accredited investors" exempt from
registration under the Securities Act of 1933 (the "Act") pursuant to Sections
4(2) and 4(6) and Rules 505 and 506 of Regulation D promulgated thereunder, the
Company subsequently registered the shares for resale as part of a Form S-3
registration statement which was declared effective by the Securities and
Exchange Commission on June 8, 2001.
During the transition period from February 1, 2001 to June 30, 2001, the
Company issued an aggregate of $1.0 million of convertible subordinated
promissory notes for which, either at the Company's or the Payee's option,
accrued quarterly interest earned on the notes could be paid with shares of the
Company's common stock instead of cash. During that period, the Company issued
10,614 shares of common stock to the holders of these notes for the interest
earned to date at a price of $1.28 per share. During the last fiscal year, July
1, 2001 to June 30, 2002, the Company issued an aggregate of $1.7 million of
convertible subordinated promissory notes for which, at the Payee's option,
accrued quarterly interest earned on the notes could be paid in the Company's
common stock instead of cash. During that period, the Company issued 67,226
shares of common stock to the holders of all of the foregoing notes for the
interest earned to date at prices ranging from $1.17 to $1.51 per share. The
offer and sale of the convertible
9
subordinated promissory notes, and the underlying shares of stock into
which the notes are convertible or which are issued as payment of interest, were
exempt from registration under the Act as private offerings to "accredited
investors" under Sections 4(2) and 4(6) of the Act and Rules 505 and 506 of
Regulation D thereunder. The Company has agreed to register the shares into
which the notes may be converted for resale by filing a Form S-3 registration
statement with the Securities and Exchange Commission, which it intends to do
sometime after the filing of this Form 10-K.
In August 2001, the Company issued 133,333 shares of common stock in a
private placement at $1.50 per share. In January 2002, the Company issued
476,190 shares in a private placement at $1.05 per share. As a result of the
reduction in the offering price in January 2002 to $1.05 per share, 57,143
additional shares were issued to the August 2001 investor in January 2002,
resulting in an effective price of $1.05 for all purchasers in the offering. The
offer and sale of these shares of common stock were exempt from registration as
private offerings to "accredited investors" under Sections 4(2) and 4(6) of the
Act and Rules 505 and 506 of Regulation D thereunder. The Company has also
agreed to register these shares for resale, which it intends to do sometime
after the filing of this Form 10-K.
On January 15, 2002, certain holders of the convertible subordinated
promissory notes converted an aggregate of $2,616,800 to shares of the Company's
common stock at a conversion price of $1.24 per share, for a total of 2,110,322
shares.
10
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 selected financial table below is for each of the fiscal years
ended June 30, 2002 and 2001 (unaudited), the transition period ended June 30,
2001, and the fiscal years ended January 31, 2001, 2000, 1999, and 1998. Except
for the unaudited financial and statistical information section, and the
unaudited selected financial data for fiscal year ended June 30, 2001 which is
presented for 12-month comparison information only, the selected financial data
is derived from the audited Consolidated Financial Statements of the Company for
the fiscal years ended June 30, 2002, the transition period ended June 30, 2001,
and the fiscal years ended January 31, 2001, 2000, 1999 and 1998.
(in thousands, except net margin per gallon and per share data)
Five-month
Transition
Fiscal Years Period Ended Fiscal Years
Ended June 30, June 30, Ended January 31,
--------------- ------------- -------------------------------------
2002 2001 2001 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----
SELECTED INCOME STATEMENT DATA: (Unaudited)
Revenue, net of fuel taxes ...................... 43,538 60,293 22,235 65,002 50,801 30,332 29,400
Gross profit .................................... 4,591 2,520 740 3,093 4,629 2,754 3,305
Operating profit (loss) ......................... 209 (1,273) (1,386) 241 1,559 (54) (332)
Beneficial conversion of debt to
equity interest expense ......................... (241) -- -- -- -- -- --
-------------------------------------------------------------------------------
Net income (loss) ............................... (1,162) (2,774) (1,951) (1,335) 472 (1,082) (475)
Less: Beneficial conversion of debt
to equity interest expense ...................... 241 -- -- -- -- -- --
-------------------------------------------------------------------------------
Net income (loss) adjusted for
beneficial conversion interest expense .......... (921) (2,774) (1,951) (1,335) 472 (1,082) (475)
================================================================================
PER SHARE DATA:
Basic net income (loss) per share ............... (0.20) (0.84) (0.47) (0.49) 0.17 (0.42) (0.18)
Diluted net income (loss) per share ............. (0.20) (0.84) (0.47) (0.49) 0.16 (0.42) (0.18)
================================================================================
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents ....................... 815 6 6 447 353 123 1,411
Accounts receivable, net ........................ 6,382 8,669 8,669 9,638 9,588 5,775 5,065
Bank line of credit payable ..................... 4,680 6,905 6,905 7,286 7,679 4,571 3,269
Shareholders' equity ............................ 5,676 3,332 3,332 5,218 4,289 3,360 4,441
Total Assets .................................... 18,560 22,194 22,194 24,645 23,931 16,194 13,996
================================================================================
FINANCIAL AND STATISTICAL INFORMATION (UNAUDITED):
EBITDA (1) ...................................... 1,712 223 (748) 1,659 2,709 592 511
Working Capital (Deficit) (4).................... (1,576) (3,093) (3,093) (1,891) (1,797) (2,325) 3,392
Net Margin (2) .................................. 6,049 3,946 1,354 4,442 5,713 3,588 3,816
Net Margin per gallon (in dollars) (3) .......... 0.122 0.073 0.062 0.077 0.096 0.086 0.115
Total Gallons (000's) ........................... 49,500 54,102 21,800 57,600 59,400 41,900 33,300
================================================================================
EBITDA CALCULATION (UNAUDITED):
Net income (loss) ............................... (1,162) (2,774) (1,951) (1,335) 472 (1,082) (475)
Add back:
Interest expense .............................. 1,175 1,571 590 1,645 1,152 840 475
Beneficial conversion of debt to
equity interest expense ..................... 241 -- -- -- -- -- --
Depreciation and amortization expense ......... 1,458 1,426 613 1,349 1,085 834 511
-------------------------------------------------------------------------------
EBITDA .......................................... 1,712 223 (748) 1,659 2,709 592 511
================================================================================
(1) EBITDA = Earnings before interest, taxes, depreciation and amortization.
