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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
(Mark One)
|X| Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: SEPTEMBER 30, 2005
or
|_| Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to _______________
Commission file number: 001-15035
ABLE ENERGY, INC.
(An exact name of registrant as specified in its charter)
DELAWARE 22-3520840
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
198 GREEN POND ROAD
ROCKAWAY, NJ 07866
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (973) 625-1012
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the 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. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). |_| Yes |X| No
As of October 20, 2005, 2,572,067 shares of common stock, $.001 Par value per
share, of Able Energy, Inc. were issued and outstanding.
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EXPLANATORY NOTE
On November 14, 2005, the Company's Chief Financial Officer and Chief Executive
Officer concluded that the Company's previously issued financial statements for
the three-month period ended September 30, 2005, as filed with the Company's
Quarterly Report on Form 10-Q and as amended by the Company's Amendment Number 1
on Form 10-Q/A to its Quarterly Report on Form 10-Q for such period, should no
longer be relied upon because of an error in such financial statements.
The error relates to the allocation of proceeds from, and recognition of a
beneficial conversion feature relating to, the convertible debentures and
warrants sold by the Company in a private placement on July 12, 2005. The
Company has corrected the error and has restated its consolidated financial
statements for the three-month period ended September 30, 2005.
This Amendment Number 2 on Form 10-Q/A to the Company's Form 10-Q for the
three-month period ended September 30, 2005 includes a restatement of the
consolidated financial statements for such period.
ABLE ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q/A
For the Quarter Ended September 30, 2005
INDEX
PAGE
----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2005 and June 30, 2005....................... 1
Consolidated Statements of Operations for the Three Months Ended September 30,
2005 and 2004.......................................................................... 3
Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended
September 30, 2005..................................................................... 4
Consolidated Statements of Cash Flows for the Three Months Ended September 30
2005 and 2004......................................................................... 5
Notes to Financial Statements................................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 17
Item 4. Controls and Procedures...................................................................... 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.................................. 18
Item 5. Other Information............................................................................ 19
Item 6. Exhibits..................................................................................... 20
SIGNATURES ....................................................................................................... 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, JUNE 30,
2005 2005
(As restated
-- see Note 1)
---------------- -----------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 4,668,493 $ 1,754,318
Accounts Receivable (Less Allowance for Doubtful
Accounts of $238,049 and $238,049, respectively 3,109,808 2,876,900
Inventory 1,636,457 726,987
Notes Receivable - Current Portion 1,791,143 57,826
Other Receivable - Non-Compete - Current Portion 225,000 225,000
Other Receivables 93,628 38,596
Prepaid Expenses 437,247 485,904
Deferred Income Tax 64,776 64,776
Due from Officers and Employees 271,189 -
---------------- -----------------
TOTAL CURRENT ASSETS 12,297,741 6,230,307
---------------- -----------------
PROPERTY AND EQUIPMENT:
Land 479,346 479,346
Buildings 946,046 946,046
Trucks 3,489,465 3,594,218
Fuel Tanks 826,442 824,738
Machinery and Equipment 1,004,462 999,315
Building Improvements 899,132 790,424
Cylinders 338,015 295,476
Office Furniture and Equipment 205,319 205,319
Website Development Costs 2,390,589 2,390,589
---------------- -----------------
10,578,816 10,525,471
Less: Accumulated Depreciation and Amortization 6,137,524 5,980,636
---------------- -----------------
NET PROPERTY AND EQUIPMENT 4,441,292 4,544,835
---------------- -----------------
OTHER ASSETS:
Deferred Income Taxes 45,091 45,091
Deposits 59,918 54,918
Other Receivable - Non-Compete - Less Current Portion 450,000 450,000
Notes Receivable - Less Current Portion 646,118 649,435
Customer List, Less Accumulated Amortization of $188,122 422,728 422,728
Development Costs - Franchising 6,893 9,191
Deferred Closing Costs - Financing 439,287 348,055
Discount on Debt 2,221,467 -
Prepaid Acquisition Costs 150,000 -
---------------- -----------------
TOTAL OTHER ASSETS 4,441,502 1,979,418
---------------- -----------------
TOTAL ASSETS $ 21,180,535 $ 12,754,560
================ =================
See accompanying notes to consolidated financial statements
1
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES & STOCKHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30,
2005 2005
(As restated
-- see Note 1)
---------------- -----------------
(UNAUDITED)
CURRENT LIABILITIES:
Accounts Payable $ 1,941,267 $ 1,863,841
Note Payable - Line of Credit 1,066,490 1,015,468
Note Payable - Other - 432,660
Current Portion of Long-Term Debt 338,420 338,212
Accrued Expenses 356,512 184,097
Accrued Taxes 39,500 112,064
Employee Income Tax Withheld 11,000 146,624
Customer Pre-Purchase Payments 5,849,854 2,226,655
Customer Credit Balances 231,873 230,729
---------------- -----------------
TOTAL CURRENT LIABILITIES 9,834,916 6,550,350
Convertible Debentures 2,500,000
Deferred Income 79,679 79,679
Deferred Income Taxes 107,852 104,517
Long Term Debt: less current portion 3,874,004 3,961,899
---------------- -----------------
TOTAL LIABILITIES 16,396,451 10,696,445
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 2,714,924
and 2,457,320, respectively 2,715 2,457
Paid in Surplus 10,548,845 6,481,102
Retained Earnings (Deficit) (5,767,476) (4,425,444)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 4,784,084 2,058,115
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,180,535 $ 12,754,560
================ =================
See accompanying notes to consolidated financial statements
2
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
THREE MONTHS SEPTEMBER 30,
2005 2004
(As restated
-- see Note 1)
----------------- -----------------
NET SALES $ 13,131,413 $ 8,221,845
COST OF SALES 12,208,244 7,609,858
----------------- -----------------
GROSS PROFIT 923,169 611,987
----------------- -----------------
EXPENSES
Selling, General and Administrative Expenses 1,502,147 1,104,700
Depreciation and Amortization Expense 295,208 297,591
----------------- -----------------
TOTAL EXPENSES 1,797,355 1,402,291
----------------- -----------------
LOSS FROM OPERATIONS (874,186) (790,304)
----------------- -----------------
OTHER INCOME (EXPENSES):
Interest and Other Income 45,986 50,876
Interest Expense (169,891) (77,824)
Amortization of Discount on Debt (278,533) -
Loss on Sale of Assets - (31,437)
Legal Fees Relating to Accident (62,073) (21,950)
----------------- -----------------
TOTAL OTHER INCOME (EXPENSES) (464,511) (80,335)
----------------- -----------------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,338,697) (870,639)
PROVISION FOR INCOME TAXES 3,335 2,260
----------------- -----------------
NET LOSS $ (1,342,032) $ (872,899)
================= =================
BASIC AND DILUTED PER COMMON SHARE
WEIGHTED AVERAGE SHARES OUTSTANDING 2,285,756 2,013,250
================= =================
BASIC AND DILUTED LOSS PER SHARE $ (.59) $ (.43)
================= =================
See accompanying notes to consolidated financial statements
3
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2005
(As restated -- see Note 1)
(unaudited)
COMMON STOCK
$.001 PAR VALUE
TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS EQUITY
--------------- -------------- -------------- -------------- ---------------
Balance - July 1, 2005 2,457,320 $ 2,457 $ 6,481,102 $ (4,425,444) $ 2,058,115
