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, 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) (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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court. Yes [ ]
No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 22, 2004, 2,013,250 shares, $.001 Par value per share, of
Able Energy, Inc. were issued and outstanding.
Transitional Small Disclosure Business Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 2004 and
September 30, 2004 3-4
Consolidated Statements of Operations for the three
months ended September 30, 2004 and September 30, 2003 5
Consolidated Statement of Stockholders' Equity three months
ended September 30, 2004 6
Consolidated Statements of Cash Flows for the three months
ended September 30, 2004 and 2003 7-8
Notes to Unaudited Financial Statements 9-31
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, JUNE 30,
2004 2004
UNAUDITED AUDITED
--------- -------
CURRENT ASSETS:
Cash $ 2,025,718 $ 1,309,848
Accounts Receivable (Less Allowance for Doubtful
Accounts of $192,222 and $192,222 as of September 30, and
June 30, 2004, respectively. 2,716,421 2,436,554
Inventory 738,685 559,325
Notes Receivable - Current Portion 54,502 51,851
Other Receivable - Non-Compete - Current Portion 225,000 225,000
Miscellaneous Receivables 59,094 127,422
Prepaid Expenses 443,318 310,142
Deferred Costs - Insurance Claims 425,236 424,547
Prepaid Expense - Income Taxes - 2,063
Deferred Income Tax 54,923 54,923
Due From Officer 75,365 75,833
----------- -----------
TOTAL CURRENT ASSETS 6,818,262 5,577,508
----------- -----------
PROPERTY AND EQUIPMENT:
Land 479,346 479,346
Buildings 946,046 1,000,268
Trucks 3,305,024 3,217,443
Fuel Tanks 694,114 674,765
Machinery and Equipment 1,000,729 911,177
Leasehold Improvements 413,540 607,484
Cylinders 183,773 183,773
Office Furniture and Equipment 202,819 200,640
Website Development Costs 2,343,487 2,330,794
----------- -----------
9,568,878 9,605,690
Less: Accumulated Depreciation and Amortization 5,103,877 4,819,707
----------- -----------
NET PROPERTY AND EQUIPMENT 4,465,001 4,785,983
----------- -----------
OTHER ASSETS:
Deferred Income Taxes 45,091 45,091
Deposits 102,918 137,015
Other Receivable - Non-Compete - Less Current Portion 675,000 675,000
Notes Receivable - Less Current Portion 672,277 675,295
Customer List, Less Accumulated Amortization of ($188,122)
September 30 and June 30, 2004 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
$100,000 and $96,667 at September 30 and June 30, 2004, respectively - 3,333
Development Costs - Franchising 16,084 18,382
Deferred Closing Costs - Financing 101,547 103,360
----------- -----------
TOTAL OTHER ASSETS 2,035,645 2,080,204
----------- -----------
TOTAL ASSETS $13,318,908 $12,443,695
=========== ===========
See Accompanying Notes
3
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(CONT'D)
LIABILITIES & STOCKHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30,
2004 2004
UNAUDITED AUDITED
--------- -------
CURRENT LIABILITIES:
Accounts Payable $ 2,015,492 $ 1,703,005
Note Payable - Bank 699,236 699,236
Current Portion of Long-Term Debt 368,615 371,838
Accrued Expenses 296,733 318,154
Accrued Taxes 67,502 31,582
Deferred Income - 2,333
Customer Pre-Purchase Payments 2,524,153 1,495,906
Customer Credit Balances 1,089,706 698,899
----------- -----------
TOTAL CURRENT LIABILITIES 7,061,437 5,320,953
DEFERRED INCOME 79,679 79,679
DEFERRED INCOME TAXES 93,436 91,176
LONG TERM DEBT: less current portion 3,559,204 3,553,836
----------- -----------
TOTAL LIABILITIES 10,793,756 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 (September 30) and
2,013,250 (June 30) 2,014 2,014
Paid in Surplus 5,711,224 5,711,224
Retained Earnings (Deficit) (3,188,086) (2,315,187)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,525,152 3,398,051
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,318,908 $12,443,695
=========== ===========
See Accompanying Notes
4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS SEPTEMBER 30,
2004 2003
---- ----
NET SALES $ 8,221,845 $ 6,504,640
COST OF SALES 7,609,858 5,618,064
----------- -----------
GROSS PROFIT 611,987 886,576
----------- -----------
EXPENSES
Selling, General and Administrative Expenses 1,104,700 1,570,992
Depreciation and Amortization Expense 297,591 270,687
----------- -----------
Total Expenses 1,402,291 1,841,679
----------- -----------
LOSS FROM OPERATIONS (790,304) (955,103)
----------- -----------
OTHER INCOME (EXPENSES):
Interest and Other Income 50,876 25,229
Interest Expense (77,824) (262,070)
