Unassociated Document
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
o TRANSITION REPORT PURSUANT TO SECTION
13 OF 15(D) OR THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-21825
STREICHER MOBILE FUELING, INC.
(Exact name of registrant as specified in its charter)
|
|
|
|
(State of Incorporation) |
(IRS Employer Identification Number) |
800 West Cypress Creek Road, Suite 580,
Fort Lauderdale, Florida, |
|
|
(Address of principal executive offices) |
(Zip Code) |
(Issuer's telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x. No o.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes
o. No x.
As of May 16, 2005
there were 8,839,807 shares of the registrant’s common stock
outstanding.
STREICHER MOBILE FUELING,
INC.
FORM 10-Q
INDEX
Form 10-Q Part and Item No.
| Part
I |
Financial
Information: |
|
| |
Item
1. Condensed Unaudited Consolidated Financial Statements |
|
| |
Condensed
Unaudited Consolidated Balance Sheets as of March 31, 2005 and June 30,
2004 |
3 |
| |
Condensed
Unaudited Consolidated Statements of Operations for the three-month and
nine-month periods ended March 31, 2005 and 2004 |
4 |
| |
Condensed
Unaudited Consolidated Statements of Cash Flows for the nine-month periods
ended March 31, 2005 and 2004 |
5 |
| |
Notes
to Condensed Unaudited Consolidated Financial Statements |
6 |
| |
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations |
13 |
| |
Item
3. Quantitative and Qualitative Disclosures About Market Risk |
28 |
| |
Item
4. Controls and Procedures |
28 |
| |
|
|
| Part
II |
Other Information |
|
| |
Items
1. thru 6. |
29 |
| |
Signature
Page |
30 |
| |
Certifications |
31-33 |
| |
|
|
|
STREICHER
MOBILE FUELING, INC. AND SUBSIDIARIES
CONDENSED
UNAUDITED CONSOLIDATED BALANCE SHEETS
March
31, 2005 and June 30, 2004
(in
000’s, except share and per share data)
|
ASSETS |
|
March
31,
2005 |
|
June
30,
2004 |
|
|
Current
assets: |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
3,759 |
|
$ |
2,708 |
|
|
Restricted
cash |
|
|
-- |
|
|
13 |
|
|
Accounts
receivable, net |
|
|
12,705 |
|
|
8,280 |
|
|
Inventories
|
|
|
488 |
|
|
183 |
|
|
Prepaid
expenses and other current assets |
|
|
597 |
|
|
400 |
|
|
Total
current assets |
|
|
17,549 |
|
|
11,584 |
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
9,582 |
|
|
7,602 |
|
|
Deferred
debt costs |
|
|
1,060 |
|
|
770 |
|
|
Other
assets |
|
|
87 |
|
|
62 |
|
| |
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
28,278 |
|
$ |
20,018 |
|
| |
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Line
of credit payable |
|
$ |
3,707 |
|
$ |
4,919 |
|
|
Current
portion of long-term debt |
|
|
1,385 |
|
|
-- |
|
|
Accounts
payable and other liabilities |
|
|
6,627 |
|
|
4,193 |
|
|
Total
current liabilities |
|
|
11,719 |
|
|
9,112 |
|
| |
|
|
|
|
|
|
|
|
Long-term
liabilities: |
|
|
|
|
|
|
|
|
Promissory
notes, excluding current portion |
|
|
11,640 |
|
|
6,925 |
|
|
Unamortized
debt discount, net |
|
|
(2,156 |
) |
|
(1,367 |
) |
|
Note
payable |
|
|
188 |
|
|
-- |
|
|
Total
long-term debt, net |
|
|
9,672 |
|
|
5,558 |
|
| |
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
21,391 |
|
|
14,670 |
|
| |
|
|
|
|
|
|
|
|
Shareholders’
equity: |
|
|
|
|
|
|
|
|
Common
stock, par
value $.01 per share; 50,000,000 shares
authorized;
8,827,307 and 7,317,960 issued and outstanding
at
March 31, 2005 and
June 30, 2004, respectively |
|
|
88 |
|
|
73 |
|
|
Additional
paid-in capital |
|
|
16,151 |
|
|
13,392 |
|
|
Accumulated
deficit |
|
|
(9,352 |
) |
|
(8,117 |
) |
|
Total
shareholders’ equity |
|
|
6,887 |
|
|
5,348 |
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity |
|
$ |
28,278 |
|
$ |
20,018 |
|
See
accompanying notes to condensed unaudited consolidated financial
statements.
STREICHER
MOBILE FUELING, INC. AND SUBSIDIARIES
CONDENSED
UNAUDITED CONSOLIDATED STATEMENTS
OF OPERATIONS
FOR
THE THREE AND NINE-MONTH PERIODS ENDED
March
31, 2005 and 2004
(in
000’s, except share and per share data)
|
|
Three-Month
Periods Ended March
31, |
|
Nine-Month
Periods Ended
|
|
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
| |
|
|
|
|
|
|
|
|
|
|
Fuel
sales, taxes and service revenues |
|
$ |
33,083 |
|
$ |
22,906 |
|
$ |
91,639 |
|
$ |
63,458 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of fuel sales, taxes and service |
|
|
32,041 |
|
|
21,930 |
|
|
87,353 |
|
|
60,586 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
1,042 |
|
|
976 |
|
|
4,286 |
|
|
2,872 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses |
|
|
1,872 |
|
|
1,096 |
|
|
4,227 |
|
|
3,281 |
|
|
Gain
on extinguishment of debt |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
757 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income |
|
|
(830 |
) |
|
(120 |
) |
|
59 |
|
|
348 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(527 |
) |
|
(345 |
) |
|
(1,302 |
) |
|
(989 |
) |
|
Interest
and other income |
|
|
8 |
|
|
-- |
|
|
8 |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes |
|
|
(1,349 |
) |
|
(465 |
) |
|
(1,235 |
) |
|
(641 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(1,349 |
) |
$ |
(465 |
) |
$ |
(1,235 |
) |
$ |
(641 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share |
|
$ |
(.17 |
) |
$ |
(.06 |
) |
$ |
(.16 |
) |
$ |
(.09 |
) |
|
Basic
and diluted weighted average common shares outstanding |
|
|
7,812,651 |
|
|
7,248,460 |
|
|
7,524,672 |
|
|
7,248,408 |
|
See
accompanying notes to condensed unaudited consolidated financial
statements.
STREICHER
MOBILE FUELING, INC. AND SUBSIDIARIES
CONDENSED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR
THE NINE-MONTH PERIODS ENDED MARCH 31, 2005 and 2004
(in
000’s)
| |
|
2005 |
|
2004 |
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(1,235 |
) |
$ |
(641 |
) |
|
Adjustments
to reconcile net loss to net cash provided by
(used
in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation
and amortization: |
|
|
|
|
|
|
|
|
Cost
of sales |
|
|
1,143 |
|
|
854 |
|
|
Selling,
general and administrative |
|
|
310 |
|
|
145 |
|
|
Amortization
of deferred debt costs |
|
|
183 |
|
|
151 |
|
|
Amortization
of debt discount |
|
|
283 |
|
|
164 |
|
|
Gain
on extinguishment of debt |
|
|
— |
|
|
(757 |
) |
|
Provision
for allowance for doubtful accounts |
|
|
45 |
|
|
(37 |
) |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease
(increase) in restricted cash |
|
|
13 |
|
|
(116 |
) |
|
Increase
in accounts receivable |
|
|
(1,134 |
) |
|
(1,619 |
) |
|
Increase
in inventories, prepaid expenses and other assets |
|
|
(360 |
) |
|
(96 |
) |
|
Increase
in accounts payable and other liabilities |
|
|
2,248 |
|
|
1,055 |
|
|
Net
cash provided by (used in) operating activities |
|
|
1,496 |
|
|
(897 |
) |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash
used for business acquisition, net of cash acquired |
|
|
(6,134 |
) |
|
— |
|
|
Purchases
of property and equipment |
|
|
(428 |
) |
|
(137 |
) |
|
Proceeds
from disposal of equipment |
|
|
— |
|
|
112 |
|
|
Decrease
in note receivable due from related party |
|
|
— |
|
|
52 |
|
|
Net
cash (used in) provided by investing activities |
|
|
(6,562 |
) |
|
27 |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds
from issuance of promissory notes |
|
|
6,100 |
|
|
6,925 |
|
|
Net
borrowings on line of credit payable |
|
|
(1,212 |
) |
|
445 |
|
|
Net
proceeds from exercise of common stock warrants and
options |
|
|
1,529 |
|
|
— |
|
|
Payments
of debt issuance costs |
|
|
(300 |
) |
|
(522 |
) |
|
Repayments
of subordinated promissory notes |
|
|
— |
|
|
(1,034 |
) |
|
Repayments
of long-term equipment debt |
|
|
— |
|
|
(2,687 |
) |
|
Costs
associated with the extension of warrants |
|
|
— |
|
|
(14 |
) |
|
Net
cash provided by financing activities |
|
$ |
6,117 |
|
$ |
3,113 |
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
1,051 |
|
|
2,243 |
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period |
|
|
2,708 |
|
|
211 |
|
|
CASH
AND CASH EQUIVALENTS, end of period |
|
$ |
3,759 |
|
$ |
2,454 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash
paid for- |
|
|
|
|
|
|
|
|
Interest |
|
$ |
538 |
|
$ |
448 |
|
|
Income
taxes |
|
$ |
— |
|
$ |
— |
|
See
accompanying notes to condensed unaudited consolidated financial
statements.
NOTES
TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Streicher
Mobile Fueling, Inc., a Florida corporation (the “Company”) was formed in
1996.
