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 September 30, 2002
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: 333-59109
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) (Zip code)
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 [ ]
As of November 6, 2002, 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, 2002 and
September 30, 2002 3 - 4
Consolidated Statements of Income for the three
months ended September 30, 2002 and September 30, 2001 5
Consolidated Statement of Stockholders' Equity three months
ended September 30, 2002 6
Consolidated Statements of Cash Flows for the three months
ended September 30, 2002 and 2001 7
Notes to Unaudited Financial Statements 8 - 26
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
SEPTEMBER JUNE 30,
2002 2002
(UNAUDITED) (AUDITED)
----------- -----------
CURRENT ASSETS:
Cash $ 680,016 $ 258,560
Accounts Receivable (Less Allowance for Doubtful
Accounts of ($242,358) 2,120,544 1,933,526
Inventory 425,191 405,424
Notes Receivable - Current Portion 34,428 32,756
Miscellaneous Receivables 68,903 113,905
Prepaid Expenses 275,699 228,839
Prepaid Expense - Income Taxes 4,796 2,733
Deferred Income Tax 65,703 65,703
Due From Officer 44,690 44,690
----------- -----------
Total Current Assets 3,719,970 3,086,136
----------- -----------
PROPERTY AND EQUIPMENT:
Land 451,925 451,925
Buildings 1,096,046 1,096,046
Trucks 3,069,469 3,037,192
Fuel Tanks 1,255,994 1,190,153
Machinery and Equipment 576,123 576,123
Leasehold Improvements 575,399 578,792
Cylinders 732,266 731,692
Office Furniture and Equipment 200,640 200,640
Website Development Costs 2,200,511 2,200,511
----------- -----------
10,158,373 10,063,074
Less: Accumulated Depreciation and Amortization 3,751,070 3,461,342
----------- -----------
NET PROPERTY AND EQUIPMENT 6,407,303 6,601,732
----------- -----------
OTHER ASSETS:
Deposits 107,320 70,570
Notes Receivable - Less Current Portion 214,956 216,628
Customer List, Less Accumulated Amortization of ($188,122) at
September 30, 2002, and June 30, 2002 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
($61,667) at September 30, 2002 and ($56,667) at June 30, 2002 38,333 43,333
Development Costs - Franchising, Less accumulated
Amortization of ($11,489) at September 30, 2002 and ($9,191)
at June 30, 2002 34,466 36,764
----------- -----------
TOTAL OTHER ASSETS 817,803 790,023
----------- -----------
TOTAL ASSETS $10,945,076 $10,477,891
=========== ===========
See Accompanying Notes
3
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEET (Cont'd)
-----------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
SEPTEMBER 30, JUNE 30,
2002 2002
(UNAUDITED) (AUDITED)
----------- ---------
CURRENT LIABILITIES:
Accounts Payable $ 1,491,963 $ 1,159,341
Note Payable - Bank 1,270,000 1,470,000
Notes Payable - Other 1,250,000 500,000
Current Portion of Long-Term Debt 632,522 584,384
Accrued Expenses 223,385 309,363
Accrued Taxes 28,565 24,673
Customer Pre-Purchase Payments 1,226,056 880,111
Customer Credit Balances 567,447 548,336
Escrow Deposits 16,952 28,472
Note Payable - Officer 55,000 55,000
----------- -----------
Total Current Liabilities 6,761,890 5,559,680
DEFERRED INCOME 79,679 79,679
DEFERRED INCOME TAXES 57,832 54,712
LONG TERM DEBT: less current portion 1,490,362 1,522,680
----------- -----------
TOTAL LIABILITIES 8,389,763 7,216,751
----------- -----------
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 2,013,250 Shares September 30, 2002, and
2,007,250 at June 30, 2002 2,014 2,008
Paid in Surplus 5,711,224 5,687,230
Retained Earnings (Deficit) (3,157,925) (2,428,098)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,555,313 3,261,140
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,945,076 $10,477,891
=========== ===========
See Accompanying Notes
4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS SEPTEMBER 30,
--------------------------
2002 2001
---- ----
NET SALES $6,233,339 $5,267,297
COST OF SALES 5,402,825 4,720,046
---------- ----------
GROSS PROFIT 830,514 547,251
---------- ----------
EXPENSES
Selling, General and Administrative Expenses 1,211,527 1,214,557
Depreciation and Amortization Expense 297,406 298,221
---------- ----------
