-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GYuYa/zTuOwksZNw7vGaDPBHJX5eVdwZURTH5y2NvpU3ksadJbICOLph1s8G8q5e oNVZseNhYXyH8+/fKcoxJA== 0000912057-99-005655.txt : 19991117 0000912057-99-005655.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-005655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABLE ENERGY INC CENTRAL INDEX KEY: 0001065728 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 223520840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15035 FILM NUMBER: 99752024 BUSINESS ADDRESS: STREET 1: 344 ROUTE 46 CITY: ROCKAWAY STATE: NJ ZIP: 07866 BUSINESS PHONE: 9736251012 MAIL ADDRESS: STREET 1: 344 ROUTE 46 CITY: ROCKWAY STATE: NJ ZIP: 07866 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (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, 1999 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.) 344 ROUTE 46 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 November 9, 1999, 2,000,000 shares, $.001 Par value per share, of Able Energy, Inc. were issued and outstanding. TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999 3 - 4 Consolidated Statements of Income for the three and nine months ended September 30, 1999 and September 30, 1998 5 Consolidated Statement of Stockholders' Equity nine months ended September 30, 1999 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 7 Notes to Unaudited Financial Statements 8 - 18 ABLE ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS
SEPTEMBER 30, DECEMBER 31, 1999 1998 (UNAUDITED) AUDITED ---------- ---------- CURRENT ASSETS: Cash $4,072,463 $ 125,844 Accounts Receivable (Less Allowance for Doubtful Accounts of ($69,235) at 12/31/98 and ($73,335) 9/30/99 895,557 658,139 Inventory 252,598 129,483 Notes Receivable - Current Portion 30,168 36,651 Miscellaneous Receivable 24,045 13,074 Prepaid Expense 28,865 51,709 Prepaid Expense - Income Taxes 140,337 96,003 Deferred income Tax 24,565 24,460 Due From Officer 44,690 34,173 ---------- ---------- TOTAL CURRENT ASSETS 5,513,288 1,169,536 ---------- ---------- PROPERTY AND EQUIPMENT: Land 482,075 90,800 Building 990,000 150,000 Trucks 1,800,335 1,300,046 Fuel Tanks 837,310 487,677 Machinery and Equipment 226,684 275,938 Leasehold Improvements 124,986 160,429 Cylinders 165,076 204,477 Office Furniture and Equipment 9,313 9,313 ---------- ---------- 4,635,779 2,678,680 Less: Accumulated depreciation 1,139,266 859,316 ---------- ---------- NET PROPERTY AND EQUIPMENT 3,496,513 1,819,364 ---------- ---------- OTHER ASSETS: Deposits 5,007 14,371 Notes Receivable - Less Current Portion 141,111 146,885 Customer List, Less Amortization of 1998 ($85,650), and 1999 ($114,532) 496,318 485,350 Covenant Not to Compete, Less Amortization of 1998 ($81,743) and 1999 ($110,946) 172,622 104,020 ---------- ---------- TOTAL OTHER ASSETS 815,058 750,626 ---------- ---------- TOTAL ASSETS $9,824,859 $3,739,526 ========== ==========
See Accompanying Notes 3 ABLE ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONT'D) LIABILITIES & STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31, 1999 1998 (UNAUDITED) (AUDITED) ---------- ---------- CURRENT LIABILITIES: Accounts Payable $ 439,737 $ 689,246 Note Payable - Bank 332,012 100,434 Current Portion of Long-Term Debt 689,366 651,817 Covenant Not To Compete -- 36,714 Accrued Expenses 321,602 62,244 Taxes Payable 32,775 15,298 Customer Advance Payments 312,067 355,983 Income Taxes Payable - Prior 23,960 33,962 Current Portion of Deferred Income 14,548 14,548 Escrow Deposits 15,000 15,088 ---------- ---------- TOTAL CURRENT LIABILITIES 2,181,067 1,975,334 DEFERRED INCOME: less current portion 53,342 58,191 DEFERRED INCOME TAXES 56,440 50,601 COVENANT NOT TO COMPETE: less current portion -- 67,308 LONG TERM DEBT: less current portion 1,403,281 1,043,209 ---------- ---------- TOTAL LIABILITIES 3,694,130 3,194,643 ---------- ---------- STOCKHOLDERS' EQUITY: Common Stock Authorized 10,000,000 Shares, Par Value $.001 per share Issued and Outstanding 2,000,000 shares 2,000 1 Paid in Surplus 5,662,775 3,999 Retained Earnings 465,954 540,883 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 6,130,729 544,883 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,824,859 $3,739,526 ========== ==========