(2) Net Margin = Gross profit plus depreciation
(3) Net Margin / Total Gallons
(4) Working Capital (Deficit) = current assets - current liabilities
11
UNAUDITED QUARTERLY SELECTED FINANCIAL DATA FOR FISCAL YEAR
ENDED JUNE 30, 2002 AND 2001
(in thousands, except net margin per gallon and per share data)
June 30, 2002 June 30, 2001
---------------------------------------- --------------------------------------------
YTD YTD
SELECTED INCOME STATEMENT DATA: Q1 Q2 Q3 Q4 2002 Q1 Q2 Q3 Q4 2001
---------------------------------------- --------------------------------------------
Revenue, net of fuel taxes .............. 12,299 9,867 9,892 11,480 43,538 16,576 16,348 13,843 13,526 60,293
Gross profit ............................ 1,167 965 1,169 1,290 4,591 997 524 488 511 2,520
Operating profit (loss) ................. 32 (182) 64 296 209 351 (203) (551) (870) (1,273)
Beneficial conversion of debt to equity
Interest expense ...................... -- -- (241) -- (241) -- -- -- -- --
Net income (loss) ....................... (307) (515) (405) 63 (1,162) (43) (608) (915) (1,208) (2,774)
--------------------------------------- ------------------------------------------
Less: Beneficial conversion of debt
to equity interest expense ............ -- -- 241 -- 241 -- -- -- -- --
Net income (loss) adjusted for beneficial
conversion interest expense ........... (307) (515) (164) 63 (921) (43) (608) (915) (1,208) (2,774)
======================================= ============================================
PER SHARE DATA:
Basic net income (loss) per share ....... (0.07) (0.11) (0.06) 0.01 (0.20) (0.01) (0.22) (0.26) (0.28) (0.84)
Diluted net income (loss) per share ..... (0.07) (0.11) (0.06) 0.00 (0.20) (0.01) (0.22) (0.26) (0.28) (0.84)
======================================= ============================================
SELECTED BALANCE SHEETS DATA:
Cash and cash equivalents ............... 163 183 402 815 815 177 124 173 6 6
Accounts receivable, net ................ 9,678 7,011 7,313 6,382 6,382 10,024 9,647 8,220 8,669 8,669
Bank line of credit payable ............. 7,322 5,850 5,552 4,680 4,680 8,221 8,057 6,473 6,905 6,905
Shareholders' equity .................... 3,224 2,743 5,630 5,676 5,676 3,799 3,141 4,540 3,332 3,332
Total Assets ............................ 22,616 20,013 19,816 18,560 18,560 24,408 23,879 22,156 22,194 22,194
======================================= ============================================
FINANCIAL AND STATISTICAL INFORMATION:
EBITDA .................................. 416 194 449 653 1,712 707 176 (179) (480) 223
Working Capital (Deficit) ............... (2,051) (2,479) (1,950) (1,576) (1,576) (3,182) (4,068) (2,879) (3,093) (3,093)
Net Margin .............................. 1,537 1,327 1,540 1,645 6,049 1,338 877 844 887 3,946
Net Margin per gallon (in dollars) ...... 0.099 0.111 0.142 0.146 0.122 0.092 0.066 0.068 0.064 0.073
Total Gallons (000's) ................... 15,495 11,905 10,808 11,292 49,500 14,591 13,328 12,408 13,774 54,101
======================================= ============================================
12
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 Results 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 but not limited to those set forth above in Item 1. 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 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. For the fiscal year ended June 30, 2002, market prices
for fuel were substantially lower than for the fiscal year ended June 30, 2001,
and were primarily responsible for the significant declines in both revenue and
cost of sales for June 30, 2002. Lower volumes of delivered gallons for the
fiscal year ended June 30, 2002, as compared to the fiscal year ended June 30,
2001 also contributed to the declines in both revenue and cost of sales. These
volume declines were due primarily to the elimination of non-profitable markets
and accounts, as well as volume declines of certain customers whose levels of
business activity have been adversely impacted by the current economic downturn.
In the mobile fueling business, the majority of deliveries are made on
workdays, Monday through Friday, to coincide with customers' fuel service
requirements. Thus, the number of workdays in any given month will impact the
quarterly financial performance of the Company. In addition, a downturn in
customer demand generally takes place on and/or in conjunction with national
holidays, resulting in decreased volumes of fuel delivered. This downturn may be
offset during the fiscal year by emergency mobile fueling services and fuel
deliveries to certain customers resulting from impending or actual severe
meteorological or geological events, including hurricanes, tropical storms, ice
and snow storms, forest fires and earthquakes.
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 has
reestablished and developed its marketing and sales function in order to grow
the Company's business. However, this growth is dependent upon a number of
business and economic factors, such as the success of the Company's sales and
marketing and other business strategies, 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 business 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
During the 18-month period from January 1, 2001 to June 30, 2002, the
Company raised in the aggregate $6.0 million in equity capital through private
placements of common stock and the issuance of subordinated debt. For the 12
months ended June 30, 2002, the Company raised $700,000 from private placements
and $1.7 million from convertible subordinated promissory notes.
On January 15, 2002, certain holders of the Company's convertible
subordinated promissory notes converted their aggregate $2.617 million in debt
to 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 the Company's common stock. The
convertible subordinated
13
promissory notes converted contained conversion rates ranging from $1.35 to
$1.50 per share. The conversion resulted in the Company recording a one time,
non-cash beneficial conversion of debt to equity interest expense of $241,000.
The beneficial conversion of debt to equity interest expense had no impact on
total shareholders' equity.
As a result of the capital raised through private placements and the
conversion of $2.617 million of the outstanding $2.90 million in subordinated
debt, the Company's stockholders' equity increased from June 30, 2001 by 70% to
$5.676 million at June 30, 2002, the highest amount in the Company's history.
