UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Calendar year ended DECEMBER 31, 1999
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 333-51909
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ABLE ENERGY, INC.
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(Exact name of Registrant as specified in its charter)
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Delaware 22-3520840
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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344 Route 46
Rockaway, New Jersey 07866
(Address of Principal Executive Offices) (Zip Code)
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(973) 625-1012
Issuer's Telephone Number, Including Area Code)
Securities Registered under Section 12(b) of the exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value per share
(Title of Class)
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ______
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The issuer's revenues for its most recent fiscal year. $19,670,000.
The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the registrant computed by reference to the price at
which the common stock was sold as of March 24, 2000 was approximately
$6,000,000.
The number of shares outstanding of the registrant's Common Stock
outstanding as of March 24, 2000 was 2,000,000.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
Transitional Small Business Disclosure Format: Yes ______; No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
History
Able Energy was incorporated on March 13, 1997 in the state of Delaware, to
act as a holding company for five operating subsidiaries: Able Oil; Able
Propane; Able Melbourne; Able Montgomery and A&O.
On December 31, 1999, the Company sold all of its outstanding shares of
Able Montgomery, its Pennsylvania retail heating oil distributor, to an
unaffiliated third party in exchange for monetary consideration and a ten-year
franchise agreement with the buyer.
Also on December 31, 1999, the Company sold all of its outstanding shares
of common stock of A&O, its environmental consulting and engineering subsidiary,
to Owl Environmental, Inc., one of A&O's subcontractors, for nominal
consideration. The Company decided to sell A&O in light of A&O's continuing
operating losses.
Overview
The Company is engaged in the retail distribution of, and the provision of
services relating to, (i) fuel oil, (ii) propane gas, and (iii) natural gas
through a marketing alliance agreement with AllEnergy Marketing Company LLC, a
division of New England Electric Systems, Inc. In addition to selling home
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 diesel fuel, gasoline and lubricants.
In fiscal year 1998, sales of home heating oil accounted for approximately
70% of the Company's revenues. The remaining 30% of revenues were from sales of
gasoline, diesel fuel, kerosene, propane, and environmental services and related
sales. The Company serves approximately 20,000 home heating oil customers from
three locations, of which two are located in New Jersey and one is located in
Florida.
The Company also provides installation and repair of heating equipment as a
service to its customers. The Company considers service and installation
services to be an integral part of its business. Accordingly, the Company
regularly provides various 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 two hours of request. Except in
isolated instances, the Company does not provide service to any person who is
not a customer.
The Company believes that it obtains new customers and maintains existing
customers by offering full service home energy products at discount prices,
providing quick response refueling and repair operations, providing automatic
deliveries to customers by monitoring historical use and weather patterns, and
by providing customers a variety of payment options. The Company
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regularly provides various service incentives to obtain and retain customers.
The Company aggressively promotes its service through a variety of direct
marketing media, including mail and telemarketing campaigns, by providing
discounts to customers who refer new customers to the Company, and through an
array of advertising, including television advertisements and billboards, which
aim to increase brand name recognition. The Company believes that this focused
marketing strategy has been key to its success.
The Company intends to expand its operations by acquiring select
operators in the Company's present markets as well as other markets, capturing
market share from competitors through increased advertising and other means,
diversifying its products, diversifying its customer base, and replicating its
marketing and service formula in new geographic areas either directly or through
franchise arrangements. The Company may also enter into marketing alliances with
other entities in product areas different than the Company's current product
mix.
RETAIL FUEL OIL
The Company's retail fuel oil distribution business is conducted
through its subsidiaries Able Oil and Able Melbourne. The Company serves both
residential and commercial fuel oil accounts. The Company sells premium quality
home heating oil to its residential customers offering delivery seven
days-a-week. To its commercial customers, in addition to selling home heating
oil, the Company sells diesel fuel, gasoline and kerosene. The Company also
provides an oil burner service that is available 24 hours-a-day for the
maintenance, repair and installation of oil burners. These services are
performed on an as needed basis. Customers are not required to enter into
service contracts to utilize the Company's service department.
Approximately 50% of the Company's customers receive their home heating
oil pursuant to an automatic delivery system without the customer having to make
an affirmative purchase decision. These deliveries are scheduled by computer,
based on each customer's historical consumption patterns and prevailing weather
conditions. Customers can also order deliveries of home heating oil through the
Company's Web site located at www.ableenergy.com. 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 or with
their credit card.
In addition, approximately 5% of the Company's total sales are made to
customers pursuant to an agreement which pre-establishes the maximum annual
sales price of fuel oil and is paid by customers over a ten month period in
equal monthly installments. Such prices are renegotiated in April of each year
and the Company has historically purchased fuel oil for these customers in
advance and at a fixed cost.
The Company delivers fuel with its own fleet of 18 custom fuel oil
trucks and four owner-operator fuel oil delivery trucks. The Company's fuel
trucks have fuel capacities ranging from 3,000 to 8,000 gallons. Each vehicle is
assigned to a specific delivery route, and services between 4 and 40 customer
locations per day depending on market density and customers' fuel requirements.
The Company also operates seven Company owned service vans and four owner-
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operated service vans, which are equipped with state of the art diagnostic
equipment necessary to repair and/or install heating equipment. The number of
customers each van serves mostly depends upon the number of service calls
received on any given day.
ABLE OIL
Able Oil was established in 1989 and is the Company's largest
subsidiary, accounting for approximately 87% of the Company's total revenues in
1998. Able Oil is located in Rockaway, New Jersey, and serves just under 22,000
oil customer accounts throughout northern New Jersey, mostly in Morris, Sussex,
Warren, Passaic and Essex counties, from its distribution locations in Rockaway
and Newton, New Jersey. Of these accounts, approximately 90% are residential
customers and 10% are commercial customers.
Generally, 18 of the Company's fuel oil trucks are reserved for use by
Able Oil, of which nine trucks operate from the Rockaway facility and six trucks
operate from the Newton facility. In addition, Able Oil utilizes the services of
four owner-operated trucks. Each owner operator is under contract; they are
responsible for all of the vehicle operating expenses including insurance
coverage. All of the trucks have the Company's logo on them.
Able Oil's 18 fuel oil delivery trucks, and the four owner-operator
trucks, acquire fuel inventory at the Company's facilities in Rockaway and
Newton. Dispatch of fuel oil trucks is conducted at both the Rockaway and Newton
facilities. Billing is conducted from Able Oil's corporate headquarters in
Rockaway.
The Rockaway and Newton facilities have the capacity to store 1.5
million gallons and 200,000 gallons of fuel, respectively. During seasons where
demand for heating oil is higher, or when wholesale oil prices are favorable, a
slightly larger inventory is kept on hand. However, Management generally
believes that short inventory life and high inventory turnover enables the
Company to rapidly respond to changes in market prices. Thus, Management employs
"just in time" inventory practices and rarely stores fuel to capacity levels.
However, in June of 1998, oil prices reached a historic low and the Company
entered into an in-tank storage agreement with Mieco Trading Co., to store 1.5
million gallons of fuel oil at the Company's facility in Rockaway, New Jersey.
The Company entered into an additional agreement with Mieco whereby it purchased
all of such fuel oil from November 1998 through March 1999. Additional fuel oil
purchases are made daily on the spot market using electronic funds transfers.
Able Oil carts its fuel purchases from wholesale purchase sites to the Rockaway
and Newton facilities with two tractor-trailer tankers owned by the Company, and
by two owner-operated tractor-trailer tankers that are used on an as needed
basis. These two owner-operated tankers are under contract and bear the Ablelogo
or name.
Able Oil's oil burner service operates exclusively out of the Newton
facility. Able Oil dispatches a total of eleven service vans, four of which are
subcontracted from owner-operators.
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ABLE MELBOURNE
Able Melbourne was established in July 1996, and is located in Cape
Canaveral Florida. Presently, revenues from Able Melbourne account for
approximately 5.3% of the Company's total revenues. Able Melbourne is engaged
primarily in the sale of diesel fuel for commercial fleet fueling and other
on-road vehicles, and dyed diesel fuel, which is used for off-road vehicles and
purposes, including commercial and recreational fishing vessels, heating oil and
generator fuel. Additionally, a small portion of Able Melbourne's revenues is
generated from the sale of home heating oil, lubricants and lubricant products.
Able Melbourne serves approximately 300 customer accounts in Brevard County,
Florida, primarily in the Cape Canaveral Area. In 1998, six of Able Melbourne's
customers, Beyel Brothers Crane Service, Beyel Marina, Diamond Royale, Frank-lin
Excavating, Inc., CG Reed, S&S Seafood and ABC Landclearing Development,
individually, accounted for more than five percent of Able Melbourne's annual
revenues.
