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)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer x
|
Part
I
|
Financial
Information:
|
|||||
Item 1. |
Condensed
Unaudited Consolidated Financial Statements
|
|||||
Condensed
Consolidated Balance Sheets as of September 30, 2007 (unaudited)
and June
30, 2007
|
3
|
|||||
Condensed
Unaudited Consolidated Statements of Operations for the three-months
ended
September 30, 2007 and 2006
|
4
|
|||||
Condensed
Unaudited Consolidated Statements of Cash Flows for the three-months
ended
September 30, 2007 and 2006
|
5
|
|||||
Notes
to Condensed Unaudited Consolidated Financial Statements
|
7
|
|||||
Item 2. |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
17
|
||||
|
||||||
Item 3. |
Quantitative
and Qualitative Disclosures About Market Risk
|
29
|
||||
Item 4. |
Controls
and Procedures
|
29
|
||||
|
||||||
Part
II
|
Other
Information:
|
|||||
|
||||||
Items
1. through 6.
|
31
|
|||||
Signatures
|
|
32
|
||||
Certifications
|
|
33
|
September
30, 2007
|
June
30, 2007
|
||||||
ASSETS
|
(unaudited)
|
||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
19
|
$
|
987
|
|||
Accounts
receivable, net of allowances of $1,454 and $1,401
|
22,926 |
25,442
|
|||||
Inventories,
net of reserve of $219 and $238
|
2,202 |
2,283
|
|||||
Prepaid
expenses and other current assets
|
316
|
471
|
|||||
Total
current assets
|
25,463 |
29,183
|
|||||
|
|||||||
Restricted
cash
|
721 |
1,145
|
|||||
Property
and equipment, net of accumulated depreciation of
|
|||||||
$12,358
and $11,807
|
10,322 |
10,017
|
|||||
Identifiable
intangible assets, net of accumulated amortization of
|
|||||||
$775
and $681
|
2,678 |
2,771
|
|||||
Goodwill
|
228 |
228
|
|||||
Deferred
debt costs, net of accumulated amortization of $319 and
$1,197
|
|||||||
and
other assets
|
584
|
581
|
|||||
Total
assets
|
$
|
39,996
|
$
|
43,925
|
|||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Line
of credit payable
|
$
|
14,194
|
$
|
17,297
|
|||
Accounts
payable
|
8,500 |
7,887
|
|||||
Accrued
expenses and other liabilities
|
3,762
|
3,831
|
|||||
Total
current liabilities
|
26,456 |
29,015
|
|||||
Long-term
liabilities:
|
|||||||
Promissory
notes, net of unamortized debt discount of $111
|
|||||||
and
$1,027
|
10,498 | 10,250 | |||||
Other
long-term liabilities
|
535
|
546
|
|||||
Total
liabilities
|
37,489
|
39,811
|
|||||
Contingencies
|
|||||||
|
|||||||
Shareholders’
equity:
|
|||||||
Common
stock, par value $.01 per share; 50,000,000 shares
authorized;
|
|||||||
14,556,295
and 13,702,426 issued and outstanding
|
|||||||
at
September 30, 2007 and June 30, 2007,
respectively
|
146 | 137 | |||||
Additional
paid-in capital
|
26,424 |
25,021
|
|||||
Accumulated
deficit
|
(24,063
|
)
|
(21,044
|
)
|
|||
Total
shareholders’ equity
|
2,507
|
4,114
|
|||||
Total
liabilities and shareholders’ equity
|
$
|
39,996
|
$
|
43,925
|
Three
Months Ended September 30,
|
|||||||
2007
|
2006
|
||||||
Petroleum
product sales and service revenues
|
$
|
49,189
|
$
|
58,644
|
|||
Petroleum
product taxes
|
6,308
|
6,984
|
|||||
Total
revenues
|
55,497
|
65,628
|
|||||
Cost
of petroleum product sales and service
|
46,007 |
54,522
|
|||||
Petroleum
product taxes
|
6,308
|
6,984
|
|||||
Total
cost of sales
|
52,315
|
61,506
|
|||||
Gross
profit
|
3,182 |
4,122
|
|||||
Selling,
general and administrative expenses
|
3,803
|
3,650
|
|||||
Operating
