REGISTRATION NO. 333-127573
As filed with the Securities and Exchange Commission on October 17, 2005
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO.1
ON
FORM S-1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
ABLE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3520840
State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
198 GREEN POND ROAD
ROCKAWAY, NEW JERSEY 07866
(973) 625-1012
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
CHRISTOHER P. WESTAD
198 GREEN POND ROAD
ROCKAWAY, NEW JERSEY 07866
(973) 625-1012
PRESIDENT
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
GREGORY D. FROST, ESQ. ADAM D. EILENBERG, ESQ.
FERBER FROST CHAN & ESSNER, LLP EILENBERG & KRAUSE LLP
530 FIFTH AVENUE 11 EAST 44TH STREET, 17TH FLOOR
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10017
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends the registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED OCTOBER 17, 2005
PROSPECTUS
ABLE ENERGY, INC.
789,970 SHARES OF COMMON STOCK
Certain of our security holders may offer, from time to time, up to
789,970 shares of our common stock that may be acquired by the selling security
holders in the future, including 500,004 shares that may be acquired upon
conversion of convertible debentures, 39,965 shares that may be acquired in lieu
of cash payments of interest on the debentures and 250,001 shares that may be
acquired upon exercise of warrants. Because the terms of the debentures and the
warrants allow for adjustments in the numbers of shares issuable upon their
conversion or exercise, we do not know the actual number of shares that will be
acquired and offered by the selling security holders. The number of shares
covered by this prospectus includes a good faith estimate of the number of
shares that will be acquired by the selling security holders upon the conversion
of the debentures and the exercise of the warrants, and is based on the
requirement set forth in a registration rights agreement between us and the
holders of the debentures and the warrants that we register 130% of the shares
we currently calculate as being issuable upon conversion or exercise. Therefore,
the number of shares covered by this prospectus may differ from the actual
number of shares ultimately acquired and offered by the selling security
holders, in which case we may file an amendment or supplement to this
prospectus.
Able Energy, Inc. itself is not offering any shares.
The selling security holders may, from time to time, sell shares:
o through the NASDAQ SmallCap Market, in the over-the-counter
market, in privately-negotiated transactions or otherwise;
o directly to purchasers or through agents, brokers, dealers or
underwriters; and
o at market prices prevailing at the time of sale, at prices
related to the prevailing market prices, or at negotiated
prices.
Our common stock is traded and quoted on the Nasdaq SmallCap Market
under the symbol "ABLE". The closing price of the common stock on the Nasdaq
SmallCap Market on October 11, 2005 was $10.45.
See "Risk Factors" beginning on page 6 to read about certain factors
investors should consider before buying our securities.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is October __, 2005
TABLE OF CONTENTS
Available Information......................................................
Incorporation of Certain Documents by Reference............................
Special Note Regarding Forward-Looking Information.........................
Risk Factors...............................................................
Use of Proceeds............................................................
Recent Developments........................................................
Our Business...............................................................
Description of Securities..................................................
Selling Security Holders...................................................
Plan of Distribution.......................................................
Commission's Policy on Indemnification for Securities Act Liabilities......
Legal Matters..............................................................
Experts....................................................................
No dealer, sales representative or any other person has been authorized
to give any information or to make any representations in connection with this
offering other than those contained or incorporated by reference in this
prospectus, as supplemented or amended from time to time by Able Energy, and, if
given or made, such information or representations must not be relied upon as
having been authorized by Able Energy. This prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, nor shall there be any sale
of these securities by any person in any jurisdiction in which such an offer,
solicitation or sale would be unlawful. Neither the delivery of this prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of Able Energy since
the date of this prospectus or that the information contained in this prospectus
is correct as of any time subsequent to the date of this prospectus.
AVAILABLE INFORMATION
Able Energy is subject to the informational requirements of the Exchange
Act and, accordingly, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a Web site at HTTP://WWW.SEC.GOV that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
Able Energy has filed with the Commission a registration statement on
Form S-1 under the Securities Act with respect to the securities offered in this
offering. This prospectus does not contain all of the information set forth in
the registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to Able Energy and the
securities offered, reference is made to the registration statement. Statements
contained in this prospectus or in any document incorporated by reference
regarding the contents of any agreement or other document are not necessarily
complete and are qualified in their entirety by reference to that agreement or
document. The registration statement may be inspected without charge at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies may be obtained from the Commission at prescribed rates.
2
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this prospectus and any prospectus supplement, and
in the documents incorporated by reference, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
2B of the Exchange Act. For this purpose, any statements contained in this
prospectus and any prospectus supplement, or incorporated by reference, that are
not statements of historical fact may be deemed to be forward-looking
statements. For example, the words "believes," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of Able Energy to
differ materially from those indicated by forward-looking statements. These
factors include those set forth in this prospectus under the headings "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH INVESTMENTS IN THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
LIMITED OPERATING HISTORY; MANAGEMENT OF GROWTH; SUBSTANTIAL LONG-TERM DEBT.
The Company was incorporated in March 1997 to act as a holding company
for its operating subsidiaries. Able Oil, the Company's major operating
subsidiary, has been in business since 1989 and currently accounts for
approximately 80% of the Company's total revenue. The Company's remaining
subsidiaries have limited operating histories upon which evaluation of their
prospects can be made. There can be no assurance that the subsidiaries, other
than Able Oil, will generate substantial revenues or attain profitable
operations. The Company plans to continue to pursue an aggressive growth
strategy through its operating subsidiaries, and anticipates significant change
in its business activities and operations. The Company's growth has required,
and will continue to require, increased investment in management personnel,
financial and management systems and controls and facilities. The Company's past
expansion has placed, and any future expansion would place, significant demands
on the Company's administrative, operational, financial and other resources. The
Company intends to continue to expand its business and operations, including
entry into new markets, that will place additional strain on the Company's
management and operations. The Company's future operating results will depend,
in part, on its ability to continue to broaden the Company's senior management
group and administrative infrastructure, and its ability to attract, hire and
retain skilled employees. The Company's success will also depend on the ability
of its officers and key employees to continue to implement and improve the
Company's operational and financial control systems and to expand, train and
manage its employee base. In addition, the Company's future operating results
will depend on its ability to expand its sales and marketing capabilities and
expand its customer support operations commensurate with its growth, should such
growth occur. If the Company's revenues do not increase in proportion to its
operating expenses, the Company's management systems do not expand to meet
increasing demands, the Company fails to attract, assimilate and retain
qualified personnel, or the Company's management otherwise fails to manage the
Company's expansion effectively, there would be a material adverse effect on the
Company's business, financial condition and operating results. As of June 30,
2005, the Company had long term liabilities of $4,146,095(1). The Company's
ability to satisfy such obligations will depend on the Company's future
operating performance, which will be affected by, among other things, prevailing
economic conditions and financial, business and other factors, many of which are
beyond the Company's control. There can be no assurance that the Company will be
able to service its indebtedness. If the Company is unable to service its
indebtedness, it will be forced to examine alternative strategies that may
include actions such as reducing or delaying capital expenditures, restructuring
or refinancing its indebtedness, or the sale of assets or seeking additional
equity and/or debt financing. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all.
SEASONAL FACTORS.
To date substantially all of the Company's revenues and income have been
derived from the home heating oil business. The Company's home heating oil
business is seasonal, as a substantial portion of its business is conducted
during the fall and winter months. Weather patterns during the winter months can
have a material adverse impact on its revenues. Although temperature levels for
the heating season have been relatively stable over time, variations can occur
from time to time, and warmer than normal winter weather will adversely effect
the results of the Company's fuel oil operations.
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1 As of June 30, 2005 the Company's total long term liabilities consisted of
Deferred Income $79,679; Deferred Income Taxes $104,517 and; Long Term Debt
$3,961,899.
4
FUEL PRICING: EFFECT ON PROFITABILITY.
Gasoline, heating oil and diesel fuel are commodities and, as such,
their wholesale prices are subject to changes in supply or other market
conditions over which the Company has no control. While, in the past, the
Company has been able to pass on any increases in commodities prices to its
customers, there can be no assurance that the Company may be able to fully pass
on future increases in the wholesale prices of these commodities to its
customers and still be competitive. Additionally, approximately 7% of the
Company's total sales are made to customers pursuant to an agreement which
pre-establishes the maximum sales price of fuel oil over a twelve-month period.
Such prices are renegotiated in April of each year and the Company has
historically purchased fuel oil for these customers in advance and at a fixed
cost. Should the Company be unable to make such advance purchases of fuel oil,
any future increase in wholesale fuel oil prices could have an adverse affect on
the Company. Because the Company sells fuel to its customers at fixed amounts
over its wholesale cost, the Company's gross profit as a percentage of gross
revenue may not fluctuate as a result of changes in the wholesale prices of
these goods. The Company does not engage in derivatives or futures trading to
hedge fuel price movements.
GROWTH DEPENDENT UPON UNSPECIFIED ACQUISITIONS.
The Company's growth strategy includes the acquisition of existing fuel
distributors. There can be no assurance that the Company will be able to
identify new acquisition candidates or, even if a candidate is identified, that
the Company will have access to the capital necessary to consummate such
acquisitions. Furthermore, the acquisition of additional companies involves a
number of additional risks. These risks include the diversion of management's
attention from the operations of the Company, possible difficulties with the
assimilation of personnel and operations of acquired companies, the amortization
of acquired intangible assets, and the potential loss of key employees of
acquired companies. The future success of the Company's business will depend
upon the Company's ability to manage its growth through acquisitions.
GOVERNMENT REGULATION.
Federal, state and local laws, particularly laws relating to the
protection of the environment and worker safety, can materially affect the
Company's operations. The transportation of fuel oil, diesel fuel, propane and
gasoline is subject to regulation by various federal, state and local agencies,
including the U.S. Department of Transportation ("DOT"). These regulatory
authorities have broad powers and the Company is subject to regulatory and
legislative changes that can effect the economies of the industry by requiring
changes in operating practices or influencing demand for, and the cost of
providing, its services. Additionally, the Company is subject to random DOT
inspections. Any material violation of DOT rules or the Hazardous Materials
Transportation Act may result in citations and/or fines upon the Company. In
addition, the Company depends on the supply of petroleum products from the oil
and gas industry and, therefore, is affected by changing taxes, price controls
and other laws and regulations relating to the oil and gas industry generally.
The Company cannot determine the extent to which future operations and earnings
may be affected by new legislation, new regulations or changes in existing
regulations.
POTENTIAL ENVIRONMENTAL LIABILITY.
The Company's operations are subject to all of the operating hazards and
risks that are normally incidental to handling, storing, transporting and
delivering fuel oils, gasoline, diesel and propane, which are classified as
hazardous materials. The Company faces potential liability for, among other
things, fuel spills, gas leaks and negligence in performing environmental
clean-ups for its customers. Specifically, the Company maintains fuel storage
facilities on sites owned or leased by the Company, and could incur significant
liability to third parties or governmental entities for damages, clean-up costs
and/or penalties in the event of certain discharges into the environment. Such
liability can be extreme and could have a material adverse effect on the
Company's financial condition or results of operations. Although the Company
believes that it is in compliance with existing laws and regulations, there can
be no assurance that substantial costs for compliance will not be incurred in
the future. Any substantial violations of these rules and regulations could have
an adverse affect upon the Company's operations. Moreover, it is possible that
other developments, such as more stringent environmental laws, regulations and
enforcement policies thereunder, could result in additional, presently
unquantifiable, costs or liabilities to the Company.
5
NO ASSURANCE OF ADEQUATE INSURANCE PROTECTION.
The Company maintains insurance policies in such amounts and with
coverage and deductibles as the Company' management believes are reasonable and
prudent. There can be no assurance, however, that such insurance will be
adequate to protect the Company from liabilities and expenses that may arise
from claims for personal and property damage arising in the ordinary course of
business or that such levels of insurance will be maintained by the Company or
will be available at economic prices.
FRANCHISING.
The Company intends to expand franchise arrangements to expand its
operations and revenue base. The Company's future growth may be dependent upon
new franchisees and the manner in which they operate and develop their Able
Energy locations to promote and develop the Company's concept and its reputation
for quality and value. In addition, because the Company believes that a
potential franchisee's total estimated investment relating to an Able Energy
location is generally low, the Company may be more likely to attract franchisees
with limited franchise experience and limited financial resources. As a result
of its franchising activity, the Company is be subject to Federal Trade
Commission ("FTC") regulation and various state laws that govern the offer, sale
and termination of, and refusal to renew, franchises. Several state laws also
regulate substantive aspects of the franchisor-franchisee relationship. The FTC
requires the Company to furnish prospective franchisees a franchise offering
circular containing prescribed information. A number of states in which the
Company might consider franchising also regulate the sale of franchises and
require registration of the franchise offering circular with state authorities.
Substantive state laws that regulate the franchisor-franchisee relationship
presently exist in many states, and bills have been introduced in Congress from
time to time which would provide for federal regulation of the
franchisor-franchisee relationship in certain respects. The state laws often
limit, among other things, the duration and scope of non-competition provisions
and the ability of a franchisor to terminate or refuse to renew a franchise.
TRADEMARKS AND SERVICE MARKS.
The Company believes that its trademarks and service marks have
significant value and are important to the marketing of its products and
services, especially if the Company is successful in implementing its franchise
program. There can be no assurance, however, that the Company's proprietary
marks do not or will not violate the proprietary rights of others, that the
Company's marks would be upheld if challenged or that the Company would not be
prevented from using its marks, any of which could have an adverse effect on the
Company. In addition, there can be no assurance that the Company will have the
financial resources necessary to enforce or defend its trademarks and service
marks against infringement.
COMPETITION FROM ALTERNATE ENERGY SOURCES.
The Company is engaged primarily in the retail home heating business and
competes for customers with suppliers of alternate energy products, principally
natural gas and electricity. Every year, a small percentage of the Company's oil
customers convert to other home heating sources, primarily natural gas. In
addition, the Company may lose additional customers due to conversions during
periods in which the cost of its services exceeds the cost of alternative energy
sources.
COMPETITION FOR NEW CUSTOMERS.
The Company's business is highly competitive. In addition to competition
from alternative energy sources, the Company competes with distributors offering
a broad range of services and prices, from full service distributors similar to
the Company, to those offering delivery only. Competition with other companies
in the retail home heating industry is based primarily on customer service and
price. Longstanding customer relationships are typical in the industry. Many
companies, including the Company, deliver fuel to their customers based upon
weather conditions and historical consumption patterns without the customers
making an affirmative purchase decision each time fuel is needed. In addition,
most companies, including the Company, provide equipment repair service on a 24
hour a day basis, which tends to build customer loyalty. The Company competes
against companies that may have greater financial resources than the Company. As
a result, the Company may experience difficulty in acquiring new retail
customers due to existing relationships between potential customers and other
retail home heating distributors.
6
ABSENCE OF WRITTEN AGREEMENTS.
Approximately 50% of the Company's customers do not have written
agreements with the Company and can terminate services at any time, for any
reason. Although the Company has never experienced a significant loss of its
customers, if the Company were to experience a high rate of terminations, the
Company's business and financial condition could be adversely affected.
RISKS ASSOCIATED WITH EXPANSION INTO NEW MARKETS.
A significant element of the Company's future growth strategy involves
the expansion of the Company's business into new geographic and product markets.
Expansion of the Company's operations depend, among other things, the success of
the Company's marketing strategy in new markets, successfully establishing and
operating new locations, hiring and retaining qualified management and other
personnel, and obtaining adequate financing for vehicle and site purchases and
working capital purposes.
DEPENDENCE ON KEY PERSONNEL.
The Company's future success will depend, to a significant extent, on
the efforts of key management personnel, including Gregory D. Frost, the
Company's Chief Executive Officer, Chairman and General Counsel, Christopher P.
Westad, the Company's President, and Steven M. Vella, the Company's Chief
Financial Officer. The loss of one or more of these key employees could have a
material adverse effect on the Company's business. In addition, the Company
believes that its future success will depend, in large part, upon its continued
ability to attract and retain highly qualified management, technical and sales
personnel. There can be no assurance that the Company will be able to attract
and retain the qualified personnel necessary for its business.
7
USE OF PROCEEDS
The shares covered by this prospectus are being offered by holders of
our securities. We will not receive any proceeds from the sale of those shares.
Some of the shares covered by this prospectus may be acquired upon the
exercise of warrants held by the selling security holders. If all of those
warrants were to be exercised, we would receive the aggregate exercise price of
approximately $1,375,000. We will use any proceeds received upon exercise of the
warrants for general corporate purposes.
RECENT DEVELOPMENTS
LOAN TO ALL AMERICAN
On July 27, 2005, we made a loan in the amount of $1,730,000 to All
American Plazas, Inc. ("All American"), and All American executed and delivered
a Promissory Note for the full amount of the loan in favor of our company. Under
the terms of the Promissory Note, the outstanding principal of the loan bears
interest at the rate of 3.5% per annum. All payments of principal and accrued
interest are payable ninety days after the date of the Promissory Note. The
Promissory Note is secured by a lien on 1,000,000 shares of our common stock
owned by All American, on which 1,000,000 shares there exists a prior lien held
by Timothy Harrington, our former Chief Executive Officer.
All American currently owns approximately 40% of our outstanding shares.
Our CEO, Chairman and General Counsel, Gregory D. Frost, formerly served as a
director and the General Counsel of All American until his resignation on March
31, 2005, and our Vice President Business Development, Frank Nocito, is Vice
President of All American. In addition, one of our directors, Stephen Chalk,
performs certain paid consulting services in the area of real estate development
for All American.
AUDIT COMMITTEE INVESTIGATION AND INFORMAL SEC INQUIRY
On July 28, 2005, our Audit Committee retained independent counsel to
assist in its investigation of information recently forwarded to the Audit
Committee regarding trading of our securities. On August 10, 2005, we were
informed by a letter from the Securities and Exchange Commission that it is
conducting an informal inquiry regarding our Audit Committee investigation. We
will cooperate fully with and assist the SEC in this informal inquiry.
GSN LETTER OF INTENT
On August 15, 2005, we announced that we have entered into an assignment
agreement with TruckStops Direct (TSD) wherein TSD has assigned to us all of its
rights in an executed letter of intent with GSN Interstate Truck Stop Network
Inc. (GSN). TSD, an affiliate of All American, has entered into this agreement
on our behalf. This letter of intent provides that the purchaser would obtain
the right to acquire the stock of GSN in exchange for $2 million dollars in cash
and stock. GSN, located in Janesville, Wisconsin, consists of 160 locations that
would complement our business. It should be noted that TSD operates a similar
business to that of GSN with 150 independent truck plazas. We would convert
under this joint venture arrangement most, if not all, independent truck plaza
locations into additional distribution outlets for our home heating oil business
utilizing our PriceEnergy software platform. Closing on this acquisition is
expected to occur in October 2005.
PHS GROUP LETTER OF INTENT
On September 8, 2005, we signed a letter of intent with respect to the
purchase by us of all of the issued and outstanding shares of PHS Group, Inc.,
Somerset Oil Inc., Somerset Refinery, Inc., South Kentucky Purchasing, Inc., and
Somerset Environmental Services, Inc. (the "Sellers"). PHS Group, Inc.,
currently owns all the issued and outstanding stock of the other Sellers. The
Sellers are located in Somerset, Kentucky where their primary business is the
operation of Somerset Refinery, Inc., which has a processing capability of 5500
barrels of oil per day. The
8
refinery primarily produces gasoline at octanes of 87, 89, 91, diesel fuel and
heavy fuel oils for homes and industry furnaces. In addition, presently,
Somerset Refinery, Inc., supplies product to 13 Somerset Oil Stations in 11
counties in the state of Kentucky, 16 other stations using their equipment and
tanks as well as 17 other privately owned gas stations. The aggregate purchase
price would be approximately $19.5 million, including an assumption by us of
approximately $10.5 million in outstanding debt of the Sellers. The letter of
intent provides for a 30-day due diligence period from the date of its signing,
during which period the Sellers agreed not to directly or indirectly solicit
and/or accept other offers for the sale of their stock or assets or to place any
lien on their stock or assets outside the normal course of business. The letter
of intent provides for a reasonable time after the conclusion of the 30-day due
diligence period for the parties to execute a definitive purchase and sale
agreement, with the closing of the transaction to occur thirty days after
execution of such definitive agreement.
NASDAQ NOTICE
On October 13, 2005, we received notice from The Nasdaq Stock Market that the
market value of our listed securities is below $35 million, which is one of the
criteria required for continued inclusion under applicable Marketplace Rules.
The notice also indicated that if our market value does not exceed such amount
for at least ten consecutive business days by November 14, 2005, the Nasdaq
Staff will provide a notice of delisting. We believe that we are currently in
compliance with an alternative maintenance rule requiring stockholders' equity
of at least $2.5 million and that, in such event, our balance sheet for the
quarter ended September 30, 2005 to be included in our Quarterly Report on Form
10-Q would reflect such stockholders' equity, and we would thereby be in
compliance with marketplace rules.
OUR BUSINESS
GENERAL
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Able Energy was incorporated on March 13, 1997 in the state of Delaware. Its
current subsidiaries are Able Oil Inc., Able Energy New York, Inc., Able Energy
Terminal LLC, PriceEnergy Franchising LLC, Able Melbourne, Inc. and
PriceEnergy.com, Inc. Able Oil Inc., the Company's major operating subsidiary,
has been in business since 1989. In March of 2004, the Company sold all of the
assets of Able Propane Co to Liberty Propane of Overland Park, Kansas.
OVERVIEW
The Company is engaged in the retail distribution of, and the provision of
services relating to, home heating oil, diesel fuel and, in New York State,
propane gas. In addition to selling liquid energy products, the Company offers
complete HVAC (heating, ventilation and air conditioning) installation and
repair and also markets other petroleum products to commercial customers,
including on-road and off-road diesel fuel, gasoline, and lubricants.
In fiscal year 2005, sales of home heating oil accounted for approximately 55%
of the Company's revenues. The remaining 45% of revenues were from sales of
gasoline, diesel fuel, kerosene, propane, home heating equipment services, and
related sales. In fiscal year 2004, those percentages were 56% and 44%,
respectively, and in fiscal 2003, they were 57% and 43%, respectively. The
Company now serves approximately 32,000 home heating oil customers from four
locations, which are located in Rockaway, New Jersey, Easton, Pennsylvania,
Warrensburg, New York, and Melbourne, Florida. The Company also has three
franchise locations, two of which are located in Pennsylvania and one in
Norwalk, Connecticut.
The Company also provides installation and repair of heating equipment as a
service to its customers. The Company considers service and installation
services to be an integral part of its business. Accordingly, the Company
regularly provides service incentives to obtain and retain customers. The
Company provides home heating equipment repair service on a 24 hours a day,
seven days-a-week basis, generally within four hours of request. The Company
does provide service to non-customers from time to time as an incentive to gain
new heating oil customers.
The Company believes that it obtains new customers and maintains existing
customers by offering full service home energy products at discount prices,
providing quick response refueling and repair operations, providing automatic
deliveries to customers by monitoring historical use and weather patterns, and
by providing customers a variety of payment options. The Company also regularly
provides service incentives to obtain and retain customers. The Company
aggressively promotes its service through a variety of direct marketing media,
including mail and telemarketing campaigns, by providing discounts to customers
who refer new customers to the Company, and through an array of advertising,
including television advertisements and billboards, which aim to increase brand
name recognition. The Company believes that this focused marketing strategy has
been key to its success.
9
The Company intends to expand its operations by acquiring select operators in
the Company's present markets as well as other markets, capturing market share
from competitors through increased advertising and other means, diversifying its
products, diversifying its customer base, and replicating its marketing and
service formula in new geographic areas either directly or through franchise
arrangements. The Company may also enter into marketing alliances with other
entities in product areas different than the Company's current product mix.
RETAIL FUEL OIL
The Company's retail fuel oil distribution business is conducted through its
subsidiaries Able Oil, Able Energy New York, Inc., and Able Melbourne as well as
PriceEnergy Franchising LLC and over the Internet via its PriceEnergy.com
subsidiary. The Company serves both residential and commercial fuel oil
accounts. The Company sells premium quality home heating oil to its residential
customers offering delivery seven days a week. In addition to selling home
heating oil, the Company sells both "On-Road" and "Off Road" diesel fuels,
gasoline, and kerosene to its commercial customers. The Company also provides
oil burner service that is available 24 hours a day for the maintenance, repair,
and installation of oil burners. These services are performed on an as needed
basis. Customers are not required to enter into service contracts to utilize the
Company's service department, however the Company does offer such service
contracts if desired.
Approximately 50% of the Company's customers receive their home heating oil
pursuant to an automatic delivery system without the customer having to make an
affirmative purchase decision. A computer, based on each customer's historical
consumption patterns and prevailing weather conditions, schedules these
deliveries. Customers can also order deliveries of home heating oil through the
Company's website located at www.ableenergy.com, or the website of the Company's
subsidiary PriceEnergy at www.priceenergy.com. The Company delivers home heating
oil approximately six times each year to the average customer. The Company bills
customers promptly upon delivery or receives payment upon delivery. The
Company's customers can pay for fuel deliveries with cash, check or credit card.
In addition, approximately 9% of the Company's total sales are made to customers
pursuant to an agreement that pre-establishes the maximum annual sales price of
fuel oil and is paid by customers over a ten-month period in equal monthly
installments. Such prices are renegotiated in April of each year and the Company
has historically purchased fuel oil for these customers in advance and at a
fixed cost.
