UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to
Commission file number: 001-15035
ABLE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3520840
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
198 Green Pond Road
Rockaway, NJ 07866
(Address of principal executive offices)
Registrant's telephone number, including area code: (973) 625-1012
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check X whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act for 1934 subsequent to the distribution of securities under a plan
confirmed under a plan confirmed by a court Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of February 9, 2005, 2,013,250 shares, $.001 Par value per share, of
Able Energy, Inc. were issued and outstanding.
TABLE OF CONTENTS
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PAGE
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 2004 and
December 31, 2004 3 - 4
Consolidated Statements of Operations for the three and six
months ended December 31, 2004 and December 31, 2003 5
Consolidated Statement of Stockholders' Equity six months
ended December 31, 2004 6
Consolidated Statements of Cash Flows for the six months
ended December 31, 2004 and 2003 7 - 8
Notes to Unaudited Financial Statements 9 - 31
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 32 - 35
ITEM 3. - CONTROLS AND PROCEDURES 35
PART II. - OTHER INFORMATION 36
ITEM 1. - LEGAL PROCEEDINGS 36
ITEM 2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 36
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES 37
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 37
ITEM 5. - OTHER INFORMATION 37
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 37
2
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
DECEMBER 31, JUNE 30,
2004 2004
UNAUDITED AUDITED
--------- -------
CURRENT ASSETS:
Cash $ 753,582 $ 1,309,848
Accounts Receivable (Less Allowance for Doubtful
Accounts of $181,852 and $192,222 as of December 31, and
June 30, 2004, respectively 3,926,184 2,436,554
Inventory 1,184,411 559,325
Notes Receivable - Current Portion 52,907 51,851
Other Receivable - Non-Compete - Current Portion 225,000 225,000
Miscellaneous Receivables 3,003 127,422
Prepaid Expenses 462,527 310,142
Deferred Costs - Insurance Claims 418,236 424,547
Prepaid Expense - Income Taxes -- 2,063
Deferred Income Tax 52,693 54,923
Due From Officer 74,370 75,833
------------ ------------
TOTAL CURRENT ASSETS 7,152,913 5,577,508
------------ ------------
PROPERTY AND EQUIPMENT:
Land 479,346 479,346
Buildings 946,046 1,000,268
Trucks 3,504,172 3,217,443
Fuel Tanks 750,288 674,765
Machinery and Equipment 1,003,159 911,177
Leasehold Improvements 600,824 607,484
Cylinders 250,274 183,773
Office Furniture and Equipment 205,319 200,640
Website Development Costs 2,359,770 2,330,794
------------ ------------
10,099,198 9,605,690
Less: Accumulated Depreciation and Amortization 5,403,965 4,819,707
------------ ------------
NET PROPERTY AND EQUIPMENT 4,695,233 4,785,983
------------ ------------
OTHER ASSETS:
Deferred Income Taxes 45,091 45,091
Deposits 50,418 137,015
Other Receivable - Non-Compete - Less Current Portion 675,000 675,000
Notes Receivable - Less Current Portion 664,133 675,295
Customer List, Less Accumulated Amortization of ($ 188,122)
December 31 and June 30, 2004 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
$100,000 and $96,667 at December 31 and June 30, 2004, respectively -- 3,333
Development Costs - Franchising 13,786 18,382
Deferred Closing Costs - Financing 99,733 103,360
------------ ------------
TOTAL OTHER ASSETS 1,970,889 2,080,204
------------ ------------
TOTAL ASSETS $ 13,819,035 $ 12,443,695
============ ============
See Accompanying Notes
3
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(Cont'd)
LIABILITIES & STOCKHOLDERS' EQUITY
DECEMBER 31, JUNE 30,
2004 2004
(UNAUDITED) (AUDITED)
----------- ---------
CURRENT LIABILITIES:
Accounts Payable $ 2,867,320 $ 1,703,005
Note Payable - Bank 699,236 699,236
Current Portion of Long-Term Debt 411,579 371,838
Accrued Expenses 286,334 318,154
Accrued Taxes 72,990 31,582
Deferred Income 2,333 2,333
Customer Pre-Purchase Payments 1,961,690 1,495,906
Customer Credit Balances 1,091,706 698,899
------------ ------------
TOTAL CURRENT LIABILITIES 7,393,188 5,320,953
DEFERRED INCOME 79,679 79,679
DEFERRED INCOME TAXES 98,926 91,176
LONG TERM DEBT: less current portion 3,668,209 3,553,836
------------ ------------
TOTAL LIABILITIES 11,240,002 9,045,644
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock
Authorized 10,000,000 Shares Par Value $.001 per share
Issued - None
Common Stock
Authorized 10,000,000 Par Value $.001 per share Issued
and Outstanding Shares 2,013,250 (December 31) and
2,013,250 (June 30) 2,014 2,014
Paid in Surplus 5,711,224 5,711,224
Retained Earnings (Deficit) (3,134,205) (2,315,187)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,579,033 3,398,051
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,819,035 $ 12,443,695
============ ============
See Accompanying Notes
4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
2004 2003 2004 2003
---- ---- ---- ----
NET SALES $ 18,988,098 $ 11,760,188 $ 27,209,943 $ 18,264,828
COST OF SALES 17,197,867 10,366,316 24,807,725 15,984,380
------------ ------------ ------------ ------------
GROSS PROFIT 1,790,231 1,393,872 2,402,218 2,280,448
------------ ------------ ------------ ------------
EXPENSES
Selling, General and Administrative Expenses 1,375,879 1,409,265 2,480,579 2,980,256
Depreciation and Amortization Expense 306,339 280,906 603,930 551,593
------------ ------------ ------------ ------------
Total Expenses 1,682,218 1,690,171 3,084,509 3,531,849
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 108,013 (296,299) (682,291) (1,251,401)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest and Other Income 83,610 33,469 134,486 58,698
Interest Expense (89,054) (109,287) (166,878) (371,357)
Gain (Loss) on Sale of Assets 429 - (31,008) -
Legal Fees Relating to Other Expense (41,397) - (63,347) (130,207)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (46,412) (75,818) (126,747) (442,866)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 61,601 (372,117) (809,038) (1,694,267)
PROVISION FOR INCOME TAXES 7,720 29,635 9,980 47,400
------------ ------------ ------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 53,881 (401,752) (819,018) (1,741,667)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS - (190,450) - (361,825)
------------ ------------ ------------ ------------
(LOSS) FROM DISCONTINUED OPERATIONS - (190,450) - (361,825)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 53,881 $ (592,202) $ (819,018) $ (2,103,492)
============ ============ ============ ============
BASIC EARNINGS (LOSS) PER COMMON SHARE
(Loss) from Continuing Operations $ .03 $ (.20) $ (.41) $ (.86)
============ ============ ============ ============
(Loss) from Discontinued Operations $ - $ (.09) $ - $ (.18)
============ ============ ============ ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE
(Loss) from Continuing Operations $ .03 $ (.20) $ (.41) $ (.86)
============ ============ ============ ============
(Loss) from Discontinued Operations $ - $ (.09) $ - $ (.18)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - Used in Basic 2,013,250 2,013,250 2,013,250 2,013,250
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - Used in Diluted 2,038,786 2,013,250 2,013,250 2,013,250
============ ============ ============ ============
See Accompanying Notes
5
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 2004
(UNAUDITED)
COMMON STOCK
.001 PAR VALUE
--------------
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS EQUITY
------ ------ ------- -------- ------
Balance - July 1, 2004 2,013,250 $ 2,014 $5,711,224 $(2,315,187) $3,398,051
Net Loss (819,018) (819,018)
----------- ----------
Balance - December 31, 2004 2,013,250 $ 2,014 $5,711,224 $(3,134,205) $2,579,033
--------- ------- ---------- ----------- ----------
See Accompanying Notes
6
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31,
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net (Loss) $ (819,018) $(2,103,492)
(Loss) from Discontinued Operations -- (361,825)
-----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) - CONTINUING OPERATIONS $ (819,018) $(1,741,667)
Adjustments to Reconcile Net Income to Net Cash
used by Operating Activities:
Depreciation and Amortization 603,930 551,593
Loss on Disposal of Equipment 35,722 --
(Increase) Decrease in:
Accounts Receivable (1,489,630) (559,751)
Inventory (625,086) (503,716)
Prepaid Expenses (152,385) (79,451)
Prepaid Income Taxes 2,063 --
Deposits 86,597 32,821
Deferred Income Tax - Asset 2,230 40,730
Insurance Claim Receivable -- 349,526
Deferred Costs - Insurance Claims 6,311 (125,111)
Increase (Decrease) in:
Accounts Payable 1,164,315 1,530,183
Accrued Expenses 9,580 (100,773)
Customer Advance Payments 465,784 317,548
Customer Credit Balance 392,807 256,416
Deferred Income Taxes 7,750 6,770
Deferred Income -- 9,333
Taxes Payable -- (70,972)
----------- -----------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES CONTINUING
OPERATIONS (309,030) (86,521)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (743,052) (699,322)
Web Site Development Costs (28,976) (43,419)
Cash Received on Sale of Property 229,814 --
Disposition of Equipment 4,876 73,860
Payment on Notes Receivable - Sale of Equipment 10,106 2,000
Receivable - Officer 1,463 --
Miscellaneous Receivables 124,419 (19,395)
----------- -----------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES CONTINUING
OPERATIONS (401,350) (686,276)
----------- -----------
See Accompanying Notes
7
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
SIX MONTHS ENDED DECEMBER 31,
2004 2003
---- ----
CASH FLOW FROM FINANCING ACTIVITIES
(Decrease) Increase in Notes Payable - Bank $ -- $(1,270,000)
Note Payable - Other -- (1,250,000)
Note Payable - Bank -- 700,000
Note Payable - Officer -- (1,442)
Decrease in Long-Term Debt (174,729) (1,939,112)
Increase in Long-Term Debt 328,843 4,805,223
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
CONTINUING OPERATIONS 154,114 1,044,669
----------- -----------
DISCONTINUED OPERATIONS:
Net Cash (Used) Provided by Discontinued Operations -- (280,371)
----------- -----------
NET CASH (USED) PROVIDED BY DISCONTINUED
OPERATIONS -- (280,371)
----------- -----------
NET (DECREASE) INCREASE IN CASH (556,266) (8,499)
Cash - Beginning of Year 1,309,848 400,033
----------- -----------
Cash - End of Year $ 753,582 $ 391,534
=========== ===========
The Company had Interest Cash Expenditures of: $ 150,031 $ 424,598
The Company had Tax Cash Expenditures of: $ 15,949 $ 54,508
See Accompanying Notes
8
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Able
Energy, Inc. and its subsidiaries. All material inter-company balances and
transactions were eliminated in consolidation.