(loss) income
|
(621 | ) |
472
|
||||
Interest
expense
|
(778 | ) |
(949
|
)
|
|||
Interest
and other income
|
21 |
15
|
|||||
Loss
on extinguishment of promissory notes
|
(1,641
|
)
|
-
|
||||
Loss
before income taxes
|
(3,019 | ) |
(462
|
)
|
|||
Income
tax expense
|
-
|
-
|
|||||
Net
loss
|
$
|
(3,019
|
)
|
$
|
(462
|
)
|
|
Basic
and diluted net loss per share
|
$
|
(0.21
|
)
|
$
|
(0.04
|
)
|
|
Basic
and diluted weighted average common
|
|||||||
shares
outstanding
|
14,200
|
10,496
|
Three
Months Ended September 30,
|
|||||||
2007
|
2006
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(3,019
|
)
|
$
|
(462
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in)
|
|||||||
operating
activities:
|
|||||||
Depreciation
and amortization:
|
|||||||
Cost
of sales
|
388 |
431
|
|||||
Selling,
general and administrative
|
282 |
223
|
|||||
Amortization
of deferred debt cost
|
47 |
79
|
|||||
Amortization
of debt discount
|
50 |
150
|
|||||
Stock-based
compensation expense
|
126 |
27
|
|||||
Gain
from sale of assets
|
(6 | ) |
-
|
||||
Inventory
reserve
|
(19 | ) |
-
|
||||
Provision
for doubtful accounts
|
161 |
32
|
|||||
Non-cash
loss on extinguishment of debt
|
1,371 |
-
|
|||||
Other
|
- |
(9
|
)
|
||||
Changes
in operating assets and liabilities, net of effects of
acquisitions:
|
|||||||
Decrease
in accounts receivable
|
2,355 |
315
|
|||||
Decrease
in prepaid expenses and other assets
|
155 |
196
|
|||||
Decrease
in inventories
|
100 |
312
|
|||||
Increase
(decrease) in accounts payable and other liabilities
|
547
|
(2,261
|
)
|
||||
Net
cash provided by (used in) operating activities
|
2,538
|
(967
|
)
|
||||
CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
|||||||
Purchases
of property and equipment
|
(882 | ) |
(127
|
)
|
|||
Proceeds
from sale of equipment
|
6 |
-
|
|||||
Decrease
in restricted cash
|
424
|
-
|
|||||
Net
cash used in investing activities
|
(452
|
)
|
(127
|
)
|
|||
|
|||||||
CASH
FLOWS USED IN FINANCING ACTIVITIES:
|
|||||||
Proceeds
from line of credit
|
55,980 |
68,027
|
|||||
Repayments
of line of credit
|
(59,083 | ) |
(70,015
|
)
|
|||
Proceeds
from issuance of promissory notes
|
5,690 |
-
|
|||||
Proceeds
from issuance of common stock
|
1,170 |
-
|
|||||
Principal
payment on promissory notes
|
(6,359 | ) |
(452
|
)
|
|||
Debt
issuance costs
|
(379 | ) |
(29
|
)
|
|||
Common
stock issuance costs
|
(60 | ) |
-
|
||||
Capital
lease payments
|
(13 | ) |
(43
|
)
|
|||
Net
proceeds from exercise of common stock options and warrants
|
-
|
16
|
|||||
Net
cash used in financing activities
|
(3,054
|
)
|
(2,496
|
)
|
|||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(968 | ) |
(3,590
|
)
|
|||
CASH
AND CASH EQUIVALENTS, beginning of year
|
987
|
4,103
|
|||||
CASH
AND CASH EQUIVALENTS, end of year
|
$
|
19
|
$
|
513
|
(Continued)
|
Three
Months Ended September 30,
|
||||||
2007
|
2006
|
||||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|||||||
Cash
paid for interest
|
$
|
998
|
$
|
811
|
|||
SUPPLEMENTAL
DISCLOSURE OF NON-CASH ACTIVITIES:
|
|||||||
Refinancing
of August 2003, January 2005, and September 2005
|
|||||||
notes
into August 2007 notes
|
$
|
4,918
|
$
|
-
|
|||
Non-cash
costs related to issuance of stock, warrants and
|
|||||||
August
2007 notes
|
$
|
134
|
$
|
-
|
|||
Debt
discount costs related to issuance of stock, warrants and
|
|||||||
August
2007 notes
|
$
|
112
|
$
|
-
|
1.