See Accompanying Notes 4 ABLE ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS NINE MONTHS SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ $ 3,382,508 $ 3,333,591 $ 12,940,203 $ 11,934,693 NET SALES 3,334,807 2,733,262 10,640,692 9,408,585 ------------ ------------ ------------ ------------ COST OF SALES 47,701 600,329 2,299,511 2,526,108 ------------ ------------ ------------ ------------ GROSS PROFIT EXPENSES 761,476 611,674 2,100,476 1,925,880 Selling, General and Administrative Expenses 124,790 138,929 340,230 333,537 ------------ ------------ ------------ ------------ Depreciation and Amortization Expense 886,266 750,603 2,440,706 2,259,417 ------------ ------------ ------------ ------------ TOTAL EXPENSES (838,565) (150,274) (141,195) 266,691 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS OTHER INCOME (EXPENSES): 60,247 57,781 108,301 67,406 Interest and Other Income (53,424) (48,634) (130,364) (135,363) ------------ ------------ ------------ ------------ Interest Expense 6,823 9,147 (22,063) (67,957) ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSES) INCOME (LOSS) EXTRAORDINARY ITEM AND BEFORE (831,742) (141,127) (163,258) 198,734 PROVISION FOR INCOME TAXES (305,320) (61,800) (33,310) 76,450 ------------ ------------ ------------ ------------ PROVISION (REDUCTION) FOR INCOME TAXES (526,422) (79,327) (129,948) 122,284 NET INCOME (LOSS) - CONTINUING OPERATIONS 55,019 -- 55,019 -- ------------ ------------ ------------ ------------ EXTRAORDINARY ITEM NET OF INCOME TAXES $ (471,403) $ (79,327) $ (74,929) $ 122,284 ============ ============ ============ ============ NET INCOME (LOSS) $ (.39) $ (.08) $ (.09) $ .12 ============ ============ ============ ============ NET INCOME (LOSS) PER SHARE - CONTINUING OPERATIONS EXTRAORDINARY GAIN - PER SHARE .04 -- .04 -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) PER SHARE $ (.35) $ (.08) $ (.05) $ .12 ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING $ 1,366,300 $ 1,000,000 $ 1,366,300 $ 1,000,000 ============ ============ ============ ============
See Accompanying Notes 5 ABLE ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
COMMON STOCK .001 PAR VALUE -------------- ADDITIONAL TOTAL PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SURPLUS EARNINGS EQUITY --------- ----------- ----------- ----------- ----------- Balance - January 1, 1999 1,000 $ 1 $ 3,999 $ 540,883 $ 544,883 Common Stock Split - 1,000 for 1 999,000 999 (999) -- -- Sale of Common Stock 1,000,000 1,000 5,659,775 -- 5,660,775 Net Income (Loss) (74,929) (74,929) ----------- ----------- Balance - September 30, 1999 2,000,000 $ 2,000 $ 5,662,775 $ 465,954 $ 6,130,729 =========== =========== =========== =========== ===========
See Accompanying Notes 6 ABLE ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 UNAUDITED --------- 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income(Loss) - Continuing Operations $ (129,948) $ 122,284 Adjustments to Reconcile Net Income to Cash used by Operating Activities: Depreciation and Amortization 340,230 333,537 Extraordinary Item - Net 55,019 -- (Increase) Decrease in: Accounts Receivable (237,418) 6,508 Inventory (123,115) 85,467 Prepaid Expenses (21,595) (31,728) Deposits 9,364 -- Increase (Decrease) in: Accounts Payable (249,509) 3,550 Accrued Expenses 259,270 43,952 Other Taxes Payable 17,477 (975) Customer Advance Payments (43,916) 91,186 Income Taxes Payable (10,002) (3,590) Deferred income Taxes 5,839 6,850 Deferred Income (4,849) -- ----------- ----------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (133,153) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment (1,957,099) (288,969) (Increase) Decrease in Shareholder's Loan (10,517) 33,803 (Increase) Decrease in Other Receivables 1,286 (5,994) Purchase of Intangible Assets (139,850) -- ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (2,106,180) (261,160) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in Notes Payable 1,371,591 1,093,806 Decrease in Notes Payable (846,414) (1,347,319) Loan From Employee -- 12,584 Funds from Sale of Common Stock 5,660,775 -- ----------- ----------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 6,185,952 (240,929) ----------- ----------- NET INCREASE IN CASH 3,946,619 154,952 Cash - Beginning of Year 125,844 155,904 ----------- ----------- Cash - End of Year $ 4,072,463 $ 310,856 =========== =========== The Company had Interest Cash Expenditures of: $ 130,364 $ 135,363 The Company had Tax Cash Expenditures of: $ 25,002 $ 50,650
