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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission file number: 333-59109
ABLE ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3520840
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
198 GREEN POND ROAD
ROCKAWAY, NJ 07866
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (973) 625-1012
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check X whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
As of February 3, 2003, 2,013,250 shares, $.001 Par value per share, of
Able Energy, Inc. were issued and outstanding.
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TABLE OF CONTENTS
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PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2002 3 - 4
Consolidated Statements of Income for the three and six
months ended December 31, 2002 and December 31, 2001 5
Consolidated Statement of Stockholders' Equity six months
ended December 31, 2002 6
Consolidated Statements of Cash Flows for the six months
ended December 31, 2002 and 2001 7 - 8
Notes to Unaudited Financial Statements 9 - 27
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
December June 30,
2002 2002
Unaudited) (Audited)
----------- -----------
CURRENT ASSETS:
Cash $ 133,031 $ 258,560
Accounts Receivable (Less Allowance for Doubtful
Accounts of ($242,358) 3,560,255 1,933,526
Inventory 655,667 405,424
Notes Receivable - Current Portion 38,300 32,756
Miscellaneous Receivables 126,705 113,905
Prepaid Expenses 258,422 228,839
Prepaid Expense - Income Taxes 4,796 2,733
Deferred Income Tax 81,703 65,703
Due From Officer 44,690 44,690
----------- -----------
TOTAL CURRENT ASSETS 4,903,569 3,086,136
----------- -----------
PROPERTY AND EQUIPMENT:
Land 451,925 451,925
Buildings 1,096,046 1,096,046
Trucks 3,127,451 3,037,192
Fuel Tanks 1,354,443 1,190,153
Machinery and Equipment 674,653 576,123
Leasehold Improvements 586,799 578,792
Cylinders 752,683 731,692
Office Furniture and Equipment 200,640 200,640
Website Development Costs 2,200,511 2,200,511
----------- -----------
10,445,151 10,063,074
Less: Accumulated Depreciation and Amortization 4,040,605 3,461,342
----------- -----------
NET PROPERTY AND EQUIPMENT 6,404,546 6,601,732
----------- -----------
OTHER ASSETS:
Deposits 103,070 70,570
Notes Receivable - Less Current Portion 201,464 216,628
Customer List, Less Accumulated Amortization of ($188,122) at
December 31, 2002, and June 30, 2002 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
($61,667) at December 31, 2002 and ($56,667) at June 30, 2002 33,333 43,333
Development Costs - Franchising, Less accumulated
Amortization of ($11,489) at December 31, 2002 and ($9,191)
at June 30, 2002 32,168 36,764
----------- -----------
TOTAL OTHER ASSETS 792,763 790,023
----------- -----------
TOTAL ASSETS $12,100,878 $10,477,891
=========== ===========
See Accompanying Notes
3
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Cont'd)
LIABILITIES & STOCKHOLDERS' EQUITY
December June 30,
2002 2002
Unaudited) (Audited)
----------- -----------
CURRENT LIABILITIES:
Accounts Payable $ 2,101,867 $ 1,159,341
Note Payable - Bank 1,270,000 1,470,000
Notes Payable - Other 1,250,000 500,000
Current Portion of Long-Term Debt 603,524 584,384
Accrued Expenses 244,299 309,363
Accrued Taxes 44,684 24,673
Customer Pre-Purchase Payments 884,116 880,111
Customer Credit Balances 413,567 548,336
Escrow Deposits 16,072 28,472
Note Payable - Officer 105,000 55,000
----------- -----------
TOTAL CURRENT LIABILITIES 6,933,129 5,559,680
DEFERRED INCOME 79,679 79,679
DEFERRED INCOME TAXES 61,712 54,712
LONG TERM DEBT: less current portion 1,546,636 1,522,680
----------- -----------
TOTAL LIABILITIES 8,621,156 7,216,751
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock
Authorized 10,000,000 Shares Par Value $.001 per share
Issued - None
Common Stock
Authorized 10,000,000 Par Value $.001 per share Issued
and Outstanding 2,013,250 Shares December 31, 2002, and
2,007,250 at June 30, 2002 2,014 2,008
Paid in Surplus 5,711,224 5,687,230
Retained Earnings (Deficit) (2,233,516) (2,428,098)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,479,722 3,261,140
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,100,878 $10,477,891
=========== ===========
See Accompanying Notes
4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
2002 2001 2002 2001
---- ---- ---- ----
NET SALES $12,453,732 $7,301,452 $18,687,071 $12,568,749
COST OF SALES 9,934,503 5,724,546 15,337,328 10,444,592
----------- ---------- ----------- -----------
GROSS PROFIT 2,519,229 1,576,906 3,349,743 2,124,157
----------- ---------- ----------- -----------
EXPENSES
Selling, General and Administrative Expenses 1,218,992 1,352,181 2,430,518 2,566,738
Depreciation and Amortization Expense 297,265 269,586 594,671 567,807
----------- ---------- ----------- -----------
TOTAL EXPENSES 1,516,257 1,621,767 3,025,189 3,134,545
----------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 1,002,972 (44,861) 324,554 (1,010,388)
----------- ---------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest and Other Income 33,279 41,099 66,114 125,779
Interest Expense (107,963) (60,758) (189,086) (131,996)
----------- ---------- ----------- -----------
TOTAL OTHER INCOME (EXPENSES) (74,684) (19,659) (122,972) (6,217)
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 928,288 (64,520) 201,582 (1,016,605)
PROVISION (REDUCTION) FOR INCOME TAXES 3,880 1,775 7,000 700
----------- ---------- ----------- -----------
NET INCOME (LOSS) $ 924,408 $ (66,295) $ 194,582 $(1,017,305)
=========== ========== =========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE $ .46 $ (.03) $ .10 $ (.51)
----------- ---------- ----------- -----------
DILUTED INCOME (LOSS) PER COMMON SHARE $ .45 $ (.03) $ .09 $ (.51)
----------- ---------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - USED IN BASIC 2,006,855 2,000,613 2,006,855 2,000,613
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - USED IN DILUTED 2,057,512 2,000,613 2,057,512 2,000,613
========= ========= ========= =========
See Accompanying Notes
5
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 2002
(UNAUDITED)
COMMON STOCK
.001 PAR VALUE
--------------
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS EQUITY