The
Company provides commercial mobile fueling, bulk fueling, lubricant packaging,
distribution and sales and fuel management out-sourcing services to businesses
that operate all size fleets of vehicles and equipment, including governmental
agencies, utilities, trucking companies, bus lines, hauling and delivery
services, courier services, construction companies and others, together with
heavy and ultra-heavy haul transportation services. The Company’s specialized
truck
fleet delivers fuel to customers’ locations on a regularly scheduled or as
needed basis, refueling vehicles and equipment, re-supplying fixed-site bulk
storage facilities and distributing a variety of petroleum products and
lubricants. The Company’s heavy haul fleet truck and trailer units provide short
and long distance specialized heavy and ultra-heavy hauling transportation
services to customers requiring the movement of over-size loads of equipment and
heavy manufactured products. At March 31,
2005, the
Company had operations in California, Florida, Georgia, Maryland, North
Carolina, Pennsylvania, Tennessee, Texas, Virginia, and Washington D.C.
The
Company has historically generated substantially all of its revenue from mobile
fueling and fuel management services. Revenue is comprised principally of
delivery service charges and the related sales of diesel fuel and gasoline. Cost
of sales is comprised principally of direct operating expenses, the cost of fuel
and depreciation of the fleet. Included in both revenue and cost of sales are
federal and state fuel taxes, which are collected by the Company from its
customers, when required, and remitted to the appropriate taxing authority or
its collecting agent. Delivery service charges are at a negotiated rate and the
cost of fuel is based on market prices. The
Company’s patented proprietary electronic fuel tracking control system is used
to measure, record and track fuel dispensed to each vehicle and tank storage
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. Revenue
and cost of fuel varies depending on the upward or downward movement of fuel
prices in each market.
In
February 2005 the Company acquired substantially all of the assets and business
operations of Shank C&E Investment, L.L.C. (“Shank Services”) a Houston,
Texas based provider of commercial fuel, petroleum lubricants distribution and
sales and heavy haul transportation services. Shank Services, which conducts its
operations in the Company’s subsidiary, SMF Services, Inc., generates revenues
from the sale of commercial fuel, petroleum lubricants and heavy haul
operations. See Note (8) for additional information regarding the Shank Services
acquisition.
|
(2) |
BASIS
OF PRESENTATION |
The
condensed unaudited consolidated financial statements include the accounts of
Streicher Mobile Fueling, Inc. and its wholly owned subsidiaries, SMF Services,
Inc. and Streicher Realty, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
The
condensed unaudited consolidated financial statements included herein have been
prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of
Regulation S-X, and do not include all the information and footnotes required by
generally accepted accounting principles; however, they do include all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the results of operations of the Company for the
interim periods presented. These interim financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and
related notes included in the Company’s Annual Report on Form 10-K for the year
ended June 30, 2004.
Supplemental
Cash Flow Information of Non-Cash Activities
For the
nine-month period ended March 31, 2005, the Company recorded an unamortized debt
discount of $1,072,000 and deferred debt costs of $173,000 related to the
valuation of the common stock warrants issued in connection with its January
2005 Promissory Notes (“2005 Notes”). For the nine-month period ended March 31,
2004, the Company recorded an unamortized debt discount of $1,608,000 and
deferred debt costs of $257,000 related to the valuation of the common stock
warrants issued in connection with its August 2003 refinancing. In the same
period, the Company recorded $14,000 of interest expense related to the issuance
of common stock in lieu of payments on convertible subordinated promissory
notes.
(3) LINE
OF CREDIT PAYABLE
The
Company has a three-year $10 million credit facility with a national financial
institution which permits the Company to borrow up to 85% of the total amount of
eligible accounts receivable. Interest is payable monthly (7.25% at March 31,
2005) and outstanding borrowings under the line are secured by substantially all
Company assets other than its truck fleet, related equipment and patents. The
credit facility maturity has been extended by mutual consent of the Company and
the financial institution from September 25, 2005 to September 25, 2006.
In August
2003, the Company and its line of credit lender amended the credit facility in
connection with the Company’s August 2003 refinancing. The amendment (1)
released the lender’s lien on patents, patent rights and patent applications;
(2) increased the unused line of credit fee by .50%; (3) revised the effective
book net worth covenant to reflect the August 2003 refinancing; (4) established
a covenant to maintain a minimum cumulative quarterly fixed charge coverage
ratio as defined in the amended loan agreement; (5) established a covenant for
the Company to maintain a minimum excess availability of $500,000; and (6)
eliminated the loan prepayment fee.
On
February 18, 2005, the credit facility was amended in connection with the
issuance of the 2005 Notes and the Shank Services acquisition as discussed in
Notes (5) and (8). This amendment 1) lowered the requirements on the fixed
charge coverage ratio; 2) eliminated the effective net worth requirement except
when availability is below $1.0 million; 3) extended the term to September 25,
2006; 4) after September 25, 2005, reduces the unused line fee from .75% to
.25%; and 5) if the Company terminates the line of credit after September 26,
2005, but prior to September 26, 2006, imposes a .50% fee.
As of
March 31, 2005 and June 30, 2004, the Company had outstanding borrowings of $3.7
and $4.9 million, respectively, under its $10 million line of credit facility.
Based on eligible receivables outstanding at March 31, 2005 and June 30,
2004, the Company had $5.0 million and $1.1 million of cash availability on the
line of credit facility, respectively, and was in compliance with its financial
covenants.
Basic
loss per share is computed by dividing the net loss attributable to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted loss per share is computed by dividing loss attributable to
common shareholders by the weighted-average number of common shares outstanding
during the period increased to include the number of additional common shares
that would have been outstanding if the dilutive potential common shares had
been issued. The dilutive effect of outstanding stock options and warrants is
reflected in diluted earnings per share by application of the treasury stock
method.
At March
31, 2005 and 2004, 4,318,805 and 4,726,152 common stock equivalents,
respectively, consisting of employee, director and unrelated third party stock
options and common stock warrants, were outstanding at prices ranging from $.86
to $9.49 per share. For the three-month and nine-month periods ended March 31,
2005, 1,095,319 of these common stock equivalents were dilutive; however, these
common stock equivalents were anti-dilutive and were not included in the
computation of diluted net loss per share.
On
November 22, 2004, the Company extended from December 11, 2004 to December 11,
2005 the exercise period for 1,349,900 outstanding common stock warrants related
to the December 11, 1996 initial public offering.
SFAS 123,
“Accounting for Stock Based Compensation,” as amended by SFAS 148, “Accounting
for Stock Based Compensation-Transition and Disclosure,” allows entities to
choose between a fair value based method of accounting for employee stock
options or similar equity instruments and the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion 25 (“APB 25”),
“Accounting for Stock Issued to Employees.” Entities electing to account for
employee stock options or similar equity instruments under APB 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied. The Company has elected to apply the
provisions of APB 25 in the preparation of its condensed unaudited consolidated
financial statements and provide pro forma disclosure of net income and earnings
per share as required under SFAS 123and SFAS 148 (dollars in thousands, except
share data).
| |
|
For
the Three Months Ended
March
31 |
|
For
the Nine Months Ended
March
31 |
|
| |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
Net
loss as reported |
|
$ |
(1,349 |
) |
$ |
(465 |
) |
$ |
(1,235 |
) |
$ |
(641 |
) |
|
Stock-based
employee compensation expense
Not
included in reported net loss |
|
|
(21 |
) |
$ |
(6 |
) |
$ |
(76 |
) |
$ |
(16 |
) |
|
Net
loss pro forma |
|
$ |
(1,370 |
) |
$ |
(471 |
) |
$ |
(1,311 |
) |
$ |
(657 |
) |
|
Basic
and diluted net loss per share - as reported |
|
$ |
(.17 |
) |
$ |
(.06 |
) |
$ |
(.16 |
) |
$ |
(.09 |
) |
|
Basic
and diluted net loss per share - as pro forma |
|
$ |
(.18 |
) |
$ |
(.06 |
) |
$ |
(.17 |
) |
$ |
(.09 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
free interest rate |
|
|
4.30 |
% |
|
4.08 |
% |
|
4.30 |
% |
|
4.08 |
% |
|
Dividend
yield |
|
|
0 |
% |
|
0 |
% |
|
0 |
% |
|
0 |
% |
|
Expected
volatility |
|
|
107.4 |
% |
|
100 |
% |
|
107.4 |
% |
|
100 |
% |
|
Expected
life |
|
|
8.6
years |
|
|
10
years |
|
|
8.6
years |
|
|
10
years |
|
The full
impact of calculating compensation cost for stock options (fixed awards) is not
reflected in the proforma net income amounts presented because compensation cost
is reflected over the prorata vesting period of the options.
During
the quarter ended March 31, 2005, 69,800 employee stock options were exercised
for a total of $95,892 for an average exercise price of $1.37.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS 123R, “Share-Based Payment,” a revision of SFAS 123. In March 2005,
the SEC issued Staff Bulletin No. 107 (SAB 107) regarding its
interpretation of SFAS 123R. The standard requires companies to expense the
grant-date fair value of stock options and other equity-based compensation
issued to employees. In accordance with the revised statement, the Company will
be required to recognize the expense attributable to stock options granted or
vested subsequent to December 31, 2005. The Company is evaluating the
requirements of SFAS 123R and SAB 107. The Company has not yet determined the
method of adoption or the effect of adopting SFAS 123R, and it has not
determined whether the adoption will result in amounts that are similar to the
current pro forma disclosures under SFAS 123 above.