TOTAL EXPENSES 1,508,933 1,512,778
---------- ----------
(LOSS) FROM OPERATIONS (678,419) (965,527)
---------- ----------
OTHER INCOME (EXPENSES):
Interest and Other Income 32,835 84,680
Interest Expense (81,123) (71,238)
---------- ----------
TOTAL OTHER INCOME (EXPENSES) (48,288) 13,442
---------- ----------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (726,707) (952,085)
PROVISION (REDUCTION) FOR INCOME TAXES 3,120 (1,075)
---------- ----------
NET (LOSS) $ (729,827) $ (951,010)
========== ==========
BASIC (LOSS) PER COMMON SHARE $ (.36) $ (.48)
========= =========
DILUTED (LOSS) PER COMMON SHARE $ (.36) $ (.48)
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,003,831 2,000,298
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,003,831 2,000,298
========= =========
See Accompanying Notes
5
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
COMMON STOCK
.001 PAR VALUE
--------------
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS EQUITY
------ ------ ------- -------- ------
Balance - July 1, 2002 2,007,250 $2,008 $5,687,230 $(2,428,098) $3,261,140
Shares Issued 6,000 6 23,994 24,000
Net Loss (729,827) (729,827)
--------- ------ ---------- ----------- ----------
Balance - September 30, 2002 2,013,250 $2,014 $5,711,224 $(3,157,925) $2,555,313
========= ====== ========== =========== ==========
See Accompanying Notes
6
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30
UNAUDITED
---------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net (Loss) - Continuing Operations $(729,827) $ (951,010)
Adjustments to Reconcile Net Income to Cash
used by Operating Activities:
Depreciation and Amortization 297,406 298,221
Directors' Fees 24,000 -
(Increase) Decrease in:
Accounts Receivable (187,018) (230,275)
Inventory (19,767) (252,425)
Prepaid Expenses (48,923) (4,794)
Deposits - (11,000)
Loss on Disposition of Assets 535 -
Increase (Decrease) in:
Accounts Payable 332,622 (99,495)
Accrued Expenses (82,086) (163,577)
Customer Advance Payments 345,945 706,695
Customer Credit Balances 19,111 268,213
Deferred Income Taxes 3,120 (1,075)
Escrow Deposits (11,520) 52,181
-------- ---------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (56,402) (388,341)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Purchase of Property and Equipment (96,214) (25,736)
Website Development Costs - 25,000
Note and Other Receivables 45,002 8,882
Deposits (36,750) -
-------- ---------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (87,962) 8,146
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
(Decrease) in Notes Payable - Bank (200,000) (449,720)
Increase in Notes Payable - Other 750,000 -
Decrease in Long-Term Debt (125,055) (139,026)
Increase in Long-Term Debt 140,875 -
Sale of Common Stock - 4,063
-------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 565,820 (584,683)
-------- ---------
NET INCREASE (DECREASE) IN CASH 421,456 (964,878)
Cash - Beginning of Period 258,560 1,489,018
-------- ---------
Cash - End of Period $ 680,016 $ 524,140
========= ==========
The Company had Interest Cash Expenditures of: $ 87,136 $ 71,638
The Company had Tax Cash Expenditures of: $ 4,971 $ -
See Accompanying Notes
7
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Able
Energy, Inc. and its subsidiaries. The minority interest of 1% in Able
Propane, LLC is immaterial and has not been shown separately. 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 Web Site 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 three
months ended September 30, 2002 is $197,695 (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,
2002. The Company follows the same accounting policies in preparation
of interim reports.
8
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
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 Propane, installs propane
tanks which it owns and sells propane for heating and cooking, along
with other residential and commercial uses.
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.
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 for the three months ended September 30,
2002 and 2001 amounted to $180,083 and $170,664, 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.