------ ------ ------- -------- ------
Balance - July 1, 2002 2,007,250 $ 2,008 $5,687,230 $( 2,428,098) 3,261,140
Shares Issued 6,000 6 23,994 24,000
Net Income 194,582 194,582
--------- ------- ---------- ------------- ----------
Balance - December 31, 2002 2,013,250 $ 2,014 $5,711,224 $ (2,233,516) $3,479,722
========= ======= ========== ============ ==========
See Accompanying Notes
6
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31
UNAUDITED
---------
2002 2001
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (Loss) - Continuing Operations $ 194,582 $ (1,017,305)
Adjustments to Reconcile Net Income to Net Cash
used by Operating Activities:
Depreciation and Amortization 594,671 567,807
Directors' Fees 24,000 -
Loss on Disposal of Equipment 842 -
(Increase) Decrease in:
Accounts Receivable (1,626,729) (288,664)
Inventory (250,243) (297,316)
Prepaid Expenses (31,646) (74,168)
Increase (Decrease) in:
Accounts Payable 942,526 (287,923)
Accrued Expenses (65,064) (119,504)
Customer Advance Payments 4,005 254,023
Payroll Taxes Payable 4,011 2,795
Customer Credit Balance (134,769) 194,307
Deferred Income Taxes 7,000 700
Escrow Deposits (12,400) 81,037
---------- ---------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (349,214) (984,211)
---------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (383,731) (508,934)
Web Site Development Costs - 38,629
Increase in Deposits (32,500) (22,308)
Payment on Notes Receivable - Sale of Equipment 8,965 5,817
Note Receivable - Montgomery 655 644
Other Receivables (12,800) 2,772
---------- ---------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES $ (419,411) $(483,380)
========== =========
See Accompanying Notes
7
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (CONT'D)
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31
UNAUDITED
---------
2002 2001
---- ----
CASH FLOW FROM FINANCING ACTIVITIES
(Decrease) in Notes Payable - Bank $(200,000) $ 725,000
Increase in Notes Payable - Other 750,000 (449,720)
Decrease in Long-Term Debt (288,067) (265,199)
Increase in Long-Term Debt 331,163 236,909
Note Payable - Officer 50,000 -
Sale of Common Stock - 4,061
---------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 643,096 251,051
---------- ---------
NET (DECREASE) INCREASE IN CASH (125,529) (1,216,540)
Cash - Beginning of Year 258,560 1,489,018
---------- ---------
Cash - End of Year $ 133,031 $ 272,478
========== =========
The Company had Interest Cash Expenditures of: $ 195,099 $ 130,243
The Company had Tax Cash Expenditures of: $ 7,017 $ 7,000
See Accompanying Notes
8
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Able
Energy, Inc. and its subsidiaries. The minority interest of 1% in Able
Propane, LLC is immaterial and has not been shown separately. All
material inter-company balances and transactions were eliminated in
consolidation.
MAJORITY OWNERSHIP
The Company is the majority owner, owning 70.6% of the issued shares
of a subsidiary, PriceEnergy.Com, Inc. in which their capital
investment is $25,000. The subsidiary has established a Web Site for
the sale of products through a network of suppliers originally on the
East Coast of the United States. The Web Site became active in October
2000 (See Notes 8 and 13)
MINORITY INTEREST
The minority interest in PriceEnergy.Com, Inc. is a deficit and, in
accordance with Accounting Research Bulletin No. 51, subsidiary losses
should not be charged against the minority interest to the extent of
reducing it to a negative amount. As such, the losses have been
charged against the Company, the majority owner. The loss for six
months ended December 31, 2002 is $397,415 (See Notes 8 and 13).
The consolidated interim financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal
recurring adjustments which, in the opinion of management, are
necessary for fair presentation of the information contained therein.
It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and notes thereto
included in the Company's annual report for the year ended June 30,
2002. The Company follows the same accounting policies in preparation
of interim reports.
9
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ------------------------------------------------------------
Results of operations for the interim periods are not indicative of
annual results.
NATURE OF OPERATIONS
Able Oil Company, Able Melbourne and Able Energy New York, Inc. are
full service oil companies that market and distribute home heating
oil, diesel fuel and kerosene to residential and commercial customers
operating in the northern New Jersey, Melbourne, Florida, and
Warrensburg, New York respectively. Able Propane, installs propane
tanks which it owns and sells propane for heating and cooking, along
with other residential and commercial uses.
The Company's operations are subject to seasonal fluctuations with a
majority of the Company's business occurring in the late fall and
winter months. Approximately 70% of the Company's revenues are earned
and received from October through March, and the overwhelming majority
of such revenues are derived from the sale of HVAC products and
services and home heating fuel. However, the seasonality of the
Company's business is offset, in part, by the increase in revenues
from the sale of diesel and gasoline fuels during the spring and
summer months due to the increased use of automobiles and construction
apparatus.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided by using the straight-line
method based upon the estimated useful lives of the assets (5 to 40
years). Depreciation expense for the six months ended December 31,
2002 and 2001 amounted to $360,025 and $327,043, 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.
10
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ------------------------------------------------------------
WEB SITE DEVELOPMENT COSTS
Costs of $2,200,511 incurred in the developmental stage for computer
hardware and software have been capitalized in accordance with
accounting pronouncement SOP98-1. The costs are included in Property
and Equipment and will be amortized on a straight line basis during
the estimated useful life, 5 years. Operations commenced in October
2000. Amortization for the six months ended December 31, 2002 and 2001
amounted to $220,050 and $216,127, respectively.