Warrant Issuance - - 900,000 -- 900,000
Beneficial Conversion Feature of
Convertible Debt - - 1,600,000 -- 1,600,000
Option Exercise 200,000 200 1,067,801 -- 1,068,001
Note Conversion 57,604 58 499,942 -- 500,000
Net Loss - - - (1,342,032) (1,342,032)
--------------- -------------- -------------- -------------- ---------------
Balance - September 30, 2005 2,714,924 $ 2,715 $ 10,548,845 $ (5,767,476) $ 4,784,084
=============== ============== ============== ============== ================
See accompanying notes to consolidated financial statements
4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
2005 2004
(As restated
- see Note 1)
---------------- -----------------
Income (Loss) - Continuing Operations $ (1,342,032) $ (872,899)
Adjustments to Reconcile Net Income (Loss) to Net Cash
used by Operating Activities:
Depreciation and Amortization 295,208 297,591
Amortization of Discount on Debt 278,533 -
Loss on Disposal of Equipment - 31,437
(Increase) Decrease in:
Accounts Receivable (232,908) (279,867)
Inventory (909,470) (179,360)
Prepaid Expenses 48,657 (133,176)
Prepaid Income Taxes - 2,063
Deposits - 34,097
Miscellaneous - (689)
Increase (Decrease) in:
Accounts Payable 77,426 312,487
Accrued Expenses (35,773) 14,517
Customer Advance Payments 3,623,199 1,028,247
Customer Credit Balance 1,144 390,807
Deferred Income Taxes 3,335 2,260
Deferred Closing Costs - 1,813
Deferred Income - (2,333)
---------------- -----------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES 1,807,319 646,995
---------------- -----------------
CASH FLOW FROM INVESTING ACTIVITIES
-----------------------------------
Purchase of Property and Equipment (158,098) (226,926)
Receivable - Officer (167,500) 468
Notes Receivable - Related Party (1,730,000) -
Prepaid Acquisition Costs (150,000) -
Web Site Development Costs - (12,693)
Cash Received on Sale of Property - 226,499
Disposition of Equipment - 10,687
Other 13,619 68,695
---------------- -----------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (2,201,979) 66,730
---------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES
-----------------------------------
Net barrowings under line of Credit 51,022 -
Decrease in Long-Term Debt (87,687) (77,496)
Increase in Long-Term Debt 122,501 79,641
Exercise of Options 968,001 -
Sale of Convertible Debentures 2,500,000 -
---------------- -----------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 3,308,835 2,145
---------------- -----------------
NET (DECREASE) INCREASE IN CASH
Cash - Beginning of Year 2,914,175 715,870
Cash - End of Period 1,754,318 1,309,848
---------------- -----------------
$ 4,668,493 $ 2,025,718
================ =================
The Company had Interest Cash Expenditures of: $ 128,741 $ 62,611
The Company had Tax Cash Expenditures of: $ - $ 4,749
See accompanying notes to consolidated financial statements
5
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL REPORTING
The accompanying unaudited consolidated financial statements of Able Energy,
Inc. and its subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, these financial statements do not include all of the information
and footnotes required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended September 30, 2005 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2006. These consolidated financial statements include the accounts of Able
Energy, Inc. and its wholly owned subsidiaries (Able Oil Company, Able
Melbourne, Able Energy New York, Inc., Able Terminal LLC and PriceEnergy
Fanchising LLC) and majority owned (70.6%) subsidiary (PriceEnergy.com Inc.).
These consolidated financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 2005.
RESTATEMENT OF FIRST QUARTER 2006 FINANCIAL STATEMENTS FOR THE ALLOCATION OF
PROCEEDS FROM ISSUANCE OF CONVERTIBLE DEBENTURES AND WARRANTS AND RECOGNITION OF
BENEFICIAL CONVERSION FEATURE
This amendment to the Company's Form 10-Q for the period ended September 30,
2005 includes a restatement of the consolidated financial statements for the
quarter then ended. The restatement relates to the allocation of proceeds from
issuance of Convertible Debentures and warrants and recognition of beneficial
conversion feature as follows:
The Company allocated the proceeds from the issuance of the Convertible
Debentures and warrants based on their respective fair values and included
$900,000 in additional paid in surplus related to the warrants. In addition, the
conversion feature of the Convertible Debentures is characterized as a
"beneficial conversion feature." Pursuant to Emerging Issues Task Force Issue
No. 00-27, the Company has determined that the value of the beneficial
conversion feature is $1,600,000. Accordingly, the Company has discounted the
balance of the Convertible Debenture as of the date of issuance and included
$1,600,000 in additional paid in surplus. The beneficial conversion feature is
amortized from the date of issuance to the stated redemption date of July 12,
2007, of which $278,533 was amortized to expense during the three months ended
September 30, 2005.
The table below reflects the effect of the allocation of proceeds from issuance
of Convertible Debentures and warrants and recognition of beneficial conversion
feature on net income and earnings per share as originally reported.
Quarter Ended
September 30,
Items 2005
----------------
Net (loss)
As previously reported $ (1,063,499)
Amortization of Discount on Debt 278,533
----------------
As restated $ (1,342,032)
================
Basic and Diluted loss per share
As previously reported $ (.47)
Amortization of Discount on Debt (.12)
----------------
As restated $ (.59 )
================
Restated Selected Balance Sheet Data
September 30,
Items 2005
(unaudited)
Discount on Debt
As previously reported $ -
Recognition of discount on convertible
debt net of accumulated amortization 2,221,467
----------------
As restated $ 2,221,467
================
Total assets
As previously reported $ 18,959,068
Recognition of discount on convertible
debt net of accumulated amortization 2,221,467
----------------
As restated $ 21,180,535
================
Paid In Surplus
As previously reported $ 8,048,845
Allocation of proceeds from issuance of
Convertible Debentures and warrants
and recognition of beneficial
conversion feature 2,500,000
----------------
As restated $ 10,548,845
================
Total Stockholders' Equity
As previously reported $ 2,562,617
Allocation of proceeds from issuance of
Convertible Debentures and warrants
and recognition of beneficial
conversion feature net of
amortization
of discount on debt 2,221,467
----------------
As restated $ 4,784,084
================
A summary of the significant effects of the restatement follows:
For the Quarter Ended September 30, 2005
------------------------------------------------
As previously reported As restated
---------------------- -----------------------
Amortization of Debt Discount $ - $ 278,533
Net loss (1,063,499) (1,342,032)
Basic and Diluted loss per share (.47) (.59)
Discount on Debt - 2,221,467
Other Assets 2,220,035 4,441,502
Total assets 18,959,068 21,180,535
Paid In Surplus 8,048,845 10,548,845
Total Stockholders' Equity 2,562,617 4,784,084
NOTE 2 - 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.
NOTE 3 - USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of deferral, contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 4 - MINORITY INTEREST
The minority interest in PriceEnergy.Com, Inc. is a deficit and, in accordance
with Accounting Research Bulletin No. 51, subsidiary losses should not be
charged against the minority interest to the extent of reducing it to a negative
amount. As such, the losses have been charged against the Company, the majority
owner. The loss for three months ended September 30, 2005 is $187,666.
NOTE 5 - NOTES RECEIVABLE
A. The Company has a Note from Able Montgomery, Inc. and Andrew W.
Schmidt related to the sale of Able Montgomery, Inc. and certain
assets to Mr. Schmidt. No payments of principal or interest have 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, for interest of
$14,804.13 and principal of $320.84. Payments were received in
November and December 2002, representing December 2001 and January
2002, in the aggregate amount of $3,333.34, including interest of
$2,678.88, and principal of $654.46. No payments have been received in
more than 30 months.