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.
9
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
-----------------------------------------------------------
WEB SITE DEVELOPMENT COSTS
Costs of $2,200,511 incurred in the developmental stage 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 three months ended September 30, 2002 and
2001 amounted to $110,025 and $106,564, respectively.
INTANGIBLE ASSETS
Intangibles are stated at cost and amortized as follows: Customer
Lists of $571,000 and Covenant Not To Compete of $183,567 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
and 5 years, respectively. 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 three months ended
September 30, 2002 and 2001 are $5,000 and $20,993, respectively. The
Covenant Not to Compete with Connell's Fuel Oil Company ended in
October 2001, and was fully amortized.
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.
10
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
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 approximately $470,147. 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 $133,788 and
$128,265 for the three months ended September 30, 2002 and 2001,
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.
11
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
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
anti-dilutive. 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.
RECENT ACCOUNTING PRONOUNCEMENTS
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.
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.
12
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
-----------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONT'D)
The Company has reviewed the provisions of these Statements. It is
management's assessment that customer lists impairment will not result
upon adoption. As of June 30, 2001, the Company has net unamortized
customer lists of $422,728. Amortization expense of the customer list
was $20,125 for the six month short year ended June 30, 2001 and
$42,052 for the full year ended December 31, 2000.
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. No
payments have been received since October 2001.
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 to be realized on collection of the notes.
Maturities of the Note Receivable are as follows:
For the 12 Months Ending
September 30, Principal Amount
------------- ----------------
2003 $ 13,023
2004 9,680
2005 12,577
2006 12,811
2007 14,082
Balance 107,183
--------
Total $169,356
========
13
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
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. The Notes bear interest at the rate of 12% per annum. Two
notes began December 1998 and one began February 1999. 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
September 30, Principal Amount
------------- ----------------
2003 $ 21,405
2004 23,803
2005 18,648
2006 11,013
2007 5,159
--------
Total $ 80,028
========
NOTE 3 INVENTORIES
-------------------
ITEMS SEPTEMBER 30, JUNE 30,
----- 2002 2002
---- ----
Heating Oil $ 124,384 $ 141,114
Diesel Fuel 14,465 21,642
Kerosene 5,229 6,220
Propane 6,172 12,343
Parts and Supplies 274,941 224,105
--------- ---------
Total $ 425,191 $ 405,424
========= =========
NOTE 4 NOTES PAYABLE BANK
--------------------------
On October 22, 2001, the Company and its subsidiaries, either as
Borrower or Guarantor, entered into a loan and security Agreement with
Fleet National Bank. The bank is providing the following credit
facility.
A borrowing base of 75% of Eligible Accounts Receivable, as defined in
the Agreement, plus $500,000 against the value of the Company's
customer list, for a total amount of $1,500,000. The revolving credit
may also be used for Letters of Credit, with the lender's approval.
14
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 4 NOTES PAYABLE BANK (CONT'D)
-----------------------------------
The Letters of Credit will have an annual fee of 1.25% of the face
value of each Letter of Credit. The applicable interest rate on the
revolving credit advances will be the bank's prime rate or Libor
interest rate, plus 2.75%. Interest is to be paid on the amount
advanced on the last day of each month.
As security for the performance of this Agreement, the other Loan
Documents and the payment of the Liabilities, each Borrower and
Guarantor grants, pledges and assigns to Lender a security interest in
all assets of such Borrower or Guarantor, whether now owned or
hereafter acquired including, without limitation, (a) all Accounts,
Goods, Chattel Paper, Equipment, Documents, Deposits, Instruments,
General Intangibles and Payment Intangibles (including, but not
limited to, any and all interests in trademarks, service marks,
patents, licenses, permits, and copyrights), (b) all inventory of
Borrowers, if any, held by any Borrowers for sale or lease or to be
furnished under contracts of service, (c) all Books and Records, (d)
any Account maintained by any Borrower with Lender and all cash held
therein, and (e) all proceeds and products of the foregoing, including
casualty insurance thereon (collectively, the "Collateral").