INTANGIBLE ASSETS
Intangibles are stated at cost and amortized as follows: Customer
Lists of $571,000 and Covenant Not To Compete of $183,567 related to
the Connell's Fuel Oil Company acquisition on October 28, 1996, by
Able Oil Company are being amortized over a straight-line period of 15
and 5 years, respectively. The current period amortization also
includes a customer list of $39,850 and Covenant Not To Compete of
$100,000 relating to the acquisition from B & B Fuels on August 27,
1999, is being amortized over a straight-line period of 10 and 5
years, respectively. The amortization for the six months ended
December 31, 2002 and 2001 are $10,000 and $24,637, respectively. The
Covenant Not to Compete with Connell's Fuel Oil Company ended in
October 2001, and was fully amortized.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 142 requires goodwill and
other intangible assets to be tested for impairment under certain
circumstances, and written off when impaired, rather than being
amortized as previous standards required, as such, effective July 1,
2001, the Customer List will no longer be amortized for financial
statement purposes.
For income tax basis, the Customer Lists and the Covenant Not To
Compete are being amortized over a straight-line method of 15 years as
per the Tax Reform Act of 1993.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based
on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
11
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ------------------------------------------------------------
INCOME TAXES
Effective January 1, 1997, all the subsidiaries, which were
S-Corporations, terminated their S-Corporation elections. The
subsidiaries are filing a consolidated tax return with Able Energy,
Inc.
Effective January 1, 1997, the Company has elected to provide for
income taxes based on the provisions of Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes", which requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements and tax returns in different years. Under this method,
deferred income tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
CONCENTRATIONS OF CREDIT RISK
The Company performs on-going credit evaluations of its customers'
financial conditions and requires no collateral from its customers.
Financial instruments which potentially subject the Company to
concentrations of credit risk consists of checking and savings
accounts with several financial institutions in excess of insured
limits. The excess above insured limits is approximately $126,042 .
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 $232,593 and
$228,507 for the six months ended December 31, 2002 and 2001,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accrued compensation, and other
accrued liabilities, approximate fair value because of their short
maturities.
12
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ------------------------------------------------------------
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of
delivery to the customer, and sales of equipment are recognized at the
time of installation. Revenue from repairs and maintenance service is
recognized upon completion of the service. Payments received from
customers for heating equipment service contracts are deferred and
amortized into income over the term of the respective service
contracts, on a straight line basis, which generally do not exceed one
year.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the
weighted-average number of common shares outstanding during the
period. Diluted net income per share is computed using the
weighted-average number of common and dilutive potential common shares
outstanding during the period. Diluted net loss per share is computed
using the weighted-average number of common shares and excludes
dilutive potential common shares outstanding, as their effect is
anti-dilutive. Dilutive potential common shares primarily consist of
employee stock options.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Measurement of an
impairment loss for long-lived assets that management expects to hold
and use is based on the fair value of the asset. Long-lived assets to
be disposed of are reported at the lower of carrying amount or fair
value less costs to sell.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, FASB approved two new pronouncements: SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 applies to all business combinations
with a closing date after June 30, 2001. This Statement eliminates the
pooling-of-interests method of accounting and further clarifies the
criteria for recognition of intangible assets separately from
goodwill.
SFAS No. 142 eliminates the amortization of goodwill and
indefinite-lived intangible assets and initiates an annual review for
impairment. Identifiable intangible assets with a determinable useful
life will continue to be amortized. The amortization provisions apply
to goodwill and other intangible assets acquired after June 30, 2001.
Goodwill and other intangible assets acquired prior to June 30, 2001
will be affected upon adoption. The Company has adopted SFAS No. 142
effective July 1, 2001, which will require the Company to cease
amortization of its remaining net customer lists balance and to
perform an impairment test of its existing customer lists and any
other intangible assets based on a fair value concept.
13
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- ------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONT'D)
The Company has reviewed the provisions of these Statements. It is
management's assessment that customer lists impairment will not result
upon adoption. As of June 30, 2001, the Company has net unamortized
customer lists of $422,728. Amortization expense of the customer list
was $20,125 for the six month short year ended June 30, 2001 and
$42,052 for the full year ended December 31, 2000.
NOTE 2 NOTES RECEIVABLE
- -------------------------
A. The Company has a Receivable from Able Montgomery, Inc. and Andrew W.
Schmidt related to the sale of Able Montgomery, Inc. to Schmidt, and
truck financed by Able Energy, Inc. No payments of principal or
interest had been received for more than one year. A new note was
drawn dated June 15, 2000 for $170,000, including the prior balance,
plus accrued interest. The Note bears interest at 9.5% per annum and
payments commence October 1, 2000. The payments will be monthly in
varying amount each year with a final payment of $55,981.07 due
September 1, 2010. No payments were received in the year ended
December 31, 2000. In February 2001, two (2) payments were received in
the amount $2,691.66, interest only. In September 2001, $15,124.97 was
received covering payments from December 2000 through October 2001,
representing interest of $14,804.13 and principal of $320.84. 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
December 31, Principal Amount
------------ ----------------
2003 $ 14,925
2004 10,856
2005 11,933
2006 13,118
2007 14,420
Balance 103,449
--------
Total $168,701
========
14
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
B. Able Oil Company has three (3) Notes Receivable for the sale of oil
delivery trucks to independent drivers who also deliver oil for the
Company. The Notes bear interest at the rate of 12% per annum. Two
notes began December 1998 and one began February 1999. The Notes are
payable eight (8) months per year September through April, the oil
delivery season.
