UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2006
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.
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(Exact name of registrant as specified in its charter)
Delaware 22-3520840
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
198 Green Pond Road
Rockaway, NJ 07866
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (973) 625-1012
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Exchange Act Yes [_] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [X]
Indicate by check mark 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 [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one):
Large Accelerated Filer [_] Accelerated Filer [_] Non-Accelerated Filer [X]
The aggregate market value of the common stock held by non-affiliates of the
registrant was approximately $4,953,000 on December 31, 2006, based on the last
reported sales price of the registrant's common stock on the NASDAQ Small Cap
Market on such date. All executive officers, directors and 10% or more
beneficial owners of the registrant's common stock have been deemed, solely for
the purpose of the foregoing calculation, "affiliates" of the registrant.
As of March 31, 2007, there were 3,141,423, shares of the registrant's common
stock, $.001 par value, issued and outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
[_] Yes [X] No
ABLE ENERGY, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE YEARS ENDED
JUNE 30, 2006 AND 2005
TABLE OF CONTENTS
PART I
Page No.
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ITEM 1. Business 1
ITEM 1A. Risk Factors 8
ITEM 1B Unresolved Staff Comments 16
ITEM 2. Properties 16
ITEM 3. Legal Proceedings 16
ITEM 4. Submission of Matters to a Vote of Security Holders 17
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder
Matters & Issuer Purchases of Equity Securities 18
ITEM 6. Selected Financial Data 19
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation 20
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 30
ITEM 8. Financial Statements and Supplementary Data 30
ITEM 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure 30
ITEM 9A. Controls and Procedures 30
ITEM 9B. Other Information 31
PART III
ITEM 10. Directors and Executive Officers of the Registrant 33
ITEM 11. Executive Compensation 37
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 41
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence 42
ITEM 14. Principal Accountant Fees and Services 44
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 45
Signatures 49
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
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Certain matters discussed herein may constitute forward-looking statements and
as such may involve risks and uncertainties. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify certain forward-looking statements. These forward-looking
statements relate to, among other things, expectations of the business
environment in which we operate, projections of future performance, perceived
opportunities in the market and statements regarding our mission and vision. Our
actual results, performance, or achievements may differ significantly from the
results, performance, or achievements expressed or implied in such
forward-looking statements. For discussion of the factors that might cause such
a difference, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation". We undertake no obligation to update or
revise such forward-looking statements.
GENERAL
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Able Energy, Inc. ("Able") was incorporated on March 13, 1997, in the state of
Delaware. Its current subsidiaries are Able Oil Company Inc. ("Able Oil"), Able
Energy New York, Inc. ("Able NY"), Able Oil Melbourne, Inc., ("Able Melbourne")
Able Energy Terminal LLC, PriceEnergy.com Franchising LLC (inactive), and
PriceEnergy.com, Inc. ("PriceEnergy"). Able, together with its operating
subsidiaries, are hereby referred to as the Company.
OVERVIEW
The Company is engaged in the retail distribution of, and the provision of
services relating to, home heating oil, propane gas, kerosene, and diesel fuels.
In addition to selling liquid energy products, the Company offers complete
heating, ventilation and air conditioning ("HVAC") installation and repair and
other services and also markets other petroleum products to commercial
customers, including on-road and off-road diesel fuel, gasoline, and lubricants.
During the year ended June 30, 2006, sales of heating oil accounted for
approximately 63% of the Company's revenues. The remaining 37% of revenues were
from sales of gasoline, diesel fuel, kerosene, propane gas, home heating
equipment services, central air conditioning sales and service, and related
sales. The Company now serves approximately 33,000 home heating oil customers
from four locations, which are located in Rockaway, New Jersey, Easton,
Pennsylvania, Warrensburg, New York, and Melbourne, Florida.
The Company also provides installation and repair of heating equipment as a
service to its customers. The Company considers service and installation, repair
and other services to be an integral part of its business. Accordingly, the
Company regularly provides service incentives to obtain and retain customers.
The Company provides home heating equipment repair service on a 24 hour-a-day,
seven day-a-week basis, generally within four hours of request. Except in
isolated instances, the Company does not provide service to any person who is
not a customer as an incentive to become a customer of the Company.
The Company believes that it obtains new customers and maintains existing
customers by offering full service home energy products at competitive prices,
providing quick response refueling and repair operations, providing automatic
deliveries to customers by monitoring historical use and weather patterns, and
by providing customers a variety of payment options. The Company also regularly
provides service incentives to obtain and retain customers. The Company
aggressively promotes its service through a variety of direct marketing media,
including mail and telemarketing campaigns, by providing discounts to customers
who refer new customers to the Company, and through an array of advertising,
including television advertisements, newspaper advertising, refrigerator
magnets, and billboards, which aim to increase brand name recognition.
The Company intends to expand its operations by acquiring select operators in
the Company's present markets as well as other markets, capturing market share
from competitors through increased advertising and other means, diversifying its
products, diversifying its customer base, and replicating its marketing and
service formula in new geographic areas. The Company may also enter into
marketing alliances with other entities in product areas different than the
Company's current product mix.
1
RETAIL FUEL OIL
The Company's retail fuel oil distribution business is conducted through its
subsidiaries Able Oil, Able NY, and Able Melbourne. The Company serves both
residential and commercial fuel oil accounts. The Company sells premium quality
home heating oil to its residential customers offering delivery seven days a
week. To its commercial customers, in addition to selling home heating oil, the
Company sells diesel fuels, lubricants, gasoline, and kerosene. The Company also
provides an oil burner service that is available 24 hours a day for the
maintenance, repair, and installation of oil burners. These services are
performed on an as needed basis. Customers are not required to enter into
service contracts to utilize the Company's service department, however the
Company does offer such service contracts if desired.
Approximately 41% of the Company's customers receive their home heating oil
pursuant to an automatic delivery system without the customer having to make an
affirmative purchase decision. Based on each customer's historical consumption
patterns and prevailing weather conditions, the Company's computers schedule
these deliveries. Customers can also order deliveries of home heating oil
through the Company's website located at www.ableenergy.com, or the website of
the Company's subsidiary PriceEnergy at www.priceenergy.com. The Company
delivers home heating oil approximately six times each year to the average
customer. The Company bills customers promptly upon delivery or receives payment
upon delivery. The Company's customers can pay for fuel deliveries with cash,
check, electronic account debit, or credit card.
In addition, approximately 14% of the Company customers have an agreement that
pre-establishes the maximum annual sales price of fuel oil and is paid by
customers over a ten-month period in equal monthly installments. Such prices are
renegotiated in April of each year and the Company has historically purchased
fuel oil for these customers in advance and at a fixed cost.
The Company delivers with its own fleet of 35 custom fuel oil, 3 propane trucks
and 4 owner-operator fuel oil delivery trucks. The Company's fuel trucks have
fuel capacities ranging from 3,000 to 8,000 gallons. Each vehicle is assigned to
a specific delivery route, and services between 4 and 40 customer locations per
day depending on market density and customers' fuel requirements. The Company
also operates 23 Company-owned service vans and one owner-operated service van,
which are equipped with state of the art diagnostic equipment necessary to
repair and/or install heating equipment. The number of customers each van serves
primarily depends upon the number of service calls received on any given day.
ABLE OIL
Able Oil was established in 1989 and is the Company's largest subsidiary,
accounting for approximately 74% of the Company's total revenues for the year
ended June 30, 2006. Able Oil is headquartered in Rockaway, New Jersey, and
serves just over 17,000 oil customer accounts throughout northern New Jersey,
primarily in Morris, Sussex, Warren, Passaic and Essex counties, from its
distribution location in Rockaway, New Jersey and in Pennsylvania primarily in
Northampton and Lehigh counties, from its distribution location in Easton,
Pennsylvania. Of these accounts, approximately 92% are residential customers and
8% are commercial customers.
Of the Company's 35 fuel oil trucks, 30 are reserved for use by Able Oil, of
which 25 trucks operate from the Rockaway facility and five trucks operate from
the Easton, Pennsylvania facility. In addition, Able Oil utilizes the services
of five owner-operated trucks. Each owner-operator is under contract; they are
responsible for all vehicle-operating expenses including insurance coverage, and
they deliver exclusively for Able Oil. All of the trucks, including the
owner-operated trucks, have the Company's logo on them.
Able Oil's 25 fuel oil delivery trucks, which operate from the Rockaway
facility, and the five owner-operator trucks, acquire fuel inventory at the
Company's facility in Rockaway, New Jersey. Dispatch of fuel oil trucks is
conducted from the Rockaway facility. Billing is conducted from Able corporate
headquarters in Rockaway.
The Rockaway and Newton (which is currently out of service) facilities have the
capacity to store 1.5 million gallons and 200,000 gallons of fuel, respectively.
During seasons where demand for heating oil is higher, or when wholesale oil
prices are favorable, a slightly larger inventory is kept on hand. However,
management generally believes that high inventory turnover enables the Company
to rapidly respond to changes in market prices. Thus, management typically
employs a "just in time" inventory practice and rarely stores fuel to capacity
levels. Additional fuel oil purchases are made daily on the spot market using
electronic funds transfers. Able Oil transports its fuel purchases from
wholesale purchase sites to its Rockaway facility with two tractor-trailer
tankers owned by the Company, and by other outside vendors that are contracted
by the Company to provide additional fuel transport capacity.
Able Oil's oil burner service operates out of the Route 46 facility in Rockaway,
New Jersey. Able Oil dispatches a total of 19 service vans, plus one
owner-operated service van.
2
ABLE MELBOURNE
Able Melbourne was established in July 1996, and is located in Cape Canaveral,
Florida. For the year ended June 30, 2006, revenues from Able Melbourne
accounted for approximately 6% of the Company's total revenues. Able Melbourne
is engaged primarily in the sale of diesel fuel for commercial fleet fueling and
other on-road vehicles, and dyed diesel fuel, which is used for off-road
vehicles and purposes, including commercial and recreational fishing vessels,
heating oil, and generator fuel. Additionally, a small portion of Able
Melbourne's revenues is generated from the sale of home heating oil, lubricant
and lubricant products. Able Melbourne serves approximately 200 customer
accounts in Brevard County, Florida, primarily in the Cape Canaveral area.
Able Melbourne delivers fuel with two fuel delivery trucks, which are capable of
storing 6,000 gallons of fuel in aggregate. Because Able Melbourne's peak season
is at the opposite time of the year than the rest of the Company's, during this
season, Able Melbourne may use one of Able Oil's trucks to meet its demand.
Currently, Able Melbourne does not have facilities to store fuel oil beyond what
is held on its trucks, and thus, purchases fuel inventory from local refineries.
However, since Able Melbourne is located only three miles from the bulk storage
facility, the lack of inventory capacity is not material to the Company's
operations or revenue.
ABLE NY
Able NY is engaged in the retail distribution of #2 home heating oil, in
addition to kerosene, propane gas and propane gas equipment, and also provides
related services to its customer base in the Warren, southern Saratoga, and
southern Essex Counties of upstate New York.
The retail and commercial heating oil and diesel fuel operations are similar to
those of Able Oil. Able NY has its office and storage located in a new
industrial park off of Route 9 in Warrensburg, New York. There is storage
capacity for 67,500 gallons of heating oil, kerosene, and diesel. This is
currently the only Company location which stores and sells propane gas. Propane
gas can be used for virtually all household and business utility applications.
Although burned as a gas, propane is transported as a liquid and stored in tanks
that vaporize the liquid for use. Able NY provides its propane customers with
such tanks, some at no charge, and by doing so, remains such customers'
exclusive supplier of propane. Able NY employs a delivery system similar to the
Company's retail oil distribution business, whereby customers receive propane
deliveries pursuant to an automatic delivery system without the customer having
to make an affirmative purchase decision. Based on each customer's historical
consumption patterns and prevailing weather conditions, Able NY's computers
schedule these deliveries. A small percentage of its customers prefer to order
refill deliveries on their own schedule and the Company accommodates those
requests as appropriate.
Able NY conducts its propane operations from its storage facility in
Warrensburg, New York, which has 60,000 gallons of propane storage capacity. The
delivery trucks have the capacity to deliver 3,000 gallons of propane, and can
service approximately 35 customers per day. Able NY purchases wholesale propane
on the spot market at local facilities and utilizes the services of contract
carriers to bring the product in to its Warrensburg facility.
PRICEENERGY
PriceEnergy started business in October 2000, and is a majority-owned subsidiary
of Able. PriceEnergy was developed in order to bring about efficient
transactions in the liquid fuels market by streamlining the ordering and
delivery process utilizing Internet technology. PriceEnergy has developed a
business technology platform that enables the Company to sell and deliver liquid
fuels and related energy products. This has been possible by utilizing a branded
distribution channel of dealers and Able's own delivery network. By leveraging
its proprietary web technology and wireless dispatch platform, PriceEnergy
intends to achieve cost leadership and create a competitive advantage in the
industry.
PriceEnergy currently has a network of 66 dealers in eight states in the
Northeast and Mid-Atlantic regions. PriceEnergy customers order products and
services from PriceEnergy over the Internet and then PriceEnergy computers
forwards the orders to the local dealer to schedule delivery.
During the period from July 28, 2006 to August 15, 2006, the Company entered
into future contracts for #2 heating oil to hedge a portion of its forecasted
heating season requirements. The Company purchased 40 contracts through a broker
for a total of 1,680,000 gallons of #2 heating oil at an average call price of
$2.20 per gallon. Due to warmer than average temperatures through the heating
season as of March 31, 2007, the Company has experienced a substantial drop in
fuel consumption and price, resulting in a loss on these contracts.
3
Through March 31, 2007, the Company has deposited a total of $923,017 in margin
requirements with the broker and has realized a loss of $923,017 on 40 closed
contracts representing 1,680,000 gallons.
The Company processed orders for approximately 7,816,000 million gallons over
the Internet through PriceEnergy.com in the fiscal year ended June 30, 2006.
ACQUISITION OF ALL AMERICAN PLAZAS, INC.
All American Plazas, Inc. ("All American") owns approximately 32.0% and 31.8% of
our outstanding common stock as of June 30, 2006 and March 31, 2007,
respectively, which shares were originally acquired from Timothy Harrington,
former CEO and founder of the Company. Approximately 85.0% of the common stock
of All American is owned by the Chelednik Family Trust, a trust established by
Mr. Nocito, an officer of the Company, and his wife for the benefit of their
family members and of which Gregory D. Frost, a Director of the Company, who is
currently on an indefinite leave of absence as Chief Executive Officer and
Chairman of the Board, is a co-trustee. In addition, pursuant to an agreement
between the Chelednik Family Trust and Gregory Frost, through an entity
controlled by him (Crystal Heights, LLC), is also the beneficial holder of the
balance of the outstanding common stock of All American.
We entered into a Stock Purchase Agreement on June 16, 2005 (which was
subsequently amended and restated into the Asset Purchase Agreement as of the
same date) ("Purchase Agreement"), with all of the stockholders (the "Sellers")
of All American in connection with our acquisition of All American. This
transaction was approved on August 29, 2006, at a special meeting of our
stockholders and All American's stockholders; however, at March 31, 2007, this
transaction has not yet been consummated. Under the term of the Purchase
Agreement, upon closing, we will deliver to the Sellers 11,666,667 shares of our
restricted common stock, par value $.001 per share, at $3.00 per share for an
aggregate purchase price of $35,000,000.
The Company expects that it will not be able to close the All American
acquisition until after certain material activities are completed. These
activities include bringing current the Company's filings with the Securities
and Exchange Commission ("SEC"), having the Company's common stock registered on
the OTC Bulletin Board, favorably resolving the Formal Order of Investigation
(the "Formal Order") from the SEC and All American completing its target
financing (See All American Financing below).
A complete description of All American's business and its consolidated full
financial statements are included in the proxy statement for the stockholders'
special meeting held on August 29, 2006.
ALL AMERICAN FINANCING
The Company loaned All American $1,730,000 as evidenced by a promissory note
dated July 27, 2005. As of June 30, 2006, this note is still outstanding with a
maturity date of June 15, 2007. The interest income related to this note for the
year ended June 30, 2006, was $70,575. The note and accrued interest in the
amount of $1,800,575 have been classified as contra-equity on the Company's
consolidated balance sheet as of June 30, 2006 (which is contained in this
annual report).
On June 1, 2005, All American completed a financing that, if the acquisition of
All American is consummated, may impact the Company. Pursuant to the terms of
the Securities Purchase Agreement (the "Agreement") among All American and
certain purchasers ("Purchasers"), the Purchasers loaned All American an
aggregate of $5,000,000, evidenced by Secured Debentures dated June 1, 2005 (the
"Debentures"). The Debentures are due and payable on June 1, 2007, subject to
the occurrence of an event of default, with interest payable at the rate per
annum equal to LIBOR for the applicable interest period, plus 4% payable on a
quarterly basis on April 1st, July 1st, October 1st and January 1st, beginning
on the first such date after the date of issuance of the Debentures. Upon the
acquisition of All American and the Company's board approving the transfer of
the debt that would also require the transfer of additional assets into All
American as consideration for the Company to assume the debt, then the
Debentures will be convertible into shares of our common stock at a conversion
rate of the lesser of (i) the purchase price paid by us for each share of All
American common stock in the acquisition, or (ii) $3.00, subject to further
adjustment as set forth in the agreement.
The loan is secured by real estate property owned by All American in
Pennsylvania and New Hampshire. Pursuant to the Agreement, these Debentures are
in default, as All American has not completed the merger with the Company prior
to the expiration of the 12-month anniversary of the Agreement. Pursuant to the
Additional Investment Right (the "AIR Agreement") among All American and the
Purchasers, the Purchasers may loan All American up to an additional $5,000,000
of secured convertible debentures on the same terms and conditions as the
initial $5,000,000 loan, except that the conversion price will be $4.00.
If we consummate the acquisition of All American, upon such consummation, we
will assume the obligations of All American under the Agreement, the Debentures
and the AIR Agreement through the execution of a Securities Assumption,
4
Amendment and Issuance Agreement, Registration Rights Agreement, Common Stock
Purchase Warrant Agreement and Variable Rate Secured Convertible Debenture
Agreement, each between the Purchasers and us (the "Able Energy Transaction
Documents"). Such documents provide that All American shall cause the real
estate collateral to continue to secure the loan, until the earlier of full
repayment of the loan upon expiration of the Debentures or conversion by the
Purchasers of the Debentures into shares of our common stock at a conversion
rate of the lesser of (i) the purchase price paid by us for each share of All
American common stock in the acquisition, or (ii) $3.00, (the "Conversion
Price"), subject to further adjustment as set forth in the Able Energy
Transaction Documents. However, the Conversion Price with respect to the AIR
Agreement shall be $4.00. In addition, the Purchasers shall have the right to
receive five-year warrants to purchase 2,500,000 of our common stock at an
exercise price of $3.75 per share. Pursuant to the Able Energy Transaction
Documents, we shall also have an optional redemption right (which right shall be
mandatory upon the occurrence of an event of default) to repurchase all of the
Debentures for 125% of the face amount of the Debentures plus all accrued and
outstanding interest, as well as a right to repurchase all of the Debentures in
the event of the consummation of a new financing in which we sell securities at
a purchase price that is below the Conversion Price. It is currently
contemplated that if the Able/All American transaction is consummated, the
stockholders of All American will escrow a sufficient number of shares to
satisfy the conversion of the $5,000,000 in outstanding Debentures in full.
On May 19, 2006, the Company entered into a letter of interest agreement with
Manns Haggerskjold of North American, Ltd. ("Manns"), for a bridge loan to the
Company in the amount of $35,000,000 and a possible loan in the amount of $1.5
million based upon the business combination with All American ("Manns
Agreement"). The terms of the letter of interest agreement provided for the
payment of a commitment fee of $750,000, which was non-refundable to cover the
due-diligence cost incurred by Manns. On June 23, 2006, the Company advanced to
Manns $125,000 toward the Manns Agreement due diligence fee. During the period
July 7, 2006 through November 17, 2006, the Company advanced an additional
$590,000 toward the Manns Agreement due diligence fee.
During August 2006, the Company received the Formal Order from the SEC.
Thereafter, the Company and Manns agreed that the commitment to fund being
sought under the Manns Agreement would be issued to All American, since the
stockholders had approved an acquisition of All American by Able and since the
collateral for the financing by Mann would be collateralized by real estate
owned by All American. Accordingly, on September 22, 2006, All American agreed
that in the event Manns funds a credit facility to All American rather than the
Company, upon such funds being received by All American, it will immediately
reimburse the Company for all expenses incurred and all fees paid to Manns in
connection with the proposed credit facility from Manns to the Company.
EFFECT OF CHANGE IN GENERAL ECONOMY
The Company's business is relatively unaffected by business cycles. Because fuel
oil, propane and gasoline are such basic necessities, variations in the amount
purchased as a result of general economic conditions are limited.
CUSTOMER STABILITY
The Company has a relatively stable customer base due to the tendency of
homeowners to remain with their traditional distributors. In addition, a
majority of the homebuyers tend to remain with the previous owner's distributor.
As a result, the Company's customer base each year includes most customers
retained from the prior year, or homebuyers who have purchased from such
customers. Like many other companies in the industry, the Company delivers fuel
oil and propane to each of its customers an average of six times during the
year, depending upon weather conditions and historical consumption patterns.
Most of the Company's customers receive their deliveries pursuant to an
automatic delivery system, without the customer having to make an affirmative
purchase decision each time home heating oil or propane is needed. In addition,
the Company provides home heating equipment repair service on a
seven-days-a-week basis. No single customer accounts for 10% or more of the
Company's consolidated revenues.
PRODUCT LINES
In fiscal year 2006, sales of heating oil accounted for 63% of the Company's
revenues. The remaining 37% of revenues were from sales of gasoline, diesel
fuel, kerosene, propane, home heating equipment services, and related sales. The
Company installs heating equipment and repairs such equipment on a 24 hours a
day, seven days-a-week basis, generally within four hours of request.
INDUSTRY OVERVIEW
The Company's business is highly competitive. In addition to competition from
alternative energy sources, the Company competes with distributors offering a
broad range of services and prices, from full service distributors similar to
the Company, to those offering delivery only. Competition with other companies
in the propane industry is based primarily on customer service and price.
5
Longstanding customer relationships are typical in the retail home heating oil
and propane industry. Many companies in the industry, including the Company,
deliver fuel oil or propane to their customers based upon weather conditions and
historical consumption patterns without the customers having to make an
affirmative purchase decision each time fuel oil or propane is needed. In
addition, most companies, including the Company, provide equipment repair
service on a 24 hour-a-day basis, which tends to build customer loyalty. As a
result, the Company may experience difficulty in acquiring new retail customers
due to existing relationships between potential customers and other fuel oil or
propane distributors.
MARKETING, SALES AND STRATEGIC PARTNERSHIPS
The Company employs a dynamic marketing strategy that the Company believes has
been the key to its success. The Company believes that it obtains new customers
and maintains existing customers by offering its full service home energy
products at discount prices, providing quick response in refueling and repair
operations, providing automatic deliveries to customers by monitoring historical
use and weather patterns, and by providing customers a variety of payment
options. To expand its customer base and aggressively promote its service, the
Company engages in direct marketing campaigns, advertises regularly, offers
employee incentives, and encourages referrals.
The Company has successfully expanded its customer base by employing a variety
of direct marketing tactics, including telemarketing campaigns, billboards, mass
and direct mailings, and by distributing hand-bills and promotional items, such
as refrigerator magnets, sweatshirts and hats. Additionally, the Company's
delivery personnel are an integral part of the Company's direct marketing
activities. While in the field, drivers isolate potential new customers by
taking note of where the Company is not servicing accounts, and act as
salespersons for the Company.
The Company uses advertising campaigns to increase brand recognition and expand
its customer base, including radio and television advertisements, billboards,
and newsprint and telephone directory advertisements. Additionally, the Company
utilizes its fleet of fuel delivery trucks and service vans as moving
advertisements by emblazoning them with the Company's logo.
Historically, referrals have been an important part of the Company's efforts to
expand its business and the Company offers incentives to customers who refer
business. The Company also offers other special limited time promotions designed
to increase business in specific targeted business segments. The Company also
encourages civic and religious organizations to refer business to the Company
through group rate discounts.
PATENTS AND TRADEMARKS
Able owns the exclusive right and license to use, and to license others to use,
the proprietary marks, including the service marks "Able Energy" (and design)
("Able Energy Proprietary Marks") and "Able Oil" (and design) ("Able Oil
Proprietary Marks").
Presently there is no effective determination by the United States Patents and
Trademarks Office, ("USPTO"), Trademark Trial and Appeal Board, the trademark
administrator of any state, or court regarding the Able Energy or Able Oil
Proprietary Marks, nor is there any pending interference, opposition or
cancellation proceeding or any pending litigation involving the Proprietary
Marks or the trade names, logotypes, or other commercial symbols of Able Oil, or
Able Energy. There are no agreements currently in effect that significantly
limit the rights of Able Oil or Able Energy to use or license the use of their
respective Proprietary Marks.
PriceEnergy.com owns the exclusive right and license to use, and to license
others to use, the proprietary marks, including the service mark
"PriceEnergy.com" (and design) and "PriceEnergy.com The energy hot spot" (and
design) ("PriceEnergy Proprietary Marks"). In addition, PriceEnergy established
certain common law rights to the PriceEnergy Proprietary Marks through its
continuous, exclusive and extensive public use and advertising. The PriceEnergy
Proprietary Marks are not registered in any state. PriceEnergy also owns the
domain names PriceEnergy.com, FuelOilPrices.net, HomeHeatingOilPrices.net,
HeatingOilPrices.net, and PriceEnergy.net.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
The Company has implemented environmental programs and policies designed to
avoid potential liability under applicable environmental laws. The Company has
not incurred any significant environmental compliance cost, and compliance with
environmental regulations has not had a material effect on the Company's
consolidated operations or financial condition. This is primarily due to the
Company's general policies of closely monitoring its compliance with all
environmental laws. In the future, the Company does not expect environmental
compliance to have a material effect on its operations and financial condition.
The Company's policy for determining the timing and amount of any environmental
cost is to reflect an expense as and when the cost becomes probable and
reasonably capable of estimation.
6
Related to its 1999 purchase of the property on Route 46 in Rockaway, New
Jersey, the Company settled a lawsuit with a former tenant of the property and
received a lump sum settlement of $397,500. This sum was placed in an attorney's
escrow account for payment of all environmental remediation costs. Through June
30, 2006, Able Energy Terminal, LLC has been reimbursed for approximately
$290,000 of costs and another approximately $87,000 are not reimbursed and are
included in prepaid expenses and other current assets in the accompanying
consolidated balance sheet included elsewhere in this filing and must be
presented to the attorney for reimbursement. The environmental remediation is
currently in progress on this property. The majority of the "free standing
product" has been extracted from the underground water table. The remainder of
the remediation will be completed over the course of the next eight to ten years
using natural attenuation and possible bacterial injection.
On September 15, 2003, Able Oil received approval from the New Jersey Department
of Environmental Protection of a revised Discharge Prevention Containment and
Countermeasure plan ("DPCC") and Discharge, Cleanup and Removal plan ("DCR") for
the facility at 344 Route 46 East in Rockaway, New Jersey. This plan has
received approval and will be in effect for three years. The State of New Jersey
requires companies which operate major fuel storage facilities to prepare such
plans, as proof that such companies are capable of, and have planned for, an
event that might be deemed by the State of New Jersey to be hazardous to the
environment. In addition to these plans, Able Oil has this facility monitored on
an ongoing basis to ensure that the facility meets or exceeds all standards
required by the State.
On September 26, 2006, the New Jersey Department of Environmental Protection
("NJDEP") conducted a site update inspection, which included a review of the
Route 46 site and an update of the progress of the approved remediation. The
NJDEP Northern Office director who conducted the inspection, concluded that the
remediation progress was proceeding appropriately and that the department
approved of the Company's continued plan to eliminate the remaining underground
product. The Company experienced no spill events that would warrant
investigation by state or other environmental regulatory agencies. All locations
are prepared to deal with such an event should one occur.
GOVERNMENT REGULATIONS
Numerous federal, state and local laws, including those relating to protection
of the environment and worker safety, affect the Company's operations. The
transportation of fuel oil, diesel fuel, propane and gasoline is subject to
regulation by various federal, state and local agencies including the U.S.
Department of Transportation ("DOT"). These regulatory authorities have broad
powers, and the Company is subject to regulatory and legislative changes that
can affect the economies of the industry by requiring changes in operating
practices or influencing demand for, and the cost of providing, its services.
The regulations provide that, among other things, the Company's drivers must
possess a commercial driver's license with a hazardous materials endorsement.
The Company is also subject to the rules and regulations concerning the
Hazardous Materials Transportation Act. For example, the Company's drivers and
their equipment must comply with the DOT's pre-trip inspection rules,
documentation regulations concerning hazardous materials (i.e. certificates of
shipments which describe the type and amount of product transported), and
limitations on the amount of fuel transported, as well as driver "hours of
service" limitations. Additionally, the Company is subject to DOT inspections
that occur at random intervals. Any material violation of DOT rules or the
Hazardous Materials Transportation Act may result in citations and/or fines upon
the Company. In addition, the Company depends upon the supply of petroleum
products from the oil and gas industry and, therefore, is affected by changing
taxes, price controls and other laws and regulations relating to the oil and gas
industry generally. The Company cannot determine the extent to which future
operations and earnings may be affected by new legislation, new regulations
and/or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed.
Sanctions for noncompliance may include revocation of permits, corrective action
orders, administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for joint and several liabilities for remediation of
spills and releases of hazardous substances. In addition, companies may be
subject to claims alleging personal injury or property damages as a result of
alleged exposure to hazardous substances, as well as damage to natural
resources.
Although the Company believes that it is in compliance with existing laws and
regulations and carries adequate insurance coverage for environmental and other
liabilities, there can be no assurance that substantial costs for compliance
will not be incurred in the future or that the insurance coverage in place will
be adequate to cover future liabilities. There could be an adverse affect upon
the Company's operations if there were any substantial violations of these rules
and regulations. Moreover, it is possible that other developments, such as more
stringent environmental laws, regulations and enforcement policies thereunder,
could result in additional, presently unquantifiable, costs or liabilities to
the Company.
7
EMPLOYEES
As of June 30, 2006, the Company employed 77 individuals. From October through
March, the Company's peak season, the Company employs approximately 110 persons.
From April through September, the Company employs approximately 80 persons.
Currently, there are no organized labor unions representing any of the employees
of Company or any of its related companies and management considers relations
with its employees to be good.
ITEM 1A. RISK FACTORS
SET FORTH BELOW ARE CERTAIN RISKS AND UNCERTAINTIES RELATING TO OUR BUSINESS.
UNLESS EXPRESSLY STATED OTHERWISE, THESE RISK FACTORS ASSUME THE CONSUMMATION OF
THE ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF ALL AMERICAN PLAZAS, INC.
("ALL AMERICAN") AND OF THE OTHER TRANSACTIONS CONTEMPLATED BY THE ALL AMERICAN
ACQUISITION. THESE ARE NOT THE ONLY RISKS AND UNCERTAINTIES WE FACE. ADDITIONAL
RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM TO
BE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, THE BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION COULD BE
MATERIAL ADVERSELY AFFECTED. UNLESS OTHERWISE INDICATED IN THE CONTEXT, ALL
REFERENCES IN THIS SECTION (RISK FACTORS), AND THIS SECTION ALONE, TO "US",
"WE", "OUR" ARE DEEMED TO REFLECT CONDITIONS EXISTING FOLLOWING THE PROPOSED
ACQUISITION.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO SUSTAIN LOSSES IN THE FUTURE
AND MAY STILL SUSTAIN LOSSES IN THE FUTURE EVEN IF WE SUCCESSFULLY AND
EFFICIENTLY INTEGRATE THE ASSETS OF ALL AMERICAN INTO OUR BUSINESS
We have experienced significant operating losses in five out of the last six
fiscal years. For the year ended June 30, 2006, we had a loss of approximately
$6.2 million. We also expect to have a loss for the nine months ended March 31,
2007 and for the fiscal year ending June 30, 2007. In addition, our
stockholders' equity has decreased approximately 46.4% over the past four years,
from $3.12 million as of June 30, 2002 to $1.67 million as of June 30, 2006.
MANAGING OUR GROWTH MAY AFFECT FINANCIAL PERFORMANCE
Our growth and expansion has required, and will continue to require, increased
investment in management and financial personnel, financial management systems
and controls, as well as facilities. We intend to continue to expand our
business and operations, including entry into new markets, that will place
additional strain on our management and operations. Our future operating results
will depend, in part, on our ability to continue to broaden our senior
management group and administrative infrastructure, and our ability to attract,
hire and retain skilled employees. Our success will also depend on the ability
of our officers and key employees to continue to implement and improve our
operational and financial control systems and to expand, train and manage our
employee base. In addition, our future operating results will depend on our
ability to expand our sales and marketing capabilities and expand our customer
support operations commensurate with our growth, should such growth occur. If
our revenues do not increase in proportion to our operating expenses, our
management systems do not expand to meet increasing demands, we fail to attract,
assimilate and retain qualified personnel, or our management otherwise fails to
manage our expansion effectively, there would be a material adverse effect on
our business, consolidated financial condition and operating results.
ABILITY TO CONSUMMATE THE ACQUISITION OF ALL AMERICAN'S ASSETS
In order to complete the acquisition All American's assets, there are several
issues which must be considered including but not limited to the following:
o Able is currently subpoenaed by the SEC pursuant to a Formal Order of
Investigation that raises certain questions and concerns. There may be
a delay in the business combination until the SEC has responded to
Able's submission of its answer to the SEC questions.
o Able wishes to move from the Pink Sheets to the OTC Bulletin Board
prior to the completion of the business combination. There can be no
assurance that this can occur on a timely basis.
o All American is currently in negotiations to refinance its Truck Stop
properties. This refinancing must be completed prior to the
acquisition. There can be no assurance that that this financing will
be approved.
SUBSTANTIAL LONG-TERM DEBT MAY ADVERSELY IMPACT OUR LONG-TERM ABILITY TO EXPAND
As of June 30, 2006, we had long term liabilities of $3,821,488. Our ability to
satisfy such obligations will depend on our future operating performance, which
will be affected by, among other things, prevailing economic conditions and
financial, business and other factors, many of which are beyond our control.
There can be no assurance that we will be able to service our indebtedness. If
we are unable to service our indebtedness, we will be forced to examine
alternative strategies that may include actions such as reducing or delaying
capital expenditures, restructuring or refinancing our indebtedness, or the sale
of
8
assets or seeking additional equity and/or debt financing. There can be no
assurance that we will be able to implement any of these strategies even if the
need arises.
GROWTH DEPENDENT UPON UNSPECIFIED ACQUISITIONS AND ADEQUATE FINANCING
Our growth strategy includes the acquisition of existing fuel distributors and
truck stops. There can be no assurance that we will be able to identify new
acquisition candidates or, even if a candidate is identified, that we will have
access to the capital necessary to consummate such acquisitions. Furthermore,
the acquisition of additional companies involves a number of additional risks.