The note is secured by stock of Able Montgomery, Inc. and the assets
of Andrew W. Schmidt. The income from the sale of the company and the
accrued interest on the new note are shown as deferred income and
amounted to $79,679 which will be realized on collection of the note.
Andrew Schmidt and the Company have reached an agreement related to
the recovery of this note whereby the liability will be paid by an
additional $.04 per gallon charge on oil purchased from the Company.
The Company believes the value of the collateral will cover the amount
due if foreclosure is required.
6
NOTE 5 - NOTES RECEIVABLE (CONTINUED)
B. The Company has three Notes Receivable related to the sale of oil
delivery trucks to independent drivers. These independent drivers also
deliver oil for the Company. Two notes bear interest at the rate of
12% per annum and one at a rate of 9% per annum. These three notes
were made in December 1998, February 1999 and January 2004. The notes
are payable eight (8) months per year September through April, the oil
delivery season.
C. On July 27, 2005, the Company made a loan in the amount of $1,730,000
to All American Plazas, Inc. ("All American"), and All American
executed and delivered a promissory note for the full amount of the
loan in favor of the Company. Under the terms of the promissory note,
the outstanding principal of the loan bears interest at the rate of
3.5% per annum. All payments of principal and accrued interest are
payable ninety days after the date of the Promissory Note. The
promissory note is secured by a lien on 1,000,000 shares of the
Company's common stock held by All American. These shares have a
pre-existing lien held by the Company's former Chief Executive
Officer.
Maturities of the Note Receivable are as follows:
For the 12 Months Principal
Ending September 30, Amount
----------------------------- -------------
2006 $ 1,791,143
2007 26,074
2008 21,627
2009 23,731
2010 18,708
Thereafter 55,971
-------------
Total $ 1,937,261
=============
NOTE 6 - INVENTORIES
September 30, June 30,
Items 2005 2005
-------------- --------------
Heating Oil $ 1,241,629 $ 335,245
Diesel Fuel 36,772 34,409
Kerosene 10,207 3,025
Propane 21,859 28,020
Parts, Supplies and Equipment 326,290 326,290
-------------- --------------
Total $ 726,987 $ 726,987
============== ==============
NOTE 7 - LINE OF CREDIT
On May 13, 2005, the Company entered into a $1,750,000 Line-Of-Credit with
Entrepreneur Growth Capital, LLC. The loan is secured by accounts receivable and
inventory. In addition to accounts receivable and inventory the line is
collateralized by deposit accounts, books and records, computer programs general
intangibles (including customer lists, trademarks, etc.),and rights, title and
interest in any and all assets and personal property owned by third parties. The
line carries interest at Citibank's prime rate, plus 4% per annum not to exceed
24% with a minimum interest of $11,000 per month. The line also requires an
annual facility fee of 2% of the total available facility limit and monthly
collateral management fees equal to .025%. The balance due as of September 30,
2005 is $1,066,490.
NOTE 8 - NOTES PAYABLE BANK
On May 13, 2005, the Company entered into a term loan with Northfield Savings
Bank for $3,250,000. Principal and interest are payable in monthly installments
of approximately $21,400 commencing July 1, 2005. The initial interest rate is
6.25% per annum on the unpaid principal balance for the first five years, to be
reset every fifth anniversary date at 3 percent over the five year treasury
rate, but not lower than the initial rate; at that time the monthly payment will
be reset. At the maturity date of June 1, 2030, all remaining amounts are due.
The Note is secured by Company-owned real property located at 344 Route 46,
Rockaway, New Jersey and an assignment of leases and rents at such location. The
interest rate on default is 4% per annum above the interest rate then in effect.
7
NOTE 8 - NOTES PAYABLE BANK (CONTINUED)
Maturities of the Note Payable Bank are as follows:
For the 12 Months Principal
Ending September 30, Amount
----------------------------- -------------
2006 $ 56,600
2007 60,240
2008 64,115
2009 68,239
2010 72,628
Thereafter 2,914,594
-------------
Total $ 3,236,416
=============
Management believes that the carrying value of its long-term debt approximates
fair value in accordance with SFA 107.
NOTE 9 - NOTES PAYABLE
A. Note payable dated, August 27, 1999, related to the purchase of B & B
Fuels facility and equipment. The total principal of the Note was
$145,000. The Note is payable in the monthly amount of principal and
interest of $1,721.18 with an 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 granted by Able Energy New York, Inc. on property at 2
and 4 Green Terrace and 4 Horicon Avenue, Town of Warrensburg, Warren
County, New York. The balance due on this Note at September 30, 2005
was $ 69,908.
B. The following 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:
Interest Rate at Outstanding Debt
September 30, 2005 Maturities At 9/30/2005
---------------------- ------------------ ----------------------
Notes Payable - Collateralized
By Trucks and Vans 2.90 - 12.506% 10/20/05-8/10/06 $ 12,447
Capital Leases Payable - Collateralized
by Trucks, Vans and Oil Tanks 4.075 - 9.498% 12/8/06-4/5/10 873,964
Notes and Capital Leases Payable -
Collateralized by Office and Computer
Equipment 10.995 - 16.196% 12/15/06-7/19/07 19,688
----------------------
$ 906,099
======================
Maturities on the Notes Payable at September 30, 2005 are as follows:
For the 12 Months Principal
Ending September 30, Amount
----------------------------- -------------
2006 $ 265,868
2007 247,200
2008 231,865
2009 141,849
2010 19,317
-------------
Total $ 906,099
=============
8
NOTE 10 - CONVERTIBLE DEBENTURES
On July 12, 2005, the Company consummated a financing in the amount of $2.5
million. Under such financing the Company sold debentures evidenced by a
Variable Rate Convertible Debenture (the "Convertible Debentures"). The
Convertible Debentures have a term of two years from the date of issuance,
subject to the occurrence of an event of default, with interest payable at the
rate per annum equal to LIBOR for the applicable interest period, plus 4%
payable on a quarterly basis. The Debentures may be converted at the option of
the selling security holders into shares of our common stock at a conversion
price of $6.50 per share. In addition, the security holders received five year
warrants to purchase 192,308 shares of common stock at an exercise price of
$7.15 per share. The Company has an optional redemption right (which right shall
be mandatory upon the occurrence of an event of default) to repurchase all of
the Convertible Debentures for 125% of the face amount of the Convertible
Debentures plus all accrued and outstanding interest and expenses, as well as a
right to repurchase all of the Convertible Debentures in the event of the
consummation of a new financing in which the Company sells securities at a
purchase price that is below the $6.50 conversion price.
The Company allocated the proceeds from the issuance of the Convertible
Debentures and warrants based on their respective fair values and included
$900,000 in additional paid in surplus related to the warrants. In addition, the
conversion feature of the Convertible Debentures is characterized as a
"beneficial conversion feature." Pursuant to Emerging Issues Task Force Issue
No. 00-27, the Company has determined that the value of the beneficial
conversion feature is $1,600,000. Accordingly, the Company has discounted the
balance of the Convertible Debenture as of the date of issuance and included
$1,600,000 in additional paid in surplus. The beneficial conversion feature is
amortized from the date of issuance to the stated redemption date of July 12,
2007, of which $278,533 was amortized to expense during the three months ended
September 30, 2005.
