SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year ended June 30, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number: 333-59109
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 Greenpond 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 whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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 [ ]
The Issuer's Revenues for the Most Recent Fiscal Year, June 30, 2003,
were $46,297,662.
The aggregate market of the voting stock held by non-affiliates of the
registrant was approximately $6,522,930.00 as of the close of business on
September 22, 2003.
The number of shares of Common Stock, $.001 par value, issued and
outstanding as of September 22, 2003 was 2,013,250.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Able Energy was incorporated on March 13, 1997 in the state of Delaware, to act
as a holding company for five operating subsidiaries: Able Oil; Able Propane;
Able Melbourne; Able Montgomery and A&O.
In August 1999, the company formed a wholly-owned subsidiary, Able Energy
Terminal, LLC for the sole purpose of purchasing property located at 344 Route
46 in Rockaway, New Jersey for the Company's operations.
In August 1999, the company formed a wholly-owned subsidiary, Able Energy New
York, Inc. for the sole purpose of purchasing B&B Fuels, an acquisition in
Warrensburg, New York. This acquisition sold heating oil, diesel fuel, and
kerosene and the Company added propane gas as an additional product shortly
after the acquisition.
On December 29, 1998, the Company sold all of its outstanding shares of Able
Montgomery, its Pennsylvania retail heating oil distributor, to an unaffiliated
third party in exchange for monetary consideration and a ten-year franchise
agreement with the buyer.
On December 31, 1998, the Company sold all of its outstanding shares of common
stock of A&O, its environmental consulting and engineering subsidiary, to Owl
Environmental, Inc., one of A&O's subcontractors, for nominal consideration. The
Company decided to sell A&O in light of A&O's continuing operating losses.
In October 2000, the Company began operations of a majority-owned subsidiary,
PriceEnergy.com, Inc. 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.
OVERVIEW
The Company is engaged in the retail distribution of, and the provision of
services relating to, home heating oil, propane gas and diesel fuels. In
addition to selling liquid energy products, the Company offers complete HVAC
(heating, ventilation and air conditioning) installation and repair and also
markets other petroleum products to commercial customers, including on-road and
off-road diesel fuel, gasoline, and lubricants.
In fiscal year 2002, sales of home heating oil accounted for approximately 57%
of the Company's revenues. The remaining 43% of revenues were from sales of
gasoline, diesel fuel, kerosene, propane, home heating equipment services, and
related sales. The Company now serves approximately 29,000 home heating oil
customers from three locations, of which two are located in New Jersey and one
is located in Florida.
The Company also provides installation and repair of heating equipment as a
service to its customers. The Company considers service and installation
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 hours-a-day,
seven days-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.
The Company believes that it obtains new customers and maintains existing
customers by offering full service home energy products at discount 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 and billboards, which aim to increase brand
name recognition. The Company believes that this focused marketing strategy has
been key to its success.
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 either directly or through franchise
arrangements. The Company may also enter into marketing alliances with other
entities in product areas different than the Company's current product mix.
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RETAIL FUEL OIL
The Company's retail fuel oil distribution business is conducted through its
subsidiaries Able Oil, Able Energy New York, Inc., 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, 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 50% 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. These deliveries are scheduled by computer, based
on each customer's historical consumption patterns and prevailing weather
conditions. Customers can also order deliveries of home heating oil through the
Company's Web site located at WWW.ABLEENERGY.COM, or the Company's Subsidiary
PriceEnergy.com's Web site 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
or credit card.
In addition, approximately 10% of the Company's total sales are made to
customers pursuant to an agreement which 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 fuel with its own fleet of 28 custom fuel oil trucks and
four 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 16 Company owned service vans and one owner-operated service vans,
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
mostly 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 83% of the Company's total revenues in fiscal 2003.
Able Oil is headquartered in Rockaway, New Jersey, and serves just under 29,000
oil customer accounts throughout northern New Jersey, mostly in Morris, Sussex,
Warren, Passaic and Essex counties, from its distribution locations in Rockaway
and Newton, New Jersey. Of these accounts, approximately 85% are residential
customers and 15% are commercial customers.
Generally, 28 of the Company's fuel oil trucks are reserved for use by Able Oil,
of which 28 trucks operate from the Rockaway facility and five vans operate from
the Newton, New Jersey, facility. In addition, Able Oil utilizes the services of
five owner-operated trucks. Each owner operator is under contract; they are
responsible for all of the vehicle operating expenses including insurance
coverage. All of the trucks have the Company's logo on them.
Able Oil's 28 fuel oil delivery trucks, and the five owner-operator trucks,
acquire fuel inventory at the Company's facilities in Rockaway and Newton.
Dispatch of fuel oil trucks is conducted at both the Rockaway.. Billing is
conducted from Able Energy's corporate headquarters in Rockaway.
The Rockaway and Newton 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 short inventory life and high inventory turnover enables the
Company to rapidly respond to changes in market prices. Thus, Management employs
"just in time" inventory practices and rarely stores fuel to capacity levels.
Additional fuel oil purchases are made daily on the spot market using electronic
funds transfers. Able Oil carts its fuel purchases from wholesale purchase sites
to the Rockaway and Newton facilities with two tractor-trailer tankers owned by
the Company, and by two owner-operated tractor-trailer tankers that are used on
an as needed basis. These two owner-operated tankers are under contract and bear
the Able logo or name.
Able Oil's oil burner service operates out of the Rockaway and Newton facility.
Able Oil dispatches a total of 16 service vans, one of which is subcontracted
from an owner-operator.
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ABLE MELBOURNE
Able Melbourne was established in July 1996, and is located in Cape Canaveral
Florida. Presently, revenues from Able Melbourne account for approximately 3% 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, lubricants and lubricant products. Able Melbourne
serves approximately 300 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, during this
season, Able Melbourne uses 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 port storage, the
lack of inventory capacity is not material to the Company's operations or
revenue.
RETAIL PROPANE DISTRIBUTION
The Company is engaged in the retail distribution of propane gas and propane
equipment, and provides services related thereto through its subsidiary Able
Propane. Able Propane, based in Rockaway, New Jersey, was established 1996 as
part of the Company's efforts to increase market penetration through
diversification. Able Propane serves approximately 3,500 accounts, the majority
of which are located in northern New Jersey.
Propane can be used for virtually all household and business utility
applications. Of Able Propane's customers, approximately 50% use propane for hot
water heating and cooking; approximately 10% use propane for pool heating; and
approximately 40% use propane for home heating. Although burned as a gas,
propane is transported as a liquid and stored in tanks that vaporize the liquid
for use. Able Propane provides its customers with such tanks at no charge, and
by doing so, remains such customer's exclusive supplier of propane. Able Propane
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. These deliveries are scheduled by computer, based on each customer's
historical consumption patterns and prevailing weather conditions.
With a continued marketing effort, the Company believes that Able Propane has
the opportunity to gain a larger share of the New Jersey energy market by
converting electricity users to propane, and by encouraging owners of
newly-constructed homes and buildings to select propane as their energy source.
The Company also believes that the use of propane as an alternate fuel for cars,
trucks and public transportation to meet clean air requirements, poses a great
opportunity for future growth.
Able Propane's base of operations is located in Rockaway, New Jersey, at the
Company's headquarters. Currently, Able Propane has no propane storage
facilities, and its only investment in propane inventory is what can be stored
on its four propane delivery trucks. The delivery trucks have the capacity to
deliver 3,000 gallons of propane, and can service approximately 35 customers per
day. Able Propane purchases wholesale propane on the spot market at local
facilities. The Company is considering plans to lease or build a facility that
would enable Able Propane to store approximately 30,000 gallons of propane.
PRICEENERGY
PriceEnergy started business in October 2000 and is a majority-owned subsidiary
of Able Energy, Inc. 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 Energy'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 is currently completing its dealer network throughout New York,
Pennsylvania, Massachusetts, Connecticut, and New Jersey. Products and services
will be ordered over the Internet and forwarded to the local dealer to schedule
delivery. PriceEnergy receives payment and retains a four cent per gallon
override on all oil ordered through the system.
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Once the proper dealer network is in place, the company expects that about 20
million gallons will be ordered in the following fiscal year. This will result
in a minimum gross revenue stream of $800,000, which is approximately the
break-even point of the enterprise.
EFFECT OF CHANGES 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 home buyers 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 home buyers 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 approximately 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.
CONVERSION TO NATURAL GAS
The rate of conversion from the use of home heating oil to natural gas is
primarily affected by the relative prices of the two products, and the cost of
replacing oil fired heating systems with one that uses natural gas. The Company
believes that approximately 1% of its customer base annually converts from home
heating oil to natural gas. Even when natural gas had a significant price
advantage over home heating oil, such as in 1980 and 1981 when there were
government controls on natural gas prices or during the Persian Gulf Crisis in
1990 and 1991, the Company's customers converted to natural gas at only a 2%
annual rate. During the latter part of 1991 and through 1995, natural gas
conversions have returned to their 1% historical annual rate as the prices for
the two products have been at parity.
OIL PRICE VOLATILITY
Although prices of energy sources have been volatile, historically, this has not
affected the performance of the Company because it has been able to pass
substantially all wholesale cost increases along to its customers. While
fluctuations in wholesale prices have not significantly affected demand to date,
it is possible that significant wholesale price increase could have the effect
of encouraging conservation of energy resources. If demand was reduced and the
Company was unable to increase its gross profit margin or reduce its operating
expenses, the effect of such decrease in demand would be a reduction of net
income.
SEASONALITY
The Company's business is directly related to the heating needs of its
customers. Accordingly, the weather can have a material effect on the Company's
sales in any particular year. Generally, however, the temperatures in the past
thirty years have been relatively stable, and as a result, have not had a
significant impact on the Company's performance, except on a short-term basis.
In the years 1997 and 2001, "El Nino" caused two of the warmest winters on
record, which impacted home heating oil sales during the 1997-1998 and 2001-2002
winter seasons. The winter of 2002-2003 was approximately 14% colder than
normal, resulting in record revenues for Able Energy.
Approximately 60% of the Company's revenues are earned and received from October
through March, and the overwhelming majority of such revenues are derived from
the sale of home heating oil. 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.
Each of the Company's divisions are seasonal. From May through September, Able
Oil experiences considerable reduction of retail heating oil sales.
Able Propane can experience up to 80% decrease in heating related propane sales
during the months of April to September, which is offset somewhat by an increase
of pool heating and cooking fuel.
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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 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.
WHOLESALE SUPPLIERS
The Company has three supply contracts for the purchase of Number 2 Heating Oil,
representing 10% of the Company's annual heating fuel purchases. The Company
purchases its remaining fuel supplies on the spot market. The Company satisfies
its inventory requirements with nine different suppliers, the majority of which
have significant domestic fuel sources, and many of which have been suppliers to
the Company for over 5 years. The Company's current suppliers are Ameranda Hess
Corporation,.Motiva Enterprises, Petron Oil Corporation, Star Enterprises,
Sprague Energy, Petrocom Energy Group Ltd., and Sun Co., Inc. (R&M). The Company
monitors the market each day and determines when to purchase its oil inventory
and from whom. As of June 1998, the Company began storing supplies of fuel equal
to a month's sales of fuel because of unusually low fuel prices.
Three of these suppliers provided Able Oil with approximately 60% of its heating
oil requirements for the year ended June 30, 2002.
Coastal Refining & Marketing, Inc., provided Able Melbourne with approximately
99% of its diesel fuel product requirements for the year ended December 31,
1998. Two major suppliers provided Able Melbourne with approximately 67% and
33%, respectively, of its lubricant and related product requirements for the
year ended June 30, 2002. Two major suppliers, Keystone Propane and Propane
Power, provided Able Propane with approximately 50% each, of its propane
requirements for the year ended December 31, 1998.
Management believes that if the Company's supply of any of the foregoing
products was interrupted, the Company 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.
TRUCK PURCHASES AND MAINTENANCE
The Company presently orders and purchases its fuel oil trucks from two
companies that manufacture trucks suitable for the Company's operations. The
Company has the option to purchase or lease standard equipment fuel trucks. The
typical configuration of the Company's fuel trucks is a Kenworth with a 3,000
gallon multi-compartment aluminum tank, a vapor recovery system and a device
that records fuel flow from the storage compartments. Each truck carries the
Company's registered logo emblazoned on its side.
Service vehicles are standard commercial vans, which are obtained from a number
of sources. These vehicles also carry the Company logo.
Generally, the Company relies upon equipment warranties, fixed fee service
contracts and on-site repairs for the maintenance of the Company's fleet of
vehicles. To date, the Company has not experienced significant downtime on the
any of its fuel trucks.
FRANCHISE DEVELOPMENT
On December 29, 1999, the Company sold its Able Montgomery subsidiary as a
franchise operation. Able Montgomery located in Horsham, Pennsylvania, was
established in 1996 and is engaged in the retail sale and delivery of home
heating oil. Pursuant to a Stock Purchase Agreement, the Company sold all of the
outstanding shares of Able Montgomery held by the Company to an unaffiliated
third party for a purchase price of $140,000, and the purchaser agreed to enter
into a ten-year franchise agreement with the Company. As an incentive for the
purchaser to enter into the Stock Purchase Agreement and operate Able Montgomery
as a franchise, the Company agreed to waive the $25,000 franchise fee and the
$15,000 grand opening fee the Company typically charges new franchisees. At the
time of the sale, Able Montgomery represented approximately 1.52% of the total
assets of the Company and approximately 1.82% of the total revenues of the
Company.
The purchaser of Able Montgomery issued to the Company a promissory note for the
purchase price of Able Montgomery. On June 15, 2000, the promissory note was
restructured to include the amount still due, plus an additional amount for
purchases of oil and advertising, for a total principal amount of $175,000.
