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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JANUARY 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21825
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STREICHER MOBILE FUELING, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0707824
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2720 N.W. 55TH COURT, FORT LAUDERDALE, FLORIDA 33309
(Address of principal executive offices) (Zip Code)
(954) 739-3880
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each
Title of each class exchange on which registered
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<S> <C>
COMMON STOCK, $.01 PAR VALUE CHICAGO STOCK EXCHANGE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS CHICAGO STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes[X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $33,845,000
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of April 15, 1997 was $0,000,000 computed by reference to the
closing bid price of the Common Stock on such date.
As of April 15, 1997 there were 2,575,000 shares of the registrant's Common
Stock outstanding.
Transitional Small Business Disclosure Format: Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have been incorporated by reference
into the parts indicated: The registrant's definitive Proxy Statement to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year covered by this report -- Part III.
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Page 1 of 37 Pages
Exhibit Index on Page 17
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ITEM 1. DESCRIPTION OF BUSINESS
This Form 10-KSB contains "forward-looking statements" which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in Item 6. Management's Discussion
and Analysis and Plan of Operations under the caption "Certain Factors Affecting
Future Operating Results" and elsewhere in this Form 10-KSB.
The Company provides mobile fueling services, primarily to customers
which operate large fleets of vehicles (such as governmental agencies,
utilities, major trucking lines, hauling and delivery services and national
courier services). Company-owned custom fuel trucks deliver fuel on a regularly
scheduled or as needed basis directly to vehicles at customers' locations,
assuring the Company's customers a dependable supply of fuel at competitive
rates. The Company utilizes its proprietary electronic fuel management system to
measure, record and track fuel dispensed to each vehicle fueled at a customer
location. This allows the Company to verify the amount of fuel delivered and
provides its customers with customized fleet fuel data for management analysis
and tax reporting. Additionally, the Company's fuel management system reduces
the risk of employee theft by dispensing fuel only to authorized vehicles. The
Company believes that mobile fueling provides several economic and other
advantages to its customers, including eliminating the costs and potential
environmental liabilities associated with equipping and maintaining fuel storage
and dispensing facilities, reducing labor and administrative costs associated
with fueling vehicles and providing centralized control over fuel inventories
and usage. The Company also believes that federal and state environmental
regulations have created opportunities for the Company to convert to mobile
fueling customers fleet operators that currently utilize underground storage
tanks.
Founded by Stanley H. Streicher, the Company's President and Chief
Executive Officer, the Company's predecessor commenced its mobile fueling
operations in 1983. The Company presently has operations in seven locations
throughout Florida and in Los Angeles, San Bernadino and San Diego, California,
Atlanta and Columbus, Georgia, Chattanooga and Kingsport, Tennessee and
Dallas/Fort Worth, Texas. During April 1997, the Company operated a fleet of 50
custom fuel trucks and was servicing approximately 220 customers at more than
550 locations nightly, delivering fuel at a rate of over 2,400,000 gallons per
month.
THE MOBILE FUELING INDUSTRY
Traditionally, business and other entities that operate large fleets of
vehicles have met their fueling requirements by either maintaining their own
supply of fuel in on-site storage tanks or fueling vehicles with credit card
purchases or other credit arrangements at local retail gas stations. On-site
storage tanks and fueling facilities can be expensive to construct and maintain
and expose the property owner and operator to potential liability associated
with fuel leaks or spills. In addition, increasingly stringent federal and state
environmental regulation of underground storage tanks will require businesses
that maintain their own fuel supplies to spend significant amounts to remove or
retrofit underground storage tanks to meet regulatory standards. For example,
federal regulations designed to protect the nation's soil and groundwater from
contamination by leaking underground petroleum storage tanks currently require
that all new storage tanks and, by December 1998, all existing storage tanks
comply with certain construction standards and contain leak detection systems.
Some states, including Florida, have promulgated their own detailed criteria for
new underground storage tanks and the retrofitting of older underground storage
tanks, and in some instances such criteria are more stringent than the federal
regulations. The Company believes that many fleet operators currently utilizing
underground storage
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tanks will choose to meet their fueling requirements by other means, including
mobile fueling, instead of investing in upgrading existing facilities.
Fueling fleet vehicles at retail gas stations is an inefficient use of
employee time, creates a significant amount of unnecessary paperwork and exposes
the fleet operator to an increased risk of employee fraud. In addition, while
large users often are able to negotiate favorable fuel pricing from retail gas
stations, the labor time expended by having employees fuel their own vehicles as
well as the costs associated with management and administration of fuel
purchases can exceed the benefits associated with price discounts.
The Company believes that mobile fueling services, such as those
provided by the Company, offer several benefits over traditional fueling
methods:
- Reduced Operating Costs and Increased Labor Productivity. Mobile fueling
enables businesses to reduce operating costs by eliminating the need for
company employees to fuel vehicles either on-site or at local retail gas
stations. Overnight fueling prepares fleet vehicles for operation at the
beginning of each work day and increases labor productivity by allowing
employees to use their vehicles during time that would otherwise be
spent fueling. Mobile fueling also reduces the administrative burden
required to oversee and administer fuel purchases and inventories.
- Provides Centralized Inventory Control and Management. The Company's
fuel management system provides customers with weekly reports detailing,
among other things, the location, description and daily and weekly fuel
consumption of each vehicle fueled by the Company. This eliminates
customers' need to invest working capital to maintain adequate fuel
supplies, and allows customers to centralize their fuel inventory
controls and track and analyze vehicle movement and fuel consumption for
management and tax reporting purposes.
- Provides Tax Reporting Benefits. The Company's fuel management system's
ability to track fuel consumption to specific vehicles and fuel tanks
provides tax benefits to customers who consume fuel in uses that are
tax-exempt, such as for off-road vehicles, government-owned vehicles and
fuel used to run refrigerator units on vehicles. For such uses, the
customers receive reports which provide them with the information
required to substantiate such tax exemptions.
- Eliminates Expenses and Liabilities of On-site Storage. Fleet operators
who previously satisfied their fuel requirements using on-site storage
tanks can eliminate the capital expenditures and operating costs
required to equip and maintain fuel storage and dispensing facilities
and inventory and to comply with increasingly stringent environmental
regulations. In addition, by removing on-site storage tanks and relying
on mobile fueling, customers avoid potential liabilities associated with
the handling and storage of fuel.
- Prevents Fuel Theft. Fleet operators that rely on employees to fuel
vehicles, whether at on-site facilities or at retail gas stations, often
experience shrinkage of fuel inventories or excess fuel purchases due to
employee fraud. The Company's fuel management system reduces the risk of
employee theft by dispensing fuel only to authorized vehicles. Utilizing
an independent contractor such as the Company for fueling services
rather than allowing employees to purchase fuel at local retail stations
also eliminates employee fraud due to credit card abuse.
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- Emergency Fuel Supplies. Emergency preparedness, including fuel
availability, is critical to the operation of utilities, delivery
services and other fleet operators. The Company provides access to
emergency fuel supplies to allow customers to respond more effectively
to severe local weather conditions or other emergency situations.
- Comparable Pricing. The Company generally prices its fueling services at
rates comparable to the retail market price of gasoline and diesel fuel.
This has proven to be an effective inducement to cause customers to
convert to mobile fueling services from on-site and credit card based
fueling methods.
MARKETING AND CUSTOMERS
The Company markets its services primarily to customers which operate
large fleets of vehicles in connection with their business (such as governmental
agencies, utilities, major trucking lines, hauling and delivery services and
national courier services). The Company also seeks to obtain the business of
smaller fleet operators which are in geographical proximity to its larger
customers. Once engaged to provide fueling services, the Company is usually the
exclusive service for the fueling of a customer's entire fleet or a particular
yard of vehicles. For potential customers with larger fleets, the Company
generally obtains approval from regional corporate offices to supply fuel within
a newly designated area. Whereas large fleet operators offer immediate market
penetration on a regional basis, small fleet operators are equally important
accounts because they provide geographic density which optimizes fuel delivery
efficiency and minimizes cost.
The Company's sales representatives focus their marketing efforts on
fleet operators within the Company's established service areas. The Company's
sales representatives identify and directly contact candidates for the Company's
services. Some of the Company's sales presentations, particularly to major fleet
operators, are conducted by Stanley H. Streicher, the Company's President.
Direct marketing, including telephone solicitation, has played a primary role in
the Company's development of new business. Another important marketing source
has been referrals from existing customers.
The Company distributes gas and diesel fuel to approximately 220
customers. Florida Power & Light Company and the United States Postal Service
each accounted for more than 10% of the Company's revenue in the years ended
January 31, 1997 and 1996. Although the Company has contracts to provide mobile
fueling services to several of its larger customers, generally the Company does
not obtain written agreements with its customers.