Long-term
debt consists of the following:
| |
|
March
31,
2005 |
|
June
30,
2004 |
|
Promissory
Notes (10% interest due semi-annually, December 31 and June 30);
principal payments of $692,500 due beginning August 28, 2005,
semi-annually on August 28 and February 28; balloon payment of
$2,770,000 due at maturity on August 28, 2008 |
|
$ |
6,925,000 |
|
$ |
6,925,000 |
|
| |
|
|
|
|
|
|
|
Promissory
Notes (10% interest due semi-annually, June 30 and December 31); principal
payments of $610,000 due beginning January 24, 2007, semi-annually on
January 24 and June 24; balloon payment of $2,440,000 due at maturity on
January 24, 2010 |
|
|
6,100,000 |
|
|
---- |
|
| |
|
|
|
|
|
|
|
Note
Payable (contingent deferred promissory note subject to earn-out
provisions related to Shank Services acquisition if payable, due March 31,
2007) |
|
|
188,000 |
|
|
---- |
|
| |
|
|
|
|
|
|
|
| Unamortized
debt discount, net of amortization |
|
|
(2,156,000 |
) |
|
(1,367,000 |
) |
| |
|
|
|
|
|
|
|
|
Less:
current portion |
|
|
(1,385,000 |
) |
|
---- |
|
| |
|
|
|
|
|
|
|
|
Long-term
debt, net |
|
$ |
9,672,000 |
|
$ |
5,558,000 |
|
August
2003 Promissory Notes
On August
29, 2003, the Company closed a $6.925 million offering to institutions and other
accredited lenders consisting of five-year 10% promissory notes (the “August
2003 refinancing” or “2003 Notes”) and five-year warrants to purchase 2,008,250
shares of the Company’s common stock at $1.00 per share. The 2003 Notes are
collateralized by a first priority security interest in its specialized fueling
truck fleet and related equipment and by patents on its proprietary fuel
management system. The 2003 Notes provide for (1) six $692,500 semi-annual
principal payments commencing on August 28, 2005 through February 28, 2008; (2)
a balloon payment of $2,770,000 at maturity on August 28, 2008; (3) semi-annual
interest payments on June 30 and December 31 which
commenced on December 31, 2003; and (4) the Company’s right to call after August
1, 2005 at 105% of par plus accrued but unpaid interest. The net cash proceeds
from the financing were $2.8 million, after payment of related fees and expenses
and repayment of all outstanding equipment and subordinated debt. In connection
with the issuance of the 2003 Notes, the Company received a $757,000 cash
discount by prepaying the $2,204,800 outstanding balance on August 29, 2003. The
transaction costs related to the 2003 Notes included commissions, professional
fees and other costs totaled $824,000 and are being amortized over the five-year
term of the notes.
January
2005 Promissory Notes
On
January 25, 2005, the Company closed an offering of $6.1 million five year 10%
promissory notes (the “2005 Notes”) and four-year warrants to purchase 1,006,500
shares of the Company’s common stock at $1.60 to a limited group of institutions
and other accredited investors in connection with the acquisition of the assets
and business of Shank Services. The 2005 Notes provide for (1) no principal
payments until January 24, 2007; (2) six $610,000 semi-annual principal payments
commencing on January 24, 2007 through June 24, 2009; (3) a balloon payment of
$2,440,000 at maturity on January 24, 2010; and (4) semi-annual interest
payments on June 30, and December 31, commencing on June 30, 2005. The funding
provided by the 2005 Notes was used for the Shank Services acquisition and for
other general corporate purposes. The net cash proceeds from the financing were
$5.8 million, after payment of related fees and expenses, professional fees and
other costs totaling $282,000. The total transaction costs were $455,000,
inclusive of the $282,000 cash costs and non-cash broker commission warrants
valued at $173,000, which are being amortized over the five-year term of the
notes. The 2005 Notes are secured by a first priority security interest in the
Shank Services assets.
Note
Payable
In
connection with the Shank Services acquisition on February 18, 2005, the Company
issued a contingent two-year deferred payment promissory note due March 31,
2007, in the amount of $1,910,000. As of March 31, 2005, this contingent
liability has been recorded under purchase accounting only to the extent of
negative goodwill of $188,000 associated with the acquisition.
Other
Unamortized
debt discounts of $2,156,000 and $1,367,000 in 2005 and 2004, respectively, were
recorded in connection with the 2003 Notes and 2005 Notes. These are non-cash
discounts related to the valuation of the common stock warrants issued to the
note holders and the placement agent, Philadelphia Brokerage Corporation, in the
financing transactions that do not reduce the amount of principal cash
repayments required to be made by the Company for the outstanding balance of,
$11.640 million and $6.925 million of the notes at March 31, 2005 and June
30, 2004, respectively.
During
the nine months ended March 31, 2005, 1,439,000 of the detachable common stock
warrants issued in connection with the 2003 Notes and other previously issued
and repaid notes were exercised at prices ranging from $.86 to $1.00, resulting
in an aggregate of $1,434,000 in gross cash proceeds to the Company.
The
Company’s debt agreements for its line of credit facility and for the 2003 Notes
and 2005 Notes have covenants establishing certain financial requirements and
operating restrictions. The Company’s failure to comply with any covenant or
material obligation contained in these debt agreements, absent a waiver or
forbearance from the lenders, would result in an event of default which could
accelerate the Company’s debt repayment obligations under the debt agreements.
Due to cross-default provisions contained in its debt agreements, an event of
default under one agreement could accelerate repayment terms under the other
agreements. A default under any of the debt agreements would have a material
adverse effect on the Company’s liquidity and capital resources. At March 31,
2005 the Company was in compliance with all covenants required by the debt
agreements.
(6) SHAREHOLDERS’
EQUITY
For the
nine-month period ended March 31, 2005 equity increased by $1,529,780 due to the
exercise of employee stock options and warrants related to the issuance of the
2003 Notes and other previously issued and repaid notes. The employee stock
options, ranging in prices from $1.07 to $1.50, generated $95,892 in proceeds.
The warrants, exercised at prices ranging from $.86 to $1.00, generated
$1,433,888 in proceeds. In addition, equity increased by $1,245,000 for warrants
issued with the January 2005 $6.1 million note offering. The net loss for the
period reduced shareholders equity by $1,235,000. The following reflects the
change in shareholders equity for nine-month period ended March 31, 2005. (in
000’s)
| |
|
Common
Stock |
|
Additional
Paid
in Capital |
|
Accumulated
Deficit |
|
Total
Shareholders’
Equity |
|
| |
|
|
|
|
|
|
|
|
|
June
30, 2004 |
|
$ |
73 |
|
$ |
13,392 |
|
$ |
(8,117 |
) |
$ |
5,348 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of options and warrants |
|
|
15 |
|
|
1,514 |
|
|
|
|
|
1,529 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants |
|
|
|
|
|
1,245 |
|
|
|
|
|
1,245 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss |
|
|
|
|
|
|
|
|
(1,235 |
) |
|
(1,235 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2005 |
|
$ |
88 |
|
$ |
16,151 |
|
$ |
(9,352 |
) |
$ |
6,887 |
|
(7) RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
See Note
4, Net Loss Per Share, of Notes to Unaudited Consolidated Financial
Statements.
(8) SHANK
SERVICES ACQUISITION
On
February 18, 2005, the Company acquired substantially all of the assets and
related business of Shank Services, a Houston, Texas-based provider of
commercial fueling and heavy haul transportation services for a purchase price
of $7.7 million, which includes a $1.9 million performance based contingency.
The Company acquired a fleet of 24 commercial fueling vehicles, including
specialized fuel delivery, transport, oil and lubricant flatbed and tanker
trucks and related support equipment; over 600 portable fuel and lubricant tanks
with more than 500,000 gallons of capacity used by customers to store products
provided by Shank Services; 15 heavy haul tractor-trailer units designed to
transport heavy construction equipment and other over-sized loads weighing up to
250,000 pounds; a limited quantity of fuel and lubricant inventories; office and
computer equipment and related specialized software technology; customer lists
and agreements; certain other intangible assets; and outstanding customer
accounts receivable. The Company did not assume any material Shank Services’
liabilities or debt.
Of the
$7.7 million purchase price for the acquired assets and related business, $5.8
million was paid in cash, not including acquisition costs of $523,000, and $1.9
million of the purchase price is a contingent two-year deferred payment
promissory note. The payment of the promissory note is dependent on Shank
Services meeting a specific target performance objective, and is subject to
reduction up to the $1.9 million principal amount and accrued interest if the
performance target is not achieved.
On
January 25, 2005, in anticipation of closing the Shank Services acquisition in
February 2005, the Company completed a $6.1 million private placement with a
small group of institutions and other accredited investors to fund the
acquisition, to develop its operations and for other general corporate purposes.
The Company issued $6.1 million in 10%, five-year Senior Secured Notes that
require six semi-annual principal payments commencing January 24, 2007 and a 40%
balloon payment on January 24, 2010. The investors also received four year
Warrants to purchase 866,200 shares of the Company’s common stock at an exercise
price of $1.60 per share, including customary redemption and registration
rights. In addition, 140,300 warrants with substantially similar terms were
issued to the financing placement agent. These warrants were valued using a
Black-Scholes Valuation Model and accounted for as a debt discount and a
corresponding increase in shareholders’ equity. Results of the Shank Services’
operations have been included in the consolidated financial statements since the
February 18, 2005 acquisition date.
The
purchase price and cost allocation of the acquisition at closing was less than
the fair value of the assets, which created negative goodwill. As required under
FASB Statement 141, “Business Combinations,” the negative goodwill has been
offset against the contingent two-year deferred payment promissory note that was
issued by the Company. The payment of the note is dependent on Shank Services
achieving a specific performance objective through fiscal year ended December
31, 2005 and will not be recorded as a liability by the Company until and unless
the performance objective is achieved. The current estimate of negative goodwill
as of the acquisition date is subject to further refinement based upon the
ultimate resolution of contingent consideration.
To
reflect the excess estimated fair value of tangible net assets acquired, the
purchase price and the preliminary purchase price allocation are summarized as
follows (in thousands):
|
Total
purchase consideration |
|
|
|
|
$ |
5,797 |
|
|
Allocated
to: |
|
|
|
|
|
|
|
|
Plant,
property and equipment |
|
$ |
3,005 |
|
|
|
|
|
Accounts
receivable |
|
|
3,336 |
|
|
|
|
|
Inventory |
|
|
150 |
|
|
|
|
|
Other
current assets |
|
|
17 |
|
|
|
|
|
Fair
value of tangible net assets acquired |
|
|
|
|
$ |
6,508 |
|
|
Less:
Transaction costs |
|
|
|
|
|
523 |
|
|
Negative
goodwill |
|
|
|
|
$ |
(188 |
) |
The
following unaudited pro forma condensed consolidated statements of operations
have been prepared as if the acquisition of Shank Services had occurred at July
1, 2004 and July 1, 2003, respectively, (in thousands, except per share data).
| |
|
Nine
months ended March 31, 2005 |
|
Year
ended
June
30, 2004 |
|
| |
|
|
|
|
|
|
Fuel,
tax and service revenue |
|
$ |
114,491 |
|
$ |
125,453 |
|
|
Cost
of fuel, tax and service |
|
|
108,384 |
|
|
120,102 |
|
|
Gross
Profit |
|
$ |
6,107 |
|
$ |
5,351 |
|
| |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(2,548 |
) |
$ |
(4,585 |
) |
| |
|
|
|
|
|
|
|
|
Basic
net loss per share |
|
$ |
(0.34 |
) |
$ |
(0.63 |
) |
|
Diluted
net loss per share |
|
$ |
(0.34 |
) |
$ |
(0.63 |
) |
The pro
forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had the Shank Services acquisition been consummated as of those
dates, nor is it intended to be a projection of future results.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This
report, including but not limited to this Item 2 and the footnotes to the
financial statements in Part I, Item 1, contains “forward looking statements”
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These statements concern expectations, beliefs,
projections, future plans and strategies, anticipated events or trends and
similar expressions concerning matters that are not historical facts. Statements
preceded by, followed by, or that include the words “believes,” “expects,”
“anticipates,” “estimates,” “will,” “may,” “could,” “should” or similar
expressions are generally considered to be forward-looking statements.