The Agreement provides for covenants as follows:
A. Use of proceeds only for Working Capital, Letters of Credit and
for acquisitions with Lender's prior written consent.
B. Financial information to be furnished either annually, quarterly
or monthly.
C. Financial covenants to be tested as of the end of each fiscal
quarter.
D. Limitations on loans and investments.
E. Compliance with laws and environmental matters.
F. Limitations on Borrowing.
G. Can not declare or pay any dividends.
All of the above and other items as per article VI of the Agreement.
The Agreement has a current expiration date of November 30, 2002. We
have been informed by management that Fleet Bank has informed them the
bank will not renew the credit facility upon expiration of the
Agreement which is November 30, 2002. Management has informed us they
are currently in discussion for a new credit facility.
The Agreement with Able Oil Company and PNC Bank, dated August 11,
1999, was amended July 14, 2002. The term was extended from June 30,
2001 to September 29, 2001. The loan was paid in full effective
September 29, 2001. The banking relation was terminated and all
collateral was being released by PNC Bank.
15
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 5 NOTES PAYABLE
---------------------
A. The Company has borrowed $500,000 from an unrelated individual. The
Note is dated June 26, 2001 with interest at 12% per annum. The
interest will be paid monthly at $5,000 per month commencing on August
1, 2001. The Note will mature on June 26, 2002 unless the borrower
(the Company), at its option, elects to extend the maturity date to
December 26, 2002. The Company has exercised its option and has
extended the Note to December 26, 2002. 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. The warrants have not been registered under the Securities Act
of 1933.
B. The Company has borrowed $750,000 from an unrelated company. The
mortgage and note are dated September 13, 2002. The term of the note
is for one (1) year. Payments of interest only on the outstanding
principal balance shall be paid monthly at a rate of 10%. The first
payment will be due on November 1, 2002 and on the first day of each
month thereafter until October 1, 2003, when the Note shall mature and
all principal and accrued interest shall be due and payable in full.
Prepayment Penalty - in the event borrower makes a voluntary principal
payment during the term of this note, borrower shall pay to the lender
a premium equal to three (3) monthly payments of interest on the note.
The note is collateralized by a mortgage dated September 13, 2002 from
Able Energy Terminal, LLC, a wholly owned subsidiary, which is a
second mortgage on the property at 344 Route 46, Rockaway, NJ and also
by all leases and rents related to the property. The lender has been
issued a stock purchase warrant for 100,000 shares at $4 per share.
The warrant has not been registered under the Securities Act of 1933.
The Company has granted the holder piggy-back registration rights for
the Common Stock underlying the warrant on its next registration
statement. This warrant does not entitle the holder to any of the
rights of a stockholder of the Company. Unless previously exercised,
the warrants will expire on September 13, 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 was $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 Horicon Avenue, Town of Warrensburg, Warren
County, New York. The balance due on this Note at September 30, 2002
was $111,194.
16
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 6 LONG-TERM DEBT (CONT'D)
-------------------------------
Mortgage note payable dated, August 31, 1999, related to the purchase
of the facility and equipment in Rockaway, New Jersey by Able Energy
Terminal, LLC ("Terminal"). The note is in the amount of $650,000.
Pursuant to Section 4.4 of the Agreement of Sale to purchase the
Terminal, , the Principal Sum of the $650,000 Note shall be reduced by
an amount equal to one-half of all sums expended by Borrower on the
investigation and remediation of the property provided, however, that
the amount of said reduction shall not exceed $250,000 (the
"Remediation Amount").
The "Principal Sum: Less the "Remediation Amount" shall be an amount
equal to $400,000 (the "Reduced Principal Sum"). The Reduced Principal
Sum shall bear interest from the date hereof at the rate of 8.25% per
annum. Any portion of the Remediation Amount not utilized in the
investigation and remediation of the property shall not begin to
accrue interest until such time that (i) a "No Further Action Letter"
is obtained from the Department of Environmental Protection and (ii)
an outstanding lawsuit concerning the property is resolved through
settlement or litigation (subject to no further appeals). All payments
on this Note shall be applied first to the payment of interest, with
any balance to the payment to reduction of the reduced Principal Sum.
