10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Quarterly Period ended June 30, 2000 Commission File Number: 0-27968 METEOR INDUSTRIES, INC. -------------------------------------------------- (Exact Name of Issuer as Specified in its Charter) COLORADO 84-1236619 ------------------------------- -------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 1401 BLAKE STREET, SUITE 200, DENVER, COLORADO 80202 ----------------------------------------------------- (Address of Principal Executive Offices) (303) 572-1135 ---------------------------------------------------- (Registrant=s Telephone Number, Including Area Code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ] There were 3,526,027 shares of the Registrant=s $.001 par value common stock outstanding as of August 14, 2000. Item 1: FINANCIAL STATEMENTS METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS ASSETS (Dollars in Thousands) June 30, December 31, 2000 1999 (Unaudited) CURRENT ASSETS Cash $ 540 $ 288 Restricted cash 2,522 600 Accounts receivable-trade, net of allowance of $312 and $233, respectively 16,290 14,835 Accounts receivable, related party 328 678 Notes receivable, net of allowance of $114 and $114, respectively 118 290 Notes receivable, related party 1,526 1,153 Inventory 3,937 3,596 Deferred tax asset 335 335 Other current assets 411 535 Total current assets 26,007 22,310 Property, plant and equipment, net 17,396 17,905 Other assets Notes receivable, net 167 123 Notes receivable, related party 1,277 1,277 Investments in closely held businesses 1,495 1,581 Intangibles, net 1,322 1,409 Other assets 520 390 Total other assets 4,781 4,780 TOTAL ASSETS $ 48,184 $ 44,995 Continued on next page 2 METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in Thousands) June 30, December 31, 2000 1999 (Unaudited) CURRENT LIABILITIES Accounts payable, trade $ 10,879 $ 8,323 Accounts payable, related party 14 14 Book overdraft 1,956 1,924 Current portion, long-term debt 1,428 1,438 Accrued expenses 736 755 Fuel taxes payable 884 909 Income taxes payable 35 0 Revolving credit facility 9,278 9,292 Total current liabilities 25,210 22,655 Long-term debt 5,545 5,865 Deferred tax liability 2,606 2,606 Minority interest in subsidiaries 5,657 5,412 Total liabilities 39,018 36,538 Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value; 365,000 shares authorized, issued and outstanding 365 0 Common stock, $.001 par value; authorized 10,000,000 shares, 3,526,027 and 3,524,169 shares issued and outstanding, respectively 4 4 Paid-in capital 4,899 4,458 Treasury stock, at cost, 132,098 and 132,098 shares held respectively (489) (489) Retained earnings 4,387 4,484 Total shareholders' equity 9,166 8,457 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,184 $ 44,995 The accompanying notes are an integral part of the financial statements. 3 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) (Dollars in Thousands except per share information) June 30, June 30, 2000 1999 Net sales $ 48,605 $ 36,965 Cost of sales 43,164 31,066 Gross profit 5,441 5,899 Selling, general and administrative expenses 4,458 4,570 Depreciation and amortization 595 529 Total expenses 5,053 5,099 Income from operations 388 800 Other income and (expenses) Interest income 86 54 Interest expense (371) (297) Other (71) 4 Gain (loss) on sale of assets (2) (2) Total other expenses (358) (241) Income before income taxes and minority interest 30 559 Income tax expense 13 206 Minority interest 123 122 Net income(loss) $ (106) $ 231 Earnings (loss) per share: Basic $ (.03) $ .07 Diluted $ (.03) $ .07 Weighted average common share and common share equivalents: Basic 3,524,988 3,423,694 Diluted 3,524,988 3,433,754 The accompanying notes are an integral part of the financial statements. 4 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) (Dollars in Thousands except per share information) June 30, June 30, 2000 1999 Net sales $ 90,623 $ 64,115 Cost of sales 79,544 52,773 Gross profit 11,079 11,342 Selling, general and administrative expenses 9,003 8,764 Depreciation and amortization 1,195 1,009 Total expenses 10,198 9,773 Income from operations 881 1,569 Other income and (expenses) Interest income 185 92 Interest expense (734) (608) Other (66) 144 Gain (loss) on sale of assets (5) 1 Total other expenses (620) (371) Income before income taxes and minority interest 261 1,198 Income tax expense 113 441 Minority interest 245 245 Net income (loss) $ (97) $ 512 Earnings (loss)per share: Basic $ (.03) $ .15 Diluted $ (.03) $ .15 Weighted average common share and common share equivalents: Basic 3,524,579 3,423,694 Diluted 3,524,579 3,433,754 The accompanying notes are an integral part of the financial statements. 5 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEAR TO DATE ENDED JUNE 30, 2000 (UNAUDITED) (Dollars in Thousands)