The
forward-looking statements include the following:
| · |
the
Company’s strategies, plans and objectives and expectations concerning its
future operations, cash flow, margins, revenue, profitability, liquidity
and capital resources |
| · |
the
Company’s plans to expand its operations in existing and new markets and
to successfully identify, complete and integrate future
acquisitions |
| · |
the
Company’s efforts to improve operational, financial and management
controls, reporting systems and procedures |
The
forward-looking statements reflect the Company’s current view about future
events and are subject to risks, uncertainties and assumptions. The
Company’s actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including those set
forth under the caption “Certain Factors Affecting Future Operating Results,”
included in the Company’s filing on Form 10-K for the fiscal year ended June 30,
2004, and in this Form 10-Q. Among the
factors that could prevent the Company from achieving its goals, and cause the
assumptions underlying the forward-looking statements and the actual results to
differ materially from those expressed in or implied by those forward-looking
statements are the following:
| · |
adverse
consequences relating to the Company’s outstanding
debt |
| · |
the
Company’s ability to pay interest and principal on its line of credit, the
$6.925 million of 2003 Notes, the $6.1 million of 2005 Notes and pay its
accounts payable and other liabilities when
due |
| · |
the
Company’s ability to comply with financial covenants contained in its debt
agreements |
| · |
the
Company’s ability to obtain, if necessary, waivers of covenant violations
of its debt agreements |
| · |
the
Company’s ability to acquire sufficient trade credit from fuel suppliers
and other vendors |
| · |
the
Company’s ability to maintain competitive pricing for the Company’s
services at acceptable margins |
| · |
the
Company’s ability to integrate Shank Services’ operations into its
existing operations and to enhance the profitability of the integrated
business through joint operating efficiencies and improved management
|
| · |
the
Company’s ability to execute its acquisition and diversification strategy
and obtain sufficient capital to acquire additional businesses and support
the infrastructure requirements of a larger combined
company |
| · |
significant
provisions for bad debt experience on the Company’s accounts
receivable |
| · |
declines
in demand for the Company's services and the margins generated resulting
from adverse market conditions in the mobile fueling industry, negative
customer reactions to new or existing marketing strategies, or negative
economic conditions generally |
| · |
competition
from other fueling service providers |
Overview
General
The
Company provides commercial mobile fueling, bulk fueling, lubricant packaging,
distribution and sales and fuel management out-sourcing services to businesses
that operate all size fleets of vehicles and equipment, including governmental
agencies, utilities, trucking companies, bus lines, hauling and delivery
services, courier services, construction companies and others, together with
heavy and ultra-heavy haul transportation services. The Company’s specialized
truck
fleet delivers fuel to customers’ locations on a regularly scheduled or as
needed basis, refueling vehicles and equipment, re-supplying fixed-site bulk
storage facilities and distributing a variety of petroleum products and
lubricants. The Company’s heavy haul fleet truck and trailer units provide short
and long distance specialized heavy and ultra-heavy hauling transportation
services to customers requiring the movement of over-size loads of equipment and
heavy manufactured products. At March 31,
2005, the
Company had operations in California, Florida, Georgia, Maryland, North
Carolina, Pennsylvania, Tennessee, Texas, Virginia, and Washington D.C.
The
Company’s mobile fueling services provide numerous advantages to its customers,
including lower labor and administrative costs associated with fueling vehicles,
centralized control over fuel inventories and usage, tax reporting benefits,
elimination of costs and risks of environmental liabilities associated with
on-site fuel storage and dispensing facilities, lower risk of employee theft of
fuel, emergency fuel availability, and the elimination of security risks
associated with off-site fueling by employees.
The
Company presently operates over 100 custom specialized mobile fueling trucks
from 20 locations serving metropolitan markets in California, Florida, Georgia,
Maryland, North Carolina, Pennsylvania, Tennessee, Texas, Virginia and
Washington D.C. The Company is actively seeking to increase market penetration
in its existing service areas and to develop its operations in new markets.
During the 2004 fiscal year, the Company entered new markets in the District of
Columbia, Maryland, North Carolina and Virginia, and in August 2004, the Company
entered the Pennsylvania market. The Company intends to continue to enter new
markets where it believes that mobile fueling or fuel management business can be
obtained at profitable margins.
The
Company will actively seek to achieve growth through acquisitions such as Shank
Services, which added 24 vehicles, 15 heavy haul tractor-trailer units and over
600 customer fuel and lubricant tanks. The Company also expects to pursue other
potential acquisitions such as lubricants packaging and distribution; unattended
card lock commercial refueling stations; fleet credit card services; and
additional heavy haul transportation providers.
The
Company has historically generated substantially all of its revenue from mobile
fueling and fuel management services. Revenue is comprised principally of
delivery service charges and the related sales of diesel fuel and gasoline. Cost
of sales is comprised principally of direct operating expenses, the cost of fuel
and depreciation of the fleet. Included in both revenue and cost of sales are
federal and state fuel taxes, which are collected by the Company from its
customers, when required, and remitted to the appropriate taxing authority or
its collecting agent. Delivery service charges are at a negotiated rate and the
cost of fuel is based on market prices. 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. Revenues
and cost of fuel varies depending on the upward or downward movement of fuel
prices in each market.
The
Company provides mobile fueling and bulk lubricant packaging, distribution and
sales, and fuel management services at a competitive rate for its services plus
the cost of fuel and procurement based on market prices. Revenue levels vary
depending on the upward or downward movement of fuel prices in each market.
Although volatile fuel prices can affect customers’ demand for fuel or impact
the fuel usage costs of the Company’s delivery trucks, the Company’s gross
profit on sales is not generally directly affected by fuel price fluctuations
since the Company passes on fuel price changes to its customers and charges for
its services on a per gallon basis based on a targeted rate per hour. While
there may be a perceived correlation between customer resistance to payment of
higher service charges, or margin, to the Company when fuel prices rise sharply,
as they have in recent years, the Company believes that it is marketing labor
savings, fuel theft reduction and other services which reduce or limit the
overall cost of fuel supply, and that higher fuel prices do not have a long-term
effect on its margins. During the quarter ended March 31, 2005, the average
wholesale market price for fuel was over 42 cents higher per gallon than during
the quarter ended March 31, 2004, resulting in an increase in the Company’s
total revenues.
Shank
Services Acquisition
On
February 18, 2005, the Company acquired substantially all of the assets and
related business of Shank Services, a Houston, Texas-based provider of
commercial fueling and heavy haul transportation services for $7.7 million,
which includes a $1.9 million performance based contingency. The Company
acquired a fleet of 24 commercial fueling vehicles, including specialized fuel
delivery, transport, oil and lubricant flatbed and tanker trucks and related
support equipment; over 600 portable fuel and lubricant tanks with more than
500,000 gallons of capacity used by customers to store products provided by
Shank Services; 15 heavy haul tractor-trailer units designed to transport heavy
construction equipment and other over-sized loads weighing up to 250,000 pounds;
a limited quantity of fuel and lubricant inventories; office and computer
equipment and related specialized software technology; customer lists and
agreements; certain other intangible assets; and outstanding customer accounts
receivable. The Company did not assume any material Shank Services’ liabilities
or debt. Shank Services employs approximately 70 personnel. The Company will
continue to operate the acquired assets and business under the trade name Shank
Services and integrate its present Houston and Dallas/Fort Worth operations with
those of Shank Services.
Of the
$7.7 million purchase price for the acquired assets and related business, $5.8
million was paid in cash, not including acquisition costs of $523,000, and $1.9
million of the purchase price is a contingent two-year deferred payment
promissory note. The payment of the promissory note is dependent on Shank
Services meeting a specific target performance objective, and is subject to
reduction up to the $1.9 million principal amount and accrued interest if the
performance target is not achieved.
The Shank
Services purchase price included the vehicles, trailers, tanks, other operating
equipment, business interests, related intangibles, accounts receivables,
inventory and prepaid accounts of the Shank Services business. The Company
believes that it will realize cost reductions from more effective bulk fuel
purchasing, lower insurance premiums, improved delivery scheduling, decreased
equipment rentals and better utilization of operations personnel and equipment.
These savings, together with increasing sales volumes from a consolidated
Company and Shank Services business concentrated marketing and sales program,
are expected to provide a positive impact on future cash flows and earnings.
On
January 25, 2005, in anticipation of closing the Shank Services acquisition in
February 2005, the Company completed a $6.1 million private placement with a
small group of institutions and other accredited investors to fund the
acquisition, to develop its operations and for other general corporate purposes.
The Company issued $6.1 million in 10%, five-year Senior Secured Notes that
require six semi-annual principal payments commencing January 24, 2007 and a 40%
balloon payment on January 24, 2010. The investors also received four year
Warrants to purchase 866,200 shares of the Company’s common stock at an exercise
price of $1.60 per share, including customary redemption and registration
rights. In addition, 140,300 warrants with substantially similar terms were
issued to the financing placement agent. Results of the Shank Services’
operations have been included in the consolidated financial statements since the
February 18, 2005 acquisition date.
