x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OF 15(D) OR THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
65-0707824
|
|
(State
of Incorporation)
|
(IRS
Employer Identification Number)
|
200
West Cypress Creek Road, Suite 400, Fort
Lauderdale, Florida
|
33309
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Part
I
|
Financial
Information:
|
|||
|
Item
1. Condensed Unaudited Consolidated Financial Statements
|
|||
Condensed
Unaudited Consolidated Balance Sheets as of March 31, 2007 and
Audited
June 30, 2006
|
3
|
|||
Condensed
Unaudited Consolidated Statements of Operations for each of the
three and
nine months ended March 31, 2007 and 2006
|
4
|
|||
Condensed
Unaudited Consolidated Statements of Cash Flows for the nine
months ended
March 31, 2007 and 2006
|
5
|
|||
Notes
to Condensed Unaudited Consolidated Financial Statements
|
6
|
|||
Item
1A . Risk Factors
|
18
|
|||
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
18
|
|||
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
32
|
|||
Item
4. Controls and Procedures
|
32
|
|||
Part
II
|
Other
Information
|
|||
Items
1. thru 6.
|
34
- 35
|
|||
Signature
Page
|
36
|
|||
Certifications
|
37
- 39
|
March
31, 2007
|
June
30, 2006
|
||||||
(unaudited)
|
|||||||
ASSETS
|
|||||||
Current assets: | |||||||
Cash
and cash equivalents
|
$
|
3,485
|
$
|
4,103
|
|||
Accounts
receivable, less allowances of $1,400 (June 30, 2006 -
$1,252)
|
21,240
|
24,345
|
|||||
Inventories,
less slow moving reserves of $376 (June 30, 2006 - $276)
|
2,251
|
3,321
|
|||||
Prepaid
expenses and other current assets
|
400
|
413
|
|||||
Total
current assets
|
27,376
|
32,182
|
|||||
Property
and equipment, net
|
10,829
|
11,739
|
|||||
Identifiable
intangible assets, net
|
2,866
|
3,148
|
|||||
Goodwill
|
228
|
228
|
|||||
Deferred
debt costs, net
|
615
|
749
|
|||||
Other
assets
|
59
|
68
|
|||||
Total
assets
|
$
|
41,973
|
$
|
48,114
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Line
of credit payable
|
$
|
14,805
|
$
|
15,612
|
|||
Accounts
payable
|
6,794 | 10,367 | |||||
Accrued
expenses and other liabilities
|
3,981
|
2,787
|
|||||
Current
portion of long-term debt
|
3,304
|
2,118
|
|||||
Total
current liabilities
|
28,884
|
30,884
|
|||||
Long-term
liabilities:
|
|||||||
Promissory
notes, net of unamortized debt discount of $1,386 (June 30, 2006
- $1,652)
|
7,564
|
10,993
|
|||||
Capital
lease obligations
|
—
|
25 | |||||
Long-term
debt, net
|
7,564 | 11,018 | |||||
Deferred
revenue
|
511
|
555
|
|||||
Other
long-term liabilities
|
123
|
117
|
|||||
Total
liabilities
|
37,082 | 42,574 | |||||
Shareholders’
equity:
|
|||||||
Common
stock, par value $.01 per share; 50,000,000 shares authorized;
12,645,143
issued and outstanding at March 31, 2007 (June 30, 2006 - 10,491,143)
|
130
|
105
|
|||||
Additional
paid-in capital
|
24,191
|
19,890
|
|||||
Accumulated
deficit
|
(19,430
|
)
|
(14,455
|
)
|
|||
Total
shareholders’ equity
|
4,891
|
5,540
|
|||||
Total
liabilities and shareholders’ equity
|
$
|
41,973
|
$
|
48,114
|
Three
Months Ended March
31,
|
Nine
Months Ended March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
Petroleum
product sales and service revenues
|
$
|
45,450
|
$
|
51,806
|
$
|
152,368
|
$
|
157,060
|
|||||
Petroleum
product taxes
|
6,367
|
7,490
|
19,875
|
21,408
|
|||||||||
Total
revenues
|
51,817
|
59,296
|
172,243
|
178,468
|
|||||||||
Cost
of petroleum product sales and service
|
42,972
|
49,548
|
142,658
|
147,166
|
|||||||||
Petroleum
product taxes
|
6,367
|
7,490
|
19,875
|
21,408
|
|||||||||
Total
cost of sales
|
49,339
|
57,038
|
162,533
|
168,574
|
|||||||||
Gross
profit
|
2,478
|
2,258
|
9,710
|
9,894
|
|||||||||
Selling,
general and administrative expenses
|
4,077
|
3,569
|
11,886
|
9,109
|
|||||||||
Operating
(loss) income
|
(1,599
|
)
|
(1,311
|
)
|
(2,176
|
)
|
785
|
||||||
Interest
expense
|
(1,023
|
)
|
(905
|
)
|
(2,808
|
)
|
(2,539
|
)
|
|||||
Interest
and other income
|
4
|
—
|
9
|
11
|
|||||||||
Loss
before income taxes
|
(2,618
|
)
|
(2,216
|
)
|
(4,975
|
)
|
(1,743
|
)
|
|||||
Income
tax expense
|
—
|
—
|
—
|
—
|
|||||||||
Net
loss
|
$
|
(2,618
|
)
|
$
|
(2,216
|
)
|
$
|
(4,975
|
)
|
$
|
(1,743
|
)
|
|
Basic
and diluted net loss per share
|
$
|
(.23
|
)
|
$