Pursuant to the Stock Purchase Agreement, the Company agreed to indemnify the
purchaser in certain circumstances, which include, any personal injury
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or property damage claims, or any environmental violation, caused by the Company
prior to the closing of the sale of Able Montgomery. The purchaser agreed to
indemnify the Company in certain circumstances, which include, the breach of any
representation or warranty made by purchaser in the Stock Purchase Agreement or
any of the other agreements executed by the purchaser in connection with the
sale of Able Montgomery. Additionally, pursuant to the Stock Purchase Agreement,
the purchaser agreed to enter into a Pledge and Security Agreement whereby the
purchaser agreed to pledge to the Company all of the assets and outstanding
shares of Able Montgomery, and grant to the Company a security interest in all
of the assets of Able Montgomery, pending the satisfaction of the promissory
note. The promissory note is payable 60 months from the date of the note and
accrues interest at a rate of 9.5% per annum, payable to the Company in monthly
installments.
On June 27, 2000, the Company issued a franchise to an independent third party
for exclusive rights to operate our franchised business in the Pocono Mountains,
Pennsylvania. This franchise commenced business operations in September 2000. In
conjunction with issuance of the franchise, the franchisee paid the company a
non-refundable fee of $25,000, an advertising deposit of $15,000 and a $5,000
escrow deposit. The Company will provide training, advertising and use of Able
credit for the purchase of product, among other things, as specified in the
agreement. The franchisee has an option to sell the business back to the Company
after two (2) years of operations pursuant to the agreement.
1998 SALE OF A&O SUBSIDIARY
A&O was established in 1995 and was engaged in the business of environmental
consulting and engineering. After assessing the potential profitability of A&O
versus its potential liabilities, Management determined that it was in the
Company's best interest to sell A&O. During the year ended December 31, 1999,
A&O experienced a loss from operations of approximately $152,000 on revenues of
$734,032. At December 31, 1999, A&O's liabilities were approximately $374,712 as
compared to assets of $221,000. From its inception through year ended December
31, 1998, the Company, through Able Oil, advanced to A&O approximately $128,442.
Pursuant to a Stock Purchase Agreement dated December 31, 1998, the Company sold
all of the outstanding shares of common stock of A&O held by the Company to Owl
Environmental, Inc. ("Owl"), one of A&O's subcontractors, for nominal
consideration. Owl purchased such shares "as is" without recourse or express or
implied warranty from the Company.
PRODUCT LINES
In fiscal year 2003, sales of home heating oil accounted for approximately 57%
of the Company's revenues. The remaining 43% of revenues were from sales of
gasoline, diesel fuel, kerosene, propane, equipment sales and service, and
related sales. The Company also 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.
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 & 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 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
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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 offers its drivers and customer
care representatives an incentive payment of $20 for each new automatic delivery
customer and $10 for each conversion of an existing customer to automatic
delivery.
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. Customers who refer business receive either $30 or 25 gallons of
heating oil at no charge for each new customer referred. The Company also offers
other special limited time promotional offers to customers, designed to increase
business in specific targeted business segments. The Company also encourages
civic and religious organizations to refer business to the Company. As an
incentive, the Company pays such organizations a donation for each of its
members who become customers and a stipend based upon the members' fuel
consumption.
PATENTS AND TRADEMARKS
Able Oil owns the exclusive right and license to use, and to license others to
use, the proprietary marks, including the service mark "Able Oil- -Registered
Trademark-" (and design) ("Proprietary Marks"). The "Able Oil- -Registered
Trademark-" service mark and design was registered under Classes 37 and 39 of
the Principal Register of the U.S. Patent & Trademark Office ("USPTO") on April
30, 1996 (registration No. 1,971,758). In addition, Able Oil established certain
common law rights to the Proprietary Marks through its continuous, exclusive and
extensive public use and advertising. The Proprietary Marks are not registered
in any state.
Presently there is no effective determination by the USPTO, Trademark Trial and
Appeal Board, the trademark administrator of any state, or court regarding the
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.
There are no agreements currently in effect that significantly limit the rights
of Able Oil to use or license the use of the Proprietary Marks.
In December 2000, the Company was advised by the United States Patent and
Trademark Office that its applications for registration for the
"PriceEnergy.com" mark was assigned Serial No. 76/172083 and the
"PriceEnergy.com The Energy Hotspot" mark was assigned Serial No. 76/171829, as
of November 28, 2000.
ENVIRONMENTAL CONSIDERATIONS AND REGULATION
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
operating 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.
On September 15, 2003, Able Oil received approval from the New Jersey Department
of Environmental Protection 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 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.
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.
7
GOVERNMENT REGULATIONS
Numerous federal, state and local laws, including those relating to protection
of the environment and worker safety, effect 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 effect 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 licence with a hazardous materials endorsement.
The Company is also subject to the rules and regulations concerning 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 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.
EMPLOYEES
As of June 30, 2003, the Company employed approximately 82 individuals. From
October through March, the Company's peak season, the Company employs
approximately 100 persons. From April through September, the Company employs
approximately 75 persons. Currently, there are no organized labor unions
representing any of the employees of Company or any of its related companies.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in a 9,800 square foot facility
in Rockaway, New Jersey. This facility accommodates the Company's corporate,
administrative, marketing and sales personnel. The lease expires July 31, 2005
and carries an annual rent increasing from $109,000 to $290,000 over the term of
the lease. The Company owns the property located at 344 Route 46 in Rockaway,
New Jersey. This facility accomodates 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 buildings, totaling 1,000 square feet, consisting of wood
frame facilities located at 38 Diller Avenue, Newton, New Jersey that serves as
a supply depot, storage area administrative offices and service facility.
Able Melbourne leases a 4,000 square foot concrete and aluminum facility that
serves as a storage facility, a service facility and administrative offices,
located at 757 Scallop Drive, Port Canaveral, Florida and is governed by an
oral, month-to-month lease with annual rent of $6,000. 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 conveniently located within three miles of its
8
wholesale supplier. The Company is responsible for maintaining the facilities in
compliance with all environmental rules and laws.
ITEM 3. LEGAL PROCEEDINGS
In accordance with the purchase of the property on Route 46, Rockaway, New
Jersey by Able Energy Terminal, LLC, the Company intends to pursue recovery of
all costs and damages related to a lawsuit by the seller against a former tenant
of the property, based on environmental cleanup costs on the property. Purchaser
will assume all responsibility and direction for the lawsuit, subject to the
sharing of half of any recoveries from the lawsuit with the seller. The seller
by reduction of its mortgage will pay costs related to the above up to $250,000.
In December of 2000, the Company reached an agreement with the former tenants
whereby the former tenants agreed to pay Able Energy, Inc. the sum of $397,000
in order to pay for the environmental cleanup costs on the Company's Route 46
property.
A lawsuit has been filed against the Company by property owners who allegedly
suffered property damages as a result of the March 14, 2003 explosion and fire.
The Company's insurance carrier is defending as related to compensatory damages.
Legal counsel is defending on the punitive damage claim. Per legal counsel, it
is too early in the process to assess the outcome, in their opinion, the matter
will not be certified as a Class Action.
As a result of the March 14, 2003 explosion and fire, various claims for
property damage have been submitted to the Company's insurance carrier. These
claims are presently being handled and, in many cases, settled by the insurance
carrier's adjuster. There are approximately 200 claims being handled and
adjusted with reserves for losses established as deemed appropriate by the
insurance carrier.
The Company is not currently involved in any legal proceeding that could have a
material adverse effect on the results of operations or the financial condition
of the Company. From time to time, the Company may become a party to litigation
incidental to its business. There can be no assurance that any future legal
proceedings will not have a material adverse affect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote and ratified at our annual
meeting held in Rockaway, New Jersey on May 30, 2003.
(1) Elected a board of seven directors to hold office until the 2004 Annual
Meeting of Shareholders and until their successors are elected and qualified;
FOR AGAINST ABSTAIN
Timothy Harrington 1,018,996 0 0
Christopher P. Westad 1,018,996 0 0
James Pucaro 1,018,996 0 0
Gregory Sichenzia 1,018,996 0 0
Patrick O'Neill 1,018,996 0 0
Edward C. Miller, Jr. 1,018,996 0 0
(2) Ratified the selection of Simontacchi & Company, LLP as our auditors for the
fiscal year ending June 30, 2004.
FOR AGAINST ABSTAIN
1,018,996 0 0
9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR SECURITIES
The Company's Common Stock commenced trading on the Nasdaq SmallCap Market under
the symbol "ABLE" on June 29, 1999. The following table sets forth the high and
low sale price of the Common Stock on a quarterly basis, as reported by Nasdaq:
QUARTER ENDED HIGH PRICE ($) LOW PRICE ($)
-----------------------------------------------------------
June 30, 2000 6 4 1/4
September 30, 2000 5 1/4 3
December 31, 2000 4 1 5/8
March 31, 2001 3 9/16 2
June 30, 2001 6.75 2.35
September 30, 2001 5.89 3.70
December 31, 2001 4.58 3.55
March 31, 2002 4.72 3.34
June 30, 2002 4.55 3.30
September 2002 4.50 3.40
December 2002 4.82 2.81
March 2003 4.80 2.80
June 2003 4.15 2.41
At September 23, 2002, there were approximately 600 holders of record of the
Company's Common Stock. The Company has not paid dividends on its shares of
Common Stock outstanding in the past. There are no restrictions that limit the
ability of the Company to pay dividends or are likely to do so in the future.
RECENT SALE OF UNREGISTERED SECURITIES
None.
10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED FINANCIAL DATA
The following selected financial data 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
Operations".
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001
---- ---- ----
Results of Operation Data
- -------------------------
Sales $ 46,297,662 $ 26,723,482 $ 33,953,373
Gross Profit 7,541,962 5,071,010 5,169,010
Operating Income (Loss) 927,627 (1,426,268) (1,799,235)
Net Income (Loss) 202,152 (1,522,255) (1,614,909)
Net Income (Loss) Per Share .10 (.76) (.81)
Depreciation and Amortization 1,220,048 1,156,601 1,009,201
Interest Expense 465,531 298,331 236,599
Weighted Average Number of Shares
Outstanding 2,012,708 2,001,332 2,000,000
Balance Sheet Data
- ------------------
Cash $ 400,033 $ 258,560 $ 1,489,018
Current Assets 5,504,366 3,086,136 4,040,586
Current Liabilities 8,678,829 5,559,680 5,169,197
Total Assets 12,612,582 10,477,891 11,756,530
Long-Term Liabilities 446,461 1,657,071 1,828,401
Total Stockholders' Equity 3,487,292 3,261,140 4,758,932
11
Able Energy, Inc. and Subsidiaries
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning the Company's
outlook or future economic performance, anticipated profitability,
gross billings, expenses or other financial items, and statements
concerning assumptions made or exceptions to any future events,
conditions, performance or other matters are "forward looking
statements," as that term is defined under the Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties, and
other factors that would cause actual results to differ materially from
those stated in such statements. Such risks, and uncertainties and
factors include, but are not limited to: (i) changes in external
competitive market factors or trends in the Company's results of
operation; (ii) unanticipated working capital or other cash
requirements and (iii) changes in the Company's business strategy or an
inability to execute its competitive factors that may prevent the
Company from competing successfully in the marketplace.
Revenue Recognition
Sales of fuel and heating equipment are recognized at the time of
delivery to the customer, and sales of equipment are recognized at the
time of installation. Revenue from repairs and maintenance service is
recognized upon completion of the service. Payments received from
customers for heating equipment service contracts are deferred and
amortized into income over the term of the respective service
contracts, on a straight-line basis, which generally do not exceed one
year.
Results of Operations
Year ended June 30, 2003; Compared to the Year ended June 30, 2002.
The Company reported revenues of $46,297,662 for the year ended June
30, 2003, an increase of 73.25% over the prior year's revenues for the
same period. The sales increased by $19,574,180. This increase can be
attributed primarily to the Company's continued aggressive sales
activities, which resulted in a larger customer base as well as an
increase in the sales of commercial diesel fuels and gasoline. The
Company's primary delivery territory also experienced much colder
weather and higher margins via a more favorable pricing structure. A
higher commodity cost during this past season due to economic unrest,
and the fear that war could disrupt the world's oil supply also
impacted revenues. The Company experienced a sales increase in its two
main commodities during the year ended June 30, 2003. Sales of #2
heating oil, the Company's main product line, grew in revenue dollars
by 79.09%. Propane gas sales, in dollars, grew by 53.61% for the year
over the prior year. In addition, the Company increased its sales of
new equipment and HVAC services for the year by 35.92%. In addition,
sales of gasoline and on-road diesel also experienced strong revenue
growth. Sustained growth in these non-heating related products and
services in the off-season, will also help even out the seasonality of
the Company's business when heating related sales are generally down.
Management has also been dedicated to a realistic gross margin
percentage on these off-season products to allow for greatest
profitability.
Gross profit margin, as a percentage of revenues, for the year ended
June 30, 2003, decreased by 2.69%, but gross profit in dollars
increased $2,470,952 above the prior year's results. Gross profit
margin as a percentage of revenues was lower due to the increased cost
of the main commodities during this past heating season. Typically,
margin dollars per gallon remain relatively constant in a given
marketing area regardless of the changes in commodity pricing. The
overall increase in gross profit reflects the Company's margin
management policy along with the increase in gross sales revenue. This
margin program is designed to promote product pricing that is in line
with the specific type and extent of service that is provided.
12
Selling, general, and administrative expenses, as a percent of sales,
decreased by 8.33% from 19.98% in the year ending June 30, 2002 to
11.65% during the same period in 2003. The Company attributes this
decrease to its continued dedication to controlling expense line items
as a percentage of sales, including advertising, and outside consulting
fees. Management will continue to monitor the fiscal budget against
actual results on a continuing basis in an effort to further reduce
SG&A as a percentage of sales.
Operating income for the year ended June 30, 2003 was $927,627, as
compared to the Company's operating loss of ($1,426,268) for the year
ended June 30, 2002. This operating profit for the year was directly
related to the increase in sales and lower percentage of operating
costs in comparison to sales.
Net income for the year ended June 30, 2003 was $202,152 as compared to
the same period for the previous year loss of ($1,522,255), a year over
year increase of $1,724,407. The overall performance in net income was
primarily affected by the dramatic increase in sales during the year.