These risks include the diversion of management's attention from our operations,
possible difficulties with the assimilation of personnel and operations of
acquired companies, the earnings impact associated with the amortization of
acquired intangible assets, and the potential loss of key employees of acquired
companies. The future success of our business will depend upon our ability to
manage our growth through acquisitions. The Company's objective is to grow our
customer base through mergers and acquisitions. There can be no assurance that
we will have the financing or management and operating personnel to accomplish
this objective.
SEC FORMAL ORDER OF PRIVATE INVESTIGATION
On September 7, 2006, we received a copy of the Formal Order from the SEC
pursuant to which we, certain of our officers and a director were served with
subpoenas requesting certain documents and information. The Formal Order
authorizes an investigation of possible violations of the anti-fraud provisions
of the federal securities laws with respect to the offer, purchase and sale of
our securities and our disclosures or failures to disclose material information
in our required filings. While we believe that we did not violate any securities
laws and intend to cooperate fully with and assist the SEC in its inquiry, there
can be no certainty with regard to the outcome of the investigation and there
can be no assurance that there will not be a material adverse effect on us. The
cost of complying with the SEC investigation may affect our liquidity,
consolidated results of operations, and ability to raise cash through the sale
of debt or equity securities.
TRADEMARKS AND SERVICE MARKS
We believe that our trademarks and service marks, have significant value and are
important to the marketing of our fuel distribution products and services. There
can be no assurance, however, that our proprietary marks do not or will not
violate the proprietary rights of others, that our marks would be upheld if
challenged or that we would not be prevented from using our marks, any of which
could have an adverse effect on us and our results of operations. In addition,
there can be no assurance that we will have the financial resources necessary to
enforce or defend our trademarks and service marks against infringement. Should
there be an infringement, and the Company is unsuccessful in litigation, it may
negatively impact the Company's revenue.
NOTES AND ADVANCES RECEIVABLE FROM RELATED PARTIES
As of March 31, 2007, we had $3,517,500 of notes receivable and advances and
approximately $283,000 of related interest receivable from All American and
related entities. As of June 30, 2006, we had $2,023,000 of notes receivable and
advances and approximately $82,000 of related interest receivable from All
American and related entities. At March 31, 2007 and June 30, 2006, this amount
included advances made to Manns of $715,000 and $125,000, respectively. After
the Company received an SEC subpoena, Manns agreed to issue a commitment letter
to All American acknowledging receipt of the Company's due diligence fee. All
American has agreed that upon its receipt of sufficient funding by Manns, the
Company shall be repaid its due diligence fee. The Company is pursuing All
American for repayment of its debt to the Company. As of March 31, 2007, the
amount owed to the Company from All American and related entities is
approximately $3,801,500. All American is in the process of obtaining a credit
facility which would enable them to repay this outstanding debt. There can be no
assurance that All American will be successful in obtaining this financing.
Should this financing not be secured, the Company may not be able to meet its
cash requirements.
LIQUIDITY AND GOING CONCERN UNCERTAINTY
Our net loss for the year ended June 30, 2006 was approximately $6,242,000,
including non-cash charges totaling approximately $4,516,000. The Company has
been funding its operations through an asset-based line of credit, the issuance
of convertible debentures and the proceeds from the exercise of options and
warrants. The Company will need some combination of the collection of All
American notes receivable, new financing, restructuring of existing financing,
improved receivable collections and/or improved operating results in order to
maintain adequate liquidity over the course of the 2007 fiscal year.
9
As of March 31, 2007, the Company had a cash balance of approximately
$1,208,000, of which $579,000 represents an obligation for funds received in
advance under the pre-purchase fuel program. At March 31, 2007, the Company had
available borrowings through its credit line facility of approximately $942,000.
In order to meet our liquidity requirements, the Company is negotiating a second
mortgage on our oil terminal located on Route 46 in Rockaway, New Jersey,
through which the Company believes it may borrow an additional $750,000.
The Company is pursuing other lines of business, which include expansion of its
current commercial business into other products and services such as bio-diesel,
solar energy, and other energy related home services. The Company is also
evaluating all of its business segments for cost reductions, consolidation of
facilities and efficiency improvements. There can be no assurance that we will
be successful in our efforts to enhance our liquidity situation.
The accompanying consolidated financial statements included elsewhere in this
filing have been prepared in conformity with United States generally accepted
accounting principles, which contemplate continuation of the Company as a going
concern and assume realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has incurred losses from continuing
operations during the years ended June 30, 2006, 2005 and 2004 of approximately
$6,242,000, $2,180,000 and $1,733,000, respectively. Net cash used in operations
during the years ended June 30, 2006 and 2005 was approximately $1,712,000 and
$374,000, respectively. At June 30, 2006, the Company has a working capital
deficiency of approximately $432,000. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements included elsewhere in this filing do not include any
adjustments relating to the recoverability of the recorded assets or the
classification of the liabilities that may be necessary should the Company be
unable to continue as a going concern.
During the year ended June 30, 2006, the Company advanced monies and issued
notes receivable to its 32% stockholder, All American, with a balance at June
30, 2006 of approximately $1,855,000, including accrued interest of
approximately $71,000 (See Notes 20 to consolidated financial statements
included elsewhere in this filing). The Company has granted to All American a
series of extensions of the maturity of this note, which is now due on June 15,
2007. This note and related accrued interest is recorded as contra equity within
the consolidated financial statements, which is included elsewhere in this
filing. All American has notified the Company that its note obligation to the
Company will be repaid only after All American successfully secures financing
from a third party. As part of the Company's plans to improve its cash flow, the
Company intends to pursue collection of the note receivable when the note
matures.
On July 5, 2006, the Company received $1,000,000 from Laurus Master Fund Ltd.
("Laurus") in connection with the issuance of a convertible term note.
Thereafter, the Company advanced $905,000 of the Laurus proceeds to All American
in exchange for a note receivable. All American used such proceeds to acquire
70% of the outstanding stock of CCI Group, Inc. ("CCIG") pursuant to a Share
Exchange Agreement.
On January 10, 2007, Laurus Master Fund Ltd. ("Laurus") sent a notice to the
Company alleging defaults by the Company under its convertible term note made to
Laurus in the principal amount $1,000,000 dated July 5, 2006 (the "Note").
Laurus claimed an acceleration of maturity of the principal amount of the Note
of $1,000,000, a default payment of approximately $154,000 ("Default Payment")
as well as delinquent accrued interest and fees of approximately $12,000. On
March 7, 2007, Laurus notified the Company in writing that it waived the event
of default and the requirement for the Company to make the Default Payment.
The Company will require some combination of the collection of All American
notes receivable, new financing, restructuring of existing financing, improved
receivable collections and/or improved operating results in order to maintain
adequate liquidity over the course of the year ending June 30, 2007. The Company
must also bring current each of its SEC filings as part of a plan to raise
additional capital. In addition to the filing of this Form 10-K for the year
ended June 30, 2006, the Company must also complete and file its Form 10-Q for
the quarters ended September 30, 2006 and December 31, 2006.
There can be no assurance that the financing or the cost saving measures as
identified above will be satisfactory in addressing the short-term liquidity
needs of the Company. In the event that these plans can not be effectively
realized, there can be no assurance that the Company will be able to continue as
a going concern.
A LIMITED MARKET FOR OUR COMMON STOCK AND "PENNY STOCK" RULES MAY MAKE BUYING OR
SELLING OUR COMMON STOCK DIFFICULT
Our common stock presently trades on the pink sheets. As a result, an investor
may find it difficult to dispose of, or to obtain accurate quotations as to the
price of, our securities. In addition, our common stock is subject to the penny
stock rules that impose additional sales practice requirements on broker-dealers
who sell such securities to persons other than established
10
customers and accredited investors. The SEC regulations generally define a penny
stock to be an equity that has a market price of less than $5.00 per share,
subject to certain exceptions. Unless an exception is available, those
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). In addition, the
broker-dealer must provide the customer with current bid and offer quotations
for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction and monthly account statements showing the market value of
each penny stock held in the customer's account. Moreover, broker-dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to transactions
prior to sale. Regulations on penny stocks could limit the ability of
broker-dealers to sell our common stock and thus the ability of purchasers of
our common stock to sell their shares in the secondary market.
Our share price may decline due to a large number of shares of our common stock
eligible for sale in the public markets. As of March 31, 2007, we had
outstanding 3,141,423 shares of common stock, without giving effect to
11,666,667 shares of common stock issuable in connection with the acquisition of
the assets of All American and up to 6,777,685 shares issuable upon exercise of
the Company's outstanding options, warrants and convertible debentures. If the
consummation of the acquisition of the assets of All American is consummated, we
will be issuing an additional 11,666,667 shares of our restricted common stock,
which will be held pursuant to Rule 144. With such a substantial number of
shares eligible for future sale, our stock price may decline and investors may
find it difficult to sell their shares in the open market at or above their
basis in the stock.
REGISTRATION RIGHTS AGREEMENTS
On July 12, 2005, the Company consummated a financing with certain purchasers in
the sale of $2.5 million of Variable Rate Convertible Debentures (the
"Debentures"). The Debentures may be converted at the option of the purchasers
into shares of our common stock at a conversion price of $6.50 per share. In
addition, the purchasers of these Debentures received five (5) year warrants to
purchase an aggregate of 192,308 of common stock at an exercise price of $7.15
per share (the "2005 Warrants"). Pursuant to the Registration Rights Agreement
among the parties, the Company filed a registration statement covering the
shares of its common stock that may be issued through the conversion of the
Debentures and exercise of the 2005 Warrants. This registration statement was
declared effective on December 20, 2005. Since that date, the purchasers
converted into shares of the Company's common stock approximately $2.365 million
of the principal of the Debentures. The Company has an obligation to keep this
registration statement effective on a continuous basis, which obligation the
Company breached when it failed to update the registration statement with new
audited consolidated financial statements by October 31, 2006. As a result of
this breach, the purchasers of the Debentures are entitled to partial liquidated
damages in the amount of 2% of the aggregate purchase price of the Debentures
then held by the purchasers (which remaining balance of the Debentures at March
31, 2007 is $132,500) for each month that our breach continues. There are no
liquidated damages for not maintaining an effective registration statement
covering the 2005 Warrants. The unpaid liquidated damages accrue interest daily
based on the rate of 18% per annum. Additionally, the Company's breach of its
registration obligations constitutes a default under the Debentures, which
enables the purchasers to declare the Debentures immediately due and payable. As
of March 31, 2007, the Company has not received any notice from the purchasers
of the Debentures regarding this registration rights default.
On July 5, 2006, the Company closed a Securities Purchase Agreement entered into
on June 30, 2006 whereby it sold a $1 million convertible term note to Laurus
Master Fund, Ltd. ("Laurus"). In conjunction with this issuance the Company
agreed that within sixty (60) days from the date of issuance of the convertible
term note payable and warrant that it would file a registration statement with
the SEC covering the resale of the shares of the Company's convertible term
common stock issuable upon conversion of the note and the exercise of the
warrant. This registration statement would also cover any additional shares of
common stock issuable to Laurus as a result of any adjustment to the fixed
conversion price of the note or the exercise price of the warrant. The agreement
does not provide any formula for liquidated damages. The Company did not file a
registration statement by August 29, 2006 covering the common stock issuable
upon conversion of the convertible term note and the exercise of warrants issued
to Laurus. The Company has yet to file that registration statement.
Consequently, the Company is in breach of its registration obligations to
Laurus. As of March 31, 2007, the Company has not received any notice from
Laurus regarding this registration rights default and or the assessment of any
penalties that might have resulted therefrom.
On August 8, 2006, the Company issued $2,000,000 of convertible debentures to
certain investors. In conjunction with this issuance, the Company had agreed to
file a registration statement within forty-five (45) days, or by September 22,
2006, covering the resale of the shares of common stock underlying the
debentures and warrants issued to the investors, and by October 15, 2006, to
have such registration statement declared effective. The registration rights
agreement with the investors provides for partial liquidated damages in the case
that these registration requirements are not met. From the date of violation,
the Company is obligated to pay liquidated damages of 2% per month of the
outstanding amount of the convertible debentures, up to a total obligation of
24% per annum. The Company has not yet filed a registration statement regarding
these securities. Accordingly, through March 31, 2007, the Company has incurred
a liquidated damages obligation of approximately $250,000, none of which has
11
been paid. In addition, the Company is obligated to pay 18% interest per annum
on any damage amount not paid in full within 7 (seven) days. As of March 31,
2007, the Company has not filed a registration statement and the holders have
not waived their rights under this agreement. Additionally, the Company's breach
of its registration obligations constitutes a default under the convertible
debentures, which enables the holders to declare the convertible debentures
immediately due and payable. As of March 31, 2007, the Company has not received
any notice from the purchasers of the convertible debentures regarding this
registration rights default or any other default notice.
At March 31, 2007, we are in non-compliance with the registration rights
requirements of certain financings set forth above covering in the aggregate,
6,698,685 shares of our common stock.
LISTING OF COMMON STOCK
Our common stock is currently quoted on the Pink Sheets under the symbol
("ABLE"). The Company will apply for eligibility for trading on the OTC Bulletin
Board upon the filing of this annual report on Form 10-K and all required
quarterly reports on Form 10-Q. To continue such eligibility, we must file our
periodic reports with the SEC on a timely basis. If we fail to file such reports
within 10 days of their due date, our stock will cease to be eligible for
trading on the OTC Bulletin Board. There can be no assurance that our
application for eligibility for trading on the OTC Bulletin Board will be
accepted. If we fail to have our common stock eligible for trading on the OTC
Bulletin Board, the trading volume of our stock may be adversely affected and
you may not able to sell any or all of your shares at or above your basis in
such stock, which would result in a loss for our stockholders.
TIMELINESS OF FUTURE SEC FILINGS
The Company was unable to file this Form 10-K, and the September 30, 2006 and
December 31, 2006 Form 10-Q's on a timely basis. The late filings of these
documents may adversely affect our ability to raise capital, and erode investor
confidence. The Company will continue to make every effort to bring all filings
up to date.
SEASONAL FACTORS
Substantially all of our revenues and income are derived from the home heating
oil business. Our home heating oil business is seasonal and is a material
portion of our business. A substantial portion of the home heating oil business
is conducted during the fall and winter months. Weather patterns during the
winter months can have a material adverse impact on our revenues. Although
temperature levels for the heating season have been relatively stable over time,
variations can occur from time to time, and warmer than normal winter weather
will adversely affect the results of the Company's fuel oil operations.
Approximately 60% to 65% of our revenues from our heating oil business are
earned and received from October through March. During the spring and summer
months, revenues from the sale of diesel and gasoline fuels increase, due to the
increased use of automobiles and construction apparatus.
FUEL PRICING AND THE EFFECT ON PROFITABILITY
Disruption of fuel supply and fuel pricing would adversely affect our
profitability. Increases in the pricing for home heating oil will also adversely
affect our profit margins associated with our home heating oil business, since
we may not be able to pass on our proportional increases to our home heating oil
customers.
Other factors which may have a significant effect on fuel prices include:
natural disasters, such as those which have devastated the Gulf Coast (areas
that are major producers, distributors or refiners of petroleum-based products);
major global conflicts, especially those involving the U.S. and/or oil producing
countries, strikes or political conflict in oil producing countries, and the
stability of OPEC and its desire not to disrupt worldwide economies through poor
management of fuel supply and pricing.
In the future, interruptions in the world fuel markets may cause shortages in,
or total curtailment of, fuel supplies. Moreover, a substantial portion of the
oil refining capacity in the United States is controlled by major oil companies.
These companies, for various reasons (e.g. for new standards imposed by EPA)
could in the future decide to limit the amount of fuel sold to independent
operators such as us. Any material decrease in the volume of fuel sold for any
extended period of time could have a material adverse effect on the results of
operations. Similarly, an extended period of instability in the price of fuel
could adversely affect our results.
GOVERNMENT REGULATION
Federal, state and local laws, particularly laws relating to the protection of
the environment and worker safety, can materially affect our operations. The
transportation of fuel oil, diesel fuel, propane and gasoline is subject to
regulation by various
12
federal, state and local agencies, including the U.S. DOT. These regulatory
authorities have broad powers and we are subject to regulatory and legislative
changes that can affect the economies of the industry by requiring changes in
operating practices or influencing demand for, and the cost of providing, its
services. Additionally, we are subject to random DOT inspections. Any material
violation of DOT rules or the Hazardous Materials Transportation Act may result
in citations and/or fines on us. In addition, we depend on the supply of
petroleum products from the oil and gas industry and, therefore, we may be
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally. We cannot determine the extent
to which future operations and earnings may be affected by new legislation, new
regulations or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose us to liability for the
conduct or conditions caused by others. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or civil
penalties and criminal prosecution. Certain environmental laws provide for joint
and several liabilities for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damages as a result of alleged exposure to hazardous
substances, as well as damage to natural resources.
POTENTIAL ENVIRONMENTAL LIABILITY
Our fuel distribution is subject to all of the operating hazards and risks that
are normally incidental to handling, storing, transporting and delivering fuel
oils, gasoline, diesel and propane, which are classified as hazardous materials.
We face potential liability for, among other things, fuel spills, gas leaks and
negligence in performing environmental clean-ups for our customers.
Specifically, we maintain fuel storage facilities on sites owned or leased by
us, and could incur significant liability to third parties or governmental
entities for damages, clean-up costs and/or penalties in the event of certain
discharges into the environment. Such liability can be extreme and could have a
material adverse effect on our financial condition or results of operations.
Although we believe that we are in compliance with existing laws and
regulations, there can be no assurance that substantial costs for compliance
will not be incurred in the future. Any substantial violations of these rules
and regulations could have an adverse affect upon our operations. Moreover, it
is possible that other developments, such as more stringent environmental laws,
regulations and enforcement policies thereunder, could result in additional,
presently unquantifiable, costs or liabilities to us.
NO ASSURANCE OF ADEQUATE INSURANCE PROTECTION
We maintain insurance policies in such amounts and with coverage and deductibles
as our management believes are reasonable and prudent. Should we complete the
acquisition of the assets of All American, our management may have to increase
the amount of insurance to cover such assets. There can be no assurance,
however, that such insurance will be adequate to protect us from liabilities and
expenses that may arise from claims for personal and property damage arising in
the ordinary course of business or that such levels of insurance will be
maintained by us at adequate levels or will be available at economic prices.
Should the Company not be able to negotiate additional coverage at economical
rates, it may negatively affect the Company's consolidated results of
operations.
COMPETITION FROM ALTERNATIVE ENERGY SOURCES (FOR THE HOME HEATING OIL DIVISION)
Our retail home heating business competes for customers with suppliers of
alternate energy products, principally natural gas and electricity. Every year,
a small percentage of our oil customers convert to other home heating sources,
primarily natural gas. In addition, we may lose additional customers due to
conversions during periods in which the cost of its services exceeds the cost of
alternative energy sources. If this trend continues and the Company is not able
to replace these lost customers through expansion or increased market share, it
could cause the Company to lose significant revenues. At this point, Able has
not suffered any significant loss as a result of conversion to these alternative
energy sources.
CONCENTRATION OF WHOLESALE SUPPLIERS FOR HEATING OIL
We have three supply contracts for the purchase of # 2 Heating Oil, representing
21.6% of our annual heating fuel purchases. We purchase our remaining fuel
supplies on the spot market. We satisfy our inventory requirements with nine
different suppliers, the majority of which have significant domestic fuel
sources, and many of which have been suppliers to us for over five years. Our
current suppliers are Conectiv Oil Corporation, Sprague Energy, Petrocom Energy
Group Ltd., Gulf-Catamont, Valero Supply and Marketing, TransMontaigne Inc.,
Center Marketing, Inc. and Sunoco, Inc. (R&M). We monitor the market each day
and determine when to purchase our oil inventory and from whom.
Four of these suppliers (Catamount Petroleum, Petrocom Energy, Petron Oil Corp.,
and Valero Supply and Marketing) provided Able Oil and Able NY with
approximately 88% of its heating oil requirements during the year ended June 30,
2006.
13
TransMontaigne, Inc. provided Able Melbourne with approximately 99% of its
diesel fuel product requirements for the year ended June 30, 2006 and Fleetwing
provided Able Melbourne with approximately 99% of its lubricant and related
product requirements for the year ended June 30, 2006.
Management believes that if our supply of any of the foregoing products was
interrupted, we would be able to secure adequate supplies from other sources
without a material disruption in its operations. However, there can be no
assurance that adequate supplies of such products will be readily available in
the future. Furthermore, currently these suppliers extend us credit toward the
purchase of our fuel supplies. There can be no assurance that these suppliers
will continue to offer us acceptable credit terms. Should the Company need to
secure alternative suppliers for these products, the pricing would be
approximately the same.
ABSENCE OF WRITTEN AGREEMENTS
Approximately 59% of our home heating customers do not have written agreements
with us and can terminate services at any time, for any reason. Although we have
never experienced a significant loss of our customers, if we were to experience
a high rate of terminations, our business and financial condition could be
adversely affected.
RISKS ASSOCIATED WITH EXPANSION INTO NEW MARKETS
A significant element of our future growth strategy involves the expansion of
our business into new geographic and product markets. Expansion of our
operations depends, among other things, on the success of our marketing strategy
in new markets, successfully establishing and operating new locations, hiring
and retaining qualified management and other personnel, and obtaining adequate
financing for vehicle and site purchases and working capital purposes.
DEPENDENCE ON AND RELATIVE INEXPERIENCE OF KEY PERSONNEL
Our future success will depend, to a significant extent, on the efforts of key
management personnel, including Christopher Westad, our President and Acting
Chief Executive Officer, and Jeffrey Feld, our Acting Chief Financial Officer.
Mr. Westad and Mr. Feld assumed their acting executive officer positions on
September 28, 2006, following the departure of the previous Chief Financial
Officer on June 23, 2006 and Mr. Gregory Frost, our former CEO, now on an
indefinite leave of absence. Accordingly, while Mr. Westad and Mr. Feld have
significant experience in the home heating oil business, they are relatively
inexperienced in their executive officer roles. The loss of one or more of these
key employees could have a material adverse effect on our business. In addition,
we believe that our future success will depend, in large part, upon our
continued ability to attract and retain highly qualified management, technical
and sales personnel. There can be no assurance that we will be able to attract
and retain the qualified personnel necessary for our business.
COMPETITION
Our home heating business is highly competitive. In addition to competition from
alternative energy sources, we compete with distributors offering a broad range
of services and prices, from full service distributors similar to ours, to those
offering delivery of home heating fuel only. Competition with other companies in
the retail home heating industry is based primarily on customer service and
price. Longstanding customer relationships are typical in the home heating
industry. Many companies, including ours, deliver fuel to their customers based
upon weather conditions and historical consumption patterns without the
customers making an affirmative purchase decision each time fuel is needed. In
addition, most companies, including ours, provide equipment repair service on a
24 hour a day basis, which tends to build customer loyalty. We compete against
companies that may have greater financial resources than ours. As a result, we
may experience difficulty in acquiring new retail customers due to existing
relationships between potential customers and other retail home heating
distributors. If the Company cannot effectively compete, we would suffer losses
of revenue and net income.
WEATHER
Weather conditions can impact the demand for home heating fuel. Demand for home
heating oil is primarily seasonal, utilized in the colder months of the fall,
winter, and early spring. Demand is determined by weather patterns and how cold
the temperature gets. Ordinarily, most demand is determined by the measurement
of heating degree days, a measurement of the average temperature for the day
that is below the mean temperature of 65 degrees fahrenheit. If weather patterns
are such that temperatures are warmer than normal, then less heating degree days
will be used, and less of the Company's home heating products will be sold
thereby negatively impacting our revenues and net income (loss).
14
HEATING OIL FUTURES CONTRACTS
During the period from July 28, 2006 to August 15, 2006, the Company entered
into futures contracts for #2 heating oil to hedge a portion of its forecasted
heating season requirements. The Company purchased 40 contracts through a broker
for a total of 1,680,000 gallons of #2 heating oil at an average call price of
$2.20 per gallon. Due to warmer than average temperatures through the heating
season as of March 31, 2007, the Company has experienced a substantial drop in
fuel consumption and price, resulting in a loss on these contracts.
Through March 31, 2007, the Company has deposited a total of $923,017 in margin
requirements with the broker. Through March 31, 2007, the Company has realized a
loss of $923,017 on 40 closed contracts representing 1,680,000 gallons.
NOT SUFFICIENTLY REPORTING PAYROLL TAX LIABILITIES MAY IMPACT CASH REQUIREMENTS
During the year ended June 30, 2006, certain payroll related tax filings were
not made relating to the exercise of stock options. The Company intends to file
amended returns to bring the forms and remittances into compliance. The Company
may be required to pay penalties and interest on such obligations.
15
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The Company's administrative headquarters are located in a 9,800 square foot
facility in Rockaway, New Jersey. This facility accommodates the Company's,
administrative, marketing and sales personnel. The lease expires on October 31,
2007 and carries an annual rent of $122,287, which includes common area charges.
The Company owns property located at 344 Route 46 in Rockaway, New Jersey. This
facility accommodates the Company's fuel terminal, including fuel storage tanks,
truck yard space and dispatch operations. The Company purchased the property in
August 1999, through a newly formed wholly-owned subsidiary, Able Energy
Terminal, LLC, at a purchase price of $1,150,000. The Company also owns a
building, totaling approximately 1,450 square feet, consisting of a wood frame
facility located at 38 Diller Avenue, Newton, New Jersey, that will serve as a
supply depot, storage area and administrative offices and service facility when
damage that occurred on March 14, 2003 in connection with a fire is repaired. As
of March 31, 2007, the Company is not utilizing this facility and is working
with the Town of Newton to re-start fuel delivery operations at that location.
Able Melbourne leases a 3,000 square foot concrete and aluminum facility that
serves as a storage and service facility and administrative offices, located at
79 Dover Avenue, Merritt Island, Florida, and is governed by an oral,
month-to-month lease with annual rent of $5,000. The Company does not store fuel
oil at this location with the exception of that which is kept in the delivery
trucks. This facility is located within three miles of its wholesale supplier.
The Company is responsible for maintaining all of its facilities in compliance
with all environmental rules and laws.
On July 1, 2006, Able moved into a brand new terminal located at 10 Industrial
Park in Warrensburg, NY. This 118,556 square foot property was purchased by the
Company in 2003, and accommodates Able NY fuel terminal, including liquid fuel
storage tanks, truck yard space, dispatch operations and a small office staff.
Able subleases an office located at 1140 Sixth Avenue in New York City. The
lease expires on April 29, 2009 and carries an annual rent increasing from
$196,467 to $208,432 over the term of the lease. This 4,569 square foot space is
used as our executive offices. The Company sub-leases a portion of the space to
two tenants who contribute $74,400 to the annual rent.
ITEM 3. LEGAL PROCEEDINGS
As a result of a March 14, 2003 fire at the Newton, NJ terminal, various claims
were submitted to the Company's insurance carrier. Over 220 claims have been
settled. As of March 31, 2007, individuals or companies who were unable to reach
successful settlements with the Company's insurance carrier have filed seven
lawsuits against the Company in the Civil Division of the Superior Court of New
Jersey for Sussex County (the "Superior Court of New Jersey"). During February
2007, the Company's insurance carrier entered into a settlement agreement with
one of the property owners. The Company's insurance carrier is defending the
Company as it related to the remaining six property damage claims. We believe
that the outcome of these lawsuits will be covered within the Company's limits
of insurance coverage.
Additionally, in relation to the March 14, 2003 fire, Karen Hicks, Karen Lewis
and William Nolan filed a complaint in Superior Court of New Jersey, on behalf
of themselves and all other similarly situated, for damages incurred as a result
of the fire. In June 2005, this complaint was certified as a class action
lawsuit. The Company's insurance carrier has established reserves for losses, as
deemed appropriate. The Company's insurance carrier is defending with regard to
compensatory damages. The Company's litigation counsel is defending with regard
to any punitive damages claims.
As of March 31, 2007, this lawsuit is in the discovery phase. The class
certification is limited to economic loss and specifically excludes claims for
personal injury from the class certification. The Company believes that the
class claims for compensatory damages is within the available limits of its
insurance. On September 13, 2006, the plaintiffs counsel made a settlement
demand of $10,000,000, which the Company believes to be excessive and the
methodology upon which is fundamentally flawed. The Company intends to
vigorously defend the claim.
Also in connection with the March 2003 Newton fire, our wholly-owned subsidiary
Able Propane entered a guilty plea in July 2005 to one count of negligently
damaging property, a fourth-degree crime in New Jersey. In connection with the
plea agreement, the Company paid a fine of $30,000. In addition, Christopher P.
Westad, the Company's President and Acting Chief Executive Officer entered into
a pre-trial intervention agreement, conditioned upon 250 hours of community
service over a two-year period, which he is currently serving and expected to
conclude by July of 2007.
As previously disclosed, on September 7, 2006, the Company received a Formal
Order from the SEC pursuant to which the Company, certain of its officers and a
director were served with subpoenas requesting certain documents and
information. The Formal Order authorizes an investigation of possible violations
of the anti-fraud provisions of the federal securities laws with respect to (i)
offer, purchase, and sale of the Company's securities and (ii) Company's
disclosures or failures to disclose material information. The Company believes
that it did not violate any securities laws and is cooperating fully with and
assisting the SEC in its inquiry. The scope, focus and subject matter of the SEC
investigation may change from
16
time to time and the Company may be unaware of matters under consideration by
the SEC. The Company has produced and continues to produce responsive documents
and intends to continue cooperating with the SEC investigation.
The Company is not currently involved in any other legal proceedings that are
likely to have a material adverse effect on the consolidated operations or
financial results of the Company. On occasion, the Company may become a party to
litigation incidental to its business. There can be no assurance that any legal
proceedings will not have a material adverse affect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
FOURTH QUARTER OF OUR YEAR ENDED JUNE 30, 2006
The following matters were submitted to a vote of security holders at our annual
meeting held at 1140 Avenue of the Americas, 18th Floor, New York, New York on
June 29, 2006.
1. Election of eight directors to hold office until the 2007 Annual Meeting
of Shareholders and until their successors are elected and qualified:
DIRECTOR FOR WITHHELD
---------------------- --------- --------
Gregory D. Frost, Esq. 1,798,875 24,688
Patrick O'Neill 1,798.125 25,438
Christopher P. Westad 1,798,925 24,638
Edward C. Miller, Jr. 1,798,125 25,438
Mark Barbera 1,794,775 28,788
Alan E. Richards 1,795,375 28,188
Stephen Chalk 1,795,825 27,738
Solange Charas 1,796,779 26,784
2. Approval of Marcum & Kleigman, LLP, to serve as the Company's
independent registered public accountants for fiscal year 2006.
FOR WITHHELD
--------- --------
Marcum & Kleigman, LLP 1,799,309 4,650
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Price and Dividend Information
Since October 13, 2006, the Company's Common Stock has traded on the Pink Sheets
under the symbol "ABLE". From 1999 until October 13, 2006, the Company's common
stock traded on the Nasdaq Capital Market (formerly the Nasdaq Small Cap Market)
under the symbol "ABLE". The following table sets forth the high and low bid
prices of the Common Stock on a quarterly basis for the 2005 and 2006 fiscal
years, as reported by Nasdaq or quoted through the Pink Sheets:
FISCAL YEAR ENDING JUNE 30, 2007 HIGH LOW
First Quarter $ 7.70 $ 4.43
Second Quarter 4.55 1.80
Third Quarter 2.80 1.82
FISCAL YEAR ENDED JUNE 30, 2006 HIGH LOW
First Quarter $18.22 $11.45
Second Quarter 12.75 6.25
Third Quarter 9.69 6.50
Fourth Quarter 9.21 4.20
FISCAL YEAR ENDED JUNE 30, 2005 HIGH LOW
First Quarter $ 2.62 $ 1.60
Second Quarter 6.03 2.14
Third Quarter 15.30 2.51
Fourth Quarter 22.94 7.90
(b) As of March 31, 2007, the Company's common stock was held beneficially by
approximately 2,600 persons.
(c) Dividends
We have never paid a cash dividend on our common stock. It is the current policy
of our Board of Directors to retain any earnings to finance the operations and
expansion of our business. The payment of dividends in the future will depend
upon our earnings, financial condition and capital needs and on other factors
deemed pertinent by the Board of Directors.
(d) Recent Sales of Unregistered Securities
None.
18
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data presented for Able and its Subsidiaries on
a consolidated basis should be read in conjunction with the Consolidated
Financial Statements, including the related notes, and "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operation".
For the Year Ended June 30,
-------------------------------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
RESULTS OF OPERATION (1) (1)(2) (1)(2)
DATA-CONTINUING OPERATIONS
Sales $75,093,104 $61,872,623 $42,847,123 $43,365,028 $24,751,562
Gross Profit 7,467,895 6,150,470 5,579,654 6,459,633 4,174,342
Operating (Loss)
Income (2,857,627) (1,928,309) (2,310,863) 241,951 (1,990,889)
Net (Loss) Income from
Continuing Operations (6,241,559) (2,180,091) (1,732,959) 26,342 (2,085,894)
Depreciation and
Amortization 755,700 1,225,197 1,194,958 1,112,098 1,066,022
Interest Expense 642,517 449,776 576,578 435,992 281,994
Basic and Diluted Net
Loss Per Share -
Continuing Operations (2.23) (1.04) (0.86) 0.01 (1.04)
Basic and Diluted
Weighted Average
Number of Shares
Outstanding 2,800,476 2,094,629 2,013,250 2,012,708 2,001,332
CONSOLIDATED BALANCE
SHEET DATA
Cash $ 2,144,729 $ 1,754,318 $ 1,309,848 $ 400,033 $ 258,560
Current Assets 7,164,977 6,100,464 5,531,423 5,504,366 3,086,136
Current Liabilities 7,597,294 6,853,089 5,500,095 5,652,767 5,659,157
Total Assets 13,090,868 12,433,858 12,229,536 12,531,652 10,439,013
Long-Term Liabilities 3,821,488 3,966,041 3,724,692 3,616,461 1,657,071
Total Stockholders'
Equity 1,672,086 1,614,728 3,095,927 3,262,424 3,122,785
Notes
(1.) The consolidated balance sheet data as of June 30, 2005 and 2004 and the
consolidated statement of operations data for the years ended June 30,
2005, 2004 and 2003 have been derived from the consolidated financial
statements for such periods.
(2.) The consolidated results of operations data for the years ended June 30,
2004 and 2003 have been adjusted to reflect the discontinued operations of
Able Propane, LLC.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read in conjunction with our Consolidated
Financial Statements, and Notes thereto, contained elsewhere in this report.
OVERVIEW
--------------------------------------------------------------------------------
Able was incorporated in Delaware in 1997. Able Oil, a wholly-owned subsidiary
of Able, was established in 1989 and sells both residential and commercial
heating oil, diesel fuel, and complete HVAC service to it heating oil customers.
Able NY, a wholly-owned subsidiary of Able, sells residential and commercial
heating oil, propane, diesel fuel, and kerosene to customers in and around the
Warrensburg, NY area. Able Melbourne, a wholly-owned subsidiary of Able, was
established in 1996 and sells various grades of diesel fuel around Cape
Canaveral, FL. PriceEnergy, Inc. a majority owned subsidiary of Able, was
established in 1999 and has developed a platform that has extended the Company's
ability to sell and deliver liquid fuels and related energy products over the
Internet.
