-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RSTBsIMvgd/536AmryaLTdu/XVjVjR2WXp6Xo8NcrNwBX7Ab0SzUKTnDJo3rEwE/ O4qLX7iWnT9GqP7hYJq2OQ== 0000948830-97-000259.txt : 19971028 0000948830-97-000259.hdr.sgml : 19971028 ACCESSION NUMBER: 0000948830-97-000259 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970825 ITEM INFORMATION: FILED AS OF DATE: 19971027 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METEOR INDUSTRIES INC CENTRAL INDEX KEY: 0000912875 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 841236619 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-12401 FILM NUMBER: 97701480 BUSINESS ADDRESS: STREET 1: 216 16TH ST STE 730 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3035721137 MAIL ADDRESS: STREET 1: 216 16TH ST STREET 2: STE 730 CITY: DENVER STATE: CO ZIP: 80202 8-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 2 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 August 25, 1997 ----------------------------------------------- Date of Report (date of earliest event reported METEOR INDUSTRIES, INC. ------------------------------------------------ Exact Name of Issuer as Specified in its Charter COLORADO 0-27968 84-1236619 - ------------------------ --------------- --------------------- State or Other Juris- Commission File I.R.S. Employer Iden- diction of Incorporation Number tification Number 216 SIXTEENTH STREET, SUITE 730 DENVER, COLORADO 80202 -------------------------------------- Address of Principal Executive Offices (303) 572-1137 ------------------------------ Registrant's Telephone Number, Including Area Code ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED INDEX TO FINANCIAL INFORMATION Page Balance Sheet at June 30, 1997 (unaudited) F-1 Statement of Income for the six months ending June 30, 1997 (unaudited) F-2 Notes to Financial Statements F-3 Independent auditor's report F-4 Balance Sheets at February 28, 1997 and February 29, 1996 F-5-6 Statement of Income for the Year Ending February 28, 1997 and the Six Months Ended February 29, 1996 F-7 Statement of Stockholders Equity for the Year Ending February 28, 1997 and the Six Months Ended February 29, 1996 F-8 Statement of Cash Flows for the Year Ending February 28, 1997 and the Six Months Ended February 29, 1996 F-9-10 Notes to Financial Statements F-11-16 Independent auditor's report F-17 Balance Sheets at February 29, 1996 and August 31, 1995 F-18-19 Statement of Income for the Six Months Ending February 29, 1996 and August 31, 1995 F-20 Statement of Stockholders Equity for the Six Months Ending February 29, 1996 and August 31, 1995 F-21 Statement of Cash Flows for the Six Months Ending February 29, 1996 and the year ended August 31, 1995 F-22-23 Notes to Financial Statements F-24-29 Independent auditor's report F-30 Balance Sheets for the Years Ended August 31, 1995 and 1994 F-31-32 Statement of Income for the Years Ended August 31, 1995 and 1994 F-33 Statement of Stockholders Equity for the Years Ended August 31, 1995 and 1994 F-34 Statement of Cash Flows for the Years Ended August 31, 1995 and 1994 F-35-36 Notes to Financial Statements F-37-41 (b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The accompanying pro forma information combines the activities of Meteor Industries, Inc. and Fleischli Oil Company for the periods described. The pro forma combined statement of operations for the twelve months ended December 31, 1996, includes the statement of operations of Meteor Industries, Inc. for the year ended December 31, 1996, and the operations of Fleischli Oil Company for the year ended February 28, 1997. The pro forma combined statement of operations for the six months ended June 30, 1997, includes the operations of Meteor and Fleischli for the six months ended June 30, 1997. The operations of Fleischli for the two months ended February 28, 1997, are included in both periods. The revenues and net loss for the two month period are $12,516,797 and $(73,400), respectively. -2- The pro forma combined statements of operations are presented as if the acquisition had occurred on January 1, 1996. The pro forma combined balance sheet as of June 30, 1997, is presented as if the acquisition had occurred on June 30, 1997. These pro forma financial statements are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition been consummated at the beginning of the year. The pro forma combined balance sheet and statements of operations should be read in conjunction with the historical financial statements and notes thereto of Fleischli Oil Company, included elsewhere in this document and of Meteor Industries, Inc. filed as part of its Form 10-K for the year ended December 31, 1996, and Form 10-Q for the six months ended June 30, 1997. On August 11, 1997, Meteor Industries, Inc. closed on its acquisition of all of the outstanding common stock of Fleischli Oil Company. The purchase price for the common stock was $4,752,000 paid in the form of cash to the sellers. Also on August 11, 1997, Norwest Business Credit, Inc. provided Fleischli Oil Company with a revolving line of credit of up to $5,000,000, subject to the borrowing base of Fleischli Oil Company, as defined, which on August 11, 1997, was approximately $4,000,000, $2,200,000 was borrowed at closing to refinance certain Fleischli Oil Company borrowings. (c) Exhibits Exhibit No. 2.1* Stock purchase agreement, Filed previously dated July 31, 1997, by and electronically among Meteor Industries, Inc., Pyramid Stores, Inc., Fleischli Oil Company, Inc., Gus Fleischli, Jerry Loghry, and Robert Jensen *Certain exhibits listed in the Stock Purchase Agreement are not filed herewith. Copies of the omitted exhibits will be furnished supplementally to the Commission upon request. -3- METEOR INDUSTRIES, INC. PRO FORMA COMBINED BALANCE SHEET JUNE 30, 1997 (Unaudited) Meteor Fleischli Pro Forma Industries Oil Co. Adjustments Pro Forma ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,142,036 $ 154,201 $(2,295,237)(a)$ 1,000 Restricted cash 650,003 -- (385,248)(a) 264,755 Accounts receivable- trade, net of allowance 5,363,699 5,476,164 -- 10,839,863 Accounts receivable, related party 61,994 -- -- 61,994 Notes receivable, related party 971,368 -- -- 971,368 Inventory 1,187,041 2,137,279 -- 3,324,320 Other current assets 164,630 -- -- 164,630 Total current assets 10,540,771 7,767,644 (2,680,485) 15,627,930 Property, plant and equipment 14,269,557 3,789,100 912,000(b) 18,970,657 Accumulated depreciation (6,026,178) -- (6,026,178) Total property 8,243,379 3,789,100 912,000 12,944,479 OTHER ASSETS Notes receivable, related party 1,071,515 -- (1,071,515)(a) -- Investments in closely held business 1,267,047 -- -- 1,267,047 Other assets 594,300 167,030 -- 761,330 Total other assets 2,932,862 167,030 (1,071,515) 2,028,377 TOTAL ASSETS $21,717,012 $11,723,774 $(2,840,000) $30,600,786 -4- METEOR INDUSTRIES, INC. PRO FORMA COMBINED BALANCE SHEET JUNE 30, 1997 (Unaudited) (Continued) Meteor Fleischli Pro Forma Industries Oil Co. Adjustments Pro Forma LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable, trade $ 2,942,767 $ 5,184,204 $ -- $ -- Current portion, long-term debt 1,987,014 -- -- 1,987,014 Accrued expenses 211,639 27,729 -- 239,368 Taxes payable 1,017,915 112,166 -- 1,130,081 Revolving credit facility -- 700,000 1,000,000(a) 1,700,000 Total current liabilities 6,159,335 6,024,099 1,000,000 13,183,434 Long-term debt 309,771 1,871,437 -- 2,181,208 Deferred tax liability 1,716,670 (11,762) -- 1,704,908 Minority interest in subsidiaries 4,502,311 -- -- 4,502,311 STOCKHOLDERS' EQUITY Common stock 4,130 517,755 (517,755)(c) 4,130 Paid-in capital 6,352,399 (712,633) 712,633 (c) 6,352,399 Retained earnings 2,672,396 4,034,878 (4,034,878)(c) 2,672,396 Total stockholders' equity 9,028,925 3,840,000 (3,840,000) 9,028,925 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,717,012 $11,723,774 $(2,840,000) $30,600,786 Pro Forma Adjustments (a) Entry to reflect acquisition for $4,752,000. Purchase Price was paid with cash on hand, collection of note receivable and borrowings on revolving credit facility. Cash proceeds from a recent offering of public stock had temporarily been used to reduce the revolving credit facility. (b) Entry to reflect step up in basis of assets to reflect preliminary purchase price allocation. (c) Entry to reflect elimination of Fleischli equity. -5- METEOR INDUSTRIES, INC. PRO FORMA COMBINED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1997 (Unaudited) Meteor Fleischli Pro Forma Industries Oil Co. Adjustments Pro Forma REVENUES Sales $28,160,264 $40,291,837 $ -- $68,452,101 Cost of Sales 23,606,022 35,591,099 (42,500)(1) 59,154,621 Gross Profit 4,554,242 4,700,738 42,500 9,297,480 EXPENSES Selling, General and Administrative 4,001,287 4,274,055 (321,366)(2) 7,953,976 Amortization 27,697 -- -- 27,697 Depreciation 411,334 286,170 30,500 (3) 728,004 Total expenses 4,440,318 4,560,225 (290,866) 8,709,677 Income from operations 113,924 140,513 333,366 587,803 OTHER INCOME AND (EXPENSES) Interest income 230,732 -- (45,000) (4) 185,732 Interest expense (202,627) (144,038) -- (346,665) Other 497,290 3,525 -- 500,815 Gain on sale of assets 45,350 -- -- 45,350 Total other income 570,745 (140,513) (45,000) 385,232 Income before taxes 684,669 -- 288,366 973,035 Provision for income taxes 267,021 -- 112,463 (5) 379,484 Income before minority interest 417,648 -- 175,903 593,551 Minority Interest 200,860 -- -- 200,860 Net Income $ 216,788 $ -- $ 175,903 $ 392,691 Net income per share $ 0.06 $ -- $ 0.11 Weighted average shares 3,511,895 3,511,895 Pro forma adjustments: (1) Reduction in cost of sales due to combined volume discount $ 42,500 (2) Bonus and salary to previous owners. The bonus and salary are a part of the purchase agreement and per the agreement these costs will be eliminated $321,366 (3) Additional depreciation to reflect step up in basis $ 30,500 (4) Reduction in interest income related to collection of note receivable used in acquisition $ 45,000 (5) Tax effect of the above entries $112,463 -6- METEOR INDUSTRIES, INC. PRO FORMA COMBINED INCOME STATEMENT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 (Unaudited) Meteor Fleischli Pro Forma Industries Oil Co. Adjustments Pro Forma REVENUES Sales $59,984,499 $86,808,604 $ -- $146,793,103 Cost of Sales 49,644,010 77,567,549 (85,000) (1) 127,126,559 Gross Profit 10,340,489 9,241,055 85,000 19,666,544 EXPENSES Selling, General and Administrative 8,269,292 8,371,524 (545,000) (2) 16,095,816 Amortization 85,956 -- -- 85,956 Depreciation 763,651 557,485 61,000 (3) 1,382,136 Total expenses 9,118,899 8,929,009 (484,000) 17,563,908 Income from operations 1,221,590 312,046 569,000 2,102,636 OTHER INCOME AND (EXPENSES) Interest income 361,271 85,941 (90,000) (4) 357,212 Interest expense (474,136) (223,209) -- (697,345) Other 34,323 -- -- 34,323 Total other income (78,542) (137,268) (90,000) (305,810) Income before taxes 1,143,048 174,778 479,000 1,796,826 Provision for income taxes 394,745 44,685 257,010 (5) 696,440 Income before minority interest 748,303 130,093 221,990 1,100,386 Minority interest 286,505 -- -- 286,505 Net Income $ 461,798 $ 130,093 $ 221,990 $ 813,881 Net income per share $ 0.15 $ 5.51 -- $ 0.26 Weighted average shares 3,184,397 -- 3,184,397 Pro forma adjustments: (1) Reduction in cost of sales due to combined volume discount $ 85,000 (2) Bonus and salary to previous owners which will not be continued $545,000 (3) Additional depreciation to reflect step up in basis $ 61,000 (4) Reduction in interest income related to collection of note receivable used in acquisition $ 90,000 (5) Tax effect of the above entries $257,010 -7- SIGNATURES Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. METEOR INDUSTRIES, INC. /signed/ Dennis R. Staal By Dennis R. Staal, Treasurer(Chief Financial and Accounting Officer) Dated: October 24, 1997 -8- Fleischli Oil Company, Inc. Balance Sheet June 30, 1997 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 154,201 Accounts receivable-trade, net of allowance 5,476,164 Inventory 2,137,279 Total current assets 7,767,644 Property, plant and equipment 3,789,100 OTHER ASSETS Other assets 167,030 Total other assets 167,030 TOTAL ASSETS $11,723,774 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable, trade $ 5,184,204 Accrued expenses 27,729 Taxes payable 112,166 Revolving credit facility 700,000 Total current liabilities 6,024,099 Long-term debt 1,871,437 Deferred tax liability (11,762) STOCKHOLDERS' EQUITY Common stock 517,755 Paid-in capital (712,633) Retained earnings 4,034,878 Total stockholders' equity 3,840,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,723,774 F-1 Fleischli Oil Company, Inc. Income Statement For the Six Months ended June 30, 1997 (Unaudited) REVENUES Sales $40,291,837 Cost of Sales 35,591,099 Gross Profit 4,700,738 EXPENSES Selling, General and Administrative 4,274,055 Depreciation 286,170 Total expenses 4,560,225 Income from operations 140,513 OTHER INCOME AND (EXPENSES) Interest expense (144,038) Other 3,525 Total other income (140,513) Income before taxes -- Provision for income taxes -- Net Income $ -- Net income per share $ -- F-2 Fleischli Oil Company, Inc. Notes to Financial Statements June 30, 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES 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 the 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 financial statements and footnotes for the year ended February 28, 1997, herein. F-3 Independent Auditor's Report on the Financial Statements To the Board of Directors Fleischli Oil Company, Inc. Cheyenne, Wyoming We have audited the accompanying balance sheets of Fleischli Oil Company, Inc. as of February 28, 1997 and February 29, 1996 and the related statements of income, stockholders' equity and cash flows for the year ended February 28, 1997 and the six months ended February 29, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fleischli Oil Company, Inc. as of February 28, 1997 and February 29, 1996 and the results of its operations and its cash flows for the year ended February 28, 1997 and the six months ended February 29, 1996, in conformity with generally accepted accounting principles. /s/ McGladry & Pullen, LLP Cheyenne, Wyoming April 15, 1997 F-4 Fleischli Oil Company, Inc. Balance Sheets February 28, 1997 and February 29, 1996 ASSETS 1997 1996 Current Assets Cash (Note 12) $ 718,711 $ 288,073 Receivables: Trade, less allowance for doubtful accounts 1997 $267,654,1996 $337,901 (Notes 3,5, and 9) 4,301,193 4,855,865 Inventories (Notes 2, 3, and 5) 2,387,659 2,365,293 Prepaid Expenses -- 19,498 Deferred Income Taxes (Note 11) 260,866 209,859 Income Taxes Receivable -- 164,392 Total Current Assets 7,668,429 7,902,980 Investment and Long Term Receivable: Note receivable, less current portion 61,002 -- Investment, Cash Surrender Value of Officers life insurance 103,042 94,246 164,044 94,246 Property and Equipment (Notes 3, 4 and 5) Land 436,379 452,369 Buildings and Improvements 1,742,244 1,734,548 Equipment 4,596,987 4,096,517 Leasehold interest in equipment 761,105 1,097,594 7,536,715 7,381,028 Less: Accumulated depreciation, including amounts applicable to assets being acquired under capital leases 1997 $329,835; 1995 $518,131 4,122,258 3,715,661 3,414,457 3,665,367 $11,246,930 $11,662,593 See notes to financial statements. F-5 Fleischli Oil Company, Inc. Balance Sheets (Continued) February 28, 1997 and February 29, 1996 LIABILITIES AND STOCKHOLDERS, EQUITY 1997 1996 CURRENT LIABILITIES Notes Payable, related party (Note 3) $ 200,000 $ 200,000 Current maturities of long-term debt (Note 5) 221,923 175,752 Current obligations under capital leases (Note 4) 199,634 199,634 Accounts payable (Note 9) 4,213,053 4,426,922 Accrued payroll and bonuses 791,299 133,755 Accrued expenses (Note 10) 243,932 148,989 Income Taxes Payable 26,895 -- Total current liabilities 5,896,736 5,285,052 Long-term debt Notes payable, less current maturities (Note 5) 1,040,944 863,406 Obligation under capital leases, less current maturities (Note 4) 219,653 376,831 Notes payable (Notes 3 and 5) -- 900,000 1,260,597 2,140,237 Deferred Income taxes (Note 11) 249,104 191,086 Commitments and contingencies (Notes 7, 8 and 10) Stockholders' Equity (Note 8) Common Stock, no par value, authorized 200,000 shares, issued 27,860 shares; outstanding 1997 22,743; 1996 24,430 716,120 716,120 Retained earnings 4,034,887 3,904,794 4,751,007 4,620,914 Less cost of treasury stock 1997 5,117 shares; 1996 3,430 shares 910,514 574,696 3,840,493 4,046,218 $11,246,930 $11,662,593 See notes to financial statements. F-6 Fleischli Oil Company, Inc. Statements of Income For the year ended February 28, 1997 and the six months ended February 29, 1996 1997 1996 Net Sales (Note 9) $86,485,484 $39,779,541 Cost of Goods Sold (Note 9) 77,567,549 35,732,950 Gross Profit 8,917,935 4,046,591 Other Operating Revenue 323,120 324,487 OPERATING