The terms
and conditions of this financing transaction and other related aspects of the
financing and the Shank Services Acquisition are more fully described in a Form
8-K which was filed with the Securities Exchange Commission on January 31, 2005
and Form 8-K/A which was filed with the Securities Exchange Commission on May 9,
2005.
The
acquisition of the Shank Services assets and business operations, integrated
with the Company’s present business in Houston and Dallas/Fort Worth, will
materially extend its footprint in major Texas markets and should provide a
solid platform for further growth in the Southwest. The Company expects to offer
its mobile fueling services to over 400 active Shank customers, particularly
those in the construction, agriculture, energy, manufacturing and marine
industries with large local and regional fleets. The acquisition will also
expand the Company’s business into related bulk commercial fueling operations
and the distribution of petroleum lubricants.
The Shank
Services heavy haul transportation operations will offer the Company a new and
growing opportunity to provide this specialized logistical service to numerous
businesses that regularly transport heavy construction, refinery and chemical
equipment, and other unusually large payloads, locally, regionally and
nationally. It will also offer the Company the opportunity to provide other
services to these new customers, including fuel and lubricants.
The
Company expects that the Shank Services operating, marketing, sales and
administrative functions will integrate effectively into its present
organizational structure, creating efficiencies and cost-reductions from
cross-utilization of personnel in multiple geographic operating locations as
well as from combining certain commercial fueling and heavy haul functions and
responsibilities. Shank Services is also experienced in delivering emergency
response fueling services in connection with disaster relief which will
complement the Company’s present capability in providing these services. By
establishing a greater business presence in Texas, together with continued
growth in the Southeast, the Company anticipates additional acquisitions in the
petroleum product logistical services and heavy haul transportation business
sectors.
Acquisition
and Diversification Strategy Implementation
Shank
Services was the initial acquisition undertaken in the Company’s previously
announced strategy to grow and diversify through acquisitions. During the
quarter ended March 31, 2005, the Company incurred incremental costs in
connection with the development of the infrastructure to support this
acquisition and diversity strategy. These incremental costs are expected to
continue over the course of the next several quarters as the Company completes
its infrastructure development. Specifically, the Company expects to incur
additional costs to retain and expand its senior and line management team;
undertake new sales and marketing initiatives; introduce new and expected new
services and products; evaluate and optimize its specialized routing equipment
to achieve more efficiencies in its fuel delivery system; and redesign its
accounting and information technology systems to reduce operating costs and
improve the Company’s ability to rapidly integrate acquisitions. In addition,
the Company believes that its interest costs will continue to increase as a
result of additional borrowings required to finance its acquisition growth
strategy. As the Company executes this strategy, there may also be disruptions
in its existing core business, causing higher costs, lower volumes and/or, lower
margins. Any such disruptions, coupled with the infrastructure development costs
needed to support the Company’s acquisition strategy, could lead to significant
fluctuations in the Company’s results of operations in future reporting periods.
During the next twelve months, the Company anticipates expenditures of $1.5
million to $2.0 million in developing the infrastructure for its
multi-acquisition growth plan, exclusive of the funds required to finance
acquisitions and the interest expense and other costs likely to be incurred in
obtaining those funds.
In
January 2005 and August 2003, the Company raised a total of $13.0 million in
debt financings, the proceeds of which were partially used to purchase Shank
Services for $5.8 million, in February 2005, and to repay $3.2 million of former
equipment debt and other subordinated debt in August 2003. The remaining
proceeds are being used for general working capital purposes and to support the
Company’s acquisition and diversification strategy, and may be used to help fund
future acquisitions. During the quarter ended March 31, 2005, the Company
received $1.4 million in cash proceeds related to the exercise of 1,282,406
warrants and 69,800 options. At March 31, 2005, the Company had total cash and
cash availability of $8.7 million compared to $3.8 million at June 30, 2004.
Further, in February 2005, the Company extended its maturity date on its $10.0
million line of credit to September 25, 2006 with more favorable terms and less
restrictive covenants.
Operations
Revenues
For the
quarter and nine-month period ended March 31, 2005, the Company’s total revenues
were $33.1 million and $91.6 million, respectively, on 16.4 million and 46.4
million gallons of fuel delivered, respectively, compared to total revenues of
$22.9 million and $63.5 million and 13.3 million and 40.3 million gallons of
fuel delivered, respectively, in the prior year quarter and nine-month period.
The 44% increase in revenues in both the quarter and nine-month periods relates
primarily to the increase in volumes delivered and higher fuel prices as well as
revenues from the Shank Services acquisition. Because the Shank Services
acquisition was effective February 18, 2005, the extent of its continuing
impact on the Company’s total revenues is not reflected in the third quarter
revenues.
Net
Margin
For the
quarter and nine-month period ended March 31, 2005 and 2004, the Company’s net
margin per gallon improved to 10.1 and 11.7 cents per gallon compared to 9.4 and
9.3 cents per gallon, respectively. This increase resulted from the continued
acceptance in the marketplace of higher margins for the existing services
provided by the Company and the 3.1 million and 6.1 million gallons of net new
business added during the quarter and nine-month period ended March 31, 2005,
respectively. Although the recent trend in higher net margins for the services
provided by the Company has improved over last year, there is no assurance that
the improvement will continue in the future or that margins will not decrease as
the result of increased competition or customer resistance to higher prices for
the Company’s services.
Net
Loss
During
the quarter ended March 31, 2005, the Company incurred a net loss of $1,349,000
including increased period costs over the same quarter in the prior year of
approximately $291,000 directly related to operations expenses for payroll,
running fuel, repairs and maintenance; depreciation acceleration of $297,000
write-down of 12 units of excess equipment abandoned after the reevaluation of
the fleet routing schedules following the Shank Services acquisition; higher
sales and marketing expenses of $235,000, including $117,000 of credit card
fees; higher general and administrative expenses of $125,000, primarily related
to internal administrative costs associated with the Shank Services acquisition
and overall higher public company reporting expenses; higher depreciation for
accounting and information systems of $164,000, related to the write-off of
software costs for replacing, redesigning and upgrading accounting and
information tools and acceleration of depreciation for the shortened useful
lives.; higher interest expense of $182,000, primarily related to the 2005
Notes, the proceeds of which were partially used to acquire Shank Services; and
$40,000 of administrative costs associated with the initial integration of Shank
Services.
EBITDA
Earnings
before interest, taxes, depreciation and amortization (“EBITDA”) is a key
indicator used by management and the financial community to gauge financial
performance of the actual operations of a business without considering the
impact of non-cash charges for equipment aging, debt financing expenses, and
income taxes. EBITDA isolates actual financial performance of operations
independent of the utilization of its capital resources, level of debt financing
and the tax impact on business operations. The Company’s EBITDA decreased by
$213,000 to $(2,000) from $211,000, or an 101% decrease, in the current quarter
compared to the same quarter in the prior year (see
EBITDA Non-GAAP measure reconciliation table in the Results of Operations
section below).
The
EBITDA decrease primarily related to the higher direct operating, selling,
general and administrative expenses and Shank Services initial integration of
expenses totaling approximately $691,000 which were incurred during the quarter
and due in part to the Shank Services acquisition as follows:
|
Operating
expenses |
|
$ |
291,000 |
|
|
Sales
and marketing expenses |
|
|
235,000 |
|
|
General
and administrative expenses |
|
|
125,000 |
|
|
Integration
administrative costs |
|
|
40,000 |
|
| |
|
$ |
691,000 |
|
For the
nine-month period ended March 31, 2005, the Company’s EBITDA improved by
$166,000 to $1,512,000 from $1,346,000 or a 12% increase compared to the same
nine-month period in the prior year. The prior year nine-month period EBITDA
also included the $757,000 gain on extinguishment of debt.
New
Business
The
Company’s mobile fueling services business continues to be largely dependent on
the number of gallons of fuel sold and the net margin per gallon achieved. The
Company increased its net new business by 3.1 million gallons to 16.4 million
gallons from 13.3 million gallons or 23% for the quarter ended March 31, 2005
over 2004. This increase was primarily due to the
addition of new accounts and the addition of Shank’s customers. For the
nine-month period ended March 31, 2005, the Company increased its net new
business by 6.1 million gallons to 46.4 million gallons from 40.3 million
gallons, or 15%, over the prior year nine-month period. This increase was
primarily due to the addition of new accounts, the market expansion into the
Pennsylvania market in August 2004 and the addition of Shank Services customers.
The
Company believes that pricing for mobile fueling services will continue to
increase as below-cost price cutting of mobile fueling services declines and
existing and potential customers recognize that these services provide a net
cost savings when compared to other refueling alternatives. The
Company believes that significant opportunities exist to increase its mobile
fueling and fuel management services business and the volumes of fuel sold and
delivered in conjunction with it.
The
Company also believes that significant opportunities exist to add profitable
bulk fueling and lubricant business volumes, including those from acquisitions
such as Shank Services. In addition, the Company believes that it can
significantly expand and grow the heavy haul and ultra haul transportation
business that it entered with the acquisition of Shank Services and to expand
those services to other markets in which the Company presently operates.
The
Company’s future growth is dependent upon numerous business and economic
factors, including the success of the Company’s sales and marketing and other
business strategies; the availability of sufficient acceptable net margin mobile
fueling service and other business in new and existing markets; the hiring and
retention of qualified personnel to provide the level of service required by
customers; the generation of sufficient cash flow from operating activities; the
availability of debt or equity capital to meet the Company’s financing
requirements; the successful integration of newly acquired businesses such as
Shank Services; and changes in market conditions in the related transportation
or petroleum industries, some of which factors are beyond the Company’s
control.
Capital
Resources and Liquidity
At March
31, 2005 and June 30, 2004, the Company had total of cash and cash availability
on its line of credit of $8,743,000 and $3,818,000, respectively. The $4,925,000
increase is due to an increase in net cash and cash equivalents of $1,051,000
and a $3,874,000 increase in the line of credit availability since June 30,
2004.