The Company delivers with its own fleet of 27 custom fuel oil trucks and 3
propane trucks (in New York State) and 5 owner-operator fuel oil delivery
trucks. The Company's fuel trucks have fuel capacities ranging from 3,000 to
8,000 gallons. Each vehicle is assigned to a specific delivery route, and
services between 4 and 40 customer locations per day depending on market density
and customers' fuel requirements. The Company also operates 21 Company owned
service vans and 1 owner-operated service van, which are equipped with state of
the art diagnostic equipment necessary to repair and/or install heating
equipment. The number of customers each van serves primarily depends upon the
number of service calls received on any given day.
ABLE OIL
Able Oil was established in 1989 and is the Company's largest subsidiary,
accounting for approximately 80% of the Company's total revenues in fiscal 2005.
In 2004 and 2003, Able Oil contributed 79% and 78% of the Company's total
revenues, respectively. Able Oil is headquartered in Rockaway, New Jersey, and
serves just over 29,000 heating oil customer accounts throughout northern New
Jersey, primarily in Morris, Sussex, Warren, Passaic and Essex counties, from
its distribution locations in Rockaway, New Jersey, and in Pennsylvania
primarily in Northampton and Lehigh counties, from its distribution locations in
Easton, Pennsylvania. Of these accounts, approximately 94% are residential
customers and 6% are commercial customers.
Generally, 21 of the Company's 27 fuel oil trucks are reserved for use by Able
Oil, of which 18 trucks operate from the Rockaway facility and 3 trucks operate
from the Easton, Pennsylvania, facility. In addition, Able Oil utilizes the
services of 5 owner-operated trucks. Each owner operator is under contract; they
are responsible for the entire vehicle operating expenses including insurance
coverage. All of the trucks have the Company's logo on them.
Able Oil's 18 fuel oil delivery trucks, which operate from the Rockaway
facility, and the 5 owner-operator trucks,
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acquire fuel inventory at the Company's facility in Rockaway, New Jersey.
Dispatch of fuel oil trucks is conducted at the Rockaway facility. Billing is
conducted from Able Energy's corporate headquarters in Rockaway.
The Rockaway and Newton (which is currently out of service) facilities have the
capacity to store 1.5 million gallons and 200,000 gallons of fuel, respectively.
During seasons where demand for heating oil is higher, or when wholesale oil
prices are favorable, a slightly larger inventory is kept on hand. However,
management generally believes that short inventory life and high inventory
turnover enable the Company to rapidly respond to changes in market prices.
Thus, management employs a "just in time" inventory system and rarely stores
fuel to capacity levels. Additional fuel oil purchases are made daily on the
spot market and paid via electronic funds transfers. Able Oil carts its fuel
purchases from wholesale purchase sites to the Rockaway and Newton facilities
with two tractor-trailer tankers owned by the Company, and by two owner-operated
tractor-trailer tankers that are used on an as needed basis. These two
owner-operated tankers are under contract and bear the "Able" logo or name.
Able Oil's oil burner service operates out of the Rockaway facility. Able Oil
dispatches a total of 22 service vans, 1 of which is subcontracted from an
owner-operator.
ABLE MELBOURNE
Able Melbourne was established in July 1996, and is located in Cape Canaveral
Florida. In fiscal years 2005, 2004, and 2003 revenues from Able Melbourne
accounted for approximately 4% of the Company's total revenues. Able Melbourne
is engaged primarily in the sale of diesel fuel for commercial fleet fueling and
other on-road vehicles, and dyed diesel fuel, which is used for off-road
vehicles and purposes, including commercial and recreational fishing vessels,
heating oil, and generator fuel. Additionally, a small portion of Able
Melbourne's revenues is generated from the sale of home heating oil, lubricants
and lubricant products. Able Melbourne serves approximately 400 customer
accounts in Brevard County, Florida, primarily in the Cape Canaveral Area.
Able Melbourne delivers fuel with two fuel delivery trucks, which are capable of
storing 8,000 gallons of fuel in aggregate. Because Able Melbourne's peak season
is at the opposite time of the year than the rest of the Company's, during this
season, Able Melbourne uses one of Able Oil's trucks to meet its demand.
Currently, Able Melbourne does not have facilities to store fuel oil beyond what
is held on its trucks, and thus, purchases fuel inventory from local refineries.
However, since Able Melbourne is located only three miles from port storage
facilities, the lack of inventory capacity is not material to the Company's
operations or revenue.
RETAIL PROPANE DISTRIBUTION
The Company is engaged in the retail distribution of propane gas and propane
equipment, and provides services related thereto through its subsidiary Able
Energy New York, Inc. ("Able Energy NY").
Propane can be used for virtually all household and business utility
applications. Although burned as a gas, propane is transported as a liquid and
stored in tanks that vaporize the liquid for use. Able Energy NY provides its
propane customers with such tanks at no charge, and by doing so, remains such
customer's exclusive supplier of propane. Able Energy NY employs a delivery
system similar to the Company's retail oil distribution business, whereby
customers receive propane deliveries pursuant to an automatic delivery system
without the customer having to make an affirmative purchase decision. A
computer, based on each customer's historical consumption patterns and
prevailing weather conditions, schedules these deliveries.
Able Energy NY conducts its propane operations from its storage facility in
Warrensburg, New York, which has 60,000 gallons of propane storage capacity. The
delivery trucks have the capacity to deliver 3,000 gallons of propane, and can
service approximately 30 customers per day. Able Energy NY purchases wholesale
propane on the spot market at local facilities.
PRICEENERGY
PriceEnergy started business in October 2000 and is a majority-owned subsidiary
of Able Energy, Inc. PriceEnergy was developed in order to bring about efficient
transactions in the liquid fuels market by streamlining the ordering and
delivery process utilizing Internet technology. PriceEnergy has developed a
business technology platform that enables the company to sell and deliver liquid
fuels and related energy products. This has been possible by utilizing
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a branded distribution channel of dealers and Able Energy's own delivery
network. By leveraging its proprietary web technology and wireless dispatch
platform, PriceEnergy intends to achieve cost leadership and create a
competitive advantage in the industry.
PriceEnergy currently has a network of approximately 80 dealers in 9 states in
the Northeast from Maine to Virginia. Products and services are ordered over the
Internet and forwarded to the local dealer to schedule delivery. PriceEnergy
receives payment and retains at least a four-cent per gallon override on all oil
ordered through the system.
Now that the proper dealer network is in place, the company expects that about
15 million gallons will be ordered through its system in the coming fiscal year.
ACQUISITION OF ALL AMERICAN PLAZAS, INC.
All American Plazas, Inc. ("All American"), currently owns approximately 40% of
our outstanding shares. Our CEO, Chairman and General Counsel, Gregory D. Frost,
formerly served as a director and the General Counsel of All American until his
resignation on March 31, 2005, and our Vice President Business Development,
Frank Nocito, is Vice President of All American. In addition, one of our
directors, Stephen Chalk, performs certain paid consulting services in the area
of real estate development for All American.
In June 2005, we entered into a Stock Purchase Agreement ("Purchase Agreement")
with all of the shareholders (the "Sellers") of All American in connection with
our acquisition of All American. The transaction is expected to be consummated
in November 2005, upon receipt of the required approval by our stockholders, as
discussed herein.
All American, which is headquartered in Myerstown, Pennsylvania, is in the
business of owning, operating and developing truck stops. Its operations
include, but are not limited to, the ancillary merchandising of rights,
products, and other goods and services. All American operates 11 multi-service
truck stops in the United States that sell diesel fuel and related services to
approximately 5,000 trucking accounts and other independent consumers. Its
operations are located at primary interchanges servicing major truck routes in
the northeast region of the United States, and its facilities, known as "All
American Plazas", offer a broad range of products, services, and amenities,
including diesel fuel, gasoline, home-style restaurants, truck preventive
maintenance centers, and retail merchandise stores that market primarily to
professional truck drivers and other highway motorists.
A complete description of All American's business and full financial statements
will be included in the proxy statement for the contemplated stockholders'
meeting with respect to the acquisition.
For a more complete discussion of the All American Plaza acquisition please
refer to the section of this prospectus entitled "Certain Relationships and
Related Transactions."
RECENT ALL AMERICAN FINANCING
All American recently consummated a financing that, if the acquisition of All
American is consummated, will impact the Company. The recently completed
refinancing by All American allowed All American to pay off approximately
$3,000,000 in existing debt and provided All American with approximately
$2,000,000 in working capital.
The description of the terms of All American's refinancing can be found in the
sectionof this prospectus entitled "Certain Relationships and Related
Transactions."
EFFECT OF CHANGE IN GENERAL ECONOMY
The Company's business is relatively unaffected by business cycles. Because fuel
oil, propane and gasoline are such basic necessities, variations in the amount
purchased as a result of general economic conditions are limited.
CUSTOMER STABILITY
The Company has a relatively stable customer base due to the tendency of
homeowners to remain with their
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traditional distributors. In addition, a majority of the homebuyers tend to
remain with the previous owner's distributor. As a result, the Company's
customer base each year includes most customers retained from the prior year, or
homebuyers who have purchased from such customers. Like many other companies in
the industry, the Company delivers fuel oil and propane to each of its customers
an average of approximately six times during the year, depending upon weather
conditions and historical consumption patterns. Most of the Company's customers
receive their deliveries pursuant to an automatic delivery system, without the
customer having to make an affirmative purchase decision each time home heating
oil or propane is needed. In addition, the Company provides home heating
equipment repair service on a seven-days-a-week basis. No single customer
accounts for 10% or more of the Company's consolidated revenues.
CONVERSION TO NATURAL GAS
The rate of conversion from the use of home heating oil to natural gas is
primarily affected by the relative prices of the two products, and the cost of
replacing oil fired heating systems with one that uses natural gas. The Company
believes that approximately 1% of its customer base annually converts from home
heating oil to natural gas. Even when natural gas had a significant price
advantage over home heating oil, such as in 1980 and 1981 when there were
government controls on natural gas prices or during the Persian Gulf Crisis in
1990 and 1991, the Company's customers converted to natural gas at only a 2%
annual rate.
OIL PRICE VOLATILITY
Although prices of energy sources have been volatile, historically, this has not
affected the performance of the Company because it has been able to pass
substantially all wholesale cost increases along to its customers. While
fluctuations in wholesale prices have not significantly affected demand to date,
it is possible that significant wholesale price increases could have the effect
of encouraging conservation of energy resources. If demand was reduced and the
Company was unable to increase its gross profit margin or reduce its operating
expenses, the effect of such decrease in demand would be a reduction of net
income.
SEASONALITY
The Company's business is directly related to the heating needs of its
customers. Accordingly, the weather can have a material effect on the Company's
sales in any particular year. Generally, however, the temperatures in the past
thirty years have been relatively stable, and as a result, have not had a
significant impact on the Company's performance, except on a short-term basis.
In the years 1997 and 2001, "El Nino" caused two of the warmest winters on
record, which impacted home heating oil sales during the 1997-1998 and 2001-2002
winter seasons. The winter of 2004-2005 recorded temperatures for the season,
which were normal for New Jersey.
Approximately 65% of the Company's revenues are earned and received from October
through March, and the overwhelming majority of such revenues are derived from
the sale of home heating oil. During the spring and summer months, revenues from
the sale of diesel and gasoline fuels increase due to the increased use of
automobiles and construction apparatus.
Each of the Company's divisions is seasonal. From May through September, Able
Oil experiences considerable reduction of retail heating oil sales.
Able Energy NY's propane operation can experience up to 80% decrease in heating
related propane sales during the months of April to September, which is offset
somewhat by an increase of pool heating and cooking fuel.
Over 90% of Able Melbourne's revenues are derived from the sale of diesel fuel
for construction vehicles, and commercial and recreational sea-going vessels
during Florida's fishing season, which begins in April and ends in November.
Only a small percentage of Able Melbourne's revenues are derived from the sale
of home heating fuel. Most of these sales occur from December through March,
Florida's cooler months.
WHOLESALE SUPPLIERS
The Company has three supply contracts for the purchase of Number 2 Heating Oil,
representing 10% of the Company's annual heating fuel purchases. The Company
purchases its remaining fuel supplies on the spot market.
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The Company satisfies its inventory requirements with seven different suppliers,
the majority of which have significant domestic fuel sources, and many of which
have been suppliers to the Company for over 5 years. The Company's current
suppliers are Conectiv Energy, Sprague Energy, Petrocom Energy Group Ltd.,
Gulf-Catamont, Valero Energy Group, Rio Energy, TransMontaigne Inc., Center
Marketing, Inc. and Sun Co., Inc. (R&M). The Company monitors the market each
day and determines when to purchase its oil inventory and from whom.
Three of these suppliers provided Able Oil with approximately 60% of its heating
oil requirements for the year ended June 30, 2005 as well as fiscal 2004 and
fiscal 2003.
TransMontaigne, Inc. provided Able Melbourne with approximately 99% of its
diesel fuel product requirements for the year ended June 30, 2005 and another
major supplier provided Able Melbourne with approximately 99% of its lubricant
and related product requirements for the year ended June 30, 2005. The results
were approximately the same for the fiscal years ending June 30, 2004 and 2003.
Management believes that if the Company's supply of any of the foregoing
products were interrupted, the Company would be able to secure adequate supplies
from other sources without a material disruption in its operations. However,
there can be no assurance that adequate supplies of such products will be
readily available in the future.
TRUCK PURCHASES AND MAINTENANCE
The Company presently orders and purchases its fuel oil trucks from two
companies that manufacture trucks suitable for the Company's operations. The
Company has the option to purchase or lease standard equipment fuel trucks. The
typical configuration of the Company's fuel trucks is a Kenworth with a
3,000-gallon multi-compartment aluminum tank; a vapor recovery system and an
electronic metering device that records fuel flow from the storage compartments.
Each truck carries the Company's registered logo emblazoned on each side.
Service vehicles are standard commercial vans, which are obtained from a number
of sources. These vehicles also carry the Company logo.
Generally, the Company relies upon equipment warranties, fixed fee service
contracts and on-site repairs for the maintenance of the Company's fleet of
vehicles. To date, the Company has not experienced significant downtime on any
of its fuel trucks.
PRODUCT LINES
In fiscal year 2005, sales of home heating oil accounted for approximately 55%
of the Company's revenues. The remaining 45% of revenues were from sales of
gasoline, diesel fuel, kerosene, propane, home heating equipment services, and
related sales. In fiscal 2004, those percentages were 56% and 44%, respectively,
and in fiscal 2003, they were 57% and 43%, respectively. The Company also
installs heating equipment and repairs such equipment on a 24 hours a day, seven
days-a-week basis, generally within four hours of request.
INDUSTRY OVERVIEW
The Company's business is highly competitive. In addition to competition from
alternative energy sources, the Company competes with distributors offering a
broad range of services and prices, from full service distributors similar to
the Company, to those offering delivery only. Competition with other companies
in the propane industry is based primarily on customer service and price.
Longstanding customer relationships are typical in the retail home heating oil
and propane industry. Many companies in the industry, including the Company,
deliver fuel oil or propane to their customers based upon weather conditions and
historical consumption patterns without the customers having to make an
affirmative purchase decision each time fuel oil or propane is needed. In
addition, most companies, including the Company, provide equipment repair
service on a 24 hour-a-day basis, which tends to build customer loyalty. As a
result, the Company may experience difficulty in acquiring new retail customers
due to existing relationships between potential customers and other fuel oil or
propane distributors.
MARKETING, SALES & STRATEGIC PARTNERSHIPS
The Company employs a dynamic marketing strategy that the Company believes has
been the key to its success. The
14
Company believes that it obtains new customers and maintains existing customers
by offering its full service home energy products at discount prices, providing
quick response refueling and repair operations, providing automatic deliveries
to customers by monitoring historical use and weather patterns, and by providing
customers a variety of payment options. To expand its customer base and
aggressively promote its service, the Company engages in direct marketing
campaigns, advertises regularly, offers employee incentives, and encourages
referrals.
The Company has successfully expanded its customer base by employing a variety
of direct marketing tactics, including telemarketing campaigns, billboards, mass
and direct mailings, and by distributing hand-bills and promotional items, such
as refrigerator magnets, sweatshirts and hats. Additionally, the Company's
delivery personnel are an integral part of the Company's direct marketing
activities. While in the field, drivers isolate potential new customers by
taking note of where the Company is not servicing accounts, and act as
salespersons for the Company. The Company offers its drivers and customer care
representatives an incentive payment of $20 for each new automatic delivery
customer and $10 for each conversion of an existing customer to automatic
delivery.
The Company uses advertising campaigns to increase brand recognition and expand
its customer base, including radio and television advertisements, billboards,
and newsprint and telephone directory advertisements. Additionally, the Company
utilizes its fleet of fuel delivery trucks and service vans as moving
advertisements by emblazoning them with the Company's logo.
Historically, referrals have been an important part of the Company's efforts to
expand its business and the Company offers incentives to customers who refer
business. Customers who refer business receive either $30 or 25 gallons of
heating oil at no charge for each new customer referred. The Company also offers
other special limited time promotions designed to increase business in specific
targeted business segments. The Company also encourages civic and religious
organizations to refer business to the Company. As an incentive, the Company
pays such organizations a donation for each of its members who become customers
and a stipend based upon the members' fuel consumption.
PATENTS AND TRADEMARKS
Able Energy owns the exclusive right and license to use, and to license others
to use, the proprietary marks, including the service mark "Able Energy-
-Registered Trademark-" (and design) ("Able Energy Proprietary Marks"). The
"Able Energy- -Registered Trademark-" service mark and design was registered
under Classes 37 and 39 of the Principal Register of the U.S. Patent & Trademark
Office ("USPTO") on May 1, 2001 (registration No. 2,447,931). In addition, Able
Energy established certain common law rights to the Able Energy Marks through
its continuous, exclusive and extensive public use and advertising. The
Proprietary Marks are not registered in any state.
Able Oil owns the exclusive right and license to use, and to license others to
use, the proprietary marks, including the service mark "Able Oil- -Registered
Trademark-" (and design) ("Able Oil Proprietary Marks"). The "Able Oil-
-Registered Trademark-" service mark and design was registered under Classes 37
and 39 of the Principal Register of the U.S. Patent & Trademark Office ("USPTO")
on April 30, 1996 (registration No. 1,971,758). In addition, Able Oil
established certain common law rights to the Able Oil Proprietary Marks through
its continuous, exclusive and extensive public use and advertising. The
Proprietary Marks are not registered in any state.
Presently there is no effective determination by the USPTO, Trademark Trial and
Appeal Board, the trademark administrator of any state, or court regarding the
Proprietary Marks, nor is there any pending interference, opposition or
cancellation proceeding or any pending litigation involving the Proprietary
Marks or the trade names, logotypes, or other commercial symbols of Able Oil.
There are no agreements currently in effect that significantly limit the rights
of Able Oil to use or license the use of the Proprietary Marks.
In December 2000, the Company was advised by the USPTO that its applications for
registration for the "PriceEnergy.com" mark was assigned Serial No. 76/172083
and the "PriceEnergy.com The Energy Hotspot" mark was assigned Serial No.
76/171829, as of November 28, 2000.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
The Company has implemented environmental programs and policies designed to
avoid potential liability under applicable environmental laws. The Company has
not incurred any significant environmental compliance cost, and
15
compliance with environmental regulations has not had a material effect on the
Company's operating or financial condition. This is primarily due to the
Company's general policies of closely monitoring its compliance with all
environmental laws. In the future, the Company does not expect environmental
compliance to have a material effect on its operations and financial condition.
The Company's policy for determining the timing and amount of any environmental
cost is to reflect an expense as and when the cost becomes probable and
reasonably capable of estimation.
On September 15, 2003, Able Oil received approval from the New Jersey Department
of Environmental Protection of a revised Discharge Prevention Containment and
Countermeasure plan ("DPCC") and Discharge, Cleanup and Removal plan ("DCR") for
the facility at 344 Route 46 East in Rockaway, New Jersey. This plan has
received approval and will be in effect for three years. The State of New Jersey
requires companies which operate major fuel storage facilities to prepare such
plans, as proof that such companies are capable of, and have planned for, an
event that might be deemed by the State to be hazardous to the environment. In
addition to these plans, Able Oil has this facility monitored on an ongoing
basis to ensure that the facility meets or exceeds all standards required by the
State.
The Company experienced no spill events that would warrant investigation by
state or other environmental regulatory agencies. All locations are prepared to
deal with such an event should one occur.
GOVERNMENT REGULATIONS
Numerous federal, state and local laws, including those relating to protection
of the environment and worker safety, affect the Company's operations. The
transportation of fuel oil, diesel fuel, propane and gasoline is subject to
regulation by various federal, state and local agencies including the U.S.
Department of Transportation ("DOT"). These regulatory authorities have broad
powers, and the Company is subject to regulatory and legislative changes that
can affect the economies of the industry by requiring changes in operating
practices or influencing demand for, and the cost of providing, its services.
The regulations provide that, among other things, the Company's drivers must
possess a commercial driver's license with a hazardous materials endorsement.
The Company is also subject to the rules and regulations concerning the
Hazardous Materials Transportation Act. For example, the Company's drivers and
their equipment must comply with the DOT's pre-trip inspection rules,
documentation regulations concerning hazardous materials (i.e. certificates of
shipments which describe the type and amount of product transported), and
limitations on the amount of fuel transported, as well as driver "hours of
service" limitations. Additionally, the Company is subject to DOT inspections
that occur at random intervals. Any material violation of DOT rules or the
Hazardous Materials Transportation Act may result in citations and/or fines upon
the Company. In addition, the Company depends upon the supply of petroleum
products from the oil and gas industry and, therefore, is affected by changing
taxes, price controls and other laws and regulations relating to the oil and gas
industry generally. The Company cannot determine the extent to which future
operations and earnings may be affected by new legislation, new regulations
and/or changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed.
Sanctions for noncompliance may include revocation of permits, corrective action
orders, administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for joint and several liabilities for remediation of
spills and releases of hazardous substances. In addition, companies may be
subject to claims alleging personal injury or property damages as a result of
alleged exposure to hazardous substances, as well as damage to natural
resources.
Although the Company believes that it is in compliance with existing laws and
regulations and carries adequate insurance coverage for environmental and other
liabilities, there can be no assurance that substantial costs for compliance
will not be incurred in the future or that the insurance coverage in place will
be adequate to cover future liabilities. There could be an adverse affect upon
the Company's operations if there were any substantial violations of these rules
and regulations. Moreover, it is possible that other developments, such as more
stringent environmental laws, regulations and enforcement policies there under,
could result in additional, presently unquantifiable, costs or liabilities to
the Company.
16
EMPLOYEES
As of September 30, 2005, the Company employed approximately 84 individuals.
From October through March, the Company's peak season, the Company employs
approximately 114 persons. From April through September, the Company employs
approximately 85 persons. Currently, there are no organized labor unions
representing any of the employees of Company or any of its related companies.
PROPERTY
The Company's corporate headquarters are located in a 9,800 square foot
facility in Rockaway, New Jersey. This facility accommodates the Company's
corporate, administrative, marketing and sales personnel. The lease expires on
April 30, 2006 and carries an annual rent of $109,000. The Company owns the
property located at 344 Route 46 in Rockaway, New Jersey. This facility
accomodates the Company's fuel terminal, including fuel storage tanks, truck
yard space and dispatch operations. The Company purchased the property in August
1999, through a newly formed wholly-owned subsidiary, Able Energy Terminal, LLC,
at a purchase price of $1,150,000. The Company also owns a building, totaling
approximately 1,450 square feet, consisting of a wood frame facility located at
38 Diller Avenue, Newton, New Jersey, that will serve as a supply depot, storage
area & administrative offices and service facility when damage that occurred on
March 14, 2003 in connection with a fire is repaired.
Able Melbourne leases a 3,000 square foot concrete and aluminum facility
that serves as a storage facility, a service facility and administrative
offices, located at 79 Dover Avenue, Merritt Island, Florida and is governed by
an oral, month-to-month lease with annual rent of $5,000. The Company does not
store fuel oil at this location with the exception of that which is kept in the
delivery trucks. This facility is conveniently located within three miles of its
wholesale supplier. The Company is responsible for maintaining the facilities in
compliance with all environmental rules and laws.
LEGAL PROCEEDINGS
In accordance with the purchase of the property on Route 46, Rockaway,
New Jersey, by Able Energy Terminal, LLC, the Company intends to pursue recovery
of all costs and damages related to a lawsuit by the seller against a former
tenant of the property, based on environmental cleanup costs on the property.
Purchaser will assume all responsibility and direction for the lawsuit, subject
to the sharing of half of any recoveries from the lawsuit with the seller. The
seller by reduction of its mortgage will pay costs related to the above up to
$250,000. In December of 2000, the Company reached an agreement with the former
tenants whereby the former tenants agreed to pay Able Energy, Inc. the sum of
$397,500 in order to pay for the environmental cleanup costs on the Company's
Route 46 property.
As a result of the March 14, 2003 fire at the Newton, NJ terminal,
various claims have been submitted to the Company's insurance carrier. Over 220
claims have been settled. As of September 30, 2005, individuals or companies who
were unable to reach successful settlements with the Company's insurance carrier
have filed seven lawsuits against the Company. The Company's insurance carrier
has established reserves for losses, as deemed appropriate. The Company's
insurance carrier is defending as related to compensatory damages. Legal counsel
is defending on any punitive damages claims.