Primarily, the Able Oil subsidiary experienced the greatest increase in
year-to-year net profit of $1,378,655 this year compared to prior year.
This net income while being a significant improvement over the prior
year was severely effected by the explosion and fire on March 14, 2003,
and regulatory penalties of $435,500, discussed on a subsequent page.
Results of Operations
Year ended June 30, 2003, compared to year ended June 30, 2002:
June 30, 2003 June 30, 2002 % Inc / (Dec)
------------- ------------- -------------
Sales $46,297,662 $26,723,482 73.24%
Gross Profit Margin 7,541,962 5,071,010 48.73%
Selling General & 5,394,287 5,340,677 1.00%
Administrative Expense
Income/(Loss) From 927,627 (1,426,268) 100.00%+
Operations
202,152 (1,522,255) 100.00%+
Net Income
To reiterate, the sales increases can be attributed to the Company's
vigorously energetic sales activities, which resulted in continued
customer growth especially automatic delivery heating oil customers. In
addition, the year as a whole was 34% colder than the prior year
creating higher demand in heating related gallons sales. While the
2002/2003 season was colder than the prior year, it was also 10% colder
than normal in the Company's primary delivery area of Northwestern New
Jersey. This colder weather also contributed to a 36% increase in HVAC
service work and new heating system installations. While the Company
increased the total Gross Profit Margin by 49%, the overall percent to
sales as compared to prior year was down by 2.7% due to increased
commodity costs coupled with a margin goal per gallon that was
achieved. Unseasonably cold weather this year, continued strong sales
and marketing efforts, continued emphasis on margin management, along
with stable operating costs all contributed to the Company's operating
profit and net income. The Company reported revenues for the year of
$46,297,662, an increase of 73.24% over the revenues of a year ago.
These increased revenues were the result of sales efforts, colder
weather, and a higher commodity cost this past season.
13
Operational Efficiencies
The Company believes that it will continue to increase the utilization
of existing personnel and equipment, thus continuing to reduce expenses
as a percent of sales, and increasing profitability, within its current
business configuration. The redefining of the Company's organizational
chart and associated position descriptions (by assigning duties to best
suit the organizations growth) will further enhance this increased
utilization. Moreover, the Company is in the process of implementing a
new operating system to further streamline operations and information
processing.
The Company's margin management strategy will be additionally
strengthened as it plans to use the PriceEnergy subsidiary to handle
highly discounted non-service related home heating oil sales previously
sold through the Able Oil subsidiary. This change will permit Able Oil
Co. to grow its automatic delivery customer base using its moniker of
"Full Service at Discount Prices", while the PriceEnergy entity will
cater to those customers looking for the lowest possible retail price
either "on-line" or over the phone. The Company believes that this
further segmentation of its customer base will be successful in
increasing overall profitability while enhancing customer appeal. The
Company has identified several discreet customer segments that prefer
varying levels of service from the Company. By better aligning the
Company's product offerings to match the desires of these customer
segments, the Company believes that it will be able to capture a larger
market share
The Company is in the process of implementing a service billing
methodology known as "Flat Rate Pricing", an approach similar to that
used in the automobile repair industry. This system will provide sales
and service personnel the capability of offering the customer an easy
to understand, "package approach" to repairs and equipment
installations with one or two line billings per invoice. This policy is
consistent with the Company's customer segmentation strategy,
permitting different retail prices for different customer segments,
based upon their choice of service level desired. This system will
interface with the Company's automated dispatch communications program
that was introduced last year. Flat rate pricing is being rolled out in
the 2nd fiscal quarter of the current year and is anticipated that this
system will be fully implemented by the end of the current fiscal year.
Recently Implemented Technological Procedures
The Company has established goals, which will be accomplished through
the implementation of some modern technologies that are currently being
installed into the Company's existing infrastructure.
The Company has introduced additional customer service technology to
its Rockaway call and administrative center during the past year. Able
Energy management believes that the improvements to its existing
telephony hardware and in-house management, the Company's call center
environment will be provided with the ability to respond to changing
call patterns, both higher and lower, without the expense of clerical
over-staffing to meet unrealized needs. New software now provides the
customer with the option of placing an order via a voice activated
technology. This allows customers who simply wish to refill their fuel
tank, the opportunity to quickly place an order 24 hours a day without
the help of a live customer service representative.
The Company is now beginning full implementation of the recently
announced automated dispatch technology, which provides management with
the ability to communicate with service technicians instantaneously.
This system also is now performing billing functions at the customer's
location as well as documenting payment data instantaneously.
Additionally, management is now aware of the status of every on-duty
worker and obtains real time reporting for stand-by, en route, and
service work time. This enables the Company to maximize scheduling
opportunities and eliminating service technician down time.
14
Operating Subsidiary
The company's operating subsidiary, PriceEnergy with it modern
order-processing platform is now in its second full year of operation.
This revolutionary proprietary technology is fully automated and allows
for the removal of the inefficiencies associated with traditional
heating oil companies within this industry. PriceEnergy has generated
over 2 million gallons in new business this year, which were delivered
by PriceEnergy's dealer network. In December of 2002, PriceEnergy began
sales of Home Heating Oil in the initial BJ's Wholesale Club. Gallons
sold through this new venue have been increasing with each week. The
Company is excited about this new sales opportunity with its new
"Channel Partner", BJ's. The Company believes that this is the first of
many prime retail opportunities to utilize the PriceEnergy operating
platform to open new markets for the sales of heating oil, diesel fuel,
and propane gas.
Explosion and Fire
On March 14, 2003, Able Energy experienced an explosion and fire at its
Newton, New Jersey facility which resulted in the destruction of an
office building on the site, as well as damage to 18 company vehicles
and neighboring properties. Fortunately, due to the immediate response
by employees at the site, a quick evacuation of all personnel occurred
prior to the explosion, preventing any serious injuries.
The preliminary results of the company's investigation indicate that
the explosion was an accident that occurred as a result of a
combination of human error, mechanical malfunction, as well as the
failure to follow prescribed state standards for propane delivery truck
loading. On April 3, 2003, Able Energy received a Notice of Violation
from the New Jersey Department of Community Affairs. The dollar amount
of the assessed penalty totaled $414,000. Able Energy has contested the
Notice of Violation as well as the assessed penalties with the State of
New Jersey and is waiting for a hearing date.
The company has taken the lessons learned from this event very
seriously. Able Energy has worked closely, and cooperated fully with
all local and state officials in the clean up phase, tank testing
process, and subsequent investigations. Strict and clear employee
communications have taken place to reinforce compliance with all
governmental regulations as well as all company policies. The company
has retained the assistance of Boyer Safety Services, experts in the
propane industry; to hold safety-training sessions for all propane
related employees. This training will be ongoing and will upgrade
employee training to the most modern and up-to-date levels as well as
reinforce Able Energy's commitment to operate all aspects of the
company in a professional, responsible, and safe manner.
The Company is currently not processing deliveries from the Newton, New
Jersey facility as it awaits the outcome of an appeal before the Newton
Board of Adjustment as to future operations from that site. Company
operations have continued throughout the aftermath of the incident and
management believes that it has fully recovered to normal delivery
operations using its main distribution facility in Rockaway, New
Jersey.
Liquidity And Capital Resources
For the year ended June 30, 2003, compared to the year ended June 30,
2002, the Company's cash position increased by $141,473 from $258,560
to $400,033. For the year ended June 30, 2002, cash was generated
through collections of customer advance payments, and an increased loan
from the bank. In the year ending June 30, 2003, the Company entered
into agreements and received loans of $750,000 from a private company
and a loan in excess of $300,000 from the C.E.O. The Company has closed
a new credit facility on September 22, 2003 with UPS Business Capital
Credit and obtained a term loan of $4.3 million to consolidate a large
portion of its existing debt and has also obtained a working capital
line of credit of $700,000. This new debt restructuring will save in
excess of $200,000 per year in interest payments and eliminate previous
administrative efforts in the managing of over two-dozen individual
leases and loans. The new facility will enable the Company to continue
to grow while strengthening its infrastructure.
15
Seasonality
The Company's operations are subject to seasonal fluctuations, with a
majority of the Company's business occurring in the late fall and
winter months. Approximately 70% of the Company's revenues are earned
and received from October through March, most of such revenues are
derived from the sale of home heating products including propane gas
and home heating oil. However the seasonality of the Company's business
is offset, in part, by an increase in revenues from the sale of HVAC
products and services, diesel and gasoline fuels during the spring and
summer months, due to the increased use of automobiles and construction
apparatus
From May through September, Able Oil can experience considerable
reduction of retail heating oil sales. Similarly, Able Propane can
experience up to an 80% decrease in heating related propane sales
during the months of April to September, this is offset somewhat by
increased sales of propane gas used for pool heating, heating of
domestic hot water in homes and fuel for outdoor cooking equipment.
Over 90% of Able Melbourne's revenues are derived from the sale of
diesel fuel for construction vehicles, and commercial and recreational
sea-going vessels during Florida's fishing season, which begins in
April and ends in November. Only a small percentage of Able Melbourne's
revenues are derived from the sale of home heating fuel. Most of these
sales occur from December through March, Florida's cooler months.
ITEM 8. FINANCIAL STATEMENTS
All financial information required by this Item is attached hereto beginning on
Page F-1.
16
ABLE ENERGY, INC.
JUNE 30, 2003 AND 2002
----------------------
C O N T E N T S
---------------
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS:
ACCOUNTANTS' REPORT ................................................F-2
CONSOLIDATED BALANCE SHEET ...................................F-3 - F-4
CONSOLIDATED STATEMENT OF OPERATIONS ...............................F-5
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY .........................................F-6
CONSOLIDATED STATEMENT OF CASH FLOWS ........................F-7 - F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..................F-9 - F-32
F-1
To The Board of Directors
Able Energy, Inc.
Rockaway, New Jersey 07866
Independent Auditors' Report
----------------------------
We have audited the accompanying consolidated balance sheet of Able Energy, Inc.
and subsidiaries as of June 30, 2003 and 2002 and the related consolidated
statements of income, changes in Stockholders' equity, and cash flows for the
years ended June 30, 2003, 2002 and 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audits 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, 2003 and 2002, and
the results of their operations and their cash flows for the years ended June
30, 2003, 2002 and 2001 in conformity with accounting principles generally
accepted in the United States of America.