Management's Discussion and Analysis of Financial Condition and Results of
Operation contains forward-looking statements, which are based upon current
expectations and involve a number of risks and uncertainties. Investors are
hereby cautioned that these statements may be affected by the important factors,
among others, set forth below, and consequently, actual operations and results
may differ materially from those expressed in these forward-looking statements.
The important factors include:
o Commodity Supply
o Commodity Pricing
o Customers Converting to Natural Gas
o Alternative Energy Sources
o Winter Temperature Variations (Loss of Heating Degree Days)
o Availability of Financing
o Legislative Changes
o The Availability (Or Lack of) Acquisition Candidates
o The Success of Our Risk Management Activities
o The Effects of Competition
o Changes in Environmental Law
We undertake no obligation to update or revise any such forward-looking
statements.
BUSINESS STRATEGY
Our business plan calls for maximization of sales throughout our existing
heating oil market areas by means of aggressive market penetration to recapture
lost business as well as to attract new customers who have moved into our market
area. In addition, our external strategy is to acquire related heating oil
businesses, which strengthen and expand our current service area along with
moving into planned new areas. In this way, we can realize new residential and
commercial business and take advantage of expected population growth in new
market regions.
We also are in the process of becoming more vertically integrated through
acquisition. In addition to acquiring businesses in the core #2 heating oil
portion of our business, we are also developing relationships with potential
acquisitions in the area of diesel fuel distribution, truck stop facilities,
convenience store/gasoline fueling stations, and alternative fuels. Also, the
Company is building its delivery coverage area in the northeast by expanding its
dealer network and volume capabilities through Internet sale's via our
PriceEnergy.com platform.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 3 of the consolidated
financial statements included in this Annual Report on Form 10-K for the fiscal
year ended June 30, 2006. The consolidated financial statements are prepared in
accordance with United States generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
20
We consider the following policies to be the most critical in understanding the
judgments involved in preparing the consolidated financial statements and the
uncertainties that could impact our results of consolidated operations,
financial condition and cash flows.
REVENUE RECOGNITION, UNEARNED REVENUE AND CUSTOMER PRE-PURCHASE PAYMENTS
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. Payments received from customers for the pre-purchase of fuel is recorded
as a current liability until the fuel is delivered to the customer, at which
time it is recognized as revenue by the Company.
DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG-LIVED ASSETS
We calculate our depreciation and amortization based on estimated useful lives
and salvage values of our assets. When assets are put into service, we make
estimates with respect to useful lives that we believe are reasonable. However,
subsequent events could cause us to change our estimates, thus impacting the
future calculation of depreciation and amortization.
Additionally, we assess our long-lived assets for possible impairment whenever
events or changes in circumstances indicate that the carrying value of the
assets may not be recoverable. Such indicators include changes in our business
plans, a change in the extent or manner in which a long-lived asset is being
used or in its physical condition, or a current expectation that, more likely
than not, a long-lived asset that will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life. If the
carrying value of an asset exceeds the future undiscounted cash flows expected
from the asset, an impairment charge would be recorded for the excess of the
carrying value of the asset over its fair value. Determination as to whether and
how much an asset is impaired would necessarily involve numerous management
estimates. Any impairment reviews and calculations would be based on assumptions
that are consistent with our business plans and long-term investment decisions.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We routinely review our receivable balances to identify past due amounts and
analyze the reasons such amounts have not been collected. In many instances,
such uncollected amounts involve billing delays and discrepancies or disputes as
to the appropriate price or volumes of oil delivered, received or exchanged. We
also attempt to monitor changes in the creditworthiness of our customers as a
result of developments related to each customer, the industry as a whole, and
the general economy. Based on these analyses, we have established an allowance
for doubtful accounts that we consider to be adequate, however, there is no
assurance that actual amounts will not vary significantly from estimated
amounts.
INCOME TAXES
As part of the process of preparing consolidated financial statements, the
Company is required to estimate income taxes in each of the jurisdictions in
which it operates. Significant judgment is required in determining the income
tax expense provision. The Company recognizes deferred tax assets and
liabilities based on differences between the financial reporting and tax bases
of assets and liabilities using the enacted tax rates and laws that are expected
to be in effect when the differences are expected to be recovered. The Company
assesses the likelihood of our deferred tax assets being recovered from future
taxable income. The Company then provides a valuation allowance for deferred tax
assets when the Company does not consider realization of such assets to be more
likely than not. The Company considers future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the valuation allowance. Any
decrease in the valuation allowance could have a material impact on net income
in the year in which such determination is made.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board, ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123(R), "Share-Based
Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123(R)). SFAS 123(R) supersedes Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and amends
SFAS No. 95, "Statement of Cash Flows." Generally, the approach in SFAS 123(R)
is similar to the approach described in SFAS 123. However, SFAS 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative. SFAS 123(R) was effective for
fiscal years beginning after June 15, 2005.
21
SFAS 123(R) permits public companies to adopt its requirements using one of two
methods:
A. "Modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of SFAS 123(R)
for all share-based payments granted after the effective date and (b) based on
the requirements of SFAS 123 for all awards granted to employees prior to the
effective date of SFAS 123(R) that remain unvested on the effective date.
B. "Modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate, based on the amounts previously recognized under SFAS 123(R) for
purposes of pro forma disclosures, either (a) all prior periods presented or (b)
prior interim periods during the year of adoption.
The Company has adopted SFAS 123(R) on July 1, 2005 using the modified
prospective method. The impact of SFAS 123(R) was immaterial to our consolidated
financial statements.
In June 2005, the FASB published SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"). SFAS 154 establishes new standards on accounting for
changes in accounting principles. Pursuant to the new rules, all such changes
must be accounted for by retrospective application to the financial statements
of prior periods unless it is impracticable to do so. SFAS 154 completely
replaces APB No. 20 and SFAS 3, though it carries forward the guidance in those
pronouncements with respect to accounting for changes in estimates, changes in
the reporting entity, and the correction of errors. The requirements in SFAS 154
are effective for accounting changes made in fiscal years beginning after
December 15, 2005. The Company will apply these requirements to any accounting
changes after the implementation date. The application of SFAS 154 did not have
an impact on our consolidated financial position, results of operations, or cash
flows.
In June 2005, the FASB ratified EITF No. 05-1, "Accounting for the Conversion of
an Instrument That Becomes Convertible upon the Issuer's Exercise of a Call
Option" ("EITF No. 05-1") which addresses that no gain or loss should be
recognized upon the conversion of an instrument that becomes convertible as a
result of an issuer's exercise of a call option pursuant to the original terms
of the instrument. EITF No. 05-1 is effective for applicable conversions in
periods beginning after June 28, 2006. The adoption of this pronouncement did
not have an impact on our consolidated financial position, results of
operations, or cash flows.
In June 2005, the FASB ratified EITF Issue No. 05-2, "The Meaning of
'Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, 'Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock" ("EITF No. 05-2"), which addresses when a convertible debt
instrument should be considered 'conventional' for the purpose of applying the
guidance in EITF No. 00-19. EITF No. 05-2 also retained the exemption under EITF
No. 00-19 for conventional convertible debt instruments and indicated that
convertible preferred stock having a mandatory redemption date may qualify for
the exemption provided under EITF No. 00-19 for conventional convertible debt if
the instrument's economic characteristics are more similar to debt than equity.
EITF No. 05-2 is effective for new instruments entered into and instruments
modified in periods beginning after June 29, 2005. The Company has applied the
requirements of EITF No. 05-2 since the required implementation date. The
adoption of this pronouncement did not have an impact on our consolidated
financial position, results of operations or cash flows.
EITF Issue No. 05-4 "The Effect of a Liquidated Damages Clause on a Freestanding
Financial Instrument Subject to EITF Issue No. 00-19, 'Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock" ("EITF No. 05-4") addresses financial instruments, such as stock purchase
warrants, which are accounted for under EITF 00-19 that may be issued at the
same time and in contemplation of a registration rights agreement that includes
a liquidated damages clause. The consensus of EITF No. 05-4 has not been
finalized.
In February 2006, the FASB issued SFAS No. 155 - Accounting for Certain Hybrid
Financial Instruments ("SFAS 155"), which eliminates the exemption from applying
SFAS 133 to interests in securitized financial assets so that similar
instruments are accounted for similarly regardless of the form of the
instruments. SFAS 155 also allows the election of fair value measurement at
acquisition, at issuance, or when a previously recognized financial instrument
is subject to a remeasurement event. Adoption is effective for all financial
instruments acquired or issued after the beginning of the first fiscal year that
begins after September 15, 2006. Early adoption is permitted. The adoption of
SFAS 155 is not expected to have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in tax positions. This
interpretation requires that the Company recognize in its consolidated financial
statements, the impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 are effective as of the beginning of the Company's year
ended June 30, 2008, with the
22
cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Company is currently evaluating the
impact of adopting FIN 48 on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. Adoption is required for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. Early
adoption of SFAS 157 is encouraged. The Company is currently evaluating the
impact of SFAS 157 on its consolidated financial statements.
In September 2006, the staff of the SEC issued Staff Accounting Bulletin No. 108
("SAB 108") which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 becomes effective in the first
quarter of fiscal 2007. Adoption of SAB 108 is not expected to have a material
impact on the Company's consolidated financial position, results of operations
or cash flows.
In December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2
"Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2") which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5, "Accounting
for Contingencies." Adoption of FSP EITF 00-19-02 is required for fiscal years
beginning after December 15, 2006, and is not expected to have a material impact
on the Company's consolidated financial position, results of operations or cash
flows.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115", which permits entities to choose to measure many financial
instruments and certain other items at fair value. The fair value option
established by this Statement permits all entities to choose to measure eligible
items at fair value at specified election dates. A business entity shall report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. Adoption is required for
fiscal years beginning after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of FASB Statement No.
157, Fair Value Measurements. The Company is currently evaluating the expected
effect of SFAS 159 on its consolidated financial statements and is currently not
yet in a position to determine such effects.
RESULTS OF OPERATIONS - FISCAL 2006 COMPARED TO FISCAL 2005
Revenue for the year ended June 30, 2006 increased to $75 million producing a
gross profit of $7.5 million. The Company experienced a loss from operations of
$2.9 million due mainly to a substantial increase in selling, general and
administrative ("SG&A") expenses. In addition, financing related expenses grew
to $3.4 million producing a net loss from continuing operations of $6.2 million.
Net sales for fiscal 2006 increased by approximately $13.2 million or 21% to
$75.1 million from $61.9 million in fiscal 2005. This increase can be primarily
attributed to the substantial increase in the sales price of fuel oil,
increasing the selling price per gallon of home heating oil.
Our gross profit for fiscal year ended June 30, 2006 and 2005 was 9.9% and 9.9%,
respectively. The gross profit for fiscal 2006 increased by $1.3 million or 21%
to $7.5 from $6.2 million in fiscal 2005. The increase in gross profit was
primarily due to increased gross profit in our PriceEnergy subsidiary, increased
gross profit from on-road diesel sales and from propane sales at our Warrensburg
N.Y. operation. In addition the Company experienced decreased use of
sub-contractors in our Rockaway, N.J. service division.
SG&A for fiscal 2006 increased by approximately $2.7 million or 40% compared to
fiscal 2005. The Company primarily attributes this increase to increase in
legal, consulting and accounting fees of $1.6 million due to professional fees
incurred for acquisition and financing related activities. In addition, SG&A
increased as a result of the hiring of a CEO, CFO, and a Vice President of
Business Development totaling $500,000; along with the establishment of a N.Y.C.
office for $100,000. The Company also increased advertising expenditures by
$200,000 in order to attempt to increase the Company market share.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased by approximately $470,000 for
fiscal 2006 as compared to fiscal 2005. This decrease was due to the following;
a change in depreciable life for trucks from 5 years to 10 years, and reduction
in depreciation for computer hardware which reduced depreciation expense by
roughly $190,000. In addition amortization expense was reduced by $280,000 due
to a substantial reduction in website development costs.
23
Loss from operations for fiscal 2006 was $2.9 million compared to $1.9 million
for fiscal 2005, representing a 49% increase from fiscal 2005. The increase in
net operating loss for fiscal 2006 was directly related to an increase in SG&A
expenses.
Other income (expenses) increased to a net expense of $3.4 million in fiscal
2006 from $0.2 million in fiscal 2005. This increase is due primarily to
amortization of discounts on convertible debentures of $2.4 million, an increase
in interest expense of $0.2 million due to increased utilization of the line of
credit, and an increase in amortization of deferred financing costs of $0.3
million.
Net loss for fiscal 2006 was $6.2 million compared to a $2.2 million for fiscal
2005 an increase of 186%. The increase in net loss is attributable to a
substantial increase in SG&A expenses along with increased debt related costs.
FISCAL 2005 COMPARED TO FISCAL 2004
Net sales for fiscal 2005 increased approximately $19.0 million or 44.4% over
fiscal 2004. This increase can be attributed primarily to passing on increases
in fuel oil costs to retail customers offset by somewhat lower gallon sales
during the period as a result of a slight decline in heating degree days from
last season and the initial impact of marketing changes in the way the Company
sells to its discount customers.
Our gross profit for fiscal year ended June 30, 2005 and 2004 was 9.9% and
13.0%, respectively. The gross profit percentage decreased due to the
substantial increase in the price of fuel per gallon during 2005 while holding
our margin per gallon at the 2004 level. The gross profit for fiscal 2005
increased by $0.6 million to $6.2 million or 10% from $5.6 million in fiscal
2004. This was due to increased sales in our Price Energy division.
SG&A expenses for fiscal 2005 were $6.9 million, representing an increase of
approximately $158,000, or 2%, compared to $6.7 million for fiscal 2004.
Depreciation and amortization expense remained relatively constant for fiscal
2005 as compared to fiscal 2004.
Other expenses decreased $196,000 or 46%, primarily due to a increase in
interest income of $191,000, along with a decrease in interest expense of
$127,000, partially offset by an increase in amortization of deferred financing
expenses of approximately $122,000.
Operating loss for fiscal 2005 was $1.9 million compared to $2.3 million for
fiscal 2004, a decrease of 17%. The decrease in net losses is primarily
attributable to an increase in gross margin, offset by an increase in SG&A
expenses.
Net loss from continuing operations increased to $2.2 million in fiscal 2005
from $1.7 million in fiscal 2004. The lower net loss from continuing operations
in 2004 was due to an income tax benefit of $1.0 million.
Our effective tax rate for fiscal 2005 is less than 1%. Taxes from the sale of a
subsidiary in 2004 were mostly offset in the Company's overall tax provision.
Net loss in fiscal 2005 was $2.2 million compared to $166,000 in fiscal 2004. In
fiscal 2004, we incurred a loss from continuing operations, net of tax benefit
of $1.0 million. In fiscal 2004, we also incurred a net gain, net of taxes from
discontinued operations of $1.6 million resulting from the sale of our propane
operation.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency of approximately $432,000 at June
30, 2006. Our principal sources of working capital have been the proceeds from
public and private placements of securities, primarily consisting of convertible
debentures and notes payable. For the year ended June 30, 2006, sales of
securities, including the proceeds from the exercise of outstanding options and
warrants, have generated approximately $4.9 million, less applicable expenses.
As of March 31, 2007, the Company had a cash balance of approximately
$1,208,000, of which approximately $579,000 represents an obligation for funds
received in advance under the pre-purchase fuel program. At March 31, 2007, the
Company had available borrowings through its credit line facility of
approximately $942,000. In order to meet our liquidity requirements, the Company
is negotiating a second mortgage on our oil terminal located on Route 46 in
Rockaway, New Jersey, through which the Company believes it may borrow an
additional $750,000.
On July 5, 2006, the Company closed a Securities Purchase Agreement entered into
on June 30, 2006 whereby it sold a $1,000,000 convertible term note to Laurus
Master Fund, Ltd. ("Laurus"). The Company paid fees of $49,000 to Laurus and
24
received net proceeds of $951,000, of which $905,000 was advanced in the form of
a note to All American. The Company incurred escrow fees of $1,500, which in the
aggregate will be capitalized as deferred financing costs and amortized on a
straight-line basis over the three year term of the convertible term note. The
Company will pay interest on the note monthly in arrears commencing on August 1,
2006 at a rate equal to the prime rate published in the Wall Street Journal plus
two percent (2.0%), calculated as of the last business day of the calendar
month. Amortizing payments of the principal amount of the note shall be made by
the Company commencing on June 30, 2007 and on the first business day of each
succeeding month thereafter in the amount of $27,778 through the maturity date
of the note on June 30, 2009.
The note is convertible at the option of Laurus into shares of the Company's
common stock, at an initial fixed conversion price of $6.50 per share. The
conversion rate of the note is subject to certain adjustments and limitations as
set forth in the note. In connection with Laurus' purchase of the note, the
Company granted Laurus a warrant exercisable through June 30, 2011 to purchase
160,000 shares of the Company's common stock at a price of $5.57 per share,
subject to the adjustments and limitations set forth in the warrant.
The Company agreed that within sixty (60) days from the date of issuance of the
note and warrant that it would file a registration statement with the Securities
and Exchange Commission covering the resale of the shares of the Company's stock
issuable upon conversion of the note and the exercise of the warrant. This
registration statement would also cover any additional shares of stock issuable
to Laurus as a result of any adjustment to the fixed conversion price of the
note or the exercise price of the warrant.
The Company's obligations to Laurus under the Securities Purchase Agreement, the
note and other related agreements are guaranteed by the following subsidiaries
of the Company: Able Oil Co.; Able Propane Co, LLC; Able Energy New York, Inc.;
Able Oil Melbourne, Inc.; Able Energy Terminal, Inc.; Priceenergy.com, Inc.;
and, Priceenergy.com Franchising, LLC.
On July 5, 2006, the Company loaned to All American the sum of $905,000 from the
$1 million the Company received for the sale of the note to Laurus. All American
loaned the $905,000 received from Able to CCIG, (a 70% owned subsidiary of all
American), who utilized such funds toward the development and operation of a
project operated by CCIG's subsidiary, Beach Properties Barbuda Limited
("BPBL"). Mr. Frank Nocito, an officer and a stockholder and Mr. Stephen Chalk,
a director, have each provided a personal guarantee of up to $425,000 each, in
connection with this financing.
On January 10, 2007 the Company received from Laurus a notice of a claim of
default. Laurus claimed default under section 4.1(a) of the Term Note as a
result of non-payment of interest and fees in the amount of $8,826 that was due
on January 5, 2007, and a default under sections 6.17 and 6.18 of the Securities
Purchase Agreement for "failure to use best efforts (i) to cause CCIG to provide
Laurus on an ongoing basis with evidence that any and all obligations in respect
of accounts payable of the project operated by BPBL, have been met; and (ii)
cause CCIG to provide within 15 days after the end of each calendar month,
unaudited/internal financial statements (balance sheet, statements of income and
cash flow) of the Beach House and evidence that BPBL and the Beach House are
current in all of their ongoing operational needs." In connection with the claim
of default, Laurus claimed an acceleration of maturity of the principal amount
of the note of $1,000,000 and approximately $154,000 default payment ("Default
Payment") as well as accrued interest and fees of approximately $12,000.
The aforementioned interest and fees were paid by the Company on January 11,
2007. Further, the Company has used its best efforts to cause CCIG to provide
reports and information to Laurus as provided for in the securities purchase
agreement. On March 7, 2007, Laurus notified the Company that, it waived the
event of default and that Laurus had waived the requirement for the Company to
make the Default Payment. CCIG has informed the Company that they have initiated
a legal proceeding in Antigua against Laurus. Among the subjects of that
proceeding are the validity and enforceability of agreements that the holder is
now seeking to have the Company use its best efforts to have CCIG comply with.
Further, the pending proceeding is a material intervening event that now
supersedes the Company's best efforts as to these obligations since the matter
has been submitted to the courts.
Moreover, the court in that legal proceeding has issued a temporary restraining
order precluding the holder from enforcing its remedies under those agreements
with CCIG and its subsidiaries. Although the Company is not a party to the
proceeding and not specifically bound by the temporary restraining order, it is
the Company's position that it should not take any action with regard to the
agreements between Laurus and CCIG while the proceeding is pending and the
temporary restraining order is in effect.
On August 8, 2006, the Company issued $2,000,000 of convertible debentures to
certain investors. The convertible debentures are convertible into shares of the
Company's common stock at a conversion price of $6.00 per share, which was the
market value of the Company's common stock on the date of issuance. The Company
received net proceeds of $1,715,000 and incurred expenses of legal fees of
$40,000, broker fees of $140,000 in connection with this financing that will be
charged to deferred issuance costs and amortized on a straight-line basis over
the two year term of the convertible debenture. The debentures bear interest at
the greater of either LIBOR plus 6.0%, or 12.5%, per annum, and such interest is
payable quarterly to the holder either in cash or in additional convertible
debentures.
The investors also were issued 333,333, 166,667 and 172,667 five-year warrants
to purchase additional shares of the Company's common stock at $4.00, $6.00 and
$7.00 per share, respectively.
25
Upon consummation by the Company of the business combination transaction with
All American, the Company may redeem the convertible debentures at a price of
120% of the face amount, plus any accrued but unpaid interest and any unpaid
liquidated damages or under certain conditions, the Company may redeem the
amount at 120% of the face amount in cash, or redeem through the issuance of
shares of common stock at the lower of the existing conversion price or 90% of
the volume weighted average price, as stipulated in the agreement.
At any time, the holder may convert the convertible debenture into shares of
common stock at a conversion price of $6.00 per share, or into 333,333 shares of
common stock which represents a conversion at the face value of the convertible
debenture. These warrants were valued at $3,143,000, using the Black-Scholes
model, applying an interest rate of 4.85%, volatility of 98.4% dividends of 0%
and a term of five years. The Company has recorded a debt discount related to
the value of the beneficial conversion feature of the convertible term note of
$723,270 which is amortizable on the interest method over the two year term of
the debenture. In accordance with EITF 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios" ("EITF 98-5") and EITF 00-27, "Application of Issue NO. 98-5
to Certain Convertible Instruments" ("EITF 00-27"), on a relative fair value
basis, the warrants were recorded at a value of approximately $1,137,000. The
conversion feature, utilizing an effective conversion price and market price of
the common stock on the date of issuance of $2.00 and $6.00, per share,
respectively, was valued at approximately $1,333,000 which was then limited to
$723,000, the remaining undiscounted value of the proceeds from the convertible
term note. Accordingly, the Company has recorded a debt discount related to the
warrants of $1,137,000, the beneficial conversion feature of the convertible
term note of $723,000 and for issuance costs paid to the issuer of $140,000,
which amounts are amortizable utilizing the interest method over the two year
term of the convertible term note.
The Company had agreed to file a registration statement within forty-five days
which was September 22, 2006, covering the resale of the shares of common stock
underlying the convertible debentures and warrants issued to the investors, and
by October 15, 2006, to have such registration statement declared effective. The
registration rights agreement with the investors provides for partial liquidated
damages in the case that these registration requirements are not met. From the
date of violation, the Company is obligated to pay liquidated damages of 2.0%
per month of the outstanding amount of the convertible debentures, up to a total
obligation of 24.0% of such obligation. The Company has not yet filed a
registration statement regarding these securities. Accordingly, through March
31, 2007, the Company has incurred a liquidated damages obligation of
approximately $250,000, none of which has been paid. The Company is obligated to
pay 18.0% interest per annum on any liquidated damages amount not paid in full
within 7 (seven) days. As of March 31, 2007, the Company is not able to file a
registration statement and the holder has not yet waived its rights under this
agreement. However, the Company as of March 31, 2007 has not received a notice
of default regarding these matters. EITF 05-04, The Effect of a Liquidated
Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No.
00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock" ("EITF 05-4"), view (C) allows
Able to account for the value of the warrants as equity and separately record
the fair value of the registration right as a derivative liability. Accordingly,
in determining whether the transaction was recorded properly, Able followed view
(C) to measure the amount of the registration rights derivative liability.
Unless these liquidated damages are cured, the incurred liquidated damages and
an estimate of future amount will be accounted for as a derivative liability by
the Company.
The investors may elect to participate in up to 50% of any subsequent financing
of the Company by providing written notice of intention to the Company.
The obligations of the Company in this financing transaction are secured by a
first mortgage on certain property owned by the Company in Warrensburg, New
York, a pledge of certain rights the Company has in securities of CCIG,
guarantees by the Company's subsidiaries and liens on certain other property.
On September 8, 2006, the Company entered into a five year lease, treated as a
capital lease, for five new oil delivery trucks, that were delivered during
December 2006, for an aggregate purchase price of approximately $506,000.
On December 13, 2006, the Company purchased the assets of its Horsham franchise
from Able Oil Montgomery, Inc., a non- related party, for $764,175. Able Oil
Montgomery is a full service retail fuel oil and service company located in
Horsham, Pennsylvania. Pursuant to the agreement, the Company paid cash at
closing of $128,000, issued a 5 year note payable bearing interest at a rate of
7% per annum in the amount of $345,615 and forgave an amount of $290,560 due
from the seller to the Company. Separately, the seller paid to the Company
$237,359 for monies collected in advance by Able Oil Montgomery from its
customers.
On March 20, 2007, the Company entered into a credit card receivable advance
agreement with Credit Cash, LLC ("Credit Cash") whereby Credit Cash agreed to
loan the Company $1.2 million. The loan is secured by the Company's existing and
future credit card collections.
Terms of the loan call for a repayment of $1,284,000, which includes the finance
charge of $84,000, over a seven-month period. This will be accomplished through
Credit Cash withholding 18% of Credit Card collections of Able Oil Company and
10% of Credit Card collections of PriceEnergy.com, Inc. over the seven-month
period beginning March 21, 2007. There are certain provisions in the agreement
which allows Credit Case to increase the withholding, if the amount withheld by
Credit Case over the seven-month period is not sufficient to satisfy the
required repayment of $1,284,000.
In May 2005, we entered into a $1,750,000 line of credit agreement with
Entrepreneur Growth Capital, LLC. The line is collateralized by certain eligible
accounts receivable and inventories. Outstanding balances under the loan bear
interest at an annual rate equal to the Citibank's Prime rate plus 4%. As of
June 30, 2006 and March 31, 2007, approximately $1,230,000 and $708,000 was
outstanding and approximately $520,000 and $942,000 was available under this
credit line, respectively.
26
On July 12, 2005, the Company consummated a financing with a group of lenders.
Pursuant to the terms of a Securities Purchase Agreement, the Company sold
variable rate convertible debentures in the amount of $2.5 million. The
convertible debentures shall be repaid within two years from the date of
issuance with interest payable at a rate per annum equal to Libor (which on July
12, 2005 was 3.57%) plus 4%. The interest is payable quarterly on the first of
January, April, July, and October. The convertible debentures may be converted
at the option of the purchasers into shares of the Company's Common Stock at a
conversion price of $6.50 per share. The amount of shares to be issued at such
conversion would be 384,618. In addition, the purchasers shall have the right to
receive five-year warrants to purchase 192,308 shares of common stock at an
exercise price of $7.15 per share. The market value of the Company's common
stock on July 12, 2005 was $17.90 per share. Deferred financing costs expenses
related to this transaction totaled $315,000, including a $250,000 broker fee
and $65,000 in various legal expenses.
The Company allocated the proceeds from the issuance of the convertible
debentures and warrants based on their respective fair values and included
$900,000 in additional paid-in capital related to the warrants. In addition, the
conversion feature of the Convertible Debentures is characterized as a
beneficial conversion feature. Pursuant to EITF 00-27, the Company determined
that the value of the beneficial conversion feature is $1,600,000. Accordingly,
the Company has discounted the balance of the convertible debentures as of the
date of issuance and included $1,600,000 in additional paid-in capital. The
beneficial conversion feature is amortized from the date of issuance to the
earlier of the stated redemption date of July 12, 2007, or the conversion date.
During the year ended June 30, 2006, $2,367,500 of the debentures plus accrued
interest of $49,563 was converted into 371,856 shares of the Company's common
stock. The amortization of debt discounts and deferred financing costs related
to the convertible debentures for the year ended June 30, 2006 was $2,429,032
and $349,831, respectively.
The Company also originally granted to the purchasers who acquired the
convertible debentures an additional investment right exercisable, for a period
of eighteen months from the original investment date of July 18, 2005, to
purchase units consisting of convertible debentures in the aggregate amount of
up to $15,000,000 (the "Additional Debentures") and common stock purchase
warrants equal to 50% of the face amount of such Additional Debentures (the
"Additional Warrants"). Upon exercise of the additional investment right, the
Additional Debentures are convertible into and the Additional Warrants could be
exercised for unregistered, restricted shares of the Company's common stock.
As part of a negotiated amendment of the purchase agreement, subsequently on
November 16, 2005, the Purchase Agreement was amended to issue the purchasers a
series of warrants (the "New Warrants") with an exercise price of $7.50 per
share and the rights of the Company and the purchasers relating to the
Additional Debentures and Additional Warrants were eliminated. In the aggregate,
the New Warrants permit the holders to acquire up to 5.25 million shares of the
Company's common stock upon proper exercise. Notwithstanding the foregoing,
until the required stockholder approvals are obtained, the purchasers have
agreed not to convert any convertible debentures and the company has the right
not to honor any request to convert or exercise any Additional Warrants or New
Warrants which in the aggregate would involve the issuance of a number of shares
that would exceed 19.999% of the total number of shares of the Company's common
stock outstanding on the trading day prior to the date of the purchase
agreement. As of June 30, 2006, 110,000 warrants were exercised at price of
$7.50 per share for total proceeds of $825,000.
On July 27, 2005, the Company made a loan of $1,730,000 to All American as
evidenced by a promissory note. The funds were disbursed from the financing
proceeds of $2.5 million described above. Under the note, the amount bears
interest at 3.5% per annum and is secured by the 1,000,000 shares of Able
Energy, Inc. common stock owned by All American. The interest rate was
subsequently changed on May 11, 2006 to reflect the current market rate of
approximately 9.5%.
Our net loss for the year ended June 30, 2006 was approximately $6,242,000,
including non-cash charges totaling approximately $4,516,000. The Company has
been funding its operations through an asset-based line of credit, the issuance
of convertible debentures and the proceeds from the exercise of options and
warrants. The Company will need some combination of the collection of All
American notes receivable, new financing, restructuring of existing financing,
improved receivable collections and/or improved operating results in order to
maintain adequate liquidity over the course of this 2007 fiscal year.
The Company is pursuing other lines of business, which include expansion of its
current commercial business into other products and services such as bio-diesel,
solar energy, and other energy related home services. The Company is also
evaluating all of its business segments for cost reductions, consolidation of
facilities and efficiency improvements. There can be no assurance that we will
be successful in our efforts to enhance our liquidity situation.
The consolidated financial statements included elsewhere in this filing have
been prepared in conformity with United States generally accepted accounting
principles, which contemplate continuation of the Company as a going concern and
assume realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred losses from continuing operations
during the years ended June 30, 2006, 2005 and 2004 of $6,242,000, $2,180,000
and $1,733,000, respectively. Net cash used in operations during the years ended
June 30, 2006 and 2005 was $1,712,000 and $374,000 respectively. At June 30,
2006, the Company has a working capital deficiency of $432,000. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements included elsewhere in this filing
do not include any adjustments relating to the recoverability of the recorded
assets or the classification of the liabilities that may be necessary should the
Company be unable to continue as a going concern.
27
On June 1, 2005, All American completed a financing that, if the acquisition of
All American is consummated, may impact the Company. Pursuant to the terms of
the Securities Purchase Agreement (the "Agreement") among All American and
certain purchasers ("Purchasers"), the Purchasers loaned All American an
aggregate of $5,000,000, evidenced by Secured Debentures dated June 1, 2005 (the
"Debentures"). The Debentures are due and payable on June 1, 2007, subject to
the occurrence of an event of default, with interest payable at the rate per
annum equal to LIBOR for the applicable interest period, plus 4% payable on a
quarterly basis on April 1st, July 1st, October 1st and January 1st, beginning
on the first such date after the date of issuance of the Debentures. Upon the
acquisition of All American and the Company's board approving the transfer of
the debt that would also require the transfer of additional assets into All
American as consideration for the Company to assume the debt, then the
Debentures are convertible into shares of our common stock at a conversion rate
of the lesser of (i) the purchase price paid by us for each share of All
American common stock in the acquisition, or (ii) $3.00, subject to further
adjustment as set forth in the agreement.
The loan is secured by real estate property owned by All American in
Pennsylvania and New Hampshire. Pursuant to the Agreement, these Debentures are
in default, as All American has not completed the merger with the Company prior
to the expiration of the 12-month anniversary of the Agreement. Pursuant to the
Additional Investment Right (the "AIR Agreement") among All American and the
Purchasers, the Purchasers may loan All American up to an additional $5,000,000
of secured convertible debentures on the same terms and conditions as the
initial $5,000,000 loan, except that the conversion price will be $4.00.
If the Company consummates the acquisition of All American, upon such
consummation, the Company will assume the obligations of All American under the
Agreement, the Debentures and the AIR Agreement through the execution of a
Securities Assumption, Amendment and Issuance Agreement, Registration Rights
Agreement, Common Stock Purchase Warrant Agreement and Variable Rate Secured
Convertible Debenture Agreement, each between the Purchasers and the Company
(the "Able Energy Transaction Documents"). Such documents provide that All
American shall cause the real estate collateral to continue to secure the loan,
until the earlier of full repayment of the loan upon expiration of the
Debentures or conversion by the Purchasers of the Debentures into shares of our
common stock at a conversion rate of the lesser of (i) the purchase price paid
by us for each share of All American common stock in the acquisition, or (ii)
$3.00, (the "Conversion Price"), subject to further adjustment as set forth in
the Able Energy Transaction Documents. However, the Conversion Price with
respect to the AIR Agreement shall be $4.00. In addition, the Purchasers shall
have the right to receive five-year warrants to purchase 2,500,000 of our common
stock at an exercise price of $3.75 per share. Pursuant to the Able Energy
Transaction Documents, the Company shall also have an optional redemption right
(which right shall be mandatory upon the occurrence of an event of default) to
repurchase all of the Debentures for 125% of the face amount of the Debentures
plus all accrued and outstanding interest, as well as a right to repurchase all
of the Debentures in the event of the consummation of a new financing in which
the Company sells securities at a purchase price that is below the Conversion
Price. It is currently contemplated that if the Able/All American transaction is
consummated, the stockholders of All American will escrow a sufficient number of
shares to satisfy the conversion of the $5,000,000 in outstanding Debentures
full.
On May 19, 2006, the Company entered into a letter of agreement with Manns
Haggerskjold of North America Ltd. ("Manns"), for a bridge loan to the Company
in the amount of $35,000,000 and a possible loan in the amount $1.5 million
based upon the business combination with All American ("Manns Agreement"). The
terms of the letter of interest provided for the payment of a commitment fee of
$750,000, which was non-refundable to cover the due-diligence cost incurred by
Manns. On June 23, 2006, the Company advanced to Manns $125,000 toward the Manns
Agreement due diligence fee. During the period July 7 through November 17, the
Company advanced an additional $590,000 toward the Manns Agreement due diligence
fee.