|
(.23
|
)
|
$
|
(.46
|
)
|
$
|
(.18
|
)
|
|
Basic
and diluted weighted average number of shares outstanding
during the period
|
11,600
|
9,814
|
10,867
|
9,642
|
Nine
Months Ended March 31
|
|||||||
2007
|
2006
|
||||||
CASH
FLOWS USED IN OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(4,975
|
)
|
$
|
(1,743
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Depreciation
and amortization:
|
|||||||
Cost
of sales
|
1,316
|
1,130
|
|||||
Selling,
general and administrative
|
672
|
342
|
|||||
Amortization
of deferred debt costs
|
248
|
276
|
|||||
Amortization
of debt discount
|
573
|
518
|
|||||
Stock
based compensation expense
|
304
|
280
|
|||||
Provision
for allowance for doubtful accounts
|
370
|
248
|
|||||
Provision
for slow moving inventory
|
100
|
—
|
|||||
Other
|
17
|
—
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Decrease
(increase) in accounts receivable
|
2,735
|
(3,646
|
)
|
||||
Decrease
in inventories, prepaid expenses and other assets
|
992
|
1,059
|
|||||
Decrease
in accounts payable and other liabilities
|
(2,398
|
)
|
(477
|
)
|
|||
Net
cash used in operating activities
|
(46
|
)
|
(2,013
|
)
|
|||
CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
|||||||
Cash
used for business acquisitions, net of cash acquired
|
—
|
(1,751
|
)
|
||||
Purchases
of property and equipment
|
(796
|
)
|
(2,018
|
)
|
|||
Net
cash used in investing activities
|
(796
|
)
|
(3,769
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Proceeds
from line of credit
|
185,882
|
187,145
|
|||||
Repayments
of line of credit
|
(186,689
|
)
|
(185,685
|
)
|
|||
Proceeds
from private placement of common stock and warrants
issuance
|
3,274
|
—
|
|||||
Costs
related to the issuance of common stock and warrants
|
(256
|
)
|
—
|
||||
Proceeds
from exercise of common stock options and warrants
|
31
|
1,211
|
|||||
Proceeds
from issuance of promissory notes
|
—
|
3,000
|
|||||
Payments
of debt issuance costs
|
(114
|
)
|
(235
|
)
|
|||
Principal
payment on promissory notes
|
(1,794
|
)
|
(1,385
|
)
|
|||
Repayments
of promissory notes
|
—
|
(452
|
)
|
||||
Capital
lease payments
|
(110
|
)
|
(11
|
)
|
|||
Net
cash provided by financing activities
|
224
|
3,588
|
|||||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(618
|
)
|
(2,194
|
)
|
|||
CASH
AND CASH EQUIVALENTS,
beginning
of the period
|
4,103
|
4,108
|
|||||
CASH
AND CASH EQUIVALENTS,
end
of the period
|
$
|
3,485
|
$
|
1,914
|
|||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|||||||
Cash
paid for interest
|
$
|
2,084
|
$
|
1,083
|
|||
SUPPLEMENTAL
CASH FLOW INFORMATION OF NON-CASH ACTIVITIES:
|
|||||||
Conversion
of promissory notes to common shares
|
$
|
630
|
$
|
—
|
|||
Amortization
of stock compensation
|
$
|
304
|
$
|
280
|
|||
Unamortized
debt discount related to warrants and warrants extension
|
$
|
327
|
$
|
605
|
Three
Months Ended March 31, 2007
|
|||||||||||||
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Grant-date
Fair Value
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
December 31, 2006
|
1,558,352
|
$
|
2.03
|
$
|
1.85
|
||||||||
Granted
|
30,000
|
$
|
1.61
|
$
|
1.35
|
||||||||
Exercised
|
—
|
—
|
—
|
||||||||||
Terminated
|
(61,500
|
)
|
$
|
3.52
|
$
|
5.47
|
|||||||
Outstanding
March 31, 2007
|
1,526,852
|
$
|
1.96
|
$
|
1.69
|
$
|
229,337
|
||||||
Exercisable
March 31, 2007
|
1,049,752
|
$
|
1.74
|
$
|
1.47
|
$
|
209,857
|
Nine
Months Ended March 31, 2007
|
|||||||||||||
Shares
|
Weighted
Average Exercise
Price
|
Weighted
Average
Grant-date
Fair Value
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
June 30, 2006
|
1,443,852
|
$
|
2.05
|
$
|
1.86
|
||||||||
Granted
|
157,000
|
$
|
1.86
|
$
|
1.67
|
||||||||
Exercised
|
—
|
—
|
—
|
||||||||||
Terminated
|
(74,000
|
)
|
$
|
3.44
|
$
|
4.99
|
|||||||
Outstanding
March 31, 2007
|
1,526,852
|
$
|
1.96
|
$
|
1.69
|
$
|
229,337
|
||||||
Exercisable
March 31, 2007
|
1,049,752
|
$
|
1.74
|
$
|
1.47
|
$
|
209,857
|
Shares
|
Weighted
average grant-date fair value
|
||||||
Nonvested
at June 30, 2006
|
497,900
|
$
|
2.21
|
||||
Granted
|
157,000
|
$
|
1.67
|
||||
Vested
|
(149,300
|
)
|
$
|
1.66
|
|||
Forfeited
|
(28,500
|
)
|
$
|
2.62
|
|||
Nonvested
at March 31, 2007
|
477,100
|
Three
Months Ended March 31, 2007