Simontacchi & Company, LLP
Rockaway, New Jersey
September 22, 2003
F-2
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
------
JUNE 30,
---------------------------
2003 2002
----------- -----------
Current Assets:
Cash $ 400,033 $ 258,560
Accounts Receivable (Less Allowance for Doubtful
Accounts of $279,913 (2003) and $242,358 (2002) 2,661,808 1,933,526
Inventory 789,422 405,424
Notes Receivable - Current Portion 57,577 32,756
Miscellaneous Receivables 70,503 113,905
Prepaid Expenses 395,982 228,839
Insurance Claim Receivable 349,526 --
Deferred Costs - Insurance Claims 703,675 --
Prepaid Expense - Income Taxes 2,063 2,733
Deferred Income Tax 73,777 65,703
Due From Officer -- 44,690
----------- -----------
Total Current Assets 5,504,366 3,086,136
----------- -----------
Property and Equipment:
Land 451,925 451,925
Buildings 946,046 1,096,046
Trucks 3,125,453 3,037,192
Fuel Tanks 1,455,501 1,190,153
Machinery and Equipment 769,817 576,123
Leasehold Improvements 597,759 578,792
Cylinders 755,496 731,692
Office Furniture and Equipment 200,640 200,640
Website Development Costs 2,274,575 2,200,511
----------- -----------
10,577,212 10,063,074
Less: Accumulated Depreciation and Amortization 4,331,055 3,461,342
----------- -----------
Net Property and Equipment 6,246,157 6,601,732
----------- -----------
Other Assets:
Deferred Income Taxes 45,091 --
Deposits 165,541 70,570
Notes Receivable - Less Current Portion 177,793 216,628
Customer List, Less Accumulated Amortization of ($188,122) 2003
and 2002 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
$76,667 (2003) and $56,667 (2002) 23,333 43,333
Development Costs - Franchising 27,573 36,764
----------- -----------
Total Other Assets 862,059 790,023
----------- -----------
Total Assets $12,612,582 $10,477,891
=========== ===========
See Accompanying Notes and Auditor's Report
F-3
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Cont'd)
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
JUNE 30,
------------------------------
2003 2002
------------ ------------
Current Liabilities:
Accounts Payable $ 1,420,911 $ 1,159,341
Note Payable - Bank 1,270,000 1,470,000
Note Payable - Other 1,585,000 500,000
Current Portion of Long-Term Debt 1,888,982 584,384
Accrued Expenses 735,370 309,363
Accrued Taxes 98,612 24,673
Customer Pre-Purchase Payments 936,680 880,111
Customer Credit Balances 416,644 548,336
Escrow Deposits 5,000 28,472
Note Payable - Officer 321,630 55,000
------------ ------------
Total Current Liabilities 8,678,829 5,559,680
Deferred Income 79,679 79,679
Deferred Income Taxes 70,310 54,712
Long Term Debt: less current portion 296,472 1,522,680
------------ ------------
Total Liabilities 9,125,290 7,216,751
------------ ------------
Stockholders' Equity:
Preferred Stock
Authorized 10,000,000 Shares Par Value $.001 per share
Issued - None
Common Stock
Authorized 10,000,000 Par Value $.001 per share Issued
and Outstanding Shares 2,013,250 (2003) and 2,007,250 (2002) 2,014 2,008
Paid in Surplus 5,711,224 5,687,230
Retained Earnings (Deficit) (2,225,946) (2,428,098)
------------ ------------
Total Stockholders' Equity 3,487,292 3,261,140
------------ ------------
Total Liabilities and Stockholders' Equity $ 12,612,582 $ 10,477,891
============ ============
See Accompanying Notes and Auditors' Report
F-4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED JUNE 30,
------------------------------------------------
2003 2002 2001
------------ ------------ ------------
Net Sales $ 46,297,662 $ 26,723,482 $ 33,953,373
Cost of Sales 38,755,700 21,652,472 28,784,363
------------ ------------ ------------
Gross Profit 7,541,962 5,071,010 5,169,010
------------ ------------ ------------
Expenses
Selling, General and Administrative Expenses 5,394,287 5,340,677 5,959,044
Depreciation and Amortization Expense 1,220,048 1,156,601 1,009,201
------------ ------------ ------------
Total Expenses 6,614,335 6,497,278 6,968,245
------------ ------------ ------------
Income (Loss) From Operations 927,627 (1,426,268) (1,799,235)
------------ ------------ ------------
Other Income (Expenses):
Interest and Other Income 127,248 214,707 404,290
Interest Expense (465,531) (298,331) (236,599)
Directors' Fees (24,000) (20,400) --
Gain on Insurance Recovery (Note 24) 215,140 -- --
Other Expense (Note 22) (435,500) -- --
Legal Fees Relating to Other Expense (90,050) -- --
------------ ------------ ------------
Total Other Income (Expense) (672,693) (104,024) 167,691
------------ ------------ ------------
Income (Loss) Before Provision for Income Taxes (Credit) 254,934 (1,530,292) (1,631,544)
Provision for Income Taxes (Credit) 52,782 (8,037) (16,635)
------------ ------------ ------------
Net Income (Loss) $ 202,152 $ (1,522,255) $ (1,614,909)
============ ============ ============
Basic Earnings (Loss) per Common Share $ .10 $ (.76) $ (.81)
============ ============ ============
Diluted Earnings (Loss) per Common Share $ .10 $ (.76) $ (.81)
============ ============ ============
Weighted Average number of Common Shares Outstanding 2,012,708 2,001,332 2,000,000
============ ============ ============
Weighted Average Number of Common Shares Outstanding,
Assuming Dilution 2,051,700 2,001,332 2,000,000
============ ============ ============
See Accompanying Notes and Auditors' Report
F-5
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
----------------------------------------
Common Stock
.001 Par Value
--------------
Additional Total
Paid-in Retained Stockholders'
Shares Amount Surplus Earnings Equity
----------- ----------- ----------- ----------- -----------
Balance - July 1, 2000 2,000,000 $ 2,000 $ 5,662,775 $ 709,066 $ 6,373,841
Net Loss (1,614,909) (1,614,909)
----------- ----------- ----------- ----------- -----------
Balance - June 30, 2001 2,000,000 2,000 5,662,775 (905,843) 4,758,932
Sale of Common Stock 1,250 2 4,061 4,063
Issuance of Common Stock for
Payment of Directors' Fees 6,000 6 20,394 20,400
Net Loss (1,522,255) (1,522,255)
----------- ----------- ----------- ----------- -----------
Balance - June 30, 2002 2,007,250 $ 2,008 $ 5,687,230 $(2,428,098) $ 3,261,140
Issuance of Common Stock for
Payment of Directors' Fees 6,000 6 23,994 24,000
Net Income 202,152 202,152
----------- ----------- ----------- ----------- -----------
Balance - June 30, 2003 2,013,250 $ 2,014 $ 5,711,224 $(2,225,946) $ 3,487,292
=========== =========== =========== =========== ===========
See Accompanying Notes and Auditors' Report
F-6
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30,
---------------------------------------------
2003 2002 2001
----------- ----------- -----------
Cash Flow From Operating Activities
- -----------------------------------
Net Income (Loss) - Continuing Operations $ 202,152 $(1,522,255) $(1,614,909)
Adjustments to Reconcile Net Income to Net Cash
used by Operating Activities:
Depreciation and Amortization 1,220,048 1,156,601 1,009,201
Gain on Disposal of Equipment (215,272) (331) (35,434)
Directors' Fees 24,000
Other Expense 435,500
(Increase) Decrease in:
Accounts Receivable (728,282) (113,670) 381,984
Inventory (383,998) (38,098) (63,807)
Prepaid Expenses (167,143) (117,275) (29,154)
Prepaid Income Taxes 670 81,171 36,047
Deposits (87,000) 30,713 (47,035)
Deferred Income Tax - Asset (8,074) (6,973) (10,460)
Deferred Costs - Insurance Claims (614,816)
Increase (Decrease) in:
Accounts Payable 261,570 (496,146) (286,809)
Accrued Expenses 19,355 (151,103) 184,675
Customer Advance Payments 56,569 (444,138) 1,324,249
Customer Credit Balance (131,692) 324,616 223,720
Deferred Income Taxes 15,598 (1,064) (6,175)
Escrow Deposits (23,472) 23,472 (10,000)
Deferred Income -- -- (27,729)
----------- ----------- -----------
Net Cash (Used) Provided by Operating Activities (124,287) (1,274,480) 1,028,364
----------- ----------- -----------
Cash Flow From Investing Activities
- -----------------------------------
Purchase of Property and Equipment (1,102,589) (941,489) (1,469,504)
Web Site Development Costs (74,064) 63,630 (1,163,049)
Increase in Deposits (7,971) -- (16,623)
Sale of Equipment 118,258 591 46,439
Notes Receivable - Sale of Equipment -- -- (94,500)
Payment on Notes Receivable - Sale of Equipment 13,359 7,939 36,353
Note Receivable - Montgomery 655 644 (11,293)
Miscellaneous Receivables 43,402 (75,272) 8,072
----------- ----------- -----------
Net Cash (Used) Provided By Investing Activities (1,008,950) (943,957) (2,664,105)
----------- ----------- -----------
See Accompanying Notes and Auditors' Report
F-7
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd)
YEARS ENDED JUNE 30,
---------------------------------------------
2003 2002 2001
----------- ----------- -----------
Cash Flow From Financing Activities
(Decrease) Increase in Notes Payable - Bank $ (200,000) $ 1,470,000 $ 157,492
Note Payable - Other 1,085,000 -- 500,000
Note Payable - Officer 311,320 55,000 --
(Decrease) in Notes Payable - Bank -- (449,720) --
Decrease in Long-Term Debt (766,479) (520,509) (738,916)
Increase in Long-Term Debt 844,869 408,745 959,203
Decrease Escrow Deposit Payable -- -- (20,000)
Sale of Common Stock -- 24,463 --
----------- ----------- -----------
Net Cash (Used) Provided By Financing Activities 1,274,710 987,979 857,779
----------- ----------- -----------
Net (Decrease) Increase In Cash 141,473 (1,230,458) (777,962)
Cash - Beginning of Year 258,560 1,489,018 2,266,980
----------- ----------- -----------
Cash - End of Year $ 400,033 $ 258,560 $ 1,489,018
=========== =========== ===========
The Company had Interest Cash Expenditures of: $ 416,049 $ 292,318 $ 230,849
The Company had Tax Cash Expenditures of: $ 34,567 $ 13,400 $ 17,900
See Accompanying Notes and Auditors' Report
F-8
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
----------------------
Note 1 Summary of Significant Accounting Policies
- ------ ------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Able
Energy, Inc. and its subsidiaries. The minority interest of 1% in
Able Propane, LLC is immaterial and has not been shown separately.
All material inter-company balances and transactions were eliminated
in consolidation.
Majority Ownership
The Company is the majority owner, owning 70.6% of the issued shares
of a subsidiary, PriceEnergy.Com, Inc. in which their capital
investment is $25,000. The subsidiary has established an E-Commerce
Operating System for the sale of products through a network of
suppliers originally on the East Coast of the United States. The
business became active in October 2000 (See Notes 9 and 13)
Minority Interest
The minority interest in PriceEnergy.Com, Inc. is a deficit and, in
accordance with Accounting Research Bulletin No. 51, subsidiary
losses should not be charged against the minority interest to the
extent of reducing it to a negative amount. As such, the losses have
been charged against the Company, the majority owner. The loss for
year ended June 30, 2003 is $711,841, (See Notes 9 and 13).
Nature of Operations
Able Oil Company, Able Melbourne and Able Energy New York, Inc. are
full service oil companies that market and distribute home heating
oil, diesel fuel and kerosene to residential and commercial
customers operating in the northern New Jersey, Melbourne, Florida,
and Warrensburg, New York respectively. Able Propane installs
propane tanks which it owns and sells propane for heating and
cooking, along with other residential and commercial uses.
The Company's operations are subject to seasonal fluctuations with a
majority of the Company's business occurring in the late fall and
winter months. Approximately 70% of the Company's revenues are
earned and received from October through March, and the overwhelming
majority of such revenues are derived from the sale of home heating
fuel. However, the seasonality of the Company's business is offset,
in part, by the increase in revenues from the sale of diesel and
gasoline fuels during the spring and summer months due to the
increased use of automobiles and construction apparatus.
Inventories
Inventories are valued at the lower of cost (first in, first out
method) or market.
F-9
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 1 Summary of Significant Accounting Policies (cont'd)
- ------ ---------------------------------------------------
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided by using the straight-line
method based upon the estimated useful lives of the assets (5 to 40
years). Depreciation expense for the year ended June 30, 2003 and
2002 amounted to $745,015 and $681,192, respectively.
For income tax basis, depreciation is calculated by a combination of
the straight-line and modified accelerated cost recovery systems
established by the Tax Reform Act of 1986.
Expenditures for maintenance and repairs are charged to expense as
incurred whereas expenditures for renewals and betterments are
capitalized.
The cost and related accumulated depreciation of assets sold or
otherwise disposed of during the period are removed from the
accounts. Any gain or loss is reflected in the year of disposal.
E-Commerce Operating System Development Costs
Costs of $2,274,575 incurred in the developmental stage for computer
hardware and software have been capitalized in accordance with
accounting pronouncement SOP98-1. The costs are included in Property
and Equipment and will be amortized on a straight line basis during
the estimated useful life, 5 years. Operations commenced in October
2000. Amortization for the years ended June 30, 2003 and 2002
amounted to $445,842 and $436,177, respectively.
Intangible Assets
Intangibles are stated at cost and amortized as follows:
Customer Lists of $571,000 related to the Connell's Fuel Oil Company
acquisition on October 28, 1996, by Able Oil Company are being
amortized over a straight-line period of 15 years. The current
period amortization also includes a customer list of $39,850 and
Covenant Not To Compete of $100,000 relating to the acquisition from
B & B Fuels on August 27, 1999, is being amortized over a
straight-line period of 10 and 5 years, respectively. The
amortization for the years ended June 30, 2003 and 2002 are $29,191
and $39,232, respectively.
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142
requires goodwill and other intangible assets to be tested for
impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards
required, as such, effective July 1, 2001, the Customer List will no
longer be amortized for financial statement purposes.
F-10
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 1 Summary of Significant Accounting Policies (cont'd)
- ------ ---------------------------------------------------
For income tax basis, the Customer Lists and the Covenant Not To
Compete are being amortized over a straight-line method of 15 years
as per the Tax Reform Act of 1993.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are
based on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
Income Taxes
Effective January 1, 1997, all the subsidiaries, which were
S-Corporations, terminated their S- Corporation elections. The
subsidiaries are filing a consolidated tax return with Able Energy,
Inc.
Effective January 1, 1997, the Company has elected to provide for
income taxes based on the provisions of Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes", which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements and tax returns in different years. Under this
method, deferred income tax assets and liabilities are determined
based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
Concentrations of Credit Risk
The Company performs on-going credit evaluations of its customers'
financial conditions and requires no collateral from its customers.
Financial instruments which potentially subject the Company to
concentrations of credit risk consists of checking and savings
accounts with several financial institutions in excess of insured
limits. The excess above insured limits is approximately $387,299.
The Company does not anticipate non-performance by the financial
institutions.
Cash
For the purpose of the statement of cash flows, cash is defined as
balances held in corporate checking accounts and money market
accounts.
Advertising Expense
Advertising costs are expensed at the time the advertisement appears
in various publications and other media. The expense was $416,712
and $524,859 for the years ended June 30, 2003 and 2002,
respectively.
F-11
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 1 Summary of Significant Accounting Policies (cont'd)
- ------ ---------------------------------------------------
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accrued compensation, and other
accrued liabilities, approximate fair value because of their short
maturities.
Revenue Recognition
Sales of fuel and heating equipment are recognized at the time of
delivery to the customer, and sales of equipment are recognized at
the time of installation. Revenue from repairs and maintenance
service is recognized upon completion of the service. Payments
received from customers for heating equipment service contracts are
deferred and amortized into income over the term of the respective
service contracts, on a straight line basis, which generally do not
exceed one year.
Computation of Net Income (Loss) per Share
Basic net income (loss) per share is computed using the
weighted-average number of common shares outstanding during the
period. Diluted net income per share is computed using the
weighted-average number of common and dilutive potential common
shares outstanding during the period. Diluted net loss per share is
computed using the weighted-average number of common shares and
excludes dilutive potential common shares outstanding, as their
effect is antidilutive. Dilutive potential common shares primarily
consist of employee stock options.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Measurement
of an impairment loss for long-lived assets that management expects
to hold and use is based on the fair value of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.
Goodwill and Intangible Assets
In June 2001, FASB approved two new pronouncements: SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 applies to all business
combinations with a closing date after June 30, 2001. This Statement
eliminates the pooling-of-interests method of accounting and further
clarifies the criteria for recognition of intangible assets
separately from goodwill.
F-12
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 1 Summary of Significant Accounting Policies (cont'd)
- ------ ---------------------------------------------------
SFAS No. 142 eliminates the amortization of goodwill and
indefinite-lived intangible assets and initiates an annual review
for impairment. Identifiable intangible assets with a determinable
useful life will continue to be amortized. The amortization
provisions apply to goodwill and other intangible assets acquired
after June 30, 2001. Goodwill and other intangible assets acquired
prior to June 30, 2001 will be affected upon adoption. The Company
has adopted SFAS No. 142 effective July 1, 2001, which will require
the Company to cease amortization of its remaining net customer
lists balance and to perform an impairment test of its existing
customer lists and any other intangible assets based on a fair value
concept.