The following table identifies certain of the Company's significant
customers, along with the number of customer locations serviced and the states
in which the Company provides mobile fueling services to such customers:
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<TABLE>
<CAPTION>
NUMBER OF
CUSTOMER NAME LOCATIONS STATES
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<S> <C> <C>
ABF Freight 5 Florida, Georgia, Tennessee and Texas
Armstrong Air Freight 4 Florida
BellSouth 108 Florida
BFI 2 California and Tennessee
Coca Cola 21 California and Florida
Consolidated Freight 4 Florida and Georgia
Conway Southern Express 2 Florida and Tennessee
Edward Dow Foods 2 Florida
Emery Freight 5 Florida, Georgia and Tennessee
Federal Express 5 Florida
Ferguson Enterprises 23 Florida, Georgia and Tennessee
Florida Power Corp. 14 Florida
Florida Power & Light Co. 118 Florida
Foodmaker 1 California
Frito-Lay, Inc. 10 Florida
Georgia Pacific 2 Florida
Gulfside Supply 18 Florida
Marriott Distribution 1 Texas
Office Depot 6 California and Florida
Pepsi Cola 5 California and Florida
Roadway Express 25 California, Florida and Georgia
SouthEastern Freight 4 Florida and Texas
USF Dugan 6 Florida, Georgia and Texas
U.S. Postal Service 168 Florida
Waste Management 1 Florida
</TABLE>
OPERATIONS
The Company currently operates from 15 locations in California,
Florida, Georgia, Tennessee and Texas. The Company delivers fuel utilizing its
own fleet of 50 custom fuel trucks, each of which is equipped with the Company's
proprietary electronic fuel tracking and reporting system. The Company's
vehicles have fuel capacities ranging from 2,800 to 4,400 gallons. Each vehicle
services generally between five and 15 customer locations per day or night,
depending on size of the customers, market density and the individual customers'
fuel requirements. Generally, the custom fuel trucks acquire fuel inventory
daily at local port facilities or large wholesale gas distributor locations and
are assigned to a specified delivery route. The Company conducts all dispatch
and billing functions from corporate headquarters. Route drivers and service
personnel operate from all the Company's offices.
The Company's fuel management system derives its data from the Fuel
Tracking Controller (the "FTC Computer"), which is a computer installed on a
customized fuel truck. The FTC Computer can be programmed to control a variety
of truck configurations; single, dual, or triple storage container trucks; and
any number of pumps and hoses attached to the fuel truck. The FTC Computer
details fueling from the Company's trucks to each vehicle in the customer's
vehicle fleet to a measurement of 1/100 of a gallon by reading the
state-calibrated meter installed on the fuel trucks. To accomplish this
measurement, the FTC Computer interfaces with hand-held devices operated by the
Company's driver or operator. The Company currently has a patent application
pending with the United States Patent and Trademark Office for its proprietary
electronic fuel management system, which application has received an indication
of allowable subject matter. There can be no assurance that such patent will be
granted.
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To permit the Company's customers to track their use of fuel, each
fleet vehicle or piece of equipment fueled by the Company is electronically
identified from a list of the customer's asset number previously registered in
the Company's computer. For security and tracking purposes, the FTC Computer
will not permit fuel to be dispensed from the Company's truck unless both the
fleet yard and the individual vehicle to be fueled electronically correspond to
the FTC Computer registration. A hand-held radio connected to a scanning device
links the operator or driver of the fuel truck with the FTC Computer. Only after
verification of both the yard and the truck or piece of equipment will the FTC
Computer allow operation of the fuel pump on the fuel truck to dispense fuel.
All fuel dispensing from a fuel truck is recorded by the FTC Computer
and stored in a tamper free solid state memory cartridge ("SSC") for downloading
at an operations control center where the data is assimilated into reports and
invoices for the customer. The FTC Computer will not allow fuel to be dispensed
unless this removable SSC cartridge is inserted into the FTC Computer. The SSC
has no moving parts and is not susceptible to damage or data loss under normal
conditions. The SSC also is protected by a dual battery back-up system and a
dual disk system to protect data. The Company also maintains a backup computer
system in the event of failure of the primary system.
The Company also has adapted its FTC Computer for use with fixed site
tanks. Upon conversion of a customer tank, the Company services and manages fuel
delivery to the tank and provides the customer with reports detailing fuel
dispensed by the customer from the tank into each fleet vehicle.
FUEL SUPPLY
Gas and diesel fuel are commodities which are processed and sold by
various sources. The Company purchases fuel from several suppliers at spot
market prices and often qualifies for volume discounts. The Company is currently
purchasing fuel from major suppliers. The Company monitors fuel prices and price
trends in each of its markets on a daily basis and seeks to purchase at the
lowest available prices with the best terms satisfactory to the Company.
CUSTOM FUEL TRUCK PURCHASES
The Company presently orders and purchases custom fuel trucks from two
manufacturers of trucks suitable for the Company's operations. These companies
provide their customers with the option of purchasing standard equipment fuel
trucks or custom designing a fuel truck to particular specifications. The
typical configuration of the Company's custom fuel trucks is a Ford L-9000 with
a 4,400 gallon multi-compartment aluminum tank, a vapor recovery system and the
Company's proprietary FTC Computer, which records and regulates fuel flow from
the storage compartments. For maintenance of the fuel trucks, the Company relies
upon equipment warranties, fixed fee service contracts and on-site repairs. To
date, the Company has not experienced significant down-time on any of its
customized fuel trucks.
COMPETITION
The Company competes with other distributors of fuel, including several
regional distributors and numerous small independent operators. Some of the
Company's competitors have significantly greater financial or marketing
resources than the Company. The Company's competitors also could introduce
services that are superior to the Company's or that achieve greater market
acceptance. The Company also competes for customers whose drivers fuel their own
vehicles at retail gas stations. Although there is no market data available for
the mobile fueling industry, the Company believes it has
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no major competitors in its principal markets (e.g., regions where the Company
services between approximately 2,000 and 6,000 vehicles weekly and delivers
between approximately 150,000 and 250,000 gallons of fuel per week). The Company
could encounter potential competition from a number of well capitalized
companies which distribute fuel and other similar oil products, some of which
are larger, more established and have greater financial, marketing and other
resources than the Company. In addition, some of the Company's customers are
capable of providing the same services to their vehicles directly. The Company
believes that its ability to compete depends on a number of factors, including
price, reliability, credit terms, name recognition, delivery time and service
and support. There can be no assurance that the Company will be able to continue
to compete successfully with respect to these factors.
EMPLOYEES
At April 15, 1997, the Company had 140 full-time employees, of whom 27
were involved in executive, managerial, supervisory and sales capacities, 95
were route drivers and 18 served in various clerical and other capacities. None
of the Company's employees is covered by a collective bargaining agreement or is
a member of a union. The Company considers its relationship with its employees
to be good.
GOVERNMENTAL REGULATION
The Company's operations are affected by numerous federal, state and
local laws, including those relating to protection of the environment and worker
safety. The transportation of gasoline and diesel fuel is subject to regulation
by various federal, state and local agencies, including the U.S. Department of
Transportation ("DOT"). These regulatory authorities have broad powers, and the
Company is subject to regulatory and legislative changes that can affect the
economics of the industry by requiring changes in operating practices or
influencing the demand for, and the cost of providing, its services. The
regulations provide that, among other things, the Company's drivers must possess
a commercial drivers license with a hazardous materials endorsement thereon. The
Company is also subject to the rules and regulations of the Hazardous Materials
Transportation Act. For example, the Company's drivers and their equipment must
comply with DOT's pre-trip inspection rules, documentation regulations
concerning hazardous materials (i.e., certificates of shipments which describe
type and amount of product transported), and limitations on the amount of fuel
transported as well as driver time limitations. Additionally, the Company is
subject to DOT inspections which occur at random intervals. Any material
violation of DOT rules or the Hazardous Materials Transportation Act may result
in citations and/or fines upon the Company. In addition, the Company depends on
the supply of gasoline and diesel fuel from the oil and gas industry and,
therefore, is affected by changing taxes, price controls and other laws and
regulations relating to the oil and gas industry generally. The Company cannot
determine the extent to which its future operations and earnings may be affected
by new legislation, new regulations or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct of or conditions caused by others, or for acts of the Company that
were in compliance with all applicable laws at the time such acts were
performed. Sanctions for noncompliance may include revocation of permits,
corrective action orders, administrative or civil penalties and criminal
prosecution. Certain environmental laws provide for joint and several liability
for remediation of spills and releases of hazardous substances. In addition,
companies may be subject to claims alleging personal
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injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources.
Although the Company believes that it is in substantial compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred in the future. There could be an adverse
affect upon the Company's operations if there were any continuing substantial
violations of these rules and regulations. Moreover, it is possible that other
developments, such as stricter environmental laws, regulations and enforcement
policies thereunder, could result in additional, presently unquantifiable, costs
or liabilities to the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in a 10,000 square
foot facility in Fort Lauderdale, Florida. This facility accommodates the
Company's corporate, administrative, marketing and sales personnel, as well as
truck yard space and warehouse space. The lease expires July 31, 2014, and the
fixed annual rent is $59,000. The Company also leases service and supply depots
at the following locations: California (San Bernadino, San Diego and Gardenia);
Florida (Ft. Myers, Jacksonville, Melbourne, Orlando, Tallahassee and Tampa);
Georgia (Atlanta and Columbus); Tennessee (Kingsport and Chattanooga); and Texas
(Dallas/Fort Worth). Certain of the Company's facilities are leased from Stanley
H. Streicher, the Company's President and Chief Executive Officer. The Company
believes that its existing facilities are adequate for its current needs and
that additional facilities in its existing service areas are available to meet
future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material legal proceedings pending. From time to
time, the Company may become a party to litigation incidental to its business.
There can be no assurance that any future legal proceedings will not have a
material adverse effect on the Company's business, reputation, financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $.01 ("Common Stock") and
Redeemable Common Stock Purchase Warrants ("Warrants") have traded in the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
Small-Cap Market under the symbols "FUEL" and "FUELW", respectively, since
December 11, 1996, the date of the Company's initial public offering. The
Company's securities are also traded on the Chicago Stock Exchange. The
following table sets forth, for the periods indicated, the high and low closing
bid quotations for the Common stock and Warrants, as reported by NASDAQ. The
NASDAQ quotations represent quotations between dealers without adjustment for
retail markups, markdowns or commissions and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1997 HIGH LOW
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<S> <C> <C>
COMMON STOCK
4th Quarter $8.625 $ 7.75
WARRANTS
4th Quarter $ 3.25 $1.875
</TABLE>
As of April 15, 1997, there were 7 holders of record of the Company's
Common Stock. The Company believes there are in excess of 300 beneficial owners
of the Company's Common Stock. On April 15, 1997, the closing bid price of the
Common Stock was $8.875 per share and the closing bid price of the Warrants was
$3.25 per Warrant.