The Company's business requires it to expend considerable working capital
for fuel, labor and equipment costs prior to payments being 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, with
labor costs and related taxes paid bi-weekly, and equipment related costs
generally paid within 30 days. The Company invoices its customers weekly and
generally collects the majority of its accounts within 30 to 45 days. Days sales
outstanding at June 30, 2002 was 33 days compared to 42, 39 and 41 days for the
five month transition period ended June 30, 2001 and for the fiscal years ended
January 31, 2001 and 2000, respectively.
The Company has mostly incurred net losses during its operating history and
has met its working capital and debt service requirements through the raising of
capital and drawing from its bank line of credit. During the fiscal year ended
June 30, 2002, the Company incurred a net loss (before the beneficial conversion
of debt to equity interest expense) of $921,000 compared to a $2.774 million
loss for the fiscal year ended June 30, 2001. Furthermore, the Company generated
operating profit and net income in the fourth quarter ended June 30, 2002 of
$296,000 and $63,000, respectively, compared to losses of $870,000 and $1.21
million, respectively, for the same periods a year ago. Even though the Company
delivered approximately 5 million less gallons of fuel during the fiscal year
ended June 30, 2002 as compared to the fiscal year ended June 30, 2001, it was
able to significantly reduce its losses over the course of the year due to
higher net margins on the fuel delivered, ultimately resulting in a modest
profit for the fourth quarter of fiscal year 2002.
The Company's improved performance in the fourth quarter ended June 30,
2002 and over the 12 months ended June 30, 2002 is the result of extensive
structural changes to its operations and management. During the last 18 months
ended June 30, 2002, most of the Company's executive management has changed.
Current management instituted a new business plan and a turnaround program
comprised of various substantive changes in operations, management and reporting
which have improved the Company's financial operating results by reducing
operating costs, increasing net margins and operating cash flow. However, there
can be no assurance that the Company will maintain and/or continue to improve
its operating performance in the future. In addition, there can be no assurance
that the Company will not require additional capital to support its operating
and debt service requirements in the future.
AMONG THE NEW INITIATIVES WERE THE FOLLOWING:
o Review and reduce the field operating expenses, primarily payroll and
vehicle maintenance costs.
o Review and change the route and delivery structures to improve efficiency
and reduce costs.
o Evaluate the current overhead structure of the Company and implement
reductions where feasible.
o Renegotiate prices on low margin accounts or discontinue service to such
accounts.
o Reestablish the marketing and sales function, eliminated approximately 18
months prior to the change in the Company's management, in order to market
the Company's services and increase sales volumes.
o Raise capital to support the implementation of the turnaround program.
o Establish a long-term credit facility with improved terms.
14
THE RESULTS OF THE TURNAROUND PROGRAM AS OF JUNE 30, 2002 ARE AS FOLLOWS:
OVERALL
o The Company posted operating profits for the third and fourth quarters of
the fiscal year ended June 30, 2002 in the amounts of $64,000 and $296,000,
respectively.
o In the fourth quarter ended June 30, 2002, the Company earned bottom line
net income of $63,000 and generated EBITDA of $653,000.
o The Company's EBITDA increased by approximately 80% in the last six months
versus the first six months of the fiscal year ended June 30, 2002, with
EBITDA of $1.1 million for the six-month period of January 2002 through
June 2002, versus $610,000 for the six-month period of July 2001 through
December 2001.
o At June 30, 2002, the Company had $1.1 million of total cash availability,
comprised of the cash and cash equivalents balance of $815,000 and $250,000
of availability on the line of credit, as opposed to a cash overdraft of
$312,000 at June 30, 2001.
o Cash flow provided by operations during the fiscal year ended June 30, 2002
was $2.5 million versus cash usage of $1.5 million for the prior 12-month
period.
o The Company paid down its line of credit and equipment debt principal
balances since January 31, 2001 by approximately 39% or $6.0 million. The
balance outstanding at January 31, 2001 was $15.5 million versus $9.5
million at June 30, 2002.
o The net margin per gallon for the last 17 months has increased by over
270%, increasing from 4.6 cents per gallon for the month of February 2001
to 17.0 cents per gallon in June 2002.
o The Company's new management team has been able to raise capital as needed
to implement the new business plan and turnaround program, raising over
$6.0 million during the 18-month period from January 2001 through June
2002.
o The Company's stockholder equity increased by 107% in the last six months
of the fiscal year ended June 2002. At December 31, 2001, the stockholder's
equity was $2.7 million versus $5.7 million at June 30, 2002.
o The Company's annualized payroll costs were reduced by approximately
$970,000 between June 30, 2001 and 2002, with the number of employees being
lowered by approximately 21%.
o Subsequent to June 30, 2002, the Company replaced its short-term bank line
of credit, securing a new three-year $10.0 million bank credit facility
with a national financial institution.
FIELD OPERATIONS
o The average operating cost of each mobile fueling truck was reduced by
approximately 25% over the 17-month period ended June 30, 2002, as a result
of major operating changes which included implementing new programs for
efficient route structuring, equipment utilization, hiring and retention,
and training and safety.
o Material improvements to the Company's patented electronic fuel dispensing
and field information gathering system reduced the field and office
man-hours necessary to run and expand the business, together with
eliminating historical inventory reconciliation and control issues.
15
o The efficiency improvements in deliveries of the Company's mobile fueling
services for the 17-month period ended June 30, 2002 reflected 49% more
gallons being delivered per payroll hour per day with 27% less drivers.
o Direct operating expenses during the 17-month period ended June 30, 2002
were reduced from 23.5 cents per gallon delivered in February 2001 to 18.3
cents per gallon in June 2002, a 22% reduction.
o The improvements in delivery efficiencies and the lower direct operating
expenses realized during the last 17 months contributed to an over 270%
increase in the Company's net margin per gallon as of June 30, 2002, with a
net margin of 17.0 cents per gallon delivered in June 2002 as compared to
4.6 cents per gallon in February 2001.
o The Company eliminated duplicate and non-performing management and support
staff in the operations and introduced a program of accountability for all
personnel.