The Company has reviewed the provisions of these Statements. It is
management's assessment that customer lists impairment will not
result upon adoption. As of June 30, 2001, the Company has net
unamortized customer lists of $422,728. Amortization expense of the
customer list was $20,125 for the six month short year ended June
30, 2001 and $42,052 for the full year ended December 31, 2000.
Recent Accounting Pronouncements
FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." In November 2002, the FASB
issued FIN 45 which requires a guarantor to recognize a liability
for the fair value of the obligation it assumes under certain
guarantees. Additionally, FIN 45 requires a guarantor to disclose
certain aspects of each guarantee, or each group of similar
guarantees, including the nature of the guarantee, the maximum
exposure under the guarantee, the current carrying amount of any
liability for the guarantee, and any recourse provisions allowing
the guarantor to recover from third parties any amounts paid under
the guarantee. The disclosure provisions of FIN 45 are effective for
financial statements for both interim and annual periods ending
after December 15, 2002. The fair value measurement provisions of
FIN 45 are to be adopted as of July 1, 2003. The Company has no
obligation effected by this pronouncement.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure (an amendment of FASB Statement No. 123)." In
December 2002, the FASB issued SFAS No. 148, which amends SFAS No.
123, "Accounting for Stock-Based Compensation," and provides
alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee
compensation; SFAS No. 148 also amends the disclosure requirements
of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting," to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used
on reported results. The provisions of SFAS No. 148 are effective
for financial statements for periods ending after December 15, 2002.
The Company will adopt SFAS No. 148 effective July 1, 2003. It
currently has no effect on the Company.
F-13
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 1 Summary of Significant Accounting Policies (cont'd)
- ------ ---------------------------------------------------
Recent Accounting Pronouncements (cont'd)
Debt Extinguishments
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13,
and technical Corrections." Among other things, this statement
rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment
of Debt" (SFAS No. 4), which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of the related income tax effect. As a
result, the criteria in Accounting Principles Board Opinion No. 30,
"reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," which requires
gains and losses on extinguishment of debts to be classified as
income or loss from continuing operations, will now be applied. We
adopted the provisions of this statement as of July 1, 2002, as it
was effective for years beginning after June 15, 2002.
Exit Costs and Disposal Activities
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS NO. 146), which
addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task
Force No. 94- 3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)" (EITF 94-3). The
principal difference between SFAS No. 146 and EITF 94-3 relates to
SFAS No. 146's requirements for recognition of a liability for a
cost associated with an exit or disposal activity. SFAS No. 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
Under EITF 94-3, a liability for an exit cost as generally defined
in EITF 94-3 was recognized at the date of an entity's commitment to
an exit plan. We will adopt the new standard effective July 1, 2003.
This currently has no effect on the Company's operations.
Asset Retirement Obligations
Effective January 1, 2003, the Company has adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations" (SFAS No. 143). This
statement provides the accounting for the cost of legal obligations
associated with the retirement of long-lived assets. SFAS No. 143
requires that companies recognize the fair value of a liability for
asset retirement obligations in the period in which the obligations
are incurred and capitalize that amount as part of the book value of
the long-lived asset. SFAS No. 143 also precludes companies from
accruing removal costs that exceed gross salvage in their
depreciation rates and accumulated depreciation balances if there is
no legal obligation to remove the long-lived assets. The adoption
had no current effect on the financial records.
F-14
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 2 Notes Receivable
- ------ ----------------
A. The Company has a Receivable from Able Montgomery, Inc. and Andrew
W. Schmidt related to the sale of Able Montgomery, Inc. to Schmidt,
and truck financed by Able Energy, Inc. No payments of principal or
interest had been received for more than one year. A new note was
drawn dated June 15, 2000 for $170,000, including the prior balance,
plus accrued interest. The Note bears interest at 9.5% per annum and
payments commence October 1, 2000. The payments will be monthly in
varying amount each year with a final payment of $55,981.07 due
September 1, 2010. No payments were received in the year ended
December 31, 2000. In February 2001, two (2) payments were received
in the amount $2,691.66, interest only. In September 2001,
$15,124.97 was received covering payments from December 2000 through
October 2001, representing interest of $14,804.13 and principal of
$320.84. Payments were received in November and December 2002,
representing December 2001 and January 2002, a total of $3,333.34;
interest of $2,678.88, and principal of $654.46.
The note is secured by a pledge and security agreement and stock
purchase agreement (Stock of Able Montgomery, Inc.), dated December
31, 1998, and the assets of Andrew W. Schmidt with the note dated
June 15, 2000. The income on the sale of the company in December
1998 and the accrued interest on the drawing of the new note are
shown as deferred income in the amount of $79,679.18 to be realized
on collection of the notes.
Maturities of the Note Receivable are as follows:
For the 12 Months Ending
June 30, Principal Amount
-------- ----------------
2004 $ 20,225
2005 11,382
2006 12,511
2007 13,753
2008 15,118
Balance 95,712
--------
Total $168,701
========
F-15
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 2 Notes Receivable (cont'd)
- ------ -------------------------
B. Able Oil Company has three (3) Notes Receivable for the sale of oil
delivery trucks to independent drivers who also deliver oil for the
Company. The Notes bear interest at the rate of 12% per annum. Two
notes began December 1998 and one began February 1999. The Notes are
payable eight (8) months per year September through April, the oil
delivery season.
Maturities of these Notes Receivable are as follows:
For the 12 Months Ended
June 30, Principal Amount
-------- ----------------
2004 $ 37,351
2005 14,931
2006 7,091
2007 7,295
--------
Total $ 66,668
========
Note 3 Inventories
- ------ -----------
Items June 30, June 30,
----- 2003 2002
-------- --------
Heating Oil $241,107 $141,114
Diesel Fuel 18,921 21,642
Kerosene 2,534 6,220
Propane 8,851 12,343
Parts, Supplies and Equipment 518,009 224,105
-------- --------
Total $789,422 $405,424
======== ========
Note 4 Notes Payable Bank
- ------ ------------------
On October 22, 2001, the Company and its subsidiaries, either as
Borrower or Guarantor, entered into a loan and security Agreement
with Fleet National Bank. The bank is providing the following credit
facility.
A borrowing base of 75% of Eligible Accounts Receivable, as defined
in the Agreement, plus $500,000 against the value of the Company's
customer list, for a total amount of $1,500,000. The revolving
credit may also be used for Letters of Credit, with the lender's
approval.
F-16
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 4 Notes Payable Bank (cont'd)
- ------ ---------------------------
The Letters of Credit will have an annual fee of 1.25% of the face
value of each Letter of Credit. The applicable interest rate on the
revolving credit advances will be the bank's prime rate or Libor
interest rate, plus 2.75%, see below increase in interest rate.
Interest is to be paid on the amount advanced on the last day of
each month.
As security for the performance of this Agreement, the other Loan
Documents and the payment of the Liabilities, each Borrower and
Guarantor grants, pledges and assigns to Lender a security interest
in all assets of such Borrower or Guarantor, whether now owned or
hereafter acquired including, without limitation, (a) all Accounts,
Goods, Chattel Paper, Equipment, Documents, Deposits, Instruments,
General Intangibles and Payment Intangibles (including, but not
limited to, any and all interests in trademarks, service marks,
patents, licenses, permits, and copyrights), (b) all inventory of
Borrowers, if any, held by any Borrowers for sale or lease or to be
furnished under contracts of service, (c) all Books and Records, (d)
any Account maintained by any Borrower with Lender and all cash held
therein, and (e) all proceeds and products of the foregoing,
including casualty insurance thereon (collectively, the
"Collateral").
The Agreement provides for covenants as follows:
(1) Use of proceeds only for Working Capital, Letters of Credit
and for acquisitions with Lender's prior written consent.
(2) Financial information to be furnished either annually,
quarterly or monthly.
(3) Financial covenants to be tested as of the end of each fiscal
quarter.
(4) Limitations on loans and investments.
(5) Compliance with laws and environmental matters.
(6) Limitations on Borrowing.
(7) Can not declare or pay any dividends.
All of the above and other items as per article VI of the Agreement.
The Agreement has a current expiration date of November 30, 2002.
Fleet Bank did not renew the credit facility upon expiration of the
Agreement on November 30, 2002. Effective December 1, 2002, the bank
is charging an additional annual interest of 4% as the Note is in
default. The total current interest rate charged is currently 8.25%
per annum. The Company and Lender have entered into a Forbearance
Agreement, where the Lender is willing to forbear until May 31, 2003
from exercising its rights and remedies. The Lender will receive a
forbearance fee of $50,000 at May 31, 2003, reduced by $2,500 for
each week prior to May 31, 2003, that the credit facility and all
charges are paid in full, with a minimum forbearance fee of $15,000.
The interest charged is at 8.25% per annum. The principal amount
outstanding is $1,270,000. Interest for the year ended June 30, 2003
was $89,358. The loan and the $50,000 forbearance fee were not paid
at May 31, 2003. The note payable plus forbearance fee, accrued
interest and other costs were paid in full on September 22, 2003
(See Note 25).
F-17
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 5 Notes Payable
- ------ -------------
A. The Company has borrowed $500,000 from an unrelated individual. The
Note was dated June 26, 2001 with interest at 12% per annum. The
interest will be paid monthly at $5,000 per month commencing on
August 1, 2001. The Note will mature on June 26, 2002 unless the
borrower (the Company), at its option, elects to extend the maturity
date to December 26, 2002. The Company has exercised its option and
has extended the Note to December 26, 2002. The lender has granted
the Company an additional extension at the same terms to June 26,
2003. The Lender has granted the Company an extension to July 26,
2003. The Note may be prepaid in whole or part from time-to-time
without penalty. No principal payments have been made on the Note.
At the maturity date, a final payment of the unpaid principal and
interest shall be due and payable. In connection with this Note, the
Company has issued the lender warrants to purchase 40,000 shares of
its common stock at $4 per share. The warrants vest immediately and
must be exercised no later than June 26, 2004. The warrants have not
been registered under the Securities Act of 1933. The Note was paid
in full on September 22, 2003 (See Note 25).
B. The Company has borrowed $750,000 from an unrelated company. The
mortgage and note are dated September 13, 2002. The term of the note
is for one (1) year. Payments of interest only on the outstanding
principal balance shall be paid monthly at a rate of 10%. The first
payment was paid on November 1, 2002 and on the first day of each
month thereafter until October 1, 2003, when the Note shall mature
and all principal and accrued interest shall be due and payable in
full. The Note was paid in full on September 22, 2003 (See Note 25).
Prepayment Penalty - in the event borrower makes a voluntary
principal payment during the term of this note, borrower shall pay
to the lender a premium equal to three (3) monthly payments of
interest on the note. The note is collateralized by a mortgage dated
September 13, 2002 from Able Energy Terminal, LLC, a wholly owned
subsidiary, which is a second mortgage on the property at 344 Route
46, Rockaway, NJ and also by all leases and rents related to the
property. The lender has been issued a stock purchase warrant for
100,000 shares at $4 per share. The warrant has not been registered
under the Securities Act of 1933. The Company has granted the holder
piggy-back registration rights for the Common Stock underlying the
warrant on its next registration statement. This warrant does not
entitle the holder to any of the rights of a stockholder of the
Company. Unless previously exercised, the warrants will expire on
September 13, 2004.
C. The Company has borrowed $335,000 from an unrelated Company. The
mortgage and Note are dated April 16, 2003. The loan is to Able
Energy New York, Inc., a wholly owned subsidiary. The loan is
collateralized by a mortgage on property in Lake George, New York
owned by the subsidiary and a second mortgage on property in Bolton,
New York, owned by the Company's CEO who is also a guarantor on the
loan. Payments of interest only on the outstanding principal balance
at a rate of 14% per annum, are payable monthly. The first payment
was paid June 1, 2003. The entire amount, both principal and accrued
interest shall be due and payable on May 1, 2004.
F-18
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 6 Long-Term Debt (cont'd)
- ------ -----------------------
Mortgage note payable dated, August 27, 1999, related to the
purchase of B & B Fuels facility and equipment. The total note is
$145,000. The note is payable in the monthly amount of principal and
interest of $1,721.18 with and interest rate of 7.5% per annum. The
initial payment was made on September 27, 1999, and continues
monthly until August 27, 2009 which is the final payment. The note
is secured by a mortgage made by Able Energy New York, Inc. on
property at 2 and 4 Green Terrace and 4 Horican Avenue, Town of
Warrensburg, Warren County, New York. The balance due on this Note
at June 30, 2003 and 2002 was $101,724 and $114,235, respectively.
Mortgage note payable dated, August 31, 1999, related to the
purchase of the facility and equipment in Rockaway, New Jersey by
Able Energy Terminal, LLC ("Terminal"). The note is in the amount of
$650,000.
Pursuant to Section 4.4 of the Agreement of Sale to purchase the
Terminal, , the Principal Sum of the $650,000 Note shall be reduced
by an amount equal to one-half of all sums expended by Borrower on
the investigation and remediation of the property provided, however,
that the amount of said reduction shall not exceed $250,000 (the
"Remediation Amount").
The "Principal Sum: Less the "Remediation Amount" shall be an amount
equal to $400,000 (the "Reduced Principal Sum"). The Reduced
Principal Sum shall bear interest from the date hereof at the rate
of 8.25% per annum. Any portion of the Remediation Amount not
utilized in the investigation and remediation of the property shall
not begin to accrue interest until such time that (i) a "No Further
Action Letter" is obtained from the Department of Environmental
Protection and (ii) an outstanding lawsuit concerning the property
is resolved through settlement or litigation (subject to no further
appeals). All payments on this Note shall be applied first to the
payment of interest, with any balance to the payment to reduction of
the reduced Principal Sum.
Based upon an amendment, dated November 5, 2001, and commencing with
interest due December 1, 2001, interest will be paid at the rate of
8.25% on the principal sum of $650,000. Only interest is required to
be paid and the principal is due on July 31, 2004 (See Note 11).