See Accompanying Notes 7 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 1 BASIS OF PRESENTATION Able Energy, Inc. was incorporated in the state of Delaware on March 13, 1997. Mr. Timothy Harrington exchanged his stock in the following companies: Able Oil Company (a New Jersey corporation), Able Oil Company Montgomery, Inc. (a Pennsylvania corporation), A & O Environmental Services, Inc. (a New Jersey corporation), Able Oil Melbourne, Inc. (a Florida corporation) and his 99% interest in Able Propane, LLC for 1,000 shares of Able Energy, Inc. and became its sole shareholder. In December 1998, the Company sold A & O Environmental Services, Inc. and Able Oil Company Montgomery, Inc. On August 27, 1999, the Company, through a newly formed wholly owned subsidiary, Able Energy New York, Inc., purchased the assets of B & B Fuels of Warrensburg, New York. This acquisition was treated as a purchase. The operations of this company are included from August 27, 1999 to September 30, 1999. On August 31, 1999, the Company, through a newly formed wholly owned subsidiary, Able Energy Terminal, LLC, purchased the facility on Route 46, Rockaway, NJ. The facility has two tenants (see Note 3). The operations of this company are included from September 1, 1999 to September 30, 1999. The consolidated interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities 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 December 31, 1998. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results. 8 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 fuel, diesel fuel and kerosene to residential and commercial customers operating in the northern New Jersey and Melbourne, Florida, and Warrensburg, New York respectively. Able Propane, which was incorporated in July 1996, installs propane tanks which it owns, and sells propane gas for heating and cooking along with other Residential and Commercial uses. The Company's operations are subject to seasonal fluctuations with a majority of the Company's business occurring in the late fall and winter months. Approximately 70% of the Company's revenues are earned and received from October through March, and the overwhelming majority of such revenues are derived from the sale of home heating fuel. However, the seasonality of the Company's business is offset, in part, by the increase in revenues from the sale of diesel and gasoline fuels during the spring and summer months due to the increased use of automobiles and construction apparatus. 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 so immaterial and has not been shown separately. All material intercompany balances and transactions were eliminated in consolidation. 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). 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. 9 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) PROPERTY AND EQUIPMENT (CONT'D) 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. 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 nine months ended September 30, 1999 is $58,085. For income tax basis, the Customer Lists and the Covenant Not To Compete are being amortized over a straight-line method of 15 years as per the Tax Reform Act of 1993. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. INCOME TAXES Effective January 1, 1997, all the subsidiaries, which were S-Corporations, terminated their S-Corporation elections. The subsidiaries are now filing a consolidated tax return with Able Energy, Inc. 10 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) INCOME TAXES (CONT'D) 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 a financial institution in excess of insured limits. The Company does not anticipate non-performance by the financial institution. NOTE 3 ACQUISITIONS On August 27, and 31, 1999, the Company through newly formed wholly owned subsidiaries (see Note l) acquired the following: 1) The assets of B & B Fuels, a retail distributor of home heating fuel in Warrensburg, New York. The assets purchased include an oil terminal, three oil delivery trucks, and a customer list of approximately 1,200 customers. The purchase price was $295,000. The Company also acquired 9.2 acres of land in Warren County, New York. The property is located 1/4 miles from the B & B Facility. The cost was $125,000, paid in cash. 2) Property on Route 46, Rockaway, New Jersey. The facility is a large fuel terminal and also houses the Company's executive offices and other operating facilities for Able Subsidiaries. There is also a building rented to an outside party with an annual rental of approximately $40,000. The purchase price was $1,150,000. 11 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 4 NOTES RECEIVABLE The Company has received payment from Able Oil Montgomery, Inc. for the months of January 1999 through September 1999 on its notes receivable of $140,000. The payments totaled $11,761, including interest of $2,428. The Statement of Income recognized income on this installment sale of $4,849 for the nine months ended September 30, 1999. NOTE 5 INVENTORIES
ITEMS 1999 1998 -------- -------- Heating Oil $129,691 $ 38,733 Diesel Fuel 34,232 9,260 Kerosene 6,017 2,082 Propane 3,320 70 Parts and Supplies 79,338 79,338 -------- -------- TOTAL $252,598 $129,483 ======== ========
NOTE 6 NOTES PAYABLE BANK Notes payable to PNC Bank include a line of credit of $500,000 with interest at the rate of Prime minus 1/2%. The agreement with Able Oil Company, dated October 20, 1997, and amended August 11, 1999, has a current expiration date of June 30, 2000. There is also a term loan with PNC Bank. The term loan was refinanced for a total of $675,000 on June 12, 1998. The balance as of September 30, 1999 is $393,750. The bank has released as collateral the stock of the Company owned by the prior sole shareholder and has released the subsidiaries and Timothy Harrington as guarantors. The Company has replaced this by granting the PNC Bank a first priority lien on collateral consisting of Provident Institution Money Market Fund containing no less than $972,000. The Company under a guaranty and suretyship agreement will unconditionally guarantee payment of the indebtedness to the bank. All other collateral and covenants per the agreement have been deleted. 12 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 7 LONG-TERM DEBT Mortgage note payable dated, August 27, 1999, related to the purchase of B & B Fuels facility and equipment. The total note is $145,000. The note is payable in the monthly amount of principal and interest of $1,721.18 with and interest rate of 7.5% per annum. The initial payment was made on September 27, 1999, and continues monthly until August 27, 2009 which is the final payment. The note is secured by a mortgage made by Able Energy New York, Inc. on property at 2 and 4 Green Terrace and 4 Horican Avenue, Town of Warrensburg, Warren County, New York. The balance due on this Note at September 30, 1999 was $144,185. 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 and reduction of the Reduced Principal Sum. The Principal Sum and interest shall be due and payable commencing on September 30, 1999. In addition interest on the Reduced Principal Sum of the note shall be due and payable on the last day of each month thereafter, up to and including July 31, 2004. The Note is collateralized by the property and equipment purchased and assignment of the leases. The balance due on this Note at September 30, 1999 was $641,211. 13 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 8 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:
1999 ---- PERCENT OF PRETAX AMOUNT INCOME -------- ---------- Statutory Federal Income Tax (Benefit) $(27,405) (15.0%) Decrease resulting from State Income Tax, net of Federal Tax benefit (5,905) (7.6%) -------- ------ Income Taxes (Benefit) $(33,310) (22.6%) ======== ====== Income Taxes consist of: Current (27,775) Deferred (5,535) -------- TOTAL $(33,310) ========