|
|||||||||||||
Shares
|
Weighted
Average Exercise
Price
|
Weighted
Average
Grant-date
Fair Value
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
December 31, 2006
|
298,650
|
$
|
1.75
|
$
|
1.56
|
||||||||
Granted
|
9,000
|
$
|
1.67
|
$
|
1.48
|
||||||||
Exercised
|
—
|
—
|
—
|
||||||||||
Terminated
|
—
|
—
|
—
|
||||||||||
Outstanding
March 31, 2007
|
307,650
|
$
|
1.75
|
$
|
1.56
|
$
|
41,100
|
||||||
Exercisable
March 31, 2007
|
307,650
|
$
|
1.75
|
$
|
1.56
|
$
|
41,100
|
Nine
Months Ended March 31, 2007
|
|||||||||||||
Shares
|
Weighted
Average Exercise
Price
|
Weighted
Average
Grant-date
Fair Value
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding
June 30, 2006
|
289,950
|
$
|
1.75
|
$
|
1.56
|
||||||||
Granted
|
17,700
|
$
|
1.72
|
$
|
1.53
|
||||||||
Exercised
|
—
|
—
|
—
|
||||||||||
Terminated
|
—
|
—
|
—
|
||||||||||
Outstanding
March 31, 2007
|
307,650
|
$
|
1.75
|
$
|
1.56
|
$
|
41,100
|
||||||
Exercisable
March 31, 2007
|
307,650
|
$
|
1.75
|
$
|
1.56
|
$
|
41,100
|
Three
Months Ended
March
31,
|
Nine
Months Ended
March
31,
|
||||||||||||
2007
|
2006
|
2007
|
2006
|
||||||||||
Assumptions:
|
|||||||||||||
Risk
free interest rate
|
4.53
|
%
|
4.69
|
%
|
4.69
|
%
|
4.69
|
%
|
|||||
Dividend
yield
|
-0-
|
-0-
|
-0-
|
-0-
|
|||||||||
Expected
volatility
|
105.7
|
%
|
108.7
|
%
|
107.0
|
%
|
108.7
|
%
|
|||||
Expected
life
|
8.0
|
9.3
|
8.0
|
9.3
|
|||||||||
Forfeiture
rate
|
17.05
|
%
|
2.48
|
%
|
10.20
|
%
|
2.41
|
%
|
March
31, 2007
|
June
30, 2006
|
||||||
September
2005 promissory notes (the “September 2005 Notes”); 10% interest due
semi-annually, February 28 and August 31; principal payments of
$300,000 due beginning August 31, 2007 and thereafter semi-annually
on
August 31 and February 28; and a balloon payment of $1,200,000 due at
maturity on August 31, 2010; effective interest rate of 19.9% includes
cost of warrants and other debt issue costs
|
$
|
3,000
|
$
|
3,000
|
|||
January
2005 promissory notes (the “January 2005 Notes”); 10% interest due
semi-annually, July 24 and January 24; principal payments of $540,000
due
July 24, 2007, and thereafter semi-annually on January 24 and July
24; and
a balloon payment of $2,160,000 due at maturity on January 24, 2010;
effective interest rate of 22.8% includes cost of warrants and other
debt
issue costs
|
4,860
|
6,100
|
|||||
August
2003 promissory notes (the August 2003 Notes”); 10% interest due
semi-annually, December 31 and June 30; principal payments of
$692,500 due August 28, 2007, and thereafter semi-annually on
August 28 and February 28; and a balloon payment of $2,770,000 due at
maturity on August 28, 2008; effective interest rate of 18.6% includes
cost of warrants and other debt issue costs
|
4,355
|
5,540
|
|||||
Various
capital leases; interest rates range from 12.0% to 15% with monthly
principal and interest payments; leases expire between February 2008
and
March 2008
|
39
|
148
|
|||||
Unamortized
debt discount, net of amortization
|
(1,386
|
)
|
(1,652
|
)
|
|||
Less:
current portion
|
(3,304
|
)
|
(2,118
|
)
|
|||
Long-term
debt, net
|
$
|
7,564
|
$
|
11,018
|
Common
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Shareholders’
Equity
|
||||||||||
June
30, 2006
|
$
|
105
|
$
|
19,890
|
$
|
(14,455
|
)
|
$
|
5,540
|
||||
Issuance
of common stock through the exercise of warrants
|
—
|
31
|
—
|
31
|
|||||||||
Issuance
of common stock through the exercise of warrants related to the conversion
of promissory notes
|
4
|
642
|
—
|
646
|
|||||||||
Issuance
of common stock and warrants from private placement, net of issue
costs
|
21
|
2,997
|
—
|
3,018
|
|||||||||
Valuation
adjustment for warrants extension
|
—
|
327
|
—
|
327
|
|||||||||
Amortization
of employee stock compensation expense
|
—
|
304
|
—
|
304
|
|||||||||
Net
loss for the period
|
—
|
—
|
(4,975
|
)
|
(4,975
|
)
|
|||||||
March
31, 2007
|
$
|
130
|
$
|
24,191
|
$
|
(19,430
|
)
|
$
|
4,891
|
Nine
Months
Ended
March
31, 2006
|
||||
Total
revenues
|
$
|
185,376
|
||
Total
cost of sales and service
|
174,772
|
|||
Gross
profit
|
10,604
|
|||
Net
loss
|
$
|
(3,768
|
)
|
|
Basic
and diluted net loss per share
|
$
|
(0.35
|
)
|
March
31, 2007
|
June
30, 2006
|
||||||||||||||||||
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