Maturities of these Notes Receivable are as follows:
For the 12 Months Ending
December 31, Principal Amount
------------ ----------------
2003 $23,375
2004 24,710
2005 13,290
2006 7,712
2007 1,976
-------
Total $71,063
=======
NOTE 3 INVENTORIES
- --------------------
ITEMS DECEMBER 31, JUNE 30,
----- 2002 2002
---- ----
Heating Oil $ 118,088 $ 141,114
Diesel Fuel 20,548 21,642
Kerosene 14,666 6,220
Propane 21,263 12,343
Parts and Supplies 481,102 224,105
--------- ---------
Total $ 655,667 $ 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.
15
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 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:
A. Use of proceeds only for Working Capital, Letters of Credit and
for acquisitions with Lender's prior written consent.
B. Financial information to be furnished either annually, quarterly
or monthly.
C. Financial covenants to be tested as of the end of each fiscal
quarter.
D. Limitations on loans and investments.
E. Compliance with laws and environmental matters.
F. Limitations on Borrowing.
G. Can not declare or pay any dividends.
All of the above and other items as per article VI of the Agreement.
The Agreement has a current expiration date of November 30, 2002. We
have been informed by management that Fleet Bank has informed them the
bank will not renew the credit facility upon expiration of the
Agreement which is November 30, 2002. 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 for December 2002 was
8.25%. Management has informed us they are currently in discussion for
a new credit facility.
16
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 5 NOTES PAYABLE
- ----------------------
A. The Company has borrowed $500,000 from an unrelated individual. The
Note is dated June 26, 2001 with interest at 12% per annum. The
interest will be paid monthly at $5,000 per month commencing on August
1, 2001. The Note will mature on June 26, 2002 unless the borrower
(the Company), at its option, elects to extend the maturity date to
December 26, 2002. The Company has exercised its option and has
extended the Note to December 26, 2002. The lender has granted the
Company an additional extension at the same terms to June 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.
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.
Prepayment Penalty - in the event borrower makes a voluntary principal
payment during the term of this note, borrower shall pay to the lender
a premium equal to three (3) monthly payments of interest on the note.
The note is collateralized by a mortgage dated September 13, 2002 from
Able Energy Terminal, LLC, a wholly owned subsidiary, which is a
second mortgage on the property at 344 Route 46, Rockaway, NJ and also
by all leases and rents related to the property. The lender has been
issued a stock purchase warrant for 100,000 shares at $4 per share.
The warrant has not been registered under the Securities Act of 1933.
The Company has granted the holder piggy-back registration rights for
the Common Stock underlying the warrant on its next registration
statement. This warrant does not entitle the holder to any of the
rights of a stockholder of the Company. Unless previously exercised,
the warrants will expire on September 13, 2004.
NOTE 6 LONG-TERM DEBT
- -----------------------
Mortgage note payable dated, August 27, 1999, related to the purchase
of B & B Fuels facility and equipment. The total note was $145,000.
The note is payable in the monthly amount of principal and interest of
$1,721.18 with and interest rate of 7.5% per annum. The initial
payment was made on September 27, 1999, and continues monthly until
August 27, 2009 which is the final payment. The note is secured by a
mortgage made by Able Energy New York, Inc. on property at 2 and 4
Green Terrace and 4 Horicon Avenue, Town of Warrensburg, Warren
County, New York. The balance due on this Note at December 31, 2002
was $108,097.
17
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 6 LONG-TERM DEBT (CONT'D)
- --------------------------------
Mortgage note payable dated, August 31, 1999, related to the purchase
of the facility and equipment in Rockaway, New Jersey by Able Energy
Terminal, LLC ("Terminal"). The note is in the amount of $650,000.
Pursuant to Section 4.4 of the Agreement of Sale to purchase the
Terminal, , the Principal Sum of the $650,000 Note shall be reduced by
an amount equal to one-half of all sums expended by Borrower on the
investigation and remediation of the property provided, however, that
the amount of said reduction shall not exceed $250,000 (the
"Remediation Amount").
The "Principal Sum: Less the "Remediation Amount" shall be an amount
equal to $400,000 (the "Reduced Principal Sum"). The Reduced Principal
Sum shall bear interest from the date hereof at the rate of 8.25% per
annum. Any portion of the Remediation Amount not utilized in the
investigation and remediation of the property shall not begin to
accrue interest until such time that (i) a "No Further Action Letter"
is obtained from the Department of Environmental Protection and (ii)
an outstanding lawsuit concerning the property is resolved through
settlement or litigation (subject to no further appeals). All payments
on this Note shall be applied first to the payment of interest, with
any balance to the payment to reduction of the reduced Principal Sum.
Based upon an amendment, dated November 5, 2001, and commencing with
interest due December 1, 2001, interest will be paid at the rate of
8.25% on the principal sum of $650,000. Only interest is required to
be paid and the principal is due on July 31, 2004 (See Note 10).
The Note is collateralized by the property and equipment purchased and
assignment of the leases. The balance due on this Note at December 31,
2002 was $650,000.
18
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 7 INCOME TAXES
- ---------------------
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
The differences between the statutory Federal Income Tax and Income
Taxes Continuing Operation is accounted for as follows:
2002
----
AMOUNT PERCENT
------ -------
Statutory Federal Income Tax $ 60,410 34.0%
Federal Income Tax Reduction due to
Carryforward (55,510)
loss 18,100 5.9
State Income Tax (Note X)
State Income Tax Reduction due to Carryforward (16,000)
loss
-------- -----
Income Taxes $ 7,000 39.9%
======== =====
Income Taxes consist of:
Current $ -
Deferred 7,000
--------
TOTAL $ 7,000
========
2002
----
PERCENT OF
PRETAX
AMOUNT INCOME
------ -------
Statutory Federal Income Tax $ 505 15.0%
State Income Tax 195 6.5
-------- ------
Income Taxes $ 700 21.5%
======== =====
Income Taxes consists of:
Current $ -
Deferred 700
--------
TOTAL $ 700
========
(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 have
been shown as a deferred asset and as income taxes payable. The
Company has a New Jersey carryforward of approximately $2,700,000.