MAJORITY OWNERSHIP
The Company is the majority owner, owning 70.6% of the issued shares of
a subsidiary, PriceEnergy.Com, Inc. in which their capital investment is
$25,000. The subsidiary has established a E-Commerce Operating System for the
sale of products through a network of suppliers originally on the East Coast of
the United States. The Web Site became active in October 2000 (See Notes 8 and
13)
MINORITY INTEREST
The minority interest in PriceEnergy.Com, Inc. is a deficit and, in
accordance with Accounting Research Bulletin No. 51, subsidiary losses should
not be charged against the minority interest to the extent of reducing it to a
negative amount. As such, the losses have been charged against the Company, the
majority owner. The loss for six months ended December 31, 2004 is $371,645 (See
Notes 8 and 13).
The consolidated interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's annual report for the
year ended June 30, 2004. The Company follows the same accounting policies in
preparation of interim reports.
9
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Results of operations for the interim periods are not indicative of
annual results.
NATURE OF OPERATIONS
Able Oil Company, Able Melbourne and Able Energy New York, Inc. are full
service oil companies that market and distribute home heating oil, diesel fuel
and kerosene to residential and commercial customers operating in the northern
New Jersey, Melbourne, Florida, and Warrensburg, New York respectively. Able
Energy New York, Inc. also installs propane tanks which it owns and sells
propane for heating and cooking, along with other residential and commercial
uses in the Warrensburg, New York area.
The Company's operations are subject to seasonal fluctuations with a
majority of the Company's business occurring in the late fall and winter months.
Approximately 70% of the Company's revenues are earned and received from October
through March, and the overwhelming majority of such revenues are derived from
the sale of HVAC products and services and home heating fuel. However, the
seasonality of the Company's business is offset, in part, by the increase in
revenues from the sale of diesel and gasoline fuels during the spring and summer
months due to the increased use of automobiles and construction apparatus.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out method)
or market.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides a specific allowance for accounts in excess of
$3,000 due over 90 days. A general allowance of 10% is provided for the balances
under $3,000 due over 90 days.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by using the straight-line method based upon the
estimated useful lives of the assets (5 to 40 years). Depreciation expense from
continuing operations for the six months ended December 31, 2004 and 2003
amounted to $361,147 and $308,516, respectively.
For income tax basis, depreciation is calculated by a combination of the
straight-line and modified accelerated cost recovery systems established by the
Tax Reform Act of 1986.
10
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
PROPERTY AND EQUIPMENT (CONT'D)
Expenditures for maintenance and repairs are charged to expense as
incurred whereas expenditures for renewals and betterments are capitalized.
The cost and related accumulated depreciation of assets sold or
otherwise disposed of during the period are removed from the accounts. Any gain
or loss is reflected in the year of disposal.
E-COMMERCE OPERATING SYSTEM DEVELOPMENT COSTS
Costs of $2,359,770 incurred in the developmental stage and thereafter
for computer hardware and software have been capitalized in accordance with
accounting pronouncement SOP98-1. The costs are included in Property and
Equipment and will be amortized on a straight line basis during the estimated
useful life, 5 years. Operations commenced in October 2000. Amortization for the
six months ended December 31, 2004 and 2003 amounted to $234,854 and $229,481,
respectively.
INTANGIBLE ASSETS
Intangibles are stated at cost and amortized as follows:
Customer Lists of $571,000 related to the Connell's Fuel Oil Company
acquisition on October 28, 1996, by Able Oil Company are being amortized over a
straight-line period of 15 years. The current period amortization also includes
a customer list of $39,850 and Covenant Not To Compete of $100,000 relating to
the acquisition from B & B Fuels on August 27, 1999, is being amortized over a
straight-line period of 10 and 5 years, respectively. The amortization for the
six months ended December 31, 2004 and 2003 are $3,333 and $10,000,
respectively.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 requires goodwill and other intangible
assets to be tested for impairment under certain circumstances, and written off
when impaired, rather than being amortized as previous standards required, as
such, effective July 1, 2001, the Customer List will no longer be amortized for
financial statement purposes.
For income tax basis, the Customer Lists and the Covenant Not To Compete
are being amortized over a straight-line method of 15 years as per the Tax
Reform Act of 1993.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
11
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
INCOME TAXES
Effective January 1, 1997, all the subsidiaries, which were
S-Corporations, terminated their S-Corporation elections. The subsidiaries are
filing a consolidated tax return with Able Energy, Inc.
Effective January 1, 1997, the Company has elected to provide for income
taxes based on the provisions of Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements and tax returns in different years. Under this method,
deferred income tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
CONCENTRATIONS OF CREDIT RISK
The Company performs on-going credit evaluations of its customers'
financial conditions and requires no collateral from its customers.
Financial instruments which potentially subject the Company to
concentrations of credit risk consists of checking and savings accounts with
several financial institutions in excess of insured limits. The excess above
insured limits is $517,128. The Company does not anticipate non-performance by
the financial institutions.
CASH
For the purpose of the statement of cash flows, cash is defined as
balances held in corporate checking accounts and money market accounts.
ADVERTISING EXPENSE
Advertising costs are expensed at the time the advertisement appears in
various publications and other media. The expense was $174,287 and $348,095 for
the six months ended December 31, 2004 and 2003, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accrued compensation, and other accrued
liabilities, approximate fair value because of their short maturities.
12
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of
delivery to the customer, and sales of equipment are recognized at the time of
installation. Revenue from repairs and maintenance service is recognized upon
completion of the service. Payments received from customers for heating
equipment service contracts are deferred and amortized into income over the term
of the respective service contracts, on a straight line basis, which generally
do not exceed one year.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average
number of common shares outstanding during the period. Diluted net income per
share is computed using the weighted-average number of common and dilutive
potential common shares outstanding during the period. Diluted net loss per
share is computed using the weighted-average number of common shares and
excludes dilutive potential common shares outstanding, as their effect is
antidilutive. Dilutive potential common shares primarily consist of employee
stock options.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Measurement of an impairment loss for
long-lived assets that management expects to hold and use is based on the fair
value of the asset. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less costs to sell.
GOODWILL AND INTANGIBLE ASSETS
In June 2001, FASB approved two new pronouncements: SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 applies to all business combinations with a closing date
after June 30, 2001. This Statement eliminates the pooling-of-interests method
of accounting and further clarifies the criteria for recognition of intangible
assets separately from goodwill.