EXPENSES: Warehouse and delivery (Note 4) 4,492,385 2,445,546 Selling 217,344 99,156 General and Administrative (Note 6) 4,219,280 1,671,893 8,929,009 4,216,595 Operating Income 312,046 154,483 Financial income (Expenses): Interest income 85,941 43,759 Interest (Expense)(Note 4) (223,209) (107,756) (137,268) (63,997) Income before income taxes 174,778 90,486 Federal and state income taxes (Note 11): Current 37,674 13,398 Deferred 7,011 14,703 44,685 28,101 Net income $ 130,093 $ 62,385 Net income per share (Note 13) $ 5.51 $ 2.56 See Notes to Financial Statements. F-7 Fleischli Oil Company, Inc. Statements of Stockholders' Equity For the Year Ended February 28, 1997 and the six months Ended February 29, 1996 Common Retained Treasury Stock Earnings Stock Balance, August 31, 1995 $ 609,320 $3,842,409 $ 544,056 Net income -- 62,385 -- Purchase of 810 shares of common stock for treasury -- -- 194,490 Sale of 1,130 shares of treasury stock 106,800 -- (163,850) Balance, February 29, 1996 716,120 3,904,794 574,696 Net income -- 130,093 -- Purchase of 1,687 shares of common stock for treasury -- -- 335,818 Balance, February 29, 1997 $716,120 $4,034,887 $ 910,514 See Notes to Financial Statements. F-8 Fleischli Oil Company, Inc. Statements of Cash Flows For the Year Ended February 28, 1997 and the six months ended February 29, 1996 1997 1996 Cash Flows from Operating Activities Net income $ 130,093 $ 62,385 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 542,030 305,537 Amortization 15,455 7,728 Provision for doubtful accounts 36,000 18,000 (Gain) on sale of property and equipment and other asset (13,403) (25,357) Deferred income taxes 7,011 14,703 Change in assets and liabilities: (Increase) decrease in: Trade receivables 520,953 (108,993) Inventories (22,366) (110,603) Prepaid expenses 19,498 8,622 Income taxes receivable 164,392 (164,392) Increase (decrease) in: Accounts payable and accrued expenses 538,618 (454,081) Income taxes payable 26,895 (468,147) Net cash provided by (used in)operating activities 1,965,176 (914,598) Cash Flows from Investing Activities Disbursement on note receivable (65,000) -- Payments received on note receivable 1,717 -- Proceeds from sale of property and equipment and other assets 93,288 26,250 Purchase of property and equipment (386,460) (294,911) Increase in cash surrender value of officers' life insurance (8,796) (9,680) Net cash (used in) investing activities (365,251) (278,341) Cash Flows from Financing Activities Principal payments on borrowings, including capital lease obligations (5,933,469) (2,251,779) Proceeds from borrowings 5,100,000 3,000,000 Purchase of common stock for the treasury (335,818) (194,490) Proceeds from sale of treasury stock -- 270,650 Net cash provided by (used in) financing activities (1,169,287) 824,381 Net increase (decrease) in cash $ 430,638 $ (368,558) Cash: Beginning 288,073 656,631 Ending $ 718,711 $ 288,073 F-9 Fleischli Oil Company, Inc. Statements of Cash Flows For the year ended February 28, 1997 and the six months ended February 29, 1996 (Continued) 1997 1996 Supplemental Disclosures of Cash Flow Information: Cash payments (receipts) for: Interest $ 216,248 $ 103,143 Income taxes (153,613) 645,937 Supplemental Schedule of Noncash Investing and Financing Activities Capital lease obligation incurred for use of equipment -- 100,928 See Notes to Financial Statements. F-10 Fleischli Oil Company, Inc. Notes to Financial Statements NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company's operations are principally in the distribution of petroleum products to entities operating in the construction and extractive industries in Wyoming, Colorado, Utah and Nevada. A summary of the Company's significant accounting policies follows: Fiscal year: Beginning February 29, 1996, the Company adopted a fiscal year ending on the last day of February. Previously, the Company's fiscal year ended on the last day of August. Inventories: The inventories are stated at the lower of cost (last-in, first-out method) or market. The use of the last-in, first-out method of determining the cost of inventories, which was adopted for the year ended August 31, 1979, had the effect of decreasing the inventories by $251,666 and $237,085 at February 28, 1997 and February 29, 1996, respectively, and decreasing net income by $14,613 for the year ended February 28, 1997 and $31,540 for the six months ended February 29, 1996, as compared to what they would have been under the first-in, first-out method. Property and equipment: Property and equipment is stated at cost and depreciated over estimated service lives primarily by the straight-line method. Maintenance and repairs are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations. The depreciation expense on assets being acquired under capital leases is included with the depreciation expense on owned assets. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. INVENTORIES The reduction of inventory quantities during the year ended February 28, 1997 resulted in liquidations of LIFO inventory quantities carried at costs F-11 prevailing in prior years which were lower than current costs. The effect of this reduction was to increase net income by approximately $8,745 for the year ended February 28, 1997. NOTE 3. NOTES PAYABLE The Company has a $2,500,000 line of credit with a bank secured by inventory, accounts receivable, equipment, general intangibles and the personal guarantees of the Company's major shareholders, bearing interest at New York Citibank prime (8.25% at February 28, 1997) plus .5%, maturing July 31, 1997. The available credit at February 28, 1997 was $2,500,000. The line-of-credit advances are subject to borrowing base limitations as follows: accounts receivable - 75% with receivables greater than 60 days excluded, and inventory - - 50%. See Note 5 for discussion of loan covenants. The Company also has unsecured notes payable to the spouse of a major stockholder in the amount of $200,000. The notes bear interest at New York Citibank prime (8.25% at February 28, 1997) plus .5% and is due on demand. Interest expense was $17,441 and $9,048 for the year ended February 28, 1997 and the six months ended February 29, 1996, respectively. NOTE 4. CAPITAL LEASES The Company leases nine units of mobile equipment and computer equipment under noncancelable capital lease agreements. The leases expire through November, 1999. The equipment and the related liability under the capital leases were recorded at the present value or the future payments due under the leases, as determined using various interest rates ranging from 3.75% to 10.96% Seven units of the mobile equipment are leased from related parties. The following is a schedule by years of the future minimum lease payments due under the capital leases, together with the net present value of the minimum lease payments as of February 28, 1997: 1998 $199,634 1999 191,270 2000 78,927 Total minimum lease payments 469,831 Less amount representing interest 50,544 Net present value of minimum lease payments $419,287 Interest expense applicable to the related-party leases was $33,003 and $20,287 for the year ended February 28, 1997 and the six months ended February 29, 1996. NOTE 5. LONG-TERM DEBT Long-term debt at February 28, 1997 consists of the following: Note payable to bank, due in monthly installments of $15,695 plus interest at the New York Citibank prime, currently 8.25%, plus .75%, through January, 2000, collateralized by inventory, accounts receivable, equipment, and rolling stock and the personal guarantees of the Company's major shareholders $ 479,457 F-12 Note payable to bank, due in monthly installments of $6,259, including interest at the Wall Street Journal prime, currently 8.25%, plus .5%, through November, 2002, collateralized by real estate and the personal guarantees of the Company's major shareholders $ 386,241 Uncollateralized note payable to a major supplier, due in monthly installments of $4,853 plus interest at prime, currently 6.5%, plus 1.5%, through December, 2006 397,169 1,262,867 Less current maturities 221,923 Long-term portion $1,040,944 In connection with the bank notes payable (see Note 3) and long-term debt, the Company has agreed, among other things, to: (1) maintain a ratio of total liabilities to tangible net worth of less than 2.5 to 1; (2) maintain a ratio of current assets to current liabilities of 1.2 to 1; and (3) maintain a minimum global debt