Able Melbourne delivers fuel with two fuel delivery trucks which are
capable of storing 6,000 gallons of fuel in aggregate. Because Able Melbourne's
peak season is at the opposite time of the year than the rest of the Company,
during this season, Able Melbourne uses one of Able Oil's trucks to meet its
demand. Currently, Able Melbourne does not have facilities to store fuel oil
beyond what is held on its trucks, and thus, purchases fuel inventory from local
refineries. However, since Able Melbourne is located only three miles from port
storage, the lack of inventory capacity is not material to the Company's
operations or revenue.
RETAIL PROPANE DISTRIBUTION
The Company is engaged in the retail distribution of liquid propane gas
and propane equipment, and provides services related thereto through its
subsidiary Able Propane. Able Propane, based in Rockaway, New Jersey, was
established 1996 as part of the Company's efforts to increase market penetration
through diversification. Able Propane serves approximately 1,100 accounts, the
majority of which are located in northern New Jersey.
Although propane can be used for virtually all household and business
utility applications, of Able Propane's customers, approximately 60% use propane
for hot water heating and cooking; approximately 10% use propane for pool
heating; and approximately 30% use propane for home heating. Although burned as
a gas, propane is transported as a liquid and stored in tanks that vaporize the
liquid for use. Able Propane provides its customers with such tanks at no
charge, and by doing so, remains such customer's exclusive supplier of propane.
Able Propane employs a delivery system similar to the Company's retail oil
distribution business, whereby customers receive propane deliveries pursuant to
an automatic delivery system without the customer having to make an affirmative
purchase decision. These deliveries are scheduled by computer, based on each
customer's historical consumption patterns and prevailing weather conditions.
With an increased marketing effort, the Company believes that Able
Propane has the opportunity to gain a larger share of the New Jersey energy
market by converting electricity and fuel oil users to propane, and by
encouraging owners of newly-constructed buildings to select propane as their
buildings' energy source. The Company also believes that the use of propane as
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an alternate fuel for cars, trucks and public transportation to meet clean air
requirements, poses a great opportunity for future growth.
Able Propane's base of operations is located in Rockaway, New Jersey,
at the Company's headquarters. Currently, Able Propane has no propane storage
facilities, and its only investment in propane inventory is what can be stored
on its one propane delivery truck. The delivery truck has the capacity to
deliver 3,000 gallons of propane, and can service approximately 35 customers per
day. Able Propane purchases wholesale propane on the spot market at local
facilities. The Company is considering plans to lease or build a facility that
would enable Able Propane to store approximately 30,000 gallons of propane.
FUNDAMENTAL CHARACTERISTICS OF THE COMPANY'S BUSINESS UNAFFECTED
BY GENERAL ECONOMY
The Company's business is relatively unaffected by business cycles.
Because fuel oil, propane and gasoline are such basic necessities, variations in
the amount purchased as a result of general economic conditions are limited.
CUSTOMER STABILITY
The Company has a relatively stable customer base due to the tendency
of homeowners to remain with their traditional distributors. In addition, a
majority of the home buyers tend to remain with the previous owner's
distributor. As a result, the Company's customer base each year includes most
customers retained from the prior year, or home buyers who have purchased from
such customers. Like many other companies in the industry, the Company delivers
fuel oil and propane to each of its customers an average of approximately six
times during the year, depending upon weather conditions and historical
consumption patterns. Most of the Company's customers receive their deliveries
pursuant to an automatic delivery system, without the customer having to make an
affirmative purchase decision each time home heating oil or propane is needed.
In addition, the Company provides home heating equipment repair service on a
seven- days-a-week basis.
No single customer accounts for 10% or more of the Company's
consolidated revenues.
CONVERSION TO NATURAL GAS
The rate of conversion from the use of home heating oil to natural gas
is primarily affected by the relative prices of the two products, and the cost
of replacing oil fired heating systems with one that uses natural gas. The
Company believes that approximately 1% of its customer base annually converts
from home heating oil to natural gas. Even when natural gas had a significant
price advantage over home heating oil, such as in 1980 and 1981 when there were
government controls on natural gas prices or during the Persian Gulf Crisis in
1990 and 1991, the Company's customers converted to natural gas at only a 2%
annual rate. During the latter part of 1991 and through 1995, natural gas
conversions have returned to their 1% historical annual rate as the prices for
the two products have been at parity.
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In an effort to insulate itself against natural gas conversions and as
part of the Company's efforts to expand its product line, the Company,
pursuant to a marketing alliance with AllEnergy, now provides natural
gas service as an option to its customers (See "Business- Expansion and
Acquisitions"). AllEnergy is a subsidiary of New England Electric
Systems, Inc. ("NEES"), a utility company listed on the New York Stock
Exchange. Recently, the New Jersey Board of Public Utilities
deregulated the sale and supply of natural gas to residential and
commercial customers. Natural gas customers can now choose from
different providers of natural gas. Natural gas providers, such as the
Company, will deliver the gas through the existing network of
underground gas pipes owned and maintained by the local gas utility.
OIL PRICE VOLATILITY
Although prices of energy sources have been volatile, historically,
this has not affected the performance of the Company because it has been able to
pass substantially all wholesale cost increases along to its customers. While
fluctuations in wholesale prices have not significantly affected demand to date,
it is possible that significant wholesale price increase could have the effect
of encouraging conservation of energy resources. If demand was reduced and the
Company was unable to increase its gross profit margin or reduce its operating
expenses, the effect of such decrease in demand would be a reduction of net
income.
SEASONALITY
The Company's business is directly related to the heating needs of its
customers. Accordingly, the weather can have a material effect on the Company's
sales in any particular year. Generally, however, the temperatures in the past
thirty years have been relatively stable, and as a result, have not had a
significant impact on the Company's performance, except on a short-term basis.
In 1997 "El Nino" caused one of the warmest winters on record which impacted
home heating oil sales during the 1997-1998 winter.
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 oil. During the spring and summer months,
revenues from the sale of diesel and gasoline fuels increase due to the
increased use of automobiles and construction apparatus.
Each of the Company's divisions are seasonal. From May through
September, Able Oil experiences considerable reduction of retail heating oil
sales.
Able Propane can experience up to 80% decrease in heating related
propane sales during the months of April to September, which is offset somewhat
by an increase of pool heating and cooking fuel.
Over 90% of Able Melbourne's revenues are derived from the sale of
diesel fuel for construction vehicles, and commercial and recreational sea-going
vessels during Florida fishing season, which begins in April and ends in
November. Only a small percentage of Able
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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
Notwithstanding the agreement between the Company and Mieco for the
supply of Number 2 Heating Oil, the Company does not have agreements or
contracts for the supply of fuel. The Company purchases its fuel on the spot
market. The Company satisfies its inventory requirements with nine different
suppliers, the majority of which have significant domestic fuel sources, and
many of which have been suppliers to the Company for over 5 years. The Company's
current suppliers are Ameranda Hess Corporation, Bayway Refining Co., Petron Oil
Corporation, Star Enterprises, Louis Dreyfus Energy, Koch Industries, Co.,
Valero Marketing and Supply Co., and Sun Co., Inc. (R&M). The Company monitors
the market each day and determines when to purchase its oil inventory and from
whom. As of June 1998, the Company began storing supplies of fuel equal to a
month's sales of fuel because of unusually low fuel prices.
Two of these suppliers provided Able Oil with approximately 60% of its
heating oil requirements for the year ended December 31, 1998.
Coastal Refining & Marketing, Inc., provided Able Melbourne with
approximately 99% of its diesel fuel product requirements for the year ended
December 31, 1998. Two major suppliers provided Able Melbourne with
approximately 67% and 33%, respectively, of its lubricant and related product
requirements for the year ended December 31, 1998. Two major suppliers,
Ferrellgas Partners, L.P. and Propane Power, provided Able Propane with
approximately 50% each, of its propane requirements for the year ended December
31, 1998.
Management believes that if the Company's supply of any of the
foregoing products was interrupted, the Company would be able to secure adequate
supplies from other sources without a material disruption in its operations.
However, there can be no assurance that adequate supplies of such products will
be readily available in the future.
TRUCK PURCHASES AND MAINTENANCE
The Company presently orders and purchases its fuel oil trucks from two
companies that manufacture trucks suitable for the Company's operations. The
Company has the option to purchase or lease standard equipment fuel trucks. The
typical configuration of the Company's fuel trucks is a Freightliner with a
3,000 gallon multi-compartment aluminum tank, a vapor recovery system and a
device that records fuel flow from the storage compartments. Each truck carries
the Company's registered logo emblazoned on its side.