13
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
SFAS No. 142 eliminates the amortization of goodwill and
indefinite-lived intangible assets and initiates an annual review for
impairment. Identifiable intangible assets with a determinable useful life will
continue to be amortized. The amortization provisions apply to goodwill and
other intangible assets acquired after June 30, 2001. Goodwill and other
intangible assets acquired prior to June 30, 2001 will be affected upon
adoption. The Company has adopted SFAS No. 142 effective July 1, 2001, which
will require the Company to cease amortization of its remaining net customer
lists balance and to perform an impairment test of its existing customer lists
and any other intangible assets based on a fair value concept.
The Company has reviewed the provisions of these Statements. Based upon
an assessment of the customer lists, there has been no impairment. As of June
30, 2001, the Company has net unamortized customer lists of $422,728.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued FASB Interpretation ("FIN") No. 46-R,
"Consolidation of Variable Interest Entities". FIN No. 46-R, which modifies
certain provisions and effective dates of FIN No. 46, sets forth criteria to be
used in determining whether an investment in a variable interest entity should
be consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN No. 46 became effective for the
Company during the third quarter of Fiscal 2004. The adoption of this new
standard did not have any impact on the Company's financial position, results of
operations or cash flows.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure (an amendment of FASB Statement No. 123)." In December 2002, the FASB
issued SFAS No. 148, which amends SFAS No. 123, "Accounting for Stock-Based
Compensation," and provides alternative methods of transition for a voluntary
change to the fair value-based method of accounting for stock-based employee
compensation; SFAS No. 148 also amends the disclosure requirements of SFAS No.
123 and APB Opinion No. 28, "Interim Financial Reporting," to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of SFAS No. 148 are effective for
financial statements for periods ending after December 15, 2002. The Company
will adopt SFAS No. 148 effective July 1, 2003. It currently has no effect on
the Company.
14
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
RECENT ACCOUNTING PRONOUNCEMENTS (CONT'D)
Debt Extinguishments
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and technical
Corrections." Among other things, this statement rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt" (SFAS No. 4), which required all
gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect. As a
result, the criteria in Accounting Principles Board Opinion No. 30, "reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," which requires gains and losses on extinguishment of debts to be
classified as income or loss from continuing operations, will now be applied. We
adopted the provisions of this statement as of July 1, 2002, as it was effective
for years beginning after June 15, 2002.
In December, 2003, the Financial Accounting Standards Board ("FASB")
issued a revision to SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post retirement Benefits." This revised statement requires additional
annual disclosures regarding types of pension plan assets, investment strategy,
future plan contributions, expected benefit payments and other items. The
statement also requires quarterly disclosure of the components of net periodic
benefit cost and plan contributions. This currently has no effect on the
Company.
In May 2003, the FASB issued SFAS No,. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
statement affects the classification, measurement and disclosure requirements of
certain freestanding financial instruments including mandatorily redeemable
shares. This currently has no effect on the Company's operations.
Asset Retirement Obligations
Effective January 1, 2003, the Company has adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations" (SFAS No. 143). This statement
provides the accounting for the cost of legal obligations associated with the
retirement of long-lived assets. SFAS No. 143 requires that companies recognize
the fair value of a liability for asset retirement obligations in the period in
which the obligations are incurred and capitalize that amount as part of the
book value of the long-lived asset. SFAS No. 143 also precludes companies from
accruing removal costs that exceed gross salvage in their depreciation rates and
accumulated depreciation balances if there is no legal obligation to remove the
long-lived assets. The adoption had no current effect on the financial records.
15
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 2 NOTES RECEIVABLE
A. The Company has a Receivable from Able Montgomery, Inc. and
Andrew W. Schmidt related to the sale of Able Montgomery, Inc. to Schmidt, and
truck financed by Able Energy, Inc. No payments of principal or interest had
been received for more than one year. A new note was drawn dated June 15, 2000
for $170,000, including the prior balance, plus accrued interest. The Note bears
interest at 9.5% per annum and payments commence October 1, 2000. The payments
will be monthly in varying amount each year with a final payment of $55,981.07
due September 1, 2010. No payments were received in the year ended December 31,
2000. In February 2001, two (2) payments were received in the amount $2,691.66,
interest only. In September 2001, $15,124.97 was received covering payments from
December 2000 through October 2001, representing interest of $14,804.13 and
principal of $320.84. Payments were received in November and December 2002,
representing December 2001 and January 2002, a total of $3,333.34; interest of
$2,678.88, and principal of $654.46. No payments have been received in more than
21 months.
The note is secured by a pledge and security agreement and stock
purchase agreement (Stock of Able Montgomery, Inc.), dated December 31, 1998,
and the assets of Andrew W. Schmidt with the note dated June 15, 2000. The
income on the sale of the company in December 1998 and the accrued interest on
the drawing of the new note are shown as deferred income in the amount of
$79,679.18 to be realized on collection of the notes.
Management has informed us they are in negotiations with Andrew Schmidt.
The amount due will be paid to bring the note current, plus interest, or the
Company will foreclose and take the stock of Able Montgomery, Inc. and assume
the operations of the Company as a distributor of #2 oil. Andrew Schmidt and the
Company are finalizing an agreement on a method of payment. Management has
stated that the value of the collateral will cover the amount due.
Maturities of the Note Receivable are as follows:
For the 12 Months Ending
December 31 Principal Amount
----------- ----------------
2005 $ 37,715
2006 13,118
2007 14,420
2008 15,850
2009 17,423
Balance 70,175
Total $168,701
16
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 2 NOTES RECEIVABLE (CONT'D)
B. Able Oil Company has three (3) Notes Receivable for the sale of
oil delivery trucks to independent drivers who also deliver oil for the Company.
Two notes bear interest at the rate of 12% per annum and one Note 9% annum. One
note began December 1998, one began February 1999 and one began January 2004.
The notes are payable eight (8) months per year September through April, the oil
delivery season.
Maturities of these Notes Receivable are as follows:
FOR THE 12 MONTHS ENDING
DECEMBER 31 PRINCIPAL AMOUNT
----------- ----------------
2005 $ 15,792
2006 15,309
2007 5,878
2008 6,240
2009 5,119
--------
Total $ 48,338
========
NOTE 3 INVENTORIES
ITEMS DECEMBER 31, JUNE 30,
----- 2004 2004
---- ----
Heating Oil $ 815,170 $ 232,364
Diesel Fuel 41,324 19,998
Kerosene 11,325 4,906
Propane 29,446 13,461
Parts, Supplies and Equipment 287,146 288,596
---------- ---------
TOTAL $1,184,411 $ 559,325
========== =========
NOTE 4 NOTES PAYABLE BANK
A. On September 22, 2003, the Company closed a new loan facility
with UPS Capital Business Credit. The facility is a $4,300,000 term loan,
payable over fifteen (15) years with interest at the prime rate, plus 1.75%, and
a line of credit of $700,000 with interest at prime plus 1.00%. The payments on
the term loan, due the first of each month, include principal, interest of
$35,900.04, and real estate tax escrow of $2,576.63, totaling $38,476.67. Real
estate tax escrow of $7,745.03 was paid at closing. September 30, 2003 was the
first payment and included nine (9) days of interest plus principal totaling
$20,382.02. Any payment received more than five (5) days after the due date is
subject to a late charge of 5% of such payment. Upon the occurrence of an event
of default, the loan shall bear interest at five percentage points (5%) above
the rate otherwise in effect under the loan.
17
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 4 NOTES PAYABLE BANK (CONT'D)
On March 3, 2004, the Company repaid $1,100,000 of the term loan
principal balance. The monthly payments of principal and interest were reduced
to $26,672.65, commencing with the payment due April 1, 2004 which was paid by
the Company in March 2004. All other terms of the loan will remain the same (See
Note 20).
The collateral will be as follows for the term loan:
1. A first mortgage on properties located at 344 Route 46, Rockaway, NJ and
38 Diller Avenue, Newton, NJ
2. A first security interest in equipment and fleet vehicles
3. A first security interest in the customer list
TERMS AND COLLATERAL RELATED TO THE REVOLVING LINE OF CREDIT
Interest is payable monthly on the first day of each month, in arrears.
This loan shall be paid down annually for a minimum of thirty (30) days at the
borrower's discretion, but prior to renewal. The maturity is annually renewing
from the closing date. This part of the loan is secured by a first priority lien
on accounts receivable and inventory.
The Revolving Line of Credit advances 75% on accounts receivable less
than 90 days outstanding, plus 50% of inventory up to a maximum of $700,000. The
outstanding balance at December 31, 2004 is $699,236. The eligible accounts
receivable were $2,630,991and the collateral of accounts receivable were
approximately $3,261,930.
The loan facility is guaranteed by Able Energy, Inc. Officers loans are
subordinated to the lender and will remain standstill until all debt due to the
lender is paid in full.