Also in connection with the March 2003 Newton fire, a subsidiary of the
Company entered a guilty plea in July 2005 to one count of negligently damaging
property, a fourth-degree crime in New Jersey. In connection with the plea
agreement, the Company will pay a fine of $20,000, and its guilty plea cannot be
used against the company in any civil lawsuits. In addition, Christopher P.
Westad, the Company's President and Acting Chief Executive Officer, entered into
a pre-trial intervention agreement, conditioned upon 250 hours of community
service over a two-year period, which he is currently performing.
The Company is not currently involved in any legal proceeding that is
likely to have a material adverse effect on the results of operations or the
financial condition of the Company. From time to time, the Company may become a
party to litigation incidental to its business. There can be no assurance that
any financial legal proceedings will not have a material adverse affect on the
Company.
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DESCRIPTION OF SECURITIES
The shares of our common stock that are covered by this prospectus may
be acquired by the selling security holders under the terms of a private
placement transaction that occurred on July 12, 2005. In connection with this
transaction and as more fully described below, we issued warrants exercisable
for 192,308 shares of common stock and convertible debentures which may be
converted into 384,618 shares of common stock. The convertible debentures also
provide that interest thereon may be paid in shares of common stock. All of the
documents from this transaction, including the forms of the warrants and
convertible debentures, have been filed or incorporated by reference as exhibits
to the registration statement to which this prospectus forms a part.
COMMON STOCK
Able Energy is authorized to issue 10,000,000 shares of common stock,
$.001 par value per share, of which as of the date of this prospectus 2,514,463
shares of common stock are outstanding.
The holders of common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Holders of common
stock are entitled to receive ratably dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the common
stock are entitled to share ratably in all assets remaining, if any, after
payment of liabilities. Holders of common stock have no preemptive rights and
have no rights to convert their common stock into any other securities.
Able Energy's common stock is listed on the Nasdaq SmallCap Market under
the symbol "ABLE".
PREFERRED STOCK
The Certificate of Incorporation authorizes the issuance of 10,000,000
shares of preferred stock, $.001 par value per share, with designations, rights
and preferences determined from time to time by its Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without stockholder
approval, to issue classes of preferred stock with voting, liquidation,
conversion, or other rights that could adversely affect the rights of the
holders of the Common Stock. Although the Company has no present intention to
issue any shares of its preferred stock there can be no assurance that it will
not do so in the future. Furthermore, no preferred stock may be issued by the
Company unless such issue is approved by the Company's independent directors.
CONVERTIBLE DEBENTURES AND WARRANTS
On July 12, 2005, we consummated a financing with the selling security
holders listed in the "Selling Security Holders" section below in the amount of
$2.5 million. Such selling security holders acquired debentures evidenced by a
Variable Rate Convertible Debenture (the "Convertible Debentures"). The
Convertible Debentures shall be repaid within two years from the date of
issuance, subject to the occurrence of an event of default, with interest
payable at the rate per annum equal to LIBOR for the applicable interest period,
plus 4% payable on a quarterly basis. The Debentures may be converted at the
option of the selling security holders into shares of our common stock at a
conversion price of $6.50 per share. In addition, the selling security holders
received five (5) year warrants to purchase 192,308 of common stock at an
exercise price of $7.15 per share. We have an optional redemption right (which
right shall be mandatory upon the occurrence of an event of default) to
repurchase all of the Convertible Debentures for 125% of the face amount of the
Convertible Debentures plus all accrued and outstanding interest and expenses,
as well as a right to repurchase all of the Convertible Debentures in the event
of the consummation of a new financing in which we sell securities at a purchase
price that is below the $6.50 conversion price.
The Convertible Debentures and warrants contain restrictions on their
conversion or exercise in certain circumstances. A holder will not be permitted
to convert a Convertible Debenture or exercise a warrant if such conversion or
exercise would result in such holder beneficially owning more than 4.99% of the
number of shares of our common stock outstanding immediately after the
conversion or exercise. Also, unless the separate approval of our shareholders
has previously been obtained, we may not issue upon conversion of a Convertible
Debenture or exercise of a warrant a number of shares of common stock which,
when aggregated with all shares issued upon prior conversions of Convertible
Debentures and exercises of warrants, would exceed 19.99% of the number of
shares of our common stock outstanding immediately preceding the date on which
the Convertible Debentures and warrants were originally issued.
The Convertible Debentures and warrants contain anti-dilution
provisions that would reduce the conversion price of the Convertible Debentures
and the exercise price of the warrants in certain circumstances. These
anti-dilution provisions would be triggered in the event that we sell, grant an
option to purchase, or otherwise dispose of or issue, shares of our common stock
at an effective price lower than the conversion price, in the case of the
Convertible Debentures, or the exercise price, in the case of the warrants. When
these anti-dilution provisions are triggered, it increases the number of shares
of common stock issuable upon conversion of the Convertible Debentures and
exercise of the warrants. For example, if we were to sell 100,000 shares of our
common stock at $5.23 per share (50% of the closing price on Nasdaq on October
11, 2005), which is lower price than the current $6.50 conversion price of the
Convertible Debentures and $7.15 exercise price of the warrants, the number of
shares of common stock issuable upon conversion of the outstanding Convertible
Debentures would increase from 384,615 shares to 478,011 shares, and the number
of shares issuable upon exercise of the outstanding warrants would increase from
174,825 shares to 186,012 shares.
The conversion price of the Convertible Debentures and the exercise
price of the warrants would also be adjusted to account for any stock dividends,
splits, or pro rata distributions to holders of our common stock.
We also granted to the selling security holders who acquired the
Convertible Debentures an additional investment right (the "Additional
Investment Right"), for a period of eighteen months from the date of this
prospectus, to purchase units consisting of convertible debentures in the
aggregate amount of up to $15,000,000 (the "Additional Debentures") and common
stock purchase warrants equal to 50% of the face amount of such Additional
Debentures (the "Additional Warrants"). The conversion price of the Additional
Debentures shall be $6.50 per share of common stock with respect to the first
$5,000,000 of Additional Debentures purchased, $7.50 per share of
18
common stock for the second $5,000,000 of Additional Debentures purchased and
80% of the average weighted price of our common stock during the 20 trading days
immediately prior to the holders' election to purchase the third $5,000,000 of
Additional Debentures. The Additional Warrants shall have a five-year term and
an exercise price of 110% of the conversion price. In the event of the
occurrence of a default with respect to the Additional Debentures, we shall have
identical redemption rights to those described in the immediately preceding
paragraph. Moreover, the Company shall have the right to cause the selling
security holders who originally acquired the Convertible Debentures, on a pro
rata basis, based on the percentage of their purchase of Convertible Debentures,
to exercise their Additional Investment Right; however, each such selling
security holder may refuse to exercise their respective purchase right, but in
such event, would waive its right to purchase the Additional Debentures.
Finally, commencing 90 days following the date of this prospectus, and
ending on the 179th calendar day, if the average weighted price of our stock for
any 20 consecutive trading day period, during said period, exceeds $7.80 per
share, we can require the selling security holders who acquired the Convertible
Debentures to purchase the first $5,000,000 in Additional Debentures. We also
have a similar right with regard to the second $5,000,000 of Additional
Debentures if our stock during the period commencing 180 days, following the
date of this prospectus through the 269th day, for any 20 consecutive trading
day period, exceeds $9.00 per share, as well as the equivalent right with regard
to the third $5,000,000 tranche of Additional Debentures for the period 270 days
following the date of this prospectus through the 360th calendar day, if our
stock exceeds $10.20.
OTHER OUTSTANDING SECURITIES - OPTIONS
As of September 30, 2005, Able Energy had outstanding non-qualified
stock options to purchase an aggregate of 38,000 shares at an average exercise
price of $2.73 per share issued to employees, directors and consultants pursuant
to stock option plans and individual agreements with management and directors of
Able Energy.
ALL AMERICAN CONVERTIBLE DEBENTURES AND OTHER SECURITIES
As described above under "Our Business," we are currently contemplating
the acquisition of our affiliate, All American Plazas, Inc. ("All American").
All American recently consummated a financing that, if the acquisition of All
American is consummated, will impact Able Energy.
Pursuant to the terms of the Securities Purchase Agreement dated June 1,
2005 (the "Agreement") among All American and certain purchasers identified
therein (collectively, the "Purchasers"), the Purchasers loaned All American an
aggregate of $5,000,000, evidenced by two year Secured Debentures (the "All
American Debentures"). Interest on the All American Debentures is payable
quarterly at the rate per annum equal to LIBOR for the applicable interest
period, plus 4%. The loan is secured by real estate property owned by All
American in Pennsylvania and New Hampshire. Pursuant to the Additional
Investment Right (the "AIR Agreement") among All American and the Purchasers,
the Purchasers may loan All American up to an additional $5,000,000 on the same
terms and conditions as the initial $5,000,000 loan, except for the conversion
rights associated with the All American Debentures.
If we consummate the acquisition of All American, we will assume the
obligations of All American under the Agreement, the All American Debentures and
the AIR Agreement, and we will agree that the real estate collateral will
continue to secure the loan, until the earlier of full repayment of the loan
upon expiration of the All American Debentures or conversion by the Purchasers
of the All American Debentures into shares of Able Energy common stock at a
conversion rate of the lesser of (i) the purchase price paid by us for each
share of All American common stock in the acquisition, or (ii) $3.00, (the
"Conversion Price"). However, the Conversion Price with respect to the AIR
Agreement shall be $4.00. In addition, the Purchasers shall have the right to
receive five-year warrants to purchase 2,500,000 shares of Able Energy common
stock at an exercise price of $3.75 per share. We shall also have an optional
redemption right (which right shall be mandatory upon the occurrence of an event
of default) to repurchase all of the All American Debentures for 125% of the
face amount of the All American Debentures plus all accrued and outstanding
interest and expenses, as well as a right to repurchase all of the All American
Debentures in the event of the consummation of a new financing in which we sell
securities at a purchase price that is below the Conversion Price. It is
currently contemplated that if the Able Energy/All American transaction is
consummated, the stockholders of All American will escrow a sufficient number of
shares of Able
19
Energy they receive in that transaction to satisfy the conversion of the
$5,000,000 in outstanding All American Debentures in full.
In addition, upon consummation of the All American transaction, we will
agree that the Purchasers will have demand registration rights with respect to
all shares of Able Energy common stock issued to them by conversion of the All
American Debentures. The Purchasers also will have an additional investment
right, for a period of nine months after an initial registration statement filed
by us covering the resale of their shares is declared effective by the
Securities and Exchange Commission, to purchase units of Able Energy consisting
of convertible debentures in the aggregate amount of up to $14,000,000 (the
"Additional All American Debentures") and common stock purchase warrants equal
to 50% of the face amount of such Additional All American Debentures (the
"Additional All AmericanWarrants"). The conversion price of the Additional All
American Debentures shall be $6.50 per share of common stock with respect to the
first $7,000,000 of Additional All American Debentures purchased, and 80% of the
average weighted price of our common stock during the 20 trading days
immediately prior to the Purchasers' election to purchase the Additional All
American Debentures, with respect to the remaining $7,000,000. The Additional
All American Warrants shall have a five- year term and an exercise price of 110%
of the conversion price.
There can be no assurance that our acquisition of All American will
occur on the terms described above or favorable to Able Energy, or at all.
CERTAIN ANTI-TAKEOVER DEVICES
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203"), which restricts certain transactions and
business combinations between a corporation and an "Interested Stockholder"
owning 15% or more of the corporation's outstanding voting stock for a period of
three years from the date the stockholder becomes an Interested Stockholder.
Subject to certain exceptions, unless the transaction is approved by the Board
of Directors and the holders of at least 66-2/3% of the outstanding voting stock
of the corporation (excluding shares held by the Interested Stockholder),
Section 203 prohibits significant business transactions such as a merger with,
disposition of assets to, or receipt of disproportionate financial benefits by
the Interested Stockholder, or any other transaction that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain stock plans).
TRANSFER AGENT AND REGISTRAR
Continental Transfer & Trust Company is the transfer agent and registrar
for the Company's common stock. Its address is 2 Broadway, New York, New York
10004 and its telephone number is (212) 509-4000.
MARKET FOR COMMON EQUITY, DIVIDENDS AND RELATED STOCKHOLDER MATTERS
(a) Market Price
The Company's Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "ABLE". The following table sets forth the high and low bid prices of the
Common Stock on a quarterly basis, as reported by Nasdaq:
FISCAL YEAR ENDED JUNE 30, 2005 HIGH LOW
First Quarter $ 2.62 $ 1.60
Second Quarter 6.03 2.14
Third Quarter 15.30 2.51
Fourth Quarter 22.94 7.90
FISCAL YEAR ENDED JUNE 30, 2004 HIGH LOW
First Quarter $ 3.85 $ 2.75
Second Quarter 4.17 2.55
Third Quarter 3.37 2.30
Fourth Quarter 2.62 1.60
20
(b) Benefical Holders
As of September 23, 2005, the Company's common stock was held beneficially by
approximately 2,594 persons.
(c) Dividends
We have never paid a cash dividend on our common stock. It is the current policy
of our Board of Directors to retain any earnings to finance the operations and
expansion of our business. The payment of dividends in the future will depend
upon our earnings, financial condition and capital needs and on other factors
deemed pertinent by the Board of Directors.
21
ABLE ENERGY, INC. AND SUBSIDIARIES
For the Years Ended
June 30, 2005 and 2004
Page
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8 - F-26
22
To The Board of Directors
Able Energy, Inc.
Rockaway, New Jersey 07866
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Able Energy,
Inc. and subsidiaries as of June 30, 2005 and 2004 and the related consolidated
statements of operations, Stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 2005. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Able Energy, Inc.
and subsidiaries as of June 30, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2005 in conformity with accounting principles generally accepted in the
United States of America.
Simontacchi & Company, LLP
Rockaway, New Jersey
September 14, 2005
F-1
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
ASSETS
------
2005 2004
---- ----
CURRENT ASSETS:
Cash $ 1,754,318 $ 1,309,848
Accounts Receivable (Less Allowance for Doubtful
Accounts of $238,049 (2005) and $192,222 (2004) 2,876,900 2,436,554
Inventory 726,987 559,325
Notes Receivable - Current Portion 57,826 51,851
Other Receivable - Non-Compete - Current Portion 225,000 225,000
Miscellaneous Receivables 38,596 127,422
Prepaid Expenses 485,904 310,142
Deferred Costs - Insurance Claims - 424,547
Prepaid Expense - Income Taxes - 2,063
Deferred Income Tax 64,776 54,923
Other Receivable - 75,833
----------- -----------
TOTAL CURRENT ASSETS 6,230,307 5,577,508
----------- -----------
PROPERTY AND EQUIPMENT:
Land 479,346 479,346
Buildings 946,046 1,000,268
Trucks 3,594,218 3,217,443
Fuel Tanks 824,738 674,765
Machinery and Equipment 999,315 911,177
Building Improvements 790,424 607,484
Cylinders 295,476 183,773
Office Furniture and Equipment 205,319 200,640
Website Development Costs 2,390,589 2,330,794
----------- -----------
10,525,471 9,605,690
Less: Accumulated Depreciation and Amortization 5,980,636 4,819,707
----------- -----------
NET PROPERTY AND EQUIPMENT 4,544,835 4,785,983
----------- -----------
OTHER ASSETS:
Deferred Income Taxes 45,091 45,091
Deposits 54,918 137,015
Other Receivable - Non-Compete - Less Current Portion 450,000 675,000
Notes Receivable - Less Current Portion 649,435 675,295
Customer List, Less Accumulated Amortization of $188,122 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
$100,000 (2005) and $96,667 (2004) - 3,333
Development Costs - Franchising 9,191 18,382
Deferred Closing Costs - Financing 348,055 103,360
----------- -----------
TOTAL OTHER ASSETS 1,979,418 2,080,204
----------- -----------
TOTAL7 ASSETS $12,754,560 $12,443,695
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
2005 2004
---- ----
CURRENT LIABILITIES:
Accounts Payable $ 1,863,841 $ 1,703,005
Note Payable - Line of Credit 1,015,468 699,236
Note Payable - Other 432,660 -
Current Portion of Long-Term Debt 338,212 371,838
Accrued Expenses 184,097 318,154
Accrued Taxes 112,064 31,582
Employee Income Tax Withheld 146,624 -
Deferred Income - 2,333
Customer Pre-Purchase Payments 2,226,655 1,495,906
Customer Credit Balances 230,729 698,899
----------- -----------
TOTAL CURRENT LIABILITIES 6,550,350 5,320,953
DEFERRED INCOME 79,679 79,679
DEFERRED INCOME TAXES 104,517 91,176
LONG TERM DEBT: less current portion 3,961,899 3,553,836
----------- -----------
TOTAL LIABILITIES 10,696,445 9,045,644
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock
Authorized 10,000,000 Shares Par Value $.001 per share
Issued - None
Common Stock
Authorized 10,000,000 Par Value $.001 per share Issued
and Outstanding Shares 2,457,320 (2005) and 2,013,250 (2004) 2,457 2,014
Paid in Surplus 6,481,102 5,711,224
Retained Earnings (Deficit) (4,425,444) (2,315,187)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,058,115 3,398,051
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,754,560 $12,443,695
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended June 30,
2005 2004 2003
---- ---- ----
Net Sales $ 61,964,825 $ 42,882,327 $ 43,409,488
Cost of Sales 55,977,955 37,267,469 36,905,395
------------ ------------ ------------
Gross Profit 5,986,870 5,614,858 6,504,093
------------ ------------ ------------
Expenses
Selling, General and Administrative Expenses 5,946,324 6,433,697 5,105,584
Depreciation and Amortization Expense 1,183,144 1,152,906 1,070,046
------------ ------------ ------------
Total Expenses 7,129,468 7,586,603 6,175,630
------------ ------------ ------------
Income (Loss) From Operations (1,142,598) (1,971,745) 328,463
------------ ------------ ------------
Other Income (Expenses):
Interest and Other Income 214,742 149,803 112,543
Interest Expense (449,776) (576,578) (435,992)
Directors' Fees (183,197) - (24,000)
Gain (Loss) on Sale of Assets (19,249) - -
Gain on Insurance Recovery - - 215,140
Other Expense (Note 19) (318,236) - -
Legal Fees Relating to Accident (Note 9) (208,455) (261,862) (90,050)
------------ ------------ ------------
Total Other Income (Expense) (964,171) (688,637) (222,359)
------------ ------------ ------------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes (Credit) (2,106,769) (2,660,382) 106,104
Provision for Income Taxes (Credit) 3,488 39,720 52,782
------------ ------------ ------------
Net Income (Loss) From Continuing Operations (2,110,257) (2,700,102) 53,322
------------ ------------ ------------
Discontinued Operations:
Income (Loss) from Discontinued Operations - (57,630) 148,830
Gain on Sale of Subsidiary Operating Assets 2,668,490 -
------------ ------------ ------------
Income (Loss) from Discontinued Operations - 2,610,860 148,830
------------ ------------ ------------
Net Income (Loss) $(2,110,257) $ (89,242) $ 202,152
============ ============ ============
Basic Earnings (Loss) per Common Share
Income (Loss) from Continuing Operations $ (.99) $ (1.34) $ .03
============ ============ ============
Income (Loss) from Discontinued Operations $ - $ 1.30 $ .07
============ ============ ============
Diluted Earnings (Loss) per Common Share
Income (Loss) from Continuing Operations $ (.99) $ (1.34) $ .03
============ ============ ============
Income (Loss) from Discontinued Operations $ - $ 1.30 $ .07
============ ============ ============
Weighted Average number of Common Shares Outstanding 2,140,813 2,013,250 2,012,708
============ ============ ============
Weighted Average Number of Common Shares Outstanding,
Assuming Dilution 2,140,813 2,013,250 2,051,700
============ ============ ============
See accompanying notes to consolidated financial statements.
F-4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended November 30,
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS
SHARES AMOUNT SURPLUS EARNINGS EQUITY
Balance - June 30, 2002 2,007,250 $ 2,008 $ 5,687,230 $(2,428,098) $ 3,261,140
Issuance of Common Stock for
Payment of Directors' Fees 6,000 6 23,994 - 24,000
Net Income - - - 202,152 202,152
----------- ----------- ----------- ------------ -----------
Balance - June 30, 2003 2,013,250 $ 2,014 $ 5,711,224 $(2,225,946) $ 3,487,292
----------- ----------- ----------- ------------ -----------
Net Loss - - - (89,241) (89,241)
----------- ----------- ----------- ------------ -----------
Balance - June 30, 2004 2,013,250 $ 2,014 $ 5,711,224 $(2,315,187) $3,398,051
Additional Shares Issued 444,070 443 769,878 770,321
Net Loss - - - (2,110,257) (2,110,257)
----------- ----------- ----------- ------------ -----------
Balance - June 30, 2005 2,457,320 $ 2,457 $ 6,481,102 $(4,425,444) $ 2,058,115
=========== =========== =========== ============ ===========
See accompanying notes to consolidated financial statements.
F-5
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended November 30,
2005 2004 2003
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net Income (Loss) $(2,110,257) $ (89,242) $ 202,152
(Loss) Income from Discontinued Operations (57,630) 148,830
Gain on Sale of Subsidiary (2,668,490)
Gain on Sale of Subsidiary - Non-Cash 1,400,000
----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) - CONTINUING OPERATIONS $(2,110,257) $(2,700,102) $ 53,322
Adjustments to Reconcile Net Income to Net Cash
used by Operating Activities:
Depreciation and Amortization 1,183,144 1,152,906 1,070,046
Consulting Fee 12,987 - -
Loss (Gain) on Disposal of Equipment 35,722 - (215,272)
Directors' Fees 103,200 - 24,000
Stock Based Compensation 117,000 - -
(Increase) Decrease in:
Accounts Receivable (440,346) 225,254 (728,282)
Inventory (167,662) 230,097 (383,998)
Prepaid Expenses (117,320) 85,840 (167,143)
Prepaid Income Taxes 2,063 - 670
Deposits 82,097 28,526 (87,000)
Deferred Income Tax - Asset (9,853) 18,854 (8,074)
Deferred Costs - Insurance Claims 424,547 279,128 (614,816)
Increase (Decrease) in:
Accounts Payable 160,836 282,094 261,570
Accrued Expenses (53,575) (484,246) 19,355
Employee Income Tax Withheld 146,624 - -
Customer Advance Payments 730,749 559,226 56,569
Customer Credit Balance (468,170) 282,255 (131,692)
Deferred Income Taxes 13,341 20,866 15,598
Escrow Deposits - (5,000) (23,472)
Deferred Income (2,333) 2,333 -
------------- ------------- -------------
NET CASH USED BY OPERATING ACTIVITIES
CONTINUING OPERATIONS (357,206) (21,969) (858,619)
------------- ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (1,139,969) (1,216,540) (1,102,589)
Web Site Development Costs (59,795) (56,219) (74,064)
Increase in Deposits - - (7,971)
Insurance Claim Receivable - 349,526 -
Disposition of Equipment 4,876 73,860 118,258
Cash Received on Sale of Equipment and Inventory - Subsidiary 225,000 - -
Payment on Notes Receivable - Sale of Equipment 19,855 8,224 13,359
Cash Received on Sale of Property 229,814 - -
Note Receivable - Montgomery - - 655
Receivable - Officer 75,833 (75,833) -
Miscellaneous Receivables 103 826 (56,919) 43,402
------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES (540,560) (973,901) (1,008,950)
------------- ------------- -------------
CONTINUING OPERATIONS
See accompanying notes to consolidated financial statements.
F-6
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
For the Years Ended November 30,
2005 2004 2003
---- ---- ----
CASH FLOW FROM FINANCING ACTIVITIES
Note Payable - Bank $ (699,236) $ 700,000 $ -
(Decrease) Increase in Notes Payable - Bank - (1,270,764) (200,000)
Note Payable - Other 432,660 (1,585,000) 1,085,000
Note Payable - Officer - (321,630) 311,320
Note Payable - Line of Credit 1,015,468 - -
Decrease in Long-Term Debt (3,236,437) (3,377,095) (766,479)
Increase in Long-Term Debt 3,610,874 5,117,315 844,869
Increase in Deferred Financing Cost on Notes Payable (244,695) - -
Sale of Common Stock 463,602 - -
------------ ------------ ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
CONTINUING OPERATIONS 1,342,236 (737,174) 1,274,710
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Net Cash (Used) Provided by Discontinued Operations - 1,055,720 734,332
Proceeds from Sale of Equipment and Inventory - 3,000,000 -
Cost of Sale - (1,412,861) -
------------ ------------ ------------
NET CASH PROVIDED BY DISCONTINUED
OPERATIONS - 2,642,859 734,332
------------ ------------ ------------
NET INCREASE IN CASH 444,470 909,815 141,473
Cash - Beginning of Year 1,309,848 400,033 258,560
------------ ------------ ------------
Cash - End of Year $ 1,754,318 $ 1,309,848 $ 400,033
============ ============ ============
The Company had Interest Cash Expenditures of: $ 432,849 $ 665,032 $ 416,049
The Company had Tax Cash Expenditures of: $ 17,249 $ 59,638 $ 34,567
See accompanying notes to consolidated financial statements.
F-7
ABLE ENERGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Able Energy, Inc.
and its subsidiaries. All material inter-company balances and transactions were
eliminated in consolidation.
MAJORITY OWNERSHIP
The Company is the majority owner, owning 70.6% of the issued shares of a
subsidiary, PriceEnergy.Com, Inc. in which their capital investment is $25,000.