Preferred Additional Stock Common Stock Paid-In Retained Treasury Shares Amount Shares Amount Capital Earnings Stock Total Balance December 31, 1999 0 $ 0 3,656,267 $4 $4,458 $4,484 $(489) $8,457 Stock issued for 401(K)/ bonus 1,858 27 27 Options issued for services 99 99 Issuance of Pre- ferred stock, net 365,000 365 315 680 Net loss (97) (97) Balance June 30, 2000 365,000 $365 3,658,125 $4 $4,899 $4,387 $(489) $9,166
The accompanying notes are an integral part of the financial statement 6 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) (Dollars in Thousands) June 30, June 30, 2000 1999 Cash flows from operating activities: Net income (loss) $ (97) $ 512 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,195 1,009 (Gain) loss on disposal of property, plant & equipment 5 (1) Minority interest 245 245 Other 99 0 Change in assets and liabilities: Decrease (increase) in: Accounts receivable, net (1,445) (2,255) Inventories (341) 153 Other current assets 124 170 Other assets (130) (77) Increase (decrease) in: Accounts payable 2,556 3,296 Accrued liabilities (19) (496) Taxes payable 10 (532) Net cash provided by operating activities 2,202 2,024 Cash flows from investing activities: Cash proceeds from sale of property, plant and equipment 126 73 Purchases of property, plant and equipment (692) (1,802) Non-compete agreement 0 (80) Investment in closely held business 48 (4) Notes receivable issued (78) (145) Notes receivable payments 173 99 Net cash used in investing activities (423) (1,859) Continued on next page 7 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) (Dollars in Thousands) (Continued) June 30, June 30, 2000 1999 Cash flows from financing activities: Borrowings (payments) on revolving credit facilities, net $ (14) $ 1,532 Increase in book overdraft 32 735 Payments on long-term debt (696) (870) Borrowings on long-term debt 366 581 Proceeds from preferred stock issued 730 0 Costs on preferred stock issued (23) 0 Restricted cash (1,922) (2,230) Net cash used in financing activities (1,527) (252) Net increase (decrease)in cash and equivalents 252 (87) Cash and equivalents, beginning of period 288 380 Cash and equivalents, end of period $ 540 $ 293 The accompanying notes are an integral part of the financial statements. 8 METEOR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ORGANIZATION ORGANIZATION - Meteor Industries, Inc. ("Meteor" or "Company") was incor- porated on December 22, 1992, as a Colorado based holding company. In January 2000, Meteor Marketing, Inc.("Meteor Marketing"), a Colorado corporation and a wholly owned subsidiary of the Company, merged downstream with and into Fleischli Oil Company, Inc. ("Fleischli"), a Wyoming corporation and a wholly owned subsidiary of Meteor Marketing. Fleischli became the surviving corporation and immediately changed its name to "Meteor Marketing, Inc." In addition, the significant wholly owned subsidiaries included in Meteor Marketing which are: Graves Oil & Butane Co., Inc. ("Graves"), and Tri-Valley Gas Co. ("Tri-Valley") merged their marketing and distribution operations with and into Meteor Marketing. The Company also owns Meteor Holdings LLC ("MHL") and Innovative Solutions and Technologies, Inc. ("IST"). NOTE 2 - BASIS OF PRESENTATION These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 1999, filed with the Company's Form 10-K. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NEW ACCOUNTING PRONOUNCEMENT - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") NO. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. FAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, the FASB issued FAS No. 137 which defers the effective date of FAS No. 133 to fiscal years beginning after June 15, 2000. The Company will adopt FAS No. 133 in the first quarter of fiscal 2001, but does not expect such adoption to materially affect its financial statement presentation. NOTE 3 - EARNINGS PER SHARE Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share are calculated taking into account all potentially dilutive securities. A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is presented below. Antidilutive stock options and 9 warrants of 1,513,271 and 1,611,266 for the six months ended June 30, 2000 and 1999 respectively, are omitted from the denominator. The