The Agreement contains certain financial covenants as enumerated in the
Agreement
The Company paid the following loans on September 22, 2003:
Fleet Bank $ 1,340,644 (including interest and fees of $70,644)
KMA Associates 750,000
Jeff Will 505,000 (including interest of $5,000)
Estate of Birdsal 657,895 (including interest of $7,895)
Long-term Debt 1,084,866
Total Refinance 4,338,405
Other Fees and Costs Paid at Closing 123,198
Total $ 4,461,603
18
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 4 NOTES PAYABLE BANK (CONT'D)
The loan advanced was $4,300,000, the balance of $161,603 was paid by
the Company.
The balance of the term loan at December 31, is $3,007,988
Included in current portion of long-term debt 148,660
Included in long-term debt - less current portion $2,859,328
NOTE 5 NOTES PAYABLE
A. The Company has borrowed $500,000 from an unrelated individual.
The Note was dated June 26, 2001 with interest at 12% per annum. The lender has
granted the Company several extensions. The Note may be prepaid in whole or part
from time-to-time without penalty.
No principal payments have been made on the Note. At the maturity date,
a final payment of the unpaid principal and interest shall be due and payable.
In connection with this Note, the Company has issued the lender warrants to
purchase 40,000 shares of its common stock at $4 per share. The warrants vest
immediately and must be exercised no later than June 26, 2004. At June 30, 2004,
the warrants expired. The Note was paid in full on September 22, 2003 (See Note
4 A). The same individual loaned the Company $300,000 on February 12, 2004, to
be paid $100,000 per month plus interest, at 6% per annum on March, April and
May 15, 2004. The balance at June 30, and December 31, 2004 was $- 0 -.
B. The Company has borrowed $335,000 from an unrelated Company. The
mortgage and Note are dated April 16, 2003. The loan is to Able Energy New York,
Inc., a wholly owned subsidiary. The loan is collateralized by a mortgage on
property in Lake George, New York owned by the subsidiary and a second mortgage
on property in Bolton, New York, owned by the Company's CEO who is also a
guarantor on the loan. Payments of interest only on the outstanding principal
balance at a rate of 14% per annum, are payable monthly. The first payment was
paid June 1, 2003. The entire amount, both principal and accrued interest shall
be due and payable on May 1, 2004. The loan was paid in full on March 11, 2004
NOTE 6 LONG-TERM DEBT
Mortgage note payable dated, August 27, 1999, related to the purchase of
B & B Fuels facility and equipment. The total Note is $145,000. The Note is
payable in the monthly amount of principal and interest of $1,721.18 with and
interest rate of 7.5% per annum. The initial payment was made on September 27,
1999, and continues monthly until August 27, 2009 which is the final payment.
The Note is secured by a mortgage made by Able Energy New York, Inc. on property
at 2 and 4 Green Terrace and 4 Horican Avenue, Town of Warrensburg, Warren
County, New York. The balance due on this Note at December 31, 2004 and June 30,
2004 was $81,114 and $88,242, respectively.
19
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 7 INCOME TAXES
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
The differences between the statutory Federal Income Tax and Income
Taxes Continuing Operation is accounted for as follows:
2003
----
PERCENT OF
PRETAX
AMOUNT INCOME
------ ------
Statutory Federal Income Tax $ 6,986 15.0%
State Income Tax 2,994 6.5
-------- ------
Income Taxes $ 9,980 21.5%
======== ======
Income Taxes consists of:
Current $ -
Deferred 9,980
Total $ 9,980
2003
----
AMOUNT PERCENT
------ -------
Statutory Federal Income Tax $ 33,180 34.0%
State Income Tax 14,220 5.9
-------- ------
Income Taxes $ 47,400 39.9%
======== ======
Income Taxes consist of:
Current $ -
Deferred 47,400
--------
Total $ 47,400
========
(Note X) The State of New Jersey has suspended the use of carryforward
losses for the years 2002 and 2003. As such, state income taxes of $45,091 have
been shown as a deferred asset and as income taxes payable for the year ended
June 30, 2003. New Jersey carryforward is treated separately by each Company.
Able Oil Company has a New Jersey Operating Loss of $501,010 which could not be
utilized in the year ended June 30, 2003. Under current New Jersey law, the
carryforward will be available up to 50% of the Company's income after 2003, the
Company's fiscal year ending June 30, 2005.
20
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 7 INCOME TAXES (CONT'D)
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to a
significant portion of the deferred tax liability and deferred tax asset and
their approximate tax effects are as follows at:
DECEMBER 31, 2004
-----------------
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
Depreciation and Amortization $(375,071) $(98,926)
Allowance for Doubtful Accounts 181,852 48,658
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carryforward, 501,010 45,091
(See Note X, above)
JUNE 30, 2004
-------------
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
Depreciation and Amortization $(339,045) $(91,176)
Allowance for Doubtful Accounts 192,222 50,888
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carryforward 501,010 45,091
(See Note X, prior page)
Able Energy, Inc., et al, open years are June 30, 2001, 2002, 2003 and
2004. The Company has a net operating loss carryforward of approximately
$2,302,315. The net operating loss expires between June 30, 2019 and 2021. Able
Energy, Inc and PriceEnergy.Com, inc. have a New Jersey net operating loss
carryforward of approximately $489,374 and $2,217,251, respectively, which can
be utilized up to 50% of the income in the year ended June 30, 2005.
These carryforward losses are available to offset future taxable income,
if any. The Company's utilization of this carryforward against future taxable
income is subject to the Company having profitable operations or sale of Company
assets which create taxable income. At this time, the Company believes that a
full valuation allowance should be provided. The component of the deferred tax
asset as of December 31, 2004 are as follows:
Net Operating Loss Carryforward - Tax Effect $782,787
Valuation Allowance (782,787)
Net Deferred Tax based upon Net
Operating Loss Carryforward $ -0-
21
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 8 NOTE RECEIVABLE - SUBSIDIARY
The Company has a Note Receivable from PriceEnergy.Com, Inc. for
advances made in the development of the business, including hardware and
software costs. All of PriceEnergy.Com, Inc.'s assets are pledged as collateral
to Able Energy, Inc. The amount of the note is $1,350,000 dated November 1, 2000
with interest at 8% per annum payable quarterly. Principal payments to begin two
years after the date of the Note, November 1, 2002. Through December 31, 2004,
no principal has been paid. No interest was accrued for the six months ended
December 31, 2004 and the year ended June 30, 2004 as the note is non
performing. Unpaid accrued interest due through December 31, 2004 is $234,000.
The Note, accrued interest and interest expense have been eliminated in the
consolidated financial statements (See Notes 1 and 13). Able Oil Company has a
Note Receivable originally dated September 30, 2002 in the amount of
$1,510,372.73 from PriceEnergy.Com, Inc. The Note has been updated for
transactions through December 31, 2004, resulting in a balance of $3,544,389
with interest at 8% per annum, to be paid quarterly. Principal payments to begin
one year after date of Note, October 1, 2003, and continue monthly thereafter.
The Note is the result of the transference of the unpaid accounts receivable
which resulted from the sale of heating oil through PriceEnergy.Com, Inc. Able
Oil Company has a second position as collateral in all of the assets of
PriceEnergy.Com, Inc. to Able Energy, Inc. No interest has been recorded for the
year ended June 30, 2004, or for the six months ended December 31, 2004. Any
payments will go to pay principal. The note receivable accrued interest and
interest income have been eliminated in consolidation against the amounts on
PriceEnergy.Com, Inc.
NOTE 9 PROFIT SHARING PLAN
Effective January 1, 1997, Able Oil Company established a Qualified
Profit Sharing Plan under Internal Revenue Code Section 401-K. The Company
matches 25% of qualified employee contributions. The expense was $13,436 (2004)
and $12,657 (2003), for the six months ended December 31.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Able Oil Company is under contract to purchase #2 oil as follows:
GALLONS OPEN OPEN DOLLAR
COMMITMENT COMMITMENT AT
COMPANY PERIOD TOTAL GALLONS AT 12/31/04 12/31/04
------- ------ ------------- ----------- --------
Petrocom 11/1/04 - 3/31/05 2,478,000 1,764,000 $2,272,244
Conectiv Energy 10/1/04 - 4/30/05 336,000 168,000 169,281
Center Oil Company 12/1/04 - 1/31/05 210,000 105,000 130,778
--------- --------- ----------
Total 3,024,000 2,037,000 $2,572,303
========= ========= ==========
22
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify with
certainty the potential impact of actions regarding environmental matters, in
the opinion of management, compliance with the present environmental protection
laws will not have a material adverse effect on the financial condition,
competitive position, or capital expenditures of the Company.