Under current New Jersey law, the carryforward will be available after
2003, the Company's fiscal year ending June 30, 2005.
19
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 7 INCOME TAXES (CONT'D)
- ------------------------------
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to a
significant portion of the deferred tax liability and deferred tax
asset and their approximate tax effects are as follows at:
DECEMBER 31, 2002
-----------------
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
Depreciation and Amortization $ 194,467 $ 61,712
Allowance for Doubtful Accounts 242,358 61,668
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carryforward 177,533 16,000
(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
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 $2,730,000. The net operating loss
expires between June 30, 2019 and 2021.
These carryforward losses are available to offset future taxable
income, if any. The Company's utilization of this carryforward against
future taxable income is subject to the Company having profitable
operations or sale of Company assets which create taxable income. At
this time, the Company believes that a full valuation allowance should
be provided. The component of the deferred tax asset as of December
31, 2002 are as follows:
Net Operating Loss Carryforward - Tax Effect $881,950
Valuation Allowance (881,950)
--------
Net Deferred Tax based upon Net
Operating Loss Carryforward $ - 0 -
========
20
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 8 NOTE RECEIVABLE - SUBSIDIARY
- -------------------------------------
The Company has a Note Receivable from PriceEnergy.Com, Inc. for
advances made in the development of the Website, including hardware
and software costs. All of PriceEnergy.Com, Inc.'s assets are pledged
as collateral to Able Energy, Inc. The amount of the note is
$1,350,000 dated November 1, 2000 with interest at 8% per annum
payable quarterly. Principal payments to begin two years after the
date of the Note, November 1, 2002. Through December 31, 2002, no
principal has been paid. Interest, in the amount of $54,000 has been
accrued for the six months ended December 31, 2002. Unpaid accrued
interest due through December 31, 2002 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 quarter ended December 31, 2002, resulting in
a balance of $1,838,125.09, 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
December 31, 2002. The note receivable accrued interest and interest
income have been eliminated in consolidation against the amounts on
PriceEnergy.Com, Inc.
NOTE 9 PROFIT SHARING PLAN
- ----------------------------
Effective January 1, 1997, Able Oil Company established a Qualified
Profit Sharing Plan under Internal Revenue Code Section 401-K. The
Company matches 25% of qualified employee contributions. The expense
was $11,512 (2002) and $19,502 (2001), for the six months ended
December 31.
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.
21
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 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 at
Company Period Total Gallons at 12/31/02 12/31/02
------- ------ ------------- ----------- --------
Petron Energy 10/1/02 - 3/31/03 252,000 126,000 $ 90,807
Petron Energy 11/1/02 - 3/31/03 210,000 126,000 $ 92,169
Mieco, Inc. 11/1/02 - 2/28/03 1,050,000 672,000 $ 495,873
Motiva 11/1/02 - 3/31/03 966,000 588,000 $ 428,737
2,478,000 1,512,000 $1,107,586
========= ========= ==========
The agreement with Mieco, Inc. contains the following terms:
1. The oil has been delivered and is in storage at the Company's facility
in Rockaway, New Jersey. Mieco, Inc. has filed a UCC for the product
stored at the terminal.
2. The purchase price FOB delivered basis buyer's terminal shall be set
when buyer (the Company) notifies Mieco that it will purchase in
minimum 1,000 barrel increments. The delivery month NYMEX heating oil
contract prior to its expiration will be used. The price plus the
differential of USD $.0125 per gallon shall be the established price
for this contract for all barrels delivered in accordance with the
schedule set forth in the agreement. The price has been set for
deliveries in January and February 2003.
Able Propane, LLC is under contract with Keystone-Propane Service,
Inc. to purchase propane gas for the period October 1, 2002 through
March 31, 2003. The total is 210,000 gallons at $ .53 per gallon,
total cost $111,300. The open gallons and dollar amount at December
31, 2002 are 105,000 gallons at $55,650.
Able propane, LLC is under contract with Propane Power Corporation to
purchase propane gas for the period November 1, 2002 through March 28,
2003. The total is 210,000 gallons at $0.53474 per gallon, total cost
of $112,295. Open gallons and dollar amount at December 31, 2002 are
126,000 gallons at $67,377.
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.
22
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
- -----------------------------------------------
The seller by reduction of its mortgage will pay costs related to the
above up to $250,000 (see Note 6). A settlement has been achieved by
the Company with regard to the lawsuit. The settlement provides for a
lump sum payment of $397,500 from the defendants to the Company. In
return, the defendants require a release from the Estate (the Seller)
and a release and indemnification from the Company. The defendants
will provide a release to Able Energy and the Estate. Pursuant to the
original agreement, the Estate receives 50% of the settlement amount,
net of attorney fees.
This has been amended by an agreement dated November 5, 2001. The
entire settlement, net of attorney fees, will be placed in an
attorney's escrow account for payment of all investigation and
remediation costs. Able Energy Terminal, LLC has incurred costs of
$47,684 to December 31, 2002 which are included in Prepaid Expenses
and must be presented to the attorney for reimbursement.
The costs of the cleanup pursuant to the Agreement of Sale must be
shared equally (50/50) by the seller and purchaser up to Seller's cap
of $250,000. Seller's contribution to the cleanup is in the form of a
reduction to the Note and not by direct payments. In the opinion of
management, the Company will not sustain costs in this matter which
will have a material adverse effect on its financial condition.
Price Energy.Com, Inc., a subsidiary, has commenced suit against
ThinkSpark Corporation on Consulting Services Agreement, dated June 2,
2000. ThinkSpark 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 December 31, 2002 has been paid in full.
The Company in the normal course of business has been involved in
several suits. Two suits have been settled out of court at agreeable
terms, according to management. No suits are currently in litigation.