During August 2006, the Company received the Formal Order from the SEC.
Thereafter, the Company and Manns agreed that the commitment to fund being
sought under the Manns Agreement would be issued to All American, since the
stockholders had approved an acquisition of All American by Able and since the
collateral for the financing by Mann would be collateralized by real estate
owned by All American. Accordingly, on September 22, 2006, All American agreed
that in the event Manns funds a credit facility to All American rather than the
Company, upon such funds being received by All American, it will immediately
reimburse the Company for all expenses incurred and all fees paid to Manns in
connection with the proposed credit facility from Manns to the Company.
The Company must also bring current each of its SEC filings as part of a plan to
raise additional capital. In addition to the filing of this Form 10-K for the
year ended June 30, 2006, the Company must also complete and file its Form
10-Q's for the quarters ended September 30, 2006, December 31, 2006 and March
31, 2007.
There can be no assurance that the financing or the cost saving measures as
identified above will be satisfactory in addressing the short-term liquidity
needs of the Company. In the event that these plans can not be effectively
realized, there can be no assurance that the Company will be able to continue as
a going concern.
28
CONTRACTUAL OBLIGATIONS
The following schedule summarizes our contractual obligations as of June 30,
2006 in the periods indicated.
Payments Due by Period
---------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years
------------------------- ----------- ---------- ---------- ---------- ----------
Long-Term Debt $ 4,547,128 $1,369,953 $ 168,082 $151,020 $2,857,073
Capital Lease Obligations 959,458 314,145 529,342 115,971 --
Operating Leases 639,837 263,293 376,545 -- --
Unconditional Purchase
Obligations 4,296,570 4,296,570 -- -- --
----------- ---------- ---------- -------- ----------
Total Contractual Cash
Obligations $10,441,993 $6,243,961 $1,073,969 $266,991 $2,857,073
=========== ========== ========== ======== ==========
Excluded from the table above is estimated interest payments on long term debt
and capital lease obligations of approximately $279,845, $449,593, $372,732 and
$2,031,098 for the periods less than 1 year, 1-3 years, 3-5 years, and more than
5 years, respectively. In addition, excluded from above are unconditional
purchase obligations of $1,680,210 that the Company entered into subsequent to
June 30, 2006.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
--------------------------------------------------------------------------------
DELINQUENT TAX FILINGS
For the year ended June 30, 2006, the Company has acknowledged that it has not
yet filed certain payroll and SEC filings, on behalf of certain officers,
related to the compensation earned upon the exercise of stock options, events
which may subject the Company to additional payroll related liabilities, the
amounts of which cannot be determined at this time. The Company has not yet made
such required filings.
LOSS ON SUBSEQUENT FUTURE CONTRACTS
During the period from July 28, 2006 to August 15, 2006 the Company entered into
futures contracts for #2 heating oil to hedge a portion of its forecasted
heating season requirements. The Company purchased 40 contracts through a broker
for a total of 1,680,000 gallons of #2 heating oil at an average call price of
$2.20 per gallon. Due to warmer than average temperatures through the heating
season as of March 31, 2007, the Company has experienced a substantial drop in
fuel consumption and price, resulting in a loss on these contracts.
Through March 31, 2007, the Company has deposited a total of $923,017 in margin
requirements with the broker and has realized a loss of $923,017 on 40 closed
contracts representing 1,680,000 gallons.
PURCHASE OF HORSHAM
On December 13, 2006, the Company purchased the assets of its Horsham franchise
from Able Oil Montgomery, Inc., a non- related party, for $764,175. Able Oil
Montgomery is a full service retail fuel oil and service company located in
Horsham, Pennsylvania. Pursuant to the agreement, the Company paid cash at
closing of $128,000, issued a 5 year note payable bearing interest at a rate of
7% per annum in the amount of $345,615 and forgave an amount of $290,560 due
from the seller to the Company. Separately, the seller paid to the Company
$237,359 for monies collected in advance by Able Oil Montgomery from its
customers.
BIO-DIESEL JOINT VENTURE
On August 9, 2006, the Company entered into a joint venture agreement with
BioEnergy of America, Inc. ("BEA"), a privately-held Delaware corporation, for
the purpose of producing biodiesel fuel using BEA's exclusive production process
at plants to be constructed at truck stop plazas, home heating depots and
terminals used to house petroleum products for distribution or resale. The joint
venture will operate through USA Biodiesel LLC ("USA"), a New Jersey limited
liability company in which the Company and BEA will each have a 50% membership
interest. Each plant, when fully operational, will produce approximately 15
million gallons of biodiesel fuel per year. USA will pay all of the operating,
production and processing expenses for each plant, including an annual use fee
to the Company for use of the plant in the amount of $258,000, payable
quarterly, commencing ninety days after the plant is fully operational. USA will
operate the plants and the Company shall have the exclusive right to purchase
all bio-diesel fuel produced at the plants.
The Company's initial contribution to USA will be: (i) the costs of construction
of each of the plants (estimated to be $1.5 million each) and related equipment
necessary for operating the plants, all of which, after construction of the
plants shall be owned by the Company; (ii) initial capital by means of a loan to
USA for funding the operations of USA; (iii) the facilities at which the plants
are to be constructed; and (iv) office facilities and access to office
technology for the Company. BEA's initial contribution to USA will be: (i) the
license design, engineering plans and technology and related costs and expenses
necessary to construct and operate the plants at the facilities; (ii) access to
equipment supplier purchase agreements for equipment for the plants;
29
(iii) access to soy oil, methanol and other material purchasing agreements; (iv)
for each plant constructed, six months of training consisting of three months
during the construction of each of the plants and three months during initial
full production; and (v) exclusive territorial rights to the manufacturing
process to be used at the plants. There were no costs incurred by the Company
through March 31, 2007.
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 60% to 65% 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 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 NY's propane operations can experience
up to an 80% decrease in heating related propane sales during the months of
April to September, which 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.
FUTURE OPERATING RESULTS
Future operating results, which reflect management's current expectations, may
be impacted by a number of factors that could cause actual results to differ
materially from those stated herein. These factors include worldwide economic
and political conditions, terrorist activities, industry specific factors, and
governmental agencies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the period from July 28, 2006 to August 15, 2006 the Company entered into
futures contracts for #2 heating oil to hedge a portion of its forecasted
heating season requirements. The Company purchased 40 contracts through a broker
for a total of 1,680,000 gallons of #2 heating oil at an average call price of
$2.20 per gallon. Due to warmer than average temperatures through the heating
season as of March 31, 2007, the Company has experienced a substantial drop in
fuel consumption and price, resulting in a loss on these contracts.
Through March 31, 2007, the Company has deposited a total of $923,017 in margin
requirements with the broker and has realized a loss of $923,017 on 40 closed
contracts representing 1,680,000 gallons.
The Company is obligated to purchase # 2 Heating Oil under various contracts
with its suppliers. As of June 30, 2006, total open commitments under these
contracts are approximately $4,297,000 and expire on various dates through the
end of April 2007.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet financing arrangements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and the related notes thereto called for
by this item appear under the caption "Consolidated Financial Statements"
beginning on page F-1 attached hereto of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this annual Report on Form 10-K. Based on this evaluation,
30
our Chief Executive Officer and Chief Financial Officer concluded that these
disclosure controls and procedures were not effective as of such date.
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Company's disclosure controls and procedures (as defined in Section13a-15(e) of
the Securities Exchange Act of 1934 (the "Act")) was carried out under the
supervision and with the participation of the Company's Chief Executive Officer
and Chief Financial Officer (or those persons acting in such capacity) and
several other members of the Company's senior management at June 30, 2006. Based
on this evaluation, and as noted below, the Company's Acting Chief Executive
Officer and Acting Chief Financial Officer concluded that as of June 30, 2006,
the Company's disclosure controls and procedures were not effective, at a
reasonable level of assurance, in ensuring that the information required to be
disclosed by the Company in the reports it files or submits under the Act is (i)
accumulated and communicated to the Company's management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.
During the first quarter of the 2006 fiscal year (for the quarter ended
September 30, 2005), management identified a material weakness in the Company's
disclosure controls and procedures regarding the Company's failure to timely
disclose a loan made to an executive officer in connection with an exercise of
such officer's stock options in contravention of Section 402 of the
Sarbanes-Oxley Act of 2002. The Company has since improved the process designed
to prevent such loans to officers or insiders of the Company by creating a
separate disclosure committee which is charged with the duty of reporting
directly to the Audit Committee of the Company's Board of Directors and is
responsible for reviewing each of the Company's quarterly and annual report
filings. In addition, the Company's Board of Directors has appointed the Acting
Chief Executive Officer as the disclosure monitor in connection with the
Company's newly adopted disclosure controls and procedures guidelines, and, as
part of the duties of such disclosure monitor shall include the prior
notification to outside counsel of all actions contemplated by the Company or
the Board to be implemented in connection with the approval or grant of any
stock options to executive officers or insiders to the Company or the exercise
of any options previously granted to any past or current executive officer or
insider. The review process includes, but is not limited to, a discussion of
significant, non-routine items affecting the Company and the related
classification in relation to accounting treatment and financial reporting.
During the quarter ended December 31, 2006, the Company, in conjunction with its
current and former independent registered public accounting firm, identified the
requirement to restate consolidated financial results for the year ended June
30, 2005 and file an Amended Form 10-K for that year. The adjustments requiring
the restatement relate to (1) the amortization of customer lists; (2) the
deferral of revenue recognition associated with certain service contracts; (3)
the classification of certain property and equipment; (4) a sub-ledger
reconciliation difference for accounts receivable; (5) the improper accrual of
audit fees; and (6) the issuance and cancellation of common stock associated
with the performance of a third party under a consulting agreement. The Company
filed a Form 8-K, Item 4.02, on December 26, 2006. In connection with the
restatement, under the direction of its Chief Executive Officer and Chief
Financial Officer, the Company has re-evaluated its disclosure controls and
procedures and identified the following material weaknesses which existed at the
time of the filing of the original 2005 Annual Report: (1) insufficient
accounting expertise to apply United States generally accepted accounting
principles and (2) inadequate segregation of duties, including insufficient
supervision and review of the accounting staff work. As a result of the
weaknesses, the Company concluded that its disclosure controls were not
effective as of June 30, 2006. On June 23, 2006, the Company's Chief Financial
Officer resigned. As of March 31, 2007, the acting Chief Executive Officer and
the acting Chief Financial Officer have determined that that the Company does
not have sufficient accounting expertise in the accounting department, nor an
adequate number of personnel to address the complex issues associated with the
Company's financing transactions and reporting disclosures. The Company has
engaged a third party consultant to assist the Company with fulfilling its
financial reporting responsibilities.
(b) Changes in Disclosure Controls and Procedures. The Company has taken action
to correct these weaknesses in order to assist the Acting Chief Executive
Officer and Acting Chief Financial Officer in their respective duties, the
Company has hired an independent consulting firm with experience in public
company disclosure requirements to assist such officers in their respective
duties during the review, preparation and disclosures required in SEC rules and
regulations.
ITEM 9B. OTHER INFORMATION
On July 5, 2006, the Company received $1,000,000 from Laurus Master Fund Ltd.
("Laurus") in connection with the issuance of a convertible term note. Of the
proceeds received from Laurus in connection with the issuance of a convertible
term note, the Company loaned $905,000 to All American in exchange for a note
receivable. All American used such proceeds to acquire 80% of the outstanding
stock of CCIG pursuant to a Share Exchange Agreement. The Company received from
Laurus a notice of a claim of default dated January 10, 2007. Laurus claims
default under section 4.1(a) of the Term Note as a result of non-payment of
interest and fees in the amount of $8,826 that was due on January 5, 2007, and a
default under sections 6.17 and 6.18 of the securities purchase agreement for
"failure to use best efforts (i) to cause CCIG to provide Holder on an ongoing
basis with evidence that any and all obligations in respect of accounts payable
of the project operated by CCIG's subsidiary, Beach Properties Barbuda Limited
("BPBL"), have been met; and (ii) cause CCIG to provide within 15 days after the
end of each calendar month, unaudited/internal financial statements (balance
31
sheet, statements of income and cash flow) of the Beach House and evidence that
BPBL and the Beach House are current in all of their ongoing operational needs".
The aforementioned interest and fees were paid by the Company on January 11,
2007. Further, the Company has used its best efforts to cause CCIG to provide
reports and information to Laurus as provided for in the securities purchase
agreement. CCIG has informed the Company that it has initiated a legal
proceeding in Antigua against Laurus. Among the subjects of that proceeding are
the validity and enforceability of agreements that the holder is now seeking to
have Company use its best efforts to have CCIG comply with. Further, the pending
proceeding is a material intervening event that now supersedes the Company's
best efforts as to these obligations since the matter has been submitted to the
courts in the proper venue. The issues raised by the holder in its notice are
now part of the issues before the court in that legal proceeding.
Moreover, the court in that legal proceeding has issued a temporary restraining
order precluding the holder from enforcing its remedies under those agreements
with CCIG and its subsidiaries. Although the Company is not a party to the
proceeding and not specifically bound by the temporary restraining order, its is
the Company's position that it should not take any action with regards to the
agreements between the holder and CCIG while the proceeding is pending and the
temporary restraining order is in effect.
In connection with the claim of default, Laurus claims an acceleration of
maturity of the principal amount of the Note of $1,000,000 and approximately
$154,000 in default payment ("Default Payment") as well as accrued interest and
fees of approximately $12,000. On March 7, 2007, Laurus notified the Company
that, it waived the event of default and that Laurus had waived the requirement
for the Company to make the Default Payment.
This 2006 Annual Report on Form 10-K and our Form 10-Q's for the quarters ended
September 30, 2006 and December 31, 2006 will be filed beyond the applicable
filing deadlines.
32
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
June 30, 2006 and 2005
Page
----
Report of Independent Registered Public Accounting Firm -
Marcum & Kliegman LLP F-2
Report of Independent Registered Public Accounting Firm -
Simontacchi & Company, LLP F-3
Consolidated Balance Sheets as of June 30, 2006 and 2005 F-4
Consolidated Statements of Operations for the Years Ended June 30, 2006,
2005 and 2004 F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 2006, 2005 and 2004 F-6
Consolidated Statements of Cash Flows for the Years Ended June 30, 2006,
2005 and 2004 F-7,
F-8
Notes to Consolidated Financial Statements F-9
F-40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Stockholders and Board of Directors
Able Energy, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Able Energy, Inc.
and Subsidiaries (the "Company") as of June 30, 2006 and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Able
Energy, Inc. and Subsidiaries as of June 30, 2006, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with United States generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 2, the Company has incurred losses from continuing operations of
approximately $6,242,000, $2,180,000 and $1,733,000 during the years ended June
30, 2006, 2005 and 2004, respectively. In addition, the Company has used cash
from operations of approximately $1,712,000 for the year ended June 30, 2006 and
has a working capital deficiency of approximately $432,000 at June 30, 2006.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As discussed in Note 24 to the consolidated financial statements, on September
7, 2006, the Company received a copy of a Formal Order of Private Investigation
("Formal Order") from the Securities and Exchange Commission (the "SEC")
pursuant to which the Company, certain of its officers and a director were
served with subpoenas requesting certain documents and information. The Formal
Order authorizes an investigation of possible violations of the anti-fraud
provisions of the federal securities laws with respect to the offer, purchase
and sale of the Company's securities and the Company's disclosures or failures
to disclose material information. The scope, focus and subject matter of the SEC
investigation may change from time to time and the Company may be unaware of
matters under consideration by the SEC. The Company has produced and continues
to produce responsive documents and intends to continue cooperating with the SEC
in its investigation. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Marcum & Kliegman LLP
New York, NY
April 4, 2007
F-2
To The Board of Directors
Able Energy, Inc.
Rockaway, New Jersey 07866
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
We have audited the accompanying consolidated balance sheet of Able Energy, Inc.
and subsidiaries as of June 30, 2005 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the two years in
the period ended June 30, 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Able Energy, Inc.
and Subsidiaries as of June 30, 2005, and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 2005 in
conformity with accounting principles generally accepted in the United States of
America.
Simontacchi & Company, LLP
Rockaway, New Jersey
September 14, 2005, except for the restatement discussed in Note 2 (not
presented herein) to the consolidated financial statements appearing under Item
8 of the Company's 2005 Annual Report on Form 10-K/A, as to which the date is
April 4, 2007.
F-3
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
--------------------------
2006 2005
--------------------------
ASSETS
Current Assets:
Cash $ 2,144,729 $ 1,754,318
Accounts receivable, net of allowance for doubtful accounts of
$462,086 and $238,049 at June 30, 2006 and 2005, respectively 3,414,894 2,822,270
Inventories 675,987 726,987
Notes receivable - current portion 400,579 263,559
Prepaid expenses and other current assets 528,788 533,330
------------ -----------
Total Current Assets 7,164,977 6,100,464
Property and equipment, net 4,414,051 4,284,147
Notes receivable - less current portion 725,000 1,118,702
Intangible assets, net 326,658 518,381
Deferred financing costs, net 150,264 357,246
Prepaid acquisition costs 225,000 --
Security deposits 84,918 54,918
------------ -----------
Total Assets $ 13,090,868 $12,433,858
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 1,231,640 $ 1,015,468
Notes payable, current portion 76,181 71,381
Note payable - related party -- 500,000
Capital leases payable, current portion 314,145 262,690
Convertible debentures, net of unamortized debt discount
of $70,368 62,132 --
Accounts payable and accrued expenses 2,298,937 2,269,869
Customer pre-purchase payments 3,336,833 2,457,384
Unearned revenue 277,426 276,297
------------ -----------
Total Current Liabilities 7,597,294 6,853,089
------------ -----------
Notes payable, less current portion 3,176,175 3,252,333
Capital leases payable, less current portion 645,313 713,708
------------ -----------
Total Long-Term Liabilities 3,821,488 3,966,041
------------ -----------
Total Liabilities 11,418,782 10,819,130
------------ -----------
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity:
Preferred stock; par value $.001; authorized 10,000,000 shares;
issued - none -- --
Common stock; $.001 par value; 10,000,000 shares authorized;
3,128,923 and 2,314,463 shares issued and outstanding at
June 30, 2006 and 2005, respectively 3,129 2,314
Additional paid-in capital 14,812,723 6,409,816
Accumulated deficit (11,038,961) (4,797,402)
Notes and loan receivable - related parties (2,104,805) --
------------ -----------
Total Stockholders' Equity 1,672,086 1,614,728
------------ -----------
Total Liabilities and Stockholders' Equity $ 13,090,868 $12,433,858
============ ===========
See accompanying notes to consolidated financial statements.
F-4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30,
---------------------------------------
2006 2005 2004
----------- ----------- -----------
Net sales $75,093,104 $61,872,623 $42,847,123
Cost of sales (exclusive of depreciation and
amortization shown separately below) 67,625,209 55,722,153 37,267,469
----------- ----------- -----------
Gross profit 7,467,895 6,150,470 5,579,654
----------- ----------- -----------
Operating expenses:
Selling, general and administrative 9,569,822 6,853,582 6,695,559
Depreciation and amortization 755,700 1,225,197 1,194,958
----------- ----------- -----------
Total operating expenses 10,325,522 8,078,779 7,890,517
----------- ----------- -----------
Loss from operations (2,857,627) (1,928,309) (2,310,863)
----------- ----------- -----------
Other income (expenses):
Interest and other income 155,068 340,697 149,802
Interest income - related parties 82,305 -- --
Interest expense (625,018) (427,277) (576,578)
Interest expense - related party (17,499) (22,499) --
Note conversion expense - related party (125,000) -- --
Amortization of deferred financing costs (424,156) (121,790) --
Amortization of discounts on convertible
debentures (2,429,632) -- --
----------- ----------- -----------
Total other expenses, net (3,383,932) (230,869) (426,776)
----------- ----------- -----------
Loss before provision for (benefit from) income taxes (6,241,559) (2,159,178) (2,737,639)
Provision for (benefit from) income taxes -- 20,913 (1,004,680)
----------- ----------- -----------
Net loss from continuing operations (6,241,559) (2,180,091) (1,732,959)
----------- ----------- -----------
Discontinued operations:
Loss from discontinued operations, net
of income tax benefit of $23,000 -- -- (34,630)
Gain on sale of discontinued operations,
net of income tax expense of $1,067,400 -- -- 1,601,090
----------- ----------- -----------
Net gain from discontinued operations -- -- 1,566,460
----------- ----------- -----------
Net loss $(6,241,559) $(2,180,091) $ (166,499)
=========== =========== ===========
Basic and diluted (loss) earnings per common share:
Continuing operations $ (2.23) $ (1.04) $ (0.86)
Discontinued operations -- -- 0.78
----------- ----------- -----------
Basic and diluted (loss) earnings per common share: $ (2.23) $ (1.04) $ (0.08)
=========== =========== ===========
Weighted average number of common shares
outstanding - basic and diluted 2,800,476 2,094,629 2,013,250
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional Notes and Loan Total
------------------ Paid-in Accumulated Receivable- Stockholders'
Shares Amount Capital Deficit Related Parties Equity
--------- ------ ----------- ------------ --------------- -------------
Balance - July 1, 2003 2,013,250 $2,013 $ 5,711,224 $ (2,450,812) $ -- $ 3,262,425
Net loss (166,499) -- (166,499)
--------- ------ ----------- ------------ ----------- -----------
Balance - June 30, 2004 2,013,250 2,013 5,711,224 (2,617,311) -- 3,095,926
Common stock issued in connection
with option and warrant exercises 291,213 291 478,392 -- -- 478,683
Options granted to employees -
below market price -- -- 117,000 -- -- 117,000
Restricted common stock
granted to board members 10,000 10 103,200 -- -- 103,210
Net loss -- -- -- (2,180,091) -- (2,180,091)
--------- ------ ----------- ------------ ----------- -----------
Balance - June 30, 2005 2,314,463 2,314 6,409,816 (4,797,402) -- 1,614,728
Discounts on convertible
debentures -- -- 2,500,000 -- -- 2,500,000
Common stock issued in connection
with option and warrant exercises 385,000 385 2,427,365 -- -- 2,427,750
Common stock issued upon
conversion of note payable 57,604 58 624,942 -- -- 625,000
Common stock issued upon
conversion of convertible
debt and related accrued interest 371,856 372 2,416,691 -- -- 2,417,063
Options granted to
employees -- -- 31,787 -- -- 31,787
Amortization of deferred
compensation -- -- 402,122 -- -- 402,122
Loan receivable from stockholder
for payment of certain prepaid
financing costs -- -- -- -- (125,000) (125,000)
Notes receivable from related party
and related interest receivable
for reimbursement of certain fees -- -- -- -- (179,230) (179,230)
Issuance of note receivable
and related interest receivable
upon advance to stockholders -- -- -- -- (1,800,575) (1,800,575)
Net loss -- -- -- (6,241,559) (6,241,559)
--------- ------ ----------- ------------ ----------- -----------
Balance - June 30, 2006 3,128,923 $3,129 $14,812,723 $(11,038,961) $(2,104,805) $ 1,672,086
========= ====== =========== ============ =========== ===========
See accompanying notes to consolidated financial statements.
F-6
ABLE ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30,
---------------------------------------
2006 2005 2004
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(6,241,559) $(2,180,091) $ (166,499)
Net gain from discontinued operations -- -- 1,566,460
----------- ----------- -----------
Net loss from continuing operations (6,241,559) (2,180,091) (1,732,959)
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Gain on sale of property and equipment (6,300) -- --
Accrued interest on notes and loans receivable - related parties (82,305) -- --
Deferred income taxes -- -- 48,558
Depreciation and amortization 755,700 1,206,315 1,176,402
Write-off of capital project 57,447 -- --
Provision for bad debts 296,021 163,663 109,372
Note conversion expense 125,000 -- --
Amortization of discounts on convertible debentures 2,429,632 -- --
Amortization of deferred financing costs 424,156 15,881 --
Stock-based compensation 433,909 220,210 --
(Increase) decrease in operating assets:
Accounts receivable (888,644) (438,958) 57,920
Inventories 51,000 (167,662) 118,102
Prepaid expenses and other current assets 4,541 220,423 819,811
Security deposits (30,000) 82,097 28,526
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 78,631 225,968 (219,843)
Customer pre-purchase payments 879,449 262,579 836,285
Unearned revenue 1,129 15,142 37,538
----------- ----------- -----------
Total adjustments 4,529,366 1,805,658 3,012,671
----------- ----------- -----------
Net cash (used in) provided by operating activities (1,712,193) (374,433) 1,279,712
----------- ----------- -----------
Cash flows from investing activities:
Advances to stockholder and related party (2,022,500) -- --
Issuance of notes receivable -- -- (1,475,833)
Collections on notes receivable 256,682 320,718 8,224
Capital expenditures (474,547) (725,087) (457,692)
Proceeds from sale of property and equipment 6,300 270,412 --
Prepaid acquisition costs (225,000) -- --
----------- ----------- -----------
Net cash used in investing activities (2,459,065) (133,957) (1,925,301)
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-7
ABLE ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended June 30,
--------------------------------------
2006 2005 2004
---------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of convertible debentures $2,500,000 $ -- $ --
Deferred financing costs (217,174) (269,767) (89,596)
Net advances under line of credit 216,172 316,232 699,236
Repayment of capital leases payable (293,721) (243,236) (1,324,606)
Proceeds from notes payable -- 3,750,000 4,300,000
Repayment of notes payable (71,358) (3,079,052) (5,120,280)
Proceeds from option and warrant exercises 2,427,750 478,683 --
---------- ----------- -----------
Net cash provided by (used in) financing activities 4,561,669 952,860 (1,535,246)
---------- ----------- -----------
Cash flows from discontinued operations:
Net cash provided by operating activities -- -- 90,650
Net cash provided by investing activities -- -- 3,000,000
---------- ----------- -----------
Net cash provided by discontinued operations -- -- 3,090,650
---------- ----------- -----------
Net increase in cash 390,411 444,470 909,815
Cash at beginning of year 1,754,318 1,309,848 400,033
---------- ----------- -----------
Cash at end of year $2,144,729 $ 1,754,318 $ 1,309,848
---------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 517,286 $ 432,849 $ 665,032
========== =========== ===========
Income taxes $ -- $ 17,249 $ 59,638
========== =========== ===========
Supplemental disclosures of non-cash
investing and financing activities:
Notes receivable issued in connection with the sale
of subsidiary $ -- $ -- $ 1,400,000
========== =========== ===========
Common stock issued upon conversion of note payable $ 500,000 $ -- $ --
========== =========== ===========
Common stock issued upon conversion of convertible debt and
accrued interest $2,417,063 $ -- $ --
========== =========== ===========
Property and equipment financed through the assumption
of capital lease obligations $ 276,781 $ 446,725 $ 663,784
========== =========== ===========
See accompanying notes to consolidated financial statements.
F-8
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Able Energy, Inc. ("Able") was incorporated in Delaware during 1997 and
together with its operating subsidiaries (collectively "Able Energy" or the
"Company"), provides liquid fuel and services to residential and commercial
customers.
Able Oil Company, incorporated in New Jersey during 1990, is a wholly-owned
subsidiary of Able that sells heating oil and other liquid fuels and provides
heating, ventilation and air conditioning services ("HVAC") to residential and
commercial customers in New Jersey and Pennsylvania. Able Energy New York, Inc.,
incorporated in New York during 1999 and a wholly-owned subsidiary of Able,
sells heating oil, propane, diesel fuel, and kerosene to residential and
commercial customers located within the Warrensburg, New York area. Able Oil
Melbourne, Inc., incorporated in Florida during 1995 and a wholly-owned
subsidiary of Able, sells diesel fuel to customers located within the vicinity
of Cape Canaveral, Florida. Able Energy Terminal LLC, formed in New Jersey
during 1999 and a wholly-owned subsidiary of Able, provides fuel storage and
distribution services, primarily to Able Oil. PriceEnergy.com, Inc., a majority
owned (67.3%) subsidiary of Able, was formed in Delaware during 1999 and,
through an internet platform, facilitates the sale of fuel oil through a network
of suppliers in New England and the Mid-Atlantic States. PriceEnergy.com
Franchising L.L.C., incorporated in New Jersey during 2001 and a wholly-owned
subsidiary of Able, extends the PriceEnergy.com brand by providing franchising
services to an owner-operator in the State of Connecticut.
NOTE 2 - GOING CONCERN AND MANAGEMENT'S PLANS
The accompanying consolidated financial statements have been prepared in
conformity with United States generally accepted accounting principles, which
contemplate continuation of the Company as a going concern and assume
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred losses from continuing operations during
the years ended June 30, 2006, 2005 and 2004 of approximately, $6,242,000,
$2,180,000 and $1,733,000. Net cash used in operations during the years ended
June 30, 2006 and 2005 was approximately $1,712,000 and $374,000. At June 30,
2006, the Company has a working capital deficiency of $432,000. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. These consolidated financial statements do not include any adjustments
relating to the recoverability of the recorded assets or the classification of
the liabilities that may be necessary should the Company be unable to continue
as a going concern.
The Company has entered into a stock purchase agreement to purchase All
American Plazas, Inc. ("All American") (See Note 20).
The Company's net loss for the year ended June 30, 2006 was approximately
$6,242,000, including non-cash charges totaling approximately $4,516,000. The
Company has been funding its operations through an asset-based line of credit
(See Note 9), the issuance of convertible debentures (See Notes 12 and 24), and
the proceeds from the exercise of options and warrants (See Note 13). The
Company will need some combination of the collection of All American notes
receivable (See Notes 20 and 24), new financing, restructuring of existing
financing, improved receivable collections and/or improved operating results in
order to maintain adequate liquidity over the course of this 2007 fiscal year.
As of March 31, 2007, the Company had a cash balance of approximately
$1,208,000, of which $579,000 represents an obligation for funds received in
advance under the pre-purchase fuel program. The Company had available
borrowings through its credit line facility of approximately $942,000. In order
to meet its liquidity requirements, the Company is negotiating a second mortgage
on its oil terminal located on Route 46 in Rockaway, New Jersey, through which
the Company believes it may borrow an additional $750,000.
The Company is pursuing other lines of business, which include expansion of
its current commercial business into other products and services such as
bio-diesel, solar energy, and other energy related home services. The Company is
also evaluating all of its business segments for cost reductions, consolidation
of facilities and efficiency improvements. There can be no assurance that the
Company will be successful in its efforts to enhance its liquidity situation.
F-9
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN AND MANAGEMENT'S PLANS - CONTINUED
During the year ended June 30, 2006, the Company advanced monies and issued
notes receivable to its stockholder, All American, with a balance at June 30,
2006 of approximately $1,926,000, including accrued interest of approximately
$71,000 (See Note 20). The Company has granted to All American a series of
extensions of the maturity of this note, which is due on June 15, 2007. This
note is recorded as contra equity within these consolidated financial
statements. All American has notified the Company that its ability to repay its
note obligation to the Company will be dependent upon All American successfully
securing financing from a third party. As part of the Company's plans to improve
its cash flow, the Company intends to pursue collection of the note receivable
when the note matures. On January 10, 2007, Laurus Master Fund Ltd. ("Laurus")
sent a notice to the Company alleging defaults by the Company under its
convertible term note (the "Note") made to Laurus in the principal amount
$1,000,000 dated June 20, 2006 (See Note 24). Laurus claimed an acceleration of
maturity of the principal amount of the Note of $1,000,000 and approximately
$154,000 in default payment ("Default Payment") as well as accrued interest and
fees of approximately $12,000. On March 7, 2007, Laurus notified the Company
that on January 11, 2007 it had received the delinquent accrued interest and
fees of approximately $12,000, waiving the event of default and that Laurus had
waived the requirement for the Company to make the Default Payment.
Since June 30, 2006 through March 31, 2007, the Company has secured
financings of approximately $4.2 million. Other than for the day to day
operations of the Company, approximately $2.8 million was expended for loans,
investments, and hedging transactions (also See Note 24).
The Company will require some combination of the collection of All American
notes receivable, new financing, restructuring of existing financing, improved
receivable collections and/or improved operating results in order to maintain
adequate liquidity over the course of the year ending June 30, 2007. The Company
must also bring current each of its Securities and Exchange Commission ("SEC")
filings as part of a plan to raise additional capital. In addition to the filing
of this Form 10-K for the year ended June 30, 2006, the Company must also
complete and file its Form 10-Q for the quarters ended September 30, 2006 and
December 31, 2006.
There can be no assurance that the financing or the cost saving measures as
identified above will be satisfactory in addressing the short-term liquidity
needs of the Company. In the event that these plans can not be effectively
realized, there can be no assurance that the Company will be able to continue as
a going concern.
NOTE 3 - 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.
INVENTORIES
Inventories consists principally of heating oil, diesel fuel, kerosene,
propane and heating equipment, related parts and supplies, and 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 as follows:
Trucks, Machinery and Equipment, Office Furniture,
Fixtures and Equipment 5-10 years
Fuel Tanks 10 years
Cylinders - Propane 20 years
Buildings 20-40 years
Building Improvements 20 years
Leasehold Improvements Lesser of useful life or
life of lease
F-10
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PROPERTY AND EQUIPMENT - CONTINUED
Upon retirement or other disposition of these assets, the cost and related
accumulated depreciation and amortization of these assets are removed from the
accounts and the resulting gains or losses are reflected in the consolidated
results of operations. Expenditures for maintenance and repairs are charged to
operations as incurred. Renewals and betterments are capitalized.
INTANGIBLE ASSETS
Intangible assets include customer lists and website development costs.
Costs incurred in the developmental stage for computer hardware and software
have been capitalized in accordance with accounting pronouncement Emerging
Issues Task force ("EITF") 00-2, "Accounting for Web Site Development Costs,"
and are amortized on a straight-line basis over the estimated useful life of 5
years.
Customer lists related to various acquisitions are being amortized over
lives of 10-15 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, including property and equipment and intangible assets
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Recoverability
of assets to be held and used is measured by comparison of the carrying value of
an asset to the undiscounted future cash flows expected to be generated by the
asset. If the carrying value of an asset exceeds its estimated undiscounted
future cash flows, an impairment provision is recognized to the extent the book
value of the asset exceeds estimated fair value. Assets to be disposed of are
reported at the lower of the carrying amount or the fair value of the asset,
less all associated costs of disposition.
Based upon an assessment in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets",
there has been no impairment of the intangible assets.
DEFERRED FINANCING COSTS
In connection with the Company's issuance of convertible debentures in July
2005 (See Note 8), notes payable in May 2005 (See Note 10) and a line of credit
in May 2005 (See Note 9), the Company incurred certain costs which were
capitalized and are being amortized over the life of the related debt. For
convertible debentures that are converted into common stock, the pro-rata
portion of the deferred financing cost is amortized immediately upon conversion.
PREPAID ACQUISITION COSTS
In connection with the Company's planned acquisition of substantially all
of the assets of All American (See Note 20), the Company has incurred certain
professional fees which have been recorded as prepaid acquisition costs. Once
the acquisition is completed, these costs will be adjusted as part of the
purchase price of the acquisition.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
United States generally accepted accounting principles requires the use of
management's estimates. These estimates are subjective in nature and involve
judgments that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at year-end, and the reported
amounts of revenues and expenses during the year. Actual results may differ from
these estimates. The most significant estimates relate to accounts receivable
allowances, intangible assets, valuation allowance against deferred tax assets,
useful lives of property and equipment, contingencies, revenue recognition and
litigation.