service coverage (as defined in the loan agreement) of 1.5 to 1. Aggregate maturities required on long-term notes payable (see Note 3) and debt at February 28, 1997 are as follows: 1998 $ 221,923 1999 242,327 2000 246,168 2001 90,910 2002 98,573 Later years 362,966 $1,262,867 NOTE 6. DISCRETIONARY BONUSES The Company pays discretionary bonuses to their officers and key employees. The amounts of these bonuses charged to general and administrative expenses were $647,884 and none for the periods ended February 28, 1997 and February 29, 1996, respectively. NOTE 7. LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE The Company leases a commercial office building from a related party under an operating lease agreement expiring July 1, 2005, with the option to renew for an additional five years. The agreement requires the Company to pay all property taxes, repairs and maintenance and insurance on the property. The Company has the option at any time during the lease term, including any subsequent extension of the lease, to purchase the property at the appraised value at the date the option is exercised, less 25% of the lease payments made from the inception of the lease. The total minimum rental commitment at February 28, 1997 under the lease is due as follows: F-13 During the next five years $ 171,500 During the remaining term of the lease 131,200 $ 302,700 Additionally, the Company has leased various trucks and autos under operating leases which expire through September, 1999 and require various minimum monthly rentals. The total minimum rental commitment at February 28, 1997 under the agreements of $148,301 is due as follows: 1998 $ 57,407 1999 57,407 2000 33,487 $ 148,301 The Company also leases various equipment under separate, short-term lease agreements. The total rental expense included in the income statements for the year ended February 28, 1997 and the six months ended February 29, 1996 is $273,220 and $144,118, respectively, with $32,400 and $28,458 being with related parties. NOTE 8. STOCK REPURCHASE AGREEMENT The Company and its stockholders have entered into stock repurchase agreements under which, upon the death of the stockholder or their desire to dispose of their stock, the Company must purchase the shares of its common stock owned by the stockholder. There are 11,676 outstanding shares subject to the agreement at February 28, 1997. The Company has entered into repurchase agreements with employee stockholders which require the Company to repurchase stock upon termination of employment. The per share repurchase price as determined by the formula contained in the agreements, utilizing the February 28, 1997 financial statements, is $196. There are 11,066 outstanding shares subject to these agreements at February 28, 1997. NOTE 9. MAJOR CUSTOMERS AND SUPPLIERS Net sales for the year ended February 28, 1997 and the six months ended February 29, 1996 included sales to the following major customers: Sales for the period ending: February 28, February 29 1997 1996 Customer A $17,709,679 $10,796,617 Customer B* 8,615,978 7,518,913 $26,325,657 $18,315,530 F-14 Trade receivable balance: February 28, February 29 1997 1996 Customer A $ 662,171 $ 722,838 Customer B* 85,819 646,938 $ 747,990 $ 1,369,776 * This customer did not renew its contract with the Company during the year ended February 28, 1997. Cost of goods sold for the year ended February 28, 1997 and the six months ended February 29, 1996, included purchases from two major suppliers of $62,095,299 and $28,613,095, respectively. Accounts payable for these suppliers at February 28, 1997 and February 29, 1996 were $1,904,734 and $807,763, respectively. The Company has entered into a long-term fuel purchase and supply contract expiring December 31, 2004. The contract requires the Company to purchase an estimated 21,575,000 gallons of fuel per year from one of its major suppliers to be delivered to the Company's major customer (that the Company has been doing business with for the past nine years). The estimated contract value, based on the estimated quantities and unit rates as detailed in the contract, is $180,000,000. NOTE 10. ENVIRONMENTAL CLEAN-UP OBLIGATIONS The Company is in the remediation process of subsurface contamination at one owned site. The Company has accrued and charged to expense the estimated remaining remediation costs. Due to the nature of the Company's business, it is always susceptible to environmental clean-up obligations. However, management is not presently aware of any unasserted environmental clean-up obligations that it considers likely of assertion and that, if asserted, would have a reasonable likelihood of having a material adverse impact on the Company. NOTE 11. INCOME TAX MATTERS Net deferred tax assets consist of the following components as of February 28, 1997 and February 29, 1996: 1997 1996 Current deferred tax assets: Inventory lower of cost or market adjustments $ 46,037 $ 41,754 Inventory uniform capitalization 14,933 14,935 Allowance for bad debt 95,729 120,853 Accrued vacation 25,930 24,611 Other assets 52,440 7,706 Alternative minimum tax credit 25,797 -- 260,866 209,859 Noncurrent deferred tax liabilities: Property and equipment depreciation (249,104) (191,086) $ 11,762 $ 18,773 F-15 The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the year ended February 28, 1997 and the six months ended February 29, 1996: 1997 1996 Computed "expected" tax expense $ 61,172 $ 31,670 Increase (decrease) in income taxes resulting from: Benefit of income taxed at lower rates (12,598) (10,369) Nondeductible expenses -- 6,800 Other (3,889) -- $ 44,685 $ 28,101 NOTE 12. OFF-BALANCE-SHEET RISK The Company has an off-balance-sheet risk arising from the cash balance in two bank accounts. The total cash balance exceeds the federally insured limit of $100,000 by approximately $425,268 at February 28, 1997. NOTE 13. EARNINGS PER COMMON SHARE Earnings per common share have been computed by dividing net income by the weighted averaged number of common shares outstanding. The weighted average number of common shares outstanding as of February 28, 1997 and February 29, 1996 is 23,594 and 24,373, respectively. NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments: Cash: The carrying amount of cash deposits is the fair value. Notes receivable, notes payable, and long-term debt: The carrying value of notes receivable, notes payable and long-term debt is estimated to equal the fair value based on terms currently available in the market. NOTE 15. PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED In February of 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. Statement No. 128 establishes standards for computing and presenting earnings per share. The effect of adopting this standard is not expected to have a material effect on the computation of earnings per share based on the Company's current capital structure. In June of 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segment of an Enterprise and Related Information. Statement No. 131 establishes standards for the way that public business enterprises report information about operating segments in interim financial reports. The effect of implementing this standard, if any, has not been determined. F-16 Independent Auditor's Report on the financial statements To the Board of Directors Fleischli Oil Company, Inc. Cheyenne, Wyoming We have audited the accompanying balance sheets of Fleischli Oil Company, Inc. as of February 29, 1996 and August 31, 1995, and the related statements of income, stockholders' equity and cash flows for the six months ended February 29, 1996 and the year ended August 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fleischli Oil Company, Inc. as of February 29, 1996 and August 31, 1995, and the results of its operations and its cash flows for the six months ended February 29, 1996 and the year ended August 31, 1995, in conformity with generally accepted accounting principles. /s/ McGladry & Pullen, LLP Cheyenne, Wyoming April 16, 1996 F-17 Fleischli Oil Company, Inc. Balance Sheets February 29, 1996 and August 31, 1995 ASSETS 1996 1995 Current Assets Cash (Note 12) $ 288,073 $ 656,631 Receivables: Trade, less allowance for doubtful accounts 1996 $337,901; $319,568 (Notes 3,5, and 9) 4,855,865 4,764,872 Inventories (Notes 2, 3, and 5) 2,365,293 2,254,690 Prepaid Expenses 19,498 28,120 Deferred Income Taxes (Note 11) 209,859 207,782 Income Taxes