||||||||||||||
Amortized
intangible assets:
|
|||||||||||||||||||
Customer
relationships
|
$
|
1,768
|
$
|
218
|
$
|
1,550
|
$
|
1,768
|
$
|
121
|
$
|
1,647
|
|||||||
Favorable
leases
|
196
|
59
|
137
|
196
|
29
|
167
|
|||||||||||||
Trademarks
|
687
|
69
|
618
|
687
|
34
|
653
|
|||||||||||||
Supplier
contracts
|
801
|
240
|
561
|
801
|
120
|
681
|
|||||||||||||
Total
|
$
|
3,452
|
$
|
586
|
$
|
2,866
|
$
|
3,452
|
$
|
304
|
$
|
3,148
|
|||||||
Goodwill
|
$
|
228
|
$
|
228
|
Remainder
of fiscal 2007:
|
$
|
95
|
||
Fiscal
2008:
|
382
|
|||
Fiscal
2009:
|
370
|
|||
Fiscal
2010
|
357
|
|||
Fiscal
2011:
|
206
|
|||
Other:
|
1,456
|
|||
Total:
|
$
|
2,866
|
· |
our
beliefs regarding our position in the commercial mobile fueling and
bulk
fueling; lubricant and chemical packaging, distribution and sales;
integrated out-sourced fuel management services; and transportation
logistics markets.
|
· |
our
strategies, plan, objectives and expectations concerning our future
operations, cash flows, margins, revenues, profitability, liquidity
and
capital resources.
|
· |
our
efforts to improve operational, financial and management controls
and
reporting systems and procedures.
|
· |
our
plans to expand and diversify our business through acquisitions of
existing companies or their operations and customer
bases.
|
· |
the
avoidance of future net losses;
|
· |
the
avoidance of adverse consequences relating to our outstanding
debt;
|
· |
our
continuing ability to pay interest and principal on our bank line
of
credit; the outstanding balances of $4.4 million of the August 2003
Notes;
$4.9 million of the January 2005 Notes; and $3.0 million of the September
2005 Notes; and to pay our accounts payable and other liabilities
when
due;
|
· |
our
continuing ability to comply with financial covenants contained in
our
credit agreements;
|
· |
our
ability to retire or convert debt to equity
;
|
· |
the
avoidance of significant provisions for bad debt reserves on our
accounts
receivable;
|
· |
continuing
demand for our products and services at competitive prices and acceptable
margins;
|
· |
the
avoidance of negative customer reactions to new or existing marketing
strategies;
|
· |
avoidance
of significant inventory reserves for slow moving
products;
|
· |
our
continuing ability to acquire sufficient trade credit from fuel and
lubricants suppliers and other
vendors;
|
· |
successful
completion of the process of integrating the Shank Services and H
& W
operations into our existing operations, and enhancing the profitability
of the integrated businesses;
|
· |
our
continuing ability to make acquisitions and diversify, including
the
availability of sufficient capital to finance additional businesses
and to
support the infrastructure requirements of a larger combined
company;
|
· |
successful
completion of the implementation of our new information management
system;
|
· |
success
in responding to competition from other providers of similar
services;
|
· |
the
impact of economic and market
conditions.
|
· |
We
strenthened our balance sheet, as reflected in the $1.5 million or
45%
increase in stockholder’s
equity
when compared to last quarter. This was the result of a capital raise
and
conversion of debt partially offset by the net loss incurred during
the
third quarter of 2007.
|
· |
We
have completed, as of May 15, 2007, the implementation of our information
systems to better support our key initiatives of diversification
and
acquisition and to integrate the companies acquired in 2005. The
Enterprise Resource Planning (“ERP”) operating and accounting systems
replaced three legacy systems. The effective utilization of the new
systems will enable us to realize economies of scale and eliminate
duplicative costs while creating an improved capability to integrate
future acquisitions on an accelerated basis. We believe that the
distractions associated with this implementation impacted our ability
to
manage the acquisitions and, to a lesser extent, the legacy business
was
severely hampered by an incomplete and disjointed set of information
tools, impairing our profitability. We also believe that the disruptions
created by the implementation of the new system are now behind
us.