OTHER OPERATIONAL IMPROVEMENTS
o The Company restructured its corporate and administrative overhead during
the last 17 months, eliminating non-value added positions while adding
personnel necessary to meet the Company's new operating requirements.
o The Company relocated its corporate offices and several of its field
operating offices and truck yards to locations that were more practical and
efficient from which to conduct business and control costs.
o The accounting back office, data collection and information systems were
upgraded, which included establishing for the first time a corporate local
area network and a company-wide communication system; developing an
effective e-mail system; developing an internet web site with internal
hosting; and developing electronic banking, tax return filing and
electronic report submission to certain customers. The upgrade in the back
office systems and structure has allowed for the elimination of certain
duplicate positions and for more timely and accurate billing and financial
reporting.
o The Company's key finance and accounting management positions were upgraded
and significant improvements in the internal control procedures were
introduced to protect the Company's assets and enhance the timeliness and
accuracy of financial information.
o The Company's credit and collections department, personnel and procedures
were revamped, with the days sales outstanding at June 30, 2002 being 33
days as compared to 42, 39 and 41 days for the transition period ended June
30, 2001, and the fiscal years ended January 31, 2001 and 2000,
respectively.
o Since the Company's re-establishment of the sales and marketing department
and using the most recent 12-month historical average available (September
2001 through August 2002), the Company has added new business averaging
over 130,000 gallons per month net of normal business turnover at pricing
levels meeting or exceeding target margins established by the Company.
16
o While the Company's selling, general and administrative costs increased
$589,000 or 15.5% when comparing the 12 months ended June 30, 2002 with the
same period ended 2001, this increase primarily resulted from the
re-establishment of the sales and marketing department, costs associated
with the reorganization of management, supervisory and administrative
personnel, including the duplication of certain positions during this
restructuring period and substantial increases in insurance costs. The
reorganization steps have been taken to improve the Company's efficiency
and operating performance, and in comparing the fourth quarter ended June
30, 2002 with same the period ended 2001, the selling, general and
administrative costs were lower by $387,000 or 28%.
NEW THREE-YEAR $10 MILLION BANK FACILITY
On September 26, 2002, the Company entered into a new three-year $10
million credit facility with a national financial institution. This line of
credit replaces the Company's short-term $10 million credit facility. The new
line of credit permits the Company to borrow up to 85% of the total amount of
eligible accounts receivable. Interest is payable monthly at 1.75% over the
prime rate (6.50% at September 30, 2002), 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 new line of credit is September
25, 2005, and should the Company elect to terminate the credit facility prior to
such date, prepayment fees of 3%, 1.5% and .5% will apply during year one, two
and three, respectively. In addition, the credit facility may be extended by the
mutual consent of the Company and the bank after year three. Under the terms of
the credit facility, the Company is required to maintain one financial covenant,
which it was in compliance with as of September 30, 2002. Management believes
that this three-year credit facility with the new bank will provide the Company
with the financing needed to maintain and grow its business. However, if
additional financing is required, there can be no assurance that the Company
will be able to obtain such financing from the new bank at acceptable terms or
at all.
As of June 30, 2002, the Company had outstanding borrowings of $4.68
million under its prior short-term $10.0 million bank line of credit. Based on
eligible receivables outstanding at June 30, 2002, the Company had $250,000 of
cash availability on the bank line of credit, and was in compliance with all
financial covenants required by the credit facility. During the fiscal year
ended June 30, 2002, the bank waived a $100,000 termination fee contained in the
credit agreement.
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.
NO ASSURANCES OF FUTURE PROFITABILITY; LOSSES FROM OPERATIONS; NEED FOR CAPITAL
The Company incurred net losses for the fiscal year ended June 30, 2002,
the transition period ended June 30, 2001 and the fiscal year ended January 31,
2001 of $1.162 million, $1.951 million and $1.335 million, respectively. The
Company earned net income of $472,000 in the fiscal year ended January 31, 2000
and earned net income of $63,000 in the fourth quarter ended June 30, 2002.
The Company's expects that the improved financial and operating performance
over the last 17 months from the turnaround program will continue into the next
fiscal year. However, for the Company to maintain and improve these positive
trends, it must continue to increase volumes at profitable margins, control
costs and generate sufficient cash flow to support its working capital and debt
service requirements. There can be no assurance that management will be able to
do so, or that it will be able to raise capital to support any working capital
or debt service shortfalls during any future business downturns, whether the
downturn is part of broader economic conditions or the Company's failure to
successfully execute its business plan.
NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after
17
June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
We were required to adopt the provisions of SFAS No. 141 immediately upon
its issuance and it did not have a material effect on our results of operations
or financial condition. We adopted SFAS No. 142 effective July 1, 2002. SFAS No.
141 requires that upon adoption of SFAS No. 142 that we evaluate our existing
intangible assets and goodwill that we acquired in prior purchase business
combinations, and make any necessary reclassifications in order to conform with
the new criteria in SFAS No. 141 for recognition apart from goodwill. Upon
adoption of SFAS No. 142, we are required to reassess the useful lives and
residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, we are
required to test the intangible asset for impairment in accordance with the
provisions of SFAS No. 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.
In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 requires us to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. To accomplish this, we
must identify our reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date of
adoption. We then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and we will be required to perform the second step of the transitional
impairment test. In the second step, we must compare the implied fair value to
all of its assets (recognized and unrecognized) and liabilities in a manner
similar to a purchase price allocation in accordance with SFAS No. 141, to its
carrying amount, both of which would be measured as of the date of adoption. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company's statement of operations.
As of the date of adoption, we have no goodwill or other intangible assets
and as such, we do not anticipate that the adoption of SFAS No. 142 will be
material to our consolidated results of operations or financial position.
Also, in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity will capitalize a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier adoption
permitted. We are currently evaluating the effect that the adoption of SFAS No.