numerator is unchanged. The shares available upon exchange of a subsidiary's preferred stock of 1,043,835 and 1,014,635 for the six months ended June 30, 2000 and 1999, respectively, are omitted as they are antidilutive. Three Months Six Months Ended June 30, June 30, 2000 1999 2000 1999 Denominator: Average common shares outstanding 3,524,988 3,423,694 3,524,579 3,423,694 Average dilutive stock options and warrants 0 10,060 0 10,060 Diluted shares 3,524,988 3,433,754 3,524,579 3,433,754 NOTE 4 - COMMITMENTS AND CONTINGENCIES The Company is subject to various federal, state and local environmental laws and regulations. Although Company environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent regulations could require the Company to make additional unforeseen environmental expenditures. Environmental accruals are routinely reviewed on an interim basis as events and developments warrant. The Company is a co-signer on a note for its 50% owned equity investment in Coors Pyramid LLC. The principal long-term balance owing on the note at June 30, 2000, is $359,000. The Company has guaranteed a $1,350,000 note payable on the office building in which the Company's corporate offices are located. The principal long-term balance owing on the note at June 30, 2000 is $1,350,000. In August 1999, the Company signed a definitive agreement to acquire Jardine Petroleum Company ("Jardine"). Jardine is a petroleum distribution company with operations primarily in Utah. The Company is currently negotiating a restructuring of the transaction and reviewing certain financing options, however, there is no assurance that such transaction will be successfully closed. The Company is a party to certain litigation that has arisen in the normal course of its business and that of its subsidiaries. In the opinion of management, none of this litigation is likely to have a material effect on the Company's financial position or results of operation. In June 2000, the Company entered into a non-binding letter of intent to acquire all of the shares of Innovative Drug Delivery Systems, Inc. ("IDDS"), a privately-held bio-pharmaceutical company dedicated to applying unique delivery technologies to pharmaceutical products to achieve enhanced therapeutic value. The closing of the merger transaction will be contingent upon several conditions, including (a) satisfactory due diligence by both parties, (b) the negotiation and execution of a definitive merger agreement, (c) a $5 million investment by Meteor in IDDS, and (d) final approval of the 10 transaction by Meteor's and IDDS's shareholders. The transaction, if consummated, will result in IDDS shareholders owning approximately 80% of the merged companies. NOTE 5 - RELATED PARTY TRANSACTIONS The Company has both short-term and long-term notes receivable from Capco Energy, Inc. ("Capco"), an affiliate of the Company. The notes bear interest and are secured by all of the outstanding shares of a wholly owned subsidiary of Capco and by certain shares of the Company's stock held by Capco. The total notes receivable balance at June 30, 2000 and at December 31, 1999, is $2,803,000 and $2,430,000. NOTE 6 - BUSINESS SEGMENTS The Company operates in six business segments: gasoline, diesel, propane, grease and lubes, convenience store items and other products (anti-freeze, chemicals, services, hardware, rental income and miscellaneous items). Senior management evaluates and makes operating decisions about each of these operating segments based on a number of factors. Two of the most significant factors used in evaluating the operating performance are: net sales and gross profit before depreciation and amortization as presented below: Three Months Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 Net sales Gasoline $13,683 $10,100 $24,793 $15,651 Diesel 27,057 18,565 50,002 31,298 Propane 939 808 3,136 2,394 Greases and lubes 5,913 5,091 9,948 9,780 Convenience store items 0 1,631 0 2,933 Other items 1,013 770 2,744 2,059 Total net sales $48,605 $36,965 $90,623 $64,115 Gross profit, before depreciation Gasoline $ 822 $ 1,502 $ 1,681 $ 2,280 Diesel 2,003 2,236 3,902 4,039 Propane 329 358 1,104 1,068 Greases and lubes 1,310 1,000 2,209 1,982 Convenience store items 0 409 0 722 Other items 977 394 2,183 1,251 Total gross profit $ 5,441 $ 5,899 $11,079 $11,342 Reconciliation to net income: Selling, general and administrative $ 4,458 $ 4,570 $ 9,003 $ 8,764 Depreciation and amortization 595 529 1,195 1,009 Income from operations 388 800 881 1,569 Other expense (358) (241) (620) (371) Income