The Note is collateralized by the property and equipment purchased
and assignment of the leases. The balance due on this Note at June
30, 2003 and 2002 was $650,000. The Note was paid in full on
September 22, 2003 (See Note 25).
F-19
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 6 Long-Term Debt (cont'd)
- ------ -----------------------
Outstanding Outstanding
Interest Rate at Debt at Debt at
June 30, 2003 Maturities 6/30/2003 6/30/2002
------------- ---------- --------- ---------
Notes Payable Collateralized
By Trucks and Vans 0.00 - 9.147% 11/17/03- $ 147,583 $ 435,430
10/1/07
Capitalize Leases Payable
Collateralized by Trucks and
Vans Purchased 5.689 - 12.506% 782,111 534,191
12/1/03-5/10/08
Capitalize Leases Payable
Collateralized by Propane Tanks 8.450 - 16.500% 126,275 3,704
11/1/05-6/1/06
Notes Payable Collateralized by
Office and Computer Equipment 6.011 - 16.196% 330,445 143,715
4/3/05-5/27/08
Lease Payable Collateralized by
Computer Equipment and
Software 9.56% Sept. 1, 2003 47,317 225,789
---------- ----------
$1,433,731 $1,342,829
========== ==========
The above notes are all collateralized by the equipment and/or
furniture purchased. The capitalized leases payable are
lease/purchase agreements with a small purchase price at the end of
the lease. The above notes are represented by 34 Notes Payable to 16
Payees. Long- term debt at June 30, 2003, in the amount of
$1,178,184 and reduced by subsequent payments to $1,084,866 was paid
in full on September 22, 2003 (See Note 25).
Maturities on the Notes Payable subsequent to June 30, 2003 are as
follows:
For the Year Ending Principal
June 30, Amount
-------- ------
2004 $ 1,225,501
2005 78,476
2006 71,028
2007 42,363
2008 16,363
-----------
Total $ 1,433,731
===========
F-20
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 7 Income Taxes
- ------ ------------
Effective January 1, 1997 the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
The differences between the statutory Federal Income Tax and Income
Taxes is accounted for as follows:
2003
---------------------
Amount Percent
--------- --------
Statutory Federal Income Tax $ 204,432 34.0%
Federal Income Tax Reduction due to Carryforward
loss (199,165)
State Income Tax 45,258 5.9
State Income Tax (Note X) 45,091
State Income Tax Reduction due to Carryforward
loss (42,834)
--------- --------
Income Taxes $ 52,782 39.9%
========= ========
Income Taxes consist of:
Current $ 45,258
Deferred 7,524
---------
Total $ 52,782
=========
(Note X) The State of New Jersey has suspended the use of carryforward losses
for the years 2002 and 2003. As such, state income taxes of $45,091
have been shown as a deferred asset and as income taxes payable. New
Jersey carryforward is treated separately by the Company. Able Oil
Company has a New Jersey Operating Loss of $501,010 which can not be
utilized in the current year ended June 30, 2003, the State Income
Tax on income in excess of the NOL $45,258 is shown as state income
tax. Under current New Jersey law, the carryforward will be
available after 2003, the Company's fiscal year ending June 30,
2005.
F-21
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 7 Income Taxes (cont'd)
- ------ ---------------------
2002 2001
--------------------- ----------------------
Percent of Percent of
Pretax Pretax
Amount Income Amount Income
-------- -------- -------- --------
Statutory Federal Income Tax (Benefits) $ (5,608) (15.0%) $(11,605) (15.0%)
Increase resulting from State Income
Tax, net of Federal Tax Benefit (2,429) (7.6%) (5,030) (7.6%)
-------- -------- -------- --------
Income Taxes (Benefits) $ (8,037) (22.6%) $(16,635) (22.6%)
======== ======== ======== ========
Income Taxes consist of:
Current -- --
Deferred $ (8,037) $(16,635)
-------- --------
Total $ (8,037) $(16,635)
======== ========
The types of temporary differences between the tax bases of assets
and liabilities and their financial reporting amounts that give rise
to a significant portion of the deferred tax liability and deferred
tax asset and their approximate tax effects are as follows at:
June 30, 2003
---------------------------
Temporary Tax
Difference Effect
---------- ----------
Depreciation and Amortization $(241,993) $ (70,310)
Allowance for Doubtful Accounts 279,913 69,742
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carryforward 501,010 45,091
(See Note X, Prior Page)
June 30, 2002
---------------------------
Temporary Tax
Difference Effect
---------- ----------
Depreciation and Amortization $(169,441) $ (54,712)
Allowance for Doubtful Accounts 242,358 61,668
Gain on Sale of Subsidiary 18,766 4,035
F-22
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 7 Income Taxes (cont'd)
- ------ ---------------------
Able Energy, Inc., et al, open years are December 31, 1999, 2000 and
June 30, 2001 and 2002. The Company has a Federal net operating loss
carryforward of approximately $2,740,000. The net operating loss
expires between June 30, 2019 and 2021.
These carryforward losses are available to offset future taxable
income, if any. The Company's utilization of this carryforward
against future taxable income is subject to the Company having
profitable operations or sale of Company assets which create taxable
income. For the year ended June 30, 2003, $660,741 of net income has
been utilized against the net operating loss carry forward. At this
time, the Company believes that a full valuation allowance should be
provided. The component of the deferred tax asset as of June 30,
2003 are as follows:
Net Operating Loss Carryforward - Tax Effect $728,205
Valuation Allowance (728,205)
--------
Net Deferred Tax based upon Net
Operating Loss Carryforward $ -0-
========
Note 8 Note Receivable - Subsidiary
- ------ ----------------------------
The Company has a Note Receivable from PriceEnergy.Com, Inc. for
advances made in the development of the business, including hardware
and software costs. All of PriceEnergy.Com, Inc.'s assets are
pledged as collateral to Able Energy, Inc. The amount of the note is
$1,350,000 dated November 1, 2000 with interest at 8% per annum
payable quarterly. Principal payments to begin two years after the
date of the Note, November 1, 2002. Through March 31, 2003, no
principal has been paid. Interest, in the amount of $54,000 has been
accrued for the nine months ended March 31, 2003. No interest was
accrued for the six months ended June 30, 2003 as the note is non
performing. Unpaid accrued interest due through June 30, 2003 is
$234,000. The Note, accrued interest and interest expense have been
eliminated in the consolidated financial statements (See Notes 1 and
13). Able Oil Company has a Note Receivable originally dated
September 30, 2002 in the amount of $1,510,372.73 from
PriceEnergy.Com, Inc. The Note has been updated for transactions
during the nine months ended June 30, 2003, resulting in a balance
of $2,057,525 with interest at 8% per annum, to be paid quarterly,
and was paid in the amount of $30,000. Principal payments to begin
one year after date of Note, October 1, 2003, and continue monthly
thereafter. The Note is the result of the transference of the unpaid
accounts receivable which resulted from the sale of heating oil
through PriceEnergy.Com, Inc. Able Oil Company has a second position
as collateral in all of the assets of PriceEnergy.Com, Inc. to Able
Energy, Inc. Interest in the amount of $30,000 has been recorded at
June 30, 2003. No interest has been recorded for the six months
ended June 30, 2003. Any payments will go to pay principal. The note
receivable accrued interest and interest income have been eliminated
in consolidation against the amounts on PriceEnergy.Com, Inc.
F-23
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 9 Profit Sharing Plan
- ------ -------------------
Effective January 1, 1997, Able Oil Company established a Qualified
Profit Sharing Plan under Internal Revenue Code Section 401-K. The
Company matches 25% of qualified employee contributions. The expense
was $24,213 (2003) and $30,276 (2002), for the year ended June 30.
Note 10 Commitments and Contingencies
- ------- -----------------------------
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify
with certainty the potential impact of actions regarding
environmental matters, in the opinion of management, compliance with
the present environmental protection laws will not have a material
adverse effect on the financial condition, competitive position, or
capital expenditures of the Company.
In accordance with the agreement on the purchase of the property on
Route 46, Rockaway, New Jersey by Able Energy Terminal, LLC, the
purchaser shall commence after the closing, the investigation and
remediation of the property and any hazardous substances emanating
from the property in order to obtain a No Further Action letter from
the New Jersey Department of Environmental Protection (NJDEP). The
purchaser will also pursue recovery of all costs and damages related
thereto in the lawsuit by the seller against a former tenant on the
purchased property. Purchaser will assume all responsibility and
direction for the lawsuit, subject to the sharing of any recoveries
from the lawsuit with the seller, 50-50.
The seller by reduction of its mortgage will pay costs related to
the above up to $250,000 (see Note 6). A settlement has been
achieved by the Company with regard to the lawsuit. The settlement
provides for a lump sum payment of $397,500 from the defendants to
the Company. In return, the defendants received a release from the
Estate (the Seller) and a release and indemnification from the
Company. The defendants provided a release to Able Energy and the
Estate. Pursuant to the original agreement, the Estate receives 50%
of the settlement amount, net of attorney fees.
This has been amended by an agreement dated November 5, 2001. The
entire settlement, net of attorney fees, was collected and placed in
an attorney's escrow account for payment of all investigation and
remediation costs. Able Energy Terminal, LLC has incurred costs of
$96,435 to June 30, 2003 which are included in Prepaid Expenses and
must be presented to the attorney for reimbursement. Per management,
certain items such as a performance bond are being finalized, then
reimbursement can be made.
The costs of the cleanup pursuant to the Agreement of Sale must be
shared equally (50/50) by the seller and purchaser up to Seller's
cap of $250,000. Seller's contribution to the cleanup is in the form
of a reduction to the Note and not by direct payments. In the
opinion of management, the Company will not sustain costs in this
matter which will have a material adverse effect on its financial
condition.
F-24
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 10 Commitments and Contingencies (cont'd)
- ------- --------------------------------------
Able Oil Company is under contract to purchase #2 oil as follows:
Gallons Open Open Dollar
Commitment Commitment
Company Period Total Gallons at 6/30/03 at 6/30/03
------- ------ ------------- ---------- ----------
Total Energy Solutions, LLC 10/1/03 - 4/30/04 294,000 294,000 $214,431
Conectiv Energy 11/1/03 - 3/31/04 210,000 210,000 169,554
-------- ------- --------
Total 504,000 504,000 $383,985
======= ======= ========
Price Energy.Com, Inc., a subsidiary, has commenced suit against
ThinkSpark Corporation on Consulting Services Agreement, dated June
2, 2000. ThinkSpark has filed a counterclaim. On January 11, 2002,
Price Energy and ThinkSpark agreed to settle their dispute. Price
Energy will pay ThinkSpark $30,000 and there will be mutual releases
of all claims as well as dismissals of the pending actions in New
Jersey and Texas. The liability as of June 30, 2003 has been paid in
full.
Following an explosion and fire that occurred at the Able Energy
Facility in Newton, NJ on March 14, 2003 (see Note 20), and through
the subsequent clean up efforts, Able Energy has cooperated fully
with all local, state and federal agencies in their investigations
into the cause of this accident.
On April 2, 2003, Able Energy received a Notice Of Violation from
the New Jersey Department of Community Affairs ("DCA") citing a
total of 13 violations to the New Jersey Administrative Code,
Liquefied Petroleum Gas. Twelve of the violations were assessed a
penalty of $500 each. One of the violations, regarding the liquid
transfer from one truck to another truck, was assessed a penalty of
$408,000, a second notice was received on April 29, 2003, for an
alleged violation on April 12, 2003, and a fine of $5,500 was
assessed for a total of $419,500.
The DCA document is currently under review by counsel. Based upon
initial review, the company disagrees with many of the findings of
the report and disputes many of the allegations. The company has
contested the DCA Notice of Violation and the assessed penalties.
Counsel and the DCA have had several meetings and hearings are
currently docketed in the Office of Administrative Law.
Other violations have been sited by the NJ DCA after June 30, 2003.
The penalties assessed amount to $4,000. The Company has appealed
the assessments to the Office of Administrative Law.
The Sussex County, New Jersey, Prosecutor's Office is conducting and
investigation as a result of the March 14, 2003 explosion and fire.
No determination has been made with respect to its investigation.
F-25
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
Note 10 Commitments and Contingencies (cont'd)
- ------- --------------------------------------
A lawsuit has been filed against the Company by property owners who
allegedly suffered property damages as a result of the March 14,
2003 explosion and fire. The Company's insurance carrier is
defending as related to compensatory damages. Legal counsel is
defending on the punitive damage claim. Per legal counsel, it is too
early in the process to assess the outcome, in their opinion, the
matter will not be certified as a Class Action.
As a result of the March 14, 2003 explosion and fire, various claims
for property damage have been submitted to the Company's insurance
carrier. These claims are presently being handled and, in many
cases, settled by the insurance carrier's adjuster. There are
approximately 200 claims being handled and adjusted with reserves
for losses established as deemed appropriate by the insurance
carrier.
The Company in the normal course of business has been involved in
law suits. Current suits are being defended by the insurance carrier
and should be covered by insurance.
Note 11 Operating Lease
- ------- ---------------
Able Energy Terminal, LLC, has acquired the following lease on the
property it purchased on Route 46 in Rockaway, New Jersey.
The lease with Able Oil Company, a wholly owned subsidiary of Able
Energy, Inc., has an expiration date of July 31, 2004. The lease
provides for a monthly payment of $1,200 plus a one cent per gallon
through put, as per a monthly rack meter reading.
Estimated future rents are $14,400 per year, plus the one cent per
gallon through put charges per the monthly rack meter readings.
The Company leased 9,800 square feet in the Rockaway Business Centre
on Green Pond Road in Rockaway, New Jersey. The facility will be
used as a call center and will combine the administrative operations
in New Jersey in one facility. The lease has a term of five (5)
years from August 1, 2000 through July 31, 2005.
The rent for the first year is $7,145.83 per month and the second
through fifth year is $7,431.67 per month, plus 20.5% of the
building's annual operational costs and it's portion of utilities.
The current monthly rent, including Common Area Charges, is
$9,799.04 per month.