|
NATURE
OF OPERATIONS
|
2. |
BASIS
OF PRESENTATION
|
3. |
RECLASSIFICATIONS
|
4. |
RECENT
ACCOUNTING PRONOUNCEMENTS
|
5. |
CASH
AND CASH EQUIVALENTS
|
6. |
RESTRICTED
CASH
|
7. |
LINE
OF CREDIT PAYABLE
|
8. |
NET
INCOME (LOSS) PER SHARE
|
9. |
LONG-TERM
DEBT
|
September
30,
|
June
30,
|
||||||
2007
|
2007
|
||||||
August
2007 senior secured convertible subordinated promissory notes (the
“August
2007 Notes”) (11.5% interest due semi-annually, December 31 and June 30);
matures December 31, 2009 in its entirety; effective interest rate
of
14.3% includes cost of warrants and other debt issue
costs.
|
$
|
10,609
|
$
|
-
|
|||
August
2003 promissory notes (the “August 2003 Notes”) (10% interest due
semi-annually, December 31 and June 30); at June 30, 2007, two
principal payments of $752,800 and $552,600 were due on August 28,
2007 and February 28, 2008; balloon payment of $2,111,925 was due
at
maturity on August 28, 2008; effective interest rate of 19.9% included
cost of warrants and other debt issue costs. The notes were refinanced
on
August 8, 2007.
|
- |
3,417
|
|||||
January
2005 promissory notes (the “January 2005 Notes”) (10% interest due
semi-annually, July 24 and January 24); at June 30, 2007, five principal
payments of $540,000 were due semi-annually on January 24 and July
24;
balloon payment of $2,160,000 was due at maturity on January 24,
2010;
effective interest rate of 20.4% included cost of warrants and other
debt
issue costs. The notes were refinanced on August 8, 2007.
|
- |
4,860
|
|||||
September
2005 promissory notes (the “September 2005 Notes”) (10% interest due
semi-annually, February 28 and August 31); at June 30, 2007, six
principal
payments of $300,000 were due semi-annually on August 31 and February
28;
balloon payment of $1,200,000 was due at maturity on August 31, 2010;
effective interest rate of 20.3% included cost of warrants and other
debt
issue costs. The notes were refinanced on August 8, 2007.
|
- |
3,000
|
|||||
Various
capital leases, interest rates range from 5.27% to 15.78%, monthly
principal and interest payments, leases expire August 2006 to March
2008.
|
13 |
26
|
|||||
Unamortized
debt discount
|
(111
|
)
|
(1,027
|
)
|
|||
10,511 |
10,276
|
||||||
Less:
current portion
|
(13
|
)
|
(26
|
)
|
|||
Long-term
debt, net
|
$
|
10,498
|
$
|
10,250
|
10.
|
WARRANTS
|
11. |
SHAREHOLDERS’
EQUITY
|
Additional
|
Total
|
||||||||||||
Common
|
Paid-in
|
Accumulated
|
Shareholders’
|
||||||||||
Stock
|
Capital
|
Deficit
|
Equity
|
||||||||||
Balance
at June 30, 2007
|
$
|
137
|
$
|
25,021
|
$
|
(21,044
|
)
|
$
|
4,114
|
||||
Issuance
of common stock and warrants
|
|||||||||||||
from
August 2007 offering, net of
|
|||||||||||||
issuance
costs of $80,000
|
9 | 1,277 | - | 1,286 | |||||||||
Stock-based
compensation expense
|
- | 126 | - | 126 | |||||||||
Net
loss
|
-
|
-
|
(3,019
|
)
|
(3,019
|
)
|
|||||||
Balance
at September 30, 2007
|
$
|
146
|
$
|
26,424
|
$
|
(24,063
|
)
|
$
|
2,507
|
12. |
CONTINGENCIES
|
13. |
INCOME
TAXES
|
ITEM 2. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
· |
Our
beliefs regarding our position in the market for commercial mobile
fueling
and bulk fueling; lubricant and chemical packaging, distribution
and
sales; integrated out-sourced fuel management services; and transportation
logistics;
|
· |
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;
and
|
· |
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 debt instruments,
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
continuing ability to obtain all necessary waivers of covenant violations,
if any, in our debt agreements;
|
· |
The
avoidance of significant provisions for bad debt reserves on our
accounts
receivable;
|
· |
The
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;
|
· |
The
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;
|
· |
The
successful integration of acquired companies into our existing operations,
and enhancing the profitability of the integrated businesses;
|
· |
The
successful execution of our acquisition and diversification strategy,
including the availability of sufficient capital to acquire additional
businesses and to support the infrastructure requirements of a larger
combined company;
|
· |
The
success in responding to competition from other providers of similar
services;
|
· |
The
impact of generally positive economic and market conditions; and
|
· |
The
ability to retire or convert debt to
equity.
|
·
|
In
the first quarter of fiscal 2008, we had a net loss of $3.0 million.