The subsidiary has established an E-Commerce Operating System for the sale of
products through a network of suppliers originally on the East Coast of the
United States. The business became active in October 2000 (See Notes 7 and 12).
MINORITY INTEREST
The minority interest in PriceEnergy.Com, Inc. is a deficit and, in accordance
with Accounting Research Bulletin No. 51, subsidiary losses should not be
charged against the minority interest to the extent of reducing it to a negative
amount. As such, the losses have been charged against the Company, the majority
owner. The loss for year ended June 30, 2005 is $819.790 (See Notes 7 and 12).
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 Energy
New York, Inc. also installs propane tanks, which it owns and sells propane for
heating and cooking, along with other residential and commercial uses in the
Warrensburg, New York area.
The Company's operations are subject to seasonal fluctuations with a majority of
the Company's business occurring in the late fall and winter months.
Approximately 70% of the Company's revenues are earned and received from October
through March, and the overwhelming majority of such revenues are derived from
the sale of home heating fuel. However, the seasonality of the Company's
business is offset, in part, by the increase in revenues from the sale of diesel
and gasoline fuels during the spring and summer months due to the increased use
of automobiles and construction apparatus.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by using the straight-line method based upon the
estimated useful lives of the assets as follows:
Trucks, Machinery & Equipment and Furniture & Fixtures 5 years
Fuel Tanks 10 years
Cylinders - Propane 20 years
Building Improvements 20 years
Buildings 30-40 years
Website Development 5 years
Depreciation expense for the year ended June 30, 2005, 2004 and 2003 amounted to
$697,780, $769,742 and $745,015, respectively. 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.
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, and accelerated special depreciation per the Tax Acts of
2002 and 2003.
F-8
At June 30, 2005 and 2004 the equipment under the capital leases had net book
values of approximately $ 768,248 and $ 622,924, respectively.
Expenditures for maintenance and repairs are charged to expense as incurred,
whereas expenditures for renewals and betterments are capitalized.
E-COMMERCE OPERATING SYSTEM DEVELOPMENT COSTS
Costs of $2,390,589 incurred in the developmental stage for computer hardware
and software have been capitalized in accordance with accounting pronouncement
SOP98-1. The costs are included in Property and Equipment and will be amortized
on a straight-line basis during the estimated useful life, 5 years. Operations
commenced in October 2000. Amortization for the years ended June 30, 2005, 2004
and 2003 amounted to $472,840, $461,823 and $445,842, respectively.
GOODWILL AND INTANGIBLE ASSETS
Intangibles include customer lists, a covenant not to compete and development
costs- franchising. The covenant not to compete and development costs -
franchising are being amortized over 5 year periods. Amortization expense
related to the covenant not to compete and development costs - franchising for
the years ended June 30, 2005, 2004 and 2003 amounted to $12,524, $29,191 and
$29,191, respectively.
Customer Lists totaling approximately $611,000 related to various acquisitions
were being amortized over lives of 10-15 years thorough July 2001 at which
point, 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
periodically tested for impairment, and adjusted 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.
The Company has reviewed the provisions of this Statement. Based upon an
assessment of the customer lists, there has been no impairment. As of June 30,
2001, the Company has net un-amortized customer lists of $422,728.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
INCOME TAXES
Effective January 1, 1997, all the subsidiaries, which were S-Corporations,
terminated their S-Corporation elections. The subsidiaries are filing a
consolidated tax return with Able Energy, Inc.
Effective January 1, 1997, the Company has elected to provide for income taxes
based on the provisions of Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements and tax returns in different years. Under this method,
deferred income tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
CONCENTRATIONS OF CREDIT RISK
The Company performs on-going credit evaluations of its customers' financial
conditions and requires no collateral from its customers.
Financial instruments, which potentially subject the Company to concentrations
of credit risk consists of checking and savings accounts with several financial
institutions in excess of, insured limits. The excess above insured limits is
approximately $1,300,000. The Company does not anticipate non-performance by the
financial institutions.
F-9
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$338,995, $651,302 and $416,712 for
the years ended June 30, 2005, 2004 and 2003, 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.
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of delivery to
the customer, and sales of equipment are recognized at the time of installation.
Revenue from repairs and maintenance service is recognized upon completion of
the service. Payments received from customers for heating equipment service
contracts are deferred and amortized into income over the term of the respective
service contracts, on a straight-line basis, which generally do not exceed one
year.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted net income per share is
computed using the weighted-average number of common and dilutive potential
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted-average number of common shares and excludes
dilutive potential common shares outstanding, as their effect is antidilutive.
Dilutive potential common shares primarily consist of employee stock options.
These options and warrants could be dilutive in the future. The numerator for
the calculation of both basic and diluted earnings per share is the earnings or
loss available for common stockholders.
STOCK BASED COMPENSATION
The Company accounts for its stock options issued to employees and outside
directors pursuant to Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and has adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", and
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123".
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation.
2005 2004 2003
Net Income (Loss) From Continuing Operations, as
reported $ (2,110,257) $ (2,700,102) $ 53,322
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for all
awards, net of related tax effects 858,324 102,224 128,950
--------------- -------------- -------------
Pro forma net loss from continuing operations $ (2,968,581) $ (2,802,306) $ (75,628)
=============== ============== =============
Weighted average common
shares outstanding 2,140,813 2,013,250 2,012,708
=============== ============== =============
Dilutive effect of stock
options and warrants 2,140,813 2,013,250 2,051,700
=============== ============== =============
F-10
(Loss) earning per share:
Basic from continuing operations, as reported $ (.99) $ (1.34) $ .03
=============== ============== =============
Basic from continuing operations, pro forma $ (1.39) $ (1.39) $ (.04)
=============== ============== =============
Diluted from continuing operations, as reported $ (.99) $ (1.34) $ .03
=============== ============== =============
Diluted from continuing operations, pro forma $ (1.39) $ (1.39) $ (.04)
=============== ============== =============
Potentially dilutive options and warrants to purchase 238,000, 349,000 and
389,000 shares of the common stock were outstanding as of June 30, 2005, 2004
and 2003, respectively, but were not included in the computation of diluted loss
per share because the effect of their inclusion would have been anti-dilutive.
The estimated weighted average fair values of the options at the date of grant
using the Black-Scholes option-pricing model as promulgated by SFAS No. 123 and
the related assumptions used to develop the estimates are as follows:
2005 2004 2003
Weighted Average fair value of options granted
during the year $4.82 $2.04 $1.99
Risk-free interest rate 4.0% 4.0% 4.0%
Expected volatility 185.9% 120.1% 113.7%
Dividend yield - - -
Expected life 5 years 5 years 5 years
See Note 13 for further discussion of the Company's stock options.
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS 123 and the Emerging Issues Task Force ("EITF") Issue No.
96-18, "Accounting for Equity Instruments that are Issued to other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services."
Under SFAS 123, the cost is measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured.
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
SHARE-BASED PAYMENT
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS
123(R) requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. The compensation cost will
be measured based on the fair value of the equity or liability instruments
issued. The Statement is effective as of the beginning of the first interim or
annual period beginning after June 15, 2005. We will adopt SFAS No. 123(R) on
September 1, 2005 using the modified prospective method. We have disclosed the
pro forma impact of adopting SFAS No. 123(R) on net income and earnings per
share for the year ended June 30, 2005, 2004 and 2003 in Note 1, which includes
all share-based payment transactions to date. We do not yet know the impact that
any future share-based payment transactions will have on our financial position
or results of operations.
INVENTORY COSTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." SFAS 151
amends ARB No. 43, "Inventory Pricing", to clarify the accounting for certain
costs as period expense. The Statement is effective for fiscal years beginning
after June 15, 2005; however, early adoption of this Statement is permitted.
There was no impact from the adoption of this statement.
F-11
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. No payments have been received in more than
30 months.
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.
The Company is in negotiations with Andrew Schmidt. Andrew Schmidt and the
Company have reached an agreement whereby the liability will be paid by an
additional $.04 per gallon charge on oil purchased from the Company. The Company
believes the value of the collateral will cover the amount due if foreclosure is
required.
Maturities of the Note Receivable are as follows:
For the 12
Months Ending Principal
June 30, Amount
--------------------- --------------
2006 $ 44,118
2007 13,753
2008 15,118
2009 16,619
2010 18,268
Thereafter 60,825
--------------
Total $168,701
==============
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. Two notes
bear interest at the rate of 12% per annum and one Note 9% annum. One note began
December 1998, one began February 1999 and one began January 2004. 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 Principal
June 30, Amount
--------------------- --------------
2006 $ 13,708
2007 11,990
2008 6,147
2009 6,715
--------------
Total $ 38,560
==============
F-12
NOTE 3 INVENTORIES
Items June 30, 2005 June 30, 2004
------------------------------- ----------------- -----------------
Heating Oil $ 335,245 $ 232,364
Diesel Fuel 34,409 19,998
Kerosene 3,025 4,906
Propane 28,020 13,461
Parts, Supplies and Equipment 326,290 288,596
----------------- -----------------
Total $ 726,987 $ 559,325
================= =================
NOTE 4 NOTES PAYABLE BANK
A. On September 22, 2003, the Company closed a new loan facility with UPS
Capital Business Credit. The facility is a $4,300,000 term loan, payable
over fifteen (15) years with interest at the prime rate, plus 1.75%, and
a line of credit of $700,000 with interest at prime plus 1.00%. The
payments on the term loan, due the first of each month, include
principal, interest of $35,900.04, and real estate tax escrow of
$2,576.63, totaling $38,476.67. Real estate tax escrow of $7,745.03 was
paid at closing. September 30, 2003 was the first payment and included
nine (9) days of interest plus principal totaling $20,382.02. Any
payment received more than five (5) days after the due date is subject
to a late charge of 5% of such payment. Upon the occurrence of an event
of default, the loan shall bear interest at five percentage points (5%)
above the rate otherwise in effect under the loan.
On March 3, 2004, the Company repaid $1,100,000 of the term loan
principal balance. The monthly payments of principal and interest were reduced
to $26,672.65, commencing with the payment due April 1, 2004, which was paid by
the Company in March 2004. All other terms of the loan will remain the same.
1. The collateral will be as follows for the term loan:
A. A first mortgage on properties located at 344 Route 46,
Rockaway, NJ and 38 Diller Avenue, Newton, NJ
B. A first security interest in equipment and fleet
vehicles
C. A first security interest in the customer list
TERMS AND COLLATERAL RELATED TO THE REVOLVING LINE OF CREDIT
Interest is payable monthly on the first day of each month, in arrears.
This loan shall be paid down annually for a minimum of thirty (30) days
at the borrower's discretion, but prior to renewal. The maturity is
annually renewing from the closing date. This part of the loan is
secured by a first priority lien on accounts receivable and inventory.
The Revolving Line of Credit will have rates supported by 75% on
accounts receivable less than 90 days outstanding, plus 50% on
inventory. The outstanding balance at June 30, 2004 was $700,000.
The loan facility is guaranteed by Able Energy, Inc. Officer's loans and
are subordinated to the lender and will remain standstill until all debt
due to the lender is paid in full.
The Agreement contains certain financial covenants as enumerated in the
Agreement
The balance of the term loan at June 30, 2004 was $3,064,523
Included in current portion of long-term debt 144,422
----------
Included in long-term debt - less current portion $2,920,101
==========
The Term Loan and the Line of Credit were paid in full on May 13, 2005
with new financing secured by the Company (see note 4 B and C)
B. On May13, 2005, the Company entered into a term loan with Northfield
Savings Bank for $3,250,000. Principal and interest shall be due and
payable the first of each months, commencing on July 1, 2005, in the
amount of $21,439.25. The initial interest rate is 6.25% per annum on
the unpaid principal balance for the first five (5) years, to be
redetermined every fifth anniversary date (reset date) at 300 basis
points over the five (5) year treasury rate, but not lower than the
initial rate; at that time the monthly payment will be
F-13
redetermined. At the maturity date of June 1, 2030, all amounts owed are
due and payable. If payment is not received within ten (10) days after
its due date, a late charge of 5% of such delinquent payment will be
applied. Prepayments may be paid in whole or part, together with accrued
interest on the prepaid amount.
Security for the Note is a Mortgage and Security Agreement on real
property in the Borough of Rockaway, County of Morris, New Jersey and an
assignment of leases and rents, the property is at 344 Route 46. The
property is owned by Able Energy Terminal, LLC, a wholly owned
subsidiary. Borrower hereby grants to the bank a continuing security
interest in all property of the borrower, now and hereafter in
possession of the bank, as security for payment of this note and any
other liabilities to the bank. The interest rate on default is 4% per
annum above the interest rate then in effect.
Covenants
The Financial Statements and Compliance Certificate, as per the
Agreement, will be signed by the borrower's chief financial officer. As of June
30, 2005, the Company is in compliance with the Agreement covenants.
The Company paid the term loan due of $3,019,298.52, which included a
prepayment penalty of $70,864 (included in interest expense on the statement of
operations), to UPS Capital with proceeds from this loan and also closing costs
and legal fees. The net amount to the Company was $94,993.67.
Management believes that the carrying value of its long-term debt
approximates fair value in accordance with SFA 107.
C. On May 13, 2005, the Company and subsidiaries entered into a loan and
security agreement with Entrepreneur Growth Capital, LLC, as lender. The
loan will be a Line-Of-Credit of $1,750,000, secured by (1) accounts
receivable, 60 days or less in age from invoice date with a maximum of
$1,250,000 (accounts Line of Credit) and inventory, owned by borrower in
storage tanks in Rockaway, New Jersey facility and goods held for sale
or lease or to be furnished under a contract of service and all present
and future raw materials, work in process and finished goods, maximum
credit line of $500,000 (inventory credit line). Loans and advances of
85% of net amount of eligible accounts receivable and 30% of net amount
of eligible inventory, not to exceed the Line-of-Credit amount. The
balance due by June 30, 2005 is $1,015,468.
Interest and Fees
Interest payable on loans and advances, related to both accounts
receivable and inventory advances are charged at Citibank's Prime rate,
plus 4% per annum, but the rate shall never be more than 24% or maximum
permitted by law. All interest and fees charged or chargeable to
borrower shall be deemed as an additional advance.
Any advance interest shall be charged at 18% per annum, the default rate
of interest shall be 24% per annum. The Company shall pay the lender an
annual facility fee in an amount equal to two percent (2%) of the
Line-of-Credit, $3,500. The facility fee is payable upon execution of
this agreement and upon each annual anniversary date of this agreement
until such time this agreement has been terminated in accordance with
its terms. Borrower shall pay lender a minimum interest charge in an
amount equal to the difference between (a) $11,000 per month, and (b)
the actual amount of interest charged to the borrower on the obligation
that month.
Borrower shall pay lender a monthly collateral management fee equal to
one quarter of one percent (0.25%) of the Line-of- Credit, $437.30.
Collateral
All of borrower's (a) accounts receivable, now existing and hereafter
created (b) present and future deposit accounts (c) present and future
books records, computer programs, etc. (d) presently owned or hereafter
F-14
acquired inventory (e) present and future general intangibles, including
customer lists, trademarks, etc. (f) rights, title and interest in any
and all assets, personal property owned by third parties.
Events of default as per Section 8 of the agreement
This agreement shall continue in full force and effect for a term ending
on the last business day of the month two (2) years from the date hereof
("the Renewal Date") and shall automatically renew from year-to-year
thereafter until terminated pursuant to the terms here of. The lender
may terminate this agreement on the Renewal Date or on the anniversary
of the Renewal Date in any year by giving the borrower at least thirty
(30) days prior written notice, by registered or certified mail, return
receipt requested. Borrower may terminate upon the same dates by giving
ninety (90) day notice to lender.
The Company Paid the Line of Credit loan to UPS Capital of $699,235.94,
plus interest of $1,621.83, for a total of $700,857.77.
NOTE 5 NOTES PAYABLE
The Company has a mortgage note payable to Able Income Fund, LLC with an
original balance of $500,000. The note is dated February 22, 2005 and is
due May 22, 2005. The note has an interest rate of 14% per annum and is
payable with interest only at $5,833.33 per month with the balance and
any accrued interest due at May 22, 2005. The note is secured by a
mortgage on property in Warrensburg Industrial Park, Warrensburg, New
York, owned by Able Energy New York, Inc., a wholly owned subsidiary of
the Company. The due date of the loan has been extended to August 22,
2005. All other terms and conditions remain unchanged. One of the owners
of Able Income Fund, LLC is the prior Chief Executive Officer (CEO) of
Able Energy, Inc. The balance due at June 30, 2005 is $432,660.
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
Horicon Avenue, Town of Warrensburg, Warren County, New York. The
balance due on this Note at June 30, 2005 and June 30, 2004 was $73,713
and $88,242, respectively.
INTEREST RATE AT JUNE MATURITIES OUTSTANDING DEBT OUTSTANDING DEBT
30, 2005 AND 2004 AT AT
6/30/2005 6/30/2004
Notes Payable Collateralized
By Trucks and Vans 2.90 - 12.506% 10/20/05-8/10/06 $ 20,920 $ 26,904
Capitalize Leases Payable
Collateralized by Trucks and Vans
Purchased 4.075 - 9.498% 1/7/05-4/5/10 932,102 708,570
Notes Payable Collateralized by Office
and Computer Equipment 4.699 - 16.196% 9/1/04-5/27/08 23,376 37,435
-------- --------
$976,398 $772,909
-------- --------
The above notes are all collateralized by the equipment and/or furniture
purchased. The capitalized leases payable are lease/purchase agreements with a
small purchase price at the end of the lease. The above notes are represented by
Notes Payable to Payees.
F-15
Maturities on the Notes Payable subsequent to June 30, 2005 are as follows:
For the 12
Months Ending Principal
June 30, Amount
--------------------- --------------
2006 $ 338,212
2007 334,759
2008 309,158
2009 263,909
2010 120,924
thereafter 2,933,149
--------------
Total $4,300,111
==============
NOTE 6 INCOME TAXES
Effective January 1, 1997 the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. The differences between the
statutory Federal Income Tax and Income Taxes is accounted for as follows:
2005
----
AMOUNT PERCENT
------ -------
Statutory Federal Income Tax $ 2,442 15.0%
State Income Tax 1,046 7.6
------- ----
Income Taxes $ 3,488 22.6%
======= ====
Income Taxes consist of:
Current $ -
Deferred 3,488
------
TOTAL $3,488
======
Note X - The State of New Jersey has suspended the use of carry forward
losses for the years 2002 and 2003. As such, state income taxes of
$45,091 have been shown as a deferred asset and as income taxes payable.
New Jersey carry forward is treated separately by the Company. Able Oil
Company has a New Jersey Operating Loss of $501,010 which can not be
utilized in the year ended June 30, 2003, the State Income Tax on income
in excess of the NOL $45,258 is shown as state income tax. Under current
New Jersey law, the carry forward will be available up to 50% of NOL
after 2003, the Company's fiscal year ending June 30, 2005.
The effective tax rate differed from the statutory U.S. Federal Income
Tax Rate as follows:
FISCAL YEAR ENDED JUNE 30,
2005 2004 2003
U.S. Federal Statutory Rate 15.0 15.0 34.0
2004 2003
---- ----
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
Statutory Federal Income Tax $ 27,804 15.0% $ 204,432 34.0%
Federal Income Tax Reduction due to Carry
forward loss
State Income Tax (199,165)
State Income Tax (Note X) 11,916 7.6 45,258 5.9
State Income Tax Reduction due to 45,091
Carryforwardloss
Income Taxes - - (42,834) -
--------- ----- --------- -----
$ 39,720 22.6% $ 52,782 39.9%
========= ===== ========= =====
Income Taxes consist of:
Current $ - $ 45,258
Deferred 39,720 7,524
--------- ---------
TOTAL $ 39,720 $ 52,782
========= =========
F-16
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to a
significant portion of the deferred tax liability and deferred tax asset and
their approximate tax effects are as follows at:
JUNE 30, 2005
-------------
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
Depreciation and Amortization $(401,097) $(104,517)
Allowance for Doubtful Accounts 238,049 60,741
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carry forward 501,010 45,091
JUNE 30, 2004
-------------
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ------
Depreciation and Amortization $(339,045) $(91,176)
Allowance for Doubtful Accounts 192,222 50,888
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carry forward 501,010 45,091
Able Energy, Inc., et al, open years are June 30, 2001, 2002, 2003 and 2004. The
Company has a Federal net operating loss carry forward of approximately
$2,682,000. The net operating loss expires between June 30, 2019 and 2021. Able
Energy, Inc. and PriceEnergy.Com, Inc. have a New Jersey Net Operating Loss
Carry forward of approximately $489,374 and $2,217,251, respectively, which can
be utilized in the year ending June 30, 2005.
These carry forward losses are available to offset future taxable income, if
any. The Company's utilization of this carry forward against future taxable
income is subject to the Company having profitable operations or sale of Company
assets, which create taxable income. For the year ended June 30, 2005, $-0- of
net income has been utilized against the net operating loss carry forward. At
this time, the Company believes that a full valuation allowance should be
provided. The component of the deferred tax asset as of June 30, 2005 are as
follows:
Net Operating Loss Carry forward - Tax Effect $ 911,880
Valuation Allowance (911,880)
-----------
Net Deferred Tax based upon Net
Operating Loss Carry forward $ -0-
-----------
F-17
NOTE 7 NOTE RECEIVABLE - SUBSIDIARY
The Company has a Note Receivable from PriceEnergy.Com, Inc. for advances made
in the development of the business, including hardware and software costs. All
of PriceEnergy.Com, Inc.'s assets are pledged as collateral to Able Energy, Inc.
The amount of the note is $1,350,000 dated November 1, 2000 with interest at 8%
per annum payable quarterly. Principal payments to begin two years after the
date of the Note, November 1, 2002. Through June 30, 2005, no principal has been
paid. Interest, in the amount of $54,000 has been accrued for the six months
ended December 31, 2002. No interest has been accrued since December 31, 2002 as
the note is non-performing. Unpaid accrued interest due through June 30, 2005 is
$234,000. The Note, accrued interest and interest expense have been eliminated
in the consolidated financial statements (See Notes 1 and 12).
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 through June 30, 2005, resulting in a balance of $3,544,389
with interest at 8% per annum, to be paid quarterly. 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. No interest has been recorded since
December 31, 2002. Any payments will go to pay principal. The note receivable
accrued interest and interest income have been eliminated in consolidation
against the amounts on PriceEnergy.Com, Inc.
NOTE 8 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 $ 27,472 and $26,579 for
the year ended June 30, 2005 and 2004, respectively.
NOTE 9 COMMITMENTS AND CONTINGENCIES
Able Oil Company is under contract to purchase #2 oil as follows:
GALLONS OPEN OPEN DOLLAR
COMMITMENT COMMITMENT AT
COMPANY PERIOD TOTAL GALLONS AT 6/30/04 6/30/04
------- ------ ------------- ---------- -------
Petrocom 10/1/05-3/31/06 252,000 252,000 $ 413,910
Conectiv Energy 11/1/05-2/28/06 168,000 168,000 257,754
Petrocom 10/1/05-4/30/06 294,000 294,000 430,962
Center Oil 10/1/05-4/30/06 588,000 588,000 930,829
Gulf Oil 11/1/05-2/28/06 168,000 168,000 251,454
--------- --------- -----------
Total 1,470,000 1,470,000 $ 2,284,909
--------- --------- -----------
The Company is subject to laws and regulations relating to the protection of the
environment. While it is not possible to quantify with certainty the potential
impact of actions regarding environmental matters, in the opinion of management,
compliance with the present environmental protection laws will not have a
material adverse effect on the financial condition, competitive position, or
capital expenditures of the Company.
In accordance with the agreement on the purchase of the property on Route 46,
Rockaway, New Jersey by Able Energy Terminal, LLC, the purchaser shall commence
after the closing which was August 31, 1999, 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. A settlement has been achieved by the Company with regard to the
lawsuit. The settlement provides for a lump sum payment of $397,500 from the
defendants to the Company. In return, the defendants received a release from the
Estate (the Seller) and a
F-18
release and indemnification from the Company. The defendants provided a release
to Able Energy and the Estate. Pursuant to the original agreement, the Estate
receives 50% of the settlement amount, net of attorney fees.
This has been amended by an agreement dated November 5, 2001. The entire
settlement, net of attorney fees, was collected and placed in an attorney's
escrow account for payment of all investigation and remediation costs. Able
Energy Terminal, LLC has incurred costs of $102,956 to June 30, 2005, which are
included in Prepaid Expenses and must be presented to the attorney for
reimbursement. The New Jersey Department of Environmental Protection (NJDEP) has
issued an approval for treated water run-off. The ruling is for a 180-day
period, which can be renewed for an additional 180 days, per management, during
which a valid permit must be obtained. When approval is received and contract
invoice wording is sufficient for the attorney, reimbursement can be made upon
approval of the attorney and the Estate.
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
of $650,000 and not by direct payments. The note has been paid in full. As such,
any payment by the Estate must be direct payments. Payments will begin when and
if costs exceed $397,500. 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.
Following an explosion and fire that occurred at the Able Energy Facility in
Newton, NJ on March 14, 2003, and through the subsequent clean up efforts, Able
Energy has cooperated fully with all local, state and federal agencies in their
investigations into the cause of this accident.
All violation charges with the New Jersey Department of Community Affairs and
OSHA have been settled and paid.
The Sussex County, New Jersey, Prosecutor's Office is conducting and
investigation as a result of the March 14, 2003 explosion and fire. At a hearing
on July 27, 2005, the President and former CFO pleaded guilty and received
community service. The Company will face a fine of up to $30,000 when sentenced
September 21, 2005.