Based upon an amendment, dated November 5, 2001, and commencing with
interest due December 1, 2001, interest will be paid at the rate of
8.25% on the principal sum of $650,000. Only interest is required to
be paid and the principal is due on July 31, 2004 (See Note 10).
The Note is collateralized by the property and equipment purchased and
assignment of the leases. The balance due on this Note at September
30, 2002 was $650,000.
17
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
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:
2002
----
AMOUNT PERCENT
------ -------
Statutory Federal Income Tax $ 2,175 15.0%
State Income Tax 945 6.5
------- ----
Income Taxes $ 3,120 21.5%
======= ====
Income Taxes consist of:
Current $ -
Deferred 3,120
-------
Total $ 3,120
=======
2001
----
PERCENT OF
PRETAX
AMOUNT INCOME
------ ------
Statutory Federal Income Tax $ (750) 15.0%
State Income Tax (325) 6.5
------- ----
Income Taxes $(1,075) 21.5%
======= ====
Income Taxes consists of:
Current $ -
Deferred (1,075)
-------
Total $(1,075)
=======
18
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
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:
SEPTEMBER 30, 2002
------------------
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
Depreciation and Amortization $(183,954) $(57,832)
Allowance for Doubtful Accounts 242,358 61,668
Gain on Sale of Subsidiary 18,766 4,035
JUNE 30, 2002
-------------
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
Depreciation and Amortization $(169,441) $(54,712)
Allowance for Doubtful Accounts 242,358 61,668
Gain on Sale of Subsidiary 18,766 4,035
Able Energy, Inc., et al, open years are December 31, 1999, 2000 and
June 30, 2001 and 2002. The Company has a net operating loss
carryforward of approximately $2,730,000. The net operating loss
expires between June 30, 2019 and 2021.
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 September
30, 2002 are as follows:
Net Operating Loss Carryforward - Tax Effect $928,200
Valuation Allowance (928,200)
--------
Net Deferred Tax based upon Net
Operating Loss Carryforward $ -0-
========
19
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 8 NOTE RECEIVABLE - SUBSIDIARY
-------------------------------------
The Company has a Note Receivable from PriceEnergy.Com, Inc. for
advances made in the development of the Website, 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. Interest, in the amount of $27,000
has been accrued for the quarter ended September 30, 2002. Unpaid
accrued interest due through September 30, 2002 is $207,000. 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 dated September 30, 2002 from
PriceEnergy.Com, Inc. in the amount of $1,510,372.73, 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. The note receivable has been eliminated in consolidation
against the note payable 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 $5,568 (2002) and $7,268 (2001).
NOTE 10 COMMITMENTS AND CONTINGENCIES
--------------------------------------
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.
Able Oil Company is under contract to purchase #2 oil as follows:
GALLONS OPEN OPEN DOLLAR
------------ -----------
COMMITMENT COMMITMENT AT
---------- -------------
COMPANY PERIOD TOTAL GALLONS AT 9/30/02 9/30/02
------- ------ ------------- ---------- -------
Conectiv Energy 10/1/02 - 3/31/03 252,000 252,000 $181,616
Conectiv Energy 11/1/02 - 3/31/03 210,000 210,000 $153,615
Mieco, Inc. 11/1/02 - 2/28/03 1,050,000 1,050,000 See Note Below
Motiva 11/1/02 - 3/31/03 420,000 420,000 $313,572
20
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
-----------------------------------------------
The agreement with Mieco, Inc. contains the following terms:
1. The oil has been delivered and is in storage at the Company's facility
in Rockaway, New Jersey. Mieco, Inc. has filed a UCC for the product
stored at the terminal.
2. The purchase price FOB delivered basis buyer's terminal shall be set
when buyer (the Company) notifies Mieco that it will purchase in
minimum 1,000 barrel increments. The delivery month NYMEX heating oil
contract prior to its expiration will be used. The price plus the
differential of USD $.0125 per gallon shall be the established price
for this contract for all barrels delivered in accordance with the
schedule set forth in the agreement.