Service and environmental testing 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
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on-site repairs for the maintenance of the Company's fleet of vehicles. To date,
the Company has not experienced significant downtime on the any of its fuel
trucks.
FRANCHISE DEVELOPMENT
On December 31, 1999, the Company sold its Able Montgomery subsidiary
as a franchise operation. Able Montgomery located in Horsham, Pennsylvania, was
established in 1996 and is engaged in the retail sale and delivery of home
heating oil. Pursuant to a Stock Purchase Agreement, the Company sold all of the
outstanding shares of Able Montgomery held by the Company to an unaffiliated
third party for a purchase price of $140,000, and the purchaser agreed to enter
into a ten-year franchise agreement with the Company. As an incentive for the
purchaser to enter into the Stock Purchase Agreement and operate Able Montgomery
as a franchise, the Company agreed to waive the $25,000 franchise fee and the
$15,000 grand opening fee the Company typically charges new franchisees. At the
time of the sale, Able Montgomery represented approximately 1.52% of the total
assets of the Company and approximately 1.82% of the total revenues of the
Company. The purchaser of Able Montgomery issued to the Company a promissory
note for the purchase price of Able Montgomery. Pursuant to the Stock Purchase
Agreement, the Company agreed to indemnify the purchaser in certain
circumstances, which include, any personal injury or property damage claims, or
any environmental violation, caused by the Company prior to the closing of the
sale of Able Montgomery. The purchaser agreed to indemnify the Company in
certain circumstances, which include, the breach of any representation or
warranty made by purchaser in the Stock Purchase Agreement or any of the other
agreements executed by the purchaser in connection with the sale of Able
Montgomery. Additionally, pursuant to the Stock Purchase Agreement, the
purchaser agreed to enter into a Pledge and Security Agreement whereby the
purchaser agreed to pledge to the Company all of the assets and outstanding
shares of Able Montgomery, and grant to the Company a security interest in all
of the assets of Able Montgomery, pending the satisfaction of the promissory
note. The promissory note is payable 60 months from the date of the note and
accrues interest at a rate of 9.5% per annum, payable to the Company in monthly
installments.
SALE OF A&O SUBSIDIARY
A&O was established in 1995 and was engaged in the business of
environmental consulting and engineering. After assessing the potential
profitability of A&O versus its potential liabilities, Management determined
that it was in the Company's best interest to sell A&O. During the year ended
December 31, 1999, A&O experienced a loss from operations of approximately
$152,000 on revenues of $734,032. At December 31, 1999, A&O's liabilities were
approximately $374,712 as compared to assets of $221,000. From its inception
through year ended December 31, 1998, the Company, through Able Oil, advanced to
A&O approximately $128,442. Pursuant to a Stock Purchase Agreement, the Company
sold all of the outstanding shares of common stock of A&O held by the Company to
Owl Environmental, Inc. ("Owl"), one of A&O's subcontractors, for nominal
consideration. Owl purchased such shares "as is" without recourse or express or
implied warranty from the Company.
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Product Lines
In fiscal year 1998, sales of home heating oil accounted for
approximately 70% of the Company's revenues. The remaining 30% of revenues were
from sales of gasoline, diesel fuel, kerosene, propane, and environmental
services and related sales. The Company also installs heating equipment and
repairs such equipment on a 24 hours-a-day, seven days-a-week basis, generally
within two hours of request.
Industry Overview
The Company's business is highly competitive. In addition to
competition from alternative energy sources, the Company competes with
distributors offering a broad range of services and prices, from full service
distributors similar to the Company, to those offering delivery only.
Competition with other companies in the propane industry is based primarily on
customer service and price. Longstanding customer relationships are typical in
the retail home heating oil and propane industry. Many companies in the
industry, including the Company, deliver fuel oil or propane to their customers
based upon weather conditions and historical consumption patterns without the
customers having to make an affirmative purchase decision each time fuel oil or
propane is needed. In addition, most companies, including the Company, provide
equipment repair service on a 24 hour-a-day basis, which tends to build customer
loyalty. As a result, the Company may experience difficulty in acquiring new
retail customers due to existing relationships between potential customers and
other fuel oil or propane distributors.
Marketing, Sales & Strategic Partnerships
The Company employs a dynamic marketing strategy that the Company
believes has been the key to its success. The Company believes that it obtains
new customers and maintains existing customers by offering its full service home
energy products at discount prices, providing quick response refueling and
repair operations, providing automatic deliveries to customers by monitoring
historical use and weather patterns, and by providing customers a variety of
payment options. To expand its customer base and aggressively promote its
service, the Company engages in direct marketing campaigns, advertises regularly
and encourages referrals.
The Company has successfully expanded its customer base by employing a
variety of direct marketing tactics, including telemarketing campaigns, 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 is 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 an incentive payment of $.0025 per
gallon of oil delivered to new customers obtained by the driver, plus $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
<PAGE>
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 encourages civic and religious organizations to refer business to the
Company. As an incentive, the Company pays such organizations a donation for
each of its members who become customers and a stipend based upon the members'
fuel consumption.
Patents and Trademarks
Able Oil owns the exclusive right and license to use, and to license
others to use, the proprietary marks, including the service mark "Able Oil-
- -Registered Trademark-" (and design) ("Proprietary Marks"). The "Able Oil-
- -Registered Trademark-" service mark and design was registered under Classes 37
and 39 of the Principal Register of the U.S. Patent & Trademark Office ("USPTO")
on April 30, 1996 (registration No. 1,971,758). In addition, Able Oil
established certain common law rights to the Proprietary Marks through its
continuous, exclusive and extensive public use and advertising. The Proprietary
Marks are not registered in any state.
Presently there is no effective determination by the USPTO, Trademark
Trial and Appeal Board, the trademark administrator of any state, or court
regarding the Proprietary Marks, nor is there any pending interference,
opposition or cancellation proceeding or any pending litigation involving the
Proprietary Marks or the trade names, logotypes, or other commercial symbols of
Able Oil. There are no agreements currently in effect that significantly limit
the rights of Able Oil to use or license the use of the Proprietary Marks.
Environmental Considerations and Regulation
The Company has implemented environmental programs and policies
designed to avoid potential liability under applicable environmental laws. The
Company has not incurred any significant environmental compliance cost, and
compliance with environmental regulations has not had a material effect on the
Company's operating or financial condition. This is primarily due to the
Company's general policies of not owning or operating fuel oil terminals and 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 January 31, 1997, Able Oil submitted to the New Jersey Department of
Environmental Protection a revised Discharge Prevention Containment and
Countermeasure plan ("DPCC") and Discharge, Cleanup and Removal plan ("DCR") for
the facility at 344 Route 46
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East in Rockaway, New Jersey. The State of New Jersey requires companies which
operate 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, effect the Company's
operations. The transportation of fuel oil, diesel fuel, propane and gasoline is
subject to regulation by various federal, state and local agencies including the
U.S. Department of Transportation ("DOT"). These regulatory authorities have
broad powers, and the Company is subject to regulatory and legislative changes
that can effect the economies of the industry by requiring changes in operating
practices or influencing demand for, and the cost of providing, its services.
The regulations provide that, among other things, the Company's drivers
must possess a commercial driver's licence with a hazardous materials
endorsement. The Company is also subject to the rules and regulations concerning
Hazardous Materials Transportation Act. For example, the Company's drivers and
their equipment must comply with the DOT's pre-trip inspection rules,
documentation regulations concerning hazardous materials (i.e. certificates of
shipments which describe the type, and amount of product transported), and
limitations on the amount of fuel transported, as well as driver time
limitations. Additionally, the Company is subject to DOT inspections that occur
at random intervals. Any material violation of DOT rules or the Hazardous
Materials Transportation Act may result in citations and/or fines upon the
Company. In addition, the Company depends upon the supply of petroleum products
from the oil and gas industry and, therefore, is affected by changing taxes,
price controls and other laws and regulations relating to the oil and gas
industry generally. The Company cannot determine the extent to which future
operations and earnings may be affected by new legislation, new regulations and
changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose the Company to liability for
the conduct or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed.
Sanctions for noncompliance may include revocation of permits, corrective action
orders, administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for joint and several liabilities for remediation of
spills and releases of hazardous substances. In addition, companies may be
subject to claims alleging personal injury or property damages as a result of
alleged exposure to hazardous substances, as well as damage to natural
resources.
<PAGE>
Although the Company believes that it is in compliance with existing
laws and regulations and carries adequate insurance coverage for environmental
and other liabilities, there can be no assurance that substantial costs for
compliance will not be incurred in the future or that the insurance coverage in
place will be adequate to cover future liabilities. There could be an adverse
affect upon the Company's operations if there were any substantial violations of
these rules and regulations. Moreover, it is possible that other developments,
such as more stringent environmental laws, regulations and enforcement policies
thereunder, could result in additional, presently unquantifiable, costs or
liabilities to the Company.