14 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 8 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:
1998 ---- TEMPORARY TAX DIFFERENCE EFFECT --------- --------- Depreciation $(159,389) $ (50,601) Allowance for Doubtful Accounts 69,235 19,385 Gain on Sale of Subsidiary 23,615 5,075 1999 ---- TEMPORARY TAX DIFFERENCE EFFECT --------- --------- Depreciation $(179,190) $ (56,440) Allowance for Doubtful Accounts 73,335 20,530 Gain on Sale of Subsidiary 18,766 4,035
NOTE 9 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. Able Oil Company has contracted with Unocal to take deliveries of 24,000 barrels of #2 oil. The oil will be stored in Able storage tanks and remain the property of Unocal until purchased by Able Oil. Able Oil is under contract to purchase the product in the months of November and December 1999 and January and February 2000. The pricing will be the NYMEX less $.01 per barrel on 12,000 barrels and flat on 12,000 barrels. At September 30, 1999, Able Oil had in their tanks 24,000 barrels or 1,008,000 gallons of oil belonging to Unocal. The total exposure for the cost of this oil priced at future November, December 1999 and January, February 2000 is $631,672. 15 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 9 COMMITMENTS AND CONTINGENCIES (CONT'D) 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 closing the investigation and remediation of the property and any hazardous substances emanating from the property in order to obtain a No Further Action letter from the New Jersey Department of Environmental Protection (NJDEP). The purchaser will also pursue recovery of all costs and damages related thereto in the lawsuit by the seller against a former tenant on the purchased property. Purchaser will assume all responsibility and direction for the lawsuit, subject to the sharing of any recoveries from the lawsuit with the seller, 50-50. The seller by reduction of its mortgage will pay costs related to the above up to $250,000 (see Note 7). 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. Able Oil Company has been examined by the Internal Revenue Service through the year ended December 31, 1995. The only open year for Able Oil Company is December 31, 1996 and Able Energy, Inc., et al, open years are December 31, 1997 and December 31, 1998. NOTE 10 OPERATING LEASE Able Energy Terminal, LLC, has acquired the following lease on the property it purchased on Route 46 in Rockaway, New Jersey. The lease with Able Oil Company, a wholly owned subsidiary of Able Energy, Inc., has an expiration date of July 31, 2004. The lease provides for a monthly payment of $1,200 plus a one cent per gallon through put, as per a monthly rack meter reading. Estimated future rents are $14,400 per year, plus the one cent per gallon through put charges per the monthly rack meter readings. The Company leased an additional facility on Route 46 in Rockaway, New Jersey. The lease has a term of one year from September 1, 1999 to August 31, 2000. The rent is $1,300 per month, $15,600 for the year, plus 10% of the increase in real estate taxes over the base year, 1999. The Company has the option to renew for five additional one-year terms. The renewals are at an increase of $100 per month during each renewal term. 16 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 11 EXTRAORDINARY ITEM The extraordinary item is the income realized on the extinguishment of debt for less than its carrying amount. The amount shown is net of income taxes of $9,710. On September 7, 1999, the Company paid two loans to Connell's Fuel Oil Company and William Toriello which had original due dates of November 1, 2001. Total Amount Due $312,454 Amount Paid 247,725 -------- Income on Extinguishment of Debt 64,729 Less Income Taxes 9,710 -------- Extraordinary Item $ 55,019 ========
NOTE 12 COMMON STOCK SPLIT In conjunction with the Company's initial public offering, its common stock was split 1000-for-l.