MINORITY INTERESTS
The Company records adjustments to the minority interests in PriceEnergy
for the allocable portion of income or loss that the minority interest holders
are entitled to. The Company suspends allocation of losses to minority interest
holders when the minority interest balance for a particular minority interest
holder is reduced to zero. Any excess loss above the minority interest holders
balance is not charged to minority interests as the minority interest holders
have no obligation to fund such losses.
F-11
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
JOINT VENTURES
The Company may from time to time enter into joint venture arrangements
with third parties. For 50% or less joint venture interests, the Company will
reflect its investment in the joint venture as investments in non-consolidating
subsidiaries on the consolidated balance sheet. For 51% or more interests, the
Company consolidates the joint venture results with that of the Company.
INCOME TAXES
The Company provides 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. Valuation allowances are
provided against deferred tax assets to the extent that it is more likely than
not that the deferred tax assets will not be realized.
Deferred tax assets pertaining to windfall tax benefits on exercise of
non-qualified stock options and the corresponding credit to additional paid-in
capital are recorded if the related tax amount either reduces income taxes
payable or results in an income tax refund. The Company has elected the "with
and without approach" regarding ordering of windfall tax benefits to determine
whether the windfall tax benefit did reduce income taxes payable or resulted in
an income tax refund in the current year. Under this approach, the windfall tax
benefits would be recognized in additional paid-in capital only if an
incremental income tax benefit is realized after considering all other income
tax benefits presently available to the Company.
CONCENTRATIONS OF CREDIT RISK
Cash: The Company maintains its cash with various financial institutions in
excess of the federally insured limit. At June 30, 2006 and 2005, the Company
had cash on deposit of approximately $1,850,000 and 1,300,000 in excess of
federally insured limits.
Accounts Receivable: The number of clients that comprise the Company's
client base limits concentrations of credit risk with respect to accounts
receivable. The Company does not generally require collateral or other security
to support client receivables. The Company has established an allowance for
doubtful accounts based upon facts surrounding the credit risk of specific
clients and past collections history. Credit losses have been within
management's expectations.
ADVERTISING
Advertising costs are expensed at the time the advertisement takes place.
Advertising expense was approximately $519,500, $339,000 and $651,300 for the
years ended June 30, 2006, 2005 and 2004, respectively.
SHIPPING AND HANDLING COSTS
Shipping and handling costs incurred by the Company in connection with the
purchase and delivery of fuel oil inventory are recognized as a component of
cost of sales within the consolidated statement of operations.
REVENUE RECOGNITION AND UNEARNED REVENUE AND CUSTOMER PRE-PURCHASED
PAYMENTS
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 over the term of the
respective service contracts, on a straight-line basis, which generally do not
exceed one year. Payments received from customers for the pre-purchase of fuel
is recorded as a current liability until the fuel is delivered to the customer,
at which time it is recognized as revenue by the Company.
DERIVATIVE CONTRACTS
The Company uses derivative instruments (futures contracts) to manage the
commodity price risk inherent in the purchase and sale of #2 heating oil.
Derivative instruments are required to be marked to market under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended, and
will be recorded on the Company's consolidated balance sheets as either an asset
or liability measured at fair value. All changes in the derivatives' fair value
are recognized on a net basis in operating expenses. All gains and losses on the
futures contract are recognized in operating expenses (See Note 24).
F-12
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NET LOSS PER SHARE
Basic net loss per common share is computed based on the weighted average
number of shares of common stock outstanding during the periods presented.
Common stock equivalents, consisting of stock options, warrants, and convertible
notes and debentures as further discussed in the notes to the consolidated
financial statements, were not included in the calculation of diluted loss per
share because their inclusion would have been anti-dilutive.
The total common shares issuable upon the exercise of stock options and
warrants, and conversion of convertible debentures (along with related accrued
interest) was 5,452,520, 238,000 and 568,000 at June 30, 2006, 2005 and 2004,
respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123(R), "Share-Based Payment,"
which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation."
("SFAS 123 (R)") and supersedes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Generally, the approach
in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. SFAS 123(R) was
effective for fiscal years beginning after June 15, 2005.
SFAS 123(R) permits public companies to adopt its requirements using one of
two methods:
A. "Modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of SFAS 123(R)
for all share-based payments granted after the effective date and (b) based on
the requirements of SFAS 123 for all awards granted to employees prior to the
effective date of SFAS 123(R) that remain unvested on the effective date.
B. "Modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate, based on the amounts previously recognized under SFAS 123 for purposes
of pro forma disclosures, either (a) all prior periods presented or (b) prior
interim periods during the year of adoption.
The Company has adopted SFAS 123(R) on July 1, 2005 using the modified
prospective method.
In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"). SFAS 154 establishes new standards on accounting for
changes in accounting principles. Pursuant to the new rules, all such changes
must be accounted for by retrospective application to the financial statements
of prior periods unless it is impracticable to do so. SFAS 154 completely
replaces APB No. 20 and SFAS 6, though it carries forward the guidance in those
pronouncements with respect to accounting for changes in estimates, changes in
the reporting entity, and the correction of errors. The requirements in SFAS 154
are effective for accounting changes made in fiscal years beginning after
December 15, 2005. The Company applied these requirements to any accounting
changes after the implementation date. The application of SFAS 154 did not have
an impact on the Company's consolidated financial position, results of
operations, and cash flows.
In June 2005, the FASB ratified Emerging Issues Task Force ("EITF") No.
05-1, "Accounting for the Conversion of an Instrument That Becomes Convertible
upon the Issuer's Exercise of a Call Option" ("EITF No. 05-1") which addresses
that no gain or loss should be recognized upon the conversion of an instrument
that becomes convertible as a result of an issuer's exercise of a call option
pursuant to the original terms of the instrument. EITF No. 05-1 is effective for
periods beginning after June 28, 2006. The adoption of this pronouncement did
not have an effect on the Company's consolidated financial position, results of
operations, or cash flows.
In June 2005, the FASB ratified EITF Issue No. 05-2, "The Meaning of
'Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock", which addresses when a convertible debt instrument should
be considered conventional for the purpose of applying the guidance in EITF No.
00-19. EITF No. 05-2 also retained the exemption under EITF No. 00-19 for
conventional convertible debt instruments and indicated that convertible
preferred stock having a mandatory redemption date may qualify for the exemption
provided under EITF No. 00-19 for conventional convertible debt if the
instrument's economic characteristics are more similar to debt than equity. EITF
No. 05-2 is effective for new instruments entered into and
F-13
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS - CONTINUED
instruments modified in periods beginning after June 29, 2005. The Company has
applied the requirements of EITF No. 05-2 since the required implementation
date. The adoption of this pronouncement did not have an effect on the Company's
consolidated financial position, results of operations or cash flows.
EITF Issue No. 05-4 "The Effect of a Liquidated Damages Clause on a
Freestanding Financial Instrument Subject to EITF Issue No. 00-19, 'Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock", addresses financial instruments, such as stock purchase
warrants, which are accounted for under EITF 00-19 that may be issued at the
same time and in contemplation of a registration rights agreement that includes
a liquidated damages clause. The consensus of EITF No. 05-4 has not been
finalized.
In February 2006, the FASB issued SFAS No. 155 - Accounting for Certain
Hybrid Financial Instruments, which eliminates the exemption from applying SFAS
133 to interests in securitized financial assets so that similar instruments are
accounted for similarly regardless of the form of the instruments. SFAS 155 also
allows the election of fair value measurement at acquisition, at issuance, or
when a previously recognized financial instrument is subject to a remeasurement
event. Adoption is effective for all financial instruments acquired or issued
after the beginning of the first fiscal year that begins after September 15,
2006. Early adoption is permitted. The adoption of SFAS 155 is not expected to
have a material effect on the Company's consolidated financial position, results
of operations or cash flows.
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in tax positions. This
interpretation requires that the Company recognize in its consolidated financial
statements, the impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 are effective as of the beginning of the Company's year
ending June 30, 2007, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The Company is
currently evaluating the impact of adopting FIN 48 on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements",
which defines fair value, establishes a framework for measuring fair value in
United States generally accepted accounting principles, and expands disclosures
about fair value measurements. Adoption is required for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. Early
adoption of SFAS 157 is encouraged. The Company is currently evaluating the
impact of SFAS 157 and the Company will adopt SFAS 157 in the fiscal year
beginning July 1, 2008.
In September 2006, the staff of the SEC issued Staff Accounting Bulletin
("SAB") No. 108, which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 becomes effective in fiscal
2007. Adoption of SAB 108 is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows
In December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2
"Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2") which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5, "Accounting
for Contingencies." Adoption of FSP EITF 00-19-02 is required for fiscal years
beginning after December 15, 2006, and is not expected to have a material impact
on the Company's consolidated financial position, results of operations or cash
flows.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115", which permits entities to choose to measure many financial
instruments and certain other items at fair value. The fair value option
established by this Statement permits all entities to choose to measure eligible
items at fair value at specified election dates. A business entity shall report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. Adoption is required for
fiscal years beginning after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of SFAS Statement No.
157, Fair Value Measurements. The Company is currently evaluating the expected
effect of SFAS 159 on its consolidated financial statements and is currently not
yet in a position to determine such effects.
F-14
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
RECLASSIFICATIONS
The Company has reclassified certain components of the stockholders' equity
section to reflect the elimination of deferred compensation arising from
unvested share-based compensation pursuant to the requirements of SAB No. 107,
regarding SFAS No. 123(R), "Share-Based Payment." This deferred compensation was
previously recorded as an increase to additional paid-in capital with a
corresponding reduction to stockholders' equity for such deferred compensation.
This reclassification has no effect on consolidated net loss or total
consolidated stockholders' equity as previously reported. The Company will
record an increase to additional paid-in capital as the share-based payments
vest.
Certain other reclassifications have been made to prior year's consolidated
financial statements in order to conform to the current year presentation.
STOCK-BASED COMPENSATION
Prior to July 1, 2005, the Company accounted for its stock options issued
to employees pursuant to APB 25, "Accounting for Stock Issued to Employees".
Accordingly, the Company would recognize employee stock-based compensation
expense only if it granted options at a price lower than the closing price of
the Company's common stock on the date of grant. Any resulting compensation
expense would then have been recognized ratably over the associated service
period. The Company provided proforma disclosure amounts in accordance with SFAS
No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure",
as if the fair value method defined by SFAS 123 had been applied to its
stock-based compensation.
Effective July 1, 2005, the Company adopted the fair value recognition
provisions of SFAS 123R, using the modified prospective transition method and
therefore has not restated prior periods' results. Under this transition method,
employee stock-based compensation expense for the year ended June 30, 2006 has
included compensation expense for all stock-based compensation awards granted,
but not yet fully vested, prior to July 1, 2005, utilizing the fair value of the
options as determined at the original grant date in accordance with the
provisions of SFAS 123. Stock-based compensation expense for all share-based
payment awards granted after June 30, 2005 is based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123R.
The Company recognizes these compensation costs over the requisite service
period of the award, which is generally the vesting term of the options.
Stock-based employee compensation expense relating to the Company's stock
option plan (See Note 13) reflected in net loss for the years ended June 30,
2006, 2005 and 2004, was $31,787, $117,000 and $0, respectively.
Because all outstanding stock options were vested at June 30, 2005, there
was no incremental impact to the consolidated financial statements for the year
ended June 30, 2006 as a result of adopting SFAS 123R, as compared to what the
stock-based compensation would have been under APB 25. At June 30, 2006, there
was no unamortized value of employee stock options under SFAS 123R because all
outstanding stock options at June 30, 2006 were fully vested.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and the EITF Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or In Conjunction with Selling, Goods or Services" which require that
such equity instruments are measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. The fair value determined is then amortized over the
applicable service period. Stock-based compensation for non-employees accounted
for under EITF 96-18 was $402,122 for the year ended June 30, 2006 and $0 for
the years ended June 30, 2005 and 2004 respectively (See also Note 13). At June
30, 2006, there was $142,937 of unamortized value of non-employee stock options
which will be recognized over a weighted average period of 2.5 years.
Option valuation models require the input of highly subjective assumptions
including the expected life of the option. Because the Company's stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
F-15
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
STOCK-BASED COMPENSATION - CONTINUED
The estimated weighted average fair values of the options at the date of
grant using the Black-Scholes option-pricing model as promulgated by SFAS No.
123 and the related assumptions used to develop the estimates are as follows:
Years Ended June 30,
-----------------------------
2006 2005 2004
--------- ------- -------
Risk-free interest rate 4.3% 4.0% 4.0%
Expected volatility 90.9% 185.9% 120.1%
Dividend yield -- -- --
Expected life 3.5 years 5 years 5 years
The weighted average fair value of options granted during the years ended
June 30, 2006, 2005 and 2004 was $4.26, $4.82 and $2.04, respectively.
The following table illustrates the effect on net loss and loss per common
share for the years ended June 30, 2005 and 2004 if the Company had applied the
fair value recognition provisions of SFAS 123 to stock-based employee
compensation.
For the Years Ended June 30,
----------------------------
2005 2004
----------- -----------
Net loss from continuing operations, as reported $(2,180,091) $(1,732,959)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects 858,324 102,224
----------- -----------
Pro forma net loss from continuing operations $(3,038,415) $(1,835,183)
=========== ===========
Weighted average number of common shares outstanding 2,094,629 2,013,250
=========== ===========
Loss per common share:
Basic and diluted from continuing operations,
as reported $ (1.04) $ (0.86)
=========== ===========
Basic and diluted from continuing operations,
pro forma $ (1.45) $ (0.91)
=========== ===========
NOTE 4 - INVENTORIES
Inventories at June 30, 2006 and 2005 consisted of the following:
June 30,
-------------------
2006 2005
-------- --------
#2 heating oil $ 35,485 $335,245
Diesel fuel 42,567 34,409
Kerosene 9,125 3,025
Propane 33,444 28,020
Parts, supplies and equipment 255,366 326,288
-------- --------
Total $675,987 $726,987
======== ========
F-16
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES RECEIVABLE
On March 1, 2004, the Company entered into two notes receivable totaling
$1.4 million related to the sale of its subsidiary, Able Propane LLC (See Note
18). The notes are secured by substantially all the assets of Able Propane LLC.
One note for $500,000 bears interest at a rate of 6% per annum and the other
note for $900,000 is non-interest bearing. Principal is payable in annual
installments and interest is paid quarterly with the final maturity date of
March 1, 2008 for both notes. The balance outstanding of these two notes as of
June 30, 2006 and 2005 was $950,000 and $1,175,000, respectively. Interest
earned on the notes for the years ended June 30 2006, 2005 and 2004 was $30,000
per year.
The Company had a note from Able Montgomery, Inc. ("Able Montgomery") and
Andrew Schmidt (the owner of Able Montgomery) related to the sale of Able
Montgomery and certain assets to Mr. Schmidt. The note was dated June 15, 2000
for $170,000. The note bore interest at 9.5% per annum and payments commenced
October 1, 2000. The note was secured by the stock of Able Montgomery, Able
Montgomery's assets, as well as a personal guarantee of Mr. Schmidt. The balance
outstanding on this note at June 30, 2006 and 2005 was $168,701 at each year
end. On December 13, 2006, the Company purchased the assets of Able Montgomery
(See Note 24).
The Company has a note receivable related to the sale of oil delivery
trucks to an independent driver. This independent driver also delivers oil for
the Company. The note bears interest at the rate of 12% per annum. This note was
issued in February 1999 and is payable in twelve monthly installments each year.
The balance on this note at June 30, 2006 and 2005 was $6,878 and $14,160
respectively.
Maturities of the Notes Receivable at June 30, 2006 are as follows:
For the Year Principal
Ending June 30, Amount
--------------- ----------
2007 $ 400,579
2008 725,000
----------
Total $1,125,579
==========
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following at June 30, 2006 and
2005:
June 30,
-------------------------
2006 2005
----------- -----------
Land $ 479,346 $ 479,346
Buildings 1,656,106 1,242,433
Building improvements 251,401 494,037
Trucks 3,826,414 3,594,219
Machinery and equipment 1,028,769 999,315
Office furniture, fixtures and
equipment 219,778 205,319
Fuel tanks 872,096 824,738
Cylinders - propane 385,450 295,476
----------- -----------
$ 8,719,360 $ 8,134,883
Less: accumulated depreciation (4,305,309) (3,850,736)
----------- -----------
Property and equipment, net $ 4,414,051 $ 4,284,147
=========== ===========
At June 30, 2006 and 2005 equipment held under the capital leases had a net
book value of $1,001,291 and $768,248, respectively.
Depreciation of property and equipment, including the amortization of
equipment held under capital leases, was $560,228, $697,780, and $769,742 for
the years ended June 30, 2006, 2005 and 2004, respectively.
F-17
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INTANGIBLE ASSETS
Intangible assets were comprised of the following:
June 30,
-------------------------
2006 2005
----------- -----------
Customer lists $ 610,850 $ 610,850
Website development costs 2,394,337 2,390,587
----------- -----------
3,005,187 3,001,437
Less: accumulated amortization (2,678,529) (2,483,056)
----------- -----------
Intangible assets, net $ 326,658 $ 518,381
=========== ===========
The estimated amortization of customer lists and website development
costs for the five years ending June 30, 2011 and thereafter is as follows:
Website
For the Years Development
Ending June 30, Total Customer Lists Costs
--------------- -------- -------------- -----------
2007 $ 90,057 $ 42,052 $ 48,005
2008 80,016 42,052 37,964
2009 59,945 42,052 17,893
2010 45,885 38,731 7,154
2011 38,067 38,067 --
Thereafter 12,688 12,688 --
-------- -------- --------
$326,658 $215,642 $111,016
======== ======== ========
Information related to intangible assets for the years ended June 30, 2006,
2005, and 2004 is as follows:
2006 2005 2004
--------- --------- ----------
Balance-beginning of the year $ 518,381 $ 960,155 $1,416,668
Amounts capitalized 3,749 43,711 45,639
Amortization (195,472) (485,485) (502,152)
--------- --------- ----------
Balance-end of year $ 326,658 $ 518,381 $ 960,155
========= ========= ==========
Amortization expense for intangible assets was $195,472, $485,485 and
$502,152 for the years ended June 30, 2006, 2005 and 2004, respectively.
At June 30, 2006, the weighted average remaining life of the intangible
assets is 4.8 years and has no residual value.
NOTE 8 - DEFERRED FINANCING COSTS AND DEBT DISCOUNTS
The Company incurred deferred financing costs in conjunction with the sale
of convertible debentures on July 12, 2005 (See Note 12), notes payable on May
13, 2005 (See Note 10), and a line of credit on May 13, 2005 (See Note 9). These
costs were capitalized to deferred financing costs and are being amortized over
the term of the related debt. Amortization of deferred financing costs was
$414,965 and $121,790 for the years ended June 30, 2006, and June 30, 2005
respectively. Additionally, in accordance with EITF 00-27, "Application of Issue
98-5 to Certain Convertible Instruments", the Convertible Debentures issued on
July 12, 2005 were considered to have a beneficial conversion premium feature.
The Company recorded a debt discount of $2,500,000 related to this conversion
premium and warrants issued in connection with the financing. The Company
amortized $2,429,632 of the debt discount during the year ended June 30, 2006.
F-18
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LINE OF CREDIT
On May 13, 2005, the Company entered into a $1,750,000 line-of-credit
agreement with Entrepreneur Growth Capital, LLC. The loan is secured by certain
eligible accounts receivable, inventory and certain other assets as defined in
the agreement. The line bears interest at Citibank's prime rate, plus 4% per
annum (11.25% at June 30, 2006) not to exceed 24%, with a minimum interest of
$11,000 per month. The line also requires an annual facility fee and monthly
collateral management fees equal to 2% and 0.025%, respectively. The balance due
as of June 30, 2006 and 2005 was $1,231,640 and $1,015,468, respectively, and
$518,360 was available under the line of credit at June 30, 2006.
NOTE 10 - NOTES PAYABLE AND NOTES PAYABLE - RELATED PARTY
On February 22, 2005, the Company borrowed $500,000 from Able Income Fund,
LLC ("Able Income"), which is partially-owned by the Company's former CEO,
Timothy Harrington. The loan from Able Income bears interest at the rate of 14%
per annum payable interest only in the amount of $5,833 per month with the
principal balance and any accrued unpaid interest due and payable on May 22,
2005. The Note was secured by a mortgage on property located in Warrensburg
Industrial Park, Warrensburg, New York, owned by Able Energy New York, Inc. Able
Income agreed to surrender the note representing this loan as of September 30,
2005, in exchange for 57,604 shares of Able common stock (based on a conversion
price equal to 80% of the average closing price of our common stock during the
period October 3, 2005 to October 14, 2005). Note conversion expense of $125,000
was recorded during the year ended June 30, 2006 related to this transaction.
Interest expense related to the note payable paid to Able Income Fund during the
fiscal years ended June 30, 2006 and 2005 was $17,499 and $22,499, respectively.
On May 13, 2005, the Company entered into a term loan with Northfield
Savings Bank for $3,250,000. Principal and interest are payable in monthly
installments of approximately $21,400, commencing on July 1, 2005. The note is
secured by Company owned real property located in Rockaway, New Jersey with a
net book value of $977,405 at June 30, 2006 and an assignment of leases and
rents at such location. The initial interest rate is 6.25% per annum on the
unpaid principal balance for the first five (5) years, to be redetermined every
fifth anniversary date (reset date) at 300 basis points over the five (5) year
United States Treasury rate, but not lower than the initial rate; at that time
the monthly payment will be redetermined. The interest rate on default is 4% per
annum above the interest rate then in effect. At the maturity date of June 1,
2030, all amounts owed are due and payable. As of December 31, 2005 the Company
was in default of two non-financial covenants under this agreement for which the
Company received a waiver on February 13, 2006. The balance outstanding on this
note at June 30, 2006 and 2005 was $3,194,299 and $3,250,000, respectively.
On August 27, 1999, the Company entered into a note related to the purchase
of equipment and facilities from B&B Fuels Inc. The total original principal
balance of the note was $145,000. The note is payable in the monthly amount of
principal and interest of $1,721 with an interest rate of 7.5% per annum through
August 27, 2009. The note is secured by a mortgage granted by Able Energy New
York, Inc. on property in Warrensburg, New York with a net book value of
$134,625 at June 30, 2006. The balance due on this note at June 30, 2006 and
2005 was $58,057 and $73,713 respectively.
Maturities on notes payable as of June 30, 2006 are as follows:
For the Year Principal
Ending June 30, Amount
--------------- ----------
2007 $ 76,181
2008 80,120
2009 86,777
2010 74,915
2011 76,104
Thereafter 2,858,259
----------
Total $3,252,356
==========
F-19
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CAPITAL LEASES PAYABLE
The Company has entered into various capital leases for equipment expiring
through December 2010. The capital leases bear interest at rates ranging between
8% and 12% per annum. During the year ended June 30, 2006, the Company purchased
equipment under five capital leases amounting to $276,781.
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
June 30, 2006:
For the Year
Ending June 30, Amount
---------------------------- ---------
2007 $ 380,505
2008 331,562
2009 258,105
2010 100,902
2011 20,831
---------
Total minimum lease payments 1,091,905
Less: amount representing
interest (132,447)
---------
Present value of net minimum
lease payments 959,458
Less current maturities (314,145)
---------
Long-term maturities $ 645,313
=========
NOTE 12 - CONVERTIBLE DEBENTURES
On July 12, 2005, the Company consummated a financing in the amount of
$2,500,000 through the sale of Variable Rate Convertibles Debentures (the
"Convertible Debentures"). The Convertible Debentures had a term of two years
from the date of issuance, which term was amended on November 16, 2005, to 25
months, subject to the occurrence of an event of default, with interest payable
at the rate per annum equal to LIBOR for the applicable interest period, plus
4%, payable on a quarterly basis. The Convertible Debentures may be converted at
the option of the holders into shares of the Company's common stock at a
conversion price of $6.50 per share. In addition, the purchasers received
five-year warrants to purchase 192,308 shares of common stock at an exercise
price of $7.15 per share. These warrants are not exchangeable for cash. The
Company has an optional redemption right (which right shall be mandatory upon
the occurrence of an event of default) to repurchase all of the Convertible
Debentures for 125% of the face amount of the Convertible Debentures plus all
accrued and outstanding interest, as well as a right to repurchase all of the
Convertible Debentures in the event of the consummation of a new financing in
which the Company sells securities at a purchase price that is below the $6.50
conversion price. Deferred financing costs related to this transaction totaled
approximately $217,000, including an $82,000 broker fee and $135,000 in various
legal expenses.
The Company allocated the proceeds from the issuance of the Convertible
Debentures and warrants based on their respective fair values. As such, the
Company discounted the balance of the Convertible Debentures as of the date of
issuance and recorded $900,000 as an adjustment to additional paid-in capital
related to the warrants. In addition, the conversion feature of the Convertible
Debentures is characterized as a beneficial conversion feature. Pursuant to EITF
No. 00-27, the Company has determined that the value of the beneficial
conversion feature is $1,600,000. Accordingly, the Company has further
discounted the balance of the Convertible Debentures as of the date of issuance
and recorded an adjustment of $1,600,000 to additional paid-in capital.
During the year ended June 30, 2006, Convertible Debentures totaling
$2,367,500 in principal amount, plus accrued interest totaling $49,563, were
converted into 371,856 shares of the Company's common stock. Amortization of the
debt discounts and deferred financing costs relating to the Convertible
Debentures for the year ended June 30, 2006 were $2,429,632 and $307,151,
respectively.
F-20
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CONVERTIBLE DEBENTURES, CONTINUED
The Company also originally granted to the purchasers who acquired the
Convertible Debentures an additional investment right, exercisable for a period
of eighteen months from the original investment date of July 18, 2005, to
purchase units consisting of convertible debentures in the aggregate amount of
up to $15,000,000 (the "Additional Debentures") and common stock purchase
warrants equal to 50% of the face amount of such Additional Debentures (the
"Additional Warrants"). Upon the exercise of the Additional Debentures are
convertible into and the Additional Warrants could be exercised for
unregistered, restricted shares of the Company's common stock.
As a part of a negotiated amendment of the purchase agreement, however, the
rights of the Company and the purchasers relating to the Additional Debentures
and Additional Warrants were eliminated as of November 16, 2005, and the
purchase agreement was amended to issue the purchasers a series of warrants (the
"New Warrants") with an exercise price of $7.50 per share. In the aggregate, the
New Warrants permit the holders to acquire up to 5.25 million shares of the
Company's common stock upon proper exercise. Notwithstanding the foregoing,
until the required stockholder approvals are obtained, the purchasers have
agreed not to convert any Convertible Debentures and the Company has the right
not to honor any request to convert, or exercise any Additional Warrants or New
Warrants, which in the aggregate would involve the issuance of a number of
shares that would not exceed 19.999% of the total number of shares of the
Company's common stock outstanding on the trading day prior to the date of the
purchase agreement.
In connection with the issuance of the Convertible Debenture and the
additional investment right, the Company entered into a Registration Rights
Agreement with the Holders relating to the underlying securities. Based on the
interpretive guidance in EITF No. 05-4, view C, since the registration rights
agreement includes provisions for uncapped liquidated damages, the Company
determined that the registration rights is a derivative liability. However due
to various factors including substantial conversion of these Convertible
Debentures and the registration statement becoming effective in December 2005,
the value of the registration rights was deemed to be de minimis and therefore
no liability was recorded in the consolidated financial statements.
NOTE 13 - STOCKHOLDERS EQUITY
STOCK-BASED COMPENSATION
On March 29, 2005, the Company issued an aggregate of 10,000 shares of
restricted stock to its Board of Directors. The restricted stock was valued at
$103,200, using the market price of $10.32 on the date of grant and was
immediately recorded as stock-based compensation.
On December 15, 2005, the Company entered into a consulting agreement,
which included the issuance of options to purchase 25,000 shares of the
Company's common stock at an exercise price of $8.09, the market price on the
date of the agreement. The options were valued at $174,430 using the
Black-Scholes option-pricing model and are being amortized over the 3-year life
of the consulting agreement. Stock-based compensation was $31,493 for the year
ended June 30, 2006 relating to this agreement.
On February 23, 2006, the Company issued options to the outside members of
its Board of Directors to purchase an aggregate of 24,000 shares of the
Company's common stock at an exercise price of $8.32, the market price on the
day of grant. The options were valued at $175,593 using the Black-Scholes
option-pricing model and were being amortized over the board members term
through June 2006.
On March 10, 2006, the Company entered into a consulting arrangement for
prior services rendered, which included the issuance of options to purchase
75,000 shares of the Company's common stock at an exercise price of $7.13, the
market price on the effective date of the arrangement. The options were valued
at $195,036 using the Black-Scholes option-pricing model and was recorded as
stock-based compensation immediately as the options were fully exercisable upon
grant.
On June 23, 2006, the Company entered into a severance agreement with its
former Chief Financial Officer, which included the issuance of options to
purchase 12,500 shares of the Company's common stock at an exercise price of
$4.36, the market price on the date of grant. The options were valued at $31,787
using the Black-Scholes option-pricing model and was recorded as stock-based
compensation immediately as the options were fully exercisable upon grant.
F-21
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS EQUITY - CONTINUED
COMMON STOCK
During October 2005, the Company issued 57,604 shares of common stock
valued at $625,000 upon the conversion of a $500,000 note payable resulting in a
note conversion expense of $125,000 (See Notes 10 and 20).
CONVERTIBLE DEBENTURE CONVERSION
During the year ended June 30, 2006, 371,856 shares of common stock, valued
at $2,417,063, were issued in connection with the conversion of Convertible
Debentures and the related accrued interest (See Note 12).
STOCK OPTIONS
A summary of the Company's stock option activity, and related information
for the years ended June 30, 2004, 2005 and 2006 is as follows:
Weighted
Average
Exercise
Number of Options Price
----------------- --------
Outstanding June 30, 2003 285,840 $3.15
Granted 50,000 2.55
Forfeited (47,840) 3.25
-------- -----
Outstanding June 30, 2004 288,000 3.03
Granted 200,000 5.34
Exercised (198,000) 2.42
Forfeited (52,000) 5.00
-------- -----
Outstanding June 30, 2005 238,000 4.92
Granted 136,500 7.26
Exercised (275,000) 5.83
Forfeited (8,000) 2.25
-------- -----
Outstanding June 30, 2006 91,500 $5.92
======== =====
During the years ended June 30, 2006 and 2005, 275,000 and 198,000 options
were exercised for proceeds of $1,602,750 and $478,600, respectively.
Options exercisable are as follows:
Weighted
Number of Average
Options Exercise Price
--------- --------------
June 30, 2004 288,000 $3.03
======= =====
June 30, 2005 238,000 $4.92
======= =====
June 30, 2006 91,500 $5.92
======= =====
F-22
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS EQUITY, CONTINUED
STOCK OPTIONS - CONTINUED
The weighted-average fair value of options granted during the years ended
June 30, 2006, 2005 and 2004 are as follows:
June 30,
---------------------
2006 2005 2004
---------------------
Where exercise price
equals stock price $4.26 -- $2.04
Where exercise price
exceeds stock price $ -- $2.05 $ --
Where stock price
exceeds exercise price $ -- $7.60 $ --
The following is a summary of stock options outstanding and exercisable at
June 30, 2006 by exercise price range:
Weighted-
Average Weighted-
Remaining Average
Number of Contractual Exercise Intrinsic
Exercise Price Range Options Life (Years) Price Value
-------------------- --------- ------------ --------- ---------
$2.55 - $4.36 42,500 3.2 $3.30 $101,675
$8.09 - $8.32 49,000 4.6 8.20 --
------ --- ----- --------
Totals 91,500 3.9 $5.92 $101,675
====== === ===== ========
EQUITY PLANS
The Able Energy, Inc.'s 1999 Employee Stock Option Plan, as amended,
permits stock option awards up to 700,000 shares of the Company's common stock
to be granted to directors, employees and consultants of the Company. This plan
states that unless otherwise determined by the Board of Directors, an option
shall be exercisable for ten years after the date on which it was granted.
Vesting terms are set by the Board of Directors. There are 134,250 options
remaining available for issuance under this plan at June 30, 2006.
The Able Energy, Inc. 2000 Employee Stock Purchase Plan, which was approved
by the stockholders on June 23, 2000, permits stock option awards up to 350,000
shares of the Company's common stock to be granted to employees of the Company.
There are 350,000 shares remaining available for issuance under this plan at
June 30, 2006.
The Able Energy, Inc. 2000 Stock Bonus Plan, which was approved by the
stockholders on June 23, 2000, permits restricted stock awards up to 350,000
shares of the Company's common stock to be granted to directors, employees and
consultants of the Company. There are 338,000 shares remaining available for
issuance under this plan at June 30, 2006.
The Able Energy, Inc. 2005 Incentive Stock Plan, which was approved by the
stockholders on May 25, 2005, permits stock option, common stock, and restricted
common stock purchase offer awards of up to 1,000,000 shares of the Company's
common stock to be granted to directors, employees and consultants of the
Company. There are 1,000,000 shares remaining available for issuance under this
plan at June 30, 2006.
F-23
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS EQUITY, CONTINUED
WARRANTS
A summary of the Company's stock warrant activity, and related information
for the years ended June 30, 2004, 2005 and 2006 is as follows:
Weighted
Number of Average
Warrants Exercise Price
--------- --------------
Outstanding June 30, 2003 320,000 $4.85
Expired (40,000) 4.00
--------- -----
Outstanding June 30, 2004 280,000 4.97
Exercised (91,213) 5.25
Expired (188,787) 4.83
--------- -----
Outstanding June 30, 2005 -- --
Granted 5,442,309 7.49
Exercised (110,000) 7.49
--------- -----
Outstanding June 30, 2006 5,332,309 $7.49
========= =====
During the years ended June 30, 2006 and 2005, 110,000 and 91,213 warrants
were exercised for proceeds of $825,000 and $0, respectively.
PREFERRED STOCK
The Certificate of Incorporation authorizes the issuance of 10,000,000
shares of preferred stock, $.001 par value per share, with designations, rights
and preferences determined from time to time by the Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without stockholder
approval, to issue classes of Preferred Stock with voting, liquidation,
conversion, or other rights. To date, no preferred stock has been issued.
REGISTRATION STATEMENTS
On May 18, 2006, the Company filed Form S-8 to register 700,000 shares of
its common stock in connection with the 1999 Stock Option Plan, and 350,000
shares of its common stock in connection with the 2000 Stock Bonus Plan.
On December 8, 2005, the Company filed Form S-1 to register 1,569,570
shares of common stock in connection with conversion of Convertible Debentures
sold on July 12, 2005 (See Note 12).
NOTE 14 - PRODUCT SALES INFORMATION
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 60% to 65% of the Company's revenues are earned and received from
October through March, and the majority of such revenues are derived from the
sale of home heating oil. However, the seasonality of the Company's heating oil
business is offset, in part, by the increase in revenues from the sale of diesel
and gasoline fuels to commercial customers during the spring and summer months,
which is the peak season for the use of automobiles and construction equipment.