Employees
As of December 31, 1999, the Company employed approximately 78
individuals. From October through March, the Company's peak season, the Company
employs approximately 75 persons. From April through September, the Company
employs approximately 50 persons. Currently, there are no organized labor unions
representing any of the employees of Company or any of its related companies.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in a 4,000 square foot
facility in Rockaway, New Jersey. This facility accommodates the Company's
corporate, administrative, marketing and sales personnel as well as truck yard
space and oil storage space for Able Oil. The lease expires July 31, 1999 and
the annual rent is $14,400 plus $.01 per gallon of throughput at the facility up
to 10,000,000 gallons. After throughput exceeds 10,000,000 gallons the rent is
calculated as $.007 per gallon of throughput. The Company is currently in
negotiations with the owner to purchase the property. While the landlord has
agreed to indemnify the Company from environmental violations prior to the
Company's occupancy, the Company is responsible for maintaining the facilities
in compliance with all environmental rules and laws. The Company also owns two
buildings, totaling 4,512 square feet, consisting of wood frame facilities
located at 38 Diller Avenue, Newton, New Jersey that serves as a supply depot,
storage area administrative offices and service facility.
Able Melbourne leases a 4,000 square foot concrete and aluminum
facility that serves as a storage facility, a service facility and
administrative offices, located at 735 Snapper Road, Cape Canaveral, Florida and
is governed by an oral, month-to-month lease with annual rent of $2,862. 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.
Able Propane leases a 619 square foot facility, located at 318 Route
46, Dover, New Jersey, which houses its administrative offices. No propane is
stored at this facility. The lease expires September 14, 1999, and the annual
rent is $8,851.80 for the period of September 14, 1997 to September 14, 1998,
and $9,736.80 for the period of September 15, 1998 to September
<PAGE>
14, 1999. In addition, the Company must pay 20.89% of the costs of refuse
collection, common area maintenance and insurance. The Company is responsible
for maintaining the facilities in compliance with all environmental rules and
laws. The Company intends to relocate the propane division to the Company's
existing facilities in Rockaway, New Jersey that will house not only
administrative offices but also service and supply facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceeding that
could have a material adverse effect on the results of operations or the
financial condition of the Company. From time to time, the Company may become a
party to litigation incidental to its business. There can be no assurance that
any future legal proceedings will not have a material adverse affect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market For Securities
The Company's Common Stock commenced trading on the Nasdaq SmallCap
Market on June 29, 1999. The following table sets forth the high and low sale
price of the Common Stock on a quarterly basis, as reported by Nasdaq:
<TABLE>
<CAPTION>
DATE High Price Low Price
- ----
<S> <C> <C>
Quarter ended: $7.00 $5.00
June 30, 1999 (commencing $8.00 $7.06
June 29, 1999)
September 30, 1999 $7.75 $6.00
December 31, 1999 $7.13 $5.25
- ----------------------------------------------- ------------------ ----------------
</TABLE>
At March 24, 2000, there were approximately 646 holders of record of
the Company's Common Stock. The Company has not paid dividends on its shares of
Common Stock outstanding in the past. There are no restrictions that limit the
ability of the Company to pay dividends or are likely to do so in the future.
Recent Sale of Unregistered Securities
None.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. Forward-
looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward- looking statement. It is important to
note that the Company's actual results could differ materially from those in
such forward-looking statements. Additionally, the following discussion and
analysis should be read in conjunction with the Financial Statements and notes
thereto appearing elsewhere in this Report. The discussion is based upon such
financial statements which have been prepared in accordance with U.S. Generally
Accepted Accounting Principles.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Revenue Recognition
Sales of fuel are recognized at the time of delivery to the customer,
and sales of equipment are recognized at the time of installation. Revenue from
repairs and maintenance service is recognized upon completion of the service.
Payments received from customers for heating equipment service contracts are
deferred and amortized into income over the term of the respective service
contracts, on a straight line basis, which generally do not exceed one year.
Results of Operations
Year ended December 31, 1999, compared to the year ended
December 31, 1998.
The Company reported revenues of $19,670,365 for the year
ended December 31, 1999, an increase of 20.55% over the prior year's revenues of
$16,317,668. This was in a warmer than normal winter during the months of
November and December. This increase can be attributed to an aggressive
marketing program, fuel sold at a discount, under a promotion and an increase in
the price for sale of products by the Company. There was also an increase in
service work during this period. Revenues for the year ended December 31, 1998
include $1,031,028 of sales made by subsidiaries which were sold in December
1998. Had such revenues not been included in total revenue for the year ended
December 31, 1998, the increase in revenues from such period to the year ended
December 31, 1999 would have been 26.86%. The year ended December 31, 1999
included $308,936 of revenues for the period August 27, 1999 to December 31,
1999 from the acquisition of B & B Fuels on August 27, 1999.
Gross profit margin, as a percentage of revenues, for the year
ended December 31, 1999, decreased 3.0%, from 20.1% one year ago to 17.1% in the
year ended December 31, 1999. This decrease is a result of a rise in the price
of fuel with only a partial corresponding sales price increase. The sales price
was increased in the fourth quarter of 1999 and the price rise began in the
third
<PAGE>
quarter of 1999. These figures do not take into account the subsidiaries sold in
December 1998, whose effect on gross margin was immaterial.
Selling, General and Administrative expenses increased by
$574,366, or 21.11%, from $2,720,598 for the year ended December 31, 1998 to
$3,294,964 for the year ended December 31, 1999. Had the expenses attributable
to the two subsidiaries sold in December 1998 not been included, this increase
would have been $920,963 or 33.85%. This year included costs of $132,594 from
acquisitions in August and September 1999. This increase was due to an increase
in marketing costs, sales promotion, outside service related to acquisitions,
computer equipment and software upgrade to account for the year 2000 issue and
additional staff to manage this upgrade.
Operating loss for the year ended December 31, 1999 was
$466,043, an increase of 562.78% over the Company's operating income of $100,705
for the year ended December 31, 1998. This operating loss was attributable to
lower gross profit resulting from higher product cost without a timely
corresponding raise in price, increased cost due to a public offering which
utilized a large amount of Company resources and the time of key personnel,
acquisitions, equipment and software upgrade and a large increase in staff
resulting from systems conversion which is an on-going project.
The unusual loss for this year was exacerbated by a number of
extraordinary events and one time charges and is not indicative of future
results of the Company. For instance, the Company has recently invested heavily
in its infrastructure to support anticipated growth that the Company intends to
accomplish through an aggressive acquisitions strategy and marketing program. To
this end, the Company has put in place a sophisticated computer hardware and
software system and has hired additional mid-management personnel to support its
growth. The cost of the system is significantly more than estimated and has not
functioned as the Company desired. It has also taken significant staff time and
resources to implement this system. In addition, on August 27, 1999, the Company
purchased B & B Fuels of Warrensburg (Albany), New York and has expended
significant cash resources to establish its presence in the greater Albany area
and raise the B & B facilities to the Company's standards. All of these factors
have contributed to the Company's large loss for this year.
Net loss for the year ended December 31, 1999 was $421,722 as
compared to net income of $40,693 for the previous year. This net loss was the
result of greater marketing costs, sales promotion, higher product cost, higher
direct wages and an investment cost on a growing service operation, higher
depreciation cost on a larger fleet of trucks and additional propane
installations, as well as the extraordinary factors referred to above.
Depreciation and amortization expense for the year ended December 31,
1999 was $521,436, an increase from $451,441 for the year ended December 31,
1998. The increase was due to the purchase of additional trucks, propane
installations and the acquisition of B&B Fuels' trucks and tanks and the
facility on Route 46, Rockaway, New Jersey.
<PAGE>
Year Ended December 1998 Compared to Year Ended December 31, 1997.
Revenues for the year ended December 31, 1998 were $16,317,668, a 0.38%
decrease over the prior year's revenues of $16,380,992. The decrease in revenue
for the year ended December 1998 was due in part to lower product costs during
the second half of fiscal 1998. For example, the cost to the Company for number
2 home heating oil averaged $0.42 per gallon for fiscal 1998 as compared to
$0.59 for 1997. In fiscal year 1997, the Company charged customers an average of
$.829 per gallon as opposed to $.711 per gallon for number 2 home heating oil,
in fiscal year 1998. Therefore, although revenue decreased the Company was able
to increase margins on number 2 home heating oil by $.052 per gallon in fiscal
year 1998. Additionally, the decrease in revenues was a result of a reduction of
gallons sold of home heating oil. This reflects management's decision to stop
sales of home heating oil to two wholesale customers because of low profit
margins on such sales. Management believes that the elimination of these
customers will result in an increase in overall profit margins from sales of
home heating oil. The Company did, however, experience a 78% increase in gallon
sales of propane, from 215,508 gallons during fiscal 1997 to 383,678 gallons in
fiscal 1998 which was the result of an increase in propane customers.