|
· |
We
raised additional capital through a $3.3 million private placement
of 2.1
million shares of our common stock and warrants to purchase an additional
423,800 shares. The proceeds from the placement were used to satisfy
$732,300 in payment obligations related to our August 2003 promissory
notes. The remaining funds will be used for an additional $200,200
repayment on the same promissory notes (which payment was deferred
to
August 2007), a related interest payment and general working capital
purposes.
|
· |
We
reduced our outstanding promissory notes by an additional $630,000
through
their conversion into common stock as a result of the exercise of
common
stock purchase warrants with the conversion of promissory notes by
certain
investors. While the conversion or retirement of the promissory notes
resulted in immediate additional non-cash interest expense as a result
of
the write-offs of the related debt discount and deferred debt costs,
it
favorably impacts our future cash needs by reducing principal payment
and
debt service costs.
|
· |
After
March 31, 2007, the aggregate principal amount of our promissory
notes was
reduced an additional $302,000 by another conversion into common
stock resulting from the exercise of warrants.
|
· |
We
entered into an amendment to the line of credit to extend the maturity
date from September 25, 2007 to June 30, 2008 and modified certain
financial covenants. We believe that the extension will enable us
to
continue to meet the working capital needs of the base business.
|
· |
External
factors beyond our control have continued to impact the Company’s results
of operations. Market prices for fuel continued to increase during
the
third quarter of fiscal 2007. While fuel price fluctuations affect
our
revenues, our gross profits are generally not affected by such
fluctuations as we are able to pass the increased cost of the product
on
to our customers. However, higher fuel prices coupled with a slowing
economy have decreased the demand for the services and goods provided
by
the transportation, manufacturing, services and other industries
which
make up the majority of our customer base. While we have
continued to increase the organic growth in our mobile fueling services
through the addition of new customers seeking to reduce fuel costs,
the
decrease in our existing customers’ business has resulted in lower volumes
of fuel being supplied by us to these customers.
|
· |
Net
loss from operations for the third quarter 2007 was $2.6 million
compared
to $2.2 million for the same period of 2006. The primary reason for
the
$402,000 increase in the net loss was the $508,000 increase in selling,
general and administrative expenses due to the incremental corporate
infrastructure costs of $477,000 incurred to support the acquisition
and
diversification strategies of the Company; and an increase in
interest expense of $118,000 which was mainly attributable to a non-cash
write-off of unamortized debt discount related to the conversion
of the
debt into common stock. These increases in expenses were partially
offset
by a $220,000 increase in gross profit resulting from our emphasis
on
developing new business with higher overall net margin per gallon
contribution.
|
· |
Earnings
before interest, taxes, depreciation and amortization (“EBITDA”), a
non-GAAP measure, for the third quarter 2007 was $(787,000) compared
to an
EBITDA of $(687,000) for the same period of 2006. The primary reason
for
the $100,000 decrease was the increase in selling, general and
administrative expenses discussed above, partially offset by the
$220,000
increase in gross profit.
|
· |
Financial
results from our commercial mobile and bulk fueling services business
continue to be largely dependent on the number of gallons of fuel
sold and
the net margin per gallon achieved. The 3.7 million gallon reduction
in
the current quarter compared to the prior year quarter was primarily
due
to the termination of operations in our Baltimore location in March
2006
and the curtailment in August 2006 of a portion of the low margin
fuel
transport services business in our Mid-Continent division. In addition,
we
believe our volume decrease is also a result of a decrease in industry
demand as reflected in the contraction in activity in the trucking
industry.
|
· |
For
the quarter ended March 31, 2007, net margin per gallon was 14.3
cents per
gallon compared to 11.0 cents per gallon for the prior year quarter.
The
increase in net margin per gallon was the result of our elimination
or
reduction of prior low margin business, including the termination
of
operations in our Baltimore location and the curtailment of low margin
fuel transport services business. With the completion of the
implementation of our ERP systems, we anticipate that, in the future,
management will be in a better position to evaluate and identify
lower
margin operations and services and respond
accordingly.