F-24
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - PRODUCT SALES INFORMATION - CONTINUED
The Company sells several types of products and provides services. The
following are revenues by product groups and services for the years ended June
30, 2006, 2005, and 2004:
June 30,
--------------------------------------
2006 2005 2004
----------- ----------- ----------
# 2 heating oil $47,168,493 $38,681,369 $26,623,897
Gasoline, diesel fuel,
kerosene, propane and
lubricants 24,882,677 20,057,040 13,122,536
Equipment sales, services
and installation 3,041,934 3,134,214 3,100,690
----------- ----------- -----------
Net sales $75,093,104 $61,872,623 $42,847,123
=========== =========== ===========
NOTE 15 - FRANCHISING
The Company has franchise agreements with three franchised businesses
specializing in residential and commercial sales of fuel oil, diesel fuel,
gasoline, propane and related services. The Company provides training,
operational support and use of Company credit for the purchase of product, among
other things, as specified in the agreements. The franchisee has an option to
sell the business back to the Company after 2 years of operation.
The Company signed its first franchise agreement in December 1998. As of
June 30, 2006, there were two Able Energy franchises in operation, located in
East Stroudsburg and Horsham, Pennsylvania (See Note 24 for a discussion of the
Company's purchase of the Horsham franchise).
On June 29, 2001, PriceEnergy.com Franchising, L.L.C. signed its first
franchise agreement. As of June 30, 2006, PriceEnergy.com Franchising, L.L.C.
has one franchise in operation in Norwalk, Connecticut.
The Company stopped actively selling franchises in March 2002 and has not
sold any franchises since that time. Franchise fee revenues were $75,693,
$72,888 and $74,065, for the years ended June 30 2006, 2005 and 2004,
respectively.
NOTE 16 - UNREIMBURSED EXPENSES
On March 14, 2003, a fire and explosion occurred at the Company's facility
in Newton, New Jersey. The Company submitted expenses for reimbursement to their
insurance carrier. The Company was reimbursed approximately $1,041,000.
Un-reimbursed expenses of $318,236, reflected in selling, general and
administrative expenses in the consolidated statement of operations, were
expensed during the year ended June 30, 2005.
NOTE 17 - INCOME TAXES
Components of the provision for (benefit from) income taxes associated with
continuing operations are as follows:
For the Years Ended June 30,
-----------------------------
2006 2005 2004
---- ------- ------------
Current:
Federal $-- $ -- $ (928,660)
State -- 20,913 (124,578)
---- ------- ------------
20,913 (1,053,218)
---- ------- ------------
Deferred:
Federal -- -- 41,336
State -- $ -- 7,222
---- ------- ------------
48,558
---- ------- ------------
$-- $20,913 $(1,004,680)
==== ======= ============
F-25
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - INCOME TAXES - CONTINUED
The provision for (benefit from) income taxes associated with continuing
operations using the statutory federal tax rate as compared to the Company's
effective tax rate is summarized as follows:
For the Years Ended June 30,
----------------------------
2006 2005 2004
----- ----- -----
Federal income taxes at statutory rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal benefit (5.4)% (10.8)% (5.9)%
Permanent differences 3.3% (28.1)% --%
Change in valuation allowance 36.1% 74.1% 3.3%
Other --% (0.2)% (0.1)%
----- ----- -----
Effective income tax rate --% 1.0% (36.7)%
===== ===== =====
Temporary differences between the tax bases of assets and liabilities and
their financial reporting amounts that give rise to deferred tax assets and
liabilities and their approximate tax effects are as follows:
June 30,
-------------------------
2006 2005
----------- -----------
Net operating loss carry forwards $ 4,748,243 $ 2,702,847
Allowance for doubtful accounts 192,260 95,077
Stock-based compensation 95,406 --
----------- -----------
Deferred tax assets - gross 5,035,909 2,797,924
Property and equipment (490,969) (505,317)
----------- -----------
Deferred tax asset - net 4,544,940 2,292,607
Less: Valuation allowance (4,544,940) (2,292,607)
----------- -----------
Total $ -- $ --
=========== ===========
Increase in valuation allowance $ 2,252,333 $ 1,599,363
=========== ===========
The Company has federal net operating loss ("NOL") carry forwards of
approximately $11,715,000 and $6,592,000 as of June 30, 2006 and 2005,
respectively. The federal NOL carryforwards expire between June 30, 2020 and
2026. Able Energy, Inc, Able Oil Company and PriceEnergy.Com, Inc. have
aggregate New Jersey NOL carry forwards of approximately $12,683,000 and
$7,585,000 as of June 30, 2006 and 2005, respectively. The New Jersey net
operating loss carryforwards expire between June 30, 2007 and 2013. The federal
and state NOL carry forwards at June 30, 2006 and 2005 include approximately
$3,933,000 and $1,784,000 respectively, related to windfall tax deductions for
which a benefit will be recorded to additional paid-in capital when realized.
The Company's ability to use its federal NOL carryforwards may be subject to an
annual limitation in future years pursuant to Section 382 of the Internal
Revenue Code ("IRC").
These carry forward losses are available to offset future taxable income,
if any. The Company's utilization of this carry forward against future taxable
income is subject to the Company having profitable operations or a profitable
sale of Company assets, which creates taxable income. Due to the uncertainty
surrounding the realization of the benefits associated with the carry forward
losses and the other temporary differences, the Company has provided a valuation
allowance for the entire amount of the net deferred tax assets as of June 30,
2006 and 2005.
F-26
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SALE OF SUBSIDIARY AND DISCONTINUED OPERATIONS
On March 1, 2004, the Company sold the operating assets of its subsidiary,
Able Propane, LLC, which consisted primarily of inventory and property and
equipment, and as a result discontinued the sale of propane fuel in the State of
New Jersey. The total sales price was $4,400,000 of which $3,000,000 was
received in cash, and the balance was payable in the form of notes receivable
totaling $1,400,000. This consisted of two notes, of $500,000 and $900,000,
respectively. The $500,000 note bears interest at 6% per annum and is due March
1, 2008. The $900,000 note bears no interest and is due in four equal
installments of $225,000 each, on March 1, 2005, 2006, 2007 and 2008. The
Company received the amounts of $225,000 in each on March 6, 2007 and during
March 2006 and 2005, respectively, pursuant to the terms of the agreement. The
Company also has signed a non-competition agreement.
Following the sale, the results of Able Propane, LLC were reported in the
Company's consolidated statements of operations and cash flows, separately, as
discontinued operations for the year ended June 30, 2004. Able Propane, LLC
represented the primary vehicle by which the Company engaged in the sale of
propane fuel.
Summarized financial information for discontinued operations for the year
ended June 30, 2004 is as follows:
Total Revenues $1,817,902
==========
Loss from discontinued operations - net of tax (34,630)
Gain on sale of subsidiary - net of tax 1,601,090
----------
Net gain from discontinued operations - net of tax $1,566,460
==========
NOTE 19 - 401(K) PLAN
Able Oil Company established a Qualified Profit Sharing Plan under IRC
Section 401(k). The Company is obligated to match 25% of qualified employee
contributions up to 6% of salary. 401(k) expense was approximately $30,700,
$27,500 and $26,600 for the years ended June 30, 2006, 2005 and 2004,
respectively.
NOTE 20 - RELATED PARTY TRANSACTIONS
PRICEENERGY.COM
The following current officers, former officer and related party of this
Company own stock in the subsidiary, PriceEnergy.com, which was incorporated in
November 1999. The remaining shares of PriceEnergy.com are held by Able Energy,
Inc.
Former Officer, Timothy Harrington 22.5%
Acting CEO, Christopher P. Westad 2.0%
Chief Operating Officer, John L.Vrabel 6.2%
Former Spouse of Acting CEO, for which
Christopher P. Westad disclaims a beneficial interest 2.0%
SALE OF OVER 50% INTEREST IN THE COMPANY BY FORMER CEO
On December 14, 2004, the Company's major stockholder who was also the
Company Chief Executive Officer ("2004 CEO") sold his 50% plus interest, or
approximately 1,000,000 shares, in the Company to All American. Effective on
March 31, 2005, the former CEO resigned from the Company and from the Board of
Directors.
ACQUISITION OF ASSETS OF ALL AMERICAN
At June 30, 2006, All American owns approximately 32.0% of the Company's
outstanding common stock. Approximately 85.0% of the common stock of All
American is owned by the Chelednik Family Trust, a trust established by Mr.
Nocito, an officer of the Company and his wife for the benefit of their family
members and of which Gregory D. Frost, a Director of the Company, who is
currently on an indefinite leave of absence as Chief Executive Officer and
Chairman of the Board, is a co-trustee. The balance of the outstanding common
stock of All American is owned by a limited liability company owned by Mr. Frost
and his wife.
F-27
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - RELATED PARTY TRANSACTIONS - CONTINUED
ACQUISITION OF ASSETS OF ALL AMERICAN - CONTINUED
The Company entered into a Stock Purchase Agreement on June 16, 2005 (which
was subsequently amended and restated into the Asset Purchase Agreement as of
the same date) ("Purchase Agreement") with all of the stockholders (and then
with All American with respect to the Purchase Agreement) (the "Sellers") of All
American in connection with the Company's acquisition of the assets of All
American. This transaction was approved on August 29, 2006 at a special meeting
of the Company's stockholders; however, at March 31, 2007, it has not yet been
consummated. Under the terms of the Purchase Agreement, upon closing, the
Company will deliver to the Sellers 11,666,667 shares of the Company's
restricted common stock, par value $.001 per share, at $3.00 per share for an
aggregate purchase price of $35,000,000.
ALL AMERICAN FINANCING
The Company loaned All American $1,730,000 as evidenced by a promissory
note dated July 27, 2005. As of June 30, 2006, this note is still outstanding
with a maturity date of June 15, 2007. The interest income related to this note
for the year ended June 30, 2006 was $70,575. The note and accrued interest
receivable in the amount of $1,800,575 have been classified as contra-equity on
the Company's consolidated balance sheet as of June 30, 2006.
On June 1, 2005, All American completed a financing that, if the
acquisition of All American is consummated, may impact the Company. Pursuant to
the terms of the Securities Purchase Agreement (the "Agreement") among All
American and certain purchasers ("Purchasers"), the Purchasers loaned All
American an aggregate of $5,000,000, evidenced by Secured Debentures dated June
1, 2005 (the "Debentures"). The Debentures are due and payable on June 1, 2007,
subject to the occurrence of an event of default, with interest payable at the
rate per annum equal to LIBOR for the applicable interest period, plus 4%
payable on a quarterly basis on April 1st, July 1st, October 1st and January
1st, beginning on the first such date after the date of issuance of the
Debentures. Upon the acquisition of All American and the Company's board
approving the transfer of the debt that would also require the transfer of
additional assets into All American as consideration for the Company to assume
the debt, then the Debentures are convertible into shares of the Company's
common stock at a conversion rate of the lesser of (i) the purchase price paid
by the Company for each share of All American common stock in the acquisition,
or (ii) $3.00, subject to further adjustment as set forth in the agreement.
The loan is secured by real estate property owned by All American in
Pennsylvania and New Hampshire. Pursuant to the Agreement, these Debentures are
in default, as All American has not completed the merger with the Company prior
to the expiration of the 12-month anniversary of the Agreement. Pursuant to the
Additional Investment Right (the "AIR Agreement") among All American and the
Purchasers, the Purchasers may loan All American up to an additional $5,000,000
of secured convertible debentures on the same terms and conditions as the
initial $5,000,000 loan, except that the conversion price will be $4.00.
If the Company consummates the acquisition of All American, upon such
consummation, the Company will assume the obligations of All American under the
Agreement, the Debentures and the AIR Agreement through the execution of a
Securities Assumption, Amendment and Issuance Agreement, Registration Rights
Agreement, Common Stock Purchase Warrant Agreement and Variable Rate Secured
Convertible Debenture Agreement, each between the Purchasers and the Company
(the "Able Energy Transaction Documents"). Such documents provide that All
American shall cause the real estate collateral to continue to secure the loan,
until the earlier of full repayment of the loan upon expiration of the
Debentures or conversion by the Purchasers of the Debentures into shares of the
Company's common stock at a conversion rate of the lesser of (i) the purchase
price paid by the Company for each share of All American common stock in the
acquisition, or (ii) $3.00, (the "Conversion Price"), subject to further
adjustment as set forth in the Able Energy Transaction Documents. However, the
Conversion Price with respect to the AIR Agreement shall be $4.00. In addition,
the Purchasers shall have the right to receive five-year warrants to purchase
2,500,000 of the Company's common stock at an exercise price of $3.75 per share.
Pursuant to the Able Energy Transaction Documents, the Company shall also have
an optional redemption right (which right shall be mandatory upon the occurrence
of an event of default) to repurchase all of the Debentures for 125% of the face
amount of the Debentures plus all accrued and outstanding interest, as well as a
right to repurchase all of the Debentures in the event of the consummation of a
new financing in which the Company sells securities at a purchase price that is
below the Conversion Price. It is currently contemplated that if the Able/All
American transaction is consummated, the stockholders of All American will
escrow a sufficient number of shares to satisfy the conversion of the $5,000,000
in outstanding Debentures in full.
F-28
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - RELATED PARTY TRANSACTIONS - CONTINUED
ALL AMERICAN FINANCING - CONTINUED
On May 19, 2006, the Company entered into a letter of interest agreement
with Manns Haggerskjold of North American, Ltd. ("Manns"), for a bridge loan to
the Company in the amount of $35,000,000 and a possible loan in the amount of
$1.5 million based upon the business combination with All American ("Manns
Agreement"). The terms of the letter of interest provided for the payment of a
commitment fee of $750,000, which was non-refundable to cover the due-diligence
cost incurred by Manns. On June 23, 2006, the Company advanced to Manns $125,000
toward the Manns Agreement due diligence fee. During the period July 7, 2006
through November 17, 2006, the Company advanced an additional $590,000 toward
the Manns Agreement due diligence fee.
During August 2006, the Company received a Formal Order from the SEC (See
Note 24). Thereafter, on September 22, 2006, the Company and Manns agreed that
the commitment to fund being sought under the Manns Agreement would be issued to
All American, since the stockholders had approved an acquisition of All American
by Able and since the collateral for the financing by Mann would be
collateralized by real estate owned by All American. Accordingly, on September
22, 2006, All American agreed that in the event Manns funds a credit facility to
All American rather than the Company, upon such funds being received by All
American, it will immediately reimburse the Company for all expenses incurred
and all fees paid to Manns in connection with the proposed credit facility from
Manns to the Company.
NOTE RECEIVABLE-RELATED PARTIES
In connection with two loans entered into by the Company in May 2005, fees
in the amount of $167,500 were paid to Unison Capital Corporation ("Unison"), a
company controlled by Mr. Nocito, an officer of the Company. This individual
also has a related-party interest in All American. Subsequent to the payments
being made and based on discussions with Unison, it was determined the $167,500
was an inappropriate payment and Unison agreed to reimburse this amount to the
Company over a twelve month period beginning in October 2005. As of June 30,
2006, no payments have been made and this note is still outstanding. The note
maturity has been extended to May 2, 2007. The interest of $11,730 is accrued
through June 30, 2006. The note and accrued interest have been classified as
contra-equity in the accompanying consolidated balance sheet.
Prior to fiscal 2001, the Company had advanced approximately $67,000 to a
stockholder and former Chief Executive Officer ("CEO"). At June 30, 2006, the
Company charged these costs to consulting fees and the amount is reflected in
selling, general and administrative expense for the year ended June 30, 2006.
LEGAL FEES
During the year ended June 30, 2005, the Company paid $20,000 in legal fees
to a law firm in which one of the members of the Board of Directors was a
partner which is included in selling, general and administrative expenses on the
accompanying consolidated statement of operations.
CONSULTING FEES
The Company entered into a consulting agreement with its former CEO,
Timothy Harrington, on February 16, 2005. The agreement is for two years and
provides for annual fees of $60,000 to be paid in monthly installments. In
addition, the former CEO received options, which were fully vested upon grant,
to purchase 100,000 shares of the Company's common stock at $4.00 per share. The
options were exercised on July 7, 2005. The former CEO was paid $60,000 related
to this agreement during the year ended June 30, 2006.
On February 27, 2006, the Company entered into a consulting agreement with
Able Income Fund LLC, a company for which the former CEO is an owner. Consulting
expense related to this agreement for the year ended June 30, 2006 was $17,833
which is included in selling, general and administrative expenses on the
accompanying consolidated statement of operations.
During the year ended June 30, 2006, the Company paid consulting fees to a
company owned by a member of the Company's Board of Directors amounting to
approximately $54,000 which is included in selling, general and administrative
expenses on the accompanying consolidated statement of operations.
F-29
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
On July 1, 2004, the Company entered into a three-year employment agreement
with Christopher Westad, the Company's President and acting CEO. Pursuant to the
agreement, he will be compensated at an annual salary of $141,600 and will be
eligible for an annual bonus and stock option grants which will be separately
determined by the Compensation Committee of the Board of Directors.
On July 1, 2004, the Company entered into a three-year employment agreement
with John Vrabel, the President of PriceEnergy.com, Inc. Pursuant to the
agreement, he will be compensated at an annual salary of $141,600 and will be
eligible for an annual bonus and stock option grants which will be separately
determined by the Compensation Committee of the Board of Directors.
On October 12, 2005, the Company entered into a one-year employment
agreement with Gregory Frost, the Company's CEO (who has been on indefinite paid
leave of absence since September 28, 2006). Pursuant to the agreement, he will
be compensated at an annual salary of $250,000 and will be eligible for an
annual bonus and stock option grants which will be separately determined by the
Compensation Committee of the Board of Directors. Pursuant to the agreement, the
employment with Mr. Frost was automatically renewed through October 11, 2007
(See Note 24).
As of June 30, 2006, the total commitment under employment agreements is
approximately $627,000.
OPERATING LEASES
The Company is obligated under certain property and equipment
non-cancellable operating lease agreements. The rental properties include a
lease of the Company's headquarters in Rockaway, New Jersey, office space in New
York City and office space in Easton, Pennsylvania. These leases expire at
various dates through April 2009. Rent expense was $185,181, $165,565 and
$158,066 for the years ended June 30, 2006, 2005 and 2004, respectively. Future
minimum payments due under these leases are as follows:
For the Year Ending June 30, Amount
---------------------------- --------
2007 $263,293
2008 208,912
2009 167,632
--------
Total minimum lease payments $639,837
========
PURCHASE COMMITMENTS
The Company is obligated to purchase #2 heating oil under various contracts
with its suppliers. As of June 30, 2006, total open commitments under these
contracts are approximately $4,297,000 and expire on various dates through the
end of April 2007.
MAJOR VENDORS
The Company has three supply contracts for the purchase of #2 heating oil,
representing 21.6% of the Company's annual heating fuel purchases. The Company
purchases its remaining fuel supplies on the spot market. The Company satisfied
its inventory requirements through nine different suppliers, the majority of
which have significant domestic fuel sources, and many of which have been
suppliers to us for over five years.
LITIGATION
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 Company's consolidated financial condition
or operations.
Following an explosion and fire that occurred at the Company's facility in
Newton, New Jersey on March 14, 2003, and through the subsequent clean up
efforts, the Company has cooperated fully with all local, state and federal
agencies in their investigations into the cause of this accident (See Note 16).
F-30
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - COMMITMENTS AND CONTINGENCIES - CONTINUED
LITIGATION - CONTINUED
A lawsuit (known as Hicks vs. Able Energy, Inc.) was filed against the
Company by residents who allegedly suffered property damages as a result of the
March 14, 2003 explosion and fire. The Company's insurance carrier is defending
the Company as it related to compensatory damages. The Company has retained
separate legal counsel to defend the Company against the punitive damage claims.
On June 13, 2005, the Court granted a motion certifying a plaintiff class action
which is defined as "All Persons and Entities that on and after March 14, 2003,
residing within a 1,000 yard radius of Able Oil Company's fuel depot facility
and were damaged as a result of the March 14, 2003 explosion". As of March 31,
2007, this lawsuit is in the discovery phase. The class certification is limited
to economic loss and specifically excludes claims for personal injury from the
Class Certification. The Company believes that the Class claims for compensatory
damages is within the available limits of its insurance. On September 13, 2006,
the plaintiffs counsel made a settlement demand of $10,000,000, which the
Company believes to be excessive and the methodology upon which is fundamentally
flawed. The Company intends to vigorously defend the claim.
In addition to the class action, seven property owners, who were unable to
reach satisfactory settlements with the Company's insurance carrier, have filed
lawsuits for alleged property damages suffered as a result of the March 14, 2003
explosion and fire. During February 2007, the Company's insurance carrier
entered into a settlement agreement with one of the property owners. The
Company's insurance carrier is defending the Company as it related to the
remaining six property damage claims. The Company's counsel is defending
punitive damage claims. The Company believes that compensatory damage claims are
within the available limits of insurance and reserves for losses have been
established, as deemed appropriate, by the insurance carrier. There were a total
of 227 claims filed against the Company for property damages and 222 claims have
been settled by the Company's insurance carrier resulting in the remaining five
lawsuits as described in this paragraph. The Company believes the remaining five
unsettled lawsuits will not have a material adverse effect on the Company's
consolidated financial condition or operations.
The Company has been involved in non material lawsuits in the normal course
of business. These matters are handled by the Company's insurance carrier. The
Company believes that the outcome of the above mentioned legal matters will not
have a material effect on the Company's consolidated financial statements.
OTHER CONTINGENCIES
Related to its 1999 purchase of the property on Route 46 in Rockaway, New
Jersey, the Company settled a lawsuit with a former tenant of the property and
received a lump sum settlement of $397,500. This sum was placed in an attorney's
escrow account for payment of all environmental remediation costs. Through June
30, 2006, the Company has been reimbursed for approximately $290,000 of costs
and another approximately $87,000 are un-reimbursed and are included in prepaid
expenses and other current assets in the accompanying consolidated balance sheet
and must be presented to the attorney for reimbursement. The environmental
remediation is still in progress on this property. The majority of the free
standing product has been extracted from the underground water table. The
remainder of the remediation will be completed over the course of the next eight
to ten years using natural attenuation and possible bacterial injection and
based upon the information available to the Company at March 31, 2007, in the
opinion of the Company's management, the amount remaining available in the trust
is sufficient to fund the remaining remediation.
On September 26, 2006, the New Jersey Department of Environmental
Protection ("NJDEP") conducted a site update inspection, which included a review
of the Route 46 site and an update of the progress of the approved remediation.
The NJDEP Northern Office director who conducted the inspection, concluded that
the remediation progress was proceeding appropriately and that the NJDEP
approved of the Company's continued plan to eliminate the remaining underground
product.
For the year ended June 30, 2006, the Company has acknowledged that it has
not yet filed certain payroll and SEC filings, on behalf of certain officers,
related to the compensation earned upon the exercise of stock options, events
which may subject the Company to additional payroll related liabilities, the
amounts of which cannot be determined at this time. The Company has not yet made
such required filings.
F-31
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED AND RESTATED)
The selected quarterly financial data for the periods within the fiscal
year ended June 30, 2006, as presented below, have been restated and correct
errors relating to (1) the amortization of a customer list; (2) the deferral of
revenue recognition associated with certain twelve month service contracts; (3)
the improper accrual of audit fees; (4) the issuance and cancellation of common
stock in regard to non-performance by a consultant under its consulting
agreement with the Company; (5) the timing of the recording of directors' fees;
(6) the timing of the recording of bad debt expense; and (7) the deferral of
previously recorded revenue. In addition, certain reclassifications have been
made to the selected quarterly financial data for the fiscal year ended June 30,
2005 in order to conform to the current period presentation.
CUSTOMER LIST AMORTIZATION
The Company was amortizing customer lists aggregating approximately,
$611,000 (which were purchased in various acquisitions) over estimated useful
lives of 10-15 years until July 2001, when the net book value was $422,728, at
which time the Company stopped amortizing the same. The Company has reassessed
its position and has determined that the customer lists should have continued to
be amortized, in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets", which states that intangible assets must be amortized over their
estimated useful life unless that useful life is determined to be indefinite.
Accordingly, the Company has recognized additional amortization expense of
$10,513 during each of the three previously reported interim quarterly periods
during the year ended June, 30 2006.
SERVICE CONTRACT REVENUE DEFERRAL
In the ordinary course of business, the Company offers a twelve month
service contract related to residential customers' heating equipment. The
Company's policy is to defer the revenue associated with these contracts,
recognizing the revenue over the life of the respective contracts. However, the
Company's policy was not applied correctly. The Company has recorded the
deferrals required at the various reporting dates and the impact has been to
increase revenue by $3,996 and $192,621 for the quarterly periods ended
September 30, 2005 and December 31, 2005, respectively.
AUDIT FEE ACCRUAL
Previously, the Company recorded an accrual for audit fees that it
estimated would be incurred subsequent to the date of the consolidated financial
statements, with respect to the audit of the Company's current period
consolidated financial statements. The Company subsequently determined that the
accrual for the audit services which had not yet been performed was improper.
Accordingly, the Company reversed $110,000 of accrued expenses during the
quarterly period ended March 31, 2006, with a corresponding reduction of
selling, general and administrative expenses. The $31,337 of audit fees that
were reversed as of June 30, 2005, were recorded during the quarterly period
ended September 30, 2005.
CANCELLATION OF STOCK DUE TO NON-PERFORMANCE BY A CONSULTANT
During March 2005, the Company issued common stock to a consultant pursuant
to the terms of a consulting agreement. Subsequently, the Company determined
that the consultant did not perform in accordance with the consulting agreement
and the Company has filed suit demanding that the shares be returned. The
Company's position is that the share issuance has been cancelled ab initio, as
if the shares were never issued. Accordingly, selling, general and
administrative expense was reduced by $9,740 and increased by $22,727 during the
quarterly periods ended September 30, 2005 and December 31, 2005, respectively.
Previously, the 142,857 shares issued to the consultant were treated as
cancelled as of October 1, 2005.
TIMING OF THE RECORDING OF DIRECTORS' FEES
During the quarterly period ended March 31, 2006, the Company recorded a
charge for Directors' fees, a portion of which it subsequently determined should
have been recorded in prior periods. Accordingly, adjustments have been
reflected to record charges of $42,886 in each of the quarterly periods ended
September 30, 2005 and December 31, 2005, with an offsetting credit of $85,772
to the charges previously recorded during the quarterly period ended March 31,
2006.
TIMING OF THE RECORDING OF BAD DEBT EXPENSE
In the quarterly period ended December 31, 2005, the Company recorded a
charge for bad debt expense, a portion of which it subsequently determined
should have been recorded in a prior period. Accordingly, an adjustment has been
reflected to record a charge of $49,461 in the quarterly period ended September
30, 2005 with an offsetting $49,461 credit to the charge previously recorded
during the quarterly period ended December 31, 2005.
F-32
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED AND RESTATED) - CONTINUED
DEFERRAL OF PREVIOUSLY RECORDED REVENUE
During the quarterly period ended December 31, 2005, the Company recognized
revenue which was primarily related to a gain which had been deferred from the
December 1998 sale of Able Oil Company Montgomery, Inc. The Company subsequently
determined that the deferred gain did not yet qualify for recognition until
December 2006 when the Company purchased the business. (See Note 24).
Accordingly, $79,679 of revenue was reversed from the quarterly period ended
December 31, 2005.
IMPACT
The following summarizes the effect of the adjustments discussed above on
the previously reported statements of operations during the fiscal year ended
June 30, 2006:
For the Year Ended June 30, 2006
-----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
(Restated) (Restated) (Restated)
Total revenues as previously reported $13,131,413 $22,340,176 $26,265,365 $ N.A.
Adjustments 1,652 115,286 -- N.A.
----------- ----------- ----------- -----------
Restated total revenues $13,133,065 $22,455,462 $26,265,365 $13,239,212
=========== =========== =========== ===========
Gross profit as previously reported $ 923,169 $ 2,026,410 $ 2,454,557 $ N.A.
Adjustments 200,322 369,842 328,702 N.A.
----------- ----------- ----------- -----------
Restated gross profit $ 1,123,491 $ 2,396,252 $ 2,783,259 $ 1,164,893
=========== =========== =========== ===========
Net loss as previously reported $(1,342,032) $(1,900,507) $(1,521,016) $ N.A.
Adjustments (120,458) 86,277 185,262 N.A.
----------- ----------- ----------- -----------
Restated net loss $(1,462,490) $(1,814,230) $(1,335,754) $(1,629,084)
=========== =========== =========== ===========
Basic and diluted earnings per share:
Continuing operations
Net loss as previously reported $ (0.59) $ (0.74) $ (0.52) $ N.A.
Adjustments (0.01) 0.04 0.07 N.A.
----------- ----------- ----------- -----------
Net loss as restated $ (0.60) $ (0.70) $ (0.45) $ (0.53)
=========== =========== =========== ===========
Basic and diluted average number of
common shares outstanding:
As previously reported 2,285,756 2,579,754 2,939,379 N.A.
Adjustments 159,685 (1,549) -- N.A.
----------- ----------- ----------- -----------
As restated 2,445,441 2,578,205 2,939,379 3,100,758
=========== =========== =========== ===========
(N.A. - not applicable)
In the table above, earnings (loss) per share for each quarter were
computed independently using the weighted-average number of shares outstanding
during the quarter. However, earnings (loss) per share for the year were
computed using the weighted-average number of shares outstanding during the
year. As a result, the sum of the earnings per share for the four quarters may
not equal the full-year earnings (loss) per share.
F-33
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED AND RESTATED) - CONTINUED
IMPACT -CONTINUED
Below are the summarized quarterly financial data for the year ended June
30, 2005:
For the Year Ended June 30, 2005
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ----------- ----------- -----------
Continuing operations:
Revenue $8,209,493 $18,942,525 $23,648,581 $11,072,024
========== =========== =========== ===========
Gross profit $ 580,667 $ 1,836,588 $ 2,799,580 $ 933,635
========== =========== =========== ===========
Net loss (income) $ (942,411) $ 38,999 $ 557,826 $(1,834,505)
========== =========== =========== ===========
(Loss) earnings per share:
Basic
Continuing operations $ (0.47) $ 0.02 $ 0.27 $ (0.79)
========== =========== =========== ===========
Diluted
Continuing operations $ (0.47) $ 0.02 $ 0.27 $ (0.79)
========== =========== =========== ===========
Average number of common shares
outstanding:
Basic 2,013,250 2,013,250 2,030,281 2,314,463
========== =========== =========== ===========
Diluted 2,013,250 2,038,786 2,052,481 2,314,463
========== =========== =========== ===========
In the table above, earnings (loss) per share from continuing operations
for each quarter was computed using the weighted-average number of shares
outstanding during the quarter. However, earnings (loss) per share from
continuing operations for the year were computed using the weighted-average
number of shares outstanding during the year. As a result, the sum of the loss
per share for the four quarters may not equal the full year earnings (loss) per
share.
NOTE 23 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following represents a summary of allowance for doubtful accounts for
the years ended June 30, 2006, 2005 and 2004, respectively:
Beginning Ending
For the Year Ended June 30, Balance Additions Deductions Balance
--------------------------- --------- --------- ---------- --------
2004 $279,913 $109,372 $197,063 $192,222
2005 $192,222 $163,663 $117,836 $238,049
2006 $238,049 $296,021 $ 71,984 $462,086
NOTE 24 - SUBSEQUENT EVENTS
CONVERTIBLE NOTE PAYABLE TO LAURUS
On July 5, 2006, the Company closed a Securities Purchase Agreement entered
into on June 30, 2006 whereby it sold a $1,000,000 convertible term note to
Laurus. The Company paid fees of $49,000 to Laurus and received net proceeds of
$951,000. The Company incurred escrow fees of $1,500, which in the aggregate
will be capitalized as deferred financing costs and amortized on a straight-line
basis over the three year term of the convertible term note. The Company will
pay interest on the note monthly in arrears commencing on August 1, 2006 at a
rate equal to the prime rate published in the Wall Street Journal plus 2%,
calculated as of the last business day of the calendar month. Amortizing
payments of the principal amount of the note shall be made by the Company
commencing on June 30, 2007 and on the first business day of each succeeding
month thereafter in the amount of $27,778 through the maturity date of the note
on June 30, 2009.
F-34
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - SUBSEQUENT EVENTS - CONTINUED
CONVERTIBLE NOTE PAYABLE TO LAURUS - CONTINUED
The note is convertible at the option of Laurus into shares of the
Company's common stock, at an initial fixed conversion price of $6.50 per share.
The conversion rate of the note is subject to certain adjustments and
limitations as set forth in the note.
In connection with Laurus' purchase of the note, the Company granted Laurus
a warrant exercisable through June 30, 2011 to purchase 160,000 shares of the
Company's common stock at a price of $5.57 per share, subject to the adjustments
and limitations set forth in the warrant.
The Company agreed that within sixty days from the date of issuance of the
note and warrant that it would file a registration statement with the SEC
covering the resale of the shares of the Company's stock issuable upon
conversion of the note and the exercise of the warrant. This registration
statement would also cover any additional shares of stock issuable to Laurus as
a result of any adjustment to the fixed conversion price of the note or the
exercise price of the warrant.
These warrants were valued at $986,000, using the Black-Scholes model,
applying an interest rate of 5.19%, volatility of 98.4%, dividends of $0 and a
contractual term of five years.
In accordance with EITF 00-27 and EITF 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjusted
Conversion Ratios", on a relative fair value basis, the warrants were recorded
at a value of approximately $472,000. The conversion feature, utilizing an
effective conversion price and market price of the common stock on the date of
issuance of $3.00 and $7.70, per share, respectively, was valued at
approximately $723,000 which was then limited to $479,000, the remaining
undiscounted value of the proceeds of the convertible term note.
Accordingly, the Company has recorded a debt discount related to the
warrants of $472,000, the beneficial conversion feature of the convertible term
note of $479,000 and for issuance costs paid to the issuer of $49,000, which
amounts are amortizable utilizing the interest method over the three year term
of the convertible term note.
The Company is required to file a registration statement covering these
convertible term notes and the related warrants within 60 days of the date of
issuance (or September 3, 2006). As of March 31, 2007, the Company is not able
to file a registration statement and Laurus has not yet waived its rights under
this agreement. There are no stipulated liquidated damages outlined in the
Registration Rights Agreement. The holder is entitled to exercise all rights
granted by law and under this Agreement, including recovery of damages, and will
be entitled to specific performance of its rights under this agreement. Mr.
Frank Nocito, an officer and a stockholder and Mr. Stephen Chalk, a director
have each provided a personal guarantee, of up to $425,000 each, in connection
with this financing.
On July 5, 2006, the Company received $951,000 from Laurus Master Fund Ltd.
("Laurus") in connection with the issuance of a convertible term note.
Thereafter, the Company loaned $905,000 of the Laurus proceeds to All American
in exchange for a note receivable. All American used such proceeds to acquire
70% of the outstanding stock of CCI Group, Inc. ("CCIG") pursuant to a Share
Exchange Agreement.