To date, the Company has not declared or paid any dividends on its
Common Stock. The payment of dividends, if any, is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition and other relevant factors. The Board of
Directors does not intend to declare any dividends in the foreseeable future,
but instead intends to retain future earnings for use in the Company's business
operations.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Plan of Operations contains "forward-looking statements" which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors, including those set forth under the caption "Certain Factors
Affecting Future Operating Results," below, and elsewhere in this Form 10-KSB.
The following discussion also should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this Form 10-KSB.
GENERAL
The Company was incorporated in the State of Florida in October 1996.
Prior to the effective date of the Company's registration statement for its
initial public offering on December 11, 1996, the Company's business was
conducted through the Mobile Fueling Division of Streicher Enterprises, Inc.,
which began mobile fueling operations in 1983. Streicher Enterprises, Inc.
("Enterprises") completed a corporate reorganization as of such effective date,
pursuant to which the Mobile Fueling Division of Enterprises transferred its
assets, liabilities and operations to the Company. Enterprises is wholly owned
by the president of the Company and currently owns 52.4% of the outstanding
common stock of the Company. Such corporate reorganization has been
retroactively reflected in the Company's Financial Statements and notes thereto
as if such transfer had occurred at inception of the former Mobile Fueling
Division. See Note 1 of Notes to the Company's Financial Statements included
elsewhere in this Form 10-KSB.
The Company derives all of its revenue from providing mobile fueling
services. Revenue is comprised principally of sales of gasoline and diesel fuel
and related service charges. Cost of sales is comprised principally of the cost
of fuel and transportation costs (primarily payroll). Included in both revenue
and cost of sales are federal and state fuel taxes, which are collected by the
Company from its customers, when required, and remitted to the appropriate
taxing authority.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1997 AND 1996
Revenue increased $9,856,000, or 41.1%, for the year ended January 31,
1997 ("fiscal 1997") compared to the year ended January 31, 1996 ("fiscal
1996"). Excluding fuel taxes, revenue increased $7,961,000, or 50.4%. The
Company delivered approximately 26.0 million gallons of fuel to its customers in
fiscal 1997, an increase of 31.3% over the approximately 19.9 million gallons
delivered in fiscal 1996. The increase in revenue resulted from a higher volume
of fuel sales due to increased services to existing customers, acquisition of
new customers in existing locations, the introduction of mobile fueling
operations into additional metropolitan areas and an overall increase in the
wholesale price of gasoline and diesel fuel.
Gross profit increased $149,000, or 6.7%, in fiscal 1997 compared to
fiscal 1996, primarily as a result of the increase in revenue. The fiscal 1997
increase in gross profit was lower than the corresponding increase in revenues
due in part to a decrease in service charges per gallon during the fiscal year
in response to competitive conditions. As a percentage of revenue, gross profit
decreased from 9.3% in fiscal 1996 to 7.1% in fiscal 1997, primarily as a result
of an overall increase in the wholesale prices of gasoline and diesel fuel.
Because the Company sells fuel to its customers at fixed amounts over its
wholesale cost, the increase in fuel prices resulted in lower gross margins as a
percentage of revenue. In addition,
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an increase in driver payroll costs included in cost of sales associated with
expansion into new markets and underutilization of equipment in such markets
adversely impacted the Company's gross margin in fiscal 1997.
Operating expenses increased $894,000, or 51.0%, in fiscal 1997
compared to fiscal 1996. As a percentage of revenue, operating expenses
increased from 7.3% in fiscal 1996 to 7.8% in fiscal 1997. The increase in
operating expenses primarily resulted from an increase in payroll and related
administrative costs associated with the addition of personnel to support
expansion of the Company's mobile fueling operations.
Interest expense increased $88,500, or 25.7%, in fiscal 1997 compared
to fiscal 1996 as a result of increased borrowings to fund the Company's
expansion into new markets and to acquire new custom fuel trucks for existing
and new locations.
The Company recorded an income tax benefit of $233,000 in fiscal 1997
compared to an income tax provision of $75,000 in fiscal 1996. Income taxes were
recorded at effective tax rates of 35.1% and 43.3% in fiscal 1997 and fiscal
1996, respectively, which differ from the statutory rates in effect for such
periods due to permanent differences. See Note 9 of Notes to the Company's
Financial Statements included elsewhere in this Form 10-KSB.
The Company had a net loss of $429,000, or $.26 per share, in fiscal
1997 and net income of $99,000, or $.07 per share, in fiscal 1996. The Company's
net loss in fiscal 1997 resulted primarily from the Company's expansion into new
markets, underutilization of equipment in such markets and increases in
personnel, equipment and facilities to support current and future growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed an initial public offering of its Common Stock
and Warrants in December 1996 and realized approximately $5,000,000 in net
proceeds. The Company utilized a portion of the net proceeds to repay
approximately $1,900,000 of its credit facility. The Company had working capital
of $2,495,000 as of January 31, 1997 and $737,000 as of January 31, 1996. The
increase in working capital was principally due to the receipt of proceeds from
the Company's initial public offering.
The Company's primary long-term and working capital requirements have
been to fund capital expenditures for custom fuel trucks and related equipment
and working capital for its inventory requirements and the financing of customer
accounts receivable. The Company's expansion over the past several years and its
negative cash flows from operating activities have been financed by additional
bank borrowings and lease financing. In the past, the Company has financed
approximately between 85% and 95% of the purchase price of fuel trucks.
Presently, the Company is unable to estimate the amount of cash required for the
purchase of additional fuel trucks because such amount will be dependent upon
the terms and conditions of financing, if any, available to the Company at the
time of purchase. The Company's cash and unrestricted investments totaled
$2,898,000 as of January 31, 1997. In addition, at January 31, 1997, the Company
had $1,296,000 available under its revolving line of credit.
The Company has a credit facility with BankAtlantic providing for a
$2.7 million revolving line of credit which the Company utilizes to purchase
custom fuel trucks and for working capital. Borrowings are subject to a
borrowing base determined by eligible accounts receivable and bear interest
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at 1.5% per annum over the prime rate. The facility is secured by substantially
all of the Company's assets (including accounts receivable). The credit facility
contains covenants that, among other things, include the maintenance of a
minimum tangible net worth of $375,000, restricts mergers, dispositions of
assets and certain business acquisitions. As of January 31, 1997, management
believes that the Company was in compliance with these financial covenants and
restrictions. See Note 4 of Notes to the Company's Financial Statements included
elsewhere in this Form 10-KSB.
Net cash used in operating activities totaled $1,001,000 in fiscal 1997
and $298,000 in fiscal 1996. Cash flows from operating activities have been
adversely affected by the Company's net losses as well as the funding of a
continually increasing number of accounts receivable resulting from the
Company's expansion. The Company has experienced an increase of approximately 8
days in the average period of time for accounts receivable collection from 39
days at fiscal year end January 31, 1996 to 47 days at fiscal year end January
31, 1997. The effect on cash flow increase in number of days outstanding is
unfavorably influenced by the increase in fuel costs and fuel taxes. The Company
is taking steps to improve its cash flows from operating activities, including
improving accounts receivable collection methods; increasing the prices of
certain of the Company's services; introducing a new daytime delivery service at
an hourly rate; eliminating certain unprofitable services; and revising certain
routes to increase truck utilization.
Net cash used in investing activities totaled $827,000 in fiscal 1997
and $1,088,000 in fiscal 1996. Cash flows used in investing activities in all
periods principally represents expenditures for the purchase of custom fuel
trucks and related equipment. In the past, the Company has financed
approximately between 85% and 95% of the purchase price of fuel trucks.
Net cash provided by financing activities totaled $4,486,000 in fiscal
1997 and $1,318,000 in fiscal 1996. Cash flows from financing activities in
fiscal 1997 principally represented the receipt of the net proceeds from the
issuance of Common Stock and Warrants in the Company's initial public offering.
Cash flows from financing activities in fiscal 1996 principally represented an
increase in net borrowings under the Company's line of credit and borrowings
under long-term debt.
The Company currently has no outstanding material commitments for
capital expenditures. The Company's primary requirements for capital will be
acquisitions, marketing and sales costs associated with the Company's national
expansion into new target markets, costs related to the Company's services and
general and administrative expenses associated with the Company's plan for
expansion.
RECENT ACCOUNTING PRONOUNCEMENTS
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes
accounting standards to account for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. There was no effect on the Company's financial position or results
of operations upon the adoption of SFAS No. 121.
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 establishes a fair value method for
accounting for stock-based compensation plans either through recognition in the
financial statements or footnote disclosure. The Company has elected to continue
to account for stock option grants in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, has not recognized compensation expense for stock option grants
made at an exercise price equal to or in excess of the fair market value at the
date of grant. Changes in the accounting for stock-based compensation are
optional and the Company has only adopted the disclosure requirements of SFAS
No. 123 as of January 31, 1997.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share" which requires adoption by the Company as of
January 31, 1998. SFAS No. 128 simplifies the accounting for earnings per share
presenting basic earnings per share including only outstanding common stock and
diluted earnings per share including the effect of dilutive common stock
equivalents. The Company's basic and diluted earnings per share are the same, as
the Company's common stock
12
<PAGE> 13
equivalents are antidilutive. In addition, the Company's basic and diluted
earnings per share are the same as that computed under APB No. 15, "Earnings Per
Share", as presented in the accompanying statements of operations. SFAS No. 128
must be adopted as of January 31, 1998 and be retroactively reflected in the
financial statements.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The following important factors have affected, and may in the future
continue to affect, the Company's business, results of operations and financial
condition, and could cause the Company's operating results to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company.