The Company also originally granted to the security holders who acquired the
Convertible Debentures an additional investment right, for a period of eighteen
months from the date the resale prospectus is declared effective, to purchase
units consisting of convertible debentures in the aggregate amount of up to
$15,000,000 (the "Additional Debentures") and common stock purchase warrants
equal to 50% of the face amount of such Additional Debentures (the "Additional
Warrants"). As described in further detail in the Company's Current Report on
Form 8-K filed on November 18, 2005, the rights of the Company and the
Purchasers relating to the Additional Debentures and Additional Warrants were
eliminated as of November 16, 2005, and the Agreement was amended to issue the
Purchasers a series of warrants (the "New Warrants") at various exercise prices.
In the aggregate, the New Warrants permit the holders to acquire up to 5.25
million shares of the Company's common stock upon proper exercise. The Company
has agreed to register 600,000 shares of common stock which may be obtained
through the exercise of the New Warrants in addition to the registration rights
described above relating to the Debentures. Notwithstanding the foregoing, until
the required shareholder approvals are obtained, the Purchasers have agreed not
to convert any Debentures or exercise any Additional Warrants or New Warrants
which in the aggregate would exceed 19.999% of the number of shares of the
Company's common stock on trading day prior to the date of the Agreement.
NOTE 11- COMMITMENTS AND CONTINGENCIES
Able Oil Company is under contract to purchase #2 oil as follows:
GALLONS OPEN OPEN DOLLAR
COMMITMENT COMMITMENT
COMPANY PERIOD TOTAL GALLONS AT 6/30/04 AT 6/30/04
------------------------------ ----------------------- ----------------- ----------------- -----------------
Petrocom 10/1/05-3/31/06 252,000 252,000 $ 413,910
Conectiv Energy 11/1/05-2/28/06 168,000 168,000 257,754
Petrocom 10/1/05-4/30/06 294,000 294,000 430,962
Center Oil 10/1/05-4/30/06 588,000 588,000 930,829
Gulf Oil 11/1/05-2/28/06 168,000 168,000 251,454
Petrocom 10/1/05-4/30/06 588,000 588,000 1,057,434
Petrocom 10/1/05-4/30/06 294,000 294,000 571,696
Petrocom 10/1/05-4/30/06 294,000 294,000 636,510
Petrocom 10/1/05-4/30/06 294,000 294,000 564,316
Gulf Oil 10/1/05-4/30/06 294,000 294,000 577,689
----------------- ----------------- -----------------
Total 3,234,000 3,234,000 $ 5,692,554
----------------- ----------------- -----------------
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.
9
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Related to its purchase of the property on Route 46, Rockaway, New Jersey the
Company commenced an 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 Company is pursuing recovery of all costs and damages related
thereto in the lawsuit by the seller against a former tenant on the purchased
property. The Company has assumed all responsibility and direction for the
lawsuit, subject to the sharing of any recoveries from the lawsuit with the
seller, 50-50 after first $397,500 has been satisfied. In exchange the Company
will receive a reduction of the outstanding mortgage in order to compensate for
related costs up to $250,000. A settlement has been reached 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 receive a
release and indemnification from the Company. Pursuant to the original
agreement, the seller receives 50% of the settlement amount, net of attorney
fees.
This has been amended by an agreement dated November 5, 2001. The entire
settlement, net of attorney fees, was collected and placed in an attorney's
escrow account for payment of all investigation and remediation costs. Able
Energy Terminal, LLC has incurred costs of $102,956 to June 30, 2005, which are
included in prepaid expenses and must be presented to the attorney for
reimbursement. The New Jersey Department of Environmental Protection (NJDEP) has
issued an approval for treated water run-off. The ruling is for a 180-day
period, which can be renewed for an additional 180 days, per management, during
which a valid permit must be obtained. When approval is received and contract
invoice wording is sufficient for the attorney, reimbursement can be made upon
approval of the attorney and the Estate.
Following an explosion and fire that occurred at the Company's Facility in
Newton, NJ on March 14, 2003, and through the subsequent clean up efforts, the
Company has cooperated fully with all local, state and federal agencies in their
investigations into the cause of this accident.
All violation charges with the New Jersey Department of Community Affairs and
OSHA have been settled and paid.
The Sussex County, New Jersey, Prosecutor's Office is conducting an
investigation as a result of the March 14, 2003 explosion and fire. At a hearing
on July 27, 2005, the President and former CFO pleaded guilty and received
community service. The Company will pay a fine of $20,000 as a result of
sentencing which occurred on October 6, 2005.
A lawsuit (known as Hicks vs. Able Energy, Inc.) has been filed against the
Company by property owners who allegedly suffered property damages as a result
of the March 14, 2003 explosion and fire. The Company's insurance carrier is
defending as related to compensatory damages. Legal counsel is defending on the
punitive damage claim. On June 13, 2005, the Court granted a motion certifying a
plaintiff class action which is defined as "All Persons and Entities that on and
after March 14, 2003, residing within a 1,000 yard radius of Able Oil Company's
fuel depot facility and were damaged as a result of the March 14, 2003
explosion". The claim is limited to economic loss and claims for personal injury
have been specifically excluded from the Class Certification. The insurer has
settled approximately 2190 claims against the Company. The Company believes that
the Class Claims for compensatory damages is within the available limits of its
insurance.
After the March 14, 2003, fire and explosion, the town of Newton changed its
zoning requirements and made fuel oil and propane distribution prohibited uses.
The Company is appealing a denial of a request for building permits to
reconstruct damaged and destroyed buildings and sought a Non-Conforming Use
Certificate to permit the fuel oil distribution use only. On August 20, 2004,
the Superior Court of New Jersey ruled that the Company may continue to use the
site as a non-conforming use, but stayed its decision subject to Newton's
appellate rights. The decision was upheld in May 2005 by the court upon the
appeal of the Town of Newton. The Company is planning to use the property in the
manner approved by the decision.
As a result of the March 14, 2003 explosion and fire, various claims for
property damage have been submitted to the Company's insurance carrier. These
claims are presently being handled and, in many cases, settled by the insurance
carrier's adjuster. There were 227 claims being handled of which 219 have been
handled and adjusted with reserves for losses established as deemed appropriate
by the insurance carrier.
Two lawsuits have been filed by homeowners in Newton, New Jersey who allegedly
suffered property damages as a result of the March 14, 2003 explosion and fire.
The Company's insurance carrier is defending as related to the property damage
claims. As to Punitive Damages, one case is being defended by an outside
attorney and one by the insurance carrier. It appears that compensatory damage
claims are within the available limits of insurance. As a result of the March
14, 2003 fire at the Newton, New Jersey, terminal, a subsidiary of the Company
entered a guilty plea in July 2005 to one count of negligently damaging
property, a fourth-degree crime in New Jersey. In connection with the plea
agreement, the Company will pay a fine of $20,000, and its guilty plea cannot be
used against the company in any civil lawsuits.
10
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company in the normal course of business has been involved in lawsuits.
Current suits are being defended by the insurance carrier and should be covered
by insurance and legal counsel is defending on punitive damage claims as noted
above.
NOTE 12 - RELATED PARTY TRANSACTIONS
The following officers of this Company own stock in the subsidiary,
PriceEnergy.Com, Inc., which they incorporated in November 1999:
Former Chief Executive Officer 23.5%
President 3.6%
Chief Operating Officer 2.3%
No capital contributions have been made by these officers (See Notes 1 and 7).