Receivable 164,392 -- Total Current Assets 7,902,980 7,912,095 Investment, Cash Surrender Value of Officers life insurance 94,246 84,566 Property and Equipment (Notes 3, 4 and 5) Land 452,369 452,369 Buildings and Improvements 1,734,548 1,705,601 Equipment 4,096,517 3,901,777 Leasehold interest in equipment 1,097,594 996,666 7,381,028 7,056,413 Less: Accumulated depreciation, including amounts applicable to assets being acquired under capital leases 1996 $518,131; 1995 $412,691 3,715,661 3,472,727 3,665,367 3,583,686 $11,662,593 $11,580,347 See notes to financial statements. F-18 Fleischli Oil Company, Inc. Balance Sheets (Continued) February 29, 1996 and August 31, 1995 LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 CURRENT LIABILITIES Notes Payable, shareholders (Note 3) $ 200,000 $ 200,000 Current maturities of long-term debt (Note 5) 175,752 168,092 Current obligations under capital leases (Note 4) 199,634 175,079 Accounts payable (Note 9) 4,426,922 4,230,043 Accrued payroll and bonuses 133,755 604,258 Accrued Expenses 148,989 329,446 Income Taxes Payable -- 468,147 Total current liabilities 5,285,052 6,175,065 Long-term debt Notes payable, less current maturities (Note 5) 863,406 951,995 Obligation under capital leases, less current maturities (Note 4) 376,831 371,308 Notes payable (Notes 3 and 5) 900,000 -- 2,140,237 1,323,303 Deferred Income taxes (Note 11) 191,086 174,306 Commitments and contingencies (Notes 7, 8 and 10) Stockholders; Equity (Note 8) Common Stock, no par value, authorized 200,000 shares, issued 27,860 shares; outstanding 1996 24,430; 1995 24,110 716,120 609,320 Retained earnings 3,904,794 3,842,409 4,620,914 4,451,729 Less cost of treasury stock 1996 3,430 shares; 1995 3,750 shares 574,696 544,056 4,046,218 3,907,673 $11,662,593 $11,580,347 See notes to financial statements. F-19 Fleischli Oil Company, Inc. Statement of Income Six months ended February 29, 1996 and the year ended August 31, 1995 1996 1995 Net Sales (Note 9) $39,779,541 $74,125,575 Cost of Goods Sold (Note 9) 35,732,950 65,199,402 Gross Profit 4,046,591 8,926,173 Other Operating Revenue 324,487 744,320 OPERATING EXPENSES: Warehouse and delivery (Note 4) 2,445,546 4,223,152 Selling 99,156 139,691 General and Administrative (Note 6) 1,671,893 3,602,664 4,216,595 7,965,507 Operating Income 154,483 1,704,986 Financial income (Expenses): Interest income 43,759 84,260 Interest (Expense) (Note 4) (107,756) (181,862) (63,997) (97,602) Income before income taxes 90,486 1,607,384 Federal and state income taxes(Note 11): Current 13,398 539,119 Deferred 14,703 20,249 28,101 559,368 Net income $ 62,385 $1,048,016 Net income per share (Note 14) $ 2.56 $ 42.45 See Notes to Financial Statements. F-20 Fleischli Oil Company, Inc. Statements of Stockholders' Equity Six months ended February 29, 1996 and the year ended August 31, 1995 Common Retained Treasury Stock Earnings Stock Balance, August 31, 1994 $ 593,372 $2,794,393 $ 484,178 Net income 1,048,016 Purchase of 1,756 shares of common stock for treasury 273,608 Sale of 1,474 shares of treasury stock 15,948 (213,730) Balance, August 31, 1995 609,320 3,842,409 544,056 Net income 62,385 Purchase of 810 shares of common stock for treasury 194,490 Sale of 1,130 shares of treasury stock 106,800 (163,850) Balance, February 29, 1996 $716,120 $3,904,794 $574,696 See Notes to Financial Statements. F-21 Fleischli Oil Company, Inc. Statements of Cash Flows Six Months Ended February 29, 1996 and the Year Ended August 31, 1995 1996 1995 Cash Flows from Operating Activities Net income $ 62,385 $1,048,016 Adjustments to reconcile net income to net cash provided by (used in)operating activities: Depreciation 305,537 460,006 Amortization 7,728 15,455 Provision for doubtful accounts 18,000 36,000 (Gain) on sale of property and equipment and other asset (25,357) (8,070) Deferred income taxes 14,703 20,249 Change in assets and liabilities: (Increase) decrease in: Trade receivables (108,993) 276,873 Inventories (110,603) (529,706) Prepaid expenses 8,622 (9,641) Income taxes receivable (164,392) 83,123 Increase (decrease) in: Accounts payable and accrued expenses (454,081) 192,984 Income taxes payable (468,147) 468,147 Net cash provided by (used in) operating activities (914,598) 2,053,436 Cash Flows from Investing Activities Proceeds from sale of property and equipment and other assets 26,250 21,407 Purchase of property and equipment (294,911) (683,301) Increase in cash surrender value of officers' life insurance (9,680) (9,253) Net cash (used in) investing activities (278,341) (671,147) Cash Flows from Financing Activities Principal payments on borrowings, including capital lease obligations (2,251,779) (4,616,019) Proceeds from borrowings 3,000,000 3,550,956 Purchase of common stock for the treasury (194,490) (273,608) Proceeds from sale of treasury stock 270,650 229,678 Net cash provided by (used in) financing activities 824,381 (1,108,993) Net increase (decrease) in cash $ (368,558) $ 273,296 Cash: Beginning 656,631 383,335 Ending $ 288,073 $ 656,631 F-22 Fleischli Oil Company, Inc. Statements of Cash Flows Six Months Ended February 29, 1996 and the Year Ended August 31, 1995 (Continued) 1996 1995 Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 103,143 $ 181,937 Income taxes 645,937 53,370 Supplemental Schedule of Noncash Investing and Financing Activities Capital lease obligation incurred for use of equipment 100,928 349,565 See Notes to Financial Statements. F-23 Fleischli Oil Company, Inc. Notes to Financial Statements NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company's operations are principally in the distribution of petroleum products to entities operating in the construction and extractive industries in Wyoming, Colorado, Utah and Nevada. A summary of the Company's significant accounting policies follows: Fiscal year: Beginning February 29, 1996, the Company adopted a fiscal year ending on the last day of February. Previously, the Company's fiscal year ended on the last day of August. Inventories: The inventories are stated at the lower of cost (last-in, first-out method) or market. The use of the last-in, first-out method of determining the cost of inventories, which was adopted for the year ended August 31, 1979, had the effect of decreasing the inventories by $237,085 and $205,513 at February 29, 1996 and August 31, 1995, respectively, and decreasing and increasing net income by $31,540 and $455,720 for the six months ended February 29, 1996 and year ended August 31, 1995, respectively, as compared to what they would have been under the first-in, first-out method. Property and equipment: Property and equipment is stated at cost and depreciated over estimated service lives primarily by the straight-line method. Maintenance and repairs are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations. The depreciation expense on assets being acquired under capital leases is included with the depreciation expense on owned assets. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2: INVENTORIES The reduction of inventory quantities in 1995 resulted in liquidations of LIFO inventory quantities carried at costs prevailing in prior years which were F-24 lower than current costs. The effect of this reduction was to increase net income by approximately $18,500 for the year ended August 31, 1995. NOTE 3: NOTES PAYABLE The Company has a $1,750,000 line of credit with a bank secured by inventory, accounts receivable, equipment, general intangibles and the personal guarantees of the Company's major shareholders, bearing interest at New York Citibank prime (8.25% at February 29, 1996) plus .5%, maturing July 31, 1997. The available credit at August 31, 1995 was $850,000. The line-of-credit advances are subject to borrowing base limitations as follows: accounts receivable - 75% with receivables greater than 60 days excluded, and inventory - - 50%. See Note 5 for discussion of loan covenants. At February 29, 1996, the Company has unsecured notes payable to a major stockholder in the amount of $200,000. The notes bear interest at New York Citibank prime (8.25% at February 29, 1996) plus .5% and are due on demand. Interest expense was $9,048 and $18,334 for the six months ended February 29, 1996 and the year ended August 31, 1995, respectively. NOTE 4: CAPITAL LEASES The Company leases seven units of mobile equipment from related parties that are being acquired under capital leases. The leases expire