A lawsuit (known as Hicks vs. Able Energy, Inc.) has been filed against the
Company by property owners who allegedly suffered property damages as a result
of the March 14, 2003 explosion and fire. The Company's insurance carrier is
defending as related to compensatory damages. Legal counsel is defending on the
punitive damage claim. On June 13, 2005, the Court granted a motion certifying a
plaintiff class action which is defined as "All Persons and Entities that on and
after March 14, 2003, residing within a 1,000 yard radius of Able Oil Company's
fuel depot facility and were damaged as a result of the March 14, 2003
explosion". The claim is limited to economic loss and claims for personal injury
have been specifically excluded from the Class Certification. The insurer has
settled approximately 200 claims against the Company. The Company believes that
the Class Claims for compensatory damages is within the available limits of its
insurance.
After the March 14, 2003, fire and explosion, the town of Newton changed its
zoning requirements and made fuel oil and propane distribution prohibited uses.
The Company is appealing a denial of a request for building permits to
reconstruct damaged and destroyed buildings and sought a Non-Conforming Use
Certificate to permit the fuel oil distribution use only. On August 20, 2004,
the Superior Court of New Jersey ruled that the Company may continue to use the
site as a non-conforming use, but stayed its decision subject to Newton's
appellate rights. The decision was upheld in May 2005 by the court upon the
appeal of the Town of Newton. The Company is planning to use the property in the
manner approved by the decision.
As a result of the March 14, 2003 explosion and fire, various claims for
property damage have been submitted to the Company's insurance carrier. These
claims are presently being handled and, in many cases, settled by the insurance
carrier's adjuster. There were approximately 200 claims being handled and
adjusted with reserves for losses established as deemed appropriate by the
insurance carrier. The majority of these claims have been settled.
Two lawsuits have been filed by homeowners in Newton, New Jersey who allegedly
suffered property damages as a result of the March 14, 2003 explosion and fire.
The Company's insurance carrier is defending as related to the property damage
claims. As to Punitive Damages, one case is being defended by an outside
attorney and one by the insurance carrier. It appears that compensatory damage
claims are within the available limits of insurance.
F-19
The Company in the normal course of business has been involved in lawsuits.
Current suits are being defended by the insurance carrier and should be covered
by insurance and legal counsel is defending on punitive damage claims as noted
above.
NOTE 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 and has been rewritten. The lease
provides for a change of $0.022 per gallon through put, as per a monthly rack
meter reading.
Estimated future rents are $0.022 per gallon through put charges per the monthly
rack meter readings.
The Company leased 9,800 square feet in the Rockaway Business Center 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 and three (3) months from August 1, 2000
through October 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 Company and the landlord
have agreed to extend the lease for a period of six months to April 30,2006
based upon the existing terms. The total rent expense was $117,588 for the year
ended June 30, 2005. The estimated future rents are as follows:
July 2005-April 2006 $ 98,830
---------
The following summarizes the month-to-month operating leases for the
other subsidiaries:
Able Oil Melbourne $500.00, per month
Total rent expense, $6,000
Able Energy New York $500.00, per month
Total rent expense, $6,000
NOTE 11 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. No new franchise agreements have
been signed.
NOTE 12 RELATED PARTY TRANSACTIONS
The following officers of this Company own stock in the subsidiary,
PriceEnergy.Com, Inc., which they incorporated in November 1999.
F-20
Former Chief Executive Officer 23.5%
President 3.6%
Chief Operating Officer 2.3%
No capital contributions have been made by these officers (See Notes 1
and 7).
The Company has entered into a consulting agreement with its former Chief
Executive Officer ("CEO") on February 16, 2005 (see note 20). The agreement is
for two years and provides for annual fees of $60,000 to be paid in monthly
installments. In addition the former CEO received options to purchase 100,000
shares of the Company's common stock at $4.00 per share. The options were
excercised on July 7, 2005, at which time the closing price was $16.89. The
former CEO was paid $20,769 related to this agreement during the year ended June
30, 2005
During the year ended June 30, 2005 the Company paid $20,000 in legal fee to a
firm in which one of the members of the Board of Directors is a partner.
All American Plazas, Inc., currently owns approximately 40% of the Company's
outstanding shares. In addition, a director and General Counsel of the Company
and one of the Company's vice presidents have related interests in All American
Plazas. Inc.
The Company entered into a Stock Purchase Agreement on that date ("Purchase
Agreement") with all of the shareholders (the "Sellers") of All American Plazas,
Inc. ("All American") in connection with our acquisition of All American. The
transaction is expected to be consummated in October 2005, upon receipt of the
required approval by our stockholders.
At the closing, we will deliver to the Sellers 11,666,667 shares of our
restricted common stock, par value $.001 per share, at $3.00 per share for an
aggregate purchase price of $35,000,000. In addition, at the closing, we will
deliver to certain of the Sellers a number of shares of our restricted common
stock equal to the number of shares of our common stock owned by All American as
of the closing date.
All American recently consummated a financing that, if the acquisition of All
American is consummated, will impact the Company. Pursuant to the terms of the
Securities Purchase Agreement dated June 1, 2005 (the "Agreement") among All
American and certain purchasers, the purchasers loaned All American an aggregate
of $5,000,000, evidenced by Secured Debentures also dated June 1, 2005 (the
"Debentures").
If the Company consummate the acquisition of All American, upon such
consummation, we will assume the obligations of All American under the
Agreement, the Debentures and the AIR Agreement through the execution of a
Securities Assumption, Amendment and Issuance Agreement, Registration Rights
Agreement, Common Stock Purchase Warrant Agreement and Variable Rate Secured
Convertible Debenture Agreement, each between the Purchasers and us (the "Able
Energy Transaction Documents").
In connection with two loans entered into by the company in May 2005 (see note
4), fees in the amount of $167,500 were paid to Unison Capital Corporation, a
company in which a vice president of Able Energy has a related interest. This
individual also has a related party interest to All American Plazas, Inc., the
Company's largest shareholder.
Subsequent to the payments being made and based on discussions with Unison
Capital Corporation it was determined the $167,500 was an inappropriate payment
to a related party and Unison Capital Corporation has agreed to reimburse this
amount to the Company over a twelve month period beginning in October 2005. The
charge had been appropriately classified as deferred finance charges in the
balance sheet and therefore will have no effect on the Company's statement of
operations.
NOTE 13 STOCK OPTIONS AND WARRANTS
STOCK OPTIONS AND WARRANTS
F-21
The Able Energy, Inc. 1999 Employee Stock Option Plan for stock options awards
up to 700,000 shares of the Company's common stock to be granted to directors,
employees and consultants of the Company. The Plan was cancelled and no further
grants available upon the ratification of the Able Energy, Inc. 2005 Incentive
Stock Plan.
The Able Energy, Inc. 2000 Employee Stock Option Plan for stock options awards
up to 350,000 shares of the Company's common stock to be granted to directors,
employees and consultants of the Company.
The Able Energy, Inc. 2005 Incentive Stock Plan provides for stock options,
stock awards and restricted stock purchase offer awards up to 1,000,000 shares
of the Company's common stock to be granted to directors, employees and
consultants of the.
There was compensation expense of approximately $117,000 recorded from stock
options under APB 25 for the year ended June 30, 2005. On May 5, 2005, the
Company granted 50,000 vested options each to two employees at an exercise price
15% below market vesting immediately.
A summary of the Company's stock option activity, and related information for
the years ended June 30, follows:
Options Weighted-Average Number of Weighted-Average
Exercise Price Exercisable Exercise Price
Outstanding June 30, 2002 235,840 $ 3.15 230,340 $ 3.11
Granted 50,000 3.16
--------------
Outstanding June 30, 2002 285,840 3.15 283,090 2.48
Granted 50,000 2.55
Expirations (47,840) 3.25
--------------
Outstanding June 30, 2002 288,000 3.03 288,000 3.03
Granted 200,000 5.34
Exercised (194,000) 2.52
Expirations (56,000) 5.00
--------------
Outstanding June 30, 2002 238,000 4.92 238,000 4.92
==============
Weighted-average fair value of options granted during the years:
2005 2004
Where exercise price
equals stock price - -
Where exercise price
exceeds stock price $ 2.05 $ 2.04
Where stock price
exceeds exercise price $ 7.60 -
Following is a summary of the status of stock options outstanding at June 30,
2005:
Outstanding and Exercisable Options
---------------------------------------------------
Number Weighted- Weighted-Average
Exercise Outstanding Average Exercise Price
Price Range at 6/30/05 Remaining Contractual Life
------------------ ---------------- --------------- ----------------
$ 2.25 - $ 3.16 38,000 2.9 $ 2.73
$ 4.00 - $ 6.68 200,000 4.8 5.34
---------------- --------------- ----------------
F-22
A summary of the Company's stock warrant activity, and related information for
the years ended June 30, follows:
Weighted- Weighted-
Warrants Average Number of Average
Exercise Price Exercisable Exercise Price
Outstanding June 30, 2002 150,000 $ 4.67 150,000 $ 4.67
Grants (170,000) 5.00
-----------------
Outstanding June 30, 2003 320,000 4.85 320,000 4.85
Expirations (40,000) 4.00
-----------------
Outstanding June 30, 2004 280,000 4.97 280,000 4.97
Exercised (91,213) 5.25
Expirations (188,787) 4.83
-----------------
Outstanding June 30, 2005 - - - -
=================
NOTE 14 COMPENSATED ABSENCES
There has been no liability accrued for compensated absences; as in accordance
with Company policy, all compensated absences, accrued vacation and sick payment
must be used by December 31st. At June 30, 2005, any amount for accrual of the
above is not material and has not been computed.
NOTE 15 CASH FLOW INFORMATION
The following transaction resulted in no cash being received or expended:
Issuance of common stock in payment of
2003 and 2004 director fees $ 103,200
Issuance of common stock to Summit Ventures 71,429
Stock based Compensation 117,000
Stock issued on exercise of stock options- funds due 15,000
NOTE 16 BUSINESS SEGMENT INFORMATION
The Company sells several types of products and provides services. Following are
revenues by product groups and services:
CONTINUING OPERATIONS FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------------
2005 2004 2003
----------------- ------------------ ------------------
Home Heating Oil #2 $ 33,979,796 $ 23,674,243 $ 24,253,490
Commercial Oil #2 4,742,098 2,949,654 1,878,937
Gasoline, Diesel Fuel, Kerosene,
Propane & Lubricants 20,060,543 13,122,536 13,775,172
Equipment Sales & Services 1,382,272 1,157,444 1,275,757
Installation Repairs & Services 1,800,116 1,978,450 2,226,132
----------------- ------------------ ------------------
Net Sales $ 61,964,825 $ 42,882,327 $ 43,409,488
================= ================== ==================
F-23
NOTE 17 SALE OF SUBSIDIARY
On March 1, 2004, the Company sold the operations of its subsidiary, Able
Propane, LLC. The Sale was a sale of inventory and equipment (the operating
assets of the subsidiary). The total price of the sale was $4,400,000. Of that,
$3,000,000 was received in cash and was used as a reduction of long-term debt in
the amount of $1,284,737. There was also payment of $135,000 of Officer Loan and
$325,000 of Legal Fees. The Company had a cash increase of $1,255,268.
The Company received a Note receivable for $500,000, principal balance of this
Note payable in full on the fourth anniversary of the closing, March 1, 2008.
The Note bears interest at 6% per annum ($30,000 per year), payable quarterly
within 45 days of the closing of each fiscal quarter.
The Company also has signed a non-competition agreement and will receive a total
payment of $900,000, payable in $225,000 installments due one, two, three and
four years from the date of closing. $225,000 was received in March 2005.
NOTE 18 DISCONTINUED OPERATIONS
On March 1, 2004, the Company sold the operating assets of its subsidiary, Able
Propane, LLC (see Note 17), and discontinued the sale of propane fuel in the
State of New Jersey.
Following the sale, the results of Able Propane, LLC were reported in the
Company's Consolidated Statements of Income and Cash Flows, separately, as
discontinued operations. In accordance with Generally Accepted Accounting
Principals (GAAP), the Consolidated Statement of Financial Position has not been
restated. Able Propane, LLC represented the primary vehicle by which the Company
engaged in the sale of propane fuel.
Summarized financial information for discontinued operations for the year ended
June 30 are as follows:
2004 2003
---- ----
Total Revenues $1,817,902 $2,888,174
---------- ----------
Income (Loss) from Discontinued
Operations (57,630) 148,830
Gain on Sale of Subsidiary 2,668,490 -
---------- ----------
Total Income From Discontinued
Operations $2,610,860 $ 148,830
========== ==========
Total Assets $ - 0 - $2,940,622
Total Liabilities - 0 - 2,603,736
---------- ----------
Net Assets of Discontinued Operations $ - 0 - $ 336,886
========== ==========
Able Propane, LLC is treated as a Partnership for tax purposes and pays no
income tax. As such, there is no provision for income taxes. Able Propane, LLC
has no assets or liabilities at June 30, 2004. The assets and liabilities after
the sale and collection of accounts receivables and payment of accounts
payables, which were transferred to the Company, were immaterial to the total
assets and liabilities of the Company.
NOTE 19 OTHER EXPENSES
On March 14, 2003, a fire and explosion occurred at the Company's facility in
Newton, New Jersey (see note 9). The Company submitted expenses for
reimbursement to their insurance carrier. The Company was reimbursed
approximately $1,041,000. Un-reimbursed expenses of $318,236 have been expensed
in the year ended June 30, 2005.
NOTE 20 OTHER
In December 2004, the major shareholder and Company Chief Executive Officer
(CEO) signed a contract and received a deposit representing the sale of his 50%
plus interest in the Company. In the period ended March 31,
F-24
2005, this individual has resigned as an Officer (CEO) and from the Board of
Directors, where he was Chairman of the Board.
In March 2005, the Company finalized and entered into a consulting agreement
with Summit Ventures, Inc. The agreement is for $71,428.50 payable in common
stock valued at $.50 per share, 142,857 restricted common shares which cannot be
sold for a period of one year. The shares were issued March 23, 2005. The
Agreement shall terminate by December 31, 2006. The consulting fee expense will
be recorded during the 22-month period of the Agreement.
NOTE 21 SUBSEQUENT EVENTS
On July 12, 2005, the Company consummated a financing with a group of lenders.
Pursuant to the terms of the Securities Purchase Agreement, the Company sold
variable rate convertible debentures in the amount of $2.5 million. The
debentures shall be repaid within two years from the date of issuance with
interest payable at a rate per annum equal to Libor, plus 4%, which on July 12,
2005 was 3.57% plus 4%, or 7.57%. The interest is payable quarterly on the first
of January, April, July, and October. The debentures may be converted at the
option of the purchasers into shares of the Company's Common Stock at a
conversion price of $6.50 per share. The amount of shares to be issued at such
conversion will be 384,618. In addition, the purchasers shall have the right to
receive five-year warrants to purchase 192,308 shares of Common Stock at $7.15
per share. The market value of the Company's Common Stock on July 12, 2005 was
$17.90 per share. The debenture conversion price of $6.50 is 36.31% of the
market value. Closing expenses related to this transaction totaled $305,000
included a $250,000 broker fee and $65,000 in various legal expenses.
On July 27, 2005, the Company made a loan of $1,730,000 to All American Plazas,
Inc., which is the largest shareholder of the Company. The funds were disbursed
from the above loan of $2.5 million. Under the note, the loan bears interest at
3.50% per annum and is secured by the 1,000,000 shares of Able Energy, Inc.
Common Stock owned by All American Plazas, Inc. The interest rate of the Company
on its $2.5 million loan is 7.57%, as noted above.
NOTE 22 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected unaudited quarterly financial data for
each quarter during the fiscal years ended June 30, 2005, 2004 and 2003.
2005 QUARTER FIRST SECOND THIRD FOURTH
------------ ----- ------ ----- ------
CONTINUING OPERATIONS:
Revenues $8,221,845 $18,988,098 $23,668,771 $11,086,211
Gross Profit 611,987 1,790,231 2,745,538 839,114
Net Income (Loss) (872,899) 53,881 569,461 (1,860,700)
NET INCOME (LOSS) PER SHARE (A)
Basic (.43) .03 .28 (.99)
Diluted (.43) .03 .28 (.99)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,013,250 2,013,250 2,030,281 2,140,813
Diluted 2,013,250 2,013,250 2,052,481 2,140,813
F-25
NOTE 22 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
2004 QUARTER FIRST SECOND THIRD FOURTH
------------ ----- ------ ----- ------
CONTINUING OPERATIONS:
Revenues $6,504,640 $11,760,188 $16,645,044 $7,972,455
Gross Profit 886,576 1,393,872 2,837,892 496,518
Net Income (Loss) (1,339,916) (401,752) 456,813 (1,415,248)
DISCONTINUED OPERATIONS:
Revenues 345,572 1,012,734 1,863,030 -
Net Income (Loss) (171,374) (190,450) 344,319 (40,125)
Gain on Sale of Subsidiary Operating Assets - - 2,866,490 -
Income (Loss) from Discontinued Operations (171,374) (190,450) 3,210,809 (40,125)
NET INCOME (LOSS) PER SHARE (A)
BASIC
Continuing Operations (.67) (.20) .23 (.70)
Discontinued Operations (.08) (.09) 1.59 (.02)
DILUTED
Continuing Operations (.67) (.20) .22 (.70)
Discontinued Operations (.08) (.09) 1.57 (.02)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,013,250 2,013,250 2,013,250 2,013,250
Diluted 2,013,250 2,013,250 2,040,588 2,013,250
2003 QUARTER FIRST SECOND THIRD FOURTH
------------ ----- ------ ----- ------
CONTINUING OPERATIONS:
Revenues $5,907,526 $11,730,840 $18,207,317 $7,563,805
Gross Profit 1,037,779 1,915,548 3,084,492 466,274
Net Income (Loss) (742,209) 724,273 1,118,821 (1,047,565)
DISCONTINUED OPERATIONS:
Revenues 325,813 722,872 1,283,263 556,206
Net Income (Loss) (12,380) 200,135 (37,656) (26,029)
NET INCOME (LOSS) PER SHARE (A)
BASIC
Continuing Operations (.37) .36 .56 (.52)
Discontinued Operations .01 .10 (.02) (.01)
DILUTED
Continuing Operations (.37) .35 .55 (.52)
Discontinued Operations .01 .10 (.02) (.01)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,003,831 2,006,855 2,009,814 2,012,708
Diluted 2,003,831 2,057,512 2,052,751 2,012,708
****
F-26
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements, including the related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
FOR THE YEAR ENDED JUNE 30,
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
RESULTS OF OPERATION DATA -
CONTINUING OPERATIONS
Sales $ 61,964,825 $ 42,882,327 $ 43,409,488 $ 24,851,039 $ 18,189,597
Gross Profit 5,986,870 5,614,858 6,504,093 4,273,819 53,081,399
Operating Income (Loss) (1,142,598) (1,971,745) 328,463 (1,852,533) (717,763)
Net Income (Loss) from continuing
operations (2,110,257) (2,700,102) 53,322 (1,947,539) (725,223)
Net Income (Loss) from continuing
operations Per Share (.99) (1.34) .03 (.97) (.36)
Depreciation and Amortization 1,183,144 1,152,906 1,070,046 1,027,144 1,183,144
Interest Expense 449,776 576,578 435,992 281,994 449,776
Weighted Average Number of Shares
Outstanding - Basic 2,140,813 2,013,250 2,012,708 2,001,332 2,140,813
BALANCE SHEET DATA
Cash $ 1,754,318 $ 1,309,848 $ 400,033 $ 258,560 $ 999,018
Current Assets 6,230,307 5,577,508 5,504,366 3,086,136 4,040,586
Current Liabilities 6,550,350 5,320,953 5,508,829 5,559,680 5,169,197
Total Assets 12,754,560 12,443,695 12,612,582 10,477,891 11,756,530
Long-Term Liabilities 4,146,095 3,724,691 3,616,461 1,657,071 1,828,401
Total Stockholders' Equity 2,058,115 3,398,051 3,487,292 3,261,140 4,758,932
Notes
1. The results of operation data for the years ended June 30, 2003, June
30, 2002 and June 30, 2001 have been adjusted to reflect the
discontinued operations of Able Propane, LLC (see financial statement
Note 23).
2. Due to the Company changing its fiscal year during 2001, the results
of operation for the year ended June 30, 2001 in the above table are
for the period January 1, 2001 to June 30, 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Consolidated
Financial Statements, and Notes thereto, contained elsewhere in this prospectus.
OVERVIEW
--------------------------------------------------------------------------------
Able Energy Inc. ("Able") was incorporated in Delaware in 1997. Able Oil, a
wholly owned subsidiary of Able, was established in 1989 and sells both
residential and commercial heating oil and complete HVAC service to it heating
oil customers. Able Energy NY, a wholly owned subsidiary of Able, sells
residential and commercial heating oil, propane diesel fuel, and kerosene to
customers around the Warrensburg NY area. Able Melbourne, a wholly owned
subsidiary of Able, was established in 1996 and sells various grades of diesel
fuel around Cape Canaveral FL. PriceEnergy Inc., a majority owned subsidiary of
Able, was established in 1999 and has developed an internet platform that has
extended the Company's ability to sell and deliver liquid fuels and related
energy products.
49
Management's Discussion and Analysis of Financial Condition and Results of
Operation contains forward-looking statements, which are based upon current
expectations and involve a number of risks and uncertainties. In order for us to
utilize the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, investors are hereby cautioned that these statements may be
affected by the important factors, among others, set forth below, and
consequently, actual operations and results may differ materially from those
expressed in these forward-looking statements. The important factors include:
o Commodity Supply
o Commodity Pricing
o Customers Converting to Natural Gas
o Alternative Energy Sources
o Winter Temperature Variations (Degree Days)
o Customers Moving Out of The Area
o Legislative Changes
o The Availability (Or Lack of) Acquisition Candidates
o The Success of Our Risk Management Activities
o The Effects of Competition
o Changes in Environmental Law
o General Economic, Market, or Business Conditions
We undertake no obligation to update or revise any such forward-looking
statements.
BUSINESS STRATEGY
Our business plan calls for maximization of sales throughout our existing
heating oil market areas by means of aggressive market penetration to recapture
lost business as well as to attract new customers who have moved into our market
area during the past two years. In addition, our external strategy is to acquire
related heating oil businesses, which strengthen and expand our current service
area along with moving into planned new areas. In this way, we can realize new
residential and commercial business and take advantage of expected population
growth in new market regions.
We also are in the process of becoming more vertically integrated through
acquisition. In addition to acquiring businesses in the core #2 heating oil
portion of our business, we are also developing relationships with potential
acquisitions in the area of diesel fuel distribution, truck stop facilities,
convenience store/gasoline fueling stations, and crude oil refineries.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are described in Note 1 of the consolidated financial
statements included in this Annual Report on Form 10-K for the fiscal year ended
June 30, 2005. The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America,
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
We consider the following policies to be the most critical in understanding the
judgments involved in preparing the financial statements and the uncertainties
that could impact our results of operations, financial condition and cash flows.
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of delivery to
the customer, and sales of equipment are recognized at the time of installation.
Revenue from repairs and maintenance service is recognized upon completion of
the service. Payments received from customers for heating equipment service
contracts are deferred and amortized into income over the term of the respective
service contracts, on a straight-line basis, which generally do not exceed one
year.
50
DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG-LIVED ASSETS
We calculate our depreciation and amortization based on estimated useful lives
and salvage values of our assets. When assets are put into service, we make
estimates with respect to useful lives that we believe are reasonable. However,
subsequent events could cause us to change our estimates, thus impacting the
future calculation of depreciation and amortization.
Additionally, we assess our long-lived assets for possible impairment whenever
events or changes in circumstances indicate that the carrying value of the
assets may not be recoverable. Such indicators include changes in our business
plans, a change in the extent or manner in which a long-lived asset is being
used or in its physical condition, or a current expectation that, more likely
than not, a long-lived asset will be sold or otherwise disposed of significantly
before the end of its previously estimated useful life. If the carrying value of
an asset exceeds the future undiscounted cash flows expected from the asset, an
impairment charge would be recorded for the excess of the carrying value of the
asset over its fair value. Determination as to whether and how much an asset is
impaired would necessarily involve numerous management estimates. Any impairment
reviews and calculations would be based on assumptions that are consistent with
our business plans and long-term investment decisions.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
We routinely review our receivable balances to identify past due amounts and
analyze the reasons such amounts have not been collected. In many instances,
such uncollected amounts involve billing delays and discrepancies or disputes as
to the appropriate price or volumes of oil delivered, received or exchanged. We
also attempt to monitor changes in the creditworthiness of our customers as a
result of developments related to each customer, the industry as a whole and the
general economy. Based on these analyses, we have established an allowance for
doubtful accounts receivable and consider the reserve adequate, however, there
is no assurance that actual amounts will not vary significantly from estimated
amounts.
REVENUE AND EXPENSE ACCRUALS
We routinely make accruals for both revenues and expenses due to the timing of
compiling billing information, receiving third party information and reconciling
our records with those of third parties. We reflect estimates for these items
based on our internal records and information from third parties. We believe our
estimates for these items are reasonable, but there is no assurance that actual
amounts will not vary significantly from estimated amounts.