LOSSES FROM OPERATIONS; ACCUMULATED DEFICIT; NO ASSURANCES OF
PROFITABILITY. Although the Company operated profitably in the fiscal year ended
January 31, 1996, the Company experienced net losses in the year ended January
31, 1995 and in the year ended January 31, 1997 of $50,000 and $429,000,
respectively, and there can be no assurance that the Company will not incur net
losses in the future. The Company had an accumulated deficit of $305,000 at
January 31, 1997. The Company's expansion over the past several years and its
negative cash flows from operating activities have been financed by additional
bank borrowings, lease financing and, subsequent to the Company's initial public
offering, the net proceeds from the issuance of Common Stock and Warrants in
that offering. The Company's operating expenses have increased as its business
has grown and can be expected to increase significantly as a result of the
Company's expansion efforts into new markets. There can be no assurance that the
Company will be able to generate sufficient revenue to meet its operating
expenditures or to operate profitably.
NEED FOR CAPITAL. The mobile fueling business is capital intensive and
the Company will continue to require substantial capital in order to operate and
expand its business. The Company's primary long-term and working capital
requirements have been to fund capital expenditures for custom fuel trucks and
related equipment and working capital for its inventory requirements and the
financing of customer accounts receivable. Historically, the Company has
depended primarily on debt financing for its purchases of custom fuel trucks. If
the Company is unable to obtain additional equity or debt financing in the
future, the Company may have to limit its growth. The Company expects that its
debt will increase in the future as the Company utilizes borrowed funds to
acquire new vehicles, for acquisitions, working capital or other corporate
purposes.
GROWTH DEPENDENT UPON EXPANSION; RISKS ASSOCIATED WITH EXPANSION INTO
NEW MARKETS. A significant element of the Company's future growth strategy
involves the expansion of the Company's business into new markets. The Company
intends to expand its business into additional major metropolitan areas.
Expansion of the Company's operations will be dependent on, among other things,
the Company's ability to demonstrate the benefits of mobile fueling to potential
new customers; successfully establish and operate new locations; hire and retain
qualified management; marketing and other personnel; obtain adequate financing
for vehicle purchases and working capital purposes; secure adequate sources of
supply on a timely basis and on commercially reasonable terms and successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective quality controls). The Company's growth prospects will be
largely dependent upon its ability to achieve greater penetration in new
markets. The Company may also seek to expand its operations through the
acquisition of existing companies or their customer bases. There can be no
assurance that the Company will be able to successfully expand its operations.
13
<PAGE> 14
ACQUISITION AVAILABILITY; DIFFICULTY IN ASSIMILATING ACQUISITIONS. An
important element of the Company's future growth strategy involves the
acquisition of fuel distributors in new and existing markets. Although the
Company intends to pursue acquisition opportunities as a means of achieving its
growth objectives, there can be no assurance that the Company will be able to
locate or acquire suitable acquisition candidates on acceptable terms or that
future acquired operations will be effectively and profitably integrated into
the Company. Acquisitions involve a number of risks that could adversely affect
the Company's operating results, including diverting management attention, the
assimilation of the operations and personnel of the acquired operations, the
amortization of acquired intangible assets and the potential loss of key
employees of the acquired operations. Properly managing any growth through
acquisitions, avoiding the problems often attendant therewith, and continuing to
operate in the manner which has proven successful to the Company to date will be
important to the future success of the Company's business.
RISKS ASSOCIATED WITH CUSTOMER CONCENTRATION; ABSENCE OF WRITTEN
AGREEMENTS. Revenue from two major customers was approximately $3,741,000 and
$4,373,000 in fiscal 1997 and $3,071,000 and $2,692,000 in fiscal 1996,
respectively. Although the Company has contracts to provide mobile fuel services
to several of its larger customers, most of the Company's customers do not have
written agreements with the Company and can terminate the Company's mobile
fueling services at any time and for any reason. As a result of this customer
concentration and absence of written agreements, the Company's business, results
of operations and financial condition could be materially adversely affected by
the loss of one or more of its major customers or if the Company were to
experience a high rate of contract terminations.
LIMITED AVAILABILITY OF MANAGERIAL PERSONNEL. The Company has
experienced significant growth over the past several years. For the Company to
be able to continue to grow effectively it will need to continue to improve its
operational, financial and other internal systems, and to attract, train,
motivate, manage and retain its employees. If the Company is unable to manage
growth effectively, the Company's results of operations could be adversely
affected.
COMPETITION. The Company competes directly and indirectly with other
distributors of fuel, including several regional distributors and numerous small
independent operators. Some of the Company's competitors have significantly
greater financial or marketing resources than the Company. The Company's
competitors also could introduce services that are superior to the Company's or
that achieve greater market acceptance. The Company also competes for customers
whose drivers fuel their own vehicles at retail gas stations. Although there is
no market data available for the mobile fueling industry, the Company believes
it has no major competitors in its principal markets (e.g., regions where the
Company services between approximately 2,000 and 6,000 vehicles weekly and
delivers between approximately 150,000 and 250,000 gallons of fuel per week).
The Company could encounter potential competition from a number of well
capitalized companies which distribute fuel and other similar oil products, some
of which are larger, more established and have greater financial, marketing and
other resources than the Company. In addition, some of the Company's customers
are capable of providing the same services to their vehicles directly. The
Company believes that its ability to compete depends on a number of factors,
including price, reliability, credit terms, name recognition, delivery time and
service and support. There can be no assurance that the Company will be able to
continue to compete successfully with respect to these factors.
FUEL PRICING; EFFECT ON PROFITABILITY. Gasoline and diesel fuel are
commodities and, as such, their wholesale prices are subject to fluctuations in
response to changes in supply or other market conditions over which the Company
has no control. Because the Company sells fuel to its customers at
14
<PAGE> 15
fixed amounts over its wholesale cost, the Company's gross profit as a
percentage of revenue may fluctuate as a result of changes in wholesale gasoline
and diesel fuel prices. Currently, the Company does not engage in derivatives or
futures trading to hedge fuel price movements.
DEPENDENCE ON SUPPLIERS OF CUSTOM FUEL TRUCKS; FEW SOURCES OF SUPPLY.
The Company currently orders and purchases custom fuel trucks from two
manufacturers. Any event adversely affecting the supply and manufacture of these
trucks, including the inability of such manufacturers to meet the Company's
demand for new truck purchases, could have a material adverse effect on the
Company's operations. The Company has no control over the manufacturing process,
quality assurance or the timing of delivery of trucks. The Company also does not
have any contracts or other written agreement with the manufacturers of custom
fuel trucks for the purchase of such vehicles. Additionally, the Company may
from time to time make purchases of previously owned fuel trucks and convert
such trucks to the Company's specifications. However, there can by no assurance
that such trucks will be available in the market for purchase by the Company.
OPERATING RISKS MAY NOT BE COVERED BY INSURANCE. The Company's
operations are subject to all of the operating hazards and risks normally
incidental to handling, storing and transporting gasoline and diesel fuel, which
are classified as hazardous materials. The Company maintains insurance policies
in such amounts and with such coverages and deductibles as the Company believes
are reasonable and prudent. However, there can be no assurance that such
insurance will be adequate to protect the Company from liabilities and expenses
that may arise from claims for personal and property damage arising in the
ordinary course of business or that such levels of insurance will be maintained
by the Company or will be available at economical prices.
GOVERNMENTAL REGULATION. The Company's operations are affected by
numerous federal, state and local laws, including those relating to protection
of the environment and worker safety. The transportation of gasoline and diesel
fuel is subject to regulation by various federal, state and local agencies,
including the DOT. These regulatory authorities have broad powers, and the
Company is subject to regulatory and legislative changes that can affect the
economics of the industry by requiring changes in operating practices or
influencing the demand for, and the cost of providing, its services. The
regulations provide that, among other things, the Company's drivers must possess
a commercial drivers license with a hazardous materials endorsement thereon. The
Company is also subject to the rules and regulations of the Hazardous Materials
Transportation Act. For example, the Company's drivers and their equipment must
comply with DOT's pre-trip inspection rules, documentation regulations
concerning hazardous materials (i.e., certificates of shipments which describe
type and amount of product transported), and limitations on the amount of fuel
transported as well as driver time limitations. Additionally, the Company is
subject to DOT inspections which occur at random intervals. Any material
violation of DOT rules or the Hazardous Materials Transportation Act may result
in citations and/or fines upon the Company. In addition, the Company depends on
the supply of gasoline and diesel fuel from the oil and gas industry and,
therefore, is affected by changing taxes, price controls and other laws and
regulations relating to the oil and gas industry generally. The Company cannot
determine the extent to which its future operations and earnings may be affected
by new legislation, new regulations or changes in existing regulations. The
technical requirements of these laws and regulations are becoming increasingly
expensive, complex and stringent. These laws may impose penalties or sanctions
for damages to natural resources or threats to public health and safety. Such
laws and regulations may also expose the Company to liability for the conduct of
or conditions caused by others, or for acts of the Company that were in
compliance with all applicable laws at the time such acts were performed.