Loss on Sale of Assets (31,437) -
Legal Fees Relating to Other Expense (21,950) (130,207)
----------- -----------
Total Other Income (Expense) (80,335) (367,048)
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES (870,639) (1,322,151)
PROVISION FOR INCOME TAXES 2,260 17,765
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS (872,899) (1,339,916)
----------- -----------
DISCONTINUED OPERATIONS - (171,374)
----------- -----------
(LOSS) FROM DISCONTINUED OPERATIONS - (171,374)
----------- -----------
NET (LOSS) $ (872,899) $(1,511,290)
=========== ===========
BASIC EARNINGS (LOSS) PER COMMON SHARE
(Loss) from Continuing Operations $ (.43) $ (.67)
=========== ===========
(Loss) from Discontinued Operations $ - $ (.08)
=========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
(Loss) from Continuing Operations $ (.43) $ (.67)
=========== ===========
(Loss) from Discontinued Operations $ - $ (.08)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,013,250 2,013,250
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,013,250 2,013,250
=========== ===========
See Accompanying Notes
5
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 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 (872,899) (872,899)
Balance - September 30, 2004 2,013,250 $ 2,014 $5,711,224 $(3,188,086) $2,525,152
========= ======= ========== =========== ==========
See Accompanying Notes
6
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net (Loss) $ (872,889) $ (1,511,290)
(Loss) from Discontinued Operations - (171,374)
INCOME (LOSS) - CONTINUING OPERATIONS $ (872,899) $ (1,339,916)
Adjustments to Reconcile Net Income to Net Cash
used by Operating Activities:
Depreciation and Amortization 297,591 270,687
Loss on Disposal of Equipment 31,437
(Increase) Decrease in:
Accounts Receivable (279,867) 151,552
Inventory (179,360) (295,597)
Prepaid Expenses (133,176) (235,607)
Prepaid Income Taxes 2,063 -
Deposits 34,097 36,321
Deferred Income Tax - Asset - 14,537
Insurance Claim Receivable - 160,934
Deferred Costs - Insurance Claims (689) (130,878)
Increase (Decrease) in:
Accounts Payable 312,487 25,562
Accrued Expenses 14,517 241,642
Customer Advance Payments 1,028,247 1,300,692
Customer Credit Balance 390,807 -
Deferred Income Taxes 2,260 3,228
Deferred Closing Costs 1,813 -
Deferred Income (2,333) -
------------ ------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES CONTINUING
OPERATIONS 646,995 203,157
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (226,926) (252,858)
Web Site Development Costs (12,693) (6,500)
Cash Received on Sale of Property 226,499 -
Disposition of Equipment 10,687 73,860
Payment on Notes Receivable - Sale of Equipment 367 -
Receivable - Officer 468 -
Miscellaneous Receivables 68,328 25,951
------------ ------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES CONTINUING
OPERATIONS 66,730 (159,547)
------------ ------------
See Accompanying Notes
7
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
THREE MONTHS ENDED SEPTEMBER 30,
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net (Loss) $ (872,889) $ (1,511,290)
CASH FLOW FROM FINANCING ACTIVITIES
(Decrease) Increase in Notes Payable - Bank $ - $ (1,270,000)
Note Payable - Other - (1,250,000)
Note Payable - Officer - (1,442)
Decrease in Long-Term Debt (77,496) (1,841,631)
Increase in Long-Term Debt 79,641 4,491,195
------------ ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
CONTINUING OPERATIONS 2,145 128,122
------------ ------------
DISCONTINUED OPERATIONS:
Net Cash (Used) Provided by Discontinued Operations - (128,995)
------------ ------------
NET CASH (USED) PROVIDED BY DISCONTINUED
OPERATIONS - (128,995)
------------ ------------
NET (DECREASE) INCREASE IN CASH 715,870 42,737
Cash - Beginning of Year 1,309,848 400,033
------------ ------------
Cash - End of Year $ 2,025,718 $ 442,770
============ ============
The Company had Interest Cash Expenditures of: $ 62,611 $ 339,545
The Company had Tax Cash Expenditures of: $ 4,749 $ 12,750
See Accompanying Notes
8
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND SEPTEMBER 30, 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 three months ended
September 30, 2004 is $201,768 (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 SEPTEMBER 30, 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
balance 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 three months ended September
30, 2004 and 2003 amounted to $174,963 and $149,337, 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 SEPTEMBER 30, 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 $2,343,487 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 three months ended September 30, 2004