143 may have on our consolidated results of operation and financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, it retains many of the fundamental
provisions of SFAS No. 121. SFAS No. 144 also supersedes the accounting and
reporting provisions of Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a segment of a business. However,
it retains the requirement in APB Opinion No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. The provisions of SFAS No. 144
18
become effective for fiscal years beginning after December 15, 2001 and must be
adopted as of the beginning of a fiscal year. We adopted SFAS No. 144 effective
July 1, 2001 and the statement did not have a material effect upon our
consolidated results of operations or financial position.
In June 2002, the FASB issued SFAS No. 146, "Costs Associated with Exit or
Disposal Activities." The Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This statement does not enable us to recognize a liability for
costs associated with an exit or disposal activity until the liability is
incurred. The statement is effective for exit or disposal activities that are
initiated after December 31, 2002, and will result in a change in accounting
policy associated with the recognition of liabilities in connection with future
exit and disposal activities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have identified the policies outlined below as critical to our business
operations and an understanding of our results of operations. The listing is not
intended to be a comprehensive list of all of our accounting policies. In many
cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States, with
no need for management's judgment in their application. The impact and any
associated risks related to these policies on our business operations are
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 2 in the Notes to the Consolidated Financial
Statements in Item 8 on Form 10-K. Note that our preparation of this Form 10-K
requires us to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
Accounts Receivable and Allowance for Doubtful Accounts
We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customers' current credit worthiness,
as determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. While such credit losses
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience the same credit loss
rates that have occurred in the past. Our accounts receivable balance as of June
30, 2002 was approximately $6.4 million, net of allowance for doubtful accounts
of approximately $509,000.
Property and Equipment
We record our property and equipment at cost and depreciate over the
estimated useful life of the asset on a straight-line basis. We expense ordinary
maintenance and repairs as incurred and capitalize improvements that
significantly increase the value or useful life of our property and equipment.
We periodically test our property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. The conditions that would trigger an impairment
assessment of our property, plant and equipment would include, but not be
limited to, a significant, sustained negative trend in our operating results or
cash flows, a decrease in demand for our products, a change in the competitive
environment and other industry and economic factors. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of the asset
to future net cash flows expected to be generated by the asset. If such assets
are deemed to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets based on the projected net cash flows discounted at a rate commensurate
with the risk of the assets.
19
Income Taxes
As part of the process of preparing our consolidated financial statements,
we are required to estimate our income taxes. This process involves us
estimating our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheet. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent we believe that recovery is not likely, we must
establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the consolidated statement of operations.
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have recorded a
valuation allowance of approximately $2.3 million as of June 30, 2002, due to
uncertainties related to our ability to utilize some of our deferred tax assets,
primarily consisting of certain net operating losses carried forward, before
they expire. The valuation allowance is based on our estimates of taxable income
and the period over which our deferred tax assets will be recoverable. In the
event that actual results differ from these estimates, or we adjust these
estimates in future periods, we may need to establish an additional valuation
allowance which could materially impact our financial position and results of
operations. The net deferred tax asset as of June 30, 2002 was $0, net of the
valuation allowance.
RELATED PARTY TRANSACTIONS
The related party account receivable from Streicher Enterprises, Inc.
("Enterprises"), an entity wholly owned by the Company's Chairman, Stanley H.
Streicher, amounted to approximately $204,000 and $583,000 at June 30, 2002 and
2001, respectively, and $540,000 and $501,000 at January 31, 2001 and 2000,
respectively, bearing interest at 8.25 percent per annum. Two promissory notes
to the Company, one dated January 31, 1997, in the amount of $319,043 due
January 31, 2007, and the second in the amount of $94,850 dated January 31, 1998
due January 31, 2007 (the "Notes"), represented the bulk of the above referenced
account. Mr. Streicher personally guaranteed the principal of, and interest on,
the Notes. Such amounts represented 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 on the account included approximately
$41,000 and $18,000 for the year ended June 30, 2002 and the transition period,
respectively, and approximately $42,000 and $37,000 for the fiscal years ended
2001 and 2000 relating to the account receivable from Enterprises. Enterprises
was required to make annual payments of interest only with a final payment of
all accrued interest and unpaid principal due on January 31, 2007. The account
receivable was secured by a pledge of 360,213 shares of the Company's common
stock owned by Supreme Oil Company, another entity wholly owned by Mr.
Streicher.
The Company had leased its former corporate headquarters from Mr.
Streicher, from which a portion of the above referenced account receivable had
arisen (see Note 10(a), Commitments and Contingencies, Operating Leases). Mr.
Streicher and the Company entered into a Lease Cancellation and Assignment of
Sublease dated February 1, 2002, whereby Mr. Streicher agreed to pay to the
Company the net book value of certain leasehold improvements which were paid by,
and carried on the books of, the Company as of April 30, 2001, in the amount of
$59,600 (the "Leasehold Improvements Debt") on or before March 31, 2002.
On April 1, 2002, Mr. Streicher and Supreme Oil Company Inc. and the
Company entered into an agreement with respect to the repayment by Mr. Streicher
and Supreme of the Leasehold Improvements Debt and the Notes (collectively, the
"Debt"). In connection therewith, Supreme delivered to the Company additional
shares of the Company's stock owned by Supreme, so that an aggregate of 533,088
shares of the Company's common stock owned by Supreme (the " Certificates") were
pledged as security for the Debt.
In the April 1, 2002, agreement, Mr. Streicher and Supreme agreed to
accelerate the due date of the Notes to September 30, 2003, to make quarterly
payments of interest on the Debt, and waived any defenses to foreclosure on the
Certificates if the Debt remained unpaid on September 30, 2003. The Company
agreed to defer any such foreclosure on the Certificates until that date in
exchange for the pledge by Supreme of additional shares of the Company's common
stock owned by Supreme and the waiver of defenses to any such foreclosure on all
pledged
20
stock if and to the extent that the Debt was not repaid prior to the expiration
of such eighteen month period (the "Acceleration Period"). Supreme also agreed
to pledge additional shares of the Company's common stock if the Company deemed
itself insecure during the Acceleration Period. Mr. Streicher and Supreme also
agreed that, in order to ensure that the Debt was repaid before the end of the
Acceleration Period, Supreme would conduct an orderly liquidation of those of
Supreme's shares of the Company's common stock which were not pledged to the
Company and then would pay the entire net proceeds of such liquidation, if any,
to the Company.