Sanctions for noncompliance may include revocation of permits, corrective action
orders, administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for joint and several
15
<PAGE> 16
liability for remediation of spills and releases of hazardous substances. In
addition, companies may be subject to claims alleging personal injury or
property damage as a result of alleged exposure to hazardous substances, as well
as damage to natural resources. Although the Company believes that it is in
substantial compliance with existing laws and regulations, there can be no
assurance that substantial costs for compliance will not be incurred in the
future. There could be an adverse affect upon the Company's operations if there
were any continuing substantial violations of these rules and regulations.
Moreover, it is possible that other developments, such as stricter environmental
laws, regulations and enforcement policies thereunder, could result in
additional, presently unquantifiable, costs or liabilities to the Company.
CHANGES IN ENVIRONMENTAL REQUIREMENTS. The Company expects to derive a
significant amount of its future business by converting to mobile fueling
customers fleet operators that currently utilize underground fuel storage tanks
for their fueling needs. Under current federal regulations, the owners of such
underground storage tanks are required, by December 1998, to remove or retrofit
such tanks to comply with technical requirements pertaining to their
construction and operation. If the date for compliance with such regulations is
extended, or if other, more economical means, of compliance are developed or
adopted by owners of underground storage tanks, the opportunity for the Company
to market its services to such persons may be adversely affected.
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the continued services and efforts of Stanley H. Streicher, the
Company's President and Chief Executive Officer, and other key personnel. The
loss of the services of Mr. Streicher or certain other key personnel could have
a material adverse effect on the Company's business and prospects. The Company
currently maintains a $2 million key-man life insurance policy on the life of
Mr. Streicher, under which the Company is the beneficiary. The Company's success
and plans for future growth will also depend on its ability to attract and
retain additional qualified management and other personnel. There can be no
assurance that the Company will be able to hire or retain such personnel on
terms satisfactory to the Company. Mr. Streicher and the Company have entered
into an employment agreement which is automatically renewable unless otherwise
terminated. The Company has no other employment agreements with its other key
personnel.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company required by Form 10-KSB are
attached following Part III of this report, commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 17
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The executive officers of the Company as of May 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stanley H. Streicher................... 54 President, Chief Executive Officer, Director and
Founder
Timothy Koshollek...................... 33 Vice President of Marketing and Operations
</TABLE>
Mr. Streicher has served as President and Chief Executive Officer of
the Company since its inception. Mr. Streicher has also served as the President
and Chief Executive Officer of Streicher Enterprises, Inc. ("Enterprises"), the
Company's predecessor, since its inception in 1983. From 1979 to 1983, Mr.
Streicher operated a mobile fueling business which became the Company's
predecessor. From 1972 to 1979, Mr. Streicher served as supervisor of receiving
of AT&T's Montgomery Material Management Center, where he designed systems to
expedite material and equipment handling. From 1965 to 1972, Mr. Streicher
served to the rank of Captain in the United States Military in various
leadership capacities, including the command of an aviation division together
with the responsibility for scheduling aircraft and their refueling.
Mr. Koshollek has served as the Vice President of Marketing and
Operations of Enterprises since 1994. From 1991 to 1994, Mr. Koshollek was
responsible for sales and management of a wholesale seafood company. From 1989
to 1991, he was the operations manager of Enterprises responsible for its
Southeast division fuel delivery operations.
Effective April 25, 1997, William Tetsworth resigned as the Company's
Chief Financial Officer, a position he had held since January 1997. The Company
currently is seeking a qualified individual to fill that position.
The information required by this item concerning the Company's
directors and compliance with Section 16(b) of the Exchange Act is incorporated
by reference from the Company's Definitive Proxy Statement in connection with
its 1997 Annual Meeting of Shareholders to be filed with the Commission pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 1997 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
17
<PAGE> 18
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 1997 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the Company's Definitive Proxy Statement in connection with its 1997 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
report.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE NO.
-------- ----------- --------
<S> <C> <C>
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Form of Common Stock Certificate (1)
4.2 Form of Redeemable Common Stock Purchase Warrant (1)
4.3 Underwriters' Purchase Option Agreement between the Registrant and Argent
Securities, Inc. (1)
4.4 Warrant Agreement between the Registrant and American Stock Transfer & Trust Company
(1)
10.1 Employment Agreement between the Registrant and Stanley H. Streicher (2) (1)
10.2 Registrant's Stock Option Plan (2) (1)
27.1 Financial Data Schedule (3)
</TABLE>
- -----------------------------
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form SB-2 (No. 333-11541)
(2) Management Contract or Compensatory Plan
(3) For SEC use only
(b) Reports on Form 8-K
None.
18
<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STREICHER MOBILE FUELING, INC.
Dated: May 1, 1997 By: /s/ Stanley H. Streicher
---------------------------------------
Stanley H. Streicher, Chairman of the
Board and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Stanley H. Streicher
Dated: May 1, 1997 ------------------------------------------
Stanley H. Streicher, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer)
/s/ E. Scott Golden
Dated: May 1, 1997 ------------------------------------------
E. Scott Golden, Director
/s/ Joseph M. Murphy
Dated: May 1, 1997 ------------------------------------------
Joseph M. Murphy, Director
Dated: May 1, 1997 ------------------------------------------
John H. O'Neil, Director
/s/ L. Phillips Reames
Dated: May 1, 1997 ------------------------------------------
L. Phillips Reames, Director
19
<PAGE> 20
INDEX TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants............................................. F-2
Balance Sheets as of January 31, 1997 and 1996................................................. F-3
Statements of Operations for the Years Ended January 31, 1997 and 1996......................... F-4
Statements of Changes in Shareholders' Equity for the Years Ended
January 31, 1997 and 1996 ............................................................. F-5
Statements of Cash Flows for the Years Ended January 31, 1997 and 1996.......................... F-6
Notes to Financial Statements................................................................... F-7
</TABLE>
F-1
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Streicher Mobile Fueling, Inc.:
We have audited the accompanying balance sheets of Streicher Mobile Fueling,
Inc. (a Florida corporation) as of January 31, 1997 and 1996, and the related
statements of operations, changes in shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Streicher Mobile Fueling, Inc.
as of January 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
April 18, 1997.
F-2
<PAGE> 22
STREICHER MOBILE FUELING, INC.
BALANCE SHEETS
JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,848,000 $ 189,508
Investments (restricted $66,000 and $63,000, respectively) 115,751 203,743
Accounts receivable, net of allowance for doubtful accounts of
$51,000 and $28,000, respectively 4,352,761 2,592,559
Inventories 76,961 77,193
Prepaid expenses and other current assets 254,548 100,790
------------ ----------
Total current assets 7,648,021 3,163,793
PROPERTY AND EQUIPMENT, net 3,368,779 3,124,665
NOTE RECEIVABLE FROM ENTERPRISES 319,043 32,298
OTHER ASSETS 67,127 37,180
------------ ----------
Total assets $ 11,402,970 $6,357,936
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ 1,404,469 $ --
Current portion of long-term debt 632,028 471,404
Current portion of capital lease obligations 108,824 131,766
Accounts payable 2,411,031 1,322,126
Accrued expenses 426,818 337,234
Customer deposits 169,670 163,844
------------ ----------
Total current liabilities 5,152,840 2,426,374
LONG-TERM LIABILITIES:
Line of credit -- 1,802,795
Long-term debt, excluding current portion 1,017,795 1,116,701
Capital lease obligations, excluding current portion 105,703 253,241
Deferred income taxes 165,219 373,759
------------ ----------
Total liabilities 6,441,557 5,972,870
------------ ----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 10)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
2,575,000 and 1,500,000 shares issued and outstanding,
respectively 25,750 15,000
Additional paid-in capital 5,220,758 238,588
Unrealized gain on investment 19,737 7,072
Retained (deficit) earnings (304,832) 124,406
------------ ----------
Total shareholders' equity 4,961,413 385,066
------------ ----------
Total liabilities and shareholders' equity $ 11,402,970 $6,357,936
============ ==========
</TABLE>
The accompanying notes to financial statements are an integral part
of these balance sheets.