The Company's gross profit margin for the year ended December 31, 1998
was 20.1% of sales, a decrease from the 20.5% margin for the comparable period
ended December 31, 1997. Selling General & Administration expenses ("SG&A") for
the Company decreased by 0.92% from $2,745,963 to $2,720,598 for the year ended
December 31, 1998 as compared to December 31, 1997. These changes can be
attributed, in part, to the reclassification of expenses from SG&A to cost of
goods sold to better describe such expenses. For example, during fiscal year
1997, the Company included $108,000 in insurance expense and $80,000 of fuel and
excise tax in SG&A; however, in fiscal 1998, these expenses were included in
cost of goods sold. The decrease in gross profit can also be attributed to
fluctuating costs for product during the second half of 1998 and higher costs
attributable to A&O, which was sold in December 1998. The decrease in SG&A can
also be attributed to decreased executive officers salaries, as certain officers
did not take a bonus in 1998.
Operating income for the year ended December 31, 1998 was $100,705 a
decrease of 53.7% over the Company's operating income for the previous year
ended December 31, 1997 of $217,588. This decrease in income from operations is
related to the increase in one time expenditures relating to strengthening the
Company's infrastructure. For example, in fiscal 1998, the Company established a
garage in its Newton Facility which is staffed with one full-time employee. The
Company expects that the addition of this garage will help to reduce operating
expenses related to its fleet of trucks during fiscal year 1999. Additionally,
increased costs related to A&O further decreased operating income.
Net income for the year ended December 31, 1998 was $40,693, a
46.50% decrease in the Company's net income of $76,061 for the year ending
December 31, 1997. This decrease in net income is primarily attributable to
lower gross profit and higher depreciation expenses due to additional tanks and
other equipment.
Depreciation and amortization expense for the year ended December 31,
1998 was $451,441,
<PAGE>
an increase from $394,806 for the year ending December 31, 1997. Amortization
relates to the amortization of customer lists, being amortized over 15 years and
a Non-Compete Agreement amortized over 5 years, per the agreement. These relate
to the acquisition of Connell's Fuel Co. in October 1996. The amortization of
the customer list is a non-cash expense. The amortization expense for the year
ended December 31, 1998 was $88,800 as compared to $75,636 for the year ended
December 31, 1997 and reflects a full year's amortization of the Non-Compete
Agreement and customer list. Depreciation expense for the year ended December
31, 1998 was $376,661 compared to $320,026 for the prior year. This was due to
the addition of propane cylinders and tanks, and the purchase of additional
trucks and other equipment at a cost of approximately $450,000.
Interest expense for the year ended December 31, 1998 was $169,040 as
compared to $211,133 for the year ended December 31, 1997. This decrease was due
to debt restructuring. For example, the Company reduced total debt by $235,550
during fiscal 1998. Also, the Company converted certain short-term notes to
long-term notes, resulting in a 1.5% lower interest rate.
During the year ended December 31, 1998, the Company sold one
Freightliner delivery truck for a total selling price of $44,000. The book value
of the truck was $20,043, resulting in a gain on sales of equipment of $23,957.
During the year ended December 31, 1998, the Company sold A&O and Able
Montgomery for an aggregate selling price of $140,000. The gain on sale of Able
Montgomery of $72,739 has been deferred and will be shown over 60 months as the
funds are collected. The gain on A&O is shown as excess of subsidiary losses
over investment of $54,404.
Liquidity and Capital Resources
For the year ended December 31, 1999, compared to year ended December
31, 1998, the Company's cash position increased by $2,800,568 from $125,844 to
$2,926,412. For the year ended December 31, 1999, cash of $5,867,100 was
generated from the Company's initial public offering. For the year ended
December 31, 1998, cash was generated through operations, net income and
collections of customer advance payments.
As a result of a refinancing in June 1998 with its primary
financial institution, the Company has access to $500,000 of credit line funds.
The Company's credit line was increased from $350,000 to $500,000 at 1/2% below
prime, and its current outstanding credit line and other debt with the bank was
rolled into a 3-year term loan in the principal amount of $675,000, bearing
interest at a rate of approximately 1% above prime rate. As of December 31,
1999, $201,214 of this line of credit was used by the Company. The agreement
with the bank has a current expiration date of June 30, 2000.
The Company received net proceeds from its initial public
offering in an amount of $5,867,100. The Company believes that the net proceeds
of this offering, coupled with the refinancing and income from operations, will
fulfill the Company's working capital needs for the next 18 months. As the
Company continues to grow, and strengthen its infrastructure, to position
<PAGE>
itself for additional growth, bank borrowings, or other debt placements and
equity offerings may be considered, in part, or in combination, as the Company's
situation warrants.
Seasonality
The Company's operations are subject to seasonal fluctuations,
with a majority of the Company's business occurring in the late fall and winter
months. Approximately 70% of the Company's revenues are earned and received from
October through March, and the overwhelming majority of such revenues are
derived from the sale of home heating products including propane gas and fuel
oil. However, the seasonality of the Company's business is offset, in part, by
an increase in revenues from the sale of HVAC products and services, diesel and
gasoline fuels during the spring and summer months, due to the increased use of
automobiles and construction apparatus.
From May through September, Able Oil can experience
considerable reduction of retail heating oil sales. Similarly, Able Propane can
experience up to 80% decrease in heating related propane sales during the months
of April to September, which is offset somewhat by an increase of pool heating
and cooking fuel.
Over 90% of Able Melbourne's revenues are derived from the
sale of diesel fuel for construction vehicles, and commercial and recreational
sea-going vessels during Florida's fishing season which begins in April and ends
in November. Only a small percentage of Able Melbourne's revenues are derived
from the sale of home heating fuel. Most of these sales occur from December
through March, Florida's cooler months.
Year 2000
Prior to the new year, the Company took steps to ensure that its
systems and equipment would be Year 2000 compliant. In addition, the Company
sought assurances of Year 2000 compliance from its key suppliers and other third
parties with whom it conducts business. The costs incurred to address Year 2000
issues were immaterial. To date, neither the Company nor its principal suppliers
have experienced any interruptions or problems related to Year 2000 issues.
Nonetheless, the Company is unable to assure that any failure of its systems or
those of any third party with whom it conducts business due to Year 2000 issues
will not materially and adversely affect its financial condition, results of
operations and cash flows.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
All financial information required by this Item is attached hereto
beginning on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Timothy Harrington 31 Chief Executive Officer, Chairman of the Board
and Secretary
Christopher P. Westad 45 President, Chief Financial Officer and Director
James Purcaro 37 Director
Gregory Sichenzia 37 Director
Patrick O'Neill 39 Director
</TABLE>
Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.
TIMOTHY HARRINGTON, serves as the Company's Chief Executive Officer,
Chairman of the Board, and Secretary. In 1989, Mr. Harrington founded Able Oil
Company, Inc., and since that time, has served as Able Oil's President, Chief
Executive Officer and Chairman of the Board. Mr. Harrington has also served as
the Chief Executive Officer and Chairman of the Board of Directors of Able
Energy, Able Melbourne and Able Propane since their respective inception.
CHRISTOPHER P. WESTAD, serves as the President, Chief Financial Officer and
a Director of the Company. Since September 1996, Mr. Westad has served as the
President of Able Energy and Able Propane. From 1991 through 1996, Mr. Westad
was a market Manager for Ferrellgas Partners, L.P., a company engaged in the
retail distribution of liquefied petroleum gas.
<PAGE>
From 1977 through 1991, Mr. Westad served in a number of management
positions with RJR Nabisco. In 1975, Mr. Westad received a Bachelor of Arts in
Business and Public Management from Long Island University--Southampton.
JAMES PURCARO, has served as a director to the Company since September
1996. Since 1986, Mr. Purcaro has served as the president and chief executive
officer of Kingsland Trade Print Group, Inc., a commercial printing company.
GREGORY SICHENZIA, has served as a director to the Company since August
1999. Mr. Sichenzia is a partner in the law firm of Sichnezia, Ross & Friedman
LLP in New York, New York and has been since May 1998. He had been a partner of
Singer Zamansky LLP in New York, New York, since November 1996. Prior thereto
and since August 1994, he had been an associate attorney at Schneck Waeltman
Hasmall & Mischel LLP in New York City.
PATRICK O'NEILL, has served as a director to the Company since August 1999.