AFTER SPLIT AND ORIGINAL PUBLIC OFFERING -------- --------------- Authorized Shares 10,000 10,000,000 ----------- ----------- Issued and Outstanding Shares 1,000 1,000,000 Public Offering Shares 0 1,000,000 Total Issued and Outstanding Shares 2,000,000 ----------- Par Value $.001 per Share $ 1 $ 2,000 -----------
17 ABLE ENERGY, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENT (CONT'D) DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 NOTE 13 PUBLIC OFFERING On June 25, 1999, the Company consummated its initial public offering. The Company sold 1 million shares of its common stock to the public at $7 per share. Total $7,000,000 Less: Underwriting Commission $ 700,000 Underwriter's Non-Accountable Expense Allocation 210,000 Other Expenses of Offering 108,000 1,018,000 ---------- ---------- Net to Company after underwriting Costs 5,982,000 Other Offering Costs: Legal Fees 154,000 Accounting Fees 50,000 Printing Costs 100,000 Stock Exchange and Other Registration Costs 17,225 321,225 ---------- ---------- Net Funds Realized $5,660,775 ==========
NOTE 14 PER SHARE INFORMATION Per share information has been computed based on the weighted average number of shares. The shares give effect to a 1,000-for-1 stock split by the Company and its public offering of 1,000,000 shares. 18 ABLE ENERGY, INC. AND SUBSIDIARIES ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements in this Quarterly Report on Form 10-QSB concerning the Company's outlook or future economic performance, anticipated profitability, gross billings, expenses or other financial items, and statements concerning assumption made or exceptions to any future events, conditions, performance or other matter 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 which would cause actual results to differ materially from those stated in such statements. Such risks, and uncertainties and factors include, but are not limited to: (i) changes in external competitive market factors or trends in the Company's results of operation; (ii) unanticipated working capital or other cash requirements and (iii) changes in the Company's business strategy or an inability to execute its competitive factors that may prevent the Company from competing successfully in the marketplace. REVENUE RECOGNITION Sales of fuel and heating equipment are recognized at the time of delivery to the customer, and sales of equipment are recognized at the time of installation. Revenue from repairs and maintenance service is recognized upon completion of the service. Payments received from customers for heating equipment service contracts are deferred and amortized into income over the term of the respective service contracts, on a straight line basis, which generally do not exceed one year. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998. The Company reported revenues of $3,382,508 for the three months ended September 30, 1999, an increase of 1.47% over the prior year's revenues for the same three month period. This increase can be attributed to an aggressive marketing program and fuel sold at a discount, under a promotion. There was also an increase in service work during this period. Revenues for the three months ended September 30, 1998 include $208,321 of sales made by subsidiaries which were sold in December 1998. Had such revenues not been included in total revenue for the three month period ended September 30, 1998, the increase in revenues from such period to the three month period ended September 30, 1999 would have been 8.23%. The three months ended September 30, 1999 included $59,054 of revenues for the month of September from the acquisition of B & B Fuels on August 27, 1999. 19 Gross profit margin, as a percentage of revenues, for the three months ended September 30, 1999, decreased 16.36%, from 17.77% one year ago to 1.41% in 1999. This decrease is a result of a rise in the price of fuel without an equal corresponding sales price increase. These figures do not take into account the sub-sidiaries sold in December 1998, whose effect on gross margin was immaterial. Selling, General and Administrative expenses increased by $149,802, or 24.49%, from $611,674 for the three months ended September 30, 1998 to $761,476 for the three months ended September 30, 1999. Had the expenses attributable to the two subsidiaries sold in December 1998 not been included, this increase would have been $244,808 or 47.38%. This increase was due to an increase in marketing costs, sales promotion, outside service related to acquisitions, computer equipment and software upgrade to account for year 2000 issue and additional staff to manage this upgrade. Operating loss for the three months ended September 30, 1999 was $838,565, an increase of 458.02% over the Company's operating loss of $150,274 for the three months ended September 30, 1998. This increase in operating loss was attributable to lower gross profit resulting from higher product cost without a corresponding raise in price. The unusual loss for this period was exacerbated by a number of extraordinary events and one time charges and is not indicative of future results of the Company. For instance, the Company has recently invested heavily in its infrastructure to support