and 2003 amounted to $116,997 and $114,053, 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 three months ended September 30,
2004 and 2003 are $3,333 and $5,000, 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 SEPTEMBER 30, 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 $1,462,454. 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 $92,929 and
$228,562 for the three months ended September 30, 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 SEPTEMBER 30, 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 SEPTEMBER 30, 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 SEPTEMBER 30, 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 SEPTEMBER 30, 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
September 30 Principal Amount
------------ ----------------
2005 $ 34,624
2006 12,811
2007 14,082
2008 15,480
2009 17,016
Balance 74,688
---------
Total $ 168,701
=========
16
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 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
September 30 Principal Amount
------------ ----------------
2005 $ 19,877
2006 14,835
2007 6,843
2008 5,922
2009 6,287
2010 4,313
---------
TOTAL $ 58,077
=========
NOTE 3 INVENTORIES
ITEMS SEPTEMBER 30, JUNE 30,
2004 2004
---- ----
Heating Oil $ 379,687 $ 232,364
Diesel Fuel 19,663 19,998
Kerosene 12,547 4,906
Propane 34,692 13,461
Parts, Supplies and Equipment 292,096 288,596
--------- ---------
TOTAL $ 738,685 $ 559,325
========= =========
NOTE 4 NOTES PAYABLE BANK
1. 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 SEPTEMBER 30, 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 September 30, 2004 is $699,236. The
eligible accounts receivable were $2,261,000 and the collateral of
accounts receivable were approximately $2,900,000.
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 SEPTEMBER 30, 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 September 30, is $3,042,036
Included in current portion of long-term debt 146,387
----------
Included in long-term debt - less current portion $2,895,649
==========
B. 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 provided the following credit facility.
The Agreement had an expiration date of November 30, 2002. Fleet Bank
did not renew the credit facility upon expiration of the Agreement on
November 30, 2002. Effective December 1, 2002, the bank is charging an
additional annual interest of 4% as the Note is in default. The total
current interest rate charged was 8.25% per annum. The Company and
Lender entered into a Forbearance Agreement, where the Lender is willing
to forbear until May 31, 2003 from exercising its rights and remedies.
The Lender will receive a forbearance fee of $50,000 at May 31, 2003,
reduced by $2,500 for each week prior to May 31, 2003, that the credit
facility and all charges are paid in full, with a minimum forbearance
fee of $15,000. The interest charged is at 8.25% per annum. The
principal amount outstanding was $1,270,000. The loan and the $50,000
forbearance fee were not paid at May 31, 2003. The Note payable plus
forbearance fee, accrued interest and other costs were paid in full on
September 22, 2003, in the amount of $1,340,644 (See Note 4 A). The bank
released all the collateral securing the Company debt.
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 September 30, 2004 was $- 0 -.
19
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 5 NOTES PAYABLE (CONT'D)
2. 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 September 30, 2004 and June 30, 2004 was $84,711 and
$88,242, respectively.
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:
2004
PERCENT OF
PRETAX
AMOUNT INCOME
Statutory Federal Income Tax $ 1,582 15.0%
State Income Tax 678 6.5
-------
Income Taxes $ 2,260 21.5%
======= ====
Income Taxes consists of:
Current $ -
Deferred 2,260
-------
TOTAL $ 2,260
=======
20
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 7 INCOME TAXES (CONT'D)
2003
PERCENT OF
PRETAX
AMOUNT INCOME
Statutory Federal Income Tax $12,436 15.0%
State Income Tax 5,329 6.5
------- -----
Income Taxes $17,765 21.5%
======= =====
Income Taxes consist of:
Current $ -
Deferred 17,765
-------
TOTAL $17,765
=======
(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
the Company. Able Oil Company has a New Jersey Operating Loss of
$501,010 which could not be utilized in the current year ended June 30,
2003. Under current New Jersey law, the carryforward will be available
after 2003, the Company's fiscal year ending June 30, 2005.