through June, 1999. The mobile equipment and the related liability under the capital leases were recorded at the present value of the future payments due under the leases, as determined using various interest rates ranging from 8.76% to 10.96%. The following is a schedule by years of the future minimum lease payments due under the capital leases, together with the net present value of the minimum lease payments as of February 29, 1996: 1997 $199,634 1998 199,634 1999 191,270 2000 76,220 Total minimum lease payments 666,758 Less amount representing interest 90,293 Net present value of minimum lease payments $576,465 Interest expense applicable to the related party leases was $20,287 and $22,049 for the six months ended February 29, 1996 and the year ended August 31, 1995, respectively. NOTE 5: LONG TERM DEBT Long term debt at February 29, 1996 consists of the following: Note payable to bank, due in monthly installments of $15,695 plus interest at the New York Citibank prime, currently 8.5%, plus .75%, through January, 2000, collat- eralized by inventory, accounts receivable, equipment, and rolling stock and the personal guarantees of the Company's major shareholders $615,742 F-25 Note payable to bank, due in monthly installments of $6,259, including interest at the Wall Street Journal prime, currently 8.75%, plus .5%, through November, 2002, collateralized by real estate and the personal guarantees of the Company's major shareholders 423,416 1,039,158 Less current maturities 175,752 Long term portion 863,406 In connection with the bank notes payable (see Note 3) and long term debt, the Company has agreed, among other things, to: (1)maintain a ratio of total liabilities to tangible net worth of less than 2.5 to 1; (2)maintain a ratio of current assets to current liabilities of 1.2 to 1; and (3)maintain a minimum global debt service coverage (as defined in the loan agreement) of 1.5 to 1. Aggregate maturities required on long-term notes payable (see Note 3) and debt at February 29, 1996 are as follows: 1997 $ 175,752 1998 1,092,833 1999 210,891 2000 215,243 2001 55,707 Later years 188,732 $1,939,158 NOTE 6: PROFIT SHARING PLAN The Company has a 401(k) Profit Sharing Plan with eligibility requirements of 21 years of age and one year of service. The Plan provides for employee contributions not to exceed legal limitations, a discretionary employer matching contribution, and a discretionary profit-sharing contribution. The Company did not make any contributions to the Plan for the six months ended February 29, 1996 or the year ended August 31, 1995. NOTE 7: LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE The Company has leased a commercial office building from a related party under an operating lease agreement expiring July 1, 2005, with the option to renew for an additional five years. The agreement requires the Company to pay all property taxes, repairs and maintenance and insurance on the property. The Company has the option at any time during the lease term, including any subsequent extension of the lease, to purchase the property at the appraised value at the date the option is exercised, less 25% of the lease payments made from the inception of the lease. The total minimum rental commitment at February 29, 1996 under the lease is due as follows: During the next five years $165,500 During the remaining term of the lease 169,600 $335,100 F-26 Additionally, the Company has leased various trucks and autos under operating leases which expire through September, 1999 and require various minimum monthly rentals. The total minimum rental commitment at February 29, 1996 under the agreements of $250,756 is due as follows: Year ending August 31: 1997 $102,455 1998 57,407 1999 57,407 2000 33,487 $250,756 The Company also leases various equipment under separate, short-term lease agreements. The total rental expense included in the income statements for the six months ended February 29, 1996 and the year ended August 31, 1995 is $144,118 and $241,781, respectively, with $28,458 and $42,173 being with related parties. NOTE 8: STOCK REPURCHASE AGREEMENT The Company and its stockholders have entered into stock repurchase agreements under which, upon the death of the stockholder or their desire to dispose of their stock, the Company must purchase the shares of its common stock owned by the stockholder. There are 11,684 outstanding shares subject to the agreement at February 29, 1996. The Company has entered into repurchase agreements with employee stockholders which require the Company to repurchase stock upon termination of employment. The per share repurchase price as determined by the formula contained in the agreement, utilizing the February 29, 1996 financial statements, is $191. There are 12,746 outstanding shares subject to these agreements. NOTE 9: MAJOR CUSTOMERS AND SUPPLIERS Net sales for the six months ended February 29, 1996 and the year ended August 31, 1995 included sales to two major customers totaling $18,315,530 and $28,613,696, respectively. Trade accounts receivable from these customers at February 29, 1996 and August 31, 1995 were $1,369,776 and $792,587, respectively. Cost of goods sold for the six months ended February 29, 1996 and the year ended August 31, 1995 included purchases from two major suppliers of $28,613,095 and $49,025,482, respectively. Accounts payable for these suppliers at February 29, 1996 and August 31, 1995 were $807,763 and $1,760,982, respectively. The Company has entered into a long term fuel purchase and supply contract expiring December 31, 2004. The contract requires the Company to purchase an estimated 21,575,000 gallons of fuel per year from one of its major suppliers to be delivered to one of the Company's major customers (that the Company has been doing business with for the past nine years). The estimated contract value, based on the estimated quantities and unit rates as detailed in the contract, is $180,000,000. F-27 NOTE 10: ENVIRONMENTAL CLEAN UP OBLIGATIONS The Company is in the remediation process of subsurface contamination at one owned site. The Company has accrued and charged to expense, net of amounts recoverable from the prior owner of the site, the estimated remaining remediation costs. Due to the nature of the Company's business, it is always susceptible to environmental clean-up obligations. However, management is not presently aware of any unasserted environmental clean-up obligations that it considers likely of assertion and that, if asserted, would have a reasonable likelihood of having a material adverse impact on the Company. NOTE 11: INCOME TAX MATTERS Net deferred tax assets consist of the following components as of February 29, 1996 and August 31, 1995: 1996 1995 Current deferred tax assets: Inventory lower of cost or market adjustments $ 41,754 $ 10,242 Inventory uniform capitalization 14,935 13,894 Allowance for bad debt 120,853 114,297 Accrued vacation 24,611 24,284 Other assets 7,706 45,065 209,859 207,782 Noncurrent deferred tax liabilities: Property and equipment depreciation (191,086) (174,306) $ 18,773 $ 33,476 The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the six months ended February 29, 1996 and the year ended August 31, 1995: 1996 1995 Computed "expected" tax expense $ 31,670 $562,584 Increase (decrease) in income taxes resulting from: Benefit of income taxed at lower rates (10,369) (16,074) Nondeductible expenses 6,800 5,440 State income taxes, net of federal tax benefit -- 9,145 Other -- (1,727) $ 28,101 $559,368 NOTE 12: OFF-BALANCE-SHEET RISK The Company has an off-balance-sheet risk arising from the cash balance in a bank account. The cash balance exceeds the federally insured limit of $100,000 per account by approximately $458,000 at February 29, 1996. F-28 NOTE 13: FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments: Cash: The carrying amount of cash deposits is the fair value. Notes payable and long term debt: The carrying value of notes payable and long term debt is estimated to equal the fair value based on terms currently available in the market. NOTE 14: EARNINGS PER COMMON SHARE Earnings per common share have been computed by dividing net income by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding as of February 29, 1996 and August 31, 1995 is 24,373 and 24,688, respectively. F-29 Independent Auditor's Report on the financial statements To the Board of Directors Fleischli Oil Company, Inc. Cheyenne, Wyoming We have