tax expense 13 206 113 441 Minority interest 123 122 245 245 Net income (loss) $ (106) $ 231 $ (97) $ 512 11 In December 1999, Meteor sold its retail store operating subsidiary to allow the Company to focus on its core business of commercial, wholesale and cardlock petroleum distribution. The Company does not account for assets by business segment and, therefore, depreciation and amortization are not factors used in evaluating operating performance. NOTE 7 - PREFERRED STOCK During June 2000, the Company issued 365,000 shares of Series B Convertible Preferred Stock. The Company received $707,000, net of cash issuance costs of $23,000. In addition, the Company issued stock options to consultants related to the issuance of the preferred stock that resulted in $27,000 of non-cash expenses. Each share is: (1) not entitled to dividends, (2) entitled to a liquidation preference of $2.00, (3) entitled to one vote, (4) not redeemable, and (5) convertible. Holders of the Series B Convertible Preferred Stock have the right to convert all or a portion of their shares into units, each unit consisting of one share of Common Stock and one warrant to purchase Common Stock. The warrants to be issued as part of the units upon conversion shall be in a form determined by the Board of Directors and shall be exercisable until May 15, 2005, at an exercise price of $2.50 per share. NOTE 8 - SUBSEQUENT EVENTS On August 9, 2000 the company entered into a settlement and debt restructuring agreement with the Estate of Theron J. Graves related to the Graves Oil & Butane Co., Inc. ("Graves") Series A Convertible Preferred Stock. The terms of the agreement are: - Graves will acquire all 1,000,000 shares of Series A Convertible Preferred Stock of Graves in exchange for a promissory note in the amount of $4,466,311. Subsequent to acquisition of such shares, Graves will retire and cancel such shares. The note will be amortized over a four-year period with an interest rate of 8%. The note requires a $1,500,000 payment in September, 2000, to be obtained from the sale of certain assets currently secured by the preferred stock. The note will be guaranteed by Meteor Marketing, Inc. and will be secured with the remaining assets currently securing the preferred stock. The preferred stock is reflected as minority interest on the consolidated financial statements at June 30, 2000 in the amount of $5,407,000. A portion of the difference between the amount of the promissory note and the minority interest will be established as a reserve for environmental conditions in the third quarter. - Graves will release the Estate and the Estate will release Meteor Industries, Inc. from any and all claims that relate to the original Graves purchase agreement and to any environmental conditions related to Graves. Graves and Meteor Marketing will indemnify the Estate for all claims related to environmental conditions of Graves. - Graves will acquire other properties of the Estate in Farmington, New Mexico and Cortez, Colorado for promissory notes of $900,000. The notes will be amortized over thirty years with interest of 7% and with a balloon at the end of ten years. 12 - Graves will have an option to acquire the one third ownership of Mesa Propane owned by the Estate for $700,000 for a period of sixteen months. If the option is exercised the payment will be in the form of a promissory note amortized over 30 years with interest at 7% and with a balloon at the end of ten years. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Report contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. The following discussion of the Company's financial condition and results of operations should be read in conjunction with the historical financial statements and notes thereto of Meteor, included elsewhere in this document. INTRODUCTION The Company is engaged in the distribution and marketing of refined petroleum products including gasoline, diesel fuel, propane and lubricants. The Company's growth, since its inception in 1992, has been primarily through the acquisition of businesses in the petroleum marketing industry. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999 The Company had sales of $49.0 million for the three months ended June 30, 2000, compared to $37.0 million for the three months ended June 30, 1999, a $12.0 million (32%) increase. The increase is primarily due to higher product prices during the current period and an increase in product sales volumes. Gross profit for the three months ended June 30, 2000 and 1999, was $5.4 million and $5.9 million, respectively. The decrease is primarily due to the exchange of higher retail margins with wholesale margins resulting from the sale of Meteor Stores, Inc. In addition, diesel gross margins declined as a result of increased competition. The Company experienced a net loss of $106,000 for the three months ended June 30, 2000, compared to net income of $231,000 in 1999. The net loss results from higher operating costs due to an increase in the level of activity and an increase in expenses incurred in building the infrastructure necessary for future growth of the Company. Also, The Company had an increase in interest expense related to carrying higher levels of accounts receivable and inventory. Accounts receivable and inventory are significantly higher in 2000 vs 1999 due to the rapid increase in the cost of petroleum based products. The increase in expense was partially offset by a reduction in expenses resulting from the sale of Meteor Stores, Inc. and lower income tax expense. 13 Gasoline Segment Gasoline volumes increased to 13.0 million gallons for the three months ended June 30, 2000, compared to 12.8 million gallons in 1999, an increase of .2 million (2%). The volume increase is primarily due to the Carroll Oil Company acquisition. Gasoline sales increased to $13.7 million for the three months ended June 30, 2000, compared to $10.1 million in 1999, an increase of $3.6 million (36%) primarily due to higher product prices during the current period. Gross profit decreased to $.8 million for the three months ended June 30, 2000, from $1.5 million in 1999, a decrease of $.7 million (47%), primarily due to the exchange of higher retail margins with wholesale margins resulting from the sale of Meteor Stores, Inc. (retail c-store subsidiary) in December 1999. Gross profit per gallon of gasoline sold decreased to $.06 for the three months ended June 30, 2000, from $.12 in 1999 for the reason stated above. Diesel Segment Diesel volumes increased to 28.4 million gallons for the three months ended June 30, 2000, from 27.0 million in 1999, an increase of 1.4 million gallons (5%) due to acquiring new customers. Diesel sales increased to $27.1 million for the three months ended June 30, 2000, from $18.6 million in 1999, an increase of $8.5 million (46%) due to higher product prices during the current period and increased sales volumes. Gross profit decreased to $2.0 million for the three months ended June 30, 2000, from $2.2 million in 1999, a decrease of $.2 million (9%). Gross profit per gallon of diesel sold decreased to $.07 for the three months ended June 30, 2000, from $.08 in 1999, due to increased competition. Propane Segment Propane volumes decreased to 1.2 million gallons for the three months ended June 30, 2000, from 1.7 million gallons in 1999, a .5 million decrease (29%) due to a decrease in wholesale volume caused by unseasonably warm weather in our marketing area. Propane sales increased to $.9 million for the three months ended June 30, 2000, from $.8 million in 1999, an increase of $.1 million (13%) due to higher product prices during the current period, partially offset by a decrease in sales volume. Gross profit decreased to $.3 million for the three months ended June 30, 2000, from $.4 million in 1999 a decrease of $.1 million (25%), due to a decrease in wholesale propane sales volume. Greases and Lubricants Segment Grease and lubricants sales increased to $5.9 million for the three months ended June 30, 2000, compared to $5.1 million 1999 an increase of $.8 million (16%) due to higher product prices during the current period. Gross profit increased to $1.3 million for the three months ended June 30, 2000, compared to $1.0 million in 1999, an increase of $.3 million (30%). Convenience Store Items Segment Sales of convenience store items decreased to -0- for the three months ended June 30, 2000, from $1.6 million in 1999, due to the sale of Meteor Stores, Inc. in December 1999. 