The Company has entered into a consulting agreement with its former Chief
Executive Officer ("CEO") on February 16, 2005 (see note 20). The agreement is
for two years and provides for annual fees of $60,000 to be paid in monthly
installments. In addition the former CEO received options to purchase 100,000
shares of the Company's common stock at $4.00 per share. The options were
exercised on July 7, 2005, at which time the closing price was $16.89. The
former CEO was paid $15,000 related to this agreement during the period ended
September 30, 2005.
On February 22, 2005, the Company borrowed the sum of $500,000 from Able Income
Fund, LLC ("Able Income"). The loan was evidenced by a promissory note (the
"Note") issued by the Company to the order of Able Income in the principal
amount of $500,000 bearing interest at the rate of 14% per annum payable
interest only in the amount of $5,833.33 per month with the principal balance
and any accrued unpaid interest due and payable on May 22, 2005. The Note was
secured by a mortgage on property located in Warrensburg Industrial Park,
Warrensburg, New York, owned by Able Energy New York, Inc., a wholly owned
subsidiary of the Company. One of the owners of Able Income is Timothy
Harrington, the former Chief Executive Officer of the Company. The maturity date
of the Note was extended to August 22, 2005.
Able Income subsequently agreed to surrender the Note as of September 30, 2005,
in exchange for 57,604 shares of the Company's common stock, $.001 par value.
The number of shares exchanged was determined by dividing the principal balance
of the Note, together with all accrued and unpaid interest thereon as of
September 30, 2005, by $8.68, representing a 20% discount off the average
closing price of the Company's stock as listed on the Nasdaq SmallCap Market for
the period from October 3, 2005 through October 14, 2005. The shares were
offered only to Able Income in connection with the surrender of the Note and,
thus, were exempt from registration under Section 4(2) of the Securities Act of
1933, as amended, as not being a part of any public offering.
On September 19, 2005 an officer of the Company exercised options to acquire
50,000 shares of the Company's common stock at a price of $6.68 per share. In
connection with this exercise the officer entered into a one year $100,000
promissory note collateralized by the common stock of the Company held by the
officer and secured by the officer's wages. It was subsequently determined that
it was improper for the Company to accept a promissory note from such officer,
and the promissory note was repaid in full, with accrued interest, by the
officer as of November 18, 2005.
The Company entered into a Stock Purchase Agreement in June 2005 ("Purchase
Agreement") with all of the shareholders (the "Sellers") of All American Plazas,
Inc. ("All American") in connection with the Company's acquisition of All
American. The transaction is expected to be consummated in November 2005, upon
receipt of the required approval by our stockholders. All American currently
owns approximately 40% of the Company's outstanding shares. The Company's CEO,
Chairman and General Counsel, Gregory D. Frost, formerly served as a director
and the General Counsel of All American until his resignation on March 31, 2005,
and the Company's Vice President Business Development, Frank Nocito, is Vice
President of All American. In addition, one of the Company's directors, Stephen
Chalk, performs certain paid consulting services in the area of real estate
development for All American. At the closing, the Company will deliver to the
Sellers 11,666,667 shares of our restricted common stock, par value $.001 per
share, at $3.00 per share for an aggregate purchase price of $35,000,000. In
addition, at the closing, the Company will deliver to certain of the Sellers a
number of shares of its restricted common stock equal to the number of shares of
its common stock owned by All American as of the closing date.
All American recently consummated a financing that, if the acquisition of All
American is consummated, will impact the Company. Pursuant to the terms of the
Securities Purchase Agreement dated June 1, 2005 (the "Agreement") between All
American and certain purchasers, the purchasers loaned All American an aggregate
of $5,000,000, evidenced by Secured Debentures also dated June 1, 2005 (the
"Debentures").
11
NOTE 12 - RELATED PARTY TRANSACTIONS (CONTINUED)
If the Company consummates the acquisition of All American, upon such
consummation, the Company will assume the obligations of All American under the
Agreement, the Debentures and the AIR Agreement through the execution of a
Securities Assumption, Amendment and Issuance Agreement, Registration Rights
Agreement, Common Stock Purchase Warrant Agreement and Variable Rate Secured
Convertible Debenture Agreement, each between the Purchasers and the Company.
On July 27, 2005, the Company made a loan in the amount of $1,730,000 to All
American, and All American executed and delivered a Promissory Note for the full
amount of the loan in favor of the Company (see note 5).
In connection with two loans entered into by the company in May 2005 (see note
4), fees in the amount of $167,500 were paid to Unison Capital Corporation, a
company in which a vice president of the Company has a related interest. This
individual also has a related party interest to All American, the Company's
largest shareholder.
Subsequent to the payments being made and based on discussions with Unison
Capital Corporation it was determined the $167,500 was an inappropriate payment
to a related party and Unison Capital Corporation has agreed to reimburse this
amount to the Company over a twelve month period beginning in October 2005. The
charge had been appropriately classified as deferred finance charges in the
balance sheet and therefore will have no effect on the Company's statement of
operations.
NOTE 13 - BUSINESS SEGMENT INFORMATION
The Company sells several types of products and provides services. Following are
revenues by product groups and services:
CONTINUING OPERATIONS
QUARTER ENDED
SEPTEMBER 30,
--------------------------------
2005 2004
--------------- ---------------
Home Heating Oil #2 $ 5,108 746 $ 1,842,254
Commercial Oil #2 1,689,717 1,557,659
Gasoline, Diesel Fuel, Kerosene,
Propane & Lubricants 5,610,500 4,127,047
Equipment Sales & Services 254,386 285,329
Installation Repairs & Services 468,064 409,556
--------------- ---------------
Net Sales $ 13,131,413 $ 8,221,845
=============== ===============
NOTE 14 - RECENTLY ISSUED ACCOUNTING STANDARDS
SHARE-BASED PAYMENT
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation."
Statement 123(R) supersedes Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement
of Cash Flows." Generally, the approach in Statement 123(R) is similar to the
approach described in Statement 123. However, Statement 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. The Statement is effective for fiscal
years beginning after June 15, 2005.
12
NOTE 14 - RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
Statement 123(R) permits public companies to adopt its requirements using one of
two methods:
A. "Modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the
effective date and (b) based on the requirements of Statement 123 for
all awards granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective date.
B. "Modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities
to restate, based on the amounts previously recognized under Statement
123 for purposes of pro forma disclosures, either (a) all prior
periods presented or (b) prior interim periods of the year of
adoption.
The Company adopted Statement 123(R) on July 1, 2005 using the modified
prospective method. The impact of this Statement was immaterial to our
consolidated financial statements.
NOTE 21 - SUBSEQUENT EVENTS
On March 1, 2005, the Company entered into an amendment (the "Agreement") to an
existing consultant agreement with Summitt Ventures, Inc. ("Summitt"). The value
of the consideration contemplated to be rendered by Summitt to the Company under
the Agreement was approximately $71,000, and the Company issued 142,857 shares
of the Company's common stock (the "Shares"), valued at $0.50 per share, as
payment. The Shares at the time of issue were unregistered, restricted shares of
the Company and not subject to any registration requirement. The shares were
offered only to Summitt in connection with the Agreement and, thus, were exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
as not being a part of any public offering. The Shares are not convertible into
any other class or series of equity of the Company. No proceeds were received by
the Company at the time of issuance of the Shares and no proceeds have been
received by the Company on account of the Agreement. On September 22, 2005, the
Company terminated the Agreement with Summitt, with cause, and on October 13,
2005, the Company notified Summitt that it was canceling the certificate
evidencing the Shares on the grounds that, among other things, Summitt induced
the Company to enter into the Agreement through misrepresentation.