Mr. O'Neill has served as the President of Fenix Investment and Development,
Inc., a real estate company based in Parsippany, New Jersey for the past five
years. Prior to this, Mr. O'Neill served as Vice President of Business
Development for AvisAmerica, a Pennsylvania based home manufacturer. Mr. O'Neill
holds a B.S. from the United States Military Academy, and has been awarded the
Army Achievement Medal for his work with the Army Corp. of Engineers.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee and an
Audit Committee consisting of at least two directors who are not salaried
officers of the Company.
The purpose of the Compensation Committee is to review the Company's
compensation of its executives, to make determinations relative thereto and to
submit recommendations to the Board of Directors with respect thereto. The
Compensation Committee also selects the persons to whom options to purchase
shares of the Company's Common Stock under the 1999 Stock Option Plan will be
granted and to make various other determinations with respect to such Plan.
The purpose of the Audit Committee is to provide general oversight of
audit, legal compliance and potential conflict of interest matters.
COMPENSATION OF DIRECTORS
The Company has not paid compensation to any director for acting in
such capacity. The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.
Directors serve until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors. Directors are reimbursed for travel expenses.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company during fiscal year 1999, the Company is not aware of
any director, officer or beneficial owner of more than ten percent of the
Company's Common Stock that failed to file reports required by Section 16(a) of
the Securities Exchange Act of 1934 on a timely basis during
<PAGE>
fiscal year 1999.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect
to the compensation paid to the Company's Chief Executive Officer and President
for services rendered in all capacities to the Company for the fiscal period
ended December 31, 1999. Other than as listed below, the Company had no
executive officers whose total annual salary and bonus exceeded $100,000 for
that fiscal year:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
Name and Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Principal ($) ($) Compensation Stock Underlying Payouts Compen-
Position ($) Award Options / ($) sation ($)
SARs (#)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Timothy
Harrington,
Chief
Executive
Officer 1999 225,000 30,000 17,000 (1) - - - -
1998 103,000 - - - - - -
1997 100,000 80,000 - - - - -
Christopher P.
Westad,
President 1999 100,000 25,000 5,700 (2) - - - -
1998 - - - - - - -
1997 - - - - - - -
</TABLE>
- ---------------
(1) Represents $7,400 in car allowance, and $9,600 in travel expenses
pursuant to his employment agreement with the Company.
(2) Represents $5,700 in car allowance pursuant to his employment agreement
with the Company.
No option grants were made to named executive officers during fiscal
year ended December 31, 1999.
No named executive held unexercised options as at December 31, 1999.
Employment Arrangements
Timothy Harrington and Christopher P. Westad have three year employment
agreements with the Company. Timothy Harrington is retained as Chief Executive
Officer of the Company at an annual salary of $225,000. Christopher Westad is
retained as President of the Company at an annual salary of $100,000. Each of
the Messrs. Harrington and Westad are entitled to bonuses pursuant to their
employment agreements if the Company meets certain financial targets based on
sales, profitability and good management goals as predetermined by the Board of
Directors or compensation committee and other subjective criteria as determined
by the Board of Directors or
<PAGE>
compensation committee. Such bonuses, plus all other bonuses payable to the
executive management of the Company, shall not exceed in the aggregate, a "bonus
pool" which shall equal up to 5% of the Company's earnings before taxes,
depreciation and amortization ("EBITDA") for 1999, provided the Company achieves
at least $800,000 in EBITDA, 10% of EBITDA for 2,000 and 2001, provided the
Company achieves at least $3,000,000 and $5,000,000, respectively, of EBITDA in
each of such years. The employment agreements also provide for reimbursement of
reasonable business expenses. Timothy Harrington also receive additional
compensation including Company automobile, insurance and retirement savings
matched contributions by the Company and such other perquisites as are
customary. The employment agreements for each of Messrs. Harrington and Wested
contain a covenant not to compete whereby Messrs. Harrington and Wested agree,
for the term of the employment agreements and until one year following the
termination of the agreements, not to (i) persuade any customer of the Company
to cease or reduce the amount of business it does with the Company; (ii) solicit
the Company's customers for their own benefit; or (iii) persuade any of the
Company's employees to leave the employ of the Company.
In the event that there is a change in control of the Company, through
an acquisition where any person acquires more than 50% of the shares of the
Company, a consolidation or merger with another corporation resulting in at
least 50% of the voting shares of the surviving corporation being controlled by
a new acquirer or the sale directly or otherwise of all of the assets of the
Company to a third party in a non-distress situation, then the Company shall pay
to Timothy Harrington a lump sum payment equal to one year's salary.
EMPLOYEE BONUS POOL
The Company has adopted an Employee Bonus Pool, pursuant to which
Management may, at its own discretion, award employees for exemplary
performance. The Company has allocated $25,000, $40,000 and $50,000 for the
years 1999, 2000 and 2001, respectively, for such purposes. Management may not,
however, award employees bonuses from the Employee Bonus Pool (i) if such
bonuses would result in negative earning before taxes for the year in which such
bonuses are to be granted, or (ii) if the Company does not have net profits in
such year.
Employee Stock Option Plan
The Company has adopted a Stock Option Plan (the "1999 Plan"), pursuant
to which 300,000 shares of Common Stock are reserved for issuance.
The 1999 Plan is administered by the board of directors, or by a
committee with at least two directors as delegated by the board of directors who
determine among other things, those individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of shares of Common Stock issuable upon the exercise of the options and
the option exercise price.
The 1999 Plan's duration is for a period of ten years. Options under
the 1999 Plan must
<PAGE>
be issued within ten years from the effective date of the 1999 Plan. Options may
be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. Options
granted under the 1999 Plan may be exercisable for up to ten years, may require
vesting, and shall be at an exercise price all as determined by the board.
Options will be non-transferable except to an option holder's personal holding
company or registered retirement savings plan and except by the laws of descent
and distribution or a change in control of the Company, as defined in the 1999
Plan, and are exercisable only by the participant during his or her lifetime.
Change in control includes (i) the sale of substantially all of the assets of
the Company and merger or consolidation with another, or (ii) a majority of the
board changes other than by election by the shareholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation
of such person.
If a participant ceases affiliation with the Company by reason of
death, permanent disability or the retirement of an Optionee either pursuant to
a pension or retirement plan adopted by the Company or on the normal retirement
date prescribed from time to time by the Company, the option remains exercisable
for three months from such occurrence but not beyond the option's expiration
date. Other termination gives the participant three months to exercise, except
for termination for cause which results in immediate termination of the option.
Options granted under the 1999 Plan, at the discretion of the
compensation committee or the board, may be exercised either with cash, by
certified check or bank cashier's check, Common Stock having a fair market equal
to the cash exercise price, the participant's promissory note, or with an
assignment to the Company of sufficient proceeds from the sale of the Common
Stock acquired upon exercise of the Options with an authorization to the broker
or selling agent to pay that amount to the Company, or any combination of the
above.
The exercise price of an option may not be less than the fair market
value per share of Common Stock on the date that the option is granted in order
to receive certain tax benefits under the Income Tax Act of United States (the
"ITA"). The exercise price of all future options will be at least 100% of the
fair market value of the Common Stock on the date of grant of the options. A
benefit equal to the amount by which the fair market value of the shares at the
time the employee acquires them exceeds the total of the amount paid for the
shares or the amount paid for the right to acquire the shares shall be deemed to
be received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non- employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the Company become available again for
issuance under the 1999 Plan.
<PAGE>
The 1999 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1999 Plan may not be
increased without the consent of the shareholders of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999, certain
information concerning beneficial ownership of shares of Common Stock with
respect to (i) each person known to the Company to own 5% or more of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii) the
executive officers of the Company, and (iv) all directors and officers of the
Company as a group:
<TABLE>
<CAPTION>
Number of Approximate
Shares Percentage of
Name* Beneficially Common
Owned Stock**
<S> <C> <C>
Timothy Harrington 1,000,000 50%
All Officers and 1,000,000 50%
Directors as a Group (1
persons)
- -------------------------------- ------------------------- -------------------------
</TABLE>
* Except as noted above, the address for the above identified officers and
directors of the Company is c/o Able Energy, Inc., 344 Route 46, Rockaway, New
Jersey 7866.
** Percentages are based upon the assumption that the shareholder has
exercised all of the currently exercisable options he or she owns which are
currently exercisable or exercisable within 60 days and that no other
shareholder has exercised any options he or she owns.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
The Company has not filed any reports on Form 8-K during the last
quarter of the period covered by this report.