anticipated growth that the Company intends to accomplish through an aggressive acquisitions strategy and marketing program. To this end, the Company has put in place a sophisticated computer hardware and software system and has hired additional mid-management personnel to support its growth. In addition, on August 31, 1999, the Company purchased B&B Fules of Warrensburg (Albany), New York and has expended significant cash resources to establish its presence in the greater Albany area and raise the B&B facilities to the Company's standards. All of these factors have contributed to the Company's large loss for this period. Net loss for the three months ended September 30, 1999 increased by $392,076, or 494%, to $471,403 as compared to the same period for the previous year loss of $79,327. This increase in net loss was the result of greater marketing costs, sales promotion, higher product cost, higher direct wages and an investment cost on a growing service operation as well as the extraordinary factors referred to above. 20 NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998. The Company reported revenues of $12,940,203 for the nine months ended September 30, 1999, an increase of 8.43% over the prior year's revenues of $11,934,693 for the same nine month period. The increase can be attributed to increased commercial fuel sales and marketing efforts for both residential and commercial customers. Revenues for the nine months ended September 30, 1998 include $649,649 of sales made by subsidiaries which were sold in December 1998. Had such revenues not been included in total revenue for the nine month period ended September 30, 1998, the increase in revenues from such period, as compared to the nine month period ended September 30, 1999, would have been 14.67%. Gross profit margin, as a percentage of revenues, for the nine months ended September 30, 1999, decreased to 17.77% of net revenues, representing an decrease of 3.40% over a margin of 21.17% for the same nine month period one year ago. This reduction in margin is primarily a result of higher product cost for home heating fuel with a slower corresponding increase in retail price. Selling, General and Administrative expenses increased by $174,596, or 9.06%, from $1,925,880 for the nine months ended September 30, 1998 to $2,100,476 for the nine months ended September 30, 1999. These expenses include the expenses of two subsidiaries sold December 1998. If these expenses were eliminated, the increase would be $419,182, or 24.93% which is due to aggressive marketing, sales promotion, higher staff costs and outside services related to acquisitions and year 2000 computer enhancements.. Operating Loss for the nine months ended September 30, 1999 was $(141,195), in comparison to the Company's operating income of $266,691 for the nine months ended September 30, 1998. This decrease from operating income to an operating loss was attributable to higher prices for home heating oil without a corresponding price increase and increased salaries and marketing costs. The operating income for the two subsidiaries sold in December 1998 was included in this calculation but was not material with respect to this nine months comparison. Net Loss for the nine months ended September 30, 1999 was $(74,929) in comparison to income of $122,284 for the same period in previous year. This decrease in net income to a net loss is a result of lower gross margin, occasioned primarily by higher wholesale fuel price, increase in wages and marketing costs. In addition, the Company is reorganizing its internal and accounting operations and installing a new computer system, to insure Year 2000 compliance. 21 LIQUIDITY AND CAPITAL RESOURCES For the nine month period ended September 30, 1999, compared to the nine months ended September 30, 1998, the Company's cash position increased by $3,761,607 from $310,856 to $4,072,463. For the nine months ended September 30, 1999, cash of $5,867,100 was generated from the Company's initial public offering. For the nine months ended September 30, 1998, cash was generated through operations, net income and collections of customer advance payments. As a result of a refinancing with its primary financial institution, the Company has access to $500,000 of credit line funds. The Company's credit line was increased from $350,000 to $500,000 at 1/2% below prime, and its current outstanding credit line and other debt with the bank was rolled into a 3-year term loan in the principal amount of $675,000, bearing interest at a rate of approximately 1% above prime rate. As of September 30, 1999, $332,000 of this line of credit was used by the Company. The Company received net proceeds from its initial public offering in an amount of $5,867,100. The Company believes that the net proceeds of this offering, coupled with the refinancing and income from operations, will fulfill the Company's working capital needs for the next 18 months. As the Company continues to grow, and strengthen its infrastructure, to position itself for additional growth, bank borrowings, or other debt placements and equity offerings may be considered, in part, or in combination, as the Company's situation warrants. 