|
For
the Three Months Ended March 31,
|
|||||||||||||
Increase
(decrease)
|
|||||||||||||
2007
|
2006
|
$
|
%
|
||||||||||
Total
revenues
|
$
|
51,817
|
$
|
59,296
|
$
|
(7,479
|
)
|
(13
|
)%
|
||||
Total
cost of sales and services
|
49,339
|
57,038
|
(7,699
|
)
|
(13
|
)%
|
|||||||
Gross
profit
|
2,478
|
2,258
|
220
|
10
|
%
|
||||||||
Selling,
general and administrative
expenses
|
4,077
|
3,569
|
508
|
14
|
%
|
||||||||
Interest
expense
|
1,023
|
905
|
118
|
13
|
%
|
||||||||
Interest
and other income
|
(4
|
)
|
—
|
(4
|
)
|
(100
|
)%
|
||||||
Net
loss
|
$
|
(2,618
|
)
|
$
|
(2,216
|
)
|
$
|
(402
|
)
|
18
|
%
|
||
Gallons
sold
|
20,407
|
24,079
|
(3,672
|
)
|
(15
|
)%
|
|||||||
Net
margin
|
$
|
2,915
|
$
|
2,652
|
$
|
263
|
10
|
%
|
|||||
Net
margin per gallon (in cents)
|
14.30
|
11.00
|
3.30
|
30
|
%
|
||||||||
EBITDA
(non-GAAP measure)
|
$
|
(787
|
)
|
$
|
(687
|
)
|
$
|
(100
|
)
|
(15
|
)%
|
Corporate
infrastructure costs, including those related to the development
and
implementation of a new fully integrated accounting, operations,
internal
control and management information system
|
|
477
|
||
Public
company compliance expenses, including legal and auditing fees, proxy
statements and name incorporation changes
|
352
|
|||
Employee
stock compensation expense attributable
to SFAS 123(R)
|
67
|
|||
Credit
card fees
|
(49
|
)
|
||
Provision
for doubtful accounts
|
(121
|
)
|
||
Increase
in SG&A depreciation and amortization
|
75
|
|||
Reduction
in facilities expenses related to the integration of Dallas and Houston
locations
|
(101
|
)
|
||
Reduction
of acquired SG&A costs associated with H & W and Shank
primarily related to payroll expenses
|
(216
|
)
|
||
Other
|
24
|
|||
Total
increase
|
$
|
508
|
Three
Months Ended
March
31,
|
||||||||||
2007
|
2006
|
Increase
(decrease)
|
||||||||
Stated
Rate Interest Expense:
|
||||||||||
Line
of credit
|
$
|
252
|
$
|
221
|
$
|
31
|
||||
Long
term debt
|
372
|
377
|
(5
|
)
|
||||||
Other
|
29
|
30
|
(1
|
)
|
||||||
Total
stated rate interest expense
|
653
|
628
|
25
|
|||||||
Non-Cash
Interest Amortization:
|
||||||||||
Amortization
of deferred debt costs
|
92
|
94
|
(2
|
)
|
||||||
Amortization
of debt discount
|
278
|
183
|
95
|
|||||||
Total
amortization of non-cash interest expense
|
370
|
277
|
93
|
|||||||
Total
interest expense
|
$
|
1,023
|
$
|
905
|
$
|
118
|
For
the Three Months Ended
March
31,
|
Increase
|
|||||||||
2007
|
2006
|
(decrease)
|
||||||||
Net
loss
|
$
|
(2,618
|
)
|
$
|
(2,216
|
)
|
$
|
(402
|
)
|
|
Add back: | ||||||||||
Interest
expense
|
653
|
628
|
25
|
|||||||
Non-cash
interest expense
|
370
|
277
|
93
|
|||||||
Depreciation
and amortization expense:
|
||||||||||
Cost
of sales
|
436
|
394
|
42
|
|||||||
Selling,
general and administrative
|
219
|
144
|
75
|
|||||||
Amortization
of employee stock compensation expense
|
153
|
86
|
67
|
|||||||
EBITDA
|
$
|
(787
|
)
|
$
|
(687
|
)
|
$
|
(100
|
)
|
For
the Nine Months Ended March 31,
|
|||||||||||||
Increase
(decrease)
|
|||||||||||||
|
|
|
2007
|
|
|
2006
|
|
|
$
|
%
|
|||
Total
revenues
|
$
|
172,243
|
$
|
178,468
|
$
|
(6,225
|
)
|
(3
|
)%
|
||||
Total
cost of sales and services
|
162,533
|
168,574
|
(6,041
|
)
|
(4
|
)%
|
|||||||
Gross
profit
|
9,710
|
9,894
|
(184
|
)
|
(2
|
)%
|
|||||||
Selling,
general and
administrative
expenses
|
11,886
|
9,109
|
2,777
|
30
|
%
|
||||||||
Interest
expense
|
2,808
|
2,539
|
269
|
11
|
%
|
||||||||
Interest
and other income
|
(9
|
)
|
(11
|
)
|
(2
|
)
|
(18
|
)%
|
|||||
Net
loss
|
$
|
(4,975
|
)
|
$
|
(1,743
|
)
|
$
|
3,232
|
185
|
%
|
|||
Gallons
sold
|
65,221
|
70,147
|
(4,926
|
)
|
(7
|
)%
|
|||||||
Net
margin
|
$
|
11,026
|
$
|
11,024
|
$
|
2
|
0
|
%
|
|||||
Net
margin per gallon (in cents)
|
16.90
|
15.70
|
1.20
|
8
|
%
|
||||||||
EBITDA
(non-GAAP measure)
|
$
|
125
|
$
|
2,548
|
$
|
(2,423
|
)
|
95
|
%
|
Corporate
infrastructure costs, including those related to the development
and
implementation of a new fully integrated accounting, operations,
internal
control and management information system
|
|