In accordance with the agreement on the purchase of the property on
Route 46, Rockaway, New Jersey by Able Energy Terminal, LLC, the purchaser shall
commence after the closing, the investigation and remediation of the property
and any hazardous substances emanating from the property in order to obtain a No
Further Action letter from the New Jersey Department of Environmental Protection
(NJDEP). The purchaser will also pursue recovery of all costs and damages
related thereto in the lawsuit by the seller against a former tenant on the
purchased property. Purchaser will assume all responsibility and direction for
the lawsuit, subject to the sharing of any recoveries from the lawsuit with the
seller, 50-50. The seller by reduction of its mortgage will pay costs related to
the above up to $250,000. A settlement has been achieved by the Company with
regard to the lawsuit. The settlement provides for a lump sum payment of
$397,500 from the defendants to the Company. In return, the defendants received
a release from the Estate (the Seller) and a release and indemnification from
the Company. The defendants provided a release to Able Energy and the Estate.
Pursuant to the original agreement, the Estate receives 50% of the settlement
amount, net of attorney fees.
This has been amended by an agreement dated November 5, 2001. The entire
settlement, net of attorney fees, was collected and placed in an attorney's
escrow account for payment of all investigation and remediation costs. Able
Energy Terminal, LLC has incurred costs of $102,956 to December 31, 2004 which
are included in Prepaid Expenses and must be presented to the attorney for
reimbursement. The New Jersey Department of Environmental Protection (NJDEP) has
issue an approval for treated water run-off. The ruling is for a 180 day period
which can be renewed for an additional 180 days, per management, during which a
valid permit must be obtained. When approval is received and contract invoice
wording is sufficient for the attorney, reimbursement can be made upon approval
of the attorney and the Estate.
The costs of the cleanup pursuant to the Agreement of Sale must be
shared equally (50/50) by the seller and purchaser up to Seller's cap of
$250,000. Seller's contribution to the cleanup is in the form of a reduction to
the Note and not by direct payments. The note has been paid in full. As such,
any payment by the Estate must be direct payments. Payments will begin when and
if costs exceed $397,500. In the opinion of management, the Company will not
sustain costs in this matter which will have a material adverse effect on its
financial condition.
23
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
Following an explosion and fire that occurred at the Able Energy
Facility in Newton, NJ on March 14, 2003, and through the subsequent clean up
efforts, Able Energy has cooperated fully with all local, state and federal
agencies in their investigations into the cause of this accident.
All violation charges with the New Jersey Department of Community
Affairs and OSHA have been settled and paid.
The Sussex County, New Jersey, Prosecutor's Office is conducting and
investigation as a result of the March 14, 2003 explosion and fire. No
determination has been made with respect to its investigation.
A lawsuit (known as Hicks vs. Able Energy, Inc.) has been filed against
the Company by property owners who allegedly suffered property damages as a
result of the March 14, 2003 explosion and fire. The Company's insurance carrier
is defending as related to compensatory damages. Legal counsel is defending on
the punitive damage claim. A hearing was held on March 11, 2004 on an
application on certain matters by the Plaintiffs, which were denied. The Court
presently has before it a motion by Plaintiffs for Class Action Certification.
Per legal counsel, whether this matter is certified a Class Action will greatly
influence the Company's potential exposure. Legal counsel is guardedly
optimistic that Class Action will be denied.
After the March 14, 2003, fire and explosion, the town of Newton changed
its zoning requirements and made fuel oil and propane distribution prohibited
uses. The Company is appealing a denial of a request for building permits to
reconstruct damaged and destroyed buildings and sought a Non-Conforming Use
Certificate to permit the fuel oil distribution use only. On August 20, 2004,
the Superior Court of New Jersey ruled that the Company may continue to use the
site as a non-conforming use, but stayed its decision subject to Newton's
appellate rights.
As a result of the March 14, 2003 explosion and fire, various claims for
property damage have been submitted to the Company's insurance carrier. These
claims are presently being handled and, in many cases, settled by the insurance
carrier's adjuster. There were approximately 200 claims being handled and
adjusted with reserves for losses established as deemed appropriate by the
insurance carrier. The majority of these claims have been settled.
Two lawsuits have been filed by homeowners in Newton, New Jersey who
allegedly suffered property damages as a result of the March 14, 2003 explosion
and fire. The Company's insurance carrier is defending as related to the
property damage claims.
24
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
The Company in the normal course of business has been involved in law
suits. Current suits are being defended by the insurance carrier and should be
covered by insurance and legal counsel is defending on punitive damage claims as
noted above.
NOTE 11 OPERATING LEASE
Able Energy Terminal, LLC, has acquired the following lease on the
property it purchased on Route 46 in Rockaway, New Jersey.
The lease with Able Oil Company, a wholly owned subsidiary of Able
Energy, Inc., had an expiration date of July 31, 2004 and has been rewritten.
The lease provides for a change of $0.022 per gallon through put, as per a
monthly rack meter reading.
Estimated future rents are $0.022 per gallon through put charges per the
monthly rack meter readings.
The Company leased 9,800 square feet in the Rockaway Business Centre on
Green Pond Road in Rockaway, New Jersey. The facility will be used as a call
center and will combine the administrative operations in New Jersey in one
facility. The lease has a term of five (5) years from August 1, 2000 through
July 31, 2005.
The rent for the first year is $7,145.83 per month and the second
through fifth year is $7,431.67 per month, plus 20.5% of the building's annual
operational costs and it's portion of utilities. The current monthly rent,
including Common Area Charges, is $9,799.04 per month.
The lease does not contain any option for renewal. The total rent
expense was $71,772 and $64,774 for the six months ended December 31, 2004 and
2003, respectively. The estimated future rents for Greenpond Road, Rockaway, New
Jersey are as follows:
YEAR ENDED JUNE 30,
-------------------
2005 $58,794
July 2005 9,799
-------
Total $68,593
=======
25
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 11 OPERATING LEASE (CONT'D)
The following summarizes the month to month operating leases for the
other subsidiaries:
Able Oil Melbourne $500.00, per month
Total rent expense, $6,000
Able Energy New York $500.00, per month
Total rent expense, $6,000
NOTE 12 FRANCHISING
The Company sells franchises permitting the operation of a franchised
business specializing in residential and commercial sales of fuel oil, diesel
fuel, gasoline, propane and related services. The Company will provide training,
advertising and use of Able credit for the purchase of product, among other
things, as specified in the Agreement. The franchisee has an option to sell the
business back to the Company after two (2) years of operations for a price
calculated per the Agreement.
The Company signed its first franchise agreement in September 2000. On
June 29, 2001, PriceEnergy.Com Franchising, LLC, a subsidiary, signed its first
franchise agreement. The franchisee will operate a B-franchised business, using
the proprietary marks and a license from PriceEnergy.Com, Inc. and will
establish the presence of the franchisee's company on the PriceEnergy Internet
Website. The franchisee will have the exclusive territory of Fairfield County,
Connecticut as designated in the agreement. No new franchise agreements have
been signed.
NOTE 13 RELATED PARTY TRANSACTIONS
$44,690 is due from the major Shareholder/Officer of the Company. This
amount bears interest at a rate of 6% between the Shareholder and the Company.
This Shareholder has loaned the Company a total of $380,000 as of June 30, 2003,
as evidenced by a Demand Note with interest at 6% per annum, which can be paid
all or in part at any time without penalty. The Shareholder was repaid $135,000
on March 3, 2004 (See Note 20). The balance of the Note was paid in March 2004.
Interest expense was paid in the amount of $13,033. In relation to the payment
of this Note and other transactions, the Shareholder has a liability to the
Company of $31,143, at June 30, 2004 and $74,370 at December 31, 2004.
The following officers of this Company own stock in the subsidiary,
PriceEnergy.Com, Inc., which they incorporated in November 1999.
Chief Executive Officer 23.5%
President 3.6%
Chief Operating Officer 2.3%
No capital contributions have been made by these officers (See Notes 1
and 8).
26
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 14 EARNINGS PER SHARE
The shares used in the computation of the Company's basic and diluted Earnings
Per Common Share are as follows:
DEC. 31, DEC. 31,
2004 2003
---- ----
Weighted Average of Common
Shares Outstanding Used in Basic
Earnings Per Share 2,013,250 2,013,250
Dilutive Effect of:
Employee Stock Options-Three months 12/31/04 25,536 -
Stock Warrants - -
--------- ---------
Weighted Average Common Shares
Outstanding Used in Diluted
Earnings Per Share-Three months 12/31/04 2,038,786 2,013,250
========= =========
Weighted average common shares outstanding, assuming dilution, includes
the incremental shares that would be issued upon the assumed exercise of stock
options, and stock warrants. For the current period, December 31, 2004,
approximately 249,000 of the company's stock options and stock warrants were
excluded from the calculation of diluted earnings per share because their
inclusion would have been anti-diluted, 389,000 (2003). These options and
warrants could be dilutive in the future. The numerator for the calculation of
both basic and diluted earnings per share is the earnings or loss available for
common stockholders. The above table shows the denominator for basic and diluted
earnings per share.