F-3
<PAGE> 23
STREICHER MOBILE FUELING, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUE, including fuel taxes of
$10,090,000 and $8,195,000, respectively $ 33,844,969 $ 23,989,358
COST OF SALES 31,458,794 21,752,350
------------ ------------
Gross profit 2,386,175 2,237,008
OPERATING EXPENSES 2,646,537 1,752,485
------------ ------------
(Loss) income from operations (260,362) 484,523
INTEREST EXPENSE 432,498 343,967
INTEREST INCOME 31,071 33,219
------------ ------------
(Loss) income before benefit (provision)
for income taxes (661,789) 173,775
BENEFIT (PROVISION) FOR INCOME TAXES 232,551 (75,169)
------------ ------------
Net (loss) income $ (429,238) $ 98,606
============ ============
NET (LOSS) INCOME PER SHARE $ (0.26) $ 0.07
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,631,250 1,500,000
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-4
<PAGE> 24
STREICHER MOBILE FUELING, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional Unrealized Retained
------------------- Paid-in Gain on (Deficit)
Shares Amount Capital Investment Earnings Total
------ ------ ------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1995 1,500,000 $15,000 $ 238,588 $ 2,335 $ 25,800 $ 281,723
Net income -- -- -- -- 98,606 98,606
Change in unrealized gain on investment -- -- -- 4,737 -- 4,737
--------- ------- ---------- ------- --------- -----------
BALANCE, January 31, 1996 1,500,000 15,000 238,588 7,072 124,406 385,066
Net loss -- -- -- -- (429,238) (429,238)
Change in unrealized gain on investment -- -- -- 12,665 -- 12,665
Net proceeds from issuance of common
stock and common stock warrants 1,075,000 10,750 4,982,170 -- -- 4,992,920
--------- ------- ---------- ------- --------- -----------
BALANCE, January 31, 1997 2,575,000 $25,750 $5,220,758 $19,737 $(304,832) $ 4,961,413
========= ======= ========== ======= ========= ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-5
<PAGE> 25
STREICHER MOBILE FUELING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (429,238) $ 98,606
Adjustments to reconcile net (loss) income to net cash
used in operating activities-
Loss on disposal of equipment 5,928 --
Depreciation and amortization 391,894 304,796
Deferred income tax (benefit) provision (208,540) 110,641
Changes in operating assets and liabilities:
Accounts receivable, net (1,760,202) (1,105,160)
Inventories 232 (9,119)
Prepaid expenses and other current assets (153,758) (14,239)
Other assets (31,265) (74,055)
Accounts payable 1,088,905 353,318
Accrued expenses 89,584 36,424
Customer deposits 5,826 640
----------- -----------
Net cash used in operating activities (1,000,634) (298,148)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment 100,657 --
Purchase of investment -- (70,432)
Purchases of property and equipment (694,919) (1,103,536)
Proceeds from disposal of equipment 54,301 --
Net (increase) decrease in note receivable from Enterprises (286,745) 85,852
----------- -----------
Net cash used in investing activities (826,706) (1,088,116)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit (398,326) 768,230
Borrowings under long-term debt 1,499,655 1,009,433
Principal payments on long-term debt (1,437,937) (349,901)
Principal payments on capital lease obligations (170,480) (110,132)
Net proceeds from issuance of common stock and common
stock warrants 4,992,920 --
----------- -----------
Net cash provided by financing activities 4,485,832 1,317,630
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,658,492 (68,634)
CASH AND CASH EQUIVALENTS, beginning of year 189,508 258,142
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,848,000 $ 189,508
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for-
Interest $ 457,153 $ 326,661
=========== ===========
Income taxes $ 85,256 $ 53,916
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations originated $ -- $ 96,323
=========== ===========
Unrealized gain on investment $ 12,665 $ 4,737
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-6
<PAGE> 26
STREICHER MOBILE FUELING, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(1) NATURE OF OPERATIONS:
Streicher Mobile Fueling, Inc. (the "Company") was incorporated in the State of
Florida in October 1996. Prior to the effective date of the Company's
registration statement for its initial public offering on December 11, 1996, the
Company's business was conducted through the Mobile Fueling Division of
Streicher Enterprises, Inc. ("Enterprises"), which began mobile fueling
operations in 1983. Enterprises completed a corporate reorganization as of such
effective date, pursuant to which the Mobile Fueling Division of Enterprises
transferred its assets, liabilities and operations to the Company. Such
corporate reorganization has been retroactively reflected in the accompanying
financial statements and notes thereto as if such transfer had occurred at
inception of the former Mobile Fueling Division. Accordingly, retained (deficit)
earnings includes the cumulative results of the former Mobile Fueling Division.
Enterprises is wholly owned by the president of the Company and currently owns
52.4% of the outstanding common stock of the Company.
The Company delivers mechanized mobile fleet fueling and electronic fuel
management primarily to customers that operate large fleets of vehicles (such as
governmental agencies, utilities, major trucking lines, hauling and delivery
services, and national courier services). The Company currently has operations
in Florida, Georgia, Tennessee, Southern California and Texas.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Presentation-
The accompanying financial statements include the assets, liabilities and
operations of the former Mobile Fueling Division of Enterprises on a retroactive
basis as if the transfer discussed in Note 1 had occurred at the date of
inception of the former Mobile Fueling Division.
Included in both revenue and cost of sales in the accompanying statements of
operations are Federal and state fuel taxes. The Company collects such taxes
from its customers, when required, and remits the taxes to the appropriate
taxing authorities.
(b) Cash and Cash Equivalents-
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Included in cash and cash
equivalents in the accompanying balance sheets is interest bearing cash of
approximately $2,800,000 and $141,000 as of January 31, 1997 and 1996,
respectively.
F-7
<PAGE> 27
(c) Investments-
Investments consist of a certificate of deposit, with a maturity of greater than
three months carried at cost which approximates market, and a marketable equity
security reported at market value. The certificate of deposit is collateral for
an irrevocable letter of credit issued under an agreement entered into with a
vendor, on behalf of a customer, for the issuance of credit instruments to
purchase selected products and services. The letter of credit and collateralized
certificate of deposit are required until the credit instruments are returned to
the vendor for cancellation.
The marketable equity security is classified as available-for-sale and is
presented at market value. The unrealized gain, net of income taxes, is recorded
directly as a component of shareholders' equity.
(d) Accounts Receivable-
Accounts receivable is due from companies within a broad range of industries and
is generally unsecured. The Company provides for credit losses based on
management's evaluation of collectibility based on current and historical
performance of the customer.
(e) Inventories-
Inventories, consisting of gasoline and diesel fuel, is carried at cost which
approximates the first-in, first-out method.
(f) Property and Equipment-
Property and equipment is stated at cost less accumulated depreciation and
amortization. Ordinary maintenance and repairs are expensed as incurred.
Improvements which significantly increase the value or useful life of property
and equipment are capitalized. Property and equipment is depreciated or
amortized using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
Years
-----------------------------
<S> <C>
Custom trucks 10
Mobile fuel tanks 25
Machinery and equipment 5
Furniture and fixtures 10
Capital leases and leasehold improvements Lesser of lease
term or useful life
</TABLE>
(g) Income Taxes-
The Company provides Federal and state income taxes at the applicable Federal
and state statutory rates. Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax bases of assets and
liabilities and the amounts recorded for financial reporting purposes. Income
taxes are provided as if the Company had been a separate taxable entity since
inception of the former Mobile Fueling Division.
F-8
<PAGE> 28
(h) Revenue Recognition-
The Company recognizes revenue at the time services are performed and fuel is
delivered.
(i) Use of Estimates-
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(j) Fair Value of Financial Instruments-
The Company's financial instruments, primarily consisting of cash and cash
equivalents, investments, accounts receivable, note receivable from Enterprises,
accounts payable, line of credit, debt and capital lease obligations,
approximate fair value due to their short-term nature or interest rates that
approximate market.
(k) Net (Loss) Income Per Share-
Net (loss) income per share is determined by dividing net (loss) income by the
weighted average common shares outstanding. For all periods presented,
outstanding common shares reflect the reorganization of Enterprises discussed in
Note 1 and the initial issuance of common stock by the Company as if such
reorganization had occurred at inception of the former Mobile Fueling Division.
Common stock equivalents, consisting of employee stock options and common stock
warrants in fiscal 1997, were antidilutive and accordingly, were not included in
the calculation of net loss per share in fiscal 1997. No common stock
equivalents existed in fiscal 1996. Primary and fully diluted earnings per share
are the same for all periods presented herein.
(l) Recent Accounting Pronouncements-
In fiscal 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". SFAS No. 121 establishes accounting
standards to account for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. There was no effect on the Company's financial position or results
of operations upon the adoption of SFAS No. 121.
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans either through recognition in the financial
statements or footnote disclosure. The Company has elected to continue to
account for stock option grants in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and, accordingly,
has not recognized compensation expense for stock option grants made at an
exercise price equal to or in excess of the fair market value at the date of
grant. Changes in the accounting for stock-based compensation are optional and
the Company has only adopted the disclosure requirements of SFAS No. 123 as of
January 31, 1997. See Note 12.
F-9
<PAGE> 29
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which requires adoption by the Company as of January 31,
1998. SFAS No. 128 simplifies the accounting for earnings per share presenting
basic earnings per share including only outstanding common stock and diluted
earnings per share including the effect of dilutive common stock equivalents.
The Company's basic and diluted earnings per share are the same, as the
Company's common stock equivalents are antidilutive. In addition, the Company's
basic and diluted earnings per share are the same as that computed under APB No.
15, "Earnings Per Share", as presented in the accompanying statements of
operations. SFAS No. 128 must be adopted as of January 31, 1998 and be
retroactively reflected in the financial statements.
(m) Reclassifications-
Certain prior year amounts have been reclassified to conform with the current
year presentation.
(3) PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
January 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Custom trucks $1,839,800 $1,559,665
Mobile fuel tanks 990,661 839,819
Machinery and equipment 772,234 649,707
Furniture and fixtures 37,251 34,662
Leasehold improvements 97,350 61,798
Capital leases 597,557 577,074
---------- ----------
4,334,853 3,722,725
Less: accumulated depreciation and amortization 966,074 598,060
---------- ----------
$3,368,779 $3,124,665
========== ==========
</TABLE>
The Company is dependent on two manufacturers for its future custom truck and
mobile fuel tank purchases. The Company does not have any contracts or written
agreements with such manufacturers for the purchase of such equipment in the
future.
(4) LINE OF CREDIT:
As of January 31, 1996, Enterprises had borrowings of $1,802,795 under a
$2,000,000 line of credit agreement with a bank. In July 1996, the line of
credit was increased to $2,700,000. Amounts outstanding under the line of credit
as of January 31, 1997 totaled $1,404,469. As the line of credit is
collateralized by the assets of the Company and repayment will result from the
assets and operations of the Company, such line of credit was fully allocated to
the Company and reflected in the accompanying balance sheets. Interest is
payable monthly at 1.5% over the prime rate (9.75% as of January 31, 1997).
The line of credit matures in August 1997.