Able Propane, LLC is under contract with Keystone-Propane Service,
Inc. to purchase propane gas for the period October 1, 2002 through
March 31, 2003. The total is 210,000 gallons at $ .53 per gallon,
total cost $111,300.
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 (see Note 6). 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 require a release from the Estate (the Seller)
and a release and indemnification from the Company. The defendants
will provide 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, will be placed in an
attorney's escrow account for payment of all investigation and
remediation costs.
21
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
-----------------------------------------------
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. 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.
Price Energy.Com, Inc., a subsidiary, has commenced suit against
ThinkSpark Corporation on Consulting Services Agreement, dated June 2,
2000. ThinkSpark was to provide services of professional quality
performed by knowledgeable staff familiar with the operation of the
software and its application and conforming to generally accepted data
processing practices. ThinkSpark agreed that it could develop, deliver
and install the system to be operational by mid-August 2000.
ThinkSpark ceased work in mid-October 2000 and the project was not
completed. Price Energy hired another firm which has completed the
project. ThinkSpark admits the original estimate for the project was
$266,000.
Price Energy paid ThinkSpark $82,539 and is paying the new firm
$75,600 which will complete the work.
ThinkSpark has filed a counterclaim seeking payment of $283,100.62,
which is the total amount of bills rendered. On January 11, 2002,
Price Energy and ThinkSpark agreed to settle their dispute. Price
Energy will pay ThinkSpark $30,000 and there will be mutual releases
of all claims as well as dismissals of the pending actions in New
Jersey and Texas. The liability as of September 30, 2002 has been paid
in full.
The Company in the normal course of business has been involved in
several suits. Two suits have been settled out of court at agreeable
terms, according to management. No suits are currently in litigation.
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., has an expiration date of July 31, 2004. The lease
provides for a monthly payment of $1,200 plus a one cent per gallon
through put, as per a monthly rack meter reading.
Estimated future rents are $14,400 per year, plus the one cent per
gallon through put charges per the monthly rack meter readings.
22
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 11 OPERATING LEASE (CONT'D)
---------------------------------
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
monthly rent, including Common Area Charges, as of October 2000 is
$9,084 per month. The lease does not contain any option for renewal.
The rent expense was $29,397 for the three months ended September 30,
2002. The estimated future rents are as follows:
YEAR ENDED JUNE 30,
-------------------
2003 $ 110,000
2004-2006 230,000
--------
Total $ 340,000
=========
The following summarizes the month to month operating leases for the
other subsidiaries:
Able Oil Melbourne $500.00, per month
Total rent expense, $1,500
Able Energy New York $500.00, per month
Total rent expense, $1,500
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. The franchisee paid the
following amounts in July 2001:
1. A non-refundable franchise fee of $25,000.
2. An advertising deposit of $15,000 and a $5,000 escrow
deposit.
The non-refundable fee of $25,000 has been recorded as Other Income in
the period ended September 30, 2001. The advertising deposit was
credited to advertising expense in the year ended June 30, 2002. The
$5,000 Escrow Deposit was returned in September 2002.
23
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 13 RELATED PARTY TRANSACTIONS
-----------------------------------
$44,690 is due from the major Shareholder/Officer of the Company. This
amount is evidenced by a Note bearing interest at a rate of 6% between
the Shareholder and the Company. This Shareholder has loaned the
Company $55,000, on May 10, 2002 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 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%
No capital contributions have been made by these officers (See Notes 1
and 8).
NOTE 14 EARNINGS PER SHARE
---------------------------
The shares used in the computation of the Company's basic Earnings Per
Common Share are as follows:
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
---- ----
Weighted Average of Common Shares Outstanding 2,003,831 2,000,298
Dilutive Effect of:
Employee Stock Options - -
Stock Warrants - -
--------- ---------
Weighted Average Common Shares Outstanding 2,003,831 2,000,298
========= =========
The dilutive potential common shares that were anti-dilutive at
September 30, 2002 amounted to 47,306 Shares.
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.