On June 12, 2002, Supreme sold 613,000 shares of the Company's common stock
for aggregate gross proceeds of $711,080 and net proceeds of at least $680,000.
According to the April 1, 2002, agreement, Mr. Streicher and Supreme were
thereby obligated to repay the entire balance of the Debt, then approximately
$680,000. On June 29, 2002, Mr. Streicher tendered $480,000 to the Company as
partial repayment of the Debt. Mr. Streicher and Supreme informed the Company
that they now question the validity of certain portions of the debt and
therefore declined to tender the balance of approximately $200,000 required by
the April 1, 2002 agreement. The Company informed Mr. Streicher and Supreme that
it considered the failure to pay the $200,000 to be a breach of the April 1,
2002 agreement and demanded immediate payment.
On July 19, 2002, after Mr. Streicher and Supreme refused the Company's
demand, the Company suspended further payments of salary to Mr. Streicher under
his November 1, 2000 employment agreement. The Company believes that the
withholding of the $200,000 by Mr. Streicher and Supreme was also a breach of
Mr. Streicher's November 1, 2000 employment agreement, constituting grounds for
the Company to terminate that agreement for cause.
COMPARISON OF YEAR ENDED JUNE 30, 2002 TO YEAR ENDED JUNE 30, 2001
REVENUES
Revenue decreased $18.6 million, or 23.4%, for the year ended June 30, 2002
compared to the year ended June 30, 2001. The decrease in revenue resulted from
a substantial decrease in the wholesale price of diesel fuel and gasoline as
well as a decline in gallons delivered. The Company delivered 49.5 million
gallons of fuel to its customers in the year ended June 30, 2002, a decrease of
8.5% compared to the 54.1 million gallons delivered in the year ended June 30,
2001. The decrease in gallons delivered resulted primarily from the elimination
of non-profitable markets and accounts, as well as volume declines of certain
customers whose levels of business activity have been adversely impacted by the
current economic downturn.
GROSS PROFIT
Gross profit increased approximately $2.1 million, or 82.2%, in the year
ended June 30, 2002 compared to the year ended June 30, 2001. The average net
margin per delivered gallon of fuel in the year ended June 30, 2002 improved to
12.2 cents compared to 7.3 cents in the year ended June 30, 2001. The increase
in gross profit was due to the results of the business initiatives started
February 2001, yielding reduced direct operating expenses, improved margins on
existing accounts and new, higher-margin accounts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately
$589,000, or 15.5%, in the year ended June 30, 2002 compared to the year ended
June 30, 2001. The increase in these expenses primarily resulted from increases
in payroll costs associated with the reestablishment of a marketing and sales
department and program (including direct marketing) which had been previously
eliminated, together with the restructuring of the management, operations, and
information technology departments and related personnel; increases in insurance
expense and legal fees; and an increase in the allowance for doubtful accounts.
21
INTEREST EXPENSE
Interest expense decreased approximately $396,000, or 25.2%, in the year
ended June 30, 2002 compared to the year ended June 30, 2001 as a result of
lower interest rates on variable rate debt and decreased borrowings, primarily
due to repayment of existing equipment debt, credit facility and the conversion
of the subordinated promissory notes to equity.
The Company incurred, in connection with the conversion of its convertible
subordinated promissory notes to equity in January 2002, a one-time non-cash
charge related to EITF 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features". This charge was $241,000 and classified as
beneficial conversion of debt to equity interest expense for the year ended June
30, 2002.
INCOME TAXES
The Company recorded no income tax expense for the years ended June 30,
2002 or 2001. The Company has net operating loss carryforwards of $12.2 million
at June 30, 2002.
EBITDA
Earnings before interest, taxes, depreciation, and amortization increased
by $1.5 million to $1.7 million for the year ended June 30, 2002 from $223,000
for the year ended June 30, 2001. The increase was primarily due to higher net
margins and operating profit. The components of EBITDA for the year ended June
30, 2002 and 2001 are as follows:
2002 2001
---------- ----------
Net loss ............................... $(1,162,000) $(2,774,000)
Add back:
Interest expense .................... 1,175,000 1,571,000
Beneficial conversion of
debt to equity interest expense ... 241,000 --
Depreciation and amortization expense 1,458,000 1,426,000
---------- ----------
EBITDA ................................. $ 1,712,000 $ 223,000
========== ==========
COMPARISON OF FIVE-MONTH TRANSITION PERIOD ENDED JUNE 30, 2001 TO FIVE MONTHS
ENDED JUNE 30, 2000
REVENUES
Revenue decreased $7.0 million, or 19.1%, for the five months ended June
30, 2001 compared to the five months ended June 30, 2000. The decrease in
revenue resulted from a decrease in the wholesale price of diesel fuel and
gasoline, declines in the actual quantities of fuel delivered and, to a lesser
extent, declines in the average delivery service fee as a result of changes in
the mix of business. The Company delivered 21.8 million gallons of fuel to its
customers in the five months ended June 30, 2001, a decrease of 13.9% compared
to the 25.3 million gallons delivered in the five months ended June 30, 2000.
The Company sells fuel at prices based upon the daily market averages in each
operating location and provides delivery services at a fixed price per gallon.
Revenue levels can vary depending on the upward or downward movement of fuel
prices in each market. The Company has begun the reestablishment of its
marketing and sales function in order to increase the volume of mobile and bulk
fueling business for future periods.
GROSS PROFIT
Gross profit decreased $597,000, or 44.7%, in the five months ended June
30, 2001 compared to the five months ended June 30, 2000. The net margin per
gallon of fuel in the five months ended June 30, 2001 was 6.2
22
cents compared to 7.4 cents in the five months ended June 30, 2000. Several
factors contributed to the decrease in gross profit and net margin per gallon,
including decreases in volume; reduced historical inventory gains from gross
volumes sold to net volumes purchased; increases in inventory shrink arising
from inefficiencies in field control and reporting systems; increased product
procurement costs; increased vehicle expenses, primarily depreciation, running
fuel and insurance; and decreases in the average delivery service fee resulting
from the loss of higher margin mobile fueling business and the replacement of a
portion of that business with lower margin bulk delivery business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $917,000, or 75.9%,
in the five months ended June 30, 2001 compared to the five months ended June
30, 2000. The increase in these expenses primarily resulted from increases in
payroll costs associated with a restructuring of the marketing, information
technology and management functions; increases in direct marketing and sales
payroll; and increases in insurance expense, legal fees and other employee
benefits.