Exhibits
<TABLE>
<CAPTION>
The following Exhibits are filed as part of this Report:
Exhibit
Number Description
<S> <C>
3.1 Articles of Incorporation of Registrant*
3.2 By-Laws of Registrant*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Sichenzia, Ross & Friedman LLP***
10.1 Form of Consulting Agreement with the Walsh Manning Securities, LLC***
10.2 1999 Stock Option Plan*** 10.3 Lease of Company's Facility at 344 Route 46, Rockaway, New Jersey*
10.4 Form of employment agreement between the Company and Timothy Harrington, to be executed on or before the
Effective Date***
10.5 Form of employment agreement between the Company and Christopher P. Wested, to be executed on or before
the Effective Date***
10.6 $600,000 Revolving Credit Facility and $350,000 Line of Credit with PNC Bank, National Association dated
October 23, 1996, and amendment thereto, dated June 12, 1998, extending the Line of Credit to $500,000*
10.7 $675,000 Term Loan Agreement dated June 11, 1998 by and between the Company and PNC Bank, National
Association and exhibits thereto, including Pledge Agreement by and between Timothy Harrington and PNC
Bank, Guaranty and Suretyship Agreement by and between the Company and PNC Bank, and Pledge Agreement by
and between the Company and PNC Bank*
10.8 Marketing Alliance Agreement, dated March 1, 1998, between the Company and AllEnergy Marketing Company,
L.L.C., wherby the Company obtained the exclusive right to market natural gas supplied by AllEnergy in
specified areas**
10.9 In tank agreement between the Company and Mieco, Inc., dated May 11, 1998, for the storage of the Mieco's
petroleum products in the Company's tank facilities**
<PAGE>
10.10 Form of Company's Pre-Purchase Enrollment Form*
10.11 Oil Supply Agreement between the Company and Mieco, Inc., dated May 19, 1998**
10.12 Letter agreement, dated July 3, 1998, between the Company and Mieco, Inc. modifying the Oil Supply
Agreement, dated May 19, 1998, whereby the Company agreed to increase the amount of oil purchased from
Mieco**
10.13 Oil Supply Agreement between the Company and Amarada Hess Corporation, dated July 30, 1998**
10.14 Oil Supply Agreement between the Company and Bayway (TOSCO)Refining Company, dated March 27, 1998**
10.15 Oil Supply Agreement between the Company and Koch Refining Company, L.P., dated March 17, 1998**
10.16 Fuel Purchase Agreement (Natural Gas) between the Company and Ferrellgas, dated September 3, 1996**
10.17 Fuel Purchase Agreement (Propane) between the Company and Keystone Propane Service, Inc., dated July 28,
1998**
10.18 Lease between the Company and Summit Leasing Corporation ("Summit"), dated December 3, 1997**
10.19 Franchise Agreement, dated December 31, 1998, between the Company and Andrew Schmidt regarding sale of
Able Oil Company Montgomery, Inc. as a franchise***
10.20 Stock Purchase Agreement, dated December 31, 1998, between the Company and Andrew Schmidt regarding the
sale of stock of Able Oil Company Montgomery, Inc. by the Company to Mr. Schmidt***
10.21 Pledge and Security Agreement, dated December 31, 1998, between the Company and Andrew Schmidt regarding
the pledge of stock of Able Oil Company Montgomery, Inc.***
10.22 $140,000 principal amount, 9.5% Promissory Note, dated December 31, 1998, between the Company and Andrew
Schmidt regarding the sale of stock of Able Oil Company Montgomery, Inc. by the Company to Mr. Schmidt
10.23 Stock Sale Agreement, dated December 31, 1998, between the Company and Owl Environmental, Inc. regarding
the sale of stock of A&O Environmental Services, Inc. by the Company to Owl Environmental, Inc.*
21.1 List of Subsidiaries of Registrant*
27.1 Financial Data Schedule
</TABLE>
- --------------
(*) Reference is made to the Company's Registration Statement, filing
Number 333-51909, filed with the SEC on July 15, 1998.
<PAGE>
(**) 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.
<PAGE>
ABLE ENERGY, INC.
DECEMBER 31, 1999 AND 1998
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
CONSOLIDATED FINANCIAL STATEMENTS:
<S> <C>
ACCOUNTANTS' REPORT F-2
CONSOLIDATED BALANCE SHEET F-3 - F-4
CONSOLIDATED STATEMENT OF OPERATIONS F-5
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENT OF CASH FLOWS F-7 - F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - F-27
</TABLE>
F-1
<PAGE>
To The Shareholder
Able Energy, Inc.
Rockaway, New Jersey 07866
Independent Auditor's Report
We have audited the accompanying consolidated balance sheet of Able Energy, Inc.
and subsidiaries as of December 31, 1999 and the related consolidated statements
of operations, changes in Stockholders' equity, and cash flows for the years
ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Able Energy, Inc. and subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for the years ended December
31, 1999 and 1998 in conformity with generally accepted accounting principles.
Rockaway, New Jersey
March 16, 2000
F-2
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
1999
Current Assets:
<S> <C>
Cash $ 2,926,412
Accounts Receivable (Less Allowance for Doubtful
Accounts of 1999 ($157,974) 1,996,500
Inventory 229,979
Notes Receivable - Current Portion 61,748
Miscellaneous Receivable 22,640
Prepaid Expense 48,826
Prepaid Expense - Income Taxes 119,951
Deferred Income Tax 48,270
Due From Officer 44,690
-------------
Total Current Assets 5,499,016
-----------
Property and Equipment:
Land 451,925
Building 1,008,250
Trucks 2,236,508
Fuel Tanks 836,790
Machinery and Equipment 346,198
Leasehold Improvements 187,364
Cylinders 319,490
Office Furniture and Equipment 14,841
-------------
5,401,366
Less: Accumulated depreciation 1,266,201
-----------
Net Property and Equipment 4,135,165
-----------
Other Assets:
Deposits 94,625
Notes Receivable - Less Current Portion 126,863
Customer List, Less Amortization of 1999 ($125,045)
Covenant Not to Compete, Less Amortization of 1999 485,805
($125,123)
Total Other Assets 158,444
------------
865,737
Total Assets
$10,499,918
============
</TABLE>
See Accompanying Notes and Auditor's Report
F-3
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
BALANCE SHEET (Cont'd)
DECEMBER 31, 1999
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999
Current Liabilities:
<S> <C>
Accounts Payable $ 1,638,699
Note Payable - Bank 201,214
Current Portion of Long-Term Debt 789,978
Covenant Not To Compete -
Accrued Expenses 260,818
Taxes Payable -
Customer Advance Payments 156,738
Income Taxes Payable - Prior -
Current Portion of Deferred Income 14,548
Escrow Deposits 15,000
------------
Total Current Liabilities 3,076,995
Deferred Income: Less current portion 53,342
Deferred Income Taxes 56,201
Covenant Not To Compete: less current portion -
Long Term Debt: less current portion 1,529,444
-----------
Total Liabilities 4,715,982
-----------
Stockholders' Equity:
Common Stock
Authorized 10,000,000 Par Value $.001 per share Issued
and Outstanding 2,000,000 Shares
Paid in Surplus 2,000
Retained Earnings 5,662,775
Total Stockholders' Equity 119,161
-----------
5,783,936
Total Liabilities and Stockholders' Equity
$10,499,918
===========
</TABLE>
See Accompanying Notes and Auditor's Report
F-4
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Sales $19,670,365 $16,317,668
Cost of Sales 16,320,008 13,044,924
----------- -----------
Gross Profit 3,350,357 3,272,744
----------- -----------
Expenses
Selling, General and Administrative Expenses 3,294,964 2,720,598
Depreciation and Amortization Expense 521,436 451,441
------------- ----------
Total Expenses 3,816,400 3,172,039
------------- ----------
Income From Operations (466,043) 100,705
------------ ----------
Other Income (Expenses):
Interest and Other Income 139,804 115,668
Interest Expense (187,370) (169,040)
------------ -----------
Total Other Income (Expense) (47,566) (53,372)
------------ ------------
Income (Loss) Extraordinary Item and
Before Provision for Income Taxes (513,609) 47,333
Provision (Reduction) for Income Taxes (36,868) 6,640
------------ -------------
Net Income (Loss) - Continuing Operations (476,741) 40,693
Extraordinary Item Net of Income Taxes 55,019 -
------------ ------------
Net Income (Loss) $ (421,722) $ 40,693
=========== ============
Net Income (Loss) Per Share - Continuing
Operations $ (.31) $ .04
=========== ============
Extraordinary Gain - Per Share $ .04 $ -
============ ============
Net Income (Loss) Per Share $ (.27) $ .04
============ ============
Weighted Average number of Common Shares
Outstanding $ 1,526,027 $ 1,000,000
=========== ===========
</TABLE>
See Accompanying Notes and Auditor's Report
F-5
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock
.001 Par Value
Additional Total
Paid-in Retained Stockholders'
Shares Amount Surplus Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1998 ...... 1,000 $ 1 $ 3,999 $ 500,190 $ 504,190
Net Income ..................... 40,693 40,693
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1998 .... 1,000 $ 1 $ 3,999 $ 540,883 $ 544,883