The Company received from Laurus a notice of a claim of default dated
January 10, 2007. Laurus claimed default under section 4.1(a) of the Term Note
as a result of non-payment of interest and fees in the amount of $8,826 that
were due on January 5, 2007, and a default under sections 6.17 and 6.18 of the
Securities Purchase Agreement for "failure to use best efforts (i) to cause CCIG
to provide Laurus on an ongoing basis with evidence that any and all obligations
in respect of accounts payable of the project operated by CCIG's subsidiary,
Beach Properties Barbuda Limited ("BPBL"), have been met; and (ii) cause CCIG to
provide within 15 days after the end of each calendar month, unaudited/internal
financial statements (balance sheet, statements of income and cash flow) of the
Beach House and evidence that BPBL and the Beach House are current in all of
their ongoing operational needs". On March 7, 2007, Laurus notified the Company
that it waived the event of default and that Laurus had waived the requirement
for the Company to make the Default Payment.
The aforementioned interest and fees were paid by the Company on January
11, 2007. Further, the Company has used its best efforts to cause CCIG to
provide reports and information to Laurus as provided for in the securities
purchase agreement. CCIG has informed the Company that they have initiated a
legal proceeding in Antigua against Laurus. Among the subjects of that
proceeding are the validity and enforceability of agreements that the holder is
now seeking to have Company use its best efforts to have CCIG comply with.
Further, the pending proceeding is a material intervening event that now
supersedes the Company's best efforts as to these obligations since the matter
has been submitted to the courts.
F-35
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - SUBSEQUENT EVENTS - CONTINUED
CONVERTIBLE NOTE PAYABLE TO LAURUS - CONTINUED
Moreover, the court in that legal proceeding has issued a temporary
restraining order precluding the holder from enforcing its remedies under those
agreements with CCIG and its subsidiaries. Although the Company is not a party
to the proceeding and not specifically bound by the temporary restraining order,
it is the Company's position that it should not take any action with regard to
the agreements between Laurus and CCIG while the proceeding is pending and the
temporary restraining order is in effect.
ALL AMERICAN NOTE RECEIVABLE
On July 5, 2006, the Company entered into an agreement with All American,
whereby the Company agreed to loan All American the sum of $905,000 from the
$951,000 of net proceeds the Company received from the sale of a note to Laurus.
The loan was made by the Company directly to All American and by the advancement
of funds on behalf of All American. The loan was evidenced by a promissory note
made by All American in favor of the Company in the principal amount of $905,000
bearing interest at the prime rate as published in the Wall Street Journal plus
two percent (2.0%).
In consideration for the loan, All American has granted the Company an
option, ("the option") exercisable in the Company's sole discretion, to acquire
80% of the CCIG stock All American acquired from CCIG pursuant to a Share
Exchange Agreement. In addition, in the event that the Company exercises the
Option, 80% of the outstanding principal amount of the All American note will be
cancelled and shall be deemed fully paid and satisfied. The remaining principal
balance of the All American note and all outstanding and accrued interest on the
loan shall be due and payable one year from the exercise of the Option. The
Option must be exercised in whole and not in part and the Option expires on July
5, 2008. In the event the Company does not exercise the Option, the All American
note shall be due in two years, on July 6, 2008, unless the Company has issued a
declaration of intent not to exercise the Option, in which case the All American
note shall be due one year from such declaration. The Company has determined,
that given the lack of liquidity in the shares of CCIG and the lack of
information in regard to the financial condition of CCIG, that this option has
no value and has not been recorded by the Company.
CONVERTIBLE DEBENTURES ISSUANCE
On August 8, 2006, the Company issued $2,000,000 of convertible debentures
to certain investors. The convertible debentures are convertible into shares of
the Company's common stock at a conversion price of $6.00 per share, which was
the market value of the Company's common stock on the date of issuance. The
Company received net proceeds of $1,820,000 and incurred expenses of legal fees
of $40,000 and broker fees of $140,000 in connection with this financing that
will be charged to deferred financing costs and amortized on a straight-line
basis over the two year term of the convertible debenture. The debentures bear
interest at the greater of either LIBOR plus 6.0%, or 12.5%, per annum, and such
interest is payable quarterly to the holder either in cash or in additional
convertible debentures.
At any time, the holder may convert the convertible debenture into shares
of common stock at $6.00 per share, or into 333,333 shares of common stock which
represents a conversion at the face value of the convertible debenture.
Upon consummation by the Company of the potential business combination
transaction with All American, the Company may redeem the convertible debentures
at a price of 120% of the face amount, plus any accrued but unpaid interest and
any unpaid liquidated damages or under certain conditions, the Company may
redeem the amount at 120% of the face amount in cash, or redeem through the
issuance of shares of common stock at the lower of the existing conversion price
or 90% of the volume weighted average price, as stipulated in the agreement.
The investors also were issued 333,333, 166,667 and 172,667 five-year
warrants to purchase additional shares of the Company's common stock at $4.00,
$6.00 and $7.00 per share, respectively.
These warrants were valued at $3,143,000 using the Black-Scholes model,
applying an interest rate of 4.85%, volatility of 98.4% dividends of 0% and a
term of five years.
The Company has recorded a debt discount related to the value of the
beneficial conversion feature of the convertible term note of $723,270 which is
amortizable on the interest method over the two year term of the debenture.
F-36
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - SUBSEQUENT EVENTS - CONTINUED
CONVERTIBLE DEBENTURES ISSUANCE - CONTINUED
In accordance with EITF 00-27 and EITF 98-5, on a relative fair value
basis, the warrants were recorded at a value of approximately $1,137,000. The
beneficial conversion feature, utilizing an effective conversion price and
market price of the common stock on the date of issuance of $2.00 and $6.00, per
share, respectively, was valued at approximately $1,333,000 which was then
limited to $723,000, the remaining undiscounted value of the convertible term
note.
Accordingly, the Company has recorded a debt discount related to the
warrants of $1,137,000, the beneficial conversion feature of the convertible
term note of $723,000 and for issuance costs paid to the issuer of $140,000,
which amounts are amortizable utilizing the interest method over the two year
term of the convertible term note.
The Company had agreed to file a registration statement within forty-five
days or September 22, 2006, covering the resale of the shares of common stock
underlying the convertible debentures and warrants issued to the investors, and
by October 15, 2006, to have such registration statement declared effective. The
registration rights agreement with the investors provides for partial liquidated
damages in the case that these registration requirements are not met. From the
date of violation, the Company is obligated to pay liquidated damages of 2% per
month of the outstanding amount of the convertible debentures, up to a total
obligation of 24% of such obligation. The Company has not yet filed a
registration statement regarding these securities. Accordingly, through March
31, 2007, the Company has incurred a liquidated damages obligation of
approximately $250,000, none of which has been paid. The Company is obligated to
pay 18% interest per annum on any damage amount not paid in full within 7
(seven) days. As of March 31, 2007, the Company is not able to file a
registration statement and the holder has not yet waived its rights under this
agreement. However, the Company has not received a default notice from the
lender on these matters. EITF 05-04 view (C) allows the Company to account for
the value of the warrants as equity and separately record the fair value of the
registration right as a derivative liability. Until these liquidated damages are
cured, the incurred liquidated damages and an estimate of future amount will be
accounted for as a derivative liability by the Company under view (C).
The investors may elect to participate in up to 50% of any subsequent
financing of the Company by providing written notice of intention to the
Company.
The obligations of the Company in this financing transaction are secured by
a first mortgage on certain property owned by the Company in Warrensburg, New
York, a pledge of certain rights the Company has in securities of CCIG,
guarantees by the Company's subsidiaries and liens on certain other property.
PURCHASE OF HEATING OIL CONTRACTS
During the period from July 28, 2006 to August 15, 2006 the Company entered
into futures contracts for #2 heating oil to hedge a portion of its forecasted
heating season requirements. The Company purchased 40 contracts through a broker
for a total of 1,680,000 gallons of #2 heating oil at an average call price of
$2.20 per gallon. Due to warmer than average temperatures through the heating
season as of March 31, 2007, the Company has experienced a substantial drop in
fuel consumption and price, resulting in a loss on these contracts.
Through March 31, 2007, the Company has deposited a total of $923,017 in
margin requirements with the broker and has realized a loss of $923,017 on 40
closed contracts representing 1,680,000 gallons.
PURCHASE COMMITMENTS
The Company is obligated to purchase #2 Heating Oil under various contracts
with its suppliers. As of June 30, 2006, total open commitments under these
contracts are approximately $1,680,000, representing 756,000 gallons and expire
on various dates through the end of April 2007.
F-37
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - SUBSEQUENT EVENTS - CONTINUED
USA BIODIESEL LLC JOINT VENTURE
On August 9, 2006, the "Company entered into a joint venture agreement with
BioEnergy of America, Inc. ("BEA"), a privately-held Delaware corporation, for
the purpose of producing biodiesel fuel using BEA's exclusive production process
at plants to be constructed at truck stop plazas, home heating depots and
terminals used to house petroleum products for distribution or resale. The joint
venture will operate through USA Biodiesel LLC ("USA"), a New Jersey limited
liability company in which the Company and BEA will each have a 50% membership
interest. Each plant, when fully operational, will produce approximately 15
million gallons of biodiesel fuel per year. USA will pay all of the operating,
production and processing expenses for each plant, including an annual use fee
to the Company for use of the plant in the amount of $258,000, payable
quarterly, commencing ninety days after the plant is fully operational. USA will
operate the plants and the Company shall have the exclusive right to purchase
all bio-diesel fuel produced at the plants.
The Company's initial contribution to USA will be: (i) the costs of
construction of each of the plants (estimated to be $1.5 million each) and
related equipment necessary for operating the plants, all of which, after
construction of the plants shall be owned by the Company; (ii) initial capital
by means of a loan to USA for funding the operations of USA; (iii) the
facilities at which the plants are to be constructed; and (iv) office facilities
and access to office technology for the Company. BEA's initial contribution to
USA will be: (i) the license design, engineering plans and technology and
related costs and expenses necessary to construct and operate the plants at the
facilities; (ii) access to equipment supplier purchase agreements for equipment
for the plants; (iii) access to soy oil, methanol and other material purchasing
agreements; (iv) for each plant constructed, six months of training consisting
of three months during the construction of each of the plants and three months
during initial full production; and (v) exclusive territorial rights to the
manufacturing process to be used at the plants. There were no costs incurred by
the Company through March 31, 2007.
VELLA OPTION EXERCISE
On August 25, 2006, Steven Vella, the Company's former Chief Financial
Officer, elected to exercise 12,500 options with an exercise price of $4.36 that
were granted to him on June 23, 2006, as part of a negotiated severance package.
As a result of the option exercise, the Company received proceeds of $54,500.
SEC FORMAL ORDER OF PRIVATE INVESTIGATION
On September 7, 2006, the Company received a copy of a Formal Order from
the SEC pursuant to which the Company, certain of its officers and a director
were served with subpoenas requesting certain documents and information. The
Formal Order authorizes an investigation of possible violations of the
anti-fraud provisions of the federal securities laws with respect to the offer,
purchase and sale of the Company's securities and the Company's disclosures or
failures to disclose material information. The Company believes that it did not
violate any securities laws and intends to cooperate fully with and assist the
Commission in its inquiry. The scope, focus and subject matter of the SEC
investigation may change from time to time and the Company may be unaware of
matters under consideration by the SEC. The Company has produced and continues
to produce responsive documents and intends to continue cooperating with the SEC
investigation.
CAPITAL LEASES FOR FIVE TRUCKS
On September 8, 2006, the Company entered into a five year capital lease
for five new oil delivery trucks, that were delivered during December 2006, for
an aggregate purchase price of approximately $506,000.
DIRECTOR AND OFFICER CHANGES
On September 28, 2006, Gregory D. Frost, the Chief Executive Officer and
Chairman of the Company, gave notice to the Board of Directors that he was
taking an indefinite leave of absence as Chief Executive Officer of the Company
and has resigned as Chairman of the Board. Mr. Frost remains with the Company
and will continue to receive his compensation as provided under his employment
agreement, and Mr. Frost will continue as a member of the Board of Directors and
will be available to assist the Company's officers to help ensure an orderly
transition.
F-38
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - SUBSEQUENT EVENTS - CONTINUED
DIRECTOR AND OFFICER CHANGES - CONTINUED
Effective September 28, 2006, Mr. Christopher P. Westad, the acting Chief
Financial Officer of the Company, was designated by the Board to serve as acting
Chief Executive Officer. In connection with Mr. Westad's service as acting Chief
Executive Officer, Mr. Westad stepped down, temporarily, as acting Chief
Financial Officer. The Board designated Jeffrey S. Feld, the Company's
Controller, as the acting Chief Financial Officer. Mr. Feld has been with the
Company since September 1999. Mr. Westad's and Mr. Feld's compensation will not
be immediately affected by their respective new positions with the Company,
however the Company expects that the Compensation Committee of the Board will
evaluate and make recommendations to the Board on adjustments to Mr. Westad's
and Mr. Feld's compensation in light of their respective current
responsibilities.
VOLUNTARY NASDAQ DELISTING
On October 4, 2006, the Company announced its intention to voluntarily
delist the Company's common stock from the NASDAQ Capital Market, effective as
of the start of trading on October 13, 2006. The Company's common stock is
currently quoted on the Pink Sheets. The management of the Company has indicated
that the Company will apply for listing on the OTC Bulletin Board as soon as
practicable following the filing of it's annual report on Form 10-K for the year
ended June 30, 2006 and its quarterly reports on form 10-Q for the periods ended
September 30, 2006 and Decemeber 31, 2006.
PURCHASE OF HORSHAM FRANCHISE
On December 13, 2006, the Company purchased the assets of its Horsham
franchise from Able Oil Montgomery, Inc., a non- related party, for $764,175.
Able Oil Montgomery is a full service retail fuel oil and service company
located in Horsham, Pennsylvania, which until this acquisition, was a franchise
operation of the Company and an entity to whom the Company sold #2 heating oil.
The purchase price was allocated as shown below. This purchase price allocation
has not been finalized and represents management's best estimate.
Description Fair Value
------------------------------------- ----------
HVAC parts and tools $ 28,000
Furniture and fixtures 5,000
Vehicles 34,000
Customer lists - Fuel distribution 500,000
Customer list - HVAC business 197,175
----------
Total $ 764,175
==========
The purchase price was paid as follows:
Down payment $ 128,000
Note to seller 345,615
Note payable to seller 269,480
Accounts receivable from seller 21,080
----------
Total $ 764,175
==========
The purchase agreement called for a down payment by the Company of
$128,000, a 5 year, 7.0% per annum note in favor of the seller in the amount of
$345,615 and the offset of money owed by the seller to the buyer of $290,560.
Separately, the sellers paid to the Company $237,539 of monies collected in
advance by Able Oil Montgomery.
In addition, Able entered into a consulting agreement with Drew Schmidt,
the owner of Able Oil Montgomery Inc., to assist Able with the transition and on
going development of the Horsham business. The term of this agreement runs from
December 13, 2006 to April 14, 2007 at a rate of $6,000 per month.
FUEL SUPPLY CONTRACT
In December 2006, the Company entered into a Fuel Purchase agreement with
All American. Under the agreement the Company pre-paid $350,000 to All American
in exchange for fuel purchased pursuant to this agreement to be provided by All
American at a $.05 per gallon discount from the Newark, New Jersey daily spot
market price. All American has satisfied its obligations under this agreement as
of January 12, 2007.
F-39
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - SUBSEQUENT EVENTS - CONTINUED
INCREASE IN COMMON SHARES AUTHORIZED
On August 29, 2006, the stockholders approved an increase in authorized
shares of common stock from 10,000,000 to 75,000,000 shares.
PURCHASE OF PROPERTY AND EQUIPMENT
On July 20, 2006, the Company entered into an agreement with its software
vendor to equip all of its oil delivery trucks with a wireless system. This
wireless system will enable the Company to download routing logistics to each
truck for its oil deliveries and the capability to upload the completed delivery
information into the Company sub-ledger software. The total cost of the wireless
software and installation was approximately $200,000.
CANCELLED STOCK OPTIONS
On July 31, 2006, an option was granted to Frank Nocito, a Vice President
and stockholder of the Company, to purchase 50,000 shares of common stock of the
Company at a price of $4.55 per share. Thereafter, in error, the Company issued
the shares to Mr. Nocito. Mr. Nocito had not formally exercised the option, nor
had he paid Able the cash consideration for the shares. Mr. Nocito returned the
stock certificates to the Company and the shares were cancelled by the transfer
agent.
On October 7, 2006, Mr. Nocito and the Company agreed to cancel the option
and further, Mr. Nocito agreed in writing to waive any and all rights that he
had to the option. The option was then cancelled and deemed null and void.
CREDIT CARD RECEIVABLE FINANCING
On March 20, 2007, the Company entered into a credit card receivable
advance agreement with Credit Cash, LLC ("Credit Cash") whereby Credit Cash
agreed to loan the Company $1.2 million. The loan is secured by the Company's
existing and future credit card collections.
Terms of the loan call for a repayment of $1,284,000, which includes the
finance charge of $84,000, over a seven-month period. This will be accomplished
through Credit Cash withholding 18% of credit card collections of Able Oil
Company and 10% of credit card collections of PriceEnergy.com, Inc. over the
seven-month period beginning March 21, 2007. There are certain provisions in the
agreement which allows Credit Cash to increase the withholding, if the amount
withheld by Credit Cash over the seven-month period is not sufficient to satisfy
the required repayment of $1,284,000.
F-40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
As of March 31, 2007, the directors and executive officers of the Company are as
follows:
Governance and
Compensation Audit Nominating
Name Age Title Committee Committee Committee
---------------------- --- ----- ------------ --------- --------------
Christopher P. Westad 53 Acting Chief Executive
Officer(1), President
and Director
John L.Vrabel 53 Chief Operating Officer
Jeffrey S. Feld 45 Acting Chief Financial
Officer; Controller (2)
Frank Nocito 59 Vice President Business
Development
Gregory D. Frost, Esq. 59 Director (3)
Mark Barbera 48 Director * **
Stephen Chalk 62 Director
Solange Charas 45 Director ** *
Edward C. Miller, Jr. 39 Director *
Patrick O'Neill 47 Director * *
Alan E. Richards 70 Director ** *
(1) Effective September 28, 2006, the Company's Board of Directors designated
Christopher Westad as Acting Chief Executive Officer at which time Mr.
Westad stepped down, temporarily, as Acting Chief Financial Officer.
(2) Effective September 28, 2006, the Company's Board of Directors designated
Jeffrey S. Feld as Acting Chief Financial Officer.
(3) On September 28, 2006, Gregory Frost Esq. announced that he was taking an
indefinite paid leave of absence as Chief Executive Officer and he resigned
as Chairman of the Board. Mr. Frost continues to serve as a Director.
* Member
** Chair
Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.
CHRISTOPHER P. WESTAD became President of the Company in 1998, and a
Director when the Company went public in 1999. His current employment contract
runs through July 1, 2007. On September 28, 2006, he began serving as Acting
Chief Executive Officer. He also served as the Company's Chief Financial Officer
from 2000 to August 2005, and again from July 2006 through September 2006. Since
September 1996, Mr. Westad had also served as the President of Able Propane
until the sale of that subsidiary in March, 2004. From 1991 through 1996, Mr.
Westad was Market Manager and Area Manager for Ferrellgas Partners, L.P., a
company engaged in the retail sale and distribution of liquefied petroleum gas.
From 1977 through 1991, Mr. Westad served in a number of management positions
with RJR Nabisco. In 1975, Mr. Westad received a Bachelor of Arts in Business
and Public Management from Long Island University, Southampton, New York. In
connection with the March 2003 accident at the Company's Newton, New Jersey,
facility, Mr. Westad entered into a pre-trial intervention agreement,
conditioned on 250 hours of community service over a two-year period, which he
is currently serving.
33
JOHN L. VRABEL became Chief Operating Officer of the Company in August
2003. His current employment contract runs through July 1, 2007. From 2000
through the present, he served as Vice President Business Development of the
Company's PriceEnergy subsidiary. From 1996 to 2000, Mr. Vrabel was Vice
President of Business Development of Connective Holdings Vital Services, LLC, a
subsidiary of Connective Holdings in the energy products and services sector. He
received a B.A. from the University of Houston in 1976, and participated in an
Executive MBA from Baldwin-Wallace College in 1982 and 1983.
JEFFREY S. FELD became Acting Chief Financial Officer of the Company in
September 2006 and served as Controller since 1999. From 1992 to 1999, he was
Controller of Tramz Hotels, Inc a hotel management company located in Warren,
New Jersey. Previously, Mr. Feld was employed as Controller for RMA Associates,
a food service management company based out of Media, Pennsylvania. He received
a B.S. in Accounting from Franklin Pierce University in Rindge, New Hampshire.
FRANK NOCITO became Vice President Business Development in April 2005.
Since 2003, Mr. Nocito has been Vice President of All American Plazas, Inc.,
("All American") which owns and operates nine truck plazas located in
Pennsylvania and Virginia. All American owns approximately 32% of the
outstanding common stock of our Company. In 2003, Mr. Nocito, as Vice President
of All American Industries Corp., acquired all of the issued and outstanding
stock of All American. In 2004, Mr. Nocito and his wife created, for the benefit
of their family members, including seven children, the Chelednik Family Trust,
and approximately 85% of the issued and outstanding stock of All American are
beneficially owned by the Trust. In 2002, as a consultant to two start-up
corporations, American Truck Stop of Belmont Inc. and American Truck Stop of
Carney Inc., Mr. Nocito assisted the new entities in acquiring two truck plazas
located in the Northeast. Subsequent to the purchase of these two truck plazas,
he became in November 2003, and remains, a vice president of both corporations.
In 2001, Mr. Nocito was employed by WDF/Keyspan, Inc., as a supervisor in charge
of multi-million dollar conversion projects for the New York City School System,
converting school facilities from coal to oil and gas systems. In 1996, under
cover of a 1994 sealed indictment that had never been acted upon, an indictment
was issued against Mr. Nocito for conspiracy to commit money laundering. The
charge was the result of his political activities as part of the Republican
Party and events arising out of the United States Government's support of the
Nicaraguan Government under the Sandinista regime. In late 1998, Mr. Nocito
accepted a plea offer that resulted in his serving a 19-month detention plus
three years probation, which ended May 2004. Mr. Nocito's educational background
includes his attending Syracuse University, Marymount College/Fordham University
and Nova University.
GREGORY D. FROST, ESQ. became General Counsel and a Director of the Company
in April 2005. Mr. Frost served as CEO and Chairman from October 2005 until
September 28, 2006. From 1974 to the present, he has been a practicing attorney
in the State of New York and from 1999 until October of 2005, he was a partner
of the law firm of Ferber Frost Chan & Essner, LLP (formally known as Robson
Ferber Frost Chan & Essner LLP) which has in the past performed, and continues
to perform, legal services for the Company. Mr. Frost's main areas of practice
have been and continue to be mergers and acquisitions, and general corporate and
securities matters. From 1975 through 1980, he was Assistant General Counsel at
The Singer Company and RH Macy & Co. Thereafter, Mr. Frost spent approximately
12 years as a partner of the law firm of Bower & Gardner, managing their
corporate and securities department. In 1970, Mr. Frost received a B.A. degree
from New York University (Stern School). He received his Juris Doctorate in 1973
from New York Law School, and in 1979 obtained a Master of Law Degree (LLM) in
Corporate Law from New York University Law School.
MARK BARBERA is a shareholder of Trautman Wasserman & Company Inc. Prior to
joining Trautman Wasserman & Company in 1993, Mr. Barbera was founder, President
and principal shareholder of Sphere Capital Corp., a registered broker-dealer.
In addition to Sphere Capital, he ran Barbera & Associates, a financial and
operational consulting firm serving the registered broker-dealer community. Mr.
Barbera also worked with M.D. Sass Associates, a Registered Investment Advisor.
Mr. Barbera began his career with the public accounting firm of Deloitte &
Touche, LLP where he was an auditor and received his license to practice as a
Certified Public Accountant in the State of New York. Mr. Barbera serves as the
Acting Chief Financial Officer for numerous portfolio companies of Trautman
Wasserman. Mr. Barbera earned his BA degree from The State University of New
York at Buffalo where he graduated cum laude.
STEPHEN CHALK became a Director of the Company in February 2005. From 1981
to the present, Mr. Chalk has served as the President of the Pilgrim
Corporation, where he has obtained a strong background in financial management,
as well as over 25 years of hotel, resort, restaurant, and real estate
development experience. Mr. Chalk is a graduate of Philadelphia University with
a BS in Engineering and Design.
34
SOLANGE CHARAS became a director of the Company in May 2005. In 2000, Ms.
Charas founded Charas Consulting, Inc., which provides human resources
consulting services. From 2002 though 2005, Ms. Charas was the Head of Human
Resources for Benfield, Inc. In her role, she was responsible for all aspects of
human resources for this organization. She is currently a retained consultant to
Benfield. From 1999 to 2000, Ms. Charas was the Head of Human Resources for EURO
RSCG Worldwide, an advertising firm, which is the largest division of
France-based Havas Advertising. As Head of Human Resources, she was responsible
for the creation and management of all HR programs on a worldwide basis for over
200 agencies which made up EURO RSCG. From 1996 to 1999, Ms. Charas was the
National Director at Arthur Andersen, where she led all activities promoting a
consulting product she was instrumental in creating for the firm. From 1995 to
1996, Ms. Charas was the leader of the International Compensation Team at Towers
Perrin and a Senior Consultant with respect to international compensation at the
Hay Group. Ms. Charas received an undergraduate degree in International
Political Economy from University of California at Berkeley in 1982, and an MBA
in Accounting and Finance from Cornell University's Johnson School of Management
in 1988.
EDWARD C. MILLER, JR. has served as a Director of the Company since 1999.
Mr. Miller has served in several marketing positions since 1999 and currently
serves as the Chief Marketing Officer for the law firm of Norris, McLaughlin &
Marcus, P.A., located in Somerville, New Jersey. From 1991 to 1999, Mr. Miller
served as Marketing Coordinator at the Morristown, New Jersey, law firm of
Riker, Danzig, Scherer, Hyland & Perretti, LLP. Mr. Miller received a B.S. in
Marketing Management from Syracuse University School of Management in 1991.
PATRICK O'NEILL has served as a Director of the Company since 1999. Mr.
O'Neill has been involved in the management of real estate development and
construction management for over 20 years, and has served as the President of
Fenix Investment and Development, Inc., a real estate company based in
Morristown, New Jersey, for the past ten years. Prior to that, Mr. O'Neill
served as Vice President of Business Development for AvisAmerica, a
Pennsylvania-based home manufacturer. Mr. O'Neill holds a B.S. from the United
States Military Academy.
ALAN E. RICHARDS became a Director of the Company in February 2005. Mr.
Richards has served as the President of Sorrento Enterprises Incorporated, a
forensic accounting firm, from its inception in 1979 to the present. Mr.
Richards brings a diverse background and over 25 years of experience in
financial services, including work with government agencies such as the United
States Internal Revenue Service. Mr. Richards is a graduate of Iona College with
a BBA in Finance.
COMPENSATION OF DIRECTORS
In fiscal 2006, for their service on the Board of Directors, the Company paid
compensation in the amount of $15,000 in cash and granted stock options for
3,000 shares of the Company's common stock to its outside directors: Mr.
O'Neill, Mr. Miller, Mr. Barbera, Mr, Chalk, Mr. Richards and Ms. Charas. For
their services as Chairpersons, Ms. Charas, Mr. Richards and Mr. Barbera
received an additional grant of 2,000 stock options; and Mr. Richards and Ms.
Charas an additional $5,000 in cash payments.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
We have a separately designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The members of the Audit Committee are Mr.
Richards (chair), Mr. Miller and Ms. Charas. The Board of Directors has
determined that each of the members of the Audit Committee is independent as
defined by the listing standards of the Nasdaq Small Cap Market and Section
10A(m)(3) of the Exchange Act. In addition, the Board of Directors has
determined that Mr. Richards is an "audit committee financial expert," as that
term is defined in Item 401(h) of Regulation S-K under the Exchange Act.
35
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein. The charter of the Audit Committee of the Board,
specifies that the purpose of the Committee is to assist the Board in its
oversight of:
o The integrity of the Company's consolidated financial statements;
o The adequacy of the Company's system of internal controls;
o The Company's compliance with legal and regulatory requirements;
o The qualifications and independence of the Company's independent
registered public accountants; and
o The performance of the Company's independent registered public
accountants and of the Company's internal audit function.
In carrying out these responsibilities, the Audit Committee, among other things:
o Monitors preparation of quarterly and annual financial reports by the
Company's management;
o Supervises the relationship between the Company and its independent
registered public accountants, including: having direct responsibility
for their appointment, compensation and retention; reviewing the scope
of their audit services; approving audit and non-audit services; and
confirming the independence of the independent registered public
accountants; and
o Oversees management's implementation and maintenance of effective
systems of internal and disclosure controls, including review of the
Company's policies relating to legal and regulatory compliance, ethics
and conflicts of interests and review of the Company's internal
auditing program.
The Committee met eight times during fiscal 2006. The Committee schedules its
meetings with a view to ensuring that it devotes appropriate attention to all of
its tasks. The Committee's meetings include, whenever appropriate, executive
sessions with the Company's independent registered public accountants without
the presence of the Company's management.
The Audit Committee serves in an oversight capacity and is not intended to be
part of the Company's operational or managerial decision-making process. The
Company's management is responsible for preparing the consolidated financial
statements, and its independent registered public accountants are responsible
for auditing those consolidated financial statements. The Audit Committee's
principal purpose is to monitor these processes. In this context, the Audit
Committee reviewed and discussed the audited consolidated financial statements
with management and the independent registered public accountants. Management
represented that the Company's consolidated financial statements were prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis, and the Audit Committee has reviewed and
discussed the quarterly and annual earnings press releases and consolidated
financial statements with management and the independent registered public
accountants. The Audit Committee also discussed with the independent auditors
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees), as amended.
36
The Audit Committee discussed with the independent registered public accountants
their independence from the Company and its management, including the matters,
if any, in the written disclosures required by Independence Standards Board
Standard No. 1 (Independence Discussions With Audit Committees) and received
from the independent registered public accountants. The Audit Committee also
considered whether the independent registered public accountants provision of
audit and non-audit services to the Company is compatible with maintaining the
auditors' independence. The Audit Committee discussed with the Company's
independent registered public accountants the overall scope and plans for their
audit. The Audit Committee met with the independent registered public
accountants, with and without management present, to discuss the results of
their audit, the evaluations of the Company's internal controls, disclosure
controls and procedures and the overall quality and integrity of the Company's
financial reporting. Based on the reviews and discussions referred to above, the
Audit Committee has recommended to the Board, and the Board has approved, that
the audited consolidated financial statements be included in the Company's
Annual Report on Form 10-K for the year ended June 30, 2006, for filing with the
Securities and Exchange Commission.
MEMBERS OF THE AUDIT COMMITTEE
Alan E. Richards, Chairman
Edward C. Miller, Jr.
Solange Charas
CODE OF ETHICS
The Company has adopted its Code of Business Conduct and Ethics for Officers,
Directors and Employees that applies to all of the officers, directors and
employees of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers, directors and persons who own more than 10% of a registered
class of the Company's equity securities to file reports of ownership on Form 3
and changes in ownership on Form 4 or Form 5 with the Securities and Exchange
Commission ("SEC"). Such officers, directors and 10% stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on a review of copies of the Forms 3, 4 and 5 received by the
Company or representations from certain reporting persons, the Company believes
that, during the year ended June 30, 2006, all Section 16(a) filing requirements
applicable to its officers, directors and 10% stockholders were met in a timely
manner, except in the following instances: (1) Frank Nocito failed to file a
required Form 4 with respect to the August 2005 exercise of 50,000 options and
the sale of 50,000 shares of common stock during June 2006; (2) Gregory Frost
failed to file a required Form 4 with respect to the September 2005 exercise of
50,000 options and the sale of 50,000 shares of common stock during June 2006;
(3) Steven Vella failed to file a required Form 4 with respect to the June 2006
grant of 12,500 options.
ITEM 11. EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The following Report of the Compensation Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates
this Report or the performance graphs by reference therein.
The members of the Compensation Committee are Solange Charas, Chairman, Patrick
O'Neill, and Mark Barbera, none of whom are employees of the Company. The
Compensation Committee has the authority to fix the Company's compensation
arrangements with the Chief Executive Officer, Chief Operating Officer and the
Chief Financial Officer and has the exclusive authority to grant options and
make awards under the Company's equity compensation plans. Consistent with
changes in the Delaware General Corporation Law in 2001, the Compensation
Committee, from time to time, delegates to the Company's Chief Executive, Chief
Operating Officer and the Chief Financial Officer the authority to grant a
specified number of options to non-executive officers. The Compensation
Committee also reviews the Company's compensation policies relating to all
executive officers.
37
The Compensation Committee's goal is to develop executive compensation policies
that offer competitive compensation opportunities for all executives which are
based on personal performances, individual initiative and achievement, as well
as assisting the Company in attracting and retaining qualified executives. The
Compensation Committee also endorses the position that stock ownership by
management and stock-based compensation arrangements are beneficial in aligning
managements' and stockholders' interests in the enhancement of stockholder
value.
Compensation paid to the Company's executive officers generally consists of the
following elements: base salary, annual bonus and long-term compensation in the
form of stock options and matching contributions under the Company's 401(k)
Savings Plan. Compensation levels for executive officers of the Company was
determined by a consideration of each officer's initiative and contribution to
overall corporate performance and the officer's managerial abilities and
performance in any special projects that the officer may have undertaken.
Competitive base salaries that reflect the individual's level of responsibility
are important elements of the Compensation Committee's executive compensation
philosophy. Subjective considerations of individual performance are considered
in establishing annual bonuses and other incentive compensation. In addition,
the Compensation Committee considers the Company's financial position and cash
flow in making compensation decisions.
The Company has certain broad-based employee benefit plans in which all
employees, including the named executives, are permitted to participate on the
same terms and conditions relating to eligibility and subject to the same
limitations on amounts that may be contributed. During the year ended June 30,
2006, the Company also made matching contributions to the 401(k) Savings Plan
for those participants.
MEMBERS OF THE COMPENSATION COMMITTEE
Solange Charas, Chairman
Patrick O'Neill
Mark Barbera
COMPENSATION TABLE
The following table sets forth certain summary information with respect to the
compensation paid to the Company's former Chief Executive Officer, current
Acting Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer for services rendered in all capacities to the Company for the fiscal
years ended June 30, 2006, 2005, and 2004. Other than as listed below, the
Company had no executive officers whose total annual salary and bonus exceeded
$100,000 for that fiscal year:
Annual Compensation Long-Term Compensation
------------------------------------------- ------------------------------------------------
Other Securities
Annual Underlying LTIP
Name and Fiscal Compensation Restricted Options/ Pay- All Other
Principal Position Year Salary Bonus (1) Stock Awards SARs out Compensation
------------------------------ ------ -------- ------- ------------ ------------ ---------- ---- -------------
Gregory D. Frost 2006 $216,900 -- $4,200 -- -/- -- --
Director (3) 2005 $ 27,700 -- -- -- $50,000/0 -- --
Christopher P. Westad, 2006 $141,600 -- -- -- -- -- --
Acting Chief Executive 2005 $136,479 -- $2,585 -- -/- -- $40,640(2)
Officer and President (4) 2004 $100,000 $13,877 $5,973 -- $15,000/0 -- --
John Vrabel, 2006 $141,600 -- $6,000 -- -/- -- --
Chief Operating Officer 2005 $138,046 -- $6,000 -- -/- -- --
2004 $120,000 -- $6,000 -- $10,000/0 -- --
Steven M. Vella 2006 $130,800 -- $5,000 -- $12,500/0 -- --
Chief Financial Officer (5)
Frank Nocito 2006 $120,000 -- -- -- -/- -- --
Vice President of Business 2005 $ 27,700 -- -- -- $50,000/0 -- --
Development
38
(1) Represents car allowance and travel expense reimbursements pursuant to his
employment agreement with the Company.