INCOME TAXES
As part of the process of preparing consolidated financial statements, the
Company is required to estimate income taxes in each of the jurisdictions in
which it operates. Significant judgment is required in determining the income
tax expense provision. The Company recognizes deferred tax assets and
liabilities based on differences between the financial reporting and tax bases
of assets and liabilities using the enacted tax rates and laws that are expected
to be in effect when the differences are expected to be recovered. The Company
assesses the likelihood of our deferred tax assets being recovered from future
taxable income. The Company then provides a valuation allowance for deferred tax
assets for which the Company does not consider realization of such assets to be
more likely than not. The Company considers future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the valuation
allowance. Any decrease in the valuation allowance could have a material impact
on net income in the period in which such determination is made.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 in the accompanying consolidated financial statements.
RESULTS OF OPERATIONS
The following extraordinary expense items negatively affected net income for the
year ending June 30, 2005:
51
o One time non-recurring expenses for deferred loss due
to the 2003 Newton Accident $318,000
o Accelerated amortization and prepayment penalty for
early payoff of UPS loan $206,000
o Stock based compensation $117,000
o Director's fees from prior years $183,000
o Professional fees for legal & related expenses due
to the 2003 Newton Accident & supplemental Government
filings. $311,000
--------
TOTAL $1,135,000
The following table presents the percentage of total revenue for the periods
indicated and changes from period to period of certain items included in the
Company's Consolidated Statements of Operations.
Period-to-Period
% Changes
% For Year Ended ---------
June 30, 2005 2004
-------- vs. vs.
2005 2004 2003 2004 2003
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 44.5% (1.2)%
Cost of sales 90.3 86.9 85.8 50.2 1.0
---- ---- ----
Gross profit 9.7 13.1 15.0 6.6 (13.7)
Selling, general and administrative expenses (9.6) (15.0) (11.8) (7.6) 26.0
Depreciation and Amortization Expense (1.9) (2.7) (2.5) 2.6 7.7
---- ---- ----
Loss (income) from operations (1.8) (4.6) 0.8 42.1 *
Interest and Other Income 0.3 0.3 0.3 43.3 33.1
Interest Expense (0.7) (1.3) (1.0) (22.0) 32.2
Directors' Fees (0.3) - (0.1) * *
Gain (loss) on sale of assets - - - * *
Gain on Insurance Recovery - - .05 * *
Other Income (Expense) (0.5) - - * *
Legal Fees Relating to Other Expense (0.3) (0.6) (0.2) * *
---- ---- ----
Income (loss) from continuing operations
before income tax (provision) benefit (3.4) (6.2) 0.2 (20.8) *
Income tax (provision) benefit 0.0 (0.1) (0.1) *
---- ---- ----
Income (loss) from continuing operations (3.4) (6.3) 0.1 (21.8) *
---- ---- ----
* Not meaningful
FISCAL 2005 COMPARED TO FISCAL 2004
Revenue for fiscal 2005 increased approximately $19.1 million or 44.5% over
fiscal 2004. This increase can be attributed primarily the pass-through of fuel
oil costs customers offset by somewhat lower gallons sales during the period as
a result of a slight decline in heating degree days from last season and the
initial impact of marketing changes in the way the company sells to its discount
customers. The Company did not have the use of its facility in Newton, New
Jersey, due to the March 2003 accident.
Gross profit margins for fiscal 2005 decreased to 9.7% from 13.1% for fiscal
2004. The decrease in margin was the result of the dramatically rising product
costs during the period. Retail pricing was adjusted as necessary to cover most
of the increases while continuing to maintain the Company's competitive position
in the marketplace. Gross profit margin was also affected by a strong increase
in sales of our PriceEnergy subsidiary in Able's present market area.
Selling, general and administrative expenses for fiscal 2005 decreased by
approximately $487,000 or 7.6% compared to fiscal 2004. The Company attributes
this decrease primarily to a reduction in advertising and marketing of
approximately $315,000 related to more effective advertising campaigns and a
reduction in bad debt expense of approximately $151,000 related to increased
collection efforts during the period.
Depreciation and amortization expense remained relatively flat for fiscal 2005
as compared to fiscal 2004.
52
Other income (expenses) increased to a net expense of $964,000 in fiscal 2005
from $689,000 in fiscal 2004. The increase is primarily related to a write-off
of costs related to insurance claims of approximately $318,000 and directors
fees of $183,000. These costs were offset by an increase in interest income of
approximately $65,000 and reduction in interest expense of approximately
$127,000 related to debt pay-offs and refinancing.
Operating loss for fiscal 2005 was $1.1 million compared to $1.9 million for
fiscal 2004. The net improvement in our operating loss for the year was directly
related to the volatile market pricing and a decrease in selling, general and
administrative expenses.
Our effective tax rate for fiscal 2005 is negligible. The difference in the
Company's effective tax rate from the federal statutory rate is primarily due to
a 100% valuation allowance provided for all deferred tax assets. Current period
income tax expense of $3,488 represents minimum state tax liabilities.
Net loss for fiscal 2005 was $2.1 million compared to $89,000 for fiscal 2004.
During fiscal 2004 the Company recognized a gain on sale of the operating assets
of Able Propane in the amount of $2.7 million, which reduced its net loss from
$2.7 million. Excluding this gain the net loss from fiscal 2004 to fiscal 2005
decreased by approximately $590,000. This decrease in the net loss is primarily
due to gross profit increase and selling, general and administrative expense
decreases offset by increases in other expenses.
FISCAL 2004 COMPARED TO FISCAL 2003
The Company reported revenues of $42,882,327 for fiscal 2004, which was a small
decrease of $527,161 from the prior year's revenues of $43,409,488 for the same
period. This decrease can be attributed primarily to somewhat lower gallons
sales during the period as a result of a decline in heating degree days from the
previous season and the initial impact of marketing changes in the way the
company sells to its discount customers. The Company did not have the use of its
facility in Newton, New Jersey, due to the explosion in March 2003, which
negatively affected service levels to some of the customers in the Sussex
County, New Jersey, delivery area.
Gross profit margin, as a percentage of revenues, for fiscal 2004, decreased by
1.89% from $6,504,093 to $5,614,858. The decrease in margin was the result of
the dramatically rising product costs during the months of October, November and
December. Retail pricing was adjusted appropriately to cover most of the
increases while continuing to maintain the company's competitive position in the
marketplace.
Selling, General, and Administrative expenses, as a percent of sales, increased
by 3.24% from 11.76% in year ending June 30, 2003 to 15.00% during the year
ending June 30, 2004. The Company attributes this increase to higher insurance
rates due to an unsettled insurance market; payroll costs, advertising, outside
consulting and legal fees.
Operating loss for fiscal 2004 was $(1,971,745) as compared to the Company's
income of $328,463 for fiscal 2003. This operating loss for the year was
directly related to the volatile market pricing and increased costs related to
the explosion and fire in Newton, New Jersey on March 14, 2003, and increased
operating costs (such as insurance).
Net loss for fiscal 2004 was $(2,700,102) as compared to income of $53,322 in
fiscal 2003. This loss was directly related to an increase in operating costs,
warmer temperature for the season, and a lower gross margin.
OPERATIONAL EFFICIENCIES
Volume in gallons is the true gauge by which increases or decreases can be
measured on a year-to-year basis as the volatility in the cost of the commodity
can present an inexact picture of real growth. Total gallons for fiscal 2005 vs.
fiscal 2004 were down by 2.9%. This is primarily the result of slightly lower
heating degree-days in the 2004/05 season vs. the 2003/04 season. Heating
degree-days are the industry measurement used to relate each day's temperatures
during the heating season to the demand for fuel used for heat. Other reasons
for the year-to-year gallons decline were the fact that the March 2003
explosion, which affected our Newton fuel depot, has left this facility still in
an "out of service" condition. We are currently working diligently to get this
location back in service, or a substitute (acquisition) facility, before the
beginning of the upcoming heating season. The ability to use this, or some other
location in the area, will greatly improve our service level to the Sussex
County delivery area. We are
53
also enhancing our communications to our `will call' customers by offering Able
Oil Express. We believe that by focusing our efforts on each specific segment of
customer, we can build overall gallons sales. Gallons increases could also be
realized through the successful completion of several acquisitions that are
anticipated for completion in the current 2005/2006 fiscal year. These
acquisitions, if completed, could significantly add to our Company's overall
sales volume as measured in gallons as well as dollars of revenue.
The Company believes that it will continue to increase the utilization of
existing personnel and equipment, thus continuing to reduce expenses as a
percent of sales, and increasing profitability, within its current business
configuration. The redefining of the Company's organizational chart and
associated position descriptions (by assigning duties to best suit the
organization's growth) will further enhance this increased utilization.
Moreover, the Company has completed the process of implementing a new Versyss
(now ADDS North) operating system to further streamline operations and
information processing.
The Company understands the importance of controlling expenses at every level
and as such, has enlisted the support of an outside consultant to assist in the
integration of a new comprehensive operating budget that will interface with the
new ADDS North computer operating system. The Company believes that these
changes will enable management, through enhanced reporting capabilities, to
quickly respond to changing trends in sales and expenses. The combination of the
new operating system and the detailed budget program and reporting now provides
all levels of management with real time results not previously available.
The Company's margin strategy will be strengthened as it plans to shift some of
the sales volume to other area dealers within the PriceEnergy subsidiary to
handle highly discounted non-service related home heating oil sales. This change
will permit Able Oil Co. to focus and grow its higher margin automatic delivery
customer base using its moniker of "Full Service at Discount Prices", while the
PriceEnergy entity will cater to those customers looking for the lowest possible
retail price either on-line or over the phone. The Company believes that this
further segmentation of its customer base will be successful in increasing
overall profitability while enhancing customer appeal. The Company has
identified several discreet customer segments that prefer varying levels of
service from the Company. By better aligning the Company's product offerings to
match the desires of these customer segments, the Company believes that it will
be able to capture a larger market share.
The Company implemented a service billing methodology known as "Flat Rate
Pricing," an approach similar to that used in the automobile repair industry.
This system provides the Company's sales and service personnel a "package
approach" to selling service, and provides the customer with an easy to
understand invoice. This policy is consistent with the Company's customer
segmentation strategy, permitting different retail prices for different customer
segments, based upon their choice of service level desired. This system will
interface with the Company's automated dispatch communications program that was
introduced last year. Since the flat rate pricing has now been fully rolled out,
the Company's service segment is now operating as a profit center instead of a
support vehicle to the fuel delivery side of the business.
WARRENSBURG, NEW YORK OPERATIONAL ENHANCEMENTS
The Company is in the process of completing operational changes to its
Warrensburg, New York business, which will permit the consolidation of all daily
operations on to one modern facility located in the newly developed Warrensburg
Industrial Park. The Company's previous operations on its Lake George property
have been moved to the new site and the Lake George location has been sold. The
proceeds from the sale of this location have provided funding for the new
operations at the industrial park. When completed this fall, the new fuel depot
and sales office will house the local sales and administrative support personnel
as well as operations and fuel storage for #2 heating oil, kerosene, propane
gas, and diesel fuel. A new modular office and tank farm has been completed on
the new property and the Company has terminated its leased office space on Mail
Street in Warrensburg. By having all operations combined in the new location we
will have the ability to grow the business more effectively as well as handle a
greater volume of all products.
RECENTLY IMPLEMENTED TECHNOLOGICAL PROCEDURES
The Company has introduced additional customer service technology to its
Rockaway call and administrative center during the past year. Management has
completed improvements to its existing telephone hardware and in-house call
54
management. The Company's call center environment now provides he ability to
respond to changing call patterns, both higher and lower, without the expense of
clerical over-staffing to meet unrealized needs. New software gives customers
the option of placing an order via a voice activated technology. This enables
customers who simply wish to refill their fuel tank, the opportunity to quickly
place an order 24 hours a day without the help of a live customer service
representative. This system has been a contributing factor in our reduction of
clerical SG&A expense for the past fiscal year.
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 is also now
performing billing functions at the customer's location as well as documenting
payment data instantaneously. Additionally, management is now aware of the
status of every on-duty worker and is able to obtain real time reporting for
stand-by, en route, and service work time. This system has enabled the Company
to maximize scheduling opportunities and eliminate service technician down time.
PRICEENERGY OPERATING SUBSIDIARY
The company's operating subsidiary, PriceEnergy, with its modern
order-processing platform, has been in full operation for over four years now.
This revolutionary proprietary technology is fully automated and allows for the
removal of the inefficiencies associated with traditional heating oil companies
in this industry. PriceEnergy has generated over 7.1 million gallons in business
this year, which were delivered by the growing PriceEnergy dealer network. This
is an increase of over 61% vs. prior year. In December of 2002, PriceEnergy
began sales of home heating oil in the initial BJ's Wholesale Club. Gallons sold
through this venue have been steadily increasing. The Company is excited about
these types of opportunities with "Channel Partners" such as BJ's and is looking
to expand the Channel Partner concept. The Company is currently in the process
of upgrading the PriceEnergy operating platform to enable it to handle even
greater volumes of business as well as provide new services to its customers
including an on-line or "I-Catalog" selling energy related items for home and
business.
EXPLOSION AND FIRE
On March 14, 2003, Able Energy experienced an explosion and fire at its Newton,
New Jersey facility which resulted in the destruction of an office building on
the site, as well as damage to 18 company vehicles and neighboring properties.
While there were no serious injuries, the Newton facility has been in an out of
service condition since the incident.
The Company is currently not processing deliveries from the Newton, New Jersey,
facility as the Newton Board of Adjustment originally denied the Company's
application to repair and rebuild the facility on the grounds that the zoning
laws covering the Newton, New Jersey, property had been changed following the
accident. The Company appealed the Board's decision in August of 2004, and was
granted immediate permission to make some building repairs and restore power to
the underground cathodic protection system. The Company has effectuated these
repairs and will continue to move the legal process forward in order to regain
use of the facility. It is anticipated that the Company will have use of either
its Newton facility or an alternative location in the area soon. This would
enable the Company to realize savings in delivery mileage and driver time as a
result of being able to handle this area's business needs locally.
LIQUIDITY AND CAPITAL RESOURCES
To date, our principal sources of working capital have been the proceeds from
public and private placements of securities and notes payable. Since our
inception, sales of securities, including the proceeds from the exercise of
outstanding options and warrants, have generated approximately $6.5 million less
applicable expenses.
We had a working capital deficit of approximately $(320,000) at June 30, 2005
compared to working capital of approximately $257,000 at June 30, 2004 and
ratios of current assets to current liabilities of .95:1 as of June 30, 2005 and
1.05:1 as of June 30, 2004. The working capital decrease of approximately
$577,000 was primarily due to a net loss of approximately $2.1 million and
capital expenditures of approximately $1.2 million. This decrease was partially
offset by proceeds from the sale of common stock through the exercise of
outstanding options and warrants of approximately $0.5 million, net proceeds
from note payable, long term debt and lines of credit of approximately
55
$0.9 million, depreciation and amortization included in net loss of
approximately $1.2 million and non-cash compensation included in net loss of
approximately $0.2 million.
In May 2005 we entered into a $1,750,000 line of credit agreement with
Entrepreneurs Growth Capital, LLC. The line is collateralized by accounts
receivable and inventories. Outstanding balances under the loan bear interest at
an annual rate equal to the Citibank's Prime rate plus 4%. As of June 30, 2005
approximately $1 million was outstanding and $750,000 was available under this
credit line.
On July 12, 2005, the Company consummated a financing with a group of lenders.
Pursuant to the terms of the Securities Purchase Agreement, the Company sold
variable rate convertible debentures in the amount of $2.5 million. The
debentures shall be repaid within two years from the date of issuance with
interest payable at a rate per annum equal to Libor, plus 4%, which on July 12,
2005 was 3.57% plus 4%, or 7.57%. The interest is payable quarterly on the first
of January, April, July, and October. The debentures may be converted at the
option of the purchasers into shares of the Company's Common Stock at a
conversion price of $6.50 per share. The amount of shares to be issued at such
conversion will be 384,618. In addition, the purchasers shall have the right to
receive five-year warrants to purchase 192,308 shares of Common Stock at $7.15
per share. The market value of the Company's Common Stock on July 12, 2005 was
$17.90 per share. The debenture conversion price of $6.50 is 36.31% of the
market value. Closing expenses related to this transaction totaled $315,000,
including a $250,000 broker fee and $65,000 in various legal expenses.
On July 27, 2005, the Company made a loan of $1,730,000 to All American Plazas,
Inc. which is the largest shareholder of the Company. The funds were disbursed
from the financing proceeds of $2.5 million described above. Under the note, the
loan bears interest at 3.50% per annum and is secured by the 1,000,000 shares of
Able Energy, Inc. Common Stock owned by All American Plazas, Inc. The interest
rate of the Company on its $2.5 million of convertible debentures is currently
7.57%, as noted above.
We anticipate that funds generated from operations, together with cash and
investments, and availability under our credit line will be sufficient to fund
our current level of growth and our existing commitments at least through fiscal
2006. However, to the extent the expansion of our operations requires
significant additional resources, we may be required to seek additional
financing. No assurance can be given that such financing would be available on
terms that would be acceptable to us.
MATERIAL COMMITMENTS
The following schedule summarizes our contractual cost obligations as of June
30, 2005 in the periods indicated.
--------------------------------------- ---------------------------------------------------------------------------------
Contractual Payments Due by Period
Obligations
--------------------------------------- ---------------------------------------------------------------------------------
More than
Total Less than 1 year 1-3 years 3-5 years 5 years
--------------------------------------- --------------- ------------------- ---------------- ------------ ---------------
Long-Term Debt $ 4,339,187 $ 1,086,849 $ 244,263 $ 151,110 $ 2,856,965
--------------------------------------- --------------- ------------------- ---------------- ------------ ---------------
Capital Lease Obligations 976,398 266,831 669,344 40,223 -
--------------------------------------- --------------- ------------------- ---------------- ------------ ---------------
Operating Leases 98,830 98,830 - - -
--------------------------------------- --------------- ------------------- ---------------- ------------ ---------------
Unconditional Purchase Obligations 2,284,909 2,284,909 - - -
--------------------------------------- --------------- ------------------- ---------------- ------------ ---------------
Other Long-Term Obligations - - - - -
--------------------------------------- --------------- ------------------- ---------------- ------------ ---------------
Total Contractual Cash Obligations $ 7,699,324 $ 3,737,419 $ 913,607 $ 191,333 $ 2,856,965
--------------------------------------- --------------- ------------------- ---------------- ------------ ---------------
Excluded from the table above is estimated interest payments on long-long term
debt and capital lease obligations of approximately $378,035, $765,819, $367,974
and $2,031,618 for the periods less than 1 year, 1-3 years, 3-5 years, and more
than 5 years, respectively.
56
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
--------------------------------------------------------------------------------
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, primarily #2 home heating 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 oil sales. Similarly, Able Energy's New York propane operations
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.
FUTURE OPERATING RESULTS.
Future operating results, which reflect management's current expectations may be
impacted by a number of factors that could cause actual results to differ
materially from those stated herein. These factors include worldwide economic
and political conditions, terrorist activities, industry specific factors, and
governmental agencies.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE VOLATILITY IN THE
PRICE OF OUR COMMON STOCK
Given the nature of the markets in which we participate, we cannot reliably
predict future revenue and profitability. As demand for our services has
increased in recent periods, our quarterly revenue and operating results have
become highly dependent on the timing of contracts signed and programs
implemented during the quarter, which are difficult to forecast.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not issue or invest in financial instruments or derivatives for
trading or speculative purposes. All of the operations of the Company are
conducted in the United States, and, as such, are not subject to material
foreign currency exchange rate risk. At June 30, 2005, the Company had
approximately $4.3 million of outstanding long-term debt. Although the Company's
assets included approximately $1.7 million in cash and cash equivalents market
rate risk associated with changing interest rates in the United States is not
material. See also Note 4 of the Notes to Consolidated Financial Statements
contained in this prospectus.
57
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
GOVERNANCE
AND
COMPENSATION AUDIT NOMINATING
NAME AGE TITLE COMMITTEE COMMITTEE COMMITTEE
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Gregory D. Frost, Esq. 58 CEO, Chairman,
General Counsel
and Director
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Christopher P. Westad 51 President and
Director
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Patrick O'Neill 45 Director * *
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Edward C. Miller, Jr. 38 Director *
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Stephen Chalk 60 Director
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Alan E. Richards 68 Director ** *
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Solange Charas 43 Director ** *
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Mark Barbera 47 Director * **
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Steven M. Vella 42 Chief Financial
Officer
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
Frank Nocito 58 Vice President
Business
Development
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
John L. Vrabel 52 Chief Operating
Officer
-------------------------------- --------------- ------------------ ------------------- --------------- --------------
* Member
** Chair
Set forth below is a brief background of the executive officers and directors of
the Company, based on information supplied by them.
GREGORY D. FROST, ESQ., became CEO and Chairman of the Company in October 2005,
and General Counsel and a Director of the Company in April 2005. He previously
served as General Counsel and a Director of All American Plazas, Inc., which
owns approximately 40% of the Company's outstanding shares, until his
resignation on March 31, 2005. From 1974 to the present, he has been a
practicing attorney in the State of New York and since 1999 has been a partner
of the law firm of Ferber Frost Chan & Essner, LLP (formally known as Robson
Ferber Frost Chan & Essner LLP) which has in the past performed, and continues
to perform, legal services for the Company. Mr. Frost's main areas of practice
have been and continue to be mergers and acquisitions, and general corporate and
securities matters. From 1975 through 1980, he was Assistant General Counsel at
The Singer Company and RH Macy & Co. Thereafter, Mr. Frost spent approximately
12 years as a partner of the law firm of Bower & Gardner, managing their
corporate and securities department. In 1970, Mr. Frost received a B.A. degree
from New York University (Stern School). He received his Juris Doctorate in 1973
from New York Law School, and in 1979 obtained a Master of Law Degree (LLM) in
Corporate Law from New York University Law School.
CHRISTOPHER P. WESTAD became President of the Company in 1998, and a Director
when the Company went public in 1999. His current employment contract runs
through July 1, 2007. He served as Acting Chief Executive Officer from February
2005 to October 2005. He also served as the Company's Chief Financial Officer
from 2000 to August 2005. Since September 1996, Mr. Westad has also served as
the President of Able Propane until the sale of that subsidiary in March of
2004. From 1991 through 1996, Mr. Westad was Market Manager and Area Manager for
Ferrellgas Partners, L.P., a company engaged in the retail sale and distribution
of liquefied petroleum gas. From 1977 through 1991, Mr. Westad served in a
number of management positions with RJR Nabisco. In 1975, Mr. Westad received a
Bachelor of Arts in Business and Public Management from Long Island
University--
58
Southampton, New York. In connection with the March 2003 fire at the Company's
Newton, New Jersey, facility, Mr. Westad entered into a pre-trial intervention
agreement, conditioned on 250 hours of community service over a two-year period,
which he is currently performing.
PATRICK O'NEILL has served as a Director of the Company since 1999. Mr. O'Neill
has been involved in the management of real estate development and construction
management for over 20 years, and has served as the President of Fenix
Investment and Development, Inc., a real estate company based in Morristown, New
Jersey, for the past ten years. Prior to that, Mr. O'Neill served as Vice
President of Business Development for AvisAmerica, a Pennsylvania-based home
manufacturer. Mr. O'Neill holds a B.S. from the United States Military Academy.
EDWARD C. MILLER, JR. has served as a Director of the Company since 1999. Mr.
Miller has served as the Director of Marketing for the law firm of Norris,
McLaughlin & Marcus, P.A., located in Somerville, New Jersey, since 1999. From
1991 to 1999, Mr. Miller served as Marketing Coordinator at the Morristown, New
Jersey, law firm of Riker, Danzig, Scherer, Hyland & Perretti, LLP. Mr. Miller
received a B.S. in Marketing Management from Syracuse University School of
Management in 1991.
STEPHEN CHALK became a Director of the Company in February 2005. From 1994 to
the present, Mr. Chalk has served as the President of the Pilgrim Corporation,
where he has obtained a strong background in financial management, as well as
hotel, resort, restaurant, and real estate development experience. He has
performed, and continues to perform, certain paid consulting services in the
area of real estate development for All American Plazas, Inc., which owns
approximately 40% of the Company's outstanding shares. Mr. Chalk served as
President of Chalkman Group, Ltd., a company engaged in the business of
equipping the kitchens and laundries of hotels, from 1997 to 2001. In 2001,
Chalkman Group, Ltd., filed a petition for relief under Chapter 11 in the U.S.
Bankruptcy Court for the Southern District of New York, and was dissolved in
2002. Mr. Chalk is a graduate of Philadelphia University with a BS in
Engineering and Design.
ALAN E. RICHARDS became a Director of the Company in February 2005. Mr. Richards
has served as the President of Sorrento Enterprises Incorporated, a forensic
accounting firm, from its inception in 1979 to the present. Mr. Richards brings
a diverse background and 25-plus years of experience in financial services,
including work with government agencies such as the United States Internal
Revenue Service. Mr. Richards is a graduate of Iona College with a BBA in
Finance.
SOLANGE CHARAS became a director of the Company in May 2005. In 2000, Ms. Charas
founded Charas Consulting, Inc. which provides human resources consulting
services. From 2002 though 2005, Ms. Charas was the Head of Human Resources for
Benfield, Inc. In her role, she was responsible for all aspects of HR for this
organization. She is currently a retained consultant to Benfield. From 1999 to
2000, Ms. Charas was the Head of Human Resources for EURO RSCG Worldwide, an
advertising firm which is the largest division of France-based Havas
Advertising. As Head of Human Resources, she was responsible for the creation
and management of all HR programs on a worldwide basis for over 200 agencies
which made up EURO RSCG. From 1996 to 1999, Ms. Charas was the National Director
at Arthur Anderson, where she led all activities promoting a consulting product
she was instrumental in creating for the firm. From 1995 to 1996, Ms. Charas was
the leader of the International Compensation Team at Towers Perrin and a Senior
Consultant with respect to international compensation at the Hay Group. Ms.