14 Other Items Segment Sales of other items, which consist of anti-freeze, chemicals, services, hardware, rental income and miscellaneous items, increased to $1.0 million for the three months ended June 30, 2000, compared to $.8 million in 1999, an increase of $.2 million (25%). Gross profit increased to $1.0 million for the three months ended June 30, 2000, compared to $.4 million in 1999, an increase of $.6 million (150%) due to rental income and freight revenue. Expenses Selling, general, and administrative ("SG&A") expenses were $4.5 million for the three months ended June 30, 2000, compared to $4.6 million for the three months ended June 30, 1999, a decrease of $.1 million (2%). The decrease is primarily related to the reduction in SG&A expenses related to the sale of Meteor Stores, Inc. partially offset by the increase in the level of activity and costs incurred to build the infrastructure necessary for future growth of the Company. Depreciation and amortization expense increased to $.6 million for the three months ended June 30, 2000, compared to $.5 million in 1999. Other expense, net increased to $.4 million for the three months ended June 30, 2000, compared to $.2 million in 1999, primarily due to increased interest expense. Income Taxes The provision for income taxes for the three months ended June 30, 2000, was $13,000 compared to $206,000 for the same period ended June 30, 1999. The decrease is due to lower taxable income for the three months ended June 30, 2000, as compared to 1999. COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO JUNE 30, 1999 The Company had sales of $90.0 million for the six months ended June 30, 2000, compared to $64.0 million for the six months ended June 30, 1999, a $26.0 million (41%) increase. The increase is primarily due to an increase in product sales volumes as a result of the Carroll Oil Company acquisition in April 1999, and higher product prices during the current period. Gross profit for the six months ended June 30, 2000 and 1999, was $11.1 million and $11.3 million, respectively. The decrease is due to the exchange of higher retail margins with wholesale margins resulting from the sale of Meteor Stores, Inc. In addition, diesel gross margins declined as a result of increased competition. The Company experienced a net loss of $97,000 for the six months ended June 30, 2000, compared to net income of $512,000 in 1999. The net loss results from higher operating costs due to an increase in the level of activity and an increase in expenses incurred in building the infrastructure necessary for future growth of the Company. Also, the Company had an increase in interest expense related to carrying higher levels of accounts receivable and inventory. Accounts receivable and inventory are significantly higher in 2000 vs 1999 due to the rapid increase in the cost of petroleum based products. In addition, depreciation and amortization expense increased primarily due to the acquisition of Carroll Oil Company. The increase in expense was partially offset by a reduction in expenses resulting from the sale of Meteor Stores, Inc. and lower income tax expense. 15 Gasoline Segment Gasoline volumes increased to 25.0 million gallons for the six months ended June 30, 2000, compared to 23.4 million gallons in 1999, an increase of 1.6 million (7%). The volume increase is primarily due to the Carroll Oil Company acquisition. Gasoline sales increased to $24.8 million for the six months ended June 30, 2000, compared to $15.7 million in 1999, an increase of $9.1 million (58%) due to higher product prices during the current period and increased sales volumes. Gross profit decreased to $1.7 million for the six months ended June 30, 2000, from $2.3 million in 1999,a decrease of $.6 million (26%) primarily due to the exchange of higher retail margins with wholesale margins resulting from the sale of Meteor Stores, Inc. (retail c-store subsidiary) in December 1999. Gross profit per gallon of gasoline sold decreased to $.07 for the six months ended June 30, 2000 from $.10 in 1999 for the above stated reason. Diesel Segment Diesel volumes increased to 53.0 million gallons for the six months ended June 30, 2000, from 51.4 million in 1999, an increase of 1.6 million gallons (3%) due to acquiring new customers and the Carroll Oil Company acquisition. Diesel sales increased to $50.0 million for the six months ended June 30, 2000, from $31.3 million in 1999, an increase of $18.7 million (60%) due to higher product prices during the current period and increased sales volumes. Gross profit decreased to $3.9 million for the six months ended June 30, 2000, from $4.0 million in 1999, a decrease of $.1 million (3%). Gross profit per gallon of diesel sold decreased to $.07 for the six months ended June 30, 2000, from $.08 in 1999, due to increased competition. Propane Segment Propane volumes decreased to 3.9 million gallons for the six months ended June 30, 2000, from 4.6 million gallons in 1999, a .7 million decrease (15%) due to a decrease in wholesale volume caused by unseasonably warm weather in our marketing area. Propane sales increased to $3.1 million