NOTE 15 STOCK OPTION PLANS
The Company has stock option plans under which stock options may be
issued to officers, key employees, and non-employee directors to purchase shares
of the Company's authorized but unissued common stock. The Company also has a
stock option plan under which stock options may be granted to employees and
officers.
27
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 15 STOCK OPTION PLANS (CONT'D)
Options granted currently expire no later than 3 to 5 years from the
grant and have vesting periods from none to 25% at grant and 25% each
anniversary.
OUTSTANDING OPTIONS
-------------------
NUMBER OF SHARES EXERCISE PRICE TERM
---------------- -------------- ----
January 6, 2000
Grants 56,000
Exercises 0 $5.00 5 years
December 21, 2000
Grants 60,000
Exercises 0 $1.80 5 years
Grants 23,000
Exercises 0 $2.25 5 years
October 22, 2002
Grants 50,000
Exercises 0 $3.00 5 years
NOTE 16 STOCK WARRANTS
The Company has issued stock warrants as follows:
60,000 Common Stock Purchase Warrants at $4.81 per share, effective
August 31, 2000, and expiring August 31, 2005, to Andrew Alexander Wise &
Company in connection with an investment banking advisory agreement with the
Company, dated July 1, 2000.
The 60,000 warrants to purchase shares of common stock were outstanding
during the fourth quarter of 2004 and were not included in the computation of
diluted EPS as the warrants' were all higher than the average stock price of
$2.78 and would have been anti-diluted (See Note 14). These warrants have not
been registered under the Securities Act of 1933.
28
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 17 COMPENSATED ABSENCES
There has been no liability accrued for compensated absences; as in
accordance with Company policy, all compensated absences, accrued vacation and
sick payment must be used by December 31st.
NOTE 18 INSURANCE CLAIM
The Company suffered a loss on March 14, 2003 of a building, trucks,
leasehold improvements, product inventory and equipment as well as cost of
cleanup and restoration. The Company has filed insurance claims. The insurance
adjusters are in the process of finalizing the amounts to be paid to the
Company. The estimated costs not reimbursed are $418,236 and is currently shown
as deferred costs insurance claims on the balance sheet. Management anticipates
the insurance recovery will cover the company costs. A claim for business
interruption still has to be filed and a pollution claim is also pending.
The following is a summary of insurance claims filed:
Building (commercial property) $349,526
Paid by March 31, 2004 349,526 $ -
---------
Contents $337,617
Paid by June 30, 2004 337,617 -
---------
Vehicles $302,674
Paid by June 30, 2004 247,409 55,265
--------- --------
Total $ 55,265
========
The above open amounts were submitted as claims but do not represent a
settlement with the insurance carriers.
NOTE 19 BUSINESS SEGMENT INFORMATION
The Company does not have separate operating financial segments. The
financial information is evaluated on a company wide basis. As such, no segment
reporting is prepared for internal use.
29
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 20 SALE OF SUBSIDIARY
On March 1, 2004, the Company sold its subsidiary , Able Propane, LLC.
The Sale was a sale of inventory and equipment (the operating assets of the
subsidiary). The total price of the sale was $4,400,000. Of that, $3,000,000 was
received in cash and was used as a reduction of long-term debt in the amount of
$1,284,737. There was also payment of $135,000 of Officer Loan and $325,000 of
Legal Fees. The Company had a cash increase of $1,255,268.
The Company received a Note receivable for $500,000, principal balance
of this Note payable in full on the fourth anniversary of the closing, March 1,
2008. The Note bears interest at 6% per annum ($30,000 per year), payable
quarterly within 45 days of the closing of each fiscal quarter.
The Company also has signed a non-competition agreement and will receive
a total payment of $900,000, payable in $225,000 installments due one, two,
three and four years from the date of closing.
NOTE 21 DISCONTINUED OPERATIONS
On March 1, 2004, the Company sold the operating assets of its
subsidiary, Able Propane, LLC (see Note 20), and discontinued the sale of
propane fuel in the State of New Jersey.
Following the sale, the results of Able Propane, LLC were reported in
the Company's Consolidated Statements of Income and Cash Flows, separately, as
discontinued operations. In accordance with Generally Accepted Accounting
Principals (GAAP), the Consolidated Statement of Financial Position has not been
restated. Able Propane, LLC represented the primary vehicle by which the Company
engaged in the sale of propane fuel.
Summarized financial information for discontinued operations for the six
months December 31, 2003, as follows:
2003
----
TOTAL REVENUES $1,012,734
Income (Loss) from Discontinued
Operations $(361,825)
30
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2004 AND DECEMBER 31, 2004
NOTE 21 DISCONTINUED OPERATIONS (CONT'D)
Able Propane, LLC is treated as a Partnership for tax purposes and pays
no income tax. As such, there is no provision for income taxes. Able Propane,
LLC has no assets or liabilities at June 30, 2004. The assets and liabilities
after the sale and collection of accounts receivables and payment of accounts
payables, which were transferred to the Company were immaterial to the total
assets and liabilities of the Company.
NOTE 22 OTHER
In December 2004, the major shareholder and Company Chief Executive
Officer (CEO) signed a contract and received a deposit representing the sale of
his 50% plus interest in the Company.
31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Quarterly Report on Form 10-Q concerning the
Company's outlook or future economic performance, anticipated profitability,
gross billings, expenses or other financial items, and statements concerning
assumptions made or exceptions to any future events, conditions, performance or
other matters are "forward looking statements," as that term is defined under
the Federal Securities Laws. Forward-looking statements are subject to risks,
uncertainties, and other factors that would cause actual results to differ
materially from those stated in such statements. Such risks, and uncertainties
and factors include, but are not limited to: (i) changes in external competitive
market factors or trends in the Company's results of operation; (ii)
unanticipated working capital or other cash requirements and (iii) changes in
the Company's business strategy or an inability to execute its competitive
factors that may prevent the Company from competing successfully in the
marketplace.
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of
delivery to the customer, and sales of equipment are recognized at the time of
installation. Revenue from repairs and maintenance service is recognized upon
completion of the service. Payments received from customers for heating
equipment service contracts are deferred and amortized into income over the term
of the respective service contracts, on a straight-line basis, which generally
do not exceed one year.
RESULTS OF OPERATIONS
Six Months Ended December 31, 2004,
Compared to the Three Months Ended December 31, 2003
The Company reported revenues of $27,209,943 for the six months ended
December 31, 2004, which was an increase of $8,945,115 from the prior year's
revenues of $18,264,828 for the same period. This increase can be attributed
primarily to significantly higher prices for the commodity in the world market
for crude and refined oil products resulting in higher wholesale prices being
paid by the company for these commodities (primarily #2 home heating oil)
purchased during the period. Gallons for the quarter ending December 31, 2004
were higher due to increased gallons in the Company's PriceEnergy subsidiary.
Gross profit margin, as a percentage of revenues, for the six months
ended December 31, 2004, decreased by 3.66%. Total dollar amount of gross profit
margin increased by $121,770 on higher sales. The decrease in margin percentage
was the result of the dramatically rising product costs during the months of
July through December. Retail pricing was adjusted appropriately to cover most
of the increases in the Company's traditional heating oil segment, Able Oil Co.
while increasing volumes moving through the Company's PriceEnergy subsidiary
moved gross profit margins down as this subsidiary continues to move higher
volumes with its BJ's Heating Oil Advantage program with BJ's wholesale Club.
Selling, General, and Administrative expenses, as a percent of sales,
decreased by 7.20% from 16.32% in the six months ending December 31, 2003 to
9.12% during the same period in 2004. The Company attributes this decrease to
lower costs for utilities, credit card processing fees, bad debt expense,
vehicle repair and maintenance, and legal professional fees. Management will
continue to aggressively manage expenditures against last year's actual using
the new budget process put into place for this current fiscal year and the
comprehensive financial reporting software known as Great Plains, which was
implemented in July of this year.
The three months ended December 31, 2004 had operating income of
$108,013 compared to a prior year loss of $(296,299). Operating loss for the six
months ended December 31, 2004 was $(682,291) as compared to the Company's loss
of $(1,251,401) for the quarter ended December 31, 2003. This operating loss for
the six months was directly related to the volatile market pricing, increased
costs related to the explosion and fire in Newton, New Jersey on March 14, 2003,
and the continuing losses of the Company's PriceEnergy subsidiary.