Charas received an undergraduate degree in International Political Economy from
University of California at Berkeley in 1982, and an MBA in Accounting and
Finance from Cornell University's Johnson School of Management in 1988.
MARK BARBERA became a director of the Company in October 2005. Since 1993, he
has served as CFO and a Director of Trautman Wasserman & Company Inc., a
registered securities broker-dealer. Since 2000, he has also served as CFO and a
Director of JIA, Inc., and CFO of Connotate, Inc., both of which are software
vending companies. Prior to 1993, Mr. Barbera was Founder, President and
principal shareholder of Sphere Capital Corp., a registered broker-dealer. In
addition to Sphere Capital, he ran Barbera & Associates, a financial and
operational consulting firm serving the registered broker-dealer community. Mr.
Barbera also worked with M.D. Sass Associates, a Registered Investment Advisor.
Mr. Barbera began his career with the public accounting firm of Deloitte &
Touche where he was an auditor and received his license to practice as a
Certified Public Accountant in the State of New York. Mr. Barbera serves as the
Acting Chief Financial Officer for numerous portfolio companies of Trautman
Wasserman. Mr. Barbera earned his BA degree from The State University of New
York at Buffalo where he graduated Cum Laude.
59
STEVEN M. VELLA joined the Company in August 2005 as Chief Financial Officer.
From 2003 through August 2005, he served as Senior Director of Finance and
Controller of QMed Inc., a public company that provides fully configured,
technology-integrated and interactive disease management. Previous to his work
at QMed, Inc., from 1998 through 2002, Mr. Vella served as Vice President of
Finance and Corporate Controller of Medical Resources, Inc., a formerly public
company that owns and manages fixed-site outpatient medical diagnostic imaging
centers. He joined Medical Resources in November 1998, after 12 years of public
accounting experience, last as a Senior Manager at Deloitte & Touche LLP. He is
a graduate of Fairleigh Dickinson University with a Bachelor of Science in
Accounting. He is a member of both the American Institute of Certified Public
Accountants and the New Jersey Society of Certified Public Accountants.
FRANK NOCITO became Vice President Business Development in April 2005. Since
2004, Mr. Nocito has been Vice President of All American Plazas, Inc., which
owns and operates nine truck plazas located in Pennsylvania and Virginia. All
American Plazas owns approximately 40% of the outstanding common stock of our
Company. In 2003, Mr. Nocito, as Vice President of All American Industries
Corp., acquired all of the issued and outstanding stock of All American Plazas.
In 2004, Mr. Nocito and his wife created, for the benefit of their family
members, including seven children, the Chelednik Family Trust, and all the
issued and outstanding stock of All American Plazas was transferred to this
Trust. In 2002, as a consultant to two start-up corporations, American Truck
Stop of Belmont Inc. and American Truck Stop of Carney Inc., Mr. Nocito assisted
the new entities in acquiring two truck plazas located in the Northeast.
Subsequent to the purchase of these two truck plazas, he became in November
2003, and remains, a vice president of both corporations. In 2001, Mr. Nocito
was employed by WDF/Keyspan, Inc., as a supervisor in charge of Multi-Million
Dollar conversion projects for the New York City School System, converting
school facilities from coal to oil and gas systems. It should be noted that in
1996, under color of a 1994 sealed indictment that had never been acted upon, an
indictment was issued against Mr. Nocito for conspiracy to commit money
laundering. The charge was the result of his political activities as part of the
Republican Party and events arising out of the United States Government's
support of the Nicaraguan Government under the Sandinista regime. In late 1998,
Mr. Nocito accepted a plea offer that resulted in his serving a 19 month
detention plus three years probation, which ended May 2004. Mr. Nocito's
educational background includes his attending Syracuse University, Marymount
College/Fordham University and Nova University.
JOHN L. VRABEL became Chief Operating Officer of the Company in August 2003. His
current employment contract runs through July 1, 2007. From 2000 through the
present, he served as Vice President Business Development of the Company's
PriceEnergy subsidiary. From 1996 to 2000, Mr. Vrabel was Vice President
Business Development of Conectiv Holdings Vital Services, LLC, a subsidiary of
the Company in the energy products and services sector. He received a BBA from
the University of Houston, and an Executive MBA from Baldwin-Wallace College.
COMPENSATION OF DIRECTORS
In fiscal 2005, for their service on the board of directors from fiscal 2002
through fiscal 2004, the Company paid compensation in the amount of $20,000 in
cash and issued 2,000 shares of the Company's common stock to Mr. O'Neill, Mr.
Miller, Mr. Westad and Mr. James Purcaro (a former director) and issued 2,000
shares to Mr. Timothy Harrington, the Company's former Chief Executive Officer
and Director. Compensation for service on the board of directors during fiscal
2005 will be determined and paid in fiscal 2006.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
We have a separately designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The members of the Audit Committee are Mr.
Richards (chair), Mr. Miller and Ms. Charas. The Board of Directors has
determined that each of the members of the Audit Committee is independent as
defined by the listing standards of the Nasdaq Small Cap Market and Section
10A(m)(3) of the Exchange Act. In addition, the Board of Directors has
determined that Mr. Richards is an "audit committee financial expert," as that
term is defined in Item 401(h) of Regulation S-K under the Exchange Act.
60
CODE OF ETHICS
The Company has adopted its Code of Business Conduct and Ethics for Officers,
Directors and Employees that applies to all of the officers, directors and
employees of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers, Directors and persons who own more than 10% of a registered
class of the Company's equity securities to file reports of ownership on Form 3
and changes in ownership on Form 4 or Form 5 with the Securities and Exchange
Commission ("SEC"). Such officers, Directors and 10% stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on a review of copies of the Forms 3, 4 and 5 received by the
Company or representations from certain reporting persons, the Company believes
that, during the fiscal year ended June 30, 2005, all Section 16(a) filing
requirements applicable to its officers, Directors and 10% stockholders were met
in a timely manner, except in the following instances: (1) Jonathan Austern and
Gregory D. Frost as co-trustees under the Chelednik Family Trust failed to file
a required Form 3; (2) Gregory D. Frost failed to file a required Form 3 and
failed to file a required Form 4 with respect to the grant of 50,000 stock
options in April 2005; (3) Christopher P. Westad failed to file a required Form
4 with respect to the grant of 2,000 shares of common stock in January 2005, the
exercise of 40,000 stock options in March 2005, and the sale of 40,000 shares of
common stock in March 2005; (4) Patrick O'Neill failed to file a required Form 4
with respect to the sale of 2,000 shares of common stock in November 2004, the
grant of 2,000 shares of common stock in January 2005, and the sale of 2,000
shares of common stock in April 2005; (5) Edward C. Miller, Jr., failed to file
a required Form 4 with respect to the grant of 2,000 shares of common stock in
January 2005 and the sale of 2,000 shares of common stock in April 2005; (6)
Stephen Chalk filed a late Form 3; (7) Alan E. Richards filed a late Form 3; (8)
Solange Charas failed to file a required Form 3; (9) Frank Nocito failed to file
a required Form 3 and failed to file a required Form 4 with respect to the grant
of 50,000 stock options in April 2005; (10) John L. Vrabel failed to file a
required Form 4 with respect to the exercise of 30,000 stock options in March
2005 and the sale of 34,000 shares of common stock in April 2005; and (11) James
Purcaro failed to file a Form 4 with respect to the grant of 2,000 shares of
common stock in January 2005.
61
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to the
compensation paid to the Company's former Chief Executive Officer, current
Acting Chief Executive Officer and Chief Operating Officer for services rendered
in all capacities to the Company for the fiscal years ending June 30, 2005,
2004, and 2003. Other than as listed below, the Company had no executive
officers whose total annual salary and bonus exceeded $100,000 for that fiscal
year:
------------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
------------------------------------- -----------------------------------
Other Securities
Annual Restricted Underlying All Other
Name and Fiscal Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary Bonus sation(1) Awards SARs Payout sation(2)
------------------ ---- ------ ----- --------- ------ ---- ------ ---------
------------------------------------------------------------------------------------------------------------------------------
Christopher P. Westad, 2005 136,479 - 2,585 -/- 40,640
President and Acting 2004 100,000 13,877 5,973 15,000/0
Chief Executive Officer (3) 2003 100,000 6,064 5,035 15,000/0
------------------------------------------------------------------------------------------------------------------------------
Timothy Harrington 2005 193,721 - 14,340 100,000/0 20,640
former Chief Executive 2004 225,000 35,385 12,311 25,000/0
Officer (4) 2003 100,000 6,064 5,035 25,000/0
------------------------------------------------------------------------------------------------------------------------------
John Vrabel, 2005 138,046 6,000 -/-
Chief Operating Officer 2004 120,000 6,000 10,000/0
2003 120,000 6,000 10,000/0
(1) Represents car allowance and travel expense reimbursements pursuant to
his employment agreement with the Company.
(2) Represents amounts paid to Mr. Westad related to board compensation of
$20,000 and the market value of 2,000 shares issued to Mr. Westad and
Mr. Harrington of the Company's common stock issued on the date of
issue.
(3) Christopher P. Westad became Acting Chief Executive Officer in
February 2005.
(4) Timothy Harrington resigned as Chief Executive Officer in February
2005. The 100,000 options granted to him in 2005 were granted
subsequent to his resignation pursuant to a consulting agreement.
OPTION GRANTS
OPTION GRANTS DURING FISCAL 2005
The following table sets forth information with respect to option grants to the
named executive officers during fiscal 2005:
------------------------------------------------------------------------------------------------------------------------------
% of Total
Number of Options Exercise Hypothetical Hypothetical
Options Granted to Price Expiration Value at Grant Value at Grant
Name Granted Employees ($/Share) Date Date at 5% (1) Date at 10% (2)
------------------------------------------------------------------------------------------------------------------------------
Christopher P. Westad 0 -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Timothy Harrington 100,000 50% $4.00 2/11/2010 $0 $0
------------------------------------------------------------------------------------------------------------------------------
John Vrabel 0 -- -- -- -- --
(1) The hypothetical present value at grant date of options granted during
fiscal year 2005 has been calculated using the assumption that the
value of the stock will appreciate 5% per year for the option term
from the grant price on the date of grant.
(2) The hypothetical present value at grant date of options granted during
fiscal year 2005 has been calculated using the assumption that the
value of the stock will appreciate 10% per year for the option term
from the grant price on the date of grant.
62
OPTION EXCERCISES AND HOLDINGS
The following table sets forth, for each of the named executive officers named
in the Summary Compensation Table above, information concerning the number and
value of shares subject to both exercisable and unexercisable stock options as
of June 30, 2005. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of our common stock as of
June 30, 2005.
AGGREGATED OPTION EXERCISES DURING FISCAL 2005
AND
OPTION VALUES AT JUNE 30, 2005
------------------------------------------------------------------------------------------------------------------------------
Number of
Shares Number of Value of Unexercised
Acquired Value Unexercised In-the-Money
Upon Realized Options 6/30/05 Options 6/30/05(1)
Exercise Upon
Name of Options Exercise Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------------------------------------
Christopher P. Westad 40,000 $370,990 30,000 0 $350,250 --
------------------------------------------------------------------------------------------------------------------------------
Timothy Harrington 110,000 $1,230,201 100,000 0 $1,053,000 --
------------------------------------------------------------------------------------------------------------------------------
John Vrabel 30,000 $288,000 0 0 -- --
EMPLOYMENT ARRANGEMENTS
Gregory D. Frost, Esq., became the Company's Chief Executive Officer and
Chairman of the Board in October 2005. He has a one-year employment agreement,
effective through October 12, 2006, which will be automatically extended for
additional one-year periods, subject to prior termination according to the terms
of the agreement. Mr. Frost's initial base salary under the agreement is
$250,000 per annum, and he will be eligible for an annual bonus and stock option
grants which will be separately determined by the Compensation Committee of the
Board of Directors.
Christopher P. Westad has a three year employment agreement, effective through
July 1, 2007, as President of the Company at an annual salary of $141,600. The
term of the agreement may be extended by mutual consent of the Company and Mr.
Westad, and the annual salary is subject to periodic increases at the discretion
of the board of directors. Mr. Westad is entitled to bonuses pursuant to his
employment agreements if the Company meets certain financial targets based on
sales, profitability and good management goals as predetermined by the Board of
Directors or compensation committee and other subjective criteria as determined
by the Board of Directors or compensation committee. Such bonuses, plus all
other bonuses payable to the executive management of the Company, shall not
exceed in the aggregate, a "bonus pool" which shall equal up to 20% of the
Company's earnings before taxes of the Company EBT for fiscal years ending in
2005, 2006, and 2007, provided the Company achieves at least $1,000,000 of EBT
in each of such years. If the Company meets or exceeds $1,000,000 EBT for the
fiscal year ending in 2005 then the Executive shall be entitled to 20% of the
Bonus Pool. The employment agreement also provides for reimbursement of
reasonable business expenses. In the event the agreement is terminated by Mr.
Westad for reason, or by the Company for other than cause, death or disability,
Mr. Westad shall receive a lump sum severance payment of one year's salary, and
any unvested stock options shall be deemed to have vested at the termination
date.
John L. Vrabel has a three year employment agreement, effective through July 1,
2007, as Chief Operating Officer of the Company at an annual salary of $141,600.
The term of the agreement may be extended by mutual consent of the Company and
Mr. Vrabel, and the annual salary is subject to periodic increases at the
discretion of the board of directors. Mr. Vrabel is entitled to bonuses pursuant
to his employment agreements if the Company meets certain financial targets
based on sales, profitability and good management goals as predetermined by the
Board of
63
Directors or compensation committee and other subjective criteria as determined
by the Board of Directors or compensation committee. Such bonuses, plus all
other bonuses payable to the executive management of the Company, shall not
exceed in the aggregate, a "bonus pool" which shall equal up to 20% of the
Company's earnings before taxes of the Company EBT for fiscal years ending in
2005, 2006, and 2007, provided the Company achieves at least $1,000,000 of EBT
in each of such years. If the Company meets or exceeds $1,000,000 EBT for the
fiscal year ending in 2005 then the Executive shall be entitled to 20% of the
Bonus Pool. The employment agreement also provides for reimbursement of
reasonable business expenses. In the event the agreement is terminated by Mr.
Vrabel for reason, or by the Company for other than cause, death or disability,
Mr. Vrabel shall receive a lump sum severance payment of one year's salary, and
any unvested stock options shall be deemed to have vested at the termination
date.
64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table shows, as of October 14, 2005, the amount of the Company's
common stock beneficially owned (unless otherwise indicated) by (i) each person
known by the Company to own 5% or more of the Company's stock, (ii) each
Director, (iii) each executive officer named in the Summary Compensation Table
in Item 11 above, and (iv) all Directors and executive officers as a group.
---------------------------------------- -------------------------- ------- ------------------
AGGREGATE NUMBER OF
SHARES BENEFICIALLY PERCENT OF CLASS
NAME AND ADDRESS* OWNED (1) OUTSTANDING (2)
---------------------------------------- -------------------------- ------- ------------------
Gregory D. Frost 1,050,000 (3) 41.8%
---------------------------------------- -------------------------- ------- ------------------
Christopher P. Westad 35,000 (4) 1.4%
---------------------------------------- -------------------------- ------- ------------------
Patrick O'Neill 0 --
---------------------------------------- -------------------------- ------- ------------------
Edward C. Miller, Jr. 0 --
---------------------------------------- -------------------------- ------- ------------------
Steven Chalk 0 --
---------------------------------------- -------------------------- ------- ------------------
Alan E. Richards 0 --
---------------------------------------- -------------------------- ------- ------------------
Solange Charas 0 --
---------------------------------------- -------------------------- ------- ------------------
Mark Barbera 0 --
---------------------------------------- -------------------------- ------- ------------------
Steven M. Vella 0 --
---------------------------------------- -------------------------- ------- ------------------
Frank Nocito 1,050,000 (5) 41.8%
---------------------------------------- -------------------------- ------- ------------------
John Vrabel 2,300 (6) **
---------------------------------------- -------------------------- ------- ------------------
Timothy Harrington 0 --
---------------------------------------- -------------------------- ------- ------------------
Officers and Directors as a Group
(11 persons) 1,137,300 (7) 44.7%
---------------------------------------- -------------------------- ------- ------------------
All American Plazas, Inc. 1,000,000 (8) 39.8%
1267 Hilltop Lane
Myerstown, PA 17067
---------------------------------------- -------------------------- ------- ------------------
* Unless otherwise indicated, the address for each stockholder is c/o Able
Energy, Inc., 198 Green Pond Road, Rockaway, New Jersey 07866.
** Represents less than 1% of the outstanding common stock.
------------
(1) The number of shares of common stock beneficially owned by each
stockholder is determined under rules promulgated by the SEC. Under
these rules, a person is deemed to have "beneficial ownership" of any
shares over which that person has or shares voting or investing power,
plus any shares that the person has the right to acquire within 60 days,
including through the exercise of stock options. To our knowledge,
unless otherwise indicated, all of the persons listed above have sole
voting and investment power with respect to their shares of common
stock, except to the extent authority is shared by spouses under
applicable law.
(2) The percentage ownership for each stockholder is calculated by dividing
(a) the total number of shares beneficially owned by the stockholder on
October 14, 2005 by (b) 2,514,463 shares (the number of shares of our
common stock outstanding on October 14, 2005), plus any shares that the
stockholder has the right to acquire within 60 days after October 14,
2005.
(3) Includes 50,000 shares owned by Mr. Frost. Also includes 1,000,000
shares owned by All American Plazas, Inc., of which Mr. Frost disclaims
beneficial ownership. The shares owned by All American Plazas, Inc., are
held by the Chelednik Family Trust, of which Mr. Frost is a co-trustee.
See Note (8) below.
(4) Includes 5,000 shares and 30,000 shares which may be acquired upon the
exercise of outstanding stock options.
65
(5) Includes 50,000 shares owned by Mr. Nocito. Also includes 1,000,000
shares owned by All American Plazas, Inc., of which Mr. Nocito disclaims
beneficial ownership. Mr. Nocito is Vice President of All American
Plazas, Inc., and the shares owned by All American Plazas, Inc., are
held by the Chelednik Family Trust, a trust established by Mr. Nocito
and his wife for the benefit of their family members. See Note (8)
below.
(6) Includes 2,300 shares.
(7) Includes 107,300 shares owned by the officers and directors and 30,000
shares which may be obtained upon the exercise of outstanding options
held by the officers and directors. Also includes 1,000,000 shares owned
by All American Plazas, Inc., of which Messrs. Frost and Nocito disclaim
beneficial ownership. See Note (8) below.
(8) Includes 1,000,000 shares owned by All American Plazas, Inc. The shares
owned by All American Plazas, Inc., are held by the Chelednik Family
Trust, a trust established by Mr. Nocito and his wife for the benefit of
their family members, of which Mr. Frost is a co-trustee.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a))
------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by security holders 38,000 $2.73 1,350,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 38,000 $2.73 1,350,000
------------------------------- ---------------------------- ---------------------------- ----------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF ALL AMERICAN PLAZAS, INC.
All American Plazas, Inc., currently owns approximately 40% of our outstanding
shares. Our CEO, Chairman and General Counsel, Gregory D. Frost, formerly served
as a director and the General Counsel of All American Plazas until his
resignation on March 31, 2005, and Frank Nocito, our Vice President Business
Development is Vice President of All American Plazas. In addition, one of our
directors, Stephen Chalk, performs certain paid consulting services in the area
of real estate development for All American Plazas. The shares of the Company
owned by All American Plazas are held by the Chelednik Family Trust, a trust
established by Mr. Nocito and his wife for the benefit of their family members,
of which Mr. Frost is a co-trustee.
In June 2005, we entered into a Stock Purchase Agreement on that date ("Purchase
Agreement") with all of the shareholders (the "Sellers") of All American Plazas,
Inc. ("All American") in connection with our acquisition of All American. The
transaction is expected to be consummated in November 2005, upon receipt of the
required approval by our stockholders, as discussed herein.
66
All American, which is headquartered in Myerstown, Pennsylvania, is in the
business of owning, operating and developing truck stops. Its operations
include, but are not limited to, the ancillary merchandising of rights,
products, and other goods and services. All American operates 11 multi-service
truck stops in the United States that sell diesel fuel and related services to
approximately 5,000 trucking accounts and other independent consumers. Its
operations are located at primary interchanges servicing major truck routes in
the northeast region of the United States, and its facilities, known as "All
American Plazas," offer a broad range of products, services, and amenities,
including diesel fuel, gasoline, home-style restaurants, truck preventive
maintenance centers, and retail merchandise stores that market primarily to
professional truck drivers and other highway motorists.
A complete description of All American's business and full financial statements
will be included in the proxy statement for the contemplated stockholders'
meeting with respect to the acquisition.
At the closing, we will deliver to the Sellers 11,666,667 shares of our
restricted common stock, par value $.001 per share, at $3.00 per share for an
aggregate purchase price of $35,000,000. In addition, at the closing, we will
deliver to certain of the Sellers a number of shares of our restricted common
stock equal to the number of shares of our common stock owned by All American as
of the closing date.
The Sellers have caused All American to enter into a term sheet dated June 6,
2005 with a third party institutional lender to refinance All American's debt
and provide All American with certain working capital. The term sheet provides
that the loan will be in the amount of approximately $35,000,000, at an interest
rate of 30-day LIBOR plus spread (adjustable rate), which is equivalent to the
Prime Rate + 1.75%, with a 25-year term and a 25-year amortization schedule. All
American will secure the loan with a first mortgage on all of its properties,
including improvements thereto. The financing is subject to customary closing
conditions and is expected to be consummated before year-end. In the event that
All American completes such financing on or before December 31, 2005, we have
agreed to pay an additional $10,000,000 to the Sellers, payable in shares of our
restricted common stock at $3.00 per share.
RECENT ALL AMERICAN FINANCING
All American recently consummated a financing that, if the acquisition of All
American is consummated, will impact us. The recently completed refinancing by
All American allowed All American to pay off approximately $3,000,000 in
existing debt and provided All American with approximately $2,000,000 in working
capital.
Pursuant to the terms of the Securities Purchase Agreement dated June 1, 2005
(the "Agreement") among All American and certain purchasers identified therein
(collectively, the "Purchasers"), the Purchasers loaned All American an
aggregate of $5,000,000, evidenced by Secured Debentures also dated June 1, 2005
(the "Debentures"). The Debentures shall be repaid within two years from the
date of issuance, subject to the occurrence of an event of default, with
interest payable at the rate per annum equal to LIBOR for the applicable
interest period, plus 4% payable on a quarterly basis on April 1st, July 1st,
October 1st and January 1st, beginning on the first such date after the date of
issuance of the Debentures. The loan is secured by real estate property owned by
All American in Pennsylvania and New Hampshire. In addition, in the event that
we do not complete the acquisition of All American prior to the expiration of
the 12-month anniversary of the Agreement, All American shall be considered in
default of the loan. Pursuant to the Additional Investment Right (the "AIR
Agreement") among All American and the Purchasers, the Purchasers may loan All
American up to an additional $5,000,000 on the same terms and conditions as the
initial $5,000,000 loan, except for the conversion price of the debentures.
If we consummate the acquisition of All American, upon such consummation, we
will assume the obligations of All American under the Agreement, the Debentures
and the AIR Agreement through the execution of a Securities Assumption,
Amendment and Issuance Agreement, Registration Rights Agreement, Common Stock
Purchase Warrant Agreement and Variable Rate Secured Convertible Debenture
Agreement, each between the Purchasers and us (the "Able Energy Transaction
Documents"). Such documents provide that All American shall cause the real
estate collateral to continue to secure the loan, until the earlier of full
repayment of the loan upon expiration of the Debentures or conversion by the
Purchasers of the Debentures into shares of our common stock at a conversion
rate of the lesser of (i) the purchase price paid by us for each share of All
American common stock in the acquisition, or (ii) $3.00, (the "Conversion
Price"), subject to further adjustment as set forth in the Able Energy
Transaction Documents. However, the Conversion Price with respect to the AIR
Agreement shall be $4.00. In addition, the
67
Purchasers shall have the right to receive five-year warrants to purchase
2,500,000 of our common stock at an exercise price of $3.75 per share. Pursuant
to the Able Energy Transaction Documents, we shall also have an optional
redemption right (which right shall be mandatory upon the occurrence of an event
of default) to repurchase all of the Debentures for 125% of the face amount of
the Debentures plus all accrued and outstanding interest and expenses, as well
as a right to repurchase all of the Debentures in the event of the consummation
of a new financing in which we sell securities at a purchase price that is below
the Conversion Price. It is currently contemplated that if the Able/All American
transaction is consummated, the stockholders of All American will escrow a
sufficient number of shares to satisfy the conversion of the $5,000,000 in
outstanding Debentures in full.