Borrowings under the line of credit are secured by substantially all of the
assets of the Company and are guaranteed by the Company and the sole shareholder
of Enterprises. The long-term debt and capital
F-10
<PAGE> 30
lease obligations included in Notes 5 and 6, respectively, are also guaranteed
by the Company and the sole shareholder of Enterprises. Under the terms of the
credit agreement, Enterprises is required to comply with certain financial
covenants and restrictions, including maintaining a minimum tangible net worth
of $375,000. As of January 31, 1997, management believes Enterprises was in
compliance with these financial covenants and restrictions.
(5) LONG-TERM DEBT:
Enterprises is obligated under promissory notes payable which are collateralized
by custom trucks and mobile fuel tanks of the Company; accordingly, the debt is
fully allocated to the Company. Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Commercial loans and promissory notes payable (10% weighted
average fixed interest rate at January 31, 1997) due in monthly
installments with varying maturities through March 2001 $1,097,356 $ 907,137
Promissory notes payable (Prime plus 1.5%, 9.75% at January 31,
1997) due in monthly installments through July 2001 552,467 89,133
Promissory notes payable (Prime plus 2%, 10.25% at January 31,
1997) refinanced in July 1996 -- 591,835
---------- ----------
Total long-term debt 1,649,823 1,588,105
Less: current portion 632,028 471,404
---------- ----------
Long-term debt, excluding current portion $1,017,795 $1,116,701
========== ==========
</TABLE>
Future principal payments on long-term debt are due as follows as of January 31,
1997:
<TABLE>
<CAPTION>
Year Ending January 31,
-----------------------
<S> <C>
1998 $ 632,028
1999 402,416
2000 325,357
2001 272,312
2002 17,710
------------
$ 1,649,823
============
</TABLE>
F-11
<PAGE> 31
(6) CAPITAL LEASE OBLIGATIONS:
Enterprises leases certain equipment and trucks utilized by the Company which
are also fully allocated to the Company and are accounted for as capital leases.
The following is a schedule by year of future minimum lease payments under such
capital leases together with the present value of minimum lease payments as of
January 31, 1997:
<TABLE>
<CAPTION>
Year Ending January 31,
-----------------------
<S> <C>
1998 $ 125,336
1999 85,701
2000 25,708
2001 4,082
------------
Total minimum lease payments 240,827
Less: Amounts representing interest 26,300
------------
Present value of minimum lease
payments 214,527
Less: Current portion 108,824
------------
Long-term portion $ 105,703
============
</TABLE>
(7) MAJOR CUSTOMERS:
Revenue from two major customers (representing over 10% of revenue) was
approximately $3,741,000 and $4,373,000 in fiscal 1997 and $3,071,000 and
$2,692,000 in fiscal 1996, respectively.
(8) RELATED PARTY TRANSACTIONS:
The Company engages in certain transactions with Enterprises. A note receivable
from Enterprises totaled $319,043 and $32,298 as of January 31, 1997 and 1996,
respectively, which bears interest at 8.25 percent annually. Such amounts
represent tax benefits of the Company used by Enterprises and cash advances to
Enterprises and certain expenses of Enterprises paid by the Company prior to its
initial public offering. Interest income includes approximately $13,000 in
fiscal 1997 and $16,000 in fiscal 1996 relating to the note receivable from
Enterprises. The repayment terms of the note receivable from Enterprises are
payments of interest only due annually with a final payment of all accrued
interest and all unpaid principal due and payable January 31, 2007. The primary
asset of Enterprises to support such repayment is its 52.4% ownership interest
in the Company's common stock which is presently restricted from sale or
pledging through December 2001.
The Company has entered into operating leases with the sole shareholder of
Enterprises for the lease of the Company's headquarters and a division office
that expire in July 2014 and August 2015, respectively. Total rent expense under
these leases will be approximately $73,000 for each of the next five years and
will total approximately $930,000 thereafter. Rent expense totaling
approximately $70,000 and $64,000 for the years ended January 31, 1997 and 1996,
respectively, was paid to the sole shareholder of Enterprises.
F-12
<PAGE> 32
(9) INCOME TAXES:
Income taxes are determined as if the Company had been a separate tax paying
entity since inception of the former Mobile Fueling Division. Beginning in
December 1996, the Company became a separate tax paying entity. Included as a
reduction of deferred income tax liabilities was approximately $410,000 and
$188,000 as of January 31, 1997 and 1996, respectively, representing the tax
effect of net operating losses and alternative minimum tax credits generated by
the Company prior to December 1996. Through a tax benefit agreement with
Enterprises, as such net operating loss and alternative minimum tax
carryforwards are realized by Enterprises the related tax benefits will be owed
to the Company under such agreement and reflected in note receivable from
Enterprises. As of January 31, 1997, the Company also has net operating loss
carryforwards of approximately $120,000, relating to the period subsequent to
the reorganization discussed in Note 1, available to offset future taxable
income through 2012. Deferred income tax liabilities consist primarily of the
tax effect of accelerated depreciation for income tax purposes, reduced by the
tax effect of net operating loss and alternative minimum tax carryforwards.
Realization of such tax benefits is dependent on generating sufficient taxable
income prior to expiration of the carryforward period. Although realization is
not assured, management of both the Company and Enterprises believe it is more
likely than not that all of the net operating loss and alternative minimum tax
carryforwards will be realized. The amount of the recorded tax benefit
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
The benefit (provision) for income taxes consists of the following for the years
ended January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Federal $ 198,767 $ (64,183)
State 33,784 (10,986)
--------- ---------
$ 232,551 $ (75,169)
========= =========
Current $ 24,011 $ 35,472
Deferred 208,540 (110,641)
--------- ---------
$ 232,551 $ (75,169)
========= =========
</TABLE>
The actual tax benefit (provision) of the Company for the years ended January
31, 1997 and 1996 differs from the statutory Federal tax rate of 34% due to the
following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Expected benefit (provision) for income
taxes at statutory Federal income tax rates $ 225,008 $(59,084)
State income taxes 22,297 (7,251)
Nondeductible expenses (14,754) (8,834)
--------- --------
Actual benefit (provision) for income taxes $ 232,551 $(75,169)
========= ========
</TABLE>
F-13
<PAGE> 33
(10) COMMITMENTS AND CONTINGENCIES:
(a) Operating Leases -
In addition to the operating leases for property owned by the sole shareholder
of Enterprises discussed in Note 8, the Company has other operating leases from
third parties for division offices expiring through 1999. Rent expense under
these operating leases for the fiscal years ended January 31, 1997 and 1996 was
approximately $56,000 and $40,000, respectively. Remaining payments relating to
these properties are approximately $79,000 primarily payable over the next year.
(b) Governmental Regulation -
The Company's operations are affected by numerous Federal, state and local laws,
including those relating to protection of the environment and worker safety. The
transportation of gasoline and diesel fuel is subject to regulation by various
Federal, state and local agencies, including the U.S. Department of
Transportation. These regulatory authorities have broad powers, and the Company
is subject to regulatory and legislative changes that can affect the economics
of the industry by requiring changes in operating practices or influencing the
demand for, and the cost of providing, its services. The Company is also subject
to the rules and regulations of the Hazardous Materials Transportation Act. In
addition, the Company depends on the supply of gasoline and diesel fuel from the
oil and gas industry and, therefore, is affected by changing taxes, price
controls and other laws and regulations relating to the oil and gas industry.
The Company cannot determine the extent to which its future operations and
results may be affected by new legislation, new regulations or changes in
existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct of or conditions caused by others, or for acts of the Company that
were in compliance with all applicable laws at the time such acts were
performed. Sanctions for noncompliance may include revocation of permits,
corrective action orders, administrative or civil penalties and criminal
prosecution. Certain environmental laws provide for joint and several liability
for redemption of spills and releases of hazardous substances. In addition,
companies may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances, as well as damage to
natural resources. The Company carries liability insurance of $10,000,000 in the
event of such occurrences.
Although the Company believes that it is in substantial compliance with existing
laws and regulations, there can be no assurance that substantial costs for
compliance will not be incurred in the future. Moreover, it is possible that
other developments, such as stricter environmental laws, regulations and
enforcement policies thereunder, could result in additional, presently
unquantifiable, costs or liabilities to the Company.
(c) Employment Agreement -
In December 1996, the Company entered into an employment agreement with its
president. The term of the agreement is five years and will automatically renew
for two successive two-year terms, unless notice of termination is given by the
Company prior to a renewal period. The agreement provides that the president
shall receive an initial annual base salary of $275,000, subject to
cost-of-living increases; and will be eligible to participate in a bonus pool
which will provide additional compensation to him and
F-14
<PAGE> 34
certain other members of senior management of up to ten percent of the Company's
pre-tax earnings. No bonus was earned in fiscal 1997.
The agreement provides that if the president's employment is terminated as a
result of his death or disability, he or his estate will receive for a period of
six months, his base salary in effect as of the date of such termination and a
prorated amount of any bonuses. The agreement also provides that in the event
the president's employment is terminated "without cause" the president will
receive, in addition to any salary, bonus and other compensation accrued through
the date of termination, a lump sum equal to the greater of the full amount of
salary, bonuses and other compensation due under the agreement for the remainder
of the term and three times the then-existing salary and most recent annual
bonus. The agreement further provides that the president will not compete with
the Company while employed by the Company and for a period of two years
following termination of employment. In the event that his employment is
terminated without cause, as a result of his death or disability, or upon a
change of control (as defined in the employment agreement), all options to
purchase common stock held by the president shall become immediately
exercisable.