F-26
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 11 Operating Lease (cont'd)
- ------- ------------------------
The lease does not contain any option for renewal. The rent expense
was $116,138 for the year ended June 30, 2003. The estimated future
rents are as follows:
Year Ended June 30,
-------------------
2004 $ 117,588
2005 117,588
July 2005 9,799
---------
Total $ 244,975
=========
The following summarizes the month to month operating leases for the
other subsidiaries:
Able Oil Melbourne $500.00, per month
Total rent expense, $6,000
Able Energy New York $800.00, per month, from January 1,
2003, $600 per month the
prior six months
Total rent expense, $8,400
Note 12 Franchising
- ------- -----------
The Company sells franchises permitting the operation of a
franchised business specializing in residential and commercial sales
of fuel oil, diesel fuel, gasoline, propane and related services.
The Company will provide training, advertising and use of Able
credit for the purchase of product, among other things, as specified
in the Agreement. The franchisee has an option to sell the business
back to the Company after two (2) years of operations for a price
calculated per the Agreement.
The Company signed its first franchise agreement in September 2000.
On June 29, 2001, PriceEnergy.Com Franchising, LLC, a subsidiary,
signed its first franchise agreement. The franchisee will operate a
B-franchised business, using the proprietary marks and a license
from PriceEnergy.Com, Inc. and will establish the presence of the
franchisee's company on the PriceEnergy Internet Website. The
franchisee will have the exclusive territory of Fairfield County,
Connecticut as designated in the agreement. The franchisee paid the
following amounts in July 2001:
1. A non-refundable franchise fee of $25,000.
2. An advertising deposit of $15,000 and a $5,000 escrow
deposit.
The non-refundable fee of $25,000 has been recorded as Other Income
in the period ended December 31, 2001. The advertising deposit was
credited to advertising expense in the year ended June 30, 2002. The
$5,000 Escrow Deposit was returned in September 2002.
F-27
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 13 Related Party Transactions
- ------- --------------------------
$44,690 is due from the major Shareholder/Officer of the Company.
This amount is evidenced by a Note bearing interest at a rate of 6%
between the Shareholder and the Company. This Shareholder has loaned
the Company a total of $380,000 as of June 30, 2003, as evidenced by
a Demand Note with interest at 6% per annum, which can be paid all
or in part at any time without penalty. The balance of the new note
is $366,320 at June 30, 2003. Interest expense has been accrued in
the amount of $5,495.
The following officers of this Company own stock in the subsidiary,
PriceEnergy.Com, Inc., which they incorporated in November 1999.
Chief Executive Officer 23.5%
President 3.6%
No capital contributions have been made by these officers (See Notes
1 and 8).
Note 14 Earnings Per Share
- ------- ------------------
The shares used in the computation of the Company's basic and
diluted Earnings Per Common Share are as follows:
June 30, June 30, June 30,
2003 2002 2001
--------- --------- ---------
Weighted Average of Common
Shares Outstanding Used in Basic
Earnings Per Share 2,012,708 2,001,332 2,000,000
Dilutive Effect of:
Employee Stock Options 38,992 -- --
Stock Warrants -- -- --
--------- --------- ---------
Weighted Average Common Shares
Outstanding Used in Diluted
Earnings Per Share 2,051,700 2,001,332 2,000,000
========= ========= =========
Weighted average common shares outstanding, assuming dilution,
includes the incremental shares that would be issued upon the
assumed exercise of stock options, and stock warrants. For 2003,
approximately 396,848 of the company's stock options and stock
warrants were excluded from the calculation of diluted earnings per
share because their inclusion would have been anti- diluted, 285,840
(2002) 285,840 (2001). These options and warrants could be dilutive
in the future. The numerator for the calculation of both basic and
diluted earnings per share is the earnings or loss available for
common stockholders. The above table shows the denominator for basic
and diluted earnings per share.
F-28
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 15 Stock Option Plans
- ------- ------------------
The Company has stock option plans under which stock options may be
issued to officers, key employees, and non-employee directors to
purchase shares of the Company's authorized but unissued common
stock. The Company also has a stock option plan under which stock
options may be granted to employees and officers.
Options granted currently expire no later than 3 to 5 years from the
grant and have vesting periods from none to 25% at grant and 25%
each anniversary.
Outstanding Options
----------------------------------------------
Number of Shares Exercise Price Term
---------------- -------------- ---------
January 6, 2000
Grants 56,000 $5.00 5 years
Exercises 0
December 1, 2000
Grants 48,090 $3.25 3 years
Exercises 1,250
December 21, 2000
Grants 60,000 $1.80 5 years
Exercises 0
Grants 23,000 $2.25 5 years
Exercises 0
October 22, 2002
Grants 50,000 $3.00 5 years
Exercises 0
Note 16 Stock Warrants
- ------- --------------
The Company has issued stock warrants as follows:
1. 60,000 Common Stock Purchase Warrants at $4.81 per share, effective
August 31, 2000, and expiring August 31, 2005, to Andrew Alexander
Wise & Company in connection with an investment banking advisory
agreement with the Company, dated July 1, 2000.
2. 40,000 Common Stock Purchase Warrants at $4.00 per share, effective
June 26, 2001 and expiring June 26, 2004, in connection with a
$500,000 Note Payable (See Note 5). These warrants have not been
registered under the Securities Act of 1933.
F-29
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 16 Stock Warrants (cont'd)
- ------- -----------------------
3. 100,000 Common Stock Purchase Warrants at $4.00 per share, effective
September 13, 2002, and expiring September 13, 2004, in connection
with a $750,000 Note Payable (see Note 5).
The 200,000 warrants to purchase shares of common stock were
outstanding during the second quarter of 2003 and were not included
in the computation of diluted EPS as the warrants' were all higher
than the average stock price of $3.28, and would have been
anti-diluted (See Note 14). These warrants have not been registered
under the Securities Act of 1933.
Note 17 Stock Issuance
- ------- --------------
During the quarter ended September 30, 2002, 6000 shares of Common
Stock were issued to the directors for services rendered during the
year 2001, and charged at the fair market value as Directors' Fees.
The share price was $4.00 per share for a total Directors' Fees of
$24,000.
Note 18 Compensated Absences
- ------- --------------------
There has been no liability accrued for compensated absences; as in
accordance with Company policy, all compensated absences, accrued
vacation and sick payment must be used by December 31st. At June 30,
2003, any amount for accrual of the above is not material and has
not been computed.
Note 19 Cash Flow Information
- ------- ---------------------
The Directors received Common Stock as payment of Directors' Fees,
$24,000. No cash was received or paid. The Company lost fixed assets
in the explosion at its Newton, NJ facility. As of June 30, 2003,
there is no direct effect on cash of $239,497. Penalties were
assessed of $435,500, no payment has been made as of June 30, 2003.
Note 20 Other Events
- ------- ------------
On March 14, 2003, Able Energy experienced an explosion and fire at
its Newton, New Jersey facility that resulted in the destruction of
an office building on the site, as well as damage to 18 company
vehicles and neighboring properties. Fortunately, there were no
serious physical injuries.
The results of the company's investigation indicate that the
explosion was an accident that occurred as a result of a combination
of human error and mechanical malfunction.
F-30
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 20 Other Events (cont'd)
- ------- ---------------------
The Company was able to resume operations the following morning from
other company facilities, avoiding any interruption of service to
customers. Based upon current loss information, the company believes
that the amount of its insurance coverage is sufficient to cover its
potential liabilities for losses and damage.
Final clean-up of the site has concluded. Future plans for the
Newton facility have not yet been determined.
Note 21 Insurance Claim
- ------- ---------------
The Company suffered a loss of a building, trucks, leasehold
improvements, product inventory and equipment as well as cost of
cleanup and restoration. The Company has filed an insurance claim.
The insurance adjusters are in the process of finalizing the amounts
to be paid to the Company. The estimated costs are $854,313 and is
currently shown as an Insurance Claim Receivable and deferred costs
insurance claims on the balance sheet. Management anticipates the
insurance recovery will cover the company costs. The following is a
summary of insurance claims filed:
Building (commercial property) $349,526
Contents 443,411
Vehicles $302,674
Paid by June 30, 2003 144,032 158,642
--------- --------
Total $951,579
========
The above amounts were submitted as claims but do not represent a
settlement with the insurance carriers, except for the commercial
property settlement. A partial payment of $160,934.37 was received
on July 22, 2003, related to the commercial property. Vehicle
payments of $66,729.62 were received subsequent to June 30, 2003.
Note 22 Other Expense
- ------- -------------
The Company has been assessed a penalty by the New Jersey Department
of Community Affairs (DCA) (see Note 10) in the total amount of
$419,500. A penalty has been assessed by OSHA (See Note 25) in the
amount of $16,000. The total of $435,500 has been recorded as Other
Expense and an accrued liability.
Note 23 Business Segment Information
- ------- ----------------------------
The Company does not have separate operating financial segments. The
financial information is evaluated on a company wide basis. As such,
no segment reporting is prepared for internal use.
F-31
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2003 AND 2002
----------------------
Note 24 Other Income
- ------- ------------
The Company has realized the following gains on insurance claims
which have been finalized (See Note 21).
Building (Commercial Property) $198,888
Vehicles 16,252
--------
Total $215,140
========
Note 25 Subsequent Events
- ------- -----------------
Company personnel met with personnel of the United States
Occupational Safety and Health Administration ("OSHA") on September
12, 2003. OSHA has conducted an investigation relating to the safety
practices of the Company, including such practices relating to the
March 14, 2003 explosion and fire. OSHA has informed the Company it
will be assessed a penalty of $16,000 based upon violations sited.
On September 22, 2003, the Company closed a new loan facility with
UPS Capital Business Credit. The facility is a $4,300,000 term loan,
payable over fifteen (15) years with interest at the prime rate plus
1.75%, and a Line of Credit of $700,000 with interest at prime rate
plus 1.00%. The Company paid the following loans on September 22,
2003:
Fleet Bank $ 1,340,644 (including interest and fees of $70,644)
KMA Associates 750,000
Jeff Will 505,000 (including interest of $5,000)
Estate of Birdsal 657,895 (including interest of $7,895)
Long-term Debt 1,084,866
-----------
Total Refinance 4,338,405
Other Fees Paid at Closing 133,911
-----------
Total $ 4,472,316
===========
The loan advanced was $4,300,000, the balance of $172,316 was paid
by the Company
F-32
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
our management, including the chief executive officer, or CEO, and chief
financial officer, or CFO, of the effectiveness of the design and operation of
our disclosure procedures. Based on that evaluation, our management, including
the CEO and CFO, concluded that our disclosure controls and procedures were
effective as of June 30, 2003. There have been no significant changes in our
internal control over financial reporting in the fourth quarter of 2003 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
- ------------------------- ------------- ----------------------------------------
NAME Age Position
- ------------------------- ------------- ----------------------------------------
Timothy Harrington 36 Chief Executive Officer, Chairman of the
Board and Secretary
- ------------------------- ------------- ----------------------------------------
Christopher P. Westad 49 President, Chief Financial Officer and
Director
- ------------------------- ------------- ----------------------------------------
James Purcaro 41 Director
- ------------------------- ------------- ----------------------------------------
Gregory Sichenzia 41 Director
- ------------------------- ------------- ----------------------------------------
Patrick O'Neill 43 Director
- ------------------------- ------------- ----------------------------------------
Edward C. Miller, Jr. 36 Director
- ------------------------- ------------- ----------------------------------------
Set forth below is a brief background of the executive officers and directors of
the Company, based on information supplied by them.
TIMOTHY HARRINGTON, serves as the Company's Chief Executive Officer, Chairman of
the Board, and Secretary. In 1989, Mr. Harrington founded Able Oil Company,
Inc., and since that time, has served as Able Oil's President, Chief Executive
Officer and Chairman of the Board. Mr. Harrington has also served as the Chief
Executive Officer and Chairman of the Board of Directors of Able Energy, Able
Melbourne and Able Propane since their respective inception.
CHRISTOPHER P. WESTAD, serves as the President, Chief Financial Officer and a
Director of the Company. Since September 1996, Mr. Westad has served as the
President of Able Propane, and since July of 1998, President of Able Energy,
Inc. From 1991 through 1996, Mr. Westad was a Market Manager and Area Manager
for Ferrellgas Partners, L.P., a company engaged in the retail 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.
JAMES PURCARO, has served as a director to the Company since September 1999.
Since 1986, Mr. Purcaro has served as the president and chief executive officer
of Kingsland Trade Print Group, Inc., a commercial printing company.
GREGORY SICHENZIA, has served as a director to the Company since August 1999.
Mr. Sichenzia is a partner of the law firm of Sichenzia, Ross Friedman, and
Ferrence LLP in New York, New York and has been since May 1998. Prior to that he
had been a partner of Singer Zamansky LLP in New York, New York, since November
1996. Prior to that he had been an associate attorney at Schneck Waeltman
Hashmall & Mischel LLP in New York City, since 1994.
PATRICK O'NEILL, has served as a director to the Company since August 1999. Mr.
O'Neill has served as the President of Fenix Investment and Development, Inc., a
real estate company based in Parsippany, New Jersey for the past five years.
Prior to this, 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, and has been awarded the Army
Achievement Medal for his work with the Army Corps of Engineers..
EDWARD C. MILLER, JR., has served as a director to the Company since February
2000. Mr. Miller has served as the Director of Marketing for the law firm of
Norris, McLaughlin & Marcus, P.A., located in Somerville, New Jersey since
September 1999. Prior to that, Mr. Miller served as Practice Development
Coordinator at the law firm of Riker, Danzig, Scherer, Hyland & Perretti, LLP
since May 1991. Mr. Miller holds a B.S. in Marketing Management from Syracuse
University School of Management.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee and an Audit
Committee consisting of at least two directors who
are not salaried officers of the Company.
The purpose of the Compensation Committee is to review the Company's
compensation of its executives, to make determinations relative thereto and to
submit recommendations to the Board of Directors with respect thereto. The
Compensation Committee also selects the persons to whom options to purchase
shares of the Company's Common Stock under the 1999 Stock Option Plan will be
granted and to make various other determinations with respect to such Plan.