These
results include $2.4 million in non-cash charges, such as depreciation
and
amortization of assets, debt costs, debt discounts, stock based
compensation, provision for doubtful accounts, and non-cash loss
on
extinguishment of debt. Additionally the results include stated interest
expense associated with servicing of our debt of $681,000, cash loss
on
extinguishment of debt of $270,000, legal expenses of $244,000, and
public
company costs of $220,000.
|
·
|
On
August 8, 2007, we sold $11.8 million in debt and equity securities
(the
“Offering”). We used the proceeds of the Offering to satisfy the principal
balance of our then outstanding August 2003, January 2005 and September
2005 promissory notes. As a result of this transaction, we lowered
our
senior secured convertible subordinated debt from $11.2 million to
$10.6
million at August 8, 2007. Since the new notes mature in December
31,
2009, the debt associated with the promissory notes was classified
in our
condensed unaudited consolidated balance sheet as long-term debt.
|
·
|
External
factors beyond our control have continued to impact our results of
operations. While fuel price fluctuations affect our revenues, our
gross
profits are generally not affected by such fluctuations since we
are able
to pass the increased cost of the product on to our customers. However,
higher fuel prices coupled with negative economic conditions in certain
markets have decreased the demand for the services and goods provided
by
the transportation, manufacturing, services and other industries
that
comprise 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. Moreover, in addition to
increased running costs for the Company’s fuel delivery fleet, higher fuel
prices have increased the amount of short term credit that we extend
to
our mobile fueling customers from delivery until payment.
|
·
|
The
net loss from operations for the first quarter of fiscal 2008 was
$3.0
million compared to a loss of $462,000 for the same period in the
prior
year. The primary reason for the $2.5 million increase in the net
loss was
due to a loss on extinguishment of debt of $1.6 million related to
the
refinancing of our outstanding secured promissory notes with new
senior
secured convertible subordinated notes. The loss on extinguishment
of debt
was the result of the write-off of unamortized debt discounts of
$978,000, the
write-off of debt costs of $443,000, a pre-payment penalty of $270,000,
and a gain of $50,000 due to the excess of the carrying value of
the notes
over the extinguishment price. Additionally, the increase in the
net loss
was due to a $940,000 decrease in gross profit partially due to the
reduction in business with net margin contributions below acceptable
levels, such as the curtailment of the low margin fuel transport
business
in August 2006. The prior year results also included additional emergency
response revenues generated for services provided to our customers
as they
prepared for Hurricane Ernesto. We also believe that our results
were
impacted by the decrease in industry demand stemming from the general
economic conditions in the industries and geographic locations we
serve.
|
·
|
For
the first quarter of fiscal 2008, the net margin was 19.1 cents per
gallon
compared to 19.4 cents per gallon for the same period in the prior
year.
The higher margins in the first quarter of fiscal 2007 were due to
some
higher margin emergency response revenue generated, as our customers
utilized our services in anticipation of Hurricane Ernesto.
|
·
|
Earnings
before interest, taxes, depreciation, amortization, stock-based
compensation expense, and loss on extinguishment of debt (“EBITDA”), a
non-GAAP measure, for the first quarter of fiscal 2008 were $196,000
compared to $1.2 million for the same period in the prior year. The
primary reason for the $1.0 million decrease was the decrease in
gross
margins, as discussed above.
|
·
|
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 4.7 million gallon reduction
in
the first quarter of fiscal 2008, as compared to the same period
in the
prior year was primarily due to the reduction in business with net
margin
contributions below acceptable levels, the decrease in emergency
response
revenues generated for services provided to our customers as they
prepared
for Hurricane Ernesto, and a decrease in industry demand stemming
from the
general economic conditions in the industries and geographic locations
we
serve, and our customers’ efforts to reduce fuel consumption in light of
increased fuel prices.