for the six months ended June 30, 2000, from $2.4 million in 1999, an increase of $.7 million (29%) due to higher product prices during the current period, partially offset by a decrease in sales volume. Gross profit remained constant at $1.1 million for the six months ended June 30, 2000, compared to 1999. Gross profit per gallon of propane sold increased to $.28 for the six months ended June 30, 2000, compared to $.24 in 1999, due to higher residential margins. Greases and Lubricants Segment Grease and lubricants sales increased to $9.9 million for the six months ended June 30, 2000, compared to $9.8 million in 1999, an increase of $.1 million (1%) due to higher product prices during the current period. Gross profit increased to $2.2 million for the six months ended June 30, 2000, compared to $2.0 million, an increase of $.2 million (10%). Convenience Store Items Segment Sales of convenience store items decreased to -0- for the six months ended June 30, 2000, from $2.9 million in 1999, due to the sale of Meteor Stores, Inc. in December 1999. 16 Other Items Segment Sales of other items, which consist of anti-freeze, chemicals, services, hardware, rental income and miscellaneous items, increased to $2.7 million for the six months ended June 30, 2000, compared to $2.1 million in 1999, an increase of $.6 million (29%). Gross profit increased to $2.2 million for the six months ended June 30, 2000, compared to $1.3 million in 1999, an increase of $.9 million (69%) due to rental income and freight revenue. Expenses Selling, general and administrative ("SG&A") expenses were $9.0 million for the six months ended June 30, 2000, compared to $8.8 million for the six months ended June 30, 1999, an increase of $.2 million (2%). The increase is due to the acquisition of Carroll Oil Company and corresponding increase in the level of activity and costs incurred to build the infrastructure necessary for future growth of the Company, partially off set by a reduction in SG&A expenses due to the sale of Meteor Stores, Inc. Depreciation and amortization for the six months ended June 30, 2000, was $1.2 million compared to $1.0 million for the six months ended June 30, 1999. The increase is attributable to the Carroll Oil Company acquisition and property, plant and equipment additions, partially offset by the sale of Meteor Stores, Inc. Other expense, net increased to $620,000 for the six months ended June 30, 2000, compared to $371,000 in 1999, primarily due to increased interest expense and the recognition of a $140,000 gain recorded in 1999, related to the sale of an investment. Income Taxes The provision for income taxes for the six months ended June 30, 2000, was $113,000 compared to $441,000 for the same period ended June 30, 1999. The decrease is due to lower taxable income for the six months ended June 30, 2000, as compared to 1999. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company had working capital of $.8 million compared to a working capital deficit of $.3 million at December 31, 1999. Net cash provided by operating activities totaled $2.2 million for the six months ended June 30, 2000, compared to $2.0 million for the six months ended June 30, 1999. This increase in cash provided by operating activities is principally related to changes in working capital items due to higher product prices. Net cash used in investing activities totaled $.4 million for the six months ended June 30, 2000, compared to cash used of $1.9 million for the six months ended June 30, 1999. The decrease in cash used in investing activities is principally related to a reduction in expenditures for property, plant and equipment and the sale of a parcel of land in Colorado. 17 Net cash used in financing activities totaled $1.5 million for the six months ended June 30, 2000, compared to cash used of $.3 million for the six months ended June 30, 1999. The increase in cash used in financing activities primarily related to decrease in borrowing on the revolving line of credit facility and proceeds from the issuance of preferred stock. The Company has a revolving bank credit facility with Wells Fargo Business Credit, Inc. for $11 million which expires August 31, 2000. The credit line is subject to the borrowing base, as defined. At June 30, 2000, the borrowing base was approximately $10.8 million. $9.3 million was borrowed against the facility and is recorded as a current liability. During the quarter the Company was in default on timely filing of financial information to the lender. A waiver for this default was obtained