INTEREST EXPENSE
Interest expense decreased $75,000, or 11.2%, in the five months ended June
30, 2001 compared to the five months ended June 30, 2000 as a result of
decreased borrowings, primarily due to repayment of existing equipment debt.
INCOME TAXES
The Company recorded no income tax expense in the five-month periods ended
June 30, 2001 or 2000. The Company has net operating loss carryforwards which it
will use to offset taxable income in future periods to the extent available.
NET LOSS
The Company incurred a net loss of approximately $2.0 million, or $0.47 per
basic and diluted share, in the five months ended June 30, 2001 compared to a
net loss of $512,000, or $0.19 per basic and diluted share, in the five months
ended June 30, 2000. The increase in net loss in fiscal period 2001 resulted
primarily from reductions in product sales and delivery service margins;
increased costs related to equipment maintenance; and increases in selling,
general and administrative expenses.
COMPARISON OF FISCAL YEAR ENDED JANUARY 31, 2001 TO FISCAL YEAR ENDED JANUARY
31, 2000.
REVENUES
Revenue increased $12.3 million, or 16.6%, for the year ended January 31,
2001 ("fiscal 2001") compared to the year ended January 31, 2000 ("fiscal
2000"). The increase in revenue resulted from an overall increase in the
wholesale price of diesel fuel and gasoline, offset by declines in the actual
quantity of fuel delivered and, to a lesser extent, declines in the average
delivery service fee as a result of changes in the mix of business. The Company
delivered 57.6 million gallons of fuel to its customers in fiscal 2001, a
decrease of 3.0% over the 59.4 million gallons delivered in fiscal 2000. The
Company sells fuel at prices based upon the daily market averages in each
operating location and provides delivery services at a fixed price per gallon.
Revenue levels can vary depending on the upward or downward movement of fuel
prices in each market.
GROSS PROFIT
Gross profit decreased $1.5 million, or 33.2%, in fiscal 2001 compared to
fiscal 2000. The net margin per gallon of fuel in fiscal 2001 was 7.7 cents
compared to 9.6 cents in fiscal 2000. A number of factors contributed to the
decrease in gross profit, including decreases in volume, reduced historical
inventory gains from gross volumes sold to net volumes purchased, increases in
inventory shortages arising from inefficiencies in field control and reporting
systems, increased product procurement costs, increased vehicle expenses,
primarily depreciation, running
23
fuel and insurance, and decreases in the average delivery service fee resulting
from the loss of higher margin mobile fueling business and the replacement of a
portion of that business with lower margin bulk delivery business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased $218,000, or 7.1%,
in fiscal 2001 compared to fiscal 2000. The decrease in these expenses primarily
resulted from eliminating marketing and sales personnel in the first quarter of
the year, including related travel and entertainment expenses and reduced
financial/public relations expenses, offset by increases in corporate payroll
costs in the last quarter of the year.
INTEREST EXPENSE
Interest expense increased $493,000, or 42.8%, in fiscal 2001 compared to
fiscal 2000 as a result of increased borrowings, primarily in prior years, to
pay for new custom fuel trucks for the Company's operations and as a result of
interest rate increases throughout fiscal 2001.
INCOME TAXES
The Company recorded no income tax expense in fiscal 2001 or 2000. The
Company has net operating loss carryforwards which it will use to offset taxable
income in future periods to the extent available.
NET INCOME (LOSS)
The Company incurred a net loss of $1.3 million, or $.49 per diluted share,
in fiscal 2001 compared to net income of $472,000, or $.16 per diluted share, in
fiscal 2000. The Company's net loss in fiscal 2001 resulted primarily from
losses of higher margin mobile fueling business, inefficiencies in product
procurement, underutilization of equipment and increased costs related to
maintaining its equipment.
COMPARISON OF FISCAL YEAR ENDED JANUARY 31, 2000 TO FISCAL YEAR ENDED JANUARY
31, 1999
REVENUES
Revenue increased $26.8 million, or 56.5%, for the year ended January 31,
2000 ("fiscal 2000") compared to the year ended January 31, 1999 ("fiscal
1999"). The Company delivered 59.4 million gallons of fuel to its customers in
fiscal 2000, an increase of 41.8% over the 41.9 million gallons delivered in
fiscal 1999. 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 diesel fuel
and gasoline.
GROSS PROFIT
Gross profit increased $1.9 million, or 67.9%, in fiscal 2000 compared to
fiscal 1999. The net margin per gallon of fuel in fiscal 2000 was 9.6 cents
compared to 8.6 cents in fiscal 1999. This increase in gross profit and net
margin per gallon 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 2000.
24
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $250,000, or 8.9%,
in fiscal 2000 compared to fiscal 1999. The increase in selling, general and
administrative expenses primarily resulted from an increase in marketing, travel
and entertainment and promotion expenses associated with the expansion of the
Company's mobile fueling operations.
INTEREST EXPENSE
Interest expense increased $312,000, or 37.1%, in fiscal 2000 compared to
fiscal 1999 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 no income tax expense in fiscal 2000 compared to an
income tax expense of $261,000 in fiscal 1999. The Company has net operating
loss carryforwards which it will use to offset taxable income in future periods
to the extent available. The tax expense in fiscal 1999 resulted from the
Company fully reserving a deferred tax asset.