|
Three
Months Ended
|
|||||||
September
30,
|
|||||||
2007
|
2006
|
||||||
Stated
Rate Interest Expense:
|
|||||||
Line
of credit
|
$
|
359
|
$
|
338
|
|||
Long
term debt
|
302 | 355 | |||||
Other
|
20
|
27
|
|||||
Total
stated rate interest expense
|
681
|
720
|
|||||
Non-Cash
Interest Amortization:
|
|||||||
Amortization
of deferred debt costs
|
47 | 79 | |||||
Amortization
of debt discount
|
50
|
150
|
|||||
Total
amortization of interest expense
|
97
|
229
|
|||||
Total
interest expense
|
$
|
778
|
$
|
949
|
Three
Months Ended
|
|||||||
September
30,
|
|||||||
2007
|
2006
|
||||||
Net
loss
|
$
|
(3,019
|
)
|
$
|
(462
|
)
|
|
Add
back:
|
|||||||
Interest
expense
|
778 | 949 | |||||
Stock-based
compensation expense
|
126 | 27 | |||||
Depreciation
and amortization expense:
|
|||||||
Cost
of sales
|
388 | 431 | |||||
Selling,
general and administrative expenses
|
282 | 223 | |||||
Loss
on extinguishment of debt
|
1,641 | - | |||||
EBITDA
|
$
|
196
|
$
|
1,168
|
Three
Months Ended
|
|||||||
September
30,
|
|||||||
2007
|
2006
|
||||||
Net
loss
|
$ | (3,019 | ) | $ | (462 | ) | |
Add:
non-cash items:
|
|||||||
Depreciation
- cost of sales
|
388 | 431 | |||||
Depreciation
and amortization - SG&A
|
282 | 223 | |||||
Amortization
of deferred debt costs
|
47 | 79 | |||||
Amortization
of debt discount
|
50 | 150 | |||||
Stock-based
compensation expense
|
126 | 27 | |||||
Other
non-cash expenses
|
- | (9 | ) | ||||
Inventory
reserve
|
(19 | ) | - | ||||
Provision
for doubtful accounts
|
161 | 32 | |||||
Non-cash
loss on extinguishment of debt
|
1,371
|
-
|
|||||
Total
non-cash items
|
2,406
|
933
|
|||||
Net
(loss) income before non-cash items
|
(613 | ) | 471 | ||||
Add:
Corporate infrastructure and integration costs
|
427
|
653
|
|||||
Net
(loss) income before non-cash items and corporate
|
|||||||
infrastructure
and integration costs
|
(186 | ) | 1,124 | ||||
Add:
Stated rate interest expense (See interest expense table)
|
681 | 720 | |||||
Cash
loss on extinguishment of debt
|
270 | - | |||||
Deduct:
Gain from sale of assets
|
(6
|
)
|
-
|
||||
Proforma
EBITDA
|
$
|
759
|
$
|
1,844
|
Three
Months Ended
|
|||||||
September
30,
|
|||||||
2007
|
2006
|
||||||
Proceeds
from issuance of promissory notes
|
$
|
5,690
|
$
|
16
|
|||
Proceeds
from issuance of common stock
|
1,170 | - | |||||
Cash
provided by operating activities
|
2,538 | - | |||||
Decrease
in restricted cash
|
424 | - | |||||
Proceeds
from sale of equipment
|
6 | - | |||||
$
|
9,828
|
$
|
16
|
Three
Months Ended
|
|||||||
September
30,
|
|||||||
2007
|
2006
|
||||||
Principal
payments on promissory notes
|
$
|
6,359
|
$
|
452
|
|||
Net
payments on line of credit payable
|
3,103 | 1,988 | |||||
Purchases
of property and equipment
|
882 | 127 | |||||
Payments
of debt and warrant issuance costs
|
439 | 29 | |||||
Capital
lease payments
|
13 | 43 | |||||
Cash
used in operations
|
- | 967 | |||||
$
|
10,796
|
$
|
3,606
|
||||
Net
change in cash and cash equivalents
|
$
|
(968
|
)
|
$
|
(3,590
|
)
|
ITEM 3. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4. |
CONTROLS
AND PROCEDURES
|
Exhibit
No.
|
Description |
31.1
|
Certificate
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1
|
Certificate
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002
|
SMF ENERGY CORPORATION | ||
|
|
|
November 14, 2007 | By: | /s/ Richard E. Gathright |
Richard E. Gathright |
||
Chief Executive Officer and President |
By: | /s/ Michael S. Shore | |
Michael S. Shore |
||
Chief Financial Officer and Senior Vice President |