1,657
|
||
Public
company compliance expenses, including legal and auditing fees, proxy
statements, and name incorporation changes
|
851
|
|||
Employee
stock compensation expense attributable
to SFAS 123(R)
|
24
|
|||
Credit
card fees
|
72
|
|||
Increase
in depreciation and amortization SG&A related to ERP system
implementation
|
328
|
|||
Reduction
in acquired SG&A costs associated with H & W and Shank
primarily related to facilities expense
|
(134
|
)
|
||
Other
|
(21
|
)
|
||
Total
increase
|
$
|
2,777
|
Nine
Months Ended
March
31,
|
||||||||||
2007
|
2006
|
Increase
(decrease)
|
||||||||
Stated
Rate Interest Expense:
|
||||||||||
Line
of credit
|
$
|
858
|
$
|
535
|
$
|
323
|
||||
Long
term debt
|
1,046
|
1,105
|
(59
|
)
|
||||||
Other
|
83
|
106
|
(23
|
)
|
||||||
Total
stated rate interest expense
|
1,987
|
1,746
|
241
|
|||||||
Non-Cash
Interest Amortization:
|
||||||||||
Amortization
of deferred debt costs
|
248
|
276
|
(28
|
)
|
||||||
Amortization
of debt discount
|
573
|
517
|
56
|
|||||||
Total
amortization of interest expense
|
821
|
793
|
28
|
|||||||
Total
interest expense
|
$
|
2,808
|
$
|
2,539
|
$
|
269
|
For
the Nine Months Ended
March
31,
|
Increase
|
|||||||||
2007
|
2006
|
(decrease)
|
||||||||
Net
loss
|
$
|
(4,975
|
)
|
$
|
(1,743
|
)
|
$
|
(3,232
|
)
|
|
Add
back:
Interest
expense
|
1,987
|
1,746
|
241
|
|||||||
Non-cash
interest expense
|
821
|
793
|
28
|
|||||||
Depreciation
and amortization expense:
|
||||||||||
Cost
of sales
|
1,316
|
1,130
|
186
|
|||||||
Selling,
general and administrative
|
672
|
342
|
330
|
|||||||
Amortization
of stock compensation expense
|
304
|
280
|
24
|
|||||||
$
|
125
|
$
|
2,548
|
$
|
(2,423
|
)
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||||||||||||
Increase
(decrease)
|
Increase
(decrease)
|
||||||||||||||||||||||||
3/31/07
|
3/31/06
|
$
|
%
|
3/31/07
|
3/31/06
|
$
|
%
|
||||||||||||||||||
EBITDA
|
$
|
(787
|
)
|
$
|
(687
|
)
|
$
|
(100
|
)
|
(15
|
)%
|
$
|
125
|
$
|
2,548
|
$
|
(2,423
|
)
|
(95
|
)%
|
|||||
Add:
|
|||||||||||||||||||||||||
Corporate
infrastructure and ongoing
integration costs
|
477
|
439
|
38
|
9
|
%
|
1,657
|
1,240
|
417
|
34
|
%
|
|||||||||||||||
Non-cash
provisions for doubtful
accounts and other
|
151
|
272
|
(121
|
)
|
(44
|
)%
|
370
|
248
|
122
|
49
|
%
|
||||||||||||||
Non-cash
provisions for slow
moving inventory
|
100
|
—
|
100
|
100
|
%
|
100
|
—
|
100
|
100
|
%
|
|||||||||||||||
Pro
forma EBITDA
|
$
|
(59
|
)
|
$
|
24
|
$
|
(83
|
)
|
(346
|
)%
|
$
|
2,252
|
$
|
4,036
|
$
|
(1,784
|
)
|
(44
|
)%
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||||||||||||
Increase
(decrease)
|
Increase
(decrease)
|
||||||||||||||||||||||||
3/31/07
|
3/31/06
|
$
|
%
|
3/31/07
|
3/31/06
|
$
|
|
%
|
|
||||||||||||||||
Net
loss
|
$
|
(2,618
|
)
|
$
|
(2,216
|
)
|
$
|
(402
|
)
|
(18
|
)%
|
$
|
(4,975
|
)
|
$
|
(1,743
|
)
|
$
|
(3,232
|
)
|
(185
|
)%
|
|||
Non-Cash
Items:
|
|||||||||||||||||||||||||
Depreciation
- cost of sales
|
436
|
394
|
42
|
11
|
%
|
1,316
|
1,130
|
186
|
16
|
%
|
|||||||||||||||
Depreciation
- SG&A
|
219
|
144
|
75
|
52
|
%
|
672
|
342
|
330
|
96
|
%
|
|||||||||||||||
Amortization
of deferred debt cost
|
92
|
94
|
(2
|
)
|
(2
|
)%
|
248
|
276
|
(28
|
)
|
(10
|
)%
|
|||||||||||||
Amortization
of debt discount
|
278
|
183
|
95
|
52
|
%
|
573
|
517
|
56
|
11
|
%
|
|||||||||||||||
Stock-based
compensation
expense
|
153
|
86
|
67
|
78
|
%
|
304
|
280
|
24
|
9
|
%
|
|||||||||||||||
Inventory
reserve
|
100
|
—
|
100
|
100
|
%
|
100
|
—
|
100
|
100
|
%
|
|||||||||||||||
Provision
for allowance for
doubtful
accounts
|
151
|
272
|
(121
|
)
|
(44
|
)%
|
370
|
248
|
122
|
49
|
%
|
||||||||||||||
Total
non-cash items
|
1,429
|
1,173
|
268
|
23
|
%
|
3,583
|
2,793
|
790
|
28
|
%
|
|||||||||||||||
Net
loss before non-cash
items
|
(1,189
|
)
|
(1,043
|
)
|
(146
|
)
|
(14
|
)%
|
(1,392
|
)
|
1,050
|
(2,442
|
)
|
(232
|
)%
|
||||||||||
Add:
Corporate infrastructure and on-
going
integration costs
|
477
|
439
|
38
|
9
|
%
|
1,657
|
1,240
|
417
|
34
|
%
|
|||||||||||||||
Net