The three months ended December 31, 2004, the beginning of the heating
season, had a profit of $53,881 as compared to a prior year loss of $(592,202)
for the comparative three months. Net loss for the six months ended December 31,
2004 was $(819,018) as compared to the same period for the previous year's loss
of $(2,103,492). This net loss for the six months was related to lower volumes
due to the warm temperatures in the first quarter ended September 30th.
32
OPERATIONAL EFFECTIVENESS
The Company is continuing to redefine its organizational chart and
associated position descriptions (by transferring responsibilities as required
to best suit the organization's growth), which is enhancing the Company's
personnel utilization. The Company believes that it will continue to increase
the utilization of existing personnel and equipment, thus continuing to reduce
expenses as a percent of sales, and increasing profitability, within its current
business configuration. This process is monitored and guided via bi-weekly
meetings of the Company's executive committee whereby policies are reviewed,
results evaluated, and changes made to continue to stay focused on improving the
Company's profitability.
Furthermore, the Company has completed implementation of its new fuels
management system called "Sunrise" which it purchased from Versyss in
Providence, Rhode Island. This operating system, which is built on ".NET"
(dot-net) technology, is a Microsoft(R) Windows-based application that is easier
to build, deploy, and integrate with other networked systems. Sunrise is unique
new industry operating software, which allows developers, and systems
administrators to more easily build and maintain the system with improvements
toward performance, security, and reliability. Sunrise will permit Able Energy
to increase corporate profitability, while simultaneously providing exceptional
customer service. This new operating system also affords the necessary
flexibility to handle multiple payment plans, can maintain the security of
confidential account information, has easily customizable fields, and the
capability to e-mail invoices and statements to the customer base. This
operating system along with the new financial software, Great Plains, will serve
to further streamline operations and information processing. Management learned
subsequent to the close of the quarter ending December 31, 2004, that Versyss
Commercial Systems, LLC, in Providence, Rhode Island has sold their new Sunrise
software to Advanced Digital Data, Inc. (ADD Systems) of Flanders, New Jersey.
ADD Systems is a leader in the energy software industry and the Company (Able)
expects ADD Systems to continue to provide a high level of service in support
and on-going development of the Sunrise software.
Management values the significance of correctly managing all aspects of
expense control, and as such, has enlisted the support of an outside consultant
to assist in the integration and implementation of its new comprehensive
operating budget and related reporting structure which now interfaces with the
new Sunrise operating system. The Company believes that these changes will
enable management to quickly respond to changing trends in sales and expenses.
The Company believes that its new budget structure is effective as the period
ending December 31, 2004 shows a year-to-year decrease in SG&A of $499,677 or
16.76%. The combination of the new operating system and the detailed budget and
reporting program is now providing all levels of management with real time
results not previously available. These results have now been designed to report
down to the department level, which is line with the Company's goal of holding
each level of management accountable for improved operating and sales results.
The Company's margin strategy is to use the PriceEnergy subsidiary to
handle highly discounted non-service related home heating oil sales previously
sold through the Able Oil subsidiary. This change will permit Able Oil Co. to
grow its automatic delivery customer base using its moniker of "Full Service at
Discount Prices", while the PriceEnergy entity will cater to those customers
looking for the lowest possible retail price either "on-line" or over the phone.
The Company believes that this further segmentation of its customer base will be
successful in increasing overall profitability while enhancing customer appeal.
The Company has identified several customer segments that prefer varying levels
of service. By better aligning the Company's product offerings to match the
desires of these customer segments, the Company believes that it will be able to
capture a larger market share as well as protect the margin strategy of the
Company's conventional full service subsidiary, Able Oil Company.
The Company has taken a dramatic new approach in the provision of HVAC
products and services to its customer base. This division of the Company's
business has traditionally been viewed as a support vehicle for the full service
oil delivery business in order to maintain customer loyalty through the
provision of necessary services to maintain the customer's heating or cooling
system. This business segment is now charged with being a self-funding
independent business unit within Able Oil and as such must be profitable. The
service department has now turned a profit of $153,479 for the six months ending
December 31, 2004 vs. a loss for the same period last year. This is now possible
through the Company's focus on individual performance and accountability within
this department as well as with the assistance of Flat Rate Pricing methodology.
This new system of "Flat Rate Pricing", provides the Company's sales and service
personnel with a "package approach" to selling service, and provides the
customer with an easy to understand invoice. This policy is consistent with the
Company's customer segmentation strategy, permitting different retail prices for
different customer segments, based upon their choice of service level desired.
This system will interface with the Company's automated dispatch communications
program that was introduced last year. Flat rate pricing has now been fully
rolled out and has proven so far to be successful in streamlining the service
billing process while maintaining clarity for the customer.
33
WARRENSBURG, NEW YORK OPERATIONAL ENHANCEMENTS
The Company is still in the process of making operational changes to its
Warrensburg, New York business, which will permit the consolidation of all daily
operations on to one modern facility located in the newly developed Warrensburg
Industrial Park. The Company's current propane gas storage operations on its
Lake George property have been moved to the new site and the Lake George
property has been sold with proceeds of the sale having been allocated to
provide funding for the new operations at the industrial park. When completed,
the new fuel depot and sales office will house the local sales and
administrative support personnel as well as operations and fuel storage for #2
heating oil, kerosene, propane gas, and diesel fuel. When a new modular office
and tank farm is completed on the new property, the Company will terminate its
leased office space and fuel operations on Horicon Avenue and have all
operations combined in the new location with the ability to grow the business
more effectively as well as handle a greater volume of all products. As of
December 31, 2004, the Company has completed the installation of, and is now
using two new 30,000-gallon propane storage tanks to service its customer base
in that area. The project is greater than halfway completed as contractors are
in the process of finishing the installation of the already delivered modular
office space and completion of site work. During the course of the next 12
months, the installation of #2 heating oil, kerosene, and diesel storage tanks,
will complete the project.
RECENTLY IMPLEMENTED TECHNOLOGICAL PROCEDURES
The Company has established goals, which will be accomplished through
the implementation of some modern technologies that are currently being
installed into the Company's existing infrastructure.
The Company has introduced additional customer service technology to its
Rockaway call and administrative center during the past year. Able Energy
management believes that the improvements to its existing telephone hardware and
in-house management, the Company's call center environment will be provided with
the ability to respond to changing call patterns, both higher and lower, without
the expense of clerical over-staffing to meet unrealized needs. This telephony
software known, as Votara will once again provide the customer with the option
of placing a fuel order via a voice- activated technology. This will enable
customers who simply wish to refill their fuel tank, the opportunity to quickly
place an order 24 hours a day without the help of a live customer service
representative.
The Company is now beginning full implementation of the recently
announced automated dispatch technology, which provides management with the
ability to communicate with service technicians instantaneously. This system
also is now performing billing functions at the customer's location as well as
documenting payment data instantaneously. Additionally, management will soon be
able to monitor the status of every on-duty worker and be able to obtain real
time reporting for stand-by, en route, and service work time. This system
enables the Company to maximize scheduling opportunities and eliminate service
technician down time.
PRICEENERGY OPERATING SUBSIDIARY
The company's operating subsidiary, PriceEnergy with its modern
order-processing platform, has been in full operation for the past three years.
This revolutionary proprietary technology is fully automated and allows for the
removal of the inefficiencies associated with traditional heating oil companies
within this industry. PriceEnergy generated over 4.4 million gallons in new
business this past year, which were delivered by PriceEnergy's dealer network.
Gallons sales, this year, have continued to strengthen over the same period last
year. In December of 2002, PriceEnergy began sales of Home Heating Oil in the
initial BJ's Wholesale Club. Gallons sold through this new venue have been
increasing with each week. The Company is excited about this new sales
opportunity with its new "Channel Partner", BJ's. The Company believes that this
is the first of many prime retail opportunities to utilize the PriceEnergy
operating platform to open new markets for the sales of heating oil and diesel
fuel. The Company is also focusing its efforts now on strengthening the
operating margins for this subsidiary as well as eliminating some of the
operating costs. The subsidiary has experienced continued losses since its
inception. Net loss for the first six months ending December 31, 2004 was
$371,645.