On October 13, 2005, the Company received a letter from the Nasdaq Listing
Qualifications Staff ("Nasdaq"), notifying the Company that it was not in
compliance with Marketplace Rule 4310(c)(2)(B)(ii) (the "Rule"). The Rule
requires the Company to have a minimum $35 million in market value of listed
securities, or $2.5 million in shareholders' equity or $500,000 in net income
from continuing operations for the most recently completed fiscal year or two of
the three most recently completed fiscal years. Nasdaq informed the Company that
it would be provided 30 calendar days, or until November 14, 2005, to regain
compliance with the Rule.
The Company was required to demonstrate compliance with the Rule by November 14,
2005 by either:
o showing aggregate market value of its common stock in excess of $35
million for a minimum of 10consecutive business days, or
o increasing its shareholders' equity to an amount which exceeds $2.5
million.
The shareholders' equity reported in this Quarterly Report on Form 10-Q/A is
$4,784,084, which exceeds the $2.5 million required under the Rule. Nasdaq has
determined that the matters set forth in its October 13, 2005 letter to the
Company have been closed.
On September 19, 2005, Gregory D. Frost, the Company's current CEO, Chairman and
General Counsel, exercised options to acquire 50,000 shares of the Company's
common stock at a price of $6.68 per share. In connection with this exercise Mr.
Frost entered into a one year $100,000 promissory note in favor of the Company,
which was collateralized by the common stock of the Company owned by Mr. Frost
and secured by his wages. The note was payable on the one-year anniversary of
its issuance, together with interest thereon at the prime rate. Monthly interest
payments were to begin in November 2005. It was subsequently determined that it
was improper for the Company to accept a promissory note from Mr. Frost due to
his status as director of the Company at the time of the option exercise, and
the promissory note was repaid in full, together with accrued interest, by Mr.
Frost as of November 18, 2005.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Statements in this Quarterly Report on Form 10-Q/A 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.
OVERVIEW
Able Energy Inc. ("Able") was incorporated in Delaware in 1997. Able Oil, a
wholly owned subsidiary of Able, was established in 1989 and sells both
residential and commercial heating oil and complete HVAC service to it heating
oil customers. Able Energy NY, a wholly owned subsidiary of Able, sells
residential and commercial heating oil, propane diesel fuel, and kerosene to
customers around the Warrensburg NY area. Able Melbourne, a wholly owned
subsidiary of Able, was established in 1996 and sells various grades of diesel
fuel around Cape Canaveral FL. PriceEnergy Inc., a majority owned subsidiary of
Able, was established in 1999 and has developed an internet platform that has
extended the Company's ability to sell and deliver liquid fuels and related
energy products.
Management's Discussion and Analysis of Financial Condition and Results of
Operation contains forward-looking statements, which are based upon current
expectations and involve a number of risks and uncertainties. In order for us to
utilize the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, investors are hereby cautioned that these statements may be
affected by the important factors, among others, set forth below, and
consequently, actual operations and results may differ materially from those
expressed in these forward-looking statements. The important factors include:
o Commodity Supply
o Commodity Pricing
o Customers Converting to Natural Gas
o Alternative Energy Sources
o Winter Temperature Variations (Degree Days)
o Customers Moving Out of The Area
o Legislative Changes
o The Availability (Or Lack of) Acquisition Candidates
o The Success of Our Risk Management Activities
o The Effects of Competition
o Changes in Environmental Law
o General Economic, Market, or Business Conditions
We undertake no obligation to update or revise any such forward-looking
statements.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are described in Note 2 of the condensed consolidated
financial statements included in this Report on Form 10-Q/A for the quarter
ended September 30, 2005. The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America, which requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
14
We consider the following policy to be the most critical in understanding the
judgments involved in preparing the financial statements and the uncertainties
that could impact our results of operations, financial condition and cash flows.
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
The following table presents the percentage of total revenues for the periods
indicated and changes from period to period of certain items included in our
Condensed Consolidated Statements of Operations.
% FOR THREE MONTHS ENDED PERIOD-TO-PERIOD
SEPTEMBER 30, SEPTEMBER 30, % CHANGES
2005 2004 2005 (as restated)
(as restated) VS. 2004
Net sales 100.0% 100.0% 59.7%
Cost of sales 93.0 92.6 60.4
---------------- ----------------
Gross profit 7.0 7.4 50.8
---------------- ----------------
Selling, general and administrative expenses 11.4 13.4 36.0
Depreciation and Amortization Expense 2.2 3.6 (0.8)
---------------- ----------------
Loss from operations (6.6) (9.6) 10.7
Interest and Other Income 0.4 0.6 (9.6)
Interest Expense (1.3) (0.9) 118.3
Amortization of Discount on Debt (2.1) - *
Loss on sale of assets - (0.4) *
Legal Fees Relating to Accident (0.5) (0.3) 182.8
---------------- ----------------
Loss before income tax provision (10.2) (10.6) 53.8
Income tax provision (0.0) (0.0) *
---------------- ----------------
Net loss (10.2) (10.6) 53.8
---------------- ----------------
* Not meaningful
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004
Revenue for the three months ended September 30, 2005 increased approximately
$4.9 million or 59.7% over the three months ended September 30, 2004. This
increase can be attributed primarily to the pass-through of fuel oil costs to
customers and a total increase of liquid fuel product sales of approximately
9.3% offset by the impact of marketing changes in the way the Company sells to
its discount customers.
Gross profit margins for the three months ended September 30, 2005 decreased to
7.0% from 7.4% for the three months ended September 30, 2004. The decrease in
margin was the result of the dramatically rising product costs during the
period. Retail pricing was adjusted as necessary to cover most of the increases
while continuing to maintain the Company's competitive position in the
marketplace. Gross profit margin was also affected by a strong increase in sales
of our PriceEnergy subsidiary in our present market area. Selling, general and
administrative expenses for the three months ended September 30, 2005 increased
by approximately $397,000 or 36.0% compared to the three months ended September
30, 2004. The Company attributes this increase primarily to an increase in
professional fees of approximately $175,000 related to general corporate matters
including SEC filings and potential acquisitions, an increase in payroll related
to the addition of key management positions of approximately $122,000, and an
increase in credit card processing fees of approximately $90,000 which relates
partly to the increase in revenue and the shift of customer payment methods to
more credit card based payment.
Depreciation and amortization expense remained relatively flat for the three
months ended September 30, 2005 as compared to the three months ended September
30, 2004.
Other income (expenses) increased to a net expense of $464,511 in the three
months ended September 30, 2005 from $80,355 in the three months ended September
30, 2004. The increase of approximately $384,000 is primarily related to an
increase in interest expense of approximately $92,000 related to debt financing
and issueance of convertible debentures entered into
15
during July 2005 and a non-cash charge of approximately $279,000 related to the
amortization of the beneficial value ascribed to conversion rights of the
convertible debentures and value of warrants issued in connection with the
convertible.
Operating loss for the three months ended September 30, 2005 was $874,186
compared to $790,031 for the three months ended September 30, 2004. The net
increase in the operating loss for the period was directly related to an
increase in selling, general and administrative expenses partially offset by an
overall improvement in gross margin dollars.
Our effective tax rate for the three months ended September 30, 2005 and the
three months ended September 30, 2004 is negligible. The difference in the
Company's effective tax rate from the federal statutory rate is primarily due to
a 100% valuation allowance provided for all deferred tax assets.