24
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 15 STOCK OPTION PLANS
---------------------------
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 $5.00 5 years
Exercises 0
December 1, 2000
Grants 48,090 $3.25 3 years
Exercises 1,250
December 21, 2000
Grants 60,000 $1.80 5 years
Exercises 0
Grants 23,000 $2.25 5 years
Exercises 0
16 STOCK WARRANTS
-----------------------
The Company has issued stock warrants as follows:
1. 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.
2. 40,000 Common Stock Purchase Warrants at $4.00 per share, effective
June 26, 2001 and expiring June 26, 2004, in connection with a
$500,000 Note Payable (See Note 5). These warrantes have not been
registered under the Securities Act of 1933.
3. 100,000 Common Stock Purchase Warrants at $4.00 per share, effective
September 13, 2002, and expiring September 12, 2004, in connection
with a $750,000 Note Payable (see Note 5).
The 200,000 warrants to purchase shares of common stock were
outstanding during the third quarter of 2002 and were not included in
the computation of diluted EPS as the warrants' have not been
registered under the Securities Act of 1933.
25
ABLE ENERGY, INC. AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
---------------------------------------------------
JUNE 30, 2002 AND SEPTEMBER 30, 2002
------------------------------------
NOTE 17 STOCK ISSUANCE
-----------------------
During the quarter ended September 30, 2002, 6000 shares of Common
Stock were issued to the directors for services rendered during the
year 2001, and charged at the fair market value as Directors' Fees.
The share price was $4.00 per share for a total Directors' Fees of
$24,000.
NOTE 18 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. At September
30, 2002, any amount for accrual of the above is not material and has
not been computed.
NOTE 19 CASH FLOW INFORMATION
------------------------------
The Directors received Common Stock as payment of Directors' Fees. No
cash was received or paid.
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ABLE ENERGY, INC. AND SUBSIDIARIES
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
THREE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2001.
The Company reported revenues of $6,233,339 for the three months ended
September 30, 2002, an increase of 18.34% over the prior year's
revenues for the same three-month period. This increase can be
attributed primarily to the Company's continued aggressive sales
activities, which resulted in a larger customer base as well as an
increase in the sales of commercial diesel fuels and gasoline. In
March of 2002, management instated a business plan to market and sell
other liquid products, specifically gasoline and diesel fuel products,
during the warmer months. In addition, the company increased its sales
of new equipment and HVAC services by 44.21% for this quarter. These
changes were initiated to help even out the seasonality of the
Company's business when heating oil sales are generally down.
Management has committed to a reasonable gross margin percentage to
allow for profitability on the sale of these products.
Gross profit margin, as a percentage of revenues, for the three months
ended September 30, 2002, increased to 13.32% from 10.39%, an increase
of $283,263 above the prior year's three months results. The increase
in margin is primarily a result of the Company's new margin management
policy, which was put into effect in September of 2001, and is
designed to maximize margins, by product segment, on each of the
products and services that it markets to the consumer. This program is
designed to promote product pricing that is in line with the specific
type of service provided.
Selling, General, and Administrative expenses, as a percent of sales,
decreased by 3.62% from 23.06% in the quarter ending September 30th
2001 to 19.44% during the same period in 2002. The Company attributes
this decrease to its continued commitment to controlling expenses,
insurance, telephone, and advertising. Management will continue to
monitor the fiscal budget against actual results on an ongoing basis
in an effort to further reduce SG&A as a percentage of sales.
Operating loss for the three months ended September 30, 2002 was
$678,419, a decrease of 29.74% under the Company's operating loss of
$965,527 for the three months ended September 30, 2001. This decreased
operating loss for the quarter was directly related to the increase in
gross margins, as operating costs, in dollars, were similar to the
prior year period.
Net loss for the three months ended September 30, 2002 decreased by
$221,183, or 23.26%, to $729,827 as compared to the same period for
the previous year loss of $951,010. This net loss was the result of
seasonal factors in the sale of heating oil, propane, and related
products in the summer months. Due to the seasonal nature of the
business, the 1st fiscal quarter typically experiences the lowest
sales volume and net income of the four quarters for the Company.