In
January 2005 and August 2003, the Company raised a total of $13.0 million in
debt financings, the proceeds of which were partially used to purchase Shank
Services for $5.8 million, in February 2005, and to repay $3.2 million of former
equipment debt and other subordinated debt in August 2003. The remaining
proceeds are being used for general working capital purposes and to support the
Company’s acquisition and diversification strategy, and may be used to help fund
future acquisitions. Further, in February 2005, the Company extended its
maturity date on its $10.0 million line of credit to September 25, 2006 with
more favorable terms and less restrictive covenants.
The
January 2005 refinancing significantly strengthened the Company’s financial
position, enabling it to achieve a stronger balance sheet as well as to improve
cash flow as a result of the two-year moratorium on principal payments under the
2005 promissory Notes. The Company believes that this financing enhanced its
business credibility with present and prospective customers, fuel suppliers,
trade creditors, other lenders and the investment community, as well as its
ability to compete more effectively.
During
the quarter ended September 30, 2003, the Company recorded a pre-tax gain of
$757,000 from the prepayment of the outstanding balance owed to its former
principal equipment lender. In addition, it recorded an increase in
shareholders’ equity of $1.87 million for the value of the 2,008,250 warrants
issued in connection with the August 2003 refinancing.
During
the nine months ended March 31, 2005, 1,439,547 of the detachable common stock
warrants issued in connection with the 2003 Notes and other previously issued
and repaid notes were exercised at prices ranging from $.86 to $1.00 for
$1,433,888 in gross cash proceeds. Also during this quarter the Company recorded
an increase in shareholders’ equity of $95,892 for the value of 69,800 options
exercised.
On
February 18, 2005, the Company revised the August 2003 amendment in conjunction
with the 2005 Notes and the Shank Services acquisition. The amendment 1) lowered
the requirements on the fixed charge coverage ratio; 2) eliminated the effective
net worth requirement except when availability is below $1.0 million; 3)
extended the term for one year to mature September 25, 2006; 4) after September
25, 2005, the unused line fee will be reduced from .75% to .25% and 5) if the
Company terminates the line of credit after September 26, 2005, but prior to
September 26, 2006, imposes a .50% fee.
The
Company’s debt agreements have covenants establishing certain financial
requirements and operating restrictions. The Company’s failure to comply with
any covenant or material obligation contained in these debt agreements, absent a
waiver or forbearance from the lenders, would result in an event of default
which could accelerate debt repayment terms under the debt agreements. Due to
cross-default provisions contained in its debt agreements, an event of default
under one agreement could accelerate repayment terms under the other agreements,
which would have a material adverse effect on the Company’s liquidity and
capital resources.
The
Company’s mobile fueling business requires it to employ substantial working
capital for fuel, labor and equipment costs prior to receiving payments from
customers. The fuel purchased by the Company for resale to customers generally
must be paid for within 10 to 15 days of purchase, with labor costs and taxes
paid bi-weekly and equipment related costs generally paid within 30 days. The
Company invoices customers both daily and weekly and generally collects its
accounts within 30 to 45 days. Days of sales outstanding at March 31, 2005 and
June 30, 2004 were 27 and 28 days, respectively.
During
the nine-month period ended March 31, 2005, the Company’s cash provided in
operating activities was $1.5 million compared to cash used of $897,000 in the
prior year, an increase of $2.4 million. This increase resulted from a change in
working capital components, primarily an increase in accounts payable and other
liabilities, an increase in accounts receivable and the gain on extinguishment
of debt. The higher receivable balance at March 31, 2005 of $12.7 million
compared to the March 31, 2004 balance of $8.3 million was principally due to
overall higher fuel prices and the addition of the accounts receivable from
Shank Services.
The
Company’s material financial commitments, other than fuel purchases, payroll and
general expenses, primarily relate to maintaining its bank line of credit and
servicing the 2003 Notes and the 2005 Notes. The Company is required to make
semi-annual interest payments at a rate of 10% per annum on its 2003 Notes,
which payments began December 31, 2003. Beginning August 28, 2005, the Company
will be required to make six $692,500 semi-annual principal payments, with a
balloon payment of $2,770,000 due August 28, 2008. In addition, the Company is
required to make semi-annual interest payments at a rate of 10% per annum on its
2005 Notes, which payments begin June 30, 2005. Beginning January 24, 2007, the
Company will be required to make six $610,000 semi-annual principal payments,
with a balloon payment of $2,440,000 due January 24, 2010.
In March
2005, the Company entered into a lease agreement for its new corporate facility
with a term of 78 months and a 42 month lessee termination option. The
commencement date is August 1, 2005. The minimum annual rent is as
follow:
|
Month
of Term |
|
Annual |
|
Monthly |
|
*1-6 |
$ |
— |
$ |
— |
|
7-18 |
$ |
140,567.50 |
$ |
11,713.96 |
|
19-30 |
$ |
144,784.52 |
$ |
12,065.38 |
|
31-42 |
$ |
149,128.05 |
$ |
12,427.34 |
|
43-54 |
$ |
153,601.89 |
$ |
12,800.16 |
|
55-66 |
$ |
158,209.94 |
$ |
13,184.16 |
|
67-78 |
$ |
162,956.23 |
$ |
13,579.69 |
*Monthly
installments of Estimated Annual Operating Expenses
are due
and payable in such months notwithstanding that no monthly
installments
of Minimum Annual Rent are then due.
The
Company’s liquidity and ability to meet its financial obligations is dependent
on, among other things, its generation of cash flow from operating activities;
obtaining or maintaining sufficient trade credit from vendors; complying with
its debt covenants; and/or raising any required additional capital through the
issuance of debt or equity securities or other borrowings.
The
Company believes the additional working capital from the 2005 Notes and the 2003
Notes, and the two-year principal payment moratorium on the 2005 Notes will
satisfy its anticipated liquidity requirements for the foreseeable future,
although it may seek additional sources of financing if a cash flow deficiency
were to arise in the future. There is no assurance that additional financing
would be available to the Company on acceptable terms, or at all. If the Company
does not comply with the covenants in its debt agreements, or if adequate funds
are not available to finance operations or to pay debt service obligations as
they become due, the Company may be required to significantly alter its
operations.
At March
31, 2005, the Company had cash and cash equivalents of $3,759,000 as compared to
$2,708,000 at June 30, 2004. The Company had $4,984,000 available on its line of
credit as of March 31, 2005.
The
Company’s short term liquidity needs are currently being met by its
cash flow from operations and the cash availability on its line of credit. The
Company, in the first quarter of fiscal 2006, will pay the first installment
payment of principal on the 2003 Notes of $692,500. The Company's long term
liquidity requirements, including the subsequent semi-annual installment
payments on the 2003 Notes and the semi-annual principal payments on
the 2005 Notes beginning in January 2007, that are not met
through cash flow from operations or its line of credit will need to
be satisfied by raising additional capital or other financing
arrangements. In addition, the Company expects to spend $1.5 million to
$2.0 million over the next twelve months to develop the infrastructure for its
multi-acquisition growth plan, which amount is expected to be funded by a
combination of cash flow from operations and cash availability on its line of
credit or by raising additional capital or other financing arrangements. While
there can be no assurance that such replacement capital, if necessary will be
obtained or can be obtained on terms acceptable to the Company, the
Company believes that it will be able to obtain the necessary
capital.
$10
Million Three-Year Credit Facility
The
Company has a three-year $10 million credit facility with a national financial
institution which permits the Company to borrow up to 85% of the total amount of
eligible accounts receivable. Interest is payable monthly (7.25% at March 31,
2005) and outstanding borrowings under the line are secured by substantially all
Company assets other than its truck fleet, related equipment and patents. The
maturity date of the line of credit is September 25, 2005. The credit
facility maturity was extended by the mutual consent of the Company and the bank
from September 25, 2005 to September 25, 2006.
In August
2003, the Company and its line of credit lender amended the credit facility in
connection with the Company’s August 2003 refinancing. The amendment (1)
released the lender’s lien on patents, patent rights and patent applications;
(2) increased the unused line of credit fee by .50%; (3) revised the effective
book net worth covenant to reflect the 2003 Notes; (4) established a covenant to
maintain a minimum cumulative quarterly fixed charge coverage ratio as defined
in the amended loan agreement; (5) established a covenant for the Company to
maintain a minimum excess availability of $500,000; and (6) eliminated the loan
prepayment fee.
On
February 18, 2005, the credit facility was amended in connection with the
issuance of the 2005 Notes and the Shank Services acquisition. This amendment 1)
lowered the requirements on the fixed charge coverage ratio; 2) eliminated the
effective net worth requirement except when availability is below $1.0 million;
3) extended the term to September 25, 2006; 4) after September 25, 2005, reduces
the unused line fee from .75% to .25%; and 5) if the Company terminates the line
of credit after September 26, 2005, but prior to September 26, 2006, imposes a
.50% fee.
As of
March 31, 2005 and June 30, 2004, the Company had outstanding borrowings of $3.7
and $4.9 million, respectively, under its $10 million line of credit facility.
Based on eligible receivables outstanding at March 31, 2005 and
June 30, 2004, the Company had $5.0 million and $1.1 million of cash
availability on the line of credit facility, respectively, and was in compliance
with its financial covenants.
Management
believes that the Company’s line of credit and cash on hand should provide the
working capital needed to maintain and grow its business and to accomplish its
business plan. If additional financing is required, however, there can be no
assurance that the Company will be able to obtain such financing from its
present line of credit lender or another lender at acceptable terms, or at all.
In addition, because the Company’s borrowings under its line of credit bear
interest at variable interest rates and represent a large portion of the
Company’s outstanding debt, the Company’s financial results could be materially
affected by significant increases or decreases in interest rates.