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, and the overwhelming majority of such revenues are derived from the sale of home heating products including propane gas and fuel oil. However, the seasonality of the Company's business is offset, in part, by an increase in revenues from the sale of HVAC products and services, diesel and gasoline fuels during the spring and summer months, due to the increased use of automobiles and construction apparatus. From May through September, Able Oil can experience considerable reduction of retail heating fuel sales. Similarly, Able Propane can experience up to 80% decrease in heating related propane sales during the months of April to September, which is offset somewhat by an increase of pool heating and cooking fuel. 22 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. YEAR 2000 Many existing computer programs use only a two digit suffix to identify a year in the date field with an assumed prefix of "19". Consequently, this limits those systems to dates between 1900 and 1999. If not corrected, many computer systems and applications could fail or create erroneous results at or in connection with applications after the year 2000. Approximately 50% of the Company's customers receive their home heating oil and/or propane pursuant to an automatic delivery system whereby deliveries are scheduled by computer, based on each customer's historical consumption patterns and prevailing weather conditions. In the event that the Company does have Year 2000 problems, failures and interruptions resulting from computing system problems could have a material adverse effect on the Company's results of operations. The Company has undertaken to review the potential impact of the year 2000 issue to its internal operations. Such assessment has included a review of the impact of the issue on business systems and other areas. Based on the results of the Company's review, it does not anticipate that the year 2000 issue will impact operations or operating results. Although the Company has determined that all of its systems are currently Year 2000 compliant, it has undertaken to replace its computer systems. The Company anticipates that it will have a new computer system in place by December 1999 at a cost of approximately $250,000. Additionally, the Company relies on its customers, suppliers, utility service providers, financial institutions and other partners in order to continue normal business operations. The Company has been advised by most, if not all, of its external vendors, business associates, and associated financial institutions that they are now Year 2000 compliant. However, at this time, it is impossible to assess the impact of the year 2000 issue on each of these organizations. There can be no guarantee that the systems of other unrelated entities will be corrected on a timely basis and will not have a material adverse effect on the Company. As the Company does not typically engage in contracts with its vendors for the supply of energy products, it is not dependent on any one vendor. In the event any of the Company's vendors are affected by year 2000 issues, management believes that it will have access to a number of alternative vendors and management believes that such occurrence should not have material adverse effect on the Company's business or operations. 23 PART II OTHER INFORMATION Item 2. Changes in Securities and use of Proceeds The Company's public offering was June 22, 1999, and $5,867,100 was received June 25, 1999 on the sale of 1,000,000 shares of Common Stock. As of September 30, 1999, funds have been expended as follows: Acquisition of B & B Fuels, Warrensburg, New York $ 150,000 Acquisition of Land in Warren County, New York 125,000 Acquisition of Facility in Rockaway, New Jersey 510,000 Payment of Debt 247,725 ---------- TOTAL USE OF PROCEEDS TO SEPTEMBER 30, 1999 $1,032,725 ==========
Item 6. Exhibits and Reports on Form 8-K. (A) Exhibits filed herewith: None (B) Forms 8-K filed during quarter: The Company filed a report on Form 8-K dated Setpember 8, 1999, reporting on the acquisition of assets under Item 2, thereof. The acquisition related to the Company's purchase of the following: 1) The assets of B & B Fuels, a retail distributor of home heating oil, located in Warrensburg, New York. 2) The purchase of a 9.2 acre parcel of property in Warren County, New York. The above items are owned by Able Energy, Inc. New York, a wholly owned subsidiary. 3) Property at 344 Route 46 East, Rockaway, New Jersey. The facility contains the Company's executive offices and other operating facilities. The property is owned by Able Energy Terminal, LLC, a wholly owned subsidiary. 24 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. (Registrant) By --------------------------- President and Principal Financial Officer 25 EX-27 2 EXHIBIT 27
5 This schedule contains summary financial information extracted from the interim financial statements for the nine month period ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 4,072 0 896 (73) 253 5,513 4,636 (1,139) 9,825 2,181 0 0 0 2 6,129 9,825 12,950 12,950 10,641 2,441 0 0 130 (163) (33) (130) 0 55 0 (75) (.050) (.050)
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