Net loss for the three months ended September 30, 2005 was approximately $1.3
million compared to $872,626 for the three months ended September 30, 2004. The
net increase directly related to an increase in selling, general and
administrative expenses and the increase in interest and other expenses,
partially offset by an overall improvement in gross margin dollars.
LIQUIDITY AND CAPITAL RESOURCES
To date, our principal sources of working capital have been the proceeds from
public and private placements of securities and notes payable. Since our
inception, sales of securities, including the proceeds from the exercise of
outstanding options and warrants, have generated approximately $8.1 million less
applicable expenses.
We had working capital of approximately $2.5 million at September 30, 2005
compared to a working capital deficit of approximately $(320,000) at June 30,
2005 and ratios of current assets to current liabilities of 1.25:1 as of
September 30, 2005 and .95:1 as of June 30, 2005. The working capital increase
of approximately $2.8 was primarily due to issuance of convertible debentures of
$2.5 million, the sale of common stock through the exercise of outstanding
options and warrants of approximately $0.8 million, and the conversion of note
payable into equity of $0.5 million. This increase was partially offset by a net
loss of approximately $1.1.
In May 2005 we entered into a $1,750,000 line of credit agreement with
Entrepreneurs Growth Capital, LLC. The line is collateralized by accounts
receivable and inventories. Outstanding balances under the loan bear interest at
an annual rate equal to the Citibank's prime rate plus 4%. As of September 30,
2005 approximately $1.1 million was outstanding and $684,000 was available under
this credit line.
On July 12, 2005, the Company consummated a financing with a group of lenders.
Pursuant to the terms of the Securities Purchase Agreement, the Company sold
variable rate convertible debentures in the amount of $2.5 million. The
debentures shall be repaid within two years from the date of issuance with
interest payable at a rate per annum equal to Libor, plus 4%, which on July 12,
2005 was 3.57% plus 4%, or 7.57%. The interest is payable quarterly on the first
of January, April, July, and October. The debentures may be converted at the
option of the purchasers into shares of the Company's Common Stock at a
conversion price of $6.50 per share. The amount of shares to be issued at such
conversion will be 384,618. In addition, the purchasers shall have the right to
receive five-year warrants to purchase 192,308 shares of Common Stock at $7.15
per share. The market value of the Company's Common Stock on July 12, 2005 was
$17.90 per share. The debenture conversion price of $6.50 is 36.31% of the
market value. Closing expenses related to this transaction totaled $315,000,
including a $250,000 broker fee and $65,000 in various legal expenses.
On July 27, 2005, the Company made a loan of $1,730,000 to All American Plazas,
Inc. which is the largest shareholder of the Company. The funds were disbursed
from the financing proceeds of $2.5 million described above. Under the note, the
loan bears interest at 3.50% per annum and is secured by the 1,000,000 shares of
Able Energy, Inc. Common Stock owned by All American Plazas, Inc. The interest
rate of the Company on its $2.5 million of convertible debentures is currently
7.57%, as noted above.
We anticipate that funds generated from operations, together with cash and
investments, and availability under our credit line will be sufficient to fund
our current level of growth and our existing commitments at least through fiscal
2006. However, to the extent the expansion of our operations requires
significant additional resources, we may be required to seek additional
financing. No assurance can be given that such financing would be available on
terms that would be acceptable to us.
16
MATERIAL COMMITMENTS
The following schedule summarizes our contractual cost obligations as of
September 30, 2005 in the periods indicated.
---------------------------------------- ------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------------------------
CONTRACTUAL LESS THAN MORE THAN
OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Long-Term Debt $ 4,391,000 $ 1,155,000 $ 162,000 $ 159,000 $ 2,915,000
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Capital Lease Obligations 888,000 250,000 619,000 19,000 -
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Operating Leases 89,000 89,000 - - -
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Unconditional Purchase Obligations 5,693,000 5,693,000 - - -
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Other Long-Term Obligations 2,500,000 - 2,500,000 - -
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Total Contractual Cash Obligations $ 13,561,000 $ 7,187,000 $ 3,281,000 $ 178,000 $ 2,915,000
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
---------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Excluded from the table above is estimated interest payments on long-long term
debt and capital lease obligations of approximately $369,000, $766,000, $368,000
and $1,987,000 for the periods less than 1 year, 1-3 years, 3-5 years, and more
than 5 years, respectively.
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 2004-2005 recorded temperatures for the season,
which were normal for New Jersey, the Company's primary delivery area.
Approximately 65% 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 is seasonal. From May through September, Able
Oil experiences considerable reduction of retail heating oil sales.
Able Energy NY's propane operation 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.
Over 90% of Able Melbourne's revenues are derived from the sale of diesel fuel
for construction vehicles, and commercial and recreational sea-going vessels
during Florida's fishing season, which begins in April and ends in November.
Only a small percentage of Able Melbourne's revenues are derived from the sale
of home heating fuel. Most of these sales occur from December through March,
Florida's cooler months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not issue or invest in financial instruments or derivatives for
trading or speculative purposes. All of the operations of the Company are
conducted in the United States, and, as such, are not subject to material
foreign currency exchange rate risk. At September 30, 2005, the Company had
approximately $6.7 million of outstanding long-term debt and convertible
debentures. Although the Company's assets included approximately $4.7 million in
cash and cash equivalents, the market rate risk associated with changing
interest rates in the United States is not material.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Company's management, including the acting chief executive officer ("Acting
CEO") (who ceased performing the duties of Acting CEO on October 13, 2005) and
chief financial officer ("CFO"), of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
17
evaluation, the Company's management, including the Acting CEO and CFO,
concluded that the Company's disclosure controls and procedures were effective
as of September 30, 2005.
There were no significant changes in the Company's internal control over
financial reporting in the first fiscal quarter of 2006 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As a result of the March 14, 2003 fire at the Newton, New Jersey, terminal, a
subsidiary of the Company entered a guilty plea in July 2005 to one count of
negligently damaging property, a fourth-degree crime in New Jersey. In
connection with the plea agreement, the Company will pay a fine of $20,000, and
its guilty plea cannot be used against the Company in any civil lawsuits. In
addition, Christopher P. Westad, the Company's President, entered into a
pre-trial intervention agreement, conditioned upon 250 hours of community
service over a two-year period, which he is currently performing.
The Company is not currently involved in any legal proceeding that is likely to
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
financial legal proceedings will not have a material adverse affect on the
Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) 1. On July 12, 2005, the Company consummated a financing with
certain purchasers identified in the Securities Purchase
Agreement dated as of July 12, 2005 (collectively the
"Purchasers"), in a transaction permitted under section 4(2) of
the Securities Act of 1933, in the amount of $2.5 Million
Dollars.
Pursuant to the terms of the Securities Purchase Agreement dated
as of July 12, 2005 (the "Agreement") among Able Energy, Inc.,
and the Purchasers, the Purchasers purchased Debentures in the
aggregate amount of $2.5 Million Dollars evidenced by a Variable
Rate Convertible Debenture also dated July 12, 2005 (the
"Debenture"). The Debentures shall be repaid within two years
from the date of issuance, subject to the occurrence of an event
of default, with interest payable at the rate per annum equal to
LIBOR for the applicable interest period, plus 4% payable on a
quarterly basis on April 1st, July 1st, October 1st and January
1st, beginning on the first such date after the date of issuance
of the Debentures. The Debentures may be converted at the option
of the Purchasers into shares of our common stock at a conversion
price of $6.50 per share. In addition, the Purchasers shall have
the right to receive five (5) year warrants to purchase 192,308
of common stock at an exercise price of $7.15 per share. Pursuant
to the Agreement, we shall also have an optional redemption right
(which right shall be mandatory upon the occurrence of an event
of default) to repurchase all of the Debentures for 125% of the
face amount of the Debentures plus all accrued and outstanding
interest and expenses, as well as a right to repurchase all of
the Debentures in the event of the consummation of a new
financing in which we sell securities at a purchase price that is
below the Conversion Price.