OPERATIONAL EFFICIENCIES
The Company believes that it will continue to increase the utilization
of existing personnel and equipment, thus reducing expenses and
increasing profitability, within its current business configuration.
During this past fiscal year, the Company began implementation of a
new margin management program designed to increase profitability
without sacrificing customer appeal. The Company believes that there
is value to the products and services that it provides to its
consumers in varying levels based upon the specific needs of the
consumer and the products provided. This program is working and has
been expanded to include equipment sales and services.
The Company will begin service billing utilizing a methodology known
as "Flat Rate Pricing", an approach similar to that used in the
automobile repair field. Flat rate pricing will be introduced in
stages with the first phase beginning in the 2nd fiscal quarter of the
current year. This system will give sales and service personnel the
ability to offer the customer an easy to understand, "package
approach" to repairs and equipment installations with one or two line
billings per invoice. This system will interface with the Company's
automated dispatch communications program that was introduced last
year. It is anticipated that this system will be fully implemented
within one year.
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 will begin introducing additional customer service
technology to its Rockaway call and administrative center during the
second fiscal quarter of 2002/2003. Management believes that by
providing enhancements to existing telephony 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. New software will provide customers with the option
of placing an 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 is now aware of the status
of every on-duty worker and obtains real time reporting for stand-by,
enroute, and service work time. This enables the Company to maximize
scheduling opportunities and eliminating service technician down time.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 2002, compared to the three
months ended September 30, 2001, the Company's cash position increased
by $155,876 from $524,140 to $680,016. For the year ended June 30,
2002, cash was generated through collections of customer advance
payments, and an increased loan from the bank. In the quarter ending
September 30, 2002, the Company entered into an agreement and received
a loan of $750,000 from a private company. The Company is in
discussions with a financial institution to obtain a term loan and
consolidate a large portion of its existing debt and also a working
capital line of credit of $2.5 million. This will enable the Company
to continue to grow while strengthening its infrastructures.
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 including propane gas
and home heating 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 Propane 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2002, an evaluation was performed under the super-
vision and with the participation of the Company's management,
including the Principal Executive Officer and the Principal Accounting
Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that
evaluation, the Company's manangement, including the Principal
Executive Officer and the Principal Accounting Officer, concluded that
the Company's disclosure controls and procedures were effective as of
September 30, 2002. There have been no significant changes in the
Company's internal controls or in other factors that could
significantly affect internal controls subsequent to September 30,
2002.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We borrowed $750,000 from an unrelated company, KMA & Associates, LTD.
The mortgage and note are dated September 13, 2002. The term of the note is for
one (1) year. Payments of interest only on the outstanding principal balance
shall be paid monthly at a rate of 10%. The first payment was due on November 1,
2002 and on the first day of each month thereafter until October 1, 2003, when
the Note shall mature and all principal and accrued interest shall be due and
payable in full.
Prepayment Penalty - in the event borrower makes a voluntary principal
payment during the term of this note, borrower shall pay to the lender a
premium equal to three (3) monthly payments of interest on the note. The
note is collateralized by a mortgage dated September 13, 2002 from Able
Energy Terminal, LLC, a wholly owned subsidiary, which is a second mortgage
on the property at 344 Route 46, Rockaway, NJ and also by all leases and
rents related to the property. The lender has been issued a stock purchase
warrant for 100,000 shares at $4 per share. The warrant has not been
registered under the Securities Act of 1933. We granted the holder
piggy-back registration rights for the common stock underlying the warrant
on our next registration statement. This warrant does not entitle the
holder to any of the rights of a stockholder of the Able. Unless previously
exercised, the warrants will expire on September 13, 2004.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended September 30, 2002.
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 13th day of November 2002.
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
CERTIFICATION
I, Timothy Harrington, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Able Energy, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 13, 2002
/s/ Timothy Harrington
Timothy Harrington
Chief Executive Officer
CERTIFICATION
I, Christopher P. Westad, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Able Energy, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 13, 2002
/s/ Christopher P. Westad
Christopher P. Westad
Chief Financial Officer