audited the accompanying balance sheets of Fleischli Oil Company, Inc. as of August 31, 1995 and 1994, and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fleischli Oil Company, Inc. as of August 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ McGladry & Pullen, LLP Cheyenne, Wyoming November 2, 1995 F-30 Fleischli Oil Company, Inc. Balance Sheets August 31, 1995 and 1994 ASSETS 1995 1994 Current Assets Cash (Note 12) $ 656,631 $ 383,335 Receivables: Trade, less allowance for doubtful accounts 1995 $319,568, 1994 $298,307 (Notes 3,5, and 9) 4,764,872 5,077,745 Inventories (Notes 2, 3, and 5) 2,254,690 1,724,984 Prepaid Expenses 28,120 18,479 Deferred Income Taxes (Note 11) 207,782 152,586 Income Taxes Receivable -- 83,123 Total Current Assets 7,912,095 7,440,252 Investment, Cash Surrender Value of Officers life insurance 84,566 75,313 Property and Equipment (Notes 3, 4 and 5) Land 452,369 452,369 Buildings and Improvements 970,296 922,310 Equipment 3,901,777 3,262,617 Leasehold interest in: Land and Buildings 735,305 735,305 Equipment 996,666 698,102 7,056,413 6,070,703 Less: Accumulated depreciation, including amounts applicable to assets being acquired under capital leases 1995 $804,352; 1994 $417,630 3,472,727 3,031,085 3,583,686 3,039,618 $11,580,347 $10,555,183 See notes to financial statements. F-31 Fleischli Oil Company, Inc. Balance Sheets (Continued) August 31, 1995 and August 31, 1994 LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 CURRENT LIABILITIES Notes Payable, Bank (Note 3) $ -- $1,099,678 Notes Payable, shareholders (Note 3) 200,000 $ 200,000 Current maturities of long-term debt (note 5) 168,092 145,468 Current obligations under capital leases (note 4) 175,079 134,566 Accounts payable (Note 9) 4,230,043 4,084,492 Accrued payroll and bonuses 604,258 519,214 Accrued Expenses 329,446 367,057 Income Taxes Payable 468,147 -- Total current liabilities 6,175,065 6,550,475 Long-term debt less current maturities Notes payable, (Note 5) 951,995 773,138 Obligation under capital leases (Note 4) 371,308 229,122 1,323,303 1,002,260 Deferred Income taxes (Note 11) 174,306 98,861 Commitments and contingencies (Notes 7, 8 and 10) Stockholders' Equity (Note 8) Common Stock, no par value, authorized 200,000 shares, issued 27,860 shares outstanding 1995 24,110; 1994 24,392 609,320 593,372 Retained earnings 3,842,409 2,794,393 4,451,729 3,387,765 Less cost of treasury stock 1995 3,750 shares; 1994 3,468 shares 544,056 484,178 3,907,673 2,903,587 $11,580,347 $10,555,183 See notes to financial statements. F-32 Fleischli Oil Company, Inc. Statement of Income Years ended August 31, 1995 and 1994 1995 1994 Net Sales (Note 9) $74,125,575 $64,061,796 Cost of Goods Sold (Note 9) 65,199,402 57,769,717 Gross Profit 8,926,173 6,292,079 Other Operating Revenue 744,320 1,143,008 OPERATING EXPENSES: Warehouse and delivery (Note 4) 4,223,152 3,843,417 Selling 139,691 145,136 General and Administrative (Note 6) 3,602,664 3,196,025 7,965,507 7,184,578 Operating Income 1,704,986 250,509 Financial income (Expenses): Interest income 84,260 82,972 Interest (Expense) (Note 4) (181,862) (156,588) (97,602) (73,616) Income before income taxes 1,607,384 176,893 Federal and state income taxes (credits) (Note 11): Current 539,119 71,528 Deferred 20,249 (21,961) 559,368 49,567 Net income $1,048,016 $ 127,326 Net income per share (Note 13) $ 42.45 $ 5.04 See Notes to Financial Statements. F-33 Fleischli Oil Company, Inc. Statements of Stockholders' Equity Years Ended August 31, 1995 and 1994 Common Retained Treasury Stock Earnings Stock Balance, August 31, 1993 $ 589,809 $2,667,067 $ 259,670 Net income 127,326 Purchase of 2,740 shares of common stock for treasury 385,370 Sale of 1,134 shares of treasury stock 3,563 (160,862) Balance, August 31, 1994 593,372 2,794,393 484,178 Net income 1,048,016 Purchase of 1,756 shares of common stock for treasury 273,608 Sale of 1,474 shares of treasury stock 15,948 (213,730) Balance, August 31, 1995 $609,320 $3,842,409 $544,056 See Notes to Financial Statements. F-34 Fleischli Oil Company, Inc. Statements of Cash Flows Years Ended August 31, 1995 and 1994 1995 1994 Cash Flows from Operating Activities Net income $1,048,016 $ 127,326 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 460,006 354,038 Amortization 15,455 11,591 Provision for doubtful accounts 36,000 36,000 (Gain) on sale of property and equipment and other asset (8,070) (1,300) Deferred income taxes 20,249 (21,960) Change in assets and liabilities: (Increase) decrease in: Trade receivables 276,873 146,181 Inventories (529,706) 111,265 Prepaid expenses (9,641) (2,082) Income taxes receivable 83,123 (83,123) Increase (decrease) in: Accounts payable and accrued expenses 192,984 629,425 Income taxes payable 468,147 (49,879) Net cash provided by operating activities 2,053,436 1,257,482 Cash Flows from Investing Activities Proceeds from sale of property and equipment and other assets 21,407 2,700 Purchase of property and equipment (683,301) (696,191) Increase in cash surrender value of officers' life insurance (9,253) (9,390) Net cash (used in) investing activities (671,147) (702,881) Cash Flows from Financing Activities Outstanding checks in excess of bank balance -- (334,617) Principal payments on borrowings, including capital lease obligations (4,616,019) (4,167,722) Proceeds from borrowings 3,550,956 4,286,850 Purchase of common stock for the treasury (273,608) (385,370) Proceeds from sale of treasury stock 229,678 164,425 Net cash (used in) financing activities (1,108,993) (436,434) Net increase in cash $ 273,296 $ 118,167 Cash: Beginning 383,335 265,168 Ending $ 656,631 $ 383,335 F-35 Fleischli Oil Company, Inc. Statements of Cash Flows Years Ended August 31, 1995 and 1994 (Continued) 1995 1994 Supplemental Disclosures of Cash Flow Information: Cash payments for: Interest $ 181,937 $ 157,898 Income taxes 53,370 204,529 Supplemental Schedule of Noncash Investing and Financing Activities Capital lease obligation incurred for use of equipment 349,565 310,613 See Notes to Financial Statements. F-36 Fleischli Oil Company, Inc. Notes to Financial Statements Years Ended August 31, 1995 and 1994 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company's operations are principally in the distribution of petroleum products to entities operating in the construction and extractive industries in Wyoming, Colorado, Utah and Nevada. A summary of the Company's significant accounting policies follows: Inventories: The inventories are stated at the lower of cost (last-in, first-out method) or market. The use of the last-in, first-out method of determining the cost of inventories, which was adopted for the year ended August 31, 1979, had the effect of decreasing the inventories by $205,513 and $661,233 at August 31, 1995 and 1994, respectively, and increasing and decreasing net income by $455,720 and $311,488 for the years ended August 31, 1995 and 1994, respectively, as compared to what they would have been under the first-in, first-out method. Property and equipment: Property and equipment is stated at cost and depre- ciated over estimated service lives primarily by the straight-line method. Maintenance and repairs are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations. The depreciation expense on assets being acquired under capital leases is included with the depreciation expense on owned assets. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. NOTE 2: INVENTORIES Reductions of inventory quantities in 1995 and 1994 resulted in a liquidation of LIFO inventory quantities carried at cost prevailing in prior years which were lower than current costs. The effect of these reductions was to increase net income by approximately $18,458 and $662,845 for the years ended August 31, 1995 and 1994, respectively. NOTE 3: NOTES PAYABLE The Company has a $1,750,000 line of credit with a bank secured by inventory, accounts receivable, equipment, and the personal guarantees of the Company's major shareholders, bearing interest at New York Citibank prime (8.75% at August 31, 1995) plus .5%, maturing January 28, 1996. The available credit at August 31, 1995 was $1,750,000. The line-of-credit advances are subject to borrowing base limitations as follows: accounts receivable - 75% with F-37 receivables greater than 60 days excluded, and inventory - 50%. See Note 5 for discussion of loan covenants. At August 31, 1995, the Company has unsecured notes payable to a major stockholder in the amount of $200,000. The notes bear interest at New York Citibank (8.75% at August 31, 1995) plus .75% and are due on demand. Interest expense was $18,334 and $14,469 for the years ended August 31, 1995 and 1994, respectively. NOTE 4: CAPITAL LEASES The Company leases seven units of mobile equipment from related parties that are being acquired under capital leases. The leases expire through June, 1999. The mobile equipment and the related liability under the capital leases were recorded at the present value of the future payments due under the leases, as determined using various interest rates ranging from 8.76% to 10.96%. The following is a schedule by years of the future minimum lease payments due under the capital leases, together with the net present value of the minimum lease payments as of August 31, 1995. Year ending August 31: 1996 $ 175,079 1997 175,079 1998 175,079 1999 113,843 Total minimum lease payments 639,080 Less amount representing interest 92,693 Net present value of minimum lease payments $ 546,387 Interest expense applicable to the related party leases was $22,049 and $15,521 for the years ended August 31, 1995 and 1994, respectively. NOTE 5: LONG-TERM DEBT Long-term debt at August 31, 1995 consists of the following: Note payable to Bank, due in monthly installments of $15,695 plus interest at the New York Citibank prime, currently 8.5%, plus .75%, through January, 2000, collateralized by inventory, accounts receivable, equipment, and rolling stock $ 679,338 Note payable to Bank, due in monthly installments of $6,259, including interest at the Wall Street Journal prime, currently 8.5%, plus .50%, through November, 2002, collateralized by real estate and the personal guarantees of the Company's major shareholders 440,749 1,120,087 Less current maturities 168,092 Long-term portion $ 951,995 F-38 In connection with the bank notes payable (see Note 3) and long-term debt, the Company has agreed, among other things, to: (1) maintain a ratio of total liabilities to tangible net worth of less than 2.5 to 1; (2) maintain a ratio of current assets to current liabilities of 1.2 to 1; and (3) maintain a minimum global debt service coverage (as defined in the loan agreement) of 1.5 to 1. Aggregate maturities required on long-term debt at August 31, 1995 are as follows: Year ending August 31: 1996 $ 168,092 1997 184,427 1998 202,171 1999 221,623 2000 129,104 Later years 214,670 $1,120,087 NOTE 6: PROFIT-SHARING PLAN The Company has a 401(k) Profit-Sharing Plan with eligibility requirements of 21 years of age and one year of service. The Plan provides for employee contributions not to exceed legal limitations, a discretionary employer matching contribution, and a discretionary profit-sharing contribution. The Company did not make any contributions to the Plan for the years ended August 31, 1995 and 1994. NOTE 7: LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE The Company has leased a commercial office building from a related party under an operating lease agreement expiring July 1, 2005, with the option to renew for an additional five years. The agreement requires the Company to pay all property taxes, repairs and maintenance, and insurance on the property. The Company has the option at any time during the lease term, including any subsequent extension of the lease, to purchase the property at the appraised value at the date the option is exercised, less twenty-five percent of the lease payments made from the inception of the lease. The total minimum rental commitment at August 31, 1995 under the lease is due as follows: During the next five years $162,000 During the remaining term of the lease 192,000 $354,000 Additionally, the Company has leased various trucks and autos under operating leases which expire through December, 1996 and require various minimum monthly rentals. The total minimum rental commitment at August 31, 1995 under the agreements of $89,230, including $12,258 due to related parties, are due as follows: Year ending August 31: 1996 $ 76,826 1997 12,404 $ 89,230 F-39 The Company also leases various equipment under separate, short-term lease agreements. The total rental expense included in the income statements for the years ended August 31, 1995 and 1994 is $241,781 and $306,911, respectively, with $42,173 and $36,773 being with related parties. NOTE 8: STOCK REPURCHASE AGREEMENT The Company and its non-401(k) plan stockholders have entered into stock repurchase agreements under which, upon the death of the stockholder or their desire to dispose of their stock, the Company must purchase the shares of its common stock owned by the stockholder. There are 24,100 outstanding shares subject to the agreement at August 31, 1995. The per share repurchase price as determined by the formula contained in the agreement, utilizing the August 31, 1995 financial statements, is $240. NOTE 9: MAJOR CUSTOMER AND SUPPLIERS Net sales for the years ended August 31, 1995 and 1994 included sales to a major customer totaling $24,181,187 and $23,552,908, respectively. Trade accounts receivable from this customer at August 31, 1995 and 1994 were $588,784 and $1,007,753, respectively. Cost of goods sold for the year ended August 31, 1995 and 1994 included purchases from major suppliers of $49,025,482 and $36,750,342, respectively. Accounts payable for these suppliers at August 31, 1995 and 1994 were $1,760,982 and $1,462,748, respectively. The Company has entered into a long-term fuel purchase and supply contract expiring December 31, 2004. The contract requires the Company to purchase an estimated 21,575,000 gallons of fuel per year from one of its major suppliers to be delivered to the Company's major customer (that the Company has been doing business with for the past nine years). The estimated contract value, based on the estimated quantities and unit rates as detailed in the contract, is $180,000,000. NOTE 10: ENVIRONMENTAL CLEAN-UP OBLIGATIONS The Company is in the remediation process of subsurface contamination at one owned site. The Company has accrued and charged to expense, net of amounts recoverable from the prior owner of the site, the estimated remaining remediation costs. The Company, along with approximately 56 other entities, has also been identified by the Environmental Protection Agency as a potentially responsible party in connection with the required clean-up of a non-owned refinery site. A settlement agreement was signed during the year, which releases the Company from any further liability in this matter. Due to the nature of the Company's business, it is always susceptible to environmental clean-up obligations. However, management is not presently aware of any unasserted environmental clean-up obligations that it considers likely of assertion and that, if asserted, would have a reasonable likelihood of having a material adverse impact on the Company. F-40 NOTE 11: INCOME TAX MATTERS Net deferred tax assets (liabilities) consist of the following components as of August 31, 1995 and 1994: 1995 1994 Current deferred tax assets (liabilities): Inventory lower of cost or market adjustments $ 10,242 $ -- Inventory uniform capitalization 13,894 8,225 Allowance for bad debt 114,297 101,424 Accrued vacation 24,284 21,584 Other assets (liabilities) 45,065 (24,745) Alternative minimum tax credit -- 46,098 207,782 152,586 Noncurrent deferred tax liabilities: Property and equipment depreciation (174,306) (98,861) $ 33,476 $ 53,725 The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended August 31, 1995 and 1994 due to following: 1995 1994 Computed "expected" tax expense $562,584 $ 61,913 Increase (decrease) in income taxes resulting from: Benefit of income taxed at lower rates (16,074) (13,018) Nondeductible expenses 5,440 -- State income taxes, net of federal tax benefit 9,145 -- Other (1,727) 672 $559,368 $ 49,567 NOTE 12. OFF-BALANCE-SHEET RISK The Company has an off-balance-sheet risk arising from the cash balance in a bank account. The total cash balance exceeds the federally insured limit of $100,000 by approximately $757,000 at August 31, 1995. NOTE 13. EARNINGS PER COMMON SHARE Earnings per common share have been computed by dividing net income by the weighted averaged number of common shares outstanding. The weighted average number of common shares outstanding as of August 31, 1995 and 1994 is 24,688 and 25,265, respectively. F-41 -----END PRIVACY-ENHANCED MESSAGE-----