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, 2004
TEMPORARY TAX
DIFFERENCE EFFECT
Depreciation and Amortization $(349,558) $(93,436)
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)
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)
21
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 7 INCOME TAXES (CONT'D)
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 September 30, 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 -
========
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 September 30, 2004, no principal has been
paid. No interest was accrued for the three months ended September 30,
2004 and the year ended June 30, 2004 as the note is non performing.
Unpaid accrued interest due through September 30, 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 September 30, 2004, resulting in a balance of
$2,070,082 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 three months ended September 30, 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.
22
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
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
$6,017 (2004) and $6,215 (2003), for the three months ended September
30.
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 9/30/04 9/30/04
-------------------- --------------------- --------------------- --------------------- --------------------
Petrocom 11/1/04-3/31/05 126,000 126,000 $130,272
Conectiv Energy 10/1/04 - 4/30/05 336,000 336,000 342,762
------- ------- --------
Total 462,000 462,000 $473,034
======= ======= ========
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.
23
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
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 September 30, 2004 which are included in Prepaid Expenses
and must be presented to the attorney for reimbursement. Per management,
the New Jersey Department of Environental Protection (NJDEP) must issue
an approval for treated water run-off. When approval is received,
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.
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.
On April 2, 2003, Able Energy received a Notice Of Violation from the
New Jersey Department of Community Affairs ("DCA") citing a total of 13
violations to the New Jersey Administrative Code, Liquefied Petroleum
Gas. Twelve of the violations were assessed a penalty of $500 each. One
of the violations, regarding the liquid transfer from one truck to
another truck, was assessed a penalty of $408,000, a second notice was
received on April 29, 2003, for an alleged violation on April 12, 2003,
and a fine of $5,500 was assessed for a total of $419,500. This amount
is included in accrued expenses at June 30, 2003. (See below)
Based upon initial review, the company disagrees with many of the
findings of the report and disputes many of the allegations. The company
has contested the DCA Notice of Violation and the assessed penalties.
Counsel and the DCA have had several meetings and hearings were held in
the Office of Administrative Law. The Company and DCA have settled the
penalties of $419,500 for $25,000, resulting in Other Income of $394,500
in the year ended June 30, 2004. The $25,000 was paid March 10, 2004.
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.
24
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
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.
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.
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
extended on the same terms. 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.
25
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 11 OPERATING LEASE (CONT'D)
Estimated future rents are $14,400 per year, plus the one cent 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 $34,122 and $32,537 for the three months ended September 30,
2004 and 2003, respectively. The estimated future rents for Greenpond
Road, Rockaway, New Jersey are as follows:
YEAR ENDED JUNE 30,
2005 $88,181
July 2005 9,799
-------
TOTAL $97,980
=======
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.
26
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 12 FRANCHISING (CONT'D)
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 $30,675 at September 30, 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).
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:
SEPT. 30, SEPT. 30,
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 -
Stock Warrants - -
--------- ---------
Weighted Average Common Shares
Outstanding Used in Diluted
Earnings Per Share 2,013,250 2,013,250
========= =========
27
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 14 EARNINGS PER SHARE (CONT'D)
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, September 30,
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.
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 21, 2000
Grants 60,000 $1.80 5 years
Exercises 0
Grants 23,000 $2.25 5 years
Exercises 0
October 22, 2002
Grants 50,000 $3.00 5 years
Exercises 0
28
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
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 third 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 $2.09 and would have been anti-diluted (See Note
14). These warrants have not been registered under the Securities Act of
1933.
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. At September
30, 2004, any amount for accrual of the above is not material and has
not been computed.
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 $425,236 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.
29
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
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.
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.