NOTE 11 OPERATING LEASE
- ------------------------
Able Energy Terminal, LLC, has acquired the following lease on the
property it purchased on Route 46 in Rockaway, New Jersey.
The lease with Able Oil Company, a wholly owned subsidiary of Able
Energy, Inc., has an expiration date of July 31, 2004. The lease
provides for a monthly payment of $1,200 plus a one cent per gallon
through put, as per a monthly rack meter reading.
Estimated future rents are $14,400 per year, plus the one cent per
gallon through put charges per the monthly rack meter readings.
23
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 11 OPERATING LEASE (CONT'D)
- ---------------------------------
The Company leased 9,800 square feet in the Rockaway Business Centre
on Green Pond Road in Rockaway, New Jersey. The facility will be used
as a call center and will combine the administrative operations in New
Jersey in one facility. The lease has a term of five (5) years from
August 1, 2000 through July 31, 2005.
The rent for the first year is $7,145.83 per month and the second
through fifth year is $7,431.67 per month, plus 20.5% of the
building's annual operational costs and it's portion of utilities. The
current monthly rent, including Common Area Charges, is $9,799 04 per
month. The lease does not contain any option for renewal. The rent
expense was $58,794 for the six months ended December 31, 2002. The
estimated future rents are as follows:
YEAR ENDED JUNE 30,
-------------------
2003 $ 58,794
2004 117,588
2005 117,588
July 2005 9,799
--------
Total $303,769
The following summarizes the month to month operating leases for the
other subsidiaries:
Able Oil Melbourne $500.00, per month
Total rent expense, $3,000
Able Energy New York $600.00, per month
Total rent expense, $3,600
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.
24
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 12 FRANCHISING (CONT'D)
- ------------------------------
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.
NOTE 13 RELATED PARTY TRANSACTIONS
- -----------------------------------
$44,690 is due from the major Shareholder/Officer of the Company. This
amount is evidenced by a Note bearing interest at a rate of 6% between
the Shareholder and the Company. This Shareholder has loaned the
Company $55,000, on May 10, 2002 and $50,000 on November 14, 2002, for
a total of $105,000, evidenced by a Demand Note with interest at 6%
per annum, which can be paid all or in part at any time without
penalty.
The following officers of this Company own stock in the subsidiary,
PriceEnergy.Com, Inc., which they incorporated in November 1999.
Chief Executive Officer 23.5%
President 3.6%
No capital contributions have been made by these officers (See Notes 1
and 8).
NOTE 14 EARNINGS PER SHARE
- ---------------------------
The shares used in the computation of the Company's basic and diluted
Earnings Per Common Share are as follows:
December 31, December 31,
2002 2001
---- ----
Weighted Average of Common Shares Outstanding
Used in Basic Earnings Per Share 2,006,855 2,000,613
Dilutive Effect of:
Employee Stock Options 50,657 -
Stock Warrants - -
--------- ---------
Weighted Average Common Shares Outstanding
Used in Diluted Earnings Per Share 2,057,512 2,000,613
========= =========
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.
25
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 15 STOCK OPTION PLANS
- ---------------------------
Options granted currently expire no later than 3 to 5 years from the
grant and have vesting periods from none to 25% at grant and 25% each
anniversary.
OUTSTANDING OPTIONS
NUMBER OF SHARES EXERCISE PRICE TERM
---------------- -------------- ----
January 6, 2000
Grants 56,000 $5.00 5 years
Exercises 0
December 1, 2000
Grants 48,090 $3.25 3 years
Exercises 1,250
December 21, 2000
Grants 60,000 $1.80 5 years
Exercises 0
Grants 23,000 $2.25 5 years
Exercises 0
16 STOCK WARRANTS
- -----------------------
The Company has issued stock warrants as follows:
1. 60,000 Common Stock Purchase Warrants at $4.81 per share, effective
August 31, 2000, and expiring August 31, 2005, to Andrew Alexander
Wise & Company in connection with an investment banking advisory
agreement with the Company, dated July 1, 2000.
2. 40,000 Common Stock Purchase Warrants at $4.00 per share, effective
June 26, 2001 and expiring June 26, 2004, in connection with a
$500,000 Note Payable (See Note 5). These warrants have not been
registered under the Securities Act of 1933.
3. 100,000 Common Stock Purchase Warrants at $4.00 per share, effective
September 13, 2002, and expiring September 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 fourth quarter of 2002 and were not included in
the computation of diluted EPS as the warrants' have not been
registered under the Securities Act of 1933.
26
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
JUNE 30, 2002 AND DECEMBER 31, 2002
NOTE 17 STOCK ISSUANCE
- -----------------------
During the quarter ended September 30, 2002, 6000 shares of Common
Stock were issued to the directors for services rendered during the
year 2001, and charged at the fair market value as Directors' Fees.
The share price was $4.00 per share for a total Directors' Fees of
$24,000.
NOTE 18 COMPENSATED ABSENCES
- -----------------------------
There has been no liability accrued for compensated absences; as in
accordance with Company policy, all compensated absences, accrued
vacation and sick payment must be used by December 31st.
NOTE 19 CASH FLOW INFORMATION
- ------------------------------
The Directors received Common Stock as payment of Directors' Fees. No
cash was received or paid.
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ABLE ENERGY, INC. AND SUBSIDIARIES
Statements in this Quarterly Report on Form 10-Q concerning the Company's
outlook or future economic performance, anticipated profitability, gross
billings, expenses or other financial items, and statements concerning
assumptions made or exceptions to any future events, conditions, performance or
other matters are "forward looking statements," as that term is defined under
the Federal Securities Laws. Forward-looking statements are subject to risks,
uncertainties, and other factors that would cause actual results to differ
materially from those stated in such statements. Such risks, and uncertainties
and factors include, but are not limited to: (i) changes in external competitive
market factors or trends in the Company's results of operation; (ii)
unanticipated working capital or other cash requirements and (iii) changes in
the Company's business strategy or an inability to execute its competitive
factors that may prevent the Company from competing successfully in the
marketplace.