from the lender. The Company is currently working with the lender to renegotiate and extend this facility. If the facility is not renewed by the lender, $9.3 million and long-term debt in the amount of $2.3 million at June 30, 2000, is due upon demand from the lender. The Company has various loans with banks, suppliers and individuals which require principal payments of $1.4 million in 2000. The Company is obligated to pay lease costs of approximately $.9 million in 2000 for land, building, facilities and equipment. On August 9, 2000 the company entered into a settlement and debt restructuring agreement with the Estate of Theron J. Graves related to the Graves Oil & Butane Co., Inc. ("Graves") Series A Convertible Preferred Stock. The terms of the agreement are: - Graves will acquire all 1,000,000 shares of Series A Convertible Preferred Stock of Graves in exchange for a promissory note in the amount of $4,466,311. Subsequent to acquisition of such shares, Graves will retire and cancel such shares. The note will be amortized over a four-year period with an interest rate of 8%. The note requires a $1,500,000 payment in September, 2000, to be obtained from the sale of certain assets currently secured by the preferred stock. The note will be guaranteed by Meteor Marketing, Inc. and will be secured with the remaining assets currently securing the preferred stock. The preferred stock is reflected as minority interest on the consolidated financial statements at June 30, 2000 in the amount of $5,407,000. A portion of the difference between the amount of the promissory note and the minority interest will be established as a reserve for environmental conditions in the third quarter. - Graves will release the Estate and the Estate will release Meteor Industries, Inc. from any and all claims that relate to the original Graves purchase agreement and to any environmental conditions related to Graves. Graves and Meteor Marketing will indemnify the Estate for all claims related to environmental conditions of Graves. - Graves will acquire other properties of the Estate in Farmington, New Mexico and Cortez, Colorado for promissory notes of $900,000. The notes will be amortized over thirty years with interest of 7% and with a balloon at the end of ten years. 18 - Graves will have an option to acquire the one third ownership of Mesa Propane owned by the Estate for $700,000 for a period of sixteen months. If the option is exercised the payment will be in the form of a promissory note amortized over 30 years with interest at 7% and with a balloon at the end of ten years. The Company is responsible for any contamination of land it owns or leases. However, the Company may have limitations on any potential contamination liabilities as well as claims for reimbursement from third parties. For the six months ended June 30, 2000 and 1999, the Company expended $95,000 and $91,000, respectively, for site assessment and related cleanup costs. The Company has accrued $33,500 at June 30, 2000, for environmental remediation which management believes is adequate to cover known remediation requirements. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to interest rate changes is primarily related to its variable rate debt issued under its $11.0 million revolving credit facility, which bears interest at prime plus 0.5%. As of June 30, 2000, there was $9.3 million in borrowings outstanding. Because the interest rates on this facility is variable, based upon the bank's prime rate, the Company's interest expense and net income are affected by interest rate fluctuations. If interest rates were to increase or decrease by 100 basis points, the result, based upon the existing outstanding debt as of June 30, 2000, and using the average interest rate paid on borrowed funds during the second quarter of 2000, would be an annual increase or decrease of approximately $93,000 in interest expense and a corresponding decrease or increase of approximately $53,000 in the Company's net income after taxes. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 27 Financial Data Schedule Filed herewith electronically (b) Reports on Form 8-K. None. 19 SIGNATURES In accordance with the requirements of the Exchange Act, the Issuer caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. METEOR INDUSTRIES, INC. By /s/ Richard E. Kisser Richard E. Kisser, Chief Financial and Accounting Officer Dated: August 14, 2000 20 EXHIBIT INDEX EXHIBIT METHOD OF FILING ------- ----------------------------- 27. FINANCIAL DATA SCHEDULE Filed herewith electronically