30
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND SEPTEMBER 30, 2004
NOTE 21 DISCONTINUED OPERATIONS (CONT'D)
Summarized financial information for discontinued operations for the
three months September 30, 2003, as follows:
2003
TOTAL REVENUES $ 345,572
=========
Income (Loss) from Discontinued
Operations $(171,374)
=========
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements in this Quarterly Report on Form 10-QSB 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, 2004,
Compared to the Three Months Ended September 30, 2003
The Company reported revenues of $8,221,845 for the quarter ended September 30,
2004, which was an increase of $1,717,205 from the prior year's revenues of
$6,504,640 for the same period. This increase can be attributed primarily to
significantly higher prices paid for the commodities (primarily #2 home heating
oil) purchased during the period. Gallons for the period showed a decline due to
market conditions and the fact that the Company's Newton, New Jersey facility is
currently inoperative due to the March 14, 2003 accident at that site.
Gross profit margin, as a percentage of revenues, for the three months ended
September 30, 2004, decreased by 6.19% from $886,576 to $611,987. The decrease
in margin was the result of the dramatically rising product costs during the
months of July, August and September. 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 begins greater
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 10.71% from 24.15% in the quarter ending September 30, 2003 to 13.44% during
the same period in 2004. The Company attributes this decrease to lower costs for
insurance charges, utilities, credit card processing fees, bad debt expense, and
professional fees. Management will continue to aggressively manage expenditures
against last year's actual using the new budget and the comprehensive financial
reporting software known as Great Plains, which was implemented in July of this
year.
Operating loss for the quarter ended September 30, 2004 was $(790,304) as
compared to the Company's loss of $(955,103) for the quarter ended September 30,
2003. This operating loss for the quarter was directly related to the volatile
market pricing and increased costs related to the explosion and fire in Newton,
New Jersey on March 14, 2003, and increased operating costs for retail delivery
in to the Sussex County Area.
Net loss for the quarter ended September 30, 2004 was $(872,899) as compared to
the same period for the previous quarter's loss of $(1,339,916). This net loss
for this quarter (which covers the non-heating related months of July August and
September) was related to lower volumes due to the warm temperatures.
OPERATIONAL EFFICIENCIES
The Company has redefined its organizational chart and associated position
descriptions (by assigning duties as required to best suit the organization's
growth), which will enhance 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.
Furthermore, the Company has completed implementation of a 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 a 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 appreciates the importance of properly 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 September 30, 2004 shows a year-to-year decrease in SG&A of $466,292 or
10.71%. The combination of the new operating system and the detailed budget and
reporting program now provides all levels of management with real time results
not previously available.
In Able Oil Company, the Company's largest subsidiary, the margin as expressed
in cents per gallon of product sold at retail, is higher for the first quarter
even though it appears as though gross margin dollars are decreasing. Gross
margin as a percentage of sales is lower due to the significantly higher
commodity costs during this quarter. 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.
The new system known as "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..
WARRENSBURG, NEW YORK OPERATIONAL ENHANCEMENTS
The Company is 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.
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. New telephony
software 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 aware of 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 is now in full operation. 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.
EXPLOSION AND FIRE
On March 14, 2003, Able Energy experienced an explosion and fire at its Newton,
New Jersey facility which resulted in the destruction of an office building on
the site, as well as damage to 18 company vehicles and neighboring properties.
Fortunately, due to the immediate response by employees at the site, a quick
evacuation of all personnel occurred prior to the explosion, preventing any
serious injuries.
The results of the company's investigation indicated that the explosion was an
accident that occurred as a result of a combination of human error, mechanical
malfunction, as well as the failure to follow prescribed state standards for
propane delivery truck loading. On April 3, 2003, Able Energy received a Notice
of Violation from the New Jersey Department of Community Affairs. The dollar
amount of the original assessed penalty was appealed with the State of New
Jersey and the ultimate fine totaling $25,000 was paid in March of 2004
The March 2003 accident, which affected our Newton fuel depot, has left this
facility still 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. 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. The Company is currently effectuating
these repairs and will continue to 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.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 2004, compared to the three months
ended September 30, 2003, the Company's cash position increased by $1,582,948
from $442,770 to $2,025,718. 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 quarter ended
September 30, 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 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2004, an evaluation was performed under the supervision 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 management, 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,
2004. 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, 2004.
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
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 REPORT ITEM REPORTED ON
October 28, 2004 Able Energy, Inc. 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.
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 22nd day of November 2004.
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