NET INCOME (LOSS)
The Company earned net income of $472,000, or $.16 per diluted share, in
fiscal 2000 and incurred a net loss of $1,082,000, or $.42 per share, in fiscal
1999. The Company's net loss in fiscal 1999 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. The increase in earnings in fiscal 2000 is due primarily to
the combination of factors discussed above.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk is limited primarily to the
fluctuating interest rates associated with variable rate debt outstanding to
finance working capital needs and a portion of the Company's fleet of delivery
vehicles. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company required by Form 10-K are attached
following Part III of this report, commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement in connection with its 2002 Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibits Description
-------- -----------
3.1 Amended and Restated Articles of Incorporation (6)
3.2 Amended and Restated Bylaws (6)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Redeemable Common Stock Purchase Warrant (1)
4.3 Underwriters' Purchase Option Agreement between
the Registrant and Argent Securities, Inc. (1)
4.4 Warrant Agreement between the Registrant and
American Stock Transfer & Trust Company (1)
10.1 Employment Agreement, dated November 1, 2000
between the Registrant and Stanley H. Streicher
(2)(6)
10.2 Registrant's 1996 Stock Option Plan (1)(2)
10.3 $10,000,000 Amended and Restated Loan Agreement, dated May
25, 1999, between the Registrant and Bank Atlantic and
First Amendment, dated December 22, 1999, to Amended and
Restated Loan Agreement (5)
10.4 Amended and Restated $10,000,000 Promissory Note, dated May
9, 2001, between the Registrant and Bank Atlantic (7)
10.5 Registrant's 2000 Stock Option Plan (2)(8)
10.6 Employment Agreement, dated October 26, 2000
between the Registrant and Richard E. Gathright
(2)(9)
10.7 Second Amendment, dated May 9, 2001, to Amended and
Restated Loan Agreement, dated May 25, 1999 (10)
10.8 Promissory Note, dated July 7, 2000, between the
Registrant and C. Rodney O'Connor (11)
10.9 Form of Convertible Subordinated Promissory Note (12)
10.10 Streicher Mobile Fueling, Inc. 2001 Directors Stock
Option Plan (13)
10.11 Agreement dated April 1, 2002 between Stanley H.
Streicher, individually, and Supreme Oil Company
Inc. ("Supreme"), a company wholly owned by Mr.
Streicher and the Company with respect to the
repayment by Supreme of certain debts owned to the
Company by Supreme (14)
10.12 Loan and Security Agreement with Congress Financial
Corporation dated September 26, 2002 (15)
23.1 Consent of KPMG LLP (16)
99.1 Certification of President and Chief Executive
Officer, and the Chief Financial Officer (16)
- ---------------
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's Registration Statement on Form SB-2 (No. 333-11541)
(2) Management Contract or Compensatory Plan
(3) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 1998.
(4) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 1999.
(5) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 2000.
26
(6) Incorporated by reference to the exhibit of the same number filed by the
Company with Form 10-K for the fiscal year ended January 31, 2001.
(7) Incorporated by reference to Exhibit 10.5 filed by the Company with Form
10K for the fiscal year ended January 31, 2001.
(8) Incorporated by reference to Exhibit 10.6 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(9) Incorporated by reference to Exhibit 10.7 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(10) Incorporated by reference to Exhibit 10.8 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(11) Incorporated by reference to Exhibit 10.9 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(12) Incorporated by reference to Exhibit 10.10 filed by the Company with Form
10-K for the fiscal year ended January 31, 2001.
(13) Incorporated by reference to Exhibit A of the Proxy Statement filed by the
Company for the Annual Meeting of Shareholders held on July 19, 2001
(14) Incorporated by reference to Exhibit 99.1 of the Form 8-K dated June 12,
2002 filed by the Company
(15) Incorporated by reference to Exhibit 99.1 of the Form 8-K dated September
30, 2002 filed by the Company
(16) Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULE
(c) REPORTS ON FORM 8-K
(1) The Company filed a Form 8-K dated June 12, 2002 to report,
under Item 5, Other Events, the agreement entered into on
April 1, 2002 with Stanley H. Streicher, individually, and
Supreme Oil Company Inc. (together, "Supreme"), a company
owned by Mr. Streicher, with respect to the repayment by
Supreme of certain debts owed to the Company by Supreme.
(2) The Company filed a Form 8-K dated September 30, 2002 to
report, under Item 5, Other Events, the closing of a new
long-term credit facility with Congress Financial
Corporation, a subsidiary of Wachovia Corporation.
27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: October 9, 2002 STREICHER MOBILE FUELING, INC.
By: /S/ RICHARD E. GATHRIGHT
-----------------------------------
Richard E. Gathright, Chief
Executive Officer and President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
By:/S/ STANLEY H. STREICHER Chairman of the Board October 9, 2002
--------------------------
Stanley H. Streicher
By:/S/ RICHARD E. GATHRIGHT Director, Chief Executive October 9, 2002
-------------------------- Officer and President
Richard E. Gathright (Principal Executive Officer)
By:/S/ MICHAEL S. SHORE Senior Vice President - October 9, 2002
-------------------------- Finance and Chief Financial
Michael S. Shore Officer (Principal Financial
and Accounting Officer)
By:/S/ WENDELL R. BEARD Director October 9, 2002
--------------------------
Wendell R. Beard
By:/S/ JOSEPH M. MURPHY Director October 9, 2002
--------------------------
Joseph M. Murphy
By:/S/ C. RODNEY O'CONNOR Director October 9, 2002
--------------------------
C. Rodney O'Connor
By:/S/ ROBERT S. PICOW Director October 9, 2002
--------------------------
Robert S. Picow
By:/S/ W. GREG RYBERG Director October 9, 2002
--------------------------
W. Greg Ryberg
28
CERTIFICATIONS
I, Richard E. Gathright, certify that:
1. I have reviewed this Annual Report on Form 10-K of Streicher Mobile
Fueling, Inc.;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods represented by this Annual Report.
Date: October 9, 2002
/S/ RICHARD E. GATHRIGHT
- -------------------------------------
Richard E. Gathright
President and Chief Executive Officer
I, Michael S. Shore, certify that:
1. I have reviewed this Annual Report on Form 10-K of Streicher Mobile
Fueling, Inc.;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods represented by this Annual Report.
Date: October 9, 2002
/S/ MICHAEL S. SHORE
- --------------------------------------
Michael S.