The agreement also provides for two percent per annum of the outstanding balance
of the guaranteed debt to be paid to the president in quarterly installments.
Such amounts approximated $8,000 for the year ended January 31, 1997.
(d) Absence of Written Agreements -
Most of the Company's customers do not have written agreements with the Company
and can terminate the Company's mobile fueling services at any time and for any
reason. If the Company were to experience a high rate of terminations, the
Company's business and financial performance could be materially adversely
affected.
(e) Fuel Pricing -
Gasoline and diesel fuel are commodities and, as such, their wholesale prices
are subject to fluctuations in response to changes in supply or other market
conditions over which the Company has no control. Since the Company sells fuel
to its customers at fixed amounts over its wholesale cost, the Company's gross
profit as a percentage of revenue may fluctuate as a result of changes in
wholesale gasoline and diesel fuel prices. Currently, the Company does not
engage in derivatives or futures trading to hedge fuel price movements.
(f) Litigation -
The Company may be subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, no litigation or
claims exist that would have a material effect on the financial position or
results of operations of the Company as of January 31, 1997.
(g) Other Commitments -
In fiscal 1996, the Company entered into a consulting agreement with a minority
shareholder for consulting services to be rendered to the Company. Consulting
services rendered under the agreement totaled approximately $124,000 in fiscal
1997. As of January 31, 1997, remaining amounts owed under the consulting
agreement totaled $145,000, which are payable $10,000 per month. The agreement
also
F-15
<PAGE> 35
provides for the minority shareholder to receive a fee of 2.5% of any merger
transaction which he brokers for the Company, as defined.
In August 1996, the Company also entered into a consulting agreement with its
underwriter to provide financial and investor relations services, public
relations services and corporate communications services for a period of two
years. Total costs of $100,000 were paid from the net proceeds of the offering
of which $26,000 was charged to expense in fiscal 1997.
(11) SHAREHOLDERS' EQUITY:
In October 1996, the Company amended its articles of incorporation to authorize
the issuance of 1,000,000 shares of preferred stock with such designations,
rights and preferences as may be determined by the Board of Directors of the
Company. At January 31, 1997, there were no preferred shares issued or
outstanding.
In December 1996, the Company completed an initial public offering of 1,075,000
shares of common stock and 1,150,000 common stock warrants providing net
proceeds to the Company of approximately $4,993,000.
(12) COMMON STOCK WARRANTS AND OPTIONS:
The Company issued 1,150,000 common stock warrants in conjunction with its
initial public offering in December 1996. Each warrant entitles the holder to
purchase one share of common stock at a price of $6.90 per share for a period of
four years commencing in December 1997 (the "First Exercise Date"). Each warrant
is redeemable by the Company at a redemption price of $0.01 per warrant, at any
time after the First Exercise Date, upon thirty days' prior written notice to
the holders, if the average closing bid price of the common stock, as reported
on the principal exchange on which the common stock is traded, equals or exceeds
$10.50 per share for 20 consecutive trading days ending three days prior to the
date of the notice of redemption. Any warrant holder who does not exercise prior
to the redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the common stock underlying the warrants, and
after the redemption date or upon conclusion of the exercise period any
outstanding warrants will become void and be of no further force or effect,
unless extended by the Board of Directors of the Company.
The number of shares of common stock that may be purchased is subject to
adjustment upon the occurrence of certain events including a dividend
distribution to the Company's shareholders, or a subdivision, combination or
reclassification of the outstanding shares of common stock. Further, the warrant
exercise price is subject to adjustment in the event the Company issues
additional stock or rights to acquire stock at a price per share that is less
than the current market price per share of common stock on the record date
established for the issuance of additional stock or rights to acquire stock. The
term "current market price," is defined as the average of the daily closing
prices, will not be adjusted in the case of the issuance or exercise of options
pursuant to the Company's stock option plans, the issuance or exercise of the
underwriter's warrants (or the warrants included therein) or any other options
or warrants outstanding as of December 1996. The warrant exercise price is also
subject to adjustment in the event of a consolidation or merger where a
distribution by the Company is made to its stockholders of the Company`s assets
or evidences of the indebtedness (other than cash or stock dividends) or
pursuant to certain subscription rights or other rights to acquire common stock.
F-16
<PAGE> 36
The Company may at any time, and from time to time, extend the exercise period
of the warrants, provided that written notice of such extension is given to the
warrant holders prior to the expiration of the date then in effect. Also, the
Company may reduce the exercise price of the warrants for limited periods or
through the end of the exercise period in accordance with the terms of the
Company's warrant agreement with the transfer agent if deemed appropriate by the
Board of Directors. The Company does not presently contemplate any extension of
the exercise period nor does it contemplate any reduction in exercise price of
the warrants.
The employment agreement with the Company's president referred to in Note 10
also provides for the issuance of stock options to acquire 1,000,000 shares of
common stock at $6 per share. The timing of vesting of the stock options is
contingent upon the Company achieving either a specified earnings per share
level or a specified stock price level (the "performance threshold"), for the
corresponding fiscal year end. Commencing with fiscal year ending January 31,
1998 and at each of the four fiscal year ends thereafter, 200,000 of such
options will become exercisable if the Company achieves earnings per share, as
defined in the agreement, of $.36, $.43, $.52, $.62 and $.74 for the fiscal
years ending January 31, 1998, 1999, 2000, 2001 and 2002, respectively, (or
cumulative earnings per share after fiscal 1998 of $.66, $1.09, $1.61, $2.23 and
$2.97, respectively), or the closing bid price of the Company's common stock on
any 20 consecutive trading days during such fiscal year is $7.25, $8.75, $10.50,
$12.50 and $15.00, respectively, or the Company has cumulative net income of $2
million, $3 million, $4 million, $5 million and $6 million, respectively, as
defined. For any fiscal year after January 31, 1998 in which the Company attains
the foregoing earnings, per share stock price or cumulative net income targets,
any options eligible for vesting in prior years which were not vested and
exercisable because the targets for such fiscal years were not achieved, shall
become exercisable. In addition, for any fiscal year in which the Company
attains the earnings per share, stock price or cumulative net income targets
applicable to a subsequent fiscal year, all options eligible for vesting in such
subsequent fiscal year shall vest and become exercisable. If any of the warrants
are exercised, the options shall vest and become exercisable pro rata (based on
the number of warrants exercised) to the extent not already vested in accordance
with the foregoing. Regardless of the Company's performance, all of the stock
options granted to the president shall vest and become exercisable ten years
from the date of the grant.
In December 1996, the Company adopted a Stock Option Plan (the "Plan"), under
which 100,000 shares of common stock are reserved for issuance upon exercise of
options. The Plan is designed to serve as an incentive for retaining qualified
and competent employees. The Company's Board of Directors administers the Plan
and is authorized to grant options thereunder to all eligible employees of the
Company, including officers and directors (whether or not employees) of the
Company and consultants. The Plan provides for the granting of both "incentive
stock options" (as defined in Section 422A of the Internal Revenue Code) and
nonqualified stock options. Options are granted under the Plan on such terms and
at such prices as determined by the Board of Directors, except that the per
share exercise price of incentive stock options cannot be less than the fair
market value of the common stock on the date of grant and the per share exercise
price of nonqualified stock options will not be less than 85% of the fair market
value on the date of grant. Each option is exercisable after the period or
periods specified in the option agreement, but no option can be exercised until
six months after the date of grant or after the expiration of 10 years from the
date of grant. Options granted under the Plan are not transferable other than by
will or by the laws of descent and distribution. The Plan also authorizes the
Company to make loans to optionees to enable them to exercise their options and
to allow them to use common stock to pay for the exercise of their options. Such
loans must (i) provide for recourse to the optionee, (ii) bear interest at a
rate no less than the rate of interest payable by the Company to its principal
lender at the time the loan is made, and (iii) be secured by the shares of
common stock purchased. To date, no options have been granted under the Plan.
F-17
<PAGE> 37
Pro forma information required by SFAS No. 123 has been determined as if the
Company had accounted for its stock-based compensation plans under the fair
value method. The fair value of each option grant was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for the grants of 1,000,000 options to the
Company's president in December 1996: risk-free interest rate of 7%, dividend
yield of 0%, expected volatility of 50% and expected life of 10 years. The
Company's pro forma information for fiscal 1997 is as follows:
<TABLE>
<S> <C>
Net loss - as reported $ (429,238)
Pro forma net loss $ (483,363)
Net loss per share - as reported $ (0.26)
Pro forma net loss per share $ (0.26)
</TABLE>
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF STREICHER MOBILE FUELING, INC. AS OF JANUARY 31, 1997 AND THE RELATED
STATEMENTS OF OPERATIONS, SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE TWELVE
MONTHS ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 2,848,000
<SECURITIES> 115,751
<RECEIVABLES> 4,403,761
<ALLOWANCES> 51,000
<INVENTORY> 76,961
<CURRENT-ASSETS> 7,648,021
<PP&E> 4,334,853
<DEPRECIATION> 966,074
<TOTAL-ASSETS> 11,402,970
<CURRENT-LIABILITIES> 5,152,840
<BONDS> 0
0
0
<COMMON> 25,750
<OTHER-SE> 4,935,663
<TOTAL-LIABILITY-AND-EQUITY> 11,402,970
<SALES> 33,844,969
<TOTAL-REVENUES> 33,844,969
<CGS> 31,458,794
<TOTAL-COSTS> 31,458,794
<OTHER-EXPENSES> 2,646,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432,498
<INCOME-PRETAX> (661,789)
<INCOME-TAX> 232,551
<INCOME-CONTINUING> (429,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (429,238)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