MARCH 2003 ACCIDENT
The March 2003 accident, which affected our Newton fuel depot, continues
to leave this facility in an "out of service" condition. We are currently
working diligently to get this location back in service, at least on a limited
basis, before the end of the current fiscal year. The ability to use this
location will greatly improve our service level to the Sussex County delivery
area of Northwestern New Jersey. The Newton Board of Adjustment originally
denied the Company's application to repair and rebuild the facility on the
grounds that the zoning laws covering the Newton, New Jersey property had been
changed immediately following the accident. The Company appealed the Board's
decision in August of 2004, and was granted immediate permission to make some
building repairs and restore power to the underground cathodic protection
system, which safeguards the underground tanks from corrosion. The Company is
currently effectuating these repairs and will continue to
34
move the legal process forward in order to regain use of the facility. Recently,
in early November 2004, The Town of Newton appealed the court's August 2004
decision to allow Able any use of its property. This appeal by the Town of
Newton is currently in progress.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 31, 2004, compared to the six months
ended December 31, 2003, the Company's cash position increased by $362,048 from
$391,534 to $753,582. In the year ended June 30, 2004, the Company closed a
credit facility on September 22, 2003, with UPS Business Capital Credit and
obtained a term loan of $4.3 million to consolidate a large portion of its
existing debt and has also obtained a working capital line of credit of
$700,000. This new debt restructuring will, in future years, save in excess of
$200,000 per year in interest payments and eliminate previous administrative
efforts in the managing of over two-dozen individual leases and loans. The
Company also sold the operating assets of a subsidiary, which yielded cash of
$1,255,000 and reduced debt in excess of $1.4 million. The Company also had
increased collections of customer advance payments. In the six months ended
December 31, 2004, the Company generated funds from an increase in customer
advance payments and from the sale of property by its New York subsidiary
yielding cash of $226,499. The cash will assist the Company with a new facility
under construction in Warrensburg, New York and to grow in that marketplace
while strengthening its infrastructure.
SEASONALITY
The Company's operations are subject to seasonal fluctuations, with a
majority of the Company's business occurring in the late fall and winter months.
Approximately 70% of the Company's revenues are earned and received from October
through March; most of such revenues are derived from the sale of home heating
products, primarily #2 home heating fuel oil. However, the seasonality of the
Company's business is offset, in part, by an increase in revenues from the sale
of HVAC products and services, diesel and gasoline fuels during the spring and
summer months due to the increased use of automobiles and construction
apparatus.
From May through September, Able Oil can experience considerable
reduction of retail heating oil sales. Similarly, Able Energy's New York propane
operations can experience up to an 80% decrease in heating related propane sales
during the months of April to September, this is offset somewhat by increased
sales of propane gas used for pool heating, heating of domestic hot water in
homes and fuel for outdoor cooking equipment.
Over 90% of Able Melbourne's revenues are derived from the sale of
diesel fuel for construction vehicles, and commercial and recreational sea-going
vessels during Florida's fishing season, which begins in April and ends in
November. Only a small percentage of Able Melbourne's revenues are derived from
the sale of home heating fuel. Most of these sales occur from December through
March, Florida's cooler months.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) that are designed to ensure that information required to be disclosed
in our periodic reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms, and that such information is accumulated
and communicated to our management, including our Principal Executive Officer
and the Principal Accounting Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired objectives, and management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
The Company carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures as of December 31, 2004.
This evaluation was carried out under the supervision and with the participation
of our management, including our Principal Executive Officer and the Principal
Accounting Officer. Based on that evaluation, our management, including the
Principal Executive Officer and the Principal Accounting Officer, concluded that
our disclosure controls and procedures were effective as of December 31, 2004.
There was no change in our internal controls or in other factors that
could affect these controls during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
35
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In accordance with the purchase of the property on Route 46, Rockaway,
New Jersey by Able Energy Terminal, LLC, the Company intends to pursue recovery
of all costs and damages related to a lawsuit by the seller against a former
tenant of the property, based on environmental cleanup costs on the property.
Purchaser will assume all responsibility and direction for the lawsuit, subject
to the sharing of half of any recoveries from the lawsuit with the seller. The
seller by reduction of its mortgage will pay costs related to the above up to
$250,000. In December of 2000, the Company reached an agreement with the former
tenants whereby the former tenants agreed to pay Able Energy, Inc. the sum of
$397,500 in order to pay for the environmental cleanup costs on the Company's
Route 46 property.
The Sussex County, New Jersey, Prosecutor's Office is conducting and
investigation as a result of the March 14, 2003 explosion and fire. No
determination has been made with respect to its investigation.
A lawsuit (known as Karen Hicks vs. Able Energy, Inc.) has been filed
against the Company by property owners who allegedly suffered property damages
as a result of the March 14, 2003 explosion and fire. The Company's insurance
carrier is defending as related to compensatory damages. Legal counsel is
defending on the punitive damage claim. A hearing was held on March 11, 2004 on
an application on certain matters by the Plaintiffs, which were denied. The
Court presently has before it a motion by Plaintiffs for Class Action
Certification. Per legal counsel, whether this matter is certified a Class
Action will greatly influence the Company's potential exposure. Legal counsel is
guardedly optimistic that Class Action will be denied.
After the March 14, 2003, fire and explosion, the town of Newton changed
its zoning requirements and made fuel oil and propane distribution prohibited
uses. The Company is appealing a denial of a request for building permits to
reconstruct damaged and destroyed buildings and sought a Non-Conforming Use
Certificate to permit the fuel oil distribution use only. On August 20, 2004,
the Superior Court of New Jersey ruled that the Company may continue to use the
site as a non-conforming use, but stayed its decision subject to Newton's
appellate rights. On November 3, 2004, the Town of Newton Zoning Board of
Adjustment entered a filing to appeal the August 20, 2004 Final Judgement of
Judge B. Theodore Bozonelis of the Superior Court of New Jersey Appellate
Division.
As a result of the March 14, 2003 explosion and fire, various claims for
property damage have been submitted to the Company's insurance carrier. These
claims are presently being handled and, in many cases, settled by the insurance
carrier's adjuster. There were approximately 200 claims being handled and
adjusted with reserves for losses established as deemed appropriate by the
insurance carrier. The majority of these claims have been settled.
In addition, the following lawsuits were also filed against the Company
by property owners who allegedly suffered property damage as a result of the
March 14, 2003 explosion and fire: (A) Merriam Gateway v. Able Energy, Inc.
which was filed on November 17, 2003 in the Superior Court of New Jersey Law
Division, County of Sussex in which the plaintiff seeks unspecified compensatory
and punitive damages; (B) Courtright v. Able Energy, Inc. which was filed on
April 6, 2003 in the Superior Court of New Jersey Law Division, County of Sussex
in which the plaintiff seeks unspecified compensatory and punitive damages; and
(C) Marius and Jennifer Scholz v. Able Energy, Inc. which was filed on June 23,
2004 in the Superior Court of New Jersey Law Division, County of Sussex in which
the plaintiff seeks unspecified compensatory and punitive damages.
The Company in the normal course of business has been involved in
lawsuits. Current suits are being defended by the insurance carrier and should
be covered by insurance.
The Company is not currently involved in any legal proceeding that could
have a material adverse effect on the results of operations or the financial
condition of the Company. From time to time, the Company may become a party to
litigation incidental to its business. There can be no assurance that any future
legal proceedings will not have a material adverse affect on the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
36
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) Exhibits
31.1 Certification by Chief Executive Officer pursuant to
Sarbanes-Oxley Section 302
31.2 Certification by Chief Financial Officer pursuant to
Sarbanes-Oxley Section 302
32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C.
Section 1350
32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C.
Section 1350
(b) Reports on Form 8-K
DATE OF FORM 8-K
December 21, 2004 ITEM 5.01, CHANGE IN CONTROL OF REGISTRANT.
Timothy Harrington, Chief Executive officer of
the Company, sold an aggregate of 1,007,300
shares of the Company's common stock to All
American Plazas, Inc. ("All American"). The
purchase price for the sale was $7,500,000, of
which $2,750,000 was paid in cash and All
American issued promissory notes in the
aggregate principal amount of $4,750,000 to Mr.
Harrington.
October 28, 2004 ITEM 8.01, OTHER EVENTS. The Company invoked the
exemption available to "controlled companies"
pursuant to NASD Rule 4350(c)(5). Rule
4350(c)(5) exempts a "controlled company" from
the independent directors requirements of NASD
Rule 4350(c). A "controlled company" is a
company of which more than 50% of the voting
power is held by an individual, a group or
another company. Rule 4350(c)(5) requires that a
controlled company relying on this exemption
disclose that it is a controlled company and the
basis for such determination.
37
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 14th day of February 2005.
ABLE ENERGY, INC.
/s/ Timothy Harrington
---------------------------------
TIMOTHY HARRINGTON, CHIEF
EXECUTIVE OFFICER, SECRETARY, AND CHAIRMAN
/s/ Christopher P. Westad
---------------------------------
CHRISTOPHER P. WESTAD, PRESIDENT,
CHIEF FINANCIAL OFFICER, AND DIRECTOR
38