(2) Represents amounts paid to Mr. Westad related to board compensation of
$20,000 and the market value of 2,000 shares issued to Mr. Westad of the
Company's common stock valued on the date of issue.
(3) Mr. Frost served as Chief Executive Officer from August 13, 2005 to
September 28, 2006.
(4) Mr. Westad served as Acting Chief Financial Officer from June 23, 2006 to
September 28, 2006. Mr. Westad has served as Acting Chief Executive Officer
since September 28, 2006.
(5) Mr. Vella served as Chief Financial Officer from Aug 15, 2005 to June 23,
2006.
OPTION GRANTS
OPTION GRANTS DURING FISCAL 2006
The following table sets forth information with respect to option grants to the
named executive officers during fiscal 2006:
% of Total Potential Potential
Number of Options Exercise Realizable Realizable
Options Granted to Price Expiration Value at Grant Value at Grant
Name Granted Employees ($/Share) Date Date at 5% (1) Date at 10% (2)
--------------- --------- ---------- --------- ------------- -------------- ---------------
Steven M. Vella 12,500 100% $4.36 June 22, 2011 $15,057 $33,273
(1) The potential realizable value at grant date of options granted during
fiscal year 2006 has been calculated using the assumption that the value of
the stock will appreciate 5% per year during the option term from the grant
price on the date of grant.
(2) The potential realizable value at grant date of options granted during
fiscal year 2006 has been calculated using the assumption that the value of
the stock will appreciate 10% per year during the option term from the
grant price on the date of grant.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the named executive officers named
in the Summary Compensation Table above, information concerning the number and
value of shares subject to both exercisable and unexercisable stock options as
of June 30, 2006. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of our common stock as of
June 30, 2006.
39
AGGREGATED OPTION EXERCISES DURING FISCAL 2006
AND
OPTION VALUES AT JUNE 30, 2006
Number of
Shares Number of Value of Unexercised
Acquired Value Unexercised In-the-Money
Upon Realized Options at June 30, 2006 Options at June 30, 2006
Exercise Upon --------------------------- ---------------------------
Name of Options Exercise Exercisable Unexercisable Exercisable Unexercisable
--------------------- ---------- -------- ----------- ------------- ----------- -------------
Gregory D. Frost 50,000 $432,000 -- -- -- --
Christopher P. Westad -- -- 30,000 -- $85,050 --
Frank Nocito 50,000 $507,500 -- -- -- --
Steven M. Vella -- -- 12,500 -- $16,625 --
EMPLOYMENT ARRANGEMENTS
Gregory D. Frost, on October 12, 2005, entered into a one-year employment
agreement, as Chief Executive Officer of the Company at an annual salary of
$250,000. The term of the agreement is automatically renewable and has been
renewed through October 11, 2007. The annual salary is subject to periodic
increases at the discretion of the Board of Directors. Mr. Frost is entitled to
bonuses pursuant to his employment agreement if the Company meets certain
financial targets based on sales, profitability and the achievement of certain
goals as established by the Board of Directors or the Compensation Committee.
Such bonuses, plus all other bonuses payable to the executive management of the
Company, shall not exceed in the aggregate, a "Bonus Pool" which shall equal up
to 20% of the Company's earnings before taxes ("EBT"), provided the Company
achieves at least $1,000,000 of EBT in such bonus year. If the Company meets or
exceeds $1,000,000 of EBT for that fiscal year, then the executive shall be
entitled to 20% of such Bonus Pool. The employment agreement also provides for
reimbursement of reasonable business expenses. In the event the agreement is
terminated by Mr. Frost for reason, or by the Company for other than cause,
death or disability, Mr. Frost shall receive a lump sum severance payment of one
year's salary, and any unvested stock options shall be deemed to have vested at
the termination date.
Christopher P. Westad has a three-year employment agreement, effective through
July 1, 2007, as President of the Company at an annual salary of $141,600. The
term of the agreement may be extended by mutual consent of the Company and Mr.
Westad, and the annual salary is subject to periodic increases at the discretion
of the Board of Directors. Mr. Westad is entitled to bonuses pursuant to his
employment agreements if the Company meets certain financial targets based on
sales, profitability and the achievement of certain goals as established by the
Board of Directors or the Compensation Committee. Such bonuses, plus all other
bonuses payable to the executive management of the Company, shall not exceed in
the aggregate, a "Bonus Pool" which shall equal up to 20% of the Company's
earnings before taxes ("EBT"), provided the Company achieves at least $1,000,000
of EBT in such bonus year. If the Company meets or exceeds $1,000,000 of EBT for
that fiscal year, then the executive shall be entitled to 20% of such Bonus
Pool. The employment agreement also provides for reimbursement of reasonable
business expenses. In the event the agreement is terminated by Mr. Westad for
reason, or by the Company for other than cause, death or disability, Mr. Westad
shall receive a lump sum severance payment of one year's salary, and any
unvested stock options shall be deemed to have vested at the termination date.
John L. Vrabel has a three-year employment agreement, effective through July 1,
2007, as Chief Operating Officer of the Company at an annual salary of $141,600.
The term of the agreement may be extended by mutual consent of the Company and
Mr. Vrabel, and the annual salary is subject to periodic increases at the
discretion of the Board of Directors. Mr. Vrabel is entitled to bonuses pursuant
to his employment agreements if the Company meets certain financial targets
based on sales, profitability and the achievement of certain goals as
established by the Board of Directors or the Compensation Committee. Such
bonuses, plus all other bonuses payable to the executive management of the
Company, shall not exceed in the aggregate, a "Bonus Pool" which shall equal up
to 20% of the Company's earnings before taxes ("EBT"), provided the Company
achieves at least $1,000,000 of EBT in such bonus year. If the Company meets or
exceeds $1,000,000 of EBT for that fiscal year, then the executive shall be
entitled to 20% of such Bonus Pool. The employment agreement also provides for
reimbursement of reasonable business expenses. In the event the agreement is
terminated by Mr. Vrabel for reason, or by the Company for other than cause,
death or disability, Mr. Vrabel shall receive a lump sum severance payment of
one year's salary, and any unvested stock options shall be deemed to have vested
at the termination date.
40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table shows, as of March 31, 2007, the amount of the Company's
common stock beneficially owned (unless otherwise indicated) by (i) each person
known by the Company to own 5% or more of the Company's stock, (ii) each
Director, (iii) each executive officer named in the Summary Compensation Table
in Item 11 above, and (iv) all Directors and executive officers as a group.
Aggregate Number of
Shares Beneficially Percent of Class
Name and Address* Owned (1) Outstanding (2)
--------------------------------- ------------------- ----------------
Gregory D. Frost 1,000,000 (3) 31.8%
Frank Nocito 1,000,000 (5) 31.8%
Christopher P. Westad 35,000 (4) 1.1%
Mark Barbera 5,000 (8) **
Solange Charas 5,000 (8) **
Alan E. Richards 5,000 (8) **
Stephen Chalk 3,000 (8) **
Edward C. Miller, Jr. 3,000 (8) **
Patrick O'Neill 3,000 (8) **
John L.Vrabel 2,300 (6) **
Jeffrey S. Feld 0 **
Officers and Directors as a Group
(11 persons) 1,061,300 (7) 33.2%
All American Plazas, Inc.
1267 Hilltop Lane
Myerstown, PA 17067 1,000,000 (9) 31.8%
* Unless otherwise indicated, the address for each stockholder is c/o Able
Energy, Inc., 198 Green Pond Road, Rockaway, New Jersey 07866.
** Represents less than 1% of the outstanding common stock.
----------
(1) The number of shares of common stock beneficially owned by each stockholder
is determined under rules promulgated by the SEC. Under these rules, a
person is deemed to have "beneficial ownership" of any shares over which
that person has or shares voting or investing power, plus any shares that
the person has the right to acquire within 60 days, including through the
exercise of stock options. To our knowledge, unless otherwise indicated,
all of the persons listed above have sole voting and investment power with
respect to their shares of common stock, except to the extent authority is
shared by spouses under applicable law.
(2) The percentage ownership for each stockholder is calculated by dividing (a)
the total number of shares beneficially owned by the stockholder on March
31, 2007 by (b) 3,141,423 shares (the number of shares of our common stock
outstanding on March 31, 2007), plus any shares that the stockholder has
the right to acquire within 60 days after March 31, 2007.
(3) Includes 1,000,000 shares owned by All American Plazas, Inc., of which Mr.
Frost disclaims beneficial ownership. Approximately 85% of the outstanding
common stock of All American Plazas, Inc., are beneficially held by the
Chelednik Family Trust, of which Mr. Frost is a co-trustee. In addition,
pursuant to an agreement between Mr. Frost and the Chelednik Family Trust,
Mr. Frost, through Crystal Heights, LLC, an entity controlled by Mr. Frost
and his wife, is the beneficial holder of the balance of the outstanding
common stock of All American. See Note (9) below.
(4) Includes 5,000 shares owned outright and 30,000 shares which may be
acquired upon the exercise of outstanding stock options.
(5) Includes 1,000,000 shares of All American Plazas, Inc., of which Mr. Nocito
disclaims beneficial ownership. Mr. Nocito is Vice President of All
American Plazas, Inc., and approximately 85% of the outstanding common
stock of All American Plazas, Inc., are beneficially held by the Chelednik
Family Trust, a trust established by Mr. Nocito and his wife for the
benefit of their family members. See Note (9) below.
41
(6) Includes 2,300 shares owned outright.
(7) Includes 7,300 shares owned by the officers and directors and 54,000 shares
which may be obtained upon the exercise of outstanding options held by the
officers and directors. Also includes 1,000,000 shares owned by All
American Plazas, Inc., of which Messrs. Frost and Nocito disclaim
beneficial ownership. See Note (9) below.
(8) Shares which may be acquired pursuant to currently exercisable stock
options (or options that will become exercisable within sixty (60) days of
March 31, 2007).
(9) Includes 1,000,000 shares owned by All American Plazas, Inc. Approximately
85% of the outstanding common stock of All American Plazas, Inc., are
beneficially held by the Chelednik Family Trust, a trust established by Mr.
Nocito and his wife for the benefit of their family members, of which Mr.
Frost is a co-trustee. In addition, pursuant to an agreement between Mr.
Frost and the Chelednik Family Trust, Mr. Frost, through Crystal Heights,
LLC an entity controlled by Mr. Frost and his wife, is the beneficial owner
of the balance of the outstanding common stock of All American.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
(a) (b) (c)
----------------------- ----------------------- -------------------- -------------------------
Equity compensation
plans not approved
by security holders -0- Not applicable -0-
Equity compensation
plans approved by
security holders (1) 91,500 $5.92 1,822,250
------ --------------- ---------
Total 91,500 $5.92 1,822,250
====== =============== =========
(1) Includes the 1999 Employee Stock Option Plan, the 2000 Stock Bonus Plan,
the 2000 Employee Stock Purchase Plan and the 2005 Stock Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
FISCAL 2006
ACQUISITION OF ALL AMERICAN
We entered into an asset purchase agreement with All American in June 2005,
pursuant to which we agreed to acquire substantially all of All American's
assets and assume all liabilities of All American other than mortgage debt
liabilities. In exchange for these assets, we have agreed to issue to All
American 11,666,667 restricted shares of our common stock. Our stockholders
approved this transaction with All American at a special meeting held on August
29, 2006, and the transaction is expected to close by the end of our 2007 fiscal
year (June 30, 2007). At the close of business on March 31, 2007, the value of
the shares to be issued to All American was $26.25 million (based on the closing
price of $2.25 on that date).
All American currently owns approximately 32% of our outstanding shares.
Approximately 85% of the outstanding common stock of All American are
beneficially held to the Chelednik Family Trust by Mr. Frank Nocito, our Vice
President of Business Development, and his wife, Sharon Chelednik, for the
benefit of their family members, including seven children. Mr. Nocito is also a
Vice President of All American. In addition, pursuant to an agreement between
the Chelednik Family Trust and Gregory Frost, one of our directors and our
former Chief Executive Officer ("CEO") and Chairman, through an entity
controlled by him (Crystal Heights, LLC), is also the beneficial holder of
balance of the outstanding common stock of All American. Mr. Frost and Jonathan
Austern are co-trustees of the Chelednik Family trust.
42
ALL AMERICAN FINANCING
On June 1, 2005, All American completed a financing that, if the acquisition of
All American is consummated, may impact the Company. Pursuant to the terms of
the Securities Purchase Agreement (the "Agreement") among All American and
certain purchasers ("Purchasers"), the Purchasers loaned All American an
aggregate of $5,000,000, evidenced by Secured Debentures dated June 1, 2005 (the
"Debentures"). The Debentures are due and payable on June 1, 2007, subject to
the occurrence of an event of default, with interest payable at the rate per
annum equal to LIBOR for the applicable interest period, plus 4% payable on a
quarterly basis on April 1st, July 1st, October 1st and January 1st, beginning
on the first such date after the date of issuance of the Debentures. Upon the
acquisition of All American and the Company's board approving the transfer of
the debt that would also require the transfer of additional assets into All
American as consideration for the Company to assume the debt, then the
Debentures are convertible into shares of our common stock at a conversion rate
of the lesser of (i) the purchase price paid by us for each share of All
American common stock in the acquisition, or (ii) $3.00, subject to further
adjustment as set forth in the agreement.
The loan is secured by real estate property owned by All American in
Pennsylvania and New Hampshire. Pursuant to the Agreement, these Debentures are
in default, as All American has not completed the merger with the Company prior
to the expiration of the 12-month anniversary of the Agreement. Pursuant to the
Additional Investment Right (the "AIR Agreement") among All American and the
Purchasers, the Purchasers may loan All American up to an additional $5,000,000
of secured convertible debentures on the same terms and conditions as the
initial $5,000,000 loan, except that the conversion price will be $4.00.
If we consummate the acquisition of All American, upon such consummation, we
will assume the obligations of All American under the Agreement, the Debentures
and the AIR Agreement through the execution of a Securities Assumption,
Amendment and Issuance Agreement, Registration Rights Agreement, Common Stock
Purchase Warrant Agreement and Variable Rate Secured Convertible Debenture
Agreement, each between the Purchasers and us (the "Able Energy Transaction
Documents"). Such documents provide that All American shall cause the real
estate collateral to continue to secure the loan, until the earlier of full
repayment of the loan upon expiration of the Debentures or conversion by the
Purchasers of the Debentures into shares of our common stock at a conversion
rate of the lesser of (i) the purchase price paid by us for each share of All
American common stock in the acquisition, or (ii) $3.00, (the "Conversion
Price"), subject to further adjustment as set forth in the Able Energy
Transaction Documents. However, the Conversion Price with respect to the AIR
Agreement shall be $4.00. In addition, the Purchasers shall have the right to
receive five-year warrants to purchase 2,500,000 of our common stock at an
exercise price of $3.75 per share. Pursuant to the Able Energy Transaction
Documents, we shall also have an optional redemption right (which right shall be
mandatory upon the occurrence of an event of default) to repurchase all of the
Debentures for 125% of the face amount of the Debentures plus all accrued and
outstanding interest, as well as a right to repurchase all of the Debentures in
the event of the consummation of a new financing in which we sell securities at
a purchase price that is below the Conversion Price. It is currently
contemplated that if the Able/All American transaction is consummated, the
stockholders of All American will escrow a sufficient number of shares to
satisfy the conversion of the $5,000,000 in outstanding Debentures in full.
On July 27, 2005, as amended and restated on May 11, 2006, we made a loan to All
American in the amount of $1,730,000, bearing interest at the rate of LIBOR plus
4% per annum. All payments of principal and accrued interest were originally due
and payable in full by July 11, 2006. However, we have consented to an extension
of the repayment of principal and interest to June 15, 2007. This loan is
secured by certain real estate of All American and a second lien on 1,000,000
shares of our common stock held by All American, which shares are subject to a
first lien held by our former CEO.
OTHER TRANSACTIONS
We entered into a two-year consulting agreement with our former CEO on February
16, 2005, which provides for annual fees to our former CEO of $60,000, paid in
equal monthly installments. The former CEO was paid $60,000 related to this
agreement during the year ended June 30, 2006. Under this consulting agreement,
we also granted to the former CEO options immediately exercisable to purchase
100,000 shares of our common stock at $4.00 per share.
On February 22, 2005, we borrowed $500,000 from Able Income Fund, LLC ("Able
Income"), which is partially-owned by our former CEO, Timothy Harrington. The
loan from Able Income bears interest at the rate of 14% per annum payable
interest only in the amount of $5,833 per month with the principal balance and
any accrued unpaid interest due and payable on May 22, 2005. The Note was
secured by a mortgage on property located in
43
Warrensburg Industrial Park, Warrensburg, New York, owned by Able Energy New
York, Inc. Able Income agreed to surrender the note representing this loan as of
September 30, 2005, in exchange for 57,604 shares of our common stock (based on
a conversion price equal to 80% of the average closing price of our common stock
during the period October 3, 2005 to October 14, 2005). Note conversion expense
of $125,000 was recorded during the year ended June 30, 2006 related to this
transaction. Interest expense related to the note payable paid to Able Income
Fund during the fiscal years ended June 30, 2006 and 2005 was $17,499 and
$22,499, respectively.
On February 27, 2006 the Company entered into a consulting agreement with Able
Income Fund LLC of which Timothy Harrington (former CEO) is an owner. Consulting
expense related to this agreement for fiscal year ended 2006 was $17,833.
In connection with two loans agreements entered into in May 2005, we paid fees
of $167,500 to Unison Capital Corporation, which is owned by Frank Nocito, a
beneficial stockholder and our Vice President - Business Development.
Subsequently, Unison agreed to reimburse the fees to us in monthly installments
plus interest at 6% per annum, under a note due on September 29, 2006. The note
maturity has been extended to May 2, 2007. As of June 30, 2006, interest is due
in the amount of $11,730 with the principal being due in full on May 2, 2007.
During the year ended June 30, 2006, the Company paid consulting fees amounting
to approximately $54,000 to a company owned by Stephen Chalk, a member of our
Board of Directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees for professional services rendered by the
independent public accounting firms of Marcum & Kliegman LLP and Simontacchi &
Company, LLP for the Company during the year ended June 30, 2006 and Simontacchi
& Company, LLP for the year ended June 20, 2005.
For the Year Ended June 30,
---------------------------
2006 2005
-------- --------
Audit Fees (1) $655,147 $104,913
Tax Fees (2) 15,000 11,874
All Other Fees (3) 129,302 79,039
-------- --------
Total $799,449 $195,826
======== ========
(1) These are fees for professional services performed for the audit of
the Company's annual consolidated financial statements and services
that are normally provided in connection with statutory and regulatory
filings or engagements.
(2) Principally fees for preparation of the Company's federal and state
corporate tax returns.
(3) Principally fees for SEC inquiries.
The Audit Committee reviews and pre-approves all audit, review or attest
engagements of, and non-audit services to be provided by, the independent
registered public accounting firm (other than with respect to the de minimis
exception permitted by the Sarbanes-Oxley Act of 2002 and the SEC rules
promulgated thereunder). The Audit Committee pre-approved all auditing services
and permitted non-audit services rendered by Marcum & Kliegman LLP and
Simontacchi & Company, LLP for the year ended June 30, 2006 and Simontacchi &
Company, LLP for the year ended June 30, 2005.
44
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS
The following Exhibits are filed as part of this Report:
Exhibit
Number Description
------- -----------
3.1 Articles of Incorporation of Registrant (incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form SB-2, SEC File No. Number 333-51909, filed with the Securities
and Exchange Commission ("SEC") on July 15, 1998 (the "1998 Form
SB-2")).
3.2 By-Laws of Registrant (incorporated herein by reference to Exhibit 3.2
to the 1998 Form SB-2).
4.1 Specimen Common Stock Certificate (incorporated herein by reference to
Exhibit 4.21 to Amendment No. 3 to the Company's Registration
Statement on Form SB-2, SEC File No. Number 333-51909, filed with the
SEC on May 17, 1999 (the "Amendment No. 3 to the 1998 Form SB-2")).
4.2 Able Energy, Inc. 2000 Employee Stock Purchase Plan (incorporated
herein by reference to the Company's Definitive Proxy Statement on
Schedule 14A filed with the SEC on May 30, 2000).
4.3 Able Energy, Inc. 2005 Incentive Stock Plan (incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K.
dated May 25, 2005, filed with the SEC on June 1, 2005 (the "May 2005
Form 8-K")).
4.4 Form of Incentive Stock Option Agreement (incorporated herein by
reference to Exhibit 10.1 to the May 2005 Form 8-K).
4.5 Form of Employee Nonstatutory Stock Option Agreement (incorporated
herein by reference to Exhibit 10.2 to the May 2005 Form 8-K).
4.6 Form of Nonstatutory Stock Option Agreement (incorporated herein by
reference to Exhibit 10.3 to the May 2005 Form 8-K).
4.7 Form of Consultant Nonstatutory Stock Option Agreement (incorporated
herein by reference to Exhibit 10.4 to the May 2005 Form 8-K).
4.8 Form of Stock Award Agreement (incorporated herein by reference to
Exhibit 10.5 to the May 2005 Form 8-K).
4.9 Form of Restricted Stock Purchase Agreement (incorporated herein by
reference to Exhibit 10.6 to the May 2005 Form 8-K).
4.10 Form of Secured Debenture, made as of June 1, 2005, by All American
Plazas, Inc., Yosemite Development Corp. and Mountainside Development,
LLC in favor of the Purchasers named therein (incorporated herein by
reference to Exhibit 99.2 to the Company's Current Report on Form 8-K,
dated June 7, 2005, filed with the SEC on June 10, 2005 (the "June
2005 Form 8-K")).
4.11 Additional Investment Right (incorporated herein by reference to
Exhibit 99.3 to the June 2005 Form 8-K).
4.12 Form of Registration Rights Agreement by and among the Purchasers
named therein and the Company (incorporated herein by reference to
Exhibit 99.5 to the June 2005 Form 8-K).
4.13 Form of Common Stock Purchase Warrant Agreement (incorporated herein
by reference to Exhibit 99.6 to the June 2005 Form 8-K).
45
4.14 Form of Variable Rate Secured Convertible Debenture made by the
Company in favor of the holder thereof (incorporated herein by
reference to Exhibit 99.7 to the June 2005 Form 8-K).
4.15 Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company (incorporated herein by reference to Exhibit 4.2 to the
1998 Form SB-2).
4.16 Able Energy, Inc. 2000 Employee Stock Bonus Plan (incorporated herein
by reference to the Company's Definitive Proxy Statement on Schedule
14A filed with the SEC on May 30, 2000).
4.17 Form of Variable Rate Convertible Debenture, dated July 12, 2005, made
by the Company in favor of the holder thereof (incorporated herein by
reference to Exhibit 99.2 to the Company's Current Report on Form 8-K,
dated July 14, 2005, filed with the SEC on July 15, 2005 (the "July
2005 Form 8-K")).
4.18 Form of Registration Rights Agreement, dated as of July 12, 2005, by
and among the Company and the purchasers signatory thereto
(incorporated herein by reference to Exhibit 99.3 to the July 2005
Form 8-K).
4.19 Form of Common Stock Purchase Warrant Agreement (incorporated herein
by reference to Exhibit 99.4 to the July 2005 Form 8-K).
4.20 Promissory Note dated July 21, 2005 made by All American Plazas, Inc.
in favor of the Company (incorporated herein by reference to Exhibit
10.5 to the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 2005 (the "2005 First Quarter Form 10-Q").
4.21 Subscription Agreement, dated as of September 30, 2005, between the
Company and the holder of a promissory note, dated February 22, 2005,
issued to the Subscriber by the Company (incorporated herein by
reference to Exhibit 10.7 to the 2005 First Quarter Form 10-Q).
4.22 Form of Secured Debenture, dated January 20, 2006, made by All
American in favor of the Purchasers (incorporated herein by reference
to Exhibit 99.2 to the Company's Current Report on Form 8-K, dated
January 20, 2006, filed with the SEC on January 23, 2006 (the "January
2006 Form 8-K")).
4.23 Form of Additional Investment Right (incorporated herein by reference
to Exhibit 99.3 to the January 2006 Form 8-K).
4.24 Promissory Note, dated July 6, 2006, made by All American Plazas, Inc.
in favor of the Company (incorporated herein by reference to Exhibit
10.9 to the Current Report on Form 8-K, dated June 30, 2006, filed
with the SEC on July 7, 2006 (the "June 2006 Form 8-K")).
4.25 Common Stock Purchase Warrant, dated June 30, 2006, issued by Able
Energy, Inc. to Laurus Master Fund, Ltd. (incorporated herein by
reference to Exhibit 10.3 to the June 2006 Form 8-K).
4.26 Convertible Term Note, dated June 30, 2006, made by Able Energy, Inc.
in favor of Laurus Master Fund, Ltd. (incorporated herein by reference
to Exhibit 10.2 to the June 2006 Form 8-K).
4.27 Registration Rights Agreement, dated June 30, 2006, between Able
Energy, Inc. and Laurus Master Fund, Ltd. (incorporated herein by
reference to Exhibit 10.4 to the June 2006 Form 8-K).
4.28 Form of Variable Rate Secured Debenture (incorporated herein by
reference to Exhibit 4.1 to the Current Report on Form 8-K, dated
August 8, 2006, filed with the SEC on August 14, 2006 (the "August
2006 Form 8-K")).
4.29 Registration Rights Agreement, dated as of August 8, 2006, by and
among the Company and the Purchasers named therein (incorporated
herein by reference to Exhibit 4.2 to the August 2006 Form 8-K).
4.30 Form of Common Stock Purchase Warrant (incorporated herein by
reference to Exhibit 4.3 to the August 2006 Form 8-K).
10.1 Lease of Company's Facility at 344 Route 46, Rockaway, New Jersey
(incorporated herein by reference to Exhibit 10.3 to the 1998 Form
SB-2).
46
10.2 Form of employment agreement between the Company and Christopher P.
Westad (incorporated herein by reference to Exhibit 10.5 to Amendment
No. 2 to the Company's Registration Statement on Form SB-2, SEC File
No. Number 333-51909, filed with the SEC on April 15, 1999 ("Amendment
No. 2 to the 1998 Form SB-2").
10.3 Franchise Agreement, dated December 31, 1998, between the Company and
Andrew Schmidt (incorporated herein by reference to Exhibit 10.19 to
Amendment No. 2 to the 1998 Form SB-2).
10.4 Stock Purchase Agreement, dated as of December 31, 1998, between the
Company and Andrew Schmidt (incorporated herein by reference to
Exhibit 10.20 to Amendment No. 2 to the 1998 Form SB-2).
10.5 Pledge and Security Agreement, dated December 31, 1998, between the
Company and Andrew Schmidt (incorporated herein by reference to
Exhibit 10.21 to Amendment No. 2 to the 1998 Form SB-2).
10.6 9.5% Promissory Note, dated December 31, 1998, made by Andrew Schmidt
in favor of the Company (incorporated herein by reference to Exhibit
10.22 to Amendment No. 2 to the 1998 Form SB-2).
10.7 Employment Agreement with Christopher P. Westad, dated as of July 1,
2004 (incorporated herein by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended June 30, 2004
(the "2004 Form 10-K")).
10.8 Employment Agreement with John Vrabel, dated as of July 1, 2004
(incorporated herein by reference to Exhibit 10.4 to the 2004 Form
10-K).
10.9 Consulting Agreement, dated as of February 16, 2005, by and between
the Company and Timothy Harrington (incorporated herein by reference
to Exhibit 4.1 to the Company's Current Report on Form 8-K, dated
February 16, 2005, filed with the SEC on February 23, 2005).
10.10 Loan and Security Agreement, dated as of May 13, 2005, between the
Company, Able Oil Company, Able Energy New York, Inc. Able Oil
Melbourne, Inc., Able Energy Terminal, LLC and Able Propane, LLC (as
borrowers) and Entrepreneur Growth Capital LLC (incorporated herein by
reference to Exhibit 10.26 to the Company's annual report on Form 10-K
for the year ended June 30, 2005 (the "2005 Form 10-K")).
10.11 Promissory Note, dated May 13, 2005, made by the Company in favor of
Northfield Savings Bank, (incorporated herein by reference to Exhibit
10.27 to the 2005 Form 10-K.
10.12 Securities Purchase Agreement, by and among All American Plazas, Inc.,
dated as of June 1, 2005 (incorporated herein by reference to Exhibit
99.1 to the June 2005 Form 8-K).
10.13 Form of Securities Assumption, Amendment and Issuance Agreement by and
among the Purchasers named therein and the Company (incorporated
herein by reference to Exhibit 99.4 to the June 2005 Form 8-K).
10.14 Stock Purchase Agreement, by and between the Sellers named therein and
the Company, dated as of June 16, 2005 (incorporated herein by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated June 16, 2005, filed with the SEC on June 16, 2005).
10.15 USA Biodiesel LLC Operating Agreement (incorporated herein by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated August 9, 2006, filed with the SEC on August 15, 2006).
10.16 1999 Employee Stock Option Plan (incorporated herein by reference to
Exhibit 10.2 to Amendment No. 2 to the 1998 Form SB-2).
10.17 Asset Purchase Agreement, dated March 1, 2004, by and among the
Company, Able Propane Co., LLC, Christopher Westad, and Timothy
Harrington, Liberty Propane, L.P. and Action Gas Propane Operations,
LLC (incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated March 16, 2004, filed with the SEC
on March 16, 2004).
10.18 Employment Agreement with Timothy Harrington, dated as of July 1, 2004
(incorporated herein by reference to Exhibit 10.6 to the 2004 Form
10-K).
47
10.19 Securities Purchase Agreement, dated as of July 12, 2005, among the
Company and the purchasers signatory thereto (incorporated herein by
reference to Exhibit 99.1 to the July 2005 Form 8-K).
10.20 Employment Agreement, dated as of October 13, 2005, between the
Company and Gregory D. Frost (incorporated herein by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K, dated
October 13, 2005, filed with the SEC on October 19, 2005).
10.21 Amendment Agreement, dated as of November 16, 2005, by and among the
Company and the holders signatory thereto (incorporated herein by
reference to Exhibit 99.1 to the Company's Current Report on Form 8-K,
dated November 14, 2005, filed with the SEC on November 18, 2005).
10.22 Securities Purchase Agreement, by and among All American and the
Purchasers, dated as of January 20, 2005 (incorporated herein by
reference to Exhibit 99.1 to the January 2006 Form 8-K).
10.23 Form of Security Agreement, dated as of January 20, 2006, by and
between St. John's Realty Corporation and Lilac Ventures Master Fund
Ltd., as agent for the Secured Parties listed therein (incorporated
herein by reference to Exhibit 99.4 to the January 2006 Form 8-K).
10.24 Loan Agreement, dated as of January 20, 2006, by and between All
American Plazas, Inc., St. John's Realty Corporation, Lilac Master
Ventures Fund, Ltd. and the Purchasers listed there (incorporated
herein by reference to Exhibit 99.5 to the January 2006 Form 8-K).
10.25 Securities Purchase Agreement between Able Energy, Inc. and Laurus
Master Fund, Ltd. dated June 30, 2006 (incorporated herein by
reference to Exhibit 10.1 to the June 2006 Form 8-K).
10.26 Subsidiary Guaranty dated June 30, 2006 of Able Oil Co., Able Propane
Co, LLC, Able Energy New York, Inc., Abel Oil Melbourne, Inc., Able
Energy Terminal, Inc., Priceenergy.com, Inc. and Priceenergy.com and
Franchising, LLC (incorporated herein by reference to Exhibit 10.5 to
the June 2006 Form 8-K).
10.27 Loan Agreement, dated July 5, 2006, by and between the Company and All
American Plazas, Inc. (incorporated herein by reference to Exhibit
10.8 to the June 2006 Form 8-K).
10.28 Securities Purchase Agreement, dated as of August 8, 2006, by and
among the Company and the Purchasers (incorporated herein by reference
to Exhibit 10.1 to the August 2006 Form 8-K).
10.29 Security Agreement, dated as of August 8, 2006, by and among the
Company, the Company's subsidiaries and the Purchasers (incorporated
herein by reference to Exhibit 10.2 to the August 2006 Form 8-K).
14.1 Code of Business Conduct and Ethics (incorporated herein by reference
to Appendix C to the Company's Definitive Proxy Statement on Schedule
14A filed with the SEC on June 17, 2004)
16.1 Letter to SEC from Simontacci & Company LLP, dated January 9, 2006
(incorporated herein by reference to Exhibit 16.1 to the Company's
Current Report on Form 8-K, dated January 4, 2006, filed with the SEC
on January 9, 2006).
16.2 Letter to SEC from Simontacci & Company LLP, dated July 26, 2006
(incorporated herein by reference to Exhibit 16.2 to Amendment No. 2
on Form 8-K/A to the Company's Current Report on Form 8-K, dated
January 4, 2006, filed with the SEC July 26, 2006).
21.1 List of Subsidiaries of Registrant*
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*
FINANCIAL STATEMENT SCHEDULES
None.
----------
* Filed herewith.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 11, 2007 Able Energy, Inc.
By: /s/ Christopher P. Westad
--------------------------------------------
Christopher P. Westad
Acting Chief Executive Officer and President
49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Christopher P. Westad Acting Chief Executive Officer, April 11, 2007
------------------------- President and Director
Christopher P. Westad (Principal Executive Officer)
/s/ John L. Vrabel Chief Operating Officer April 11, 2007
-------------------------
John L. Vrabel
/s/ Jeffrey S. Feld Acting Chief Financial Officer April 11, 2007
-------------------------
Jeffrey S. Feld
/s/ Frank Nocito Vice President of Business Development April 11, 2007
-------------------------
Frank Nocito
/s/ Mark Barbera Director April 11, 2007
-------------------------
Mark Barbera
/s/ Stephen Chalk Director April 11, 2007
-------------------------
Stephen Chalk
/s/ Solange Charas Director April 11, 2007
-------------------------
Solange Charas
/s/ Gregory D. Frost Director April 11, 2007
-------------------------
Gregory D. Frost
/s/ Edward C. Miller, Jr. Director April 11, 2007
-------------------------
Edward C. Miller, Jr.
/s/ Patrick O'Neill Director April 11, 2007
-------------------------
Patrick O'Neill
/s/ Alan E. Richards Director April 11, 2007
-------------------------
Alan E. Richards
50