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of delivery to
the customer, and sales of equipment are recognized at the time of installation.
Revenue from repairs and maintenance service is recognized upon completion of
the service. Payments received from customers for heating equipment service
contracts are deferred and amortized into income over the term of the respective
service contracts, on a straight-line basis, which generally do not exceed one
year.
RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
Six Months Ended Dec. 31st, Three Months Ended Dec 31,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Sales $18,687,071 $12,568,749 $12,453,732 $ 7,301,452
Gross Profit 3,349,743 2,124,157 2,519,229 1,576,906
Operating Income (Loss) 324,554 (1,010,388) 1,002,972 (44,861)
Net Income (Loss) 194,582 (1,017,305) 924,408 (66,295)
Basic Income(Loss) Per Common Share 0.10 (0.51) 0.46 (0.03)
EBITDA (1) 919,225 (442,581) 1,300,237 224,725
Consolidated Balance Sheet
--------------------------
December 31, December 31
2002 2001
---- ----
Cash $133,031 $272,478
Current Assets 4,903,569 3,485,307
Current Liabilities 6,933,129 5,591,663
Total Assets 12,100,878 11,115,713
Long Term Liabilities 1,688,027 1,778,360
Total Stockholder's Equity 3,479,722 3,745,690
(1) Earnings Before Interest, Income Taxes, Depreciation, and Amortization.
SIX MONTHS ENDED DECEMBER 31, 2002, COMPARED TO THE
SIX MONTHS ENDED DECEMBER 31, 2001.
The Company reported revenues of $18,687,071 for the six months ended December
31, 2002, an increase of 48.68% over the prior year's revenues for the same
six-month period. The sales increased by $6,118,322. 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 also experienced colder
weather and a more favorable pricing structure. The Company experienced a sales
increase in its two main commodities during the six-month period ended December
31. Sales of No. 2 heating oil, the Company's main product line, grew in revenue
dollars by 26.8%. Propane Gas sales, in dollars, grew by 31.2% for the first six
months over the same period in the prior year. In addition, the company
increased its sales of new equipment and HVAC services for the six months by
38.7%. In addition, sales of on-road diesel, off-road diesel, and gasoline
experienced strong revenue growth. Growth in these non-heating related products
and services will also help even out the seasonality of the Company's business
when heating related sales are generally down. Management has also committed to
a realistic gross margin percentage on these off-season products to allow for
maximum profitability.
Gross profit margin, as a percentage of revenues, for the six months ended
December 31, 2002, increased to 17.92% from 16.90%, an increase of $1,225,586
above the prior year's six months results. The increase in margin is primarily a
result of the Company's new margin management policy, which was put into effect
in September of 2001, and is designed to maximize margins, by product segment,
on each of the products and services that it markets to the consumer. This
program is designed to promote product pricing that is in line with the level of
services provided.
Selling, General, and Administrative expenses, as a percent of sales, decreased
by 7.41% from 20.42% in the six months ending December 31, 2001 to 13.01% during
the same period in 2002. The expenses decreased by $136,220 from $2,566,738
(2001) to $2,430,518 (2002). The Company attributes this decrease to its
continued commitment to controlling expenses regarding insurance, telephone, and
advertising. Management will continue to monitor the fiscal budget against
actual results on an ongoing basis in an effort to further reduce SG&A as a
percentage of sales.
Operating income for the six months ended December 31, 2002 was $324,554 as
compared to the Company's operating loss of ($1,010,388) for the six months
ended December 31, 2001. This operating profit for six months was directly
related to the increase in sales and gross margins, and lower operating costs.
Net income for the six months ended December 31, 2002 was $194,582 as compared
to the same period for the previous year loss of ($1,017,305). This net income
was the result of an increase in the sale of heating oil, propane, and related
products, higher gross margins and lower operating costs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2002, COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 2001:
Dec 31, 2002 Dec 31, 2001 %Inc / (Dec)
------------ ------------ ------------
Sales $12,453,732 $ 7,301,452 70.56%
Gross Profit Margin 2,519,229 1,576,909 59.76%
Gross Profit % 20.23% 21.60%
Selling General &
Administrative Expense 1,218,992 1,352,181 (9.85%)
Income (Loss) From Operations 1,002,972 (44,861) 100+
Net Income (Loss) 924,408 (66,295) 100+
The increases can be attributed to the Company's aggressive sales activities,
which resulted in a larger customer base, more sales of all product lines and an
increase in service work. The increased margin is the result of the Company's
margin management policy instituted in September of 2001. Colder weather during
this current quarter including temperatures that were 12% below normal, a more
favorable pricing structure as discussed earlier, and lower operating costs all
contributed to the Company's operating and net income. The Company reported
revenues for the 2nd quarter of $12,453,732, an increase of 70.56% over the
revenues of the 2nd quarter a year ago. Sales increased by $5,152,280 due to an
increase in heating degree days for the period as compared to the same quarter
one year earlier, increased sales dollars per unit (gallon) due to an increase
in the cost of the commodity, and the Company's continued unyielding sales
efforts.
Total gross profit margin increased 59.76% from the same period a year earlier
from $1,576,909 in 2001 to $2,519,229 in the 2nd fiscal quarter this year. The
increase can be attributed to the dramatic increase in sales for the
corresponding period along with continued focus on proper margin management.
Selling, General, and Administrative expenses, as a percent of sales, decreased
by 8.73% for the 2nd quarter compared to last year. The Company experienced SG&A
of $1,218,992 for the period ending December 31, 2002 against $1,352,181 the
same quarter for the year prior. This decrease was due to continued efforts to
contain expenses in key areas such as telecommunications, advertising, and bad
debt expense while handling a significant increase in sales for the period.