Pursuant to the Registration Rights Agreement among the parties,
the Purchasers shall have demand registration rights with
respect to all shares of our common stock obtained by them
through the conversion of the Debentures. The Purchasers
originally had an additional investment right, for a period of
nine months after the initial registration statement is filed by
us with the Securities and Exchange Commission (the "SEC") is
first declared effective by the SEC, to purchase units
consisting of convertible debentures in the aggregate amount of
up to $15,000,000 (the "Additional Debentures") and common stock
purchase warrants equal to 50% of the face amount of such
Additional Debentures (the "Additional Warrants"). As described
in further detail in the Company's Current Report on Form 8-K
filed on November 18, 2005, the rights of the Company and the
Purchasers relating to the Additional Debentures and Additional
Warrants were eliminated as of November 16, 2005, and the
Agreement was amended to issue the Purchasers a series of
warrants (the "New Warrants") at various exercise prices. In the
aggregate, the New Warrants permit the holders to acquire up to
5.25 million shares of the Company's common stock upon proper
exercise. The Company has agreed to register 600,000 shares of
common stock which may be obtained through the exercise of the
New Warrants in addition to the registration rights described
above relating to the Debentures. Notwithstanding the foregoing,
until the required shareholder approvals are obtained, the
Purchasers have agreed not to convert any Debentures or exercise
any Additional Warrants or New Warrants which in the aggregate
would exceed 19.999% of the number of shares of the Company's
common stock on trading day prior to the date of the Agreement.
18
2. On February 22, 2005, the Company borrowed the sum of $500,000
from Able Income Fund, LLC ("Able Income"). The loan was
evidenced by a promissory note (the "Note") issued by the Company
to the order of Able Income in the principal amount of $500,000
bearing interest at the rate of 14% per annum payable interest
only in the amount of $5,833.33 per month with the principal
balance and any accrued unpaid interest due and payable on May
22, 2005. The Note was secured by a mortgage on property located
in Warrensburg Industrial Park, Warrensburg, New York, owned by
Able Energy New York, Inc., a wholly owned subsidiary of the
Company. One of the owners of Able Income is Timothy Harrington,
the former Chief Executive Officer of the Company. The maturity
date of the Note was extended to August 22, 2005.
Able Income subsequently agreed to surrender the Note as of
September 30, 2005, in exchange for 57,604 shares of the
Company's common stock, $.001 par value. The number of shares
exchanged was determined by dividing the principal balance of the
Note, together with all accrued and unpaid interest thereon as of
September 30, 2005, by $8.68, representing a 20% discount off the
average closing price of the Company's stock as listed on the
Nasdaq SmallCap Market for the period from October 3, 2005
through October 14, 2005. The shares were offered only to Able
Income in connection with the surrender of the Note and, thus,
were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as not being a part of any
public offering.
(b) Non-applicable
(c) None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
(a) 1. On March 1, 2005, the Company entered into an amendment (the
"Agreement") to an existing consultant agreement with Summitt
Ventures, Inc. ("Summitt"). The value of the consideration
contemplated to be rendered by Summitt to the Company under the
Agreement was $71,428.50, and the Company issued 142,857 shares
of the Company's common stock (the "Shares"), valued at $0.50 per
share, as payment. The Shares at the time of issue were
unregistered, restricted shares of the Company and not subject to
any registration requirement. The shares were offered only to
Summitt in connection with the Agreement and, thus, were exempt
from registration under Section 4(2) of the Securities Act of
1933, as amended, as not being a part of any public offering. The
Shares are not convertible into any other class or series of
equity of the Company. No proceeds were received by the Company
at the time of issuance of the Shares and no proceeds have been
received by the Company on account of the Agreement. On September
22, 2005, the Company terminated the Agreement with Summitt, with
cause, and on October 13, 2005, the Company notified Summitt that
it was canceling the certificate evidencing the Shares on the
grounds that, among other things, Summitt induced the Company to
enter into the Agreement through misrepresentation.
2. On October 13, 2005, the Company received a letter from the
Nasdaq Listing Qualifications Staff ("Nasdaq"), notifying the
Company that it was not in compliance with Marketplace Rule
4310(c)(2)(B)(ii) (the "Rule"). The Rule requires the Company to
have a minimum $35 million in market value of listed securities,
or $2.5 million in shareholders' equity or $500,000 in net income
from continuing operations for the most recently completed fiscal
year or two of the three most recently completed fiscal years.
Nasdaq informed the Company that it would be provided 30 calendar
days, or until November 14, 2005, to regain compliance with the
Rule.
The Company was required to demonstrate compliance with the Rule
by November 14, 2005 by either:
19
o showing aggregate market value of its common stock in excess
of $35 million for a minimum of 10 consecutive business
days, or
o increasing its shareholders' equity to an amount which
exceeds $2.5 million.
The shareholders' equity reported in this Quarterly Report on
Form 10-Q/A is $4,784,084, which exceeds the $2.5 million
required under the Rule. Nasdaq has determined that the matters
set forth in its October 13, 2005 letter to the Company have been
closed.
(b) None.
ITEM 6. EXHIBITS
10.1 Securities Purchase Agreement dated as of July 12, 2005, between Able
Energy, Inc., and the purchasers identified on the signature pages
thereto (incorporated by reference to exhibit 99.1 to the Able Energy,
Inc., Current Report on Form 8-K filed July 15, 2005).
10.2 Registration Rights Agreement dated as of July 12, 2005, between Able
Energy, Inc., and the purchasers signatory thereto (incorporated by
reference to exhibit 99.3 to the Able Energy, Inc., Current Report on
Form 8-K filed July 15, 2005).
10.3 Form of Variable Rate Convertible Debenture dated July 12, 2005
(incorporated by reference to exhibit 99.2 to the Able Energy, Inc.,
Current Report on Form 8-K filed July 15, 2005).
10.4 Form of Common Stock Purchase Warrant (incorporated by reference to
exhibit 99.4 to the Able Energy, Inc., Current Report on Form 8-K
filed July 15, 2005).
10.5 Promissory Note of All American Plazas, Inc., in favor of Able Energy,
Inc., dated July 27, 2005. (Incorporated by reference to exhibit 10.5
to the Able Energy, Inc. Current Report filed October 19, 2005.)
10.6 Letter of Intent between Able Energy, Inc., and PHS Group, Inc., dated
September 8, 2005. (Incorporated by reference to exhibit 10.6 to the
Able Energy, Inc. Current Report filed October 19, 2005.)
10.7 Subscription Agreement between Able Income Fund LLC and Able Energy,
Inc., dated as of September 30, 2005.
31.1 Certification of Chief Executive Officer of Periodic Report pursuant
to Rule 13a-14(a) and Rule 15d-14(a).
31.2 Certification of Chief Financial Officer of Periodic Report pursuant
to Rule 13a-14(a) and Rule 15d-14(a).
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Able Energy, Inc.
By: /s/ Gregory D. Frost
--------------------
Gregory D. Frost
Chief Executive Officer, Chairman and
General Counsel
By: /s/ Steven M. Vella
-------------------
Steven M. Vella
Chief Financial Officer
November 21, 2005
21