Debt
Securities
August
2003 Promissory Notes
On August
29, 2003, the Company closed a $6.925 million offering to institutions and other
accredited lenders consisting of five-year 10% promissory notes (the “2003
Notes”) and five-year warrants to purchase 2,008,250 shares of the Company’s
common stock at $1.00 per share. The 2003 Notes are collateralized by a first
priority security interest in its specialized fueling truck fleet and related
equipment and by patents on its proprietary fuel management system. The 2003
Notes provide for (1) six $692,500 semi-annual principal payments commencing on
August 28, 2005 through February 28, 2008; (2) a balloon payment of $2,770,000
at maturity on August 28, 2008; (3) semi-annual interest payments on June 30 and
December 31 which
commenced on December 31, 2003; and (4) the Company’s right to call after August
1, 2005 at 105% of par plus accrued but unpaid interest. The net cash proceeds
from the financing were $2.8 million, after payment of related fees and expenses
and repayment of all outstanding equipment and subordinated debt. In connection
with the issuance of the 2003 Notes, the Company received a $757,000 cash
discount by prepaying the $2,204,800 outstanding balance on August 29, 2003. The
transaction costs related to the 2003 Notes included commissions, professional
fees and other costs totaling $824,000 that are being amortized over the
five-year term of the notes.
January
2005 Promissory Notes
On
January 25, 2005, the Company closed a $6.1 million five year 10% promissory
notes (the “2005 Notes”) and four-year warrants to purchase 1,006,500 shares of
the Company’s common stock at $1.60 to a limited group of institutions and other
accredited investors in connection with the acquisition of the assets and
business of Shank Services. The 2005 Notes provide for (1) no principal payments
until January 24, 2007; (2) six $610,000 semi-annual principal payments
commencing on January 24, 2007 through June 24, 2009; (3) a balloon payment of
$2,440,000 at maturity on January 24, 2010; and (4) semi-annual interest
payments on June 30, and December 31, commencing on June 30, 2005. The funding
provided by the 2005 Notes was used for the Shank Services acquisition and for
other general corporate purposes. The net cash proceeds from the financing were
$5.8 million, after payment of related fees and expenses, professional fees and
other costs, totaling $282,000 are being amortized over the five-year term of
the notes. The 2005 Notes are secured by a first priority security interest in
the Shank Services assets.
The
Company also issued 1,006,500 four-year warrants to purchase shares of common
stock at $1.60 per share to the purchasers of the 2005 Notes and to the
Company’s placement agent for the transaction.
Note
Payable
In
connection with the Shank Services acquisition on February 18, 2005, the Company
issued a contingent two-year deferred payment promissory note due March 31,
2007, in the amount of $1,910,000 which contingent liability is recorded under
purchase accounting only to the extent of negative goodwill of $188,000
associated with the acquisition.
Other
The
unamortized debt discount of $2,156,000 and $1,367,000 recorded in connection
with the 2003 Notes and 2005 Notes, respectively, is a non-cash discount related
to the valuation of the common stock warrants issued to the note holders and the
placement agent, Philadelphia Brokerage Corporation, and does not reduce the
amount of principal cash repayments required to be made by the Company for the
outstanding balance of $11.640 million and $6.925 million of the notes at
March 31, 2005 and June 30, 2004, respectively.
During
the nine months ended March 31, 2005, 1,439,000 of the detachable common stock
warrants issued in connection with the 2003 Notes and other previously issued
and repaid notes were exercised at prices ranging from $.86 to $1.00 for
$1,434,000 in gross cash proceeds.
The
Company’s debt agreements have covenants establishing certain financial
requirements and operating restrictions. The Company’s failure to comply with
any covenant or material obligation contained in these debt agreements, absent a
waiver or forbearance from the lenders, would result in an event of default
which could accelerate debt repayment terms under the debt agreements. Due to
cross-default provisions contained in its debt agreements, an event of default
under one agreement could accelerate repayment terms under the other agreements,
which would have a material adverse effect on the Company’s liquidity and
capital resources. At March 31, 2005 the Company was in compliance with all
covenants required by the debt agreements.
In
September 2003, the Company repaid all of the outstanding subordinated
convertible and non-convertible promissory notes with a portion of the proceeds
of the August 2003 refinancing.
Interest
Expense Summary
The table
below shows the interest expense (in thousands) recorded for the three and
nine-month periods:
| |
|
Three-Month
Periods
Ended
March 31 |
Nine-Month
Periods
Ended March 31 |
| |
|
2005 |
|
|
2004 |
|
|
2005 |
|
2004 |
|
|
Stated
Rate Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit |
$ |
45 |
|
$ |
69 |
|
$ |
182 |
$ |
183 |
|
|
Promissory
notes and equipment debt |
|
287 |
|
|
173 |
|
|
633 |
|
450 |
|
|
Subordinated
debt |
|
|
|
|
— |
|
|
|
|
20 |
|
|
Other
|
|
9 |
|
|
3 |
|
|
21 |
|
16 |
|
|
Total
stated rate interest expense |
|
341 |
|
|
245 |
|
|
836 |
|
669 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Interest Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred debt costs |
|
72 |
|
|
43 |
|
|
184 |
|
134 |
|
|
Amortization
of debt discount |
|
114 |
|
|
57 |
|
|
282 |
|
165 |
|
|
Total
amortization of interest expense |
|
186 |
|
|
100 |
|
|
466 |
|
299 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total
recurring interest expense |
|
527 |
|
|
345 |
|
|
1,302 |
|
968 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total
other interest expense |
|
|
|
|
— |
|
|
|
|
21 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense |
$ |
527 |
|
|
345 |
|
|
1,302 |
|
989 |
|
The
increase in interest expense of $182,000 for the quarter ended March 31, 2005
compared to the quarter ended March 31, 2004, related primarily to the interest
expense incurred on the 2005 Notes.
The
increase in interest expense of $313,000 for the nine-month period ended March
31, 2005 compared to the nine-month period ended March 31, 2004, related
primarily to the higher non-cash interest amortization for the transaction costs
and warrant issuance for the August 2003 refinancing and 2005 Notes, as well as
the interest expense incurred on the 2005 Notes.
Results
of Operations
The
following is a summary of the Company’s selected condensed consolidated results
of operations for the three-month and nine-month periods ending March 31, 2005
and 2004 (in 000s):
| |
|
|
For
the Three-Month Periods Ended March 31 |
|
|
|
|
|
For
the Nine-Month Periods Ended March 31 |
|
| |
|
|
|
|
|
|
|
|
Increase
(decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) |
|
| |
|
|
2005 |
|
|
2004 |
|
|
Dollars |
|
|
Percent |
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
Dollars |
|
|
Percent |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
$ |
33,083 |
|
$ |
22,906 |
|
$ |
10,177 |
|
|
44 |
% |
|
|
|
$ |
91,639 |
|
$ |
63,458 |
|
|
|
|
$ |
28,181 |
|
|
44 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cost of sales and Services |
|
|
(32,041 |
) |
|
(21,930 |
) |
|
10,111 |
|
|
46 |
% |
|
|
|
|
(87,353 |
) |
|
(60,586 |
) |
|
|
|
|
26,767 |
|
|
44 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit |
|
|
1,042 |
|
|
976 |
|
|
66 |
|
|
7 |
% |
|
|
|
|
4,286 |
|
|
2,872 |
|
|
|
|
|
1,414 |
|
|
49 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
expenses |
|
|
(1,872 |
) |
|
(1,096 |
) |
|
776 |
|
|
71 |
% |
|
|
|
|
(4,227 |
) |
|
(3,281 |
) |
|
|
|
|
946 |
|
|
29 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
|
|
|
-- |
|
|
757 |
|
|
|
|
|
(757 |
) |
|
(100 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(527 |
) |
|
(345 |
) |
|
182 |
|
|
53 |
% |
|
|
|
|
(1,302 |
) |
|
(989 |
) |
|
|
|
|
313 |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income |
|
|
8 |
|
|
-- |
|
|
8 |
|
|
100 |
% |
|
|
|
|
8 |
|
|
-- |
|
|
|
|
|
8 |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(1,349 |
) |
$ |
(465 |
) |
$ |
884 |
|
|
190 |
% |
|
|
|
$ |
(1,235 |
) |
$ |
(641 |
) |
|
|
|
$ |
594 |
|
|
93 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons
delivered |
|
|
16,402 |
|
|
13,315 |
|
|
3,087 |
|
|
23 |
% |
|
|
|
|
46,350 |
|
|
40,332 |
|
|
|
|
|
6,018 |
|
|
15 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
non -GAAP Measure |
|
$ |
(2 |
) |
$ |
211 |
|
$ |
(213 |
) |
|
(101 |
)% |
|
|
|
$ |
1,512 |
|
$ |
1,346 |
|
|
|
|
$ |
166 |
|
|
12 |
% |
Comparison
of Three Months Ended March
31, 2005 to March 31, 2004
Revenues
Revenues
increased $10.2 million, or 44%, in the quarter ended March 31, 2005 compared to
the same quarter in 2004. This increase was principally due to a 23% increase in
net new business and higher fuel prices which averaged 42 cents per gallon
higher than the earlier quarter. The Shank Services acquisition on February 18,
2005, contributed $4.9 million of the $10.2 million increase in revenue. Fuel
sales were 16.4 million gallons in the current quarter, compared to the 13.3
million gallons in the prior year quarter, a 3.1 million gallon increase of net
new business. The Shank Services acquisition contributed 2.2 of the 16.4 million
gallons. The increase in fuel prices was directly attributable to the volatility
of world fuel markets and economic conditions, including higher crude oil prices
and greater global fuel demand.
Gross
Profit
Gross
profit increased $66,000 in the quarter ended March 31, 2005 compared to the
same quarter in 2004. The increase in gross profit resulted from higher margins
generated from services provided and the increase of 3.1 million gallons of net
new business, including a gross profit contribution from Shank Services’
business of $199,000. Net margin per gallon was 10.1 cents in the quarter ended
March 31, 2005 compared to 9.4 cents in the prior year quarter representing a
0.7 cent increase, or 7%. The increase in gross profit during the quarter was
reduced by an increase in depreciation expense of $297,000 related to the
acceleration depreciation for the write-down of excess equipment abandoned
resulting from the reevaluation of the Company’s overall fleet utilization
requirements following the acquisition of Shank Services.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased $776,000 in the quarter ended
March 31, 2005 compared to the same quarter in 2004. The increase in these
expenses primarily resulted from higher selling costs related to $117,000 of
credit card fees; $125,000 of general and administrative expenses related to the
Shank Services acquisition, increased payroll costs and additional professional
fees related to public company reporting requirements; Shank Services expenses
of $251,000; and the write-down and acceleration of depreciation for the
shortened useful lives of computer software, which generated additional
depreciation expense of $164,000.