Pursuant to the Registration Rights Agreement among the parties, if we
consummate the acquisition of All American, the Purchasers shall have demand
registration rights with respect to all shares of our common stock obtained by
them through the conversion of the Debentures. The Purchasers shall also have an
additional investment right, for a period of nine months after the initial
registration statement filed by us with the Securities and Exchange Commission
(the "SEC") is first declared effective by the SEC, to purchase units consisting
of convertible debentures in the aggregate amount of up to $14,000,000 (the
"Additional Debentures") and common stock purchase warrants equal to 50% of the
face amount of such Additional Debentures (the "Additional Warrants"). The
conversion price of the Additional Debentures shall be $6.50 per share of common
stock with respect to the first $7,000,000 of Additional Debentures purchased,
and 80% of the average weighted price of our common stock during the 20 trading
days immediately prior to the Purchasers' election to purchase the Additional
Debentures, with respect to the remaining $7,000,000. The Additional Warrants
shall have a five- year term and an exercise price of 110% of the conversion
price. In the event of the occurrence of a default with respect to the
Additional Debentures, we shall have identical redemption rights to those
described in the immediately preceding paragraph.
OTHER TRANSACTIONS
The Company has entered into a consulting agreement with Timothy Harrington, its
former Chief Executive Officer ("CEO") on February 16, 2005 (see note 20 to the
consolidated financial statements contained herein). The agreement is for two
years and provides for annual fees of $60,000 to be paid in monthly
installments. In addition the former CEO received options to purchase 100,000
shares of the Company's common stock at $4.00 per share. The options were
excercised on July 7, 2005, at which time the closing price was $16.89. The
former CEO was paid $20,769 related to this agreement during the fiscal year
ended June 30, 2005.
During the fiscal year ended June 30, 2005 the Company paid $20,000 in legal
fees to a firm in which Gregory D. Frost, the Company's CEO, Chairman and
General Counsel, is a partner.
In connection with two loans entered into by the Company in May 2005 (see note 4
to the consolidated financial statements contained herein), fees in the amount
of $167,500 were paid to Unison Capital Corporation, a company owned by Frank
Nocito, the Company's Vice President Business Development. Mr. Nocito is also
Vice President of All American Plazas, Inc., the Company's largest shareholder.
Subsequent to the payments being made and based on discussions with Unison
Capital Corporation it was determined the $167,500 was an inappropriate payment
to a related party and Unison Capital Corporation has agreed to reimburse this
amount to the Company over a twelve month period beginning in October 2005. The
charge had been appropriately classified as deferred finance charges in the
balance sheet and therefore will have no effect on the Company's statement of
operations.
From time to time, our majority-owned subsidiary PriceEnergy has borrowed money
from us. As of June 30, 2005, the subsidiary had an indebtedness to us in the
form of two promissory notes. One made on November 1, 2000 for $1,350,000
bearing interest at a rate of 8% per annum payable quarterly with principal
payments that were to begin on November 1, 2002. There is a second promissory
note dated December 31, 2004 in the amount of $3,544,389, which bears no
interest. To date, PriceEnergy has made no payments on either promissory note.
Able Energy, Inc. owns approximately 70.6% of Price Energy, Timothy Harrington,
our former Chief Executive Officer, owns 23 1/2%, Christopher Westad, our
President, owns 3.6% and John L. Vrabel, our Chief Operating Officer, owns 2.3%.
68
SELLING SECURITY HOLDERS
The selling security holders may, from time to time, offer and sell
shares of our common stock pursuant to this prospectus. In addition to the
selling security holders identified in the table below, any of their proper
transferees, donees, pledgees or other successors or any persons who acquire any
of the offered shares in a transaction exempt from the registration requirements
of the Securities Act of 1933 and who are identified in a supplement to this
prospectus may also sell shares under this prospectus. The numbers of shares
listed below as being offered prior to adjustments include shares of common
stock issuable upon the conversion of the principal amount of debentures and in
lieu of interest payments and shares issuable upon exercise of warrants, all of
which were acquired by the selling security holders listed in the table below in
a private placement transaction on July 12, 2005.
Because the terms of the debentures and warrants issued in the July 2005
private placement transaction allow for adjustments in the numbers of shares
issuable upon their conversion or exercise, we do not know the actual number of
shares that will be acquired and offered by the selling security holders. The
number of shares covered by this prospectus includes a good faith estimate of
the number of shares that will be acquired by the selling security holders upon
conversion of the debentures and exercise of the warrants, assuming all
adjustments. This estimate is based on the requirement in the transaction
documents from the private placement that this prospectus initially cover 130%
of the number of shares currently issuable upon conversion of the debentures and
exercise of the warrants. The number of shares covered by this prospectus may,
however, differ from the actual number of shares ultimately acquired and offered
by the selling security holders, in which case we may file an amendment or
supplement to this prospectus. Under the terms of the private placement
transaction documents, the selling security holders are prohibited from
acquiring shares upon conversion of debentures that would cause them to
beneficially own more then 4.99% of our outstanding shares of common stock.
------------------------------------ ------------------ ------------------- -------------------- -------------------
Selling Security Holder Shares Shares Offered Shares Offered Shares
Beneficially Prior to After Adjustments Beneficially
Held Before Adjustments Held
Offering After Offering
------------------------------------ ------------------ ------------------- -------------------- -------------------
------------------------------------ ------------------ ------------------- -------------------- -------------------
Cranshire Capital, L.P. 0 91,150(1) 118,496(1) 0
------------------------------------ ------------------ ------------------- -------------------- -------------------
Crestview Capital Master, LLC 0 121,534(2) 157,994(2) 0
------------------------------------ ------------------ ------------------- -------------------- -------------------
Iroquois Master Fund Ltd. 0 182,300(3) 236,990(3) 0
------------------------------------ ------------------ ------------------- -------------------- -------------------
Lilac Ventures Master Fund 0 151,917(4) 197,493(4) 0
------------------------------------ ------------------ ------------------- -------------------- -------------------
Smithfield Fiduciary LLC 0 60,767(5) 78,997(5) 0
------------------------------------ ------------------ ------------------- -------------------- -------------------
(1) Cranshire Capital, L.P. currently holds a debenture of $375,000
principal amount. Includes 57,693 shares issuable upon the conversion of
debentures, 4,611 shares issuable in lieu of cash payments of interest
on the debentures and 28,846 shares issuable upon the exercise of
warrants. Based on our contractual obligation initially to register 130%
of such securities, the selling security holder is deemed to be offering
75,001 shares issuable upon the conversion of debentures, 5,995 shares
issuable in lieu of cash payments of interest on the debentures and
37,500 shares issuable upon the exercise of warrants. Mitchell P. Kopin,
President of Downsview Capital, the General Partner of Cranshire
Capital, L.P., has sole voting and investment control over the
securities held by Cranshire Capital, L.P.
(2) Crestview Capital Master, LLC currently holds a debenture of $500,000
principal amount. Includes 76,924 shares issuable upon the conversion of
debentures, 6,148 shares issuable in lieu of cash payments of interest
on the debentures and 38,462 shares issuable upon the exercise of
warrants. Based on our contractual obligation initially to register 130%
of such securities, the selling security holder is deemed to be offering
100,001 shares issuable upon the conversion of debentures, 7,993 shares
issuable in lieu of cash payments of interest on the debentures and
50,000 shares issuable upon the exercise of warrants. Stewart R. Flink,
Managing Member of Crestview Capital Master, LLC, has sole voting and
investment control over the securities held by Crestview Capital Master,
LLC. Crestview Capital Master, LLC, is an affiliate of a broker-dealer
and bought the securities to be resold hereunder in the ordinary course
of business and, at the time of purchase of the securities to be resold
hereunder, had no agreements or understandings, directly or
69
indirectly, with any person to distribute them.
(3) Iroquois Master Fund Ltd. currently holds a debenture of $750,000
principal amount. Includes 115,385 shares issuable upon the conversion
of debentures, 9,223 shares issuable in lieu of cash payments of
interest on the debentures and 57,692 shares issuable upon the exercise
of warrants. Based on our contractual obligation initially to register
130% of such securities, the selling security holder is deemed to be
offering 150,001 shares issuable upon the conversion of debentures,
11,989 shares issuable in lieu of cash payments of interest on the
debentures and 75,000 shares issuable upon the exercise of warrants.
Joshua Silverman has sole voting and investment control over the
securities held by Iroquois Master Fund Ltd.
(4) Lilac Ventures Master Fund currently holds a debenture of $625,000
principal amount. Includes 96,154 shares issuable upon the conversion of
debentures, 7,686 shares issuable in lieu of cash payments of interest
on the debentures and 48,077 shares issuable upon the exercise of
warrants. Based on our contractual obligation initially to register 130%
of such securities, the selling security holder is deemed to be offering
125,001 shares issuable upon the conversion of debentures, 9,991 shares
issuable in lieu of cash payments of interest on the debentures and
62,501 shares issuable upon the exercise of warrants. Bruce Bernstein
has sole voting and investment control over the securities held by Lilac
Ventures Master Fund.
(5) Smithfield Fiduciary LLC currently holds a debenture of $250,000
principal amount. Includes 38,462 shares issuable upon the conversion of
debentures, 3,074 shares issuable in lieu of cash payments of interest
on the debentures and 19,231 shares issuable upon the exercise of
warrants. Based on our contractual obligation initially to register 130%
of such securities, the selling security holder is deemed to be offering
50,000 shares issuable upon the conversion of debentures, 3,997 shares
issuable in lieu of cash payments of interest on the debentures and
25,001 shares issuable upon the exercise of warrants. Glenn Dubin and
Henry Swieca, through Highbridge Capital Management LLC, the trading
manager of Smithfield Fiduciary LLC, have voting and investment control
over the securities held by Smithfield Fiduciary LLC.
PLAN OF DISTRIBUTION
Each selling stockholder of the common stock of Able Energy and any of
their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their shares of common stock on the Nasdaq SmallCap Market or
any other stock exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed or negotiated
prices. A selling stockholder may use any one or more of the following methods
when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the effective date
of the registration statement of which this prospectus is a
part;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale;
70
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
or
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
In connection with the sale of the common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling stockholder has
informed the company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the common
stock. In no event shall any broker-dealer receive fees, commissions and markups
which, in the aggregate, would exceed eight percent (8%).
The company is required to pay certain fees and expenses incurred by the
company incident to the registration of the shares. The company has agreed to
indemnify the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each selling stockholder has advised us that they have not entered into any
written or oral agreements, understandings or arrangements with any underwriter
or broker-dealer regarding the sale of the resale shares. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of the resale shares by the selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the common stock for
71
the applicable restricted period, as defined in Regulation M prior to the
commencement of the distribution. In addition, the selling stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the common stock by the selling stockholders or
any other person. We will make copies of this prospectus available to the
selling stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale.
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby
will be passed upon for us by Ferber Frost Chan & Essner, LLP, 530 Fifth Avenue,
New York, NY 10036.
EXPERTS
The financial statements included in this prospectus have been so
included in reliance on the report of Simontacchi & Company LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated expenses in connection with the
offering described in the Registration Statement (all of which will be borne by
Able Energy).
Securities and Exchange Commission Fee $ 625
Accountants' Fees and Expenses* 7,500
Legal Fees and Expenses* 30,000
Miscellaneous* 25,000
-----------
TOTAL* $ 43,125
*estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's Certificate of Incorporation eliminates, to the fullest
extent permitted by law, the liability of its directors to the registrant and
its stockholders for monetary damages for breach of the directors' fiduciary
duty. This provision is intended to afford the registrant's directors the
benefit of the Delaware General Corporation Law, which provides that directors
of Delaware corporations may be relieved of monetary liability for breach of
their fiduciary duty of care, except under certain circumstances involving
breach of a director's duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law or any
transaction from which the director derived an improper personal benefit.
The By-laws of the registrant provide that the registrant shall
indemnify to the fullest extent permitted by Delaware law directors and officers
(and former officers and directors) of the registrant. Such indemnification
includes all costs and expenses and charges reasonably incurred in connection
with the defense of any civil, criminal or administrative action or proceeding
to which such person is made a party by reason of being or having been an
officer or director of the registrant if such person was substantially
successful on the merits in his or her defense of the action and he or she acted
honestly and in good faith with a view to the best interests of the registrant,
and if a criminal or administrative action that is enforced by a monetary
penalty, such person had reasonable grounds to believe his or her conduct was
lawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
1. On March 1, 2005, the Company entered into an amendment (the "Agreement") to
an existing consultant agreement with Summitt Ventures, Inc. ("Summitt"). The
value of the consideration contemplated to be rendered by Summitt to the Company
under the Agreement was $71,428.50, and the Company issued 142,857 shares of the
Company's common stock (the "Shares"), valued at $0.50 per share, as payment.
The Shares at the time of issue were unregistered, restricted shares of the
Company and not subject to any registration requirement. The shares were offered
only to Summitt in connection with the Agreement and, thus, were exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, as
not being a part of any public offering. The Shares are not convertible into any
other class or series of equity of the Company. No proceeds were received by the
Company at the time of issuance of the Shares and no proceeds have been received
by the Company on account of the Agreement. On September 22, 2005, the Company
terminated the Agreement with Summitt, with cause, and on October 13, 2005, the
Company notified Summitt that it was canceling the certificate evidencing the
Shares on the grounds that, among other things, Summitt induced the Company to
enter into the Agreement through misrepresentation.
2. On July 12, 2005, the Company consummated a financing with certain purchasers
identified in the Securities Purchase Agreement dated as of July 12, 2005
(collectively the "Purchasers"), in a transaction permitted under section 4(2)
of the Securities Act of 1933, in the amount of $2.5 Million Dollars.
Pursuant to the terms of the Securities Purchase Agreement dated as
of July 12, 2005 (the "Agreement") among Able Energy, Inc., and the Purchasers,
the Purchasers purchased Debentures in the aggregate amount of $2.5 Million
Dollars evidenced by a Variable Rate Convertible Debenture also dated July 12,
2005 (the "Debenture"). The Debentures shall be repaid within two years from the
date of issuance, subject to the occurrence of an event of default, with
interest payable at the rate per annum equal to LIBOR for the applicable
interest period, plus 4% payable on a quarterly basis on April 1st, July 1st,
October 1st and January 1st, beginning on the first such date after the date of
issuance of the Debentures. The Debentures may be converted at the option of the
Purchasers into shares of our common stock at a conversion price of $6.50 per
share. In addition, the Purchasers shall have the right to receive five (5) year
warrants to purchase 192,308 of common stock at an exercise price of $7.15 per
share. Pursuant to the Agreement, we shall also have an optional redemption
right (which right shall be mandatory upon the occurrence of an event of
default) to repurchase all of the Debentures for 125% of the face amount of the
Debentures plus all accrued and outstanding interest and expenses, as well as a
right to repurchase all of the Debentures in the event of the consummation of a
new financing in which we sell securities at a purchase price that is below the
Conversion Price.
Pursuant to the Registration Rights Agreement among the parties, the
Purchasers shall have demand registration rights with respect to all shares of
our common stock obtained by them through the conversion of the Debentures. The
Purchasers shall also have an additional investment right, for a period of nine
months after the initial registration statement is filed by us with the
Securities and Exchange Commission (the "SEC") is first declared effective by
the SEC, to purchase units consisting of convertible debentures in the aggregate
amount of up to $15,000,000 (the "Additional Debentures") and common stock
purchase warrants equal to 50% of the face amount of such Additional Debentures
(the "Additional Warrants"). The conversion price of the Additional Debentures
shall be $6.50 per share of common stock with respect to the first $5,000,000 of
Additional Debentures purchased, $7.50 per share of common stock for the second
$5,000,000 of Additional Debentures purchased and 80% of the average weighted
price of our common stock during the 20 trading days immediately prior to the
Purchasers' election to purchase the third $5,000,000 of Additional Debentures.
The Additional Warrants shall have a five-year term and an exercise price of
110% of the conversion price. In the event of the occurrence of a default with
respect to the Additional Debentures, we shall have identical redemption rights
to those described in the immediately preceding paragraph. Moreover, the Company
shall have the right to cause the Purchasers' on a pro rata basis, based on the
percentage of their purchase of Debentures, to exercise their Additional
Investment Right; however, each Purchaser may refuse to exercise their
respective purchase right, but in such event, the Purchaser waives its right to
purchase the Additional Debentures. The Agreement provide that, commencing 90
days following the Effective Date (the date the initial registration statement
is declared effective by the SEC), and ending on the 179th calendar day with
regard to the first $5,000,000 in Additional Debentures, if the average weighted
price of our stock for any 20 consecutive trading day period, during said
period, exceeds $7.80 per share. We also have a similar right with regard to the
second $5,000,000 if our stock during the period commencing 180 days, following
the Effective Date through the 269th day, for any 20 consecutive trading day
period, exceeds $9.00 per share and for the period 270 days following the
Effective Date through the 360th calendar day, we have a similar right with
regard to the third $5,000,000 tranche if our stock exceeds $10.20.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Articles of Incorporation of Registrant (incorporated by reference to
exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed
on July 15, 1998)
3.2 By-Laws of Registrant (incorporated by reference to exhibit 3.2 to the
Company's Registration Statement on Form SB-2, filed on July 15, 1998)
5.1 Opinion re: legality.+
II-1
10.1 Form of Consulting Agreement with the Walsh Manning Securities, LLC***
10.2 Lease of Company's Facility at 344 Route 46, Rockaway, New Jersey*
10.3 Form of employment agreement between the Company and Timothy
Harrington, to be executed on or before the Effective Date***
10.4 Form of employment agreement between the Company and Christopher P.
Westad, to be executed on or before the Effective Date***
10.5 $600,000 Revolving Credit Facility and $350,000 Line of Credit with PNC
Bank, National Association dated October 23, 1996, and amendment
thereto, dated June 12, 1998, extending the Line of Credit to $500,000*
10.6 $675,000 Term Loan Agreement dated June 11, 1998 by and between the
Company and PNC Bank, National Association and exhibits thereto,
including Pledge Agreement by and between Timothy Harrington and PNC
Bank, Guaranty and Suretyship Agreement by and between the Company and
PNC Bank, and Pledge Agreement by and between the Company and PNC Bank*
10.7 Marketing Alliance Agreement, dated March 1, 1998, between the Company
and AllEnergy Marketing Company, L.L.C., whereby the Company obtained
the exclusive right to market natural gas supplied by AllEnergy in
specified areas**
10.8 In tank agreement between the Company and Mieco, Inc., dated May 11,
1998, for the storage of the Mieco's petroleum products in the
Company's tank facilities**
10.9 Form of Company's Pre-Purchase Enrollment Form*
10.10 Oil Supply Agreement between the Company and Mieco, Inc., dated May 19,
1998**
10.11 Letter agreement, dated July 3, 1998, between the Company and Mieco,
Inc. modifying the Oil Supply Agreement, dated May 19, 1998, whereby
the Company agreed to increase the amount of oil purchased from Mieco**
10.12 Oil Supply Agreement between the Company and Amerada Hess Corporation,
dated July 30, 1998**
10.13 Oil Supply Agreement between the Company and Bayway (TOSCO) Refining
Company, dated March 27, 1998**
10.14 Oil Supply Agreement between the Company and Koch Refining Company,
L.P., dated March 17, 1998**
10.15 Fuel Purchase Agreement (Natural Gas) between the Company and
Ferrellgas, dated September 3, 1996**
10.16 Fuel Purchase Agreement (Propane) between the Company and Keystone
Propane Service, Inc., dated July 28, 1998**
10.17 Lease between the Company and Summit Leasing Corporation ("Summit"),
dated December 3, 1997**
10.18 Franchise Agreement, dated December 31, 1998, between the Company and
Andrew Schmidt regarding sale of Able Oil Company Montgomery, Inc. as a
franchise***
10.19 Stock Purchase Agreement, dated December 31, 1998, between the Company
and Andrew Schmidt regarding the sale of stock of Able Oil Company
Montgomery, Inc. by the Company to Mr. Schmidt***
10.20 Pledge and Security Agreement, dated December 31, 1998, between the
Company and Andrew Schmidt regarding the pledge of stock of Able Oil
Company Montgomery, Inc.***
10.21 $140,000 principal amount, 9.5% Promissory Note, dated December 31,
1998, between the Company and Andrew Schmidt regarding the sale of
stock of Able Oil Company Montgomery, Inc. by the Company to Mr.
Schmidt.
10.22 Stock Sale Agreement, dated December 31, 1998, between the Company and
Owl Environmental, Inc. regarding the sale of stock of A&O
Environmental Services, Inc. by the Company to Owl Environmental, Inc.*
10.23 Employment Agreement with Christopher P. Westad, dated July 1, 2004
(incorporated by reference to exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended June 30, 2004)
10.24 Employment Agreement with John Vrabel, dated July 1, 2004 (incorporated
by reference to exhibit 10.4 to the Company's Annual Report on Form
10-K for the year ended June 30, 2004)
10.25 Consulting Agreement, dated February 16, 2005, by and among the Company
and Timothy Harrington (incorporated by reference to exhibit 4.1 to the
Company's Current Report on Form 8-K filed February 23, 2005)
10.26 Loan Agreement between the Company and Entrepreneur Growth Capital LLC,
dated May 13, 2005 (incorporated by reference to exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended June 30, 2005)
10.27 Loan Agreement between the Company and Northfield Savings Bank, dated
May 13, 2005 (incorporated by reference to exhibit 10.27 to the
Company's Annual Report on Form 10-K for the year ended June 30, 2005)
10.28 Securities Purchase Agreement, by and among All American Plazas, Inc.,
dated as of June 1, 2005 (incorporated by reference to exhibit 99.1 to
the Company's Current Report on Form 8-K filed June 10, 2005)
10.29 Form of Securities Assumption, Amendment and Issuance Agreement by and
among the Purchasers named therein and the Company (incorporated by
reference to exhibit 99.4 to the Company's Current Report on Form 8-K
filed June 10, 2005)
10.30 Stock Purchase Agreement, by and between the Sellers named therein and
the Company, dated as of June 16, 2005 (incorporated by reference to
exhibit 10.1 to the Company's Current Report on Form 8-K filed June 16,
2005)
10.31 Securities Purchase Agreement dated as of July 12, 2005, between Able
Energy, Inc., and the purchasers identified on the signature pages
thereto (incorporated by reference to exhibit 99.1 to the Able Energy,
Inc., Current Report on Form 8-K filed July 15, 2005).
10.32 Registration Rights Agreement dated as of July 12, 2005, between Able
Energy, Inc., and the purchasers signatory thereto (incorporated by
reference to exhibit 99.3 to the Able Energy, Inc., Current Report on
Form 8-K filed July 15, 2005).
10.33 Form of Variable Rate Convertible Debenture dated July 12, 2005
(incorporated by reference to exhibit 99.2 to the Able Energy, Inc.,
Current Report on Form 8-K filed July 15, 2005).
10.34 Form of Common Stock Purchase Warrant (incorporated by reference to
exhibit 99.4 to the Able Energy, Inc., Current Report on Form 8-K filed
July 15, 2005).
21.1 List of Subsidiaries of Registrant (incorporated by reference to
exhibit 21.1 to the Company's Annual Report on Form 10-K for the year
ended June 30, 2005)
23(a) Consent of Ferber Frost Chan & Essner, LLP (included in the Opinion
filed as Exhibit 5(a)).*+
23(b) Consent of Simontacchi & Company LLP.
(+) To be filed by amendment.
(*) Reference is made to the Company's Registration Statement, filing
Number 333-51909, filed with the SEC on July 15, 1998.
(**) Reference is made to the Company's Registration Statement, filing
Number 333-51909, filed with the SEC on November 6, 1998.
(***) Reference is made to the Company's Registration Statement, filing
Number 333-51909, filed with the SEC on April 15, 1999.
(****) Reference is made to the Company's Registration Statement, filing
Number 333-51909, filed with the SEC on May 17, 1999.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes;
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that Paragraphs (i) and (ii) above do not apply if the
Registration Statement is on Form S-3 and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rockaway
and State of New Jersey on the 17th day of October, 2005.
ABLE ENERGY, INC.
By: /s/ Gregory D. Frost
--------------------
Name: Gregory D. Frost, Esq.
Title: Chief Executive Officer, Chairman,
General Counsel and Director
(principal executive officer)
Each person whose signature appears below hereby authorizes Christopher
P. Westad and Gregory D. Frost and each with full power of substitution, to
execute in the name and on behalf of such person any amendment or any
post-effective amendment to this Registration Statement and to file the same,
with exhibits thereto, and other documents in connection therewith, making such
changes in this Registration Statement as the Registrant deems appropriate, and
appoints each of Christopher P. Westad and Gregory D. Frost each with full power
of substitution, attorney-in-fact to sign any amendment and any post-effective
amendment to this Registration Statement and to file the same, with exhibits
thereto, and other documents in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Christopher P. Westad Director October 17, 2005
-------------------------
Christopher P. Westad
/s/ Stephen Chalk
------------------------- Director October 17, 2005
Stephen Chalk
/s/ Patrick O'Neill
------------------------- Director October 17, 2005
Patrick O'Neill
/s/ Edward C. Miller, Jr.
------------------------- Director October 17, 2005
Edward C. Miller, Jr.
/s/ Alan E. Richards
------------------------- Director October 17, 2005
Alan E. Richards
/s/ Gregory D. Frost Director October 17, 2005
--------------------
Gregory D. Frost
/s/ Solange Charas
------------------------- Director October 17, 2005
Solange Charas
------------------------- Director October 17, 2005
Mark Barbera
/s/ Steven M. Vella Chief Financial Officer October 17, 2005
------------------------- (principal financial officer)
Steven M. Vella
/s/ Jeff Feld Controller October 17, 2005
------------------------- (principal accounting officer)
Jeff Feld