Operating Income for the three month period increased by $1,047,833 from the
quarter ending December 31st, 2001. The Company had an operating loss for the
quarter ending December 31st, 2001 of (44,861) as compared to Operating Income
of $1,002,972 for the quarter ending December 31, 2002. This operating income is
due to the increased sales, increased gross profit, and expense containment
efforts as noted above.
OPERATING SUBSIDIARY
Our new operating subsidiary, PriceEnergy with its state of the art
order-processing platform, has now been fully operational for over one year now.
This revolutionary proprietary technology is fully automated and allows for the
removal of the inefficiencies associated with traditional heating oil companies
within this industry. For the first six months of this fiscal year, PriceEnergy
generated 875,130 incremental gallons, which were delivered by Able Energy as
well as other participating dealers within the PriceEnergy dealer network. In
November, PriceEnergy signed a contract with BJ's Wholesale Club to sell heating
oil and other services in their club stores. On December 16th 2002, PriceEnergy
began sales of Home Heating Oil in the BJ's stores. Gallons sold through this
new venue have been increasing each week. The Company is very pleased with these
recent developments and joint progress made with this new "Channel Partner". 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.
OPERATIONAL EFFICIENCIES
The Company believes that it will continue the increased utilization of existing
personnel and equipment, thus continuing to reduce expenses as a percent of
sales, and increasing profitability, within its current business configuration.
This current fiscal year represents the Company's second year of its margin
management program designed to increase profitability without sacrificing
customer appeal. The Company believes that there is value to the products and
services that it provides to its consumers in varying levels based upon the
specific needs of the consumer and the products provided. As evidenced by the
margin performance this year to date coupled with the increase in sales this
program is working and has been expanded to include equipment sales/services.
The Company will begin service billing utilizing a methodology known as "Flat
Rate Pricing", an approach similar to that used in the automobile repair field.
Flat rate pricing was introduced in stages. The first phase was introduced
during our 2nd fiscal quarter. This system will give sales and service personnel
the ability to offer the customer an easy to understand, "package approach" to
repairs and equipment installations with one or two line billings per invoice.
This system will interface with the Company's automated dispatch communications
program that was introduced last year. It is anticipated that this system will
be fully implemented within one year.
RECENTLY IMPLEMENTED TECHNOLOGICAL PROCEDURES
The Company has established goals, which will be accomplished through the
implementation of some modern technologies that are currently being installed
into the Company's existing infrastructure.
The Company began introducing additional customer service technology to its
Rockaway Call And Administrative Center during our second fiscal quarter.
Management believes that by providing enhancements to existing telephony
hardware and in-house management, the Company's call center environment will be
provided with the ability to respond to changing call patterns, both higher and
lower, without the expense of clerical over-staffing to meet unrealized needs.
New software will provide customers with the option of placing an order via a
voice activated technology. This will enable customers who simply wish to refill
their fuel tank, the opportunity to quickly place an order 24 hours a day
without the need for 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 on-duty workers and obtains real time reporting for stand-by, enroute,
and service work time. This enables the Company to maximize scheduling
opportunities and eliminating service technician down time.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 31, 2002, compared to the six months ended
December 31, 2001, the Company's cash position decreased by $139,447 from
$272,478 to $133,031. 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 six months ending December 31, 2002, the Company entered into an
agreement and received a loan of $750,000 from a private company. The Company is
in discussions with several financial institutions to obtain a term loan and
consolidate a large portion of its existing debt and also a working capital line
of credit. This will enable the Company to continue to grow while strengthening
its infrastructures.
Seasonality
The Company's operations are subject to seasonal fluctuations, with a majority
of the Company's business occurring in the late fall and winter months.
Approximately 70% of the Company's revenues are earned and received from October
through March, most of such revenues are derived from the sale of home heating
products including propane gas and home heating oil. However the seasonality of
the Company's business is offset, in part, by an increase in revenues from the
sale of HVAC products and services, diesel and gasoline fuels during the spring
and summer months, due to the increased use of automobiles and construction
apparatus
From May through September, Able Oil can experience considerable reduction of
retail heating oil sales. Similarly, Able Propane can experience up to an 80%
decrease in heating related propane sales during the months of April to
September, this is offset somewhat by increased sales of propane gas used for
pool heating, heating of domestic hot water in homes and fuel for outdoor
cooking equipment.
Over 90% of Able Melbourne's revenues are derived from the sale of diesel fuel
for construction vehicles, and commercial and recreational sea-going vessels
during Florida's fishing season, which begins in April and ends in November.
Only a small percentage of Able Melbourne's revenues are derived from the sale
of home heating fuel. Most of these sales occur from December through March,
Florida's cooler months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
As of December 31, 2002, an evaluation was performed under the supervision
and with the participation of the Company's management, including the Principal
Executive Officer and the Principal Accounting Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based on that evaluation, the Company's management, including the Principal
Executive Officer and the Principal Accounting Officer, concluded that the
Company's disclosure controls and procedures were effective as of December 31,
2002. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to December 31, 2002.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On November 30, 2002, our note with Fleet Bank was due in the amount of
$1,270,000. Effective December 1, 2002, the bank is charging an additional
annual interest of 4%. We are currently in the process of negotiating an
extension with the lender.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of the Chief Executive Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification of the Chief Financial Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended December 31, 2002.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 7th day of February 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
CERTIFICATION
I, Timothy Harrington, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Able Energy, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
February 7, 2003
/s/ Timothy Harrington
Timothy Harrington
Chief Executive Officer
CERTIFICATION
I, Christopher P. Westad, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Able Energy, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
February 7, 2003
/s/ Christopher P. Westad
Christopher P. Westad
Chief Financial Officer