The purpose of the Audit Committee is to provide general oversight of audit,
legal compliance and potential conflict of interest matters.
COMPENSATION OF DIRECTORS
The Company recently paid compensation to the directors in the amount of 2,000
common shares of common stock in the Company for acting in such capacity..
Directors serve until the next annual meeting of stockholders or until their
successors are elected and qualified. Officers serve at the discretion of the
Board of Directors. Directors are reimbursed for travel expenses.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company during fiscal year 2003, the Company is not aware of
any director, officer or beneficial owner of more than ten percent of the
Company's Common Stock that failed to file reports required by Section 16(a) of
the Securities Exchange Act of 1934 on a timely basis during fiscal year 2003.
CODE OF ETHICS
The Company has adopted its Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of the officers, directors and
employees of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to the
compensation paid to the Company's Chief Executive Officer and President for
services rendered in all capacities to the Company for the fiscal years ending
2003, 2002, and 2001. Other than as listed below, the Company had no executive
officers whose total annual salary and bonus exceeded $100,000 for that fiscal
year:
- -------------------------------------------------------------------- -----------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- ---------------------
Awards Payouts
- ------------------- --------- ------------ ---------- -------------- ------------ ------------ ---------- ----------
Name and Year Salary ($) Bonus ($) Other Annual Restricted Securities LTIP All,
Principal Position Compensation Stock Award Underlying Payouts Other
($) Options / ($) Compen-
SARs (#) sation ($)
- ------------------- --------- ------------ ---------- -------------- ------------ ------------ ---------- ----------
Timothy 2003 225,000 25,825 9,560 (1)
Harrington,
Chief
Executive Officer 2002 225,000 19,033 7,284
--------- ------------ ---------- -------------- ------------ ------------ ---------- ----------
2001 225,000 14,890 7,284 (1)
- ------------------- --------- ------------ ---------- -------------- ------------ ------------ ---------- ----------
Christopher P. 2003 100,000 6,064 5,035
Westad,
President
--------- ------------ ---------- -------------- ------------ ------------ ---------- ----------
2002 100,000 6,360 5,035 (1) - - - -
--------- ------------ ---------- -------------- ------------ ------------ ---------- ----------
2001 100,000 5,746 5,035 - - - -
-------------
(1) Represents car allowance and travel expense reimbursements pursuant to his
employment agreement with the Company.
OPTION GRANTS
No option grants were made to our executive officers during fiscal year ended
June 30, 2003.
No named executive held unexercised options as at June 30, 2003.
EMPLOYMENT ARRANGEMENTS
Timothy Harrington and Christopher P. Westad have three year employment
agreements with the Company. Timothy Harrington is retained as Chief Executive
Officer of the Company at an annual salary of $225,000. Christopher Westad is
retained as President of the Company at an annual salary of $100,000. Each of
the Messrs. Harrington and Westad are entitled to bonuses pursuant to their
employment agreements if the Company meets certain financial targets based on
sales, profitability and good management goals as predetermined by the Board of
Directors or compensation committee and other subjective criteria as determined
by the Board of Directors or 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 5% of the
Company's earnings before taxes, depreciation and amortization ("EBITDA") for
1999, provided the Company achieves at least $800,000 in EBITDA, 10% of EBITDA
for 2,000 and 2001, provided the Company achieves at least $3,000,000 and
$5,000,000, respectively, of EBITDA in each of such years. The employment
agreements also provide for reimbursement of reasonable business expenses.
Timothy Harrington also receive additional compensation including Company
automobile, insurance and retirement savings matched contributions by the
Company and such other perquisites as are customary. The employment agreements
for each of Messrs. Harrington and Westad contain a covenant not to compete
whereby Messrs. Harrington and Westad agree, for the term of the employment
agreements and until one year following the termination of the agreements, not
to (i) persuade any customer of the Company to cease or reduce the amount of
business it does with the Company; (ii) solicit the Company's customers for
their own benefit; or (iii) persuade any of the Company's employees to leave the
employ of the Company.
In the event that there is a change in control of the Company, through an
acquisition where any person acquires more than 50% of the shares of the
Company, a consolidation or merger with another corporation resulting in at
least 50% of the voting shares of the surviving corporation being controlled by
a new acquirer or the sale directly or otherwise of all of the assets of the
Company to a third party in a non-distress situation, then the Company shall pay
to Timothy Harrington a lump sum payment equal to one year's salary.
EMPLOYEE BONUS POOL
The Company has adopted an Employee Bonus Pool, pursuant to which Management
may, at its own discretion, award employees for exemplary performance. The
Company has allocated $25,000, $40,000 and $50,000 for the years 1999, 2000 and
2001, respectively, for such purposes. Management may not, however, award
employees bonuses from the Employee Bonus Pool (i) if such bonuses would result
in negative earning before taxes for the year in which such bonuses are to be
granted, or (ii) if the Company does not have net profits in such year.
EMPLOYEE STOCK OPTION PLAN
The Company has adopted a Stock Option Plan (the "1999 Plan"), pursuant to which
300,000 shares of Common Stock are reserved for issuance.
The 1999 Plan is administered by the board of directors, or by a committee with
at least two directors as delegated by the board of directors who determine
among other things, those individuals who shall receive options, the time period
during which the options may be partially or fully exercised, the number of
shares of Common Stock issuable upon the exercise of the options and the option
exercise price.
The 1999 Plan's duration is for a period of ten years. Options under the 1999
Plan must be issued within ten years from the effective date of the 1999 Plan.
Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to the
Company. Options granted under the 1999 Plan may be exercisable for up to ten
years, may require vesting, and shall be at an exercise price all as determined
by the board. Options will be non-transferable except to an option holder's
personal holding company or registered retirement savings plan and except by the
laws of descent and distribution or a change in control of the Company, as
defined in the 1999 Plan, and are exercisable only by the participant during his
or her lifetime. Change in control includes (i) the sale of substantially all of
the assets of the Company and merger or consolidation with another, or (ii) a
majority of the board changes other than by election by the shareholders
pursuant to board solicitation or by vacancies filled by the board caused by
death or resignation of such person.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or the retirement of an Optionee either pursuant to a
pension or retirement plan adopted by the Company or on the normal retirement
date prescribed from time to time by the Company, the option remains exercisable
for three months from such occurrence but not beyond the option's expiration
date. Other termination gives the participant three months to exercise, except
for termination for cause which results in immediate termination of the option.
Options granted under the 1999 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, by certified check or
bank cashier's check, Common Stock having a fair market equal to the cash
exercise price, the participant's promissory note, or with an assignment to the
Company of sufficient proceeds from the sale of the Common Stock acquired upon
exercise of the Options with an authorization to the broker or selling agent to
pay that amount to the Company, or any combination of the above.
The exercise price of an option may not be less than the fair market value per
share of Common Stock on the date that the option is granted in order to receive
certain tax benefits under the Income Tax Act of United States (the "ITA"). The
exercise price of all future options will be at least 100% of the fair market
value of the Common Stock on the date of grant of the options. A benefit equal
to the amount by which the fair market value of the shares at the time the
employee acquires them exceeds the total of the amount paid for the shares or
the amount paid for the right to acquire the shares shall be deemed to be
received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Any unexercised options that expire or that terminate upon an employee's ceasing
to be employed by the Company become available again for issuance under the 1999
Plan.
The 1999 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1999 Plan may not be
increased without the consent of the shareholders of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 2003, certain information
concerning beneficial ownership of shares of Common Stock with respect to (i)
each person known to the Company to own 5% or more of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) the executive officers of
the Company, and (iv) all directors and officers of the Company as a group:
- -------------------------------- ---------------------- ------------------------
NUMBER OF SHARES APPROXIMATE PERCENTAGE
BENEFICIALLY OF COMMON STOCK**
NAME* OWNED
- -------------------------------- ---------------------- ------------------------
Timothy Harrington 1,000,000 50%
- -------------------------------- ---------------------- ------------------------
Christopher Westad -- --
- -------------------------------- ---------------------- ------------------------
All Officers and Directors as a 1,000,000 50%
Group (2 persons)
- -------------------------------- ---------------------- ------------------------
* Except as noted above, the address for the above identified officers and
directors of the Company is c/o Able Energy, Inc., 198 Green Pond Road,
Rockaway, New Jersey 7866.
** Percentages are based upon the assumption that the shareholder has exercised
all of the currently exercisable options he or she owns which are currently
exercisable or exercisable within 60 days and that no other shareholder has
exercised any options he or she owns.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, our majority-owned subsidiary Price Energy has borrowed money
from us. As of June 30, 2001, the aggregate indebtedness to us was a promissory
note made on November 1, 2000 for $1,350,000. This note bears interest at a rate
of 8% per annum payable quarterly with principal payments beginning on November
1, 2002. Able Energy, Inc. own approximately 70.6% of Price Energy, Timothy
Harrington, our Chief Executive Officer, owns 23%, and Christopher Westad, our
President, owns 3.6%.
On May 10, 2002, we borrowed $55,000 from our Chief Executive Officer, Timothy
Harrington. This amount is evidenced by a demand note bearing interest at a rate
of 6%. Currently, $44,690 is due to Mr. Harrington.
ITEM 14. EXHIBITS, LIST AND REPORTS ON FORM 8-K
The Company has not filed any reports on Form 8-K during the last quarter of the
period covered by this report.
EXHIBITS
The following Exhibits are filed as part of this Report:
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation of Registrant*
3.2 By-Laws of Registrant*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Sichenzia, Ross & Friedman LLP***
10.1 Form of Consulting Agreement with the Walsh Manning
Securities, LLC***
10.2 1999 Stock Option Plan***
10.3 Lease of Company's Facility at 344 Route 46,
Rockaway, New Jersey*
10.4 Form of employment agreement between the Company and
Timothy Harrington, to be executed on or before the
Effective Date***
10.5 Form of employment agreement between the Company and
Christopher P. Wested, to be executed on or before
the Effective Date***
10.6 $600,000 Revolving Credit Facility and $350,000 Line
of Credit with PNC Bank, National Association dated
October 23, 1996, and amendment thereto, dated June
12, 1998, extending the Line of Credit to $500,000*
10.7 $675,000 Term Loan Agreement dated June 11, 1998 by
and between the Company and PNC Bank, National
Association and exhibits thereto, including Pledge
Agreement by and between Timothy Harrington and PNC
Bank, Guaranty and Suretyship Agreement by and
between the Company and PNC Bank, and Pledge
Agreement by and between the Company and PNC Bank*
10.8 Marketing Alliance Agreement, dated March 1, 1998,
between the Company and AllEnergy Marketing Company,
L.L.C., wherby the Company obtained the exclusive
right to market natural gas supplied by AllEnergy in
specified areas**
10.9 In tank agreement between the Company and Mieco,
Inc., dated May 11, 1998, for the storage of the
Mieco's petroleum products in the Company's tank
facilities**
10.10 Form of Company's Pre-Purchase Enrollment Form*
10.11 Oil Supply Agreement between the Company and Mieco,
Inc., dated May 19, 1998**
10.12 Letter agreement, dated July 3, 1998, between the
Company and Mieco, Inc. modifying the Oil Supply
Agreement, dated May 19, 1998, whereby the Company
agreed to increase the amount of oil purchased from
Mieco**
10.13 Oil Supply Agreement between the Company and Amarada
Hess Corporation, dated July 30, 1998**
10.14 Oil Supply Agreement between the Company and Bayway
(TOSCO) Refining Company, dated March 27, 1998**
10.15 Oil Supply Agreement between the Company and Koch
Refining Company, L.P., dated March 17, 1998**
10.16 Fuel Purchase Agreement (Natural Gas) between the
Company and Ferrellgas, dated September 3, 1996**
10.17 Fuel Purchase Agreement (Propane) between the Company
and Keystone Propane Service, Inc., dated July 28,
1998**
10.18 Lease between the Company and Summit Leasing
Corporation ("Summit"), dated December 3, 1997**
10.19 Franchise Agreement, dated December 31, 1998, between
the Company and Andrew Schmidt regarding sale of Able
Oil Company Montgomery, Inc. as a franchise***
10.20 Stock Purchase Agreement, dated December 31, 1998,
between the Company and Andrew Schmidt regarding the
sale of stock of Able Oil Company Montgomery, Inc. by
the Company to Mr. Schmidt***
10.21 Pledge and Security Agreement, dated December 31,
1998, between the Company and Andrew Schmidt
regarding the pledge of stock of Able Oil Company
Montgomery, Inc.***
10.22 $140,000 principal amount, 9.5% Promissory Note,
dated December 31, 1998, between the Company and
Andrew Schmidt regarding the sale of stock of Able
Oil Company Montgomery, Inc. by the Company to Mr.
Schmidt
10.23 Stock Sale Agreement, dated December 31, 1998,
between the Company and Owl Environmental, Inc.
regarding the sale of stock of A&O Environmental
Services, Inc. by the Company to Owl Environmental,
Inc.*
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
- --------------
(*) Reference is made to the Company's Registration Statement, filing Number
333-51909, filed with the SEC on July 15, 1998.
(**) Reference is made to the Company's Registration Statement, filing Number
333-51909, filed with the SEC on November 6, 1998.
(***) Reference is made to the Company's Registration Statement, filing Number
333-51909, filed with the SEC on April 15, 1999.
(****) Reference is made to the Company's Registration Statement, filing Number
333-51909, filed with the SEC on May 17, 1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 29th day of September, 2003.
ABLE ENERGY, INC.
/s/ Timothy Harrington
Timothy Harrington, Chief Executive Officer,
Secretary, and Chairman
/s/ Christopher P. Westad
Christopher P. Westad, President, Chief
Financial Officer, and Director
/s/ James Purcaro
James Purcaro, Director
/s/ Gregory Sichenzia
Gregory Sichenzia, Director
/s/ Patrick O'Neill
Patrick O'Neill, Director
/s/ Edward C. Miller, Jr.
Edward C. Miller, Jr., Director