Income
Taxes
No income
tax expense was recorded in the quarter ended March 31, 2005. The Company’s net
operating loss carry forward at June 30, 2004 was $14.3 million.
Net
Loss
During
the quarter ended March 31, 2005, the Company incurred a net loss of $1,349,000
including increased period costs over the same quarter in the prior year of
approximately $291,000 directly related to operations expenses for payroll,
running fuel, repairs and maintenance; depreciation acceleration of $297,000
write-down of 12 units of excess equipment abandoned after the reevaluation of
the fleet routing schedules following the Shank Services acquisition; higher
sales and marketing expenses of $235,000, including $117,000 of credit card
fees; higher general and administrative expenses of $125,000, primarily related
to internal administrative costs associated with the Shank Services acquisition
and overall higher public company reporting expenses; higher depreciation for
accounting and information systems of $164,000, related to the write-off of
software costs for replacing, redesigning and upgrading accounting and
information tools and acceleration of depreciation for the shortened useful
lives; higher interest expense of $182,000, primarily related to the 2005 Notes,
the proceeds of which were partially used to acquire Shank Services; and $40,000
of administrative costs associated with the initial integration of Shank
Services.
EBITDA
- Non-GAAP Measure Reconciliation
Earnings
before interest, taxes, depreciation, and amortization (“EBITDA”) decreased
$213,000 or 101% in the quarter ended March 31, 2005 compared to the same
quarter in 2004. This decrease was due to the increase in net loss of $884,000
offset by higher interest, depreciation and amortization of $671,000. Components
of EBITDA for the nine months ended March 31, 2005 and 2004 are as
follows:
| |
|
For
the Three Months Ended |
|
| |
|
March
31, 2005 |
|
March
31, 2004 |
|
| |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(1,349,000 |
) |
$ |
(465,000 |
) |
|
Add
back:
Interest
expense |
|
|
342,000 |
|
|
245,000 |
|
|
Non-cash
interest expense |
|
|
185,000 |
|
|
100,000 |
|
|
Depreciation
and amortization expense(*): |
|
|
|
|
|
|
|
|
Cost
of sales |
|
|
611,000 |
|
|
283,000 |
|
|
Selling,
general and administrative |
|
|
217,000 |
|
|
48,000 |
|
|
Less:
Interest
income |
|
|
8,000 |
|
|
--- |
|
|
EBITDA |
|
$ |
(2,000 |
) |
$ |
211,000 |
|
(*)
Includes
depreciation related to the write-down of excess equipment abandoned after fleet
rerouting integration post the acquisition and accelerated depreciation and
write-off for computer software for changes in infrastructure technology
totaling $461,000.
Comparison
of Nine-Month Periods Ended March
31, 2005 to March 31, 2004
Revenues
Revenues
increased $28.2 million, or 44%, in the nine-month period ended March 31, 2005
compared to the same period in 2004. This increase was principally due to a 15%
increase in net new business and higher fuel prices which averaged 45 cents per
gallon higher than the earlier period. The Shank Services acquisition on
February 18, 2005 contributed $4.9 of the $28.2 million increase in revenues.
Fuel sales were 46.4 million gallons in the current period, compared to the 40.3
million gallons in the prior year period, a 6.1 million gallons increase of net
new business. The Shank Services acquisition contributed 2.2 of the 46.4 million
gallons. The increase in fuel prices was directly attributable to the volatility
of world fuel markets and economic conditions, including higher crude oil prices
and greater global fuel demand.
Gross
Profit
Gross
profit increased by $1.4 million in the nine-month period ended March 31, 2005
compared to the same period in 2004. The increase of $1.1 million in gross
profit resulted from higher margins being generated from services provided;
emergency response mobile fueling and fuel delivery services related to the four
hurricanes impacting parts of Florida and the southeastern United States in the
quarter ended September 30, 2004; and $300,000 from to the increase of 6.1
million gallons of net new business, including a gross profit contribution from
Shank Services’ business of $199,000. Net margin per gallon was 11.7 cents in
the nine months ended March 31, 2005 compared to 9.3 cents for the prior year
period, a 2.4 cent increase, or 26%. The increase in gross profit during the
nine-month period was reduced by an increase in depreciation expense of $297,000
and was related to the write-down of excess equipment abandoned after the
reevaluation of the fleet utilization requirements following the acquisition of
Shank Services.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased $946,000 in the nine-month period
ended March 31, 2005 compared to the same period in 2004. The increase in these
expenses primarily resulted from higher selling costs and increased professional
fees related to public company reporting requirements; Shank Services expenses
of $251,000; and the write-down and acceleration of depreciation for the
shortened useful lives of computer software, which generated additional
depreciation expense of $164,000.
Income
Taxes
No income
tax expense was recorded for the quarter ended March 31, 2005. The Company’s net
operating loss carry forward at June 30, 2004 was $14.3 million.
Net
Loss
The
$594,000 increase in net loss for the nine-month period ended March 31, 2005
over the prior year period was primarily due to the non-recurring $757,000 gain
on extinguishment of debt included in the prior year period; the $946,000
increase in selling, general and administrative expenses; the $305,000 net
increase in interest; and the depreciation and amortization related to the
write-down of excess equipment abandoned after fleet rerouting integration post
the acquisition and accelerated depreciation and write-off for computer software
for changes in infrastructure technology totaling $461,000.
EBITDA
- Non-GAAP Measure Reconciliation
Earnings
before interest, taxes, depreciation, and amortization (“EBITDA”) increased
$166,000 or 12% in the nine-month period ended March 31,
2005 compared
to the same period in
2004. This
increase was due to the increase in net loss of $594,000 offset by higher
interest, depreciation and amortization of $760,000. Components of EBITDA for
the nine months ended March 31,
2005 and 2004
are as follows:
| |
|
For
the Nine Months Ended |
|
|
|
|
|
March
31, 2005 |
|
|
March
31, 2004 |
|
| |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(1,235,000 |
) |
$ |
(641,000 |
) |
|
Add
back:
Interest
expense |
|
|
837,000 |
|
|
690,000 |
|
|
Non-cash
interest expense |
|
|
465,000 |
|
|
299,000 |
|
|
Depreciation
and amortization expense(*): |
|
|
|
|
|
|
|
|
Cost
of sales |
|
|
1,143,000 |
|
|
853,000 |
|
|
Selling,
general and administrative |
|
|
310,000 |
|
|
145,000 |
|
|
Less:
Interest
income |
|
|
8,000 |
|
|
--- |
|
|
EBITDA |
|
$ |
1,512,000 |
|
$ |
1,346,000 |
|
(*)
Includes
depreciation related to the write-down of excess equipment abandoned after fleet
rerouting integration post the acquisition and accelerated depreciation and
write-off for computer software for changes in infrastructure technology
totaling $461,000.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
Company’s exposure to market risk is limited primarily to the fluctuating
interest rates associated with the variable rate portion of its outstanding
debt. This debt bears interest at the United States prime interest rate plus a
fixed markup and is subject to change based upon interest rate changes in the
United States. The Company does not currently use, and has not historically
used, derivative instruments to hedge against such market interest rate risk.
Increases or decreases in market interest rates could have a material impact on
the financial condition, results of operations and cash flows of the Company.
The
interest on the Company’s bank line of credit of up to $10,000,000 is variable
and may increase or decrease with future changes in interest rates but interest
rates are not the only factor which could affect interest expense on the bank
line of credit. If the Company’s line of credit average outstanding balance was
$2.5 million, an increase of 1% in the variable interest rate would result in
additional interest expense of $25,000 per annum. The interest on the $6.925
million in 2003 Notes is fixed for the term of the notes at 10% per annum. The
interest on the $6.1 million in 2005 five year term Notes is also fixed at 10%
per annum.
ITEM
4. CONTROLS AND PROCEDURES
As of the
end of the period reported on in this report, the Company has undertaken an
evaluation under the supervision and with the participation of the Company’s
management, including our Chief Executive Office and Chief Financial Officer, of
the effectiveness of the design and operation of disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective, in all
material respects, with respect to the recording, processing, summarizing and
reporting, within the time periods specified in the SEC’s rules and forms, of
information required to be disclosed in the reports that are filed or submitted
under the Exchange Act.
The
acquired Shank Services on February 18, 2005, utilizes separate information and
accounting systems and processes for which the disclosure controls and
procedures were deemed effective over financial reporting since the acquisition
was completed. As such, there have been no significant changes in the Company’s
internal controls during the quarter ended March 31, 2005, or in other factors
that could significantly affect internal controls subsequent to the date of the
evaluation described above.
PART
II. Other Information
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5. OTHER INFORMATION
Item
5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment
of Principal Officers
Richard
N. Hamlin, a director of the Company, resigned from the Company’s Board of
Directors effective May 13, 2005. Mr. Hamlin had served as the Chairman of the
Audit Committee of the Board of Directors and was one of the three “financial
experts”, as defined by SEC and Nasdaq rules, serving on that Committee. With
Mr. Hamlin’s resignation, the Audit Committee had only two members. As a result,
the Board of Directors has named Robert S. Picow, one of the Company’s
non-management directors, to the committee. It is presently anticipated that Mr.
Picow will only serve on the committee on an interim basis and that Mr. Hamlin
will soon be replaced on the Board and the Audit Committee with a new
independent director who qualifies as a “financial expert”.
ITEM
6. EXHIBITS
Exhibit
No. Description
| |
|
|
10.1
31.1
31.2
32.1 |
Amended
and Restated Employment Agreement by and between Streicher Mobile Fueling,
Inc. and Richard E. Gathright executed May 14, 2005, effective as of March
1, 2005
Certificate
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certificate
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certificate
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| |
|
|
| |
STREICHER MOBILE
FUELING, INC. |
|
|
|
| May 18, 2005 |
By: |
/s/ Richard E. Gathright |
| |
President and Chief Executive Officer |
| |
|
| |
|
|
| |
|
|
By: |
/s/ Michael
S. Shore |
| |
Michael S. Shore |
| |
Senior Vice President and Chief Financial Officer
|