loss before non-cash items and
corporate
infrastructure and
integration
costs
|
(712
|
)
|
(604
|
)
|
(108
|
)
|
(18
|
)%
|
265
|
2,290
|
(2,025
|
)
|
(88
|
)%
|
|||||||||||
Add:
Stated rate of interest
(see
interest expense table)
|
653
|
628
|
25
|
4
|
%
|
1,987
|
1,746
|
241
|
14
|
%
|
|||||||||||||||
Pro
forma EBITDA
|
$
|
(59
|
)
|
$
|
24
|
$
|
(83
|
)
|
(346
|
)%
|
$
|
2,252
|
$
|
4,036
|
$
|
(1,784
|
)
|
(44
|
)%
|
Nine
Months Ended
March
31,
|
|||||||
2007
|
2006
|
||||||
Net
proceeds from private placements of common stock
and
warrants issuance
|
$
|
3,018
|
$
|
—
|
|||
Proceeds
from exercise of common stock options and warrants
|
31
|
1,211
|
|||||
Proceeds
from issuance of promissory notes
|
—
|
3,000
|
|||||
Net
cash borrowings
|
—
|
1,460
|
|||||
$
|
3,049
|
$
|
5,671
|
Nine
Months Ended
March
31,
|
|||||||
2007
|
2006
|
||||||
Principal
payments on promissory notes
|
$
|
1,794
|
$
|
1,385
|
|||
Net
repayments of line of credit
|
807
|
—
|
|||||
Purchase
of property and equipment
|
796
|
2,018
|
|||||
Payments
of debt issuance costs
|
114
|
235
|
|||||
Capital
lease payments
|
110
|
11
|
|||||
Cash
used in operations
|
46
|
2,013
|
|||||
Acquisition
of business
|
—
|
1,751
|
|||||
Repayments
of promissory notes
|
—
|
452
|
|||||
$
|
3,667
|
$
|
7,865
|
||||
Net
change in cash and cash equivalents
|
$
|
(618
|
) |
$
|
(2,194
|
) |
· |
We
have significantly strengthened our management team, including the
following appointments: Vice President of Finance and Accounting
(April
2007); Controller of Corporate Accounting (September 2006); Senior
Vice
President of Information Services & Administration and Chief
Information Officer (April 2006; promoted December 2006); Senior
Vice
President of Marketing & Sales and Investment Relations Officer (July
2005; promoted December 2006); Controller of General Ledger Accounting
and
Controls (December 2006); Director of Revenue, Inventory and Payable
Accounting and Assistant Controller (May 2005); Mid-Continent Division
Controller (May 2006); and several additional information technology,
staff accounting and administrative
personnel.
|
· |
We
have invested over $1.8 million during the calendar year 2006 and
the
three months ended March 31, 2007 in the development and implementation
of
a new fully integrated accounting and operations internal control
and
management information system. In connection with this project we
found it
necessary to terminate in August 2006 the third party implementer
for its
inability to meet deliverables timelines and budget commitments,
and to
retain a more experienced and qualified
replacement.
|
· |
We
have significantly expanded our corporate infrastructure in order
to
upgrade and improve all internal accounting procedures and processes
supporting our existing business and anticipated
acquisitions.
|
· |
We
have initiated a program to develop and improve policies and procedures
in
connection with the operational performance of our internal finance
and
accounting processes and underlying information and reporting systems;
establish greater organizational accountability and lines of
responsibility and approval; and better support our processes
operations.
|
· |
We
have improved our organizational structure to help achieve the proper
number of, and quality of our, accounting, finance and information
technology functions, including the proper segregation of duties
among
accounting personnel.
|
· |
We
have refined our period-end financial reporting processes to improve
the
quality and timeliness of our financial
information.
|
Exhibit No. | Description | |
31.1
|
Certificate
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1
|
Certificate of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SMF ENERGY CORPORATION | ||
|
|
|
May 15, 2007 | By: | /s/ Richard E. Gathright |
Richard
E. Gathright
Chief
Executive Officer and President
(Principal
Executive Officer)
|
By: | /s/ Michael S. Shore | |
Michael
S. Shore
Chief
Financial Officer and Senior Vice President
(Principal
Accounting and Financial Officer)
|