Common Stock Split - 1,000 for 1 999,000 999 (999) -- --
Sale of Common Stock ........... 1,000,000 1,000 5,659,775 -- 5,660,775
Net (Loss) ..................... (421,722) (421,722)
----------- ----------- ----------- ----------- -----------
Balance - September 30, 1999 ... 2,000,000 $ 2,000 $ 5,662,775 $ 119,161 $ 5,783,936
=========== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes and Auditor's Report
F-6
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Cash Flows From Operating Activities 1999 1998
- ------------------------------------ ---- ----
<S> <C> <C>
Net Income (Loss) $ (421,722) $ 40,693
Adjustments to Reconcile Net Income to Cash
used by Operating Activities:
Depreciation and Amortization 521,436 451,441
Gain on Sale of Equipment - (23,957)
Excess of Subsidiary Losses over Investment - (54,404)
(Increase) Decrease in:
Accounts Receivables (1,338,631) (10,408)
Inventory (100,496) 55,172
Prepaid Expenses (44,875) (140,888)
Deposits (88) (12,575)
Increase (Decrease) in:
Accounts Payable 949,453 193,076
Accrued Expenses 198,574 (22,709)
Payroll Taxes Payable - 1,450
Customer Advance Payments (199,245) 52,789
Income Taxes Payable (49,260) (53,188)
Deferred Income Taxes 5,600 31,776
Deferred Income (4,849) -
----------- ----------
Net Cash Provided By Operating Activities (484,103) 508,268
---------- ----------
</TABLE>
See Accompanying Notes and Auditor's Report
F-7
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Cont'd)
YEAR ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash Flows From Investing Activities
Increase in Stockholders' Equity - Sale of Subsidiary
<S> <C> <C>
Increase in Deposits $ - $ 105,930
Sale of Equipment (80,254) -
Sales of Subsidiary - 44,000
Purchase of Property and Equipment - 140,000
Sale (Purchase) of Intangibles - Subsidiary (2,751,996) (455,220)
Note Receivable - Sale of Equipment (139,850) 27,515
Reduction in Property and Equipment - Net Sale 5,567 (43,536)
of Subsidiary
(Increase) Decrease in Shareholder's Loan - 8,768
Other Receivables (10,517) 8,354
Note Receivable - Sale of Subsidiary (9,566) 1,415
Note Receivable - Montgomery Truck 7,415 (140,000)
Net Cash Used By Investing Activities (18,057) -
----------- ----------
(2,997,258) (302,774)
---------- ----------
Cash Flows From Financing Activities
Increase in Notes Payable
Decrease in Notes Payable 1,667,525 1,285,528
Funds from Sale of Common Stock (1,046,371) (1,521,082)
Net Cash Provided (Used) By Financing 5,660,775 -
---------- ----------
Activities
6,281,929 (235,554)
---------- ------------
Net Increase (Decrease) In Cash
2,800,568 (30,060)
Cash - Beginning of Year
Cash - End of Year 125,844 155,904
----------- -----------
$2,926,412 $ 125,844
========== ===========
The Company had interest cash expenditures of:
The Company had tax cash expenditures of: $ 187,370 $ 169,728
48,962 108,188
</TABLE>
See Accompanying Notes and Auditor's Report
F-8
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Note 1 Basis of Presentation
Able Energy, Inc. was incorporated in the state of
Delaware on March 13, 1997. Mr. Timothy Harrington exchanged
his stock in the following companies: Able Oil Company (a
New Jersey corporation), Able Oil Company Montgomery, Inc.
(a Pennsylvania corporation), A & O Environmental Services,
Inc. (a New Jersey corporation), Able Oil Melbourne, Inc. (a
Florida corporation) and his 99% interest in Able Propane,
LLC for 1,000 shares of Able Energy, Inc. and became its
sole shareholder. In December 1998, the Company sold A & O
Environmental Services, Inc. and Able Oil Company
Montgomery, Inc.(See Note 16).
On August 27, 1999, the Company, through a newly formed
wholly owned subsidiary, Able Energy New York, Inc.,
purchased the assets of B & B Fuels of Warrensburg, New
York. This acquisition was treated as a purchase. The
operations of this company are included from August 27, 1999
to December 31, 1999.
On August 31, 1999, the Company, through a newly formed
wholly owned subsidiary, Able Energy Terminal, LLC,
purchased the facility on Route 46, Rockaway, NJ. The
facility has two tenants (see Note 4). The operations of
this company are included from September 1, 1999 to December
31, 1999.
Note 2 Summary of Significant Accounting Policies
Nature of Operations
Able Oil Company, Able Melbourne and Able Energy New
York, Inc. are full service oil companies that market and
distribute home heating oil, diesel fuel and kerosene to
residential and commercial customers operating in the
northern New Jersey, Melbourne, Florida, and Warrensburg,
New York respectively. Able Propane, which was incorporated
in July 1996, installs propane tanks which it owns and sells
propane for heating and cooking, along with other
residential and commercial uses.
F-9
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 2 Summary of Significant Accounting Policies (cont'd)
The Company's operations are subject to seasonal fluctuations
with a majority of the Company's business occurring in the
late fall and winter months. Approximately 70% of the
Company's revenues are earned and received from October
through March, and the overwhelming majority of such revenues
are derived from the sale of home heating fuel. However, the
seasonality of the Company's business is offset, in part, by
the increase in revenues from the sale of diesel and gasoline
fuels during the spring and summer months due to the increased
use of automobiles and construction apparatus.
Principles of Consolidation
The consolidated financial statements include the accounts of
Able Energy, Inc. and its subsidiaries. The minority interest
of 1% in Able Propane, LLC is so immaterial and has not been
shown separately. All material intercompany balances and
transactions were eliminated in consolidation.
Inventories
Inventories are valued at the lower of cost (first in, first
out method) or market.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided by using the
straight-line method based upon the estimated useful lives of
the assets (5 to 40 years).
For income tax basis, depreciation is calculated by a
combination of the straight-line and modified accelerated cost
recovery systems established by the Tax Reform Act of 1986.
Expenditures for maintenance and repairs are charged to
expense as incurred whereas expenditures for renewals and
betterments are capitalized.
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.
F-10
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 2 Summary of Significant Accounting Policies (cont'd)
Intangible Assets
Intangibles are stated at cost and amortized as follows:
Customer Lists of $571,000 and Covenant Not To Compete of
$183,567 related to the Connell's Fuel Oil Company acquisition
on October 28, 1996, by Able Oil Company are being amortized
over a straight-line period of 15 and 5 years, respectively.
The current period amortization also includes a customer list
of $39,850 and Covenant Not To Compete of $100,000 relating to
the acquisition from B & B Fuels on August 27, 1999, is being
amortized over a straight-line period of 10 and 5 years,
respectively. The amortization for the years ended December
31, 1999 and 1998 are $82,775 and $88,800, respectively.
For income tax basis, the Customer Lists and the Covenant Not
To Compete are being amortized over a straight-line method of
15 years as per the Tax Reform Act of 1993.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future,
they may ultimately differ from actual results.
Income Taxes
Effective January 1, 1997, all the subsidiaries, which were
S-Corporations, terminated their S-Corporation elections. The
subsidiaries will be filing a consolidated tax return with
Able Energy, Inc. for 1997 and future years.
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.
F-11
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 2 Summary of Significant Accounting Policies (cont'd)
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 $2,470,000. The Company does not anticipate
non-performance by the financial institutions.
Cash
For the purpose of the statement of cash flows, cash is
defined as balances held in corporate checking accounts and
money market accounts.
Note 3 Public Offering
On June 25, 1999, the Company consummated its initial public
offering. The Company sold 1 million shares of its common
stock to the public at $7 per share.
<TABLE>
<CAPTION>
<S> <C> <C>
Total $7,000,000
Less: Underwriting Commission $ 700,000
Underwriter's Non-Accountable
Expense Allocation 210,000
Other Expenses of Offering 108,000 1,018,000
--------- ----------
Net to Company after underwriting Costs 5,982,000
Other Offering Costs:
Legal Fees 154,000
Accounting Fees 50,000
Printing Costs 100,000
Stock Exchange and Other Registration Costs 17,225 321,225
---------- -----------
Net Funds Realized $5,660,775
==========
</TABLE>
F-12
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 4 Acquisitions
On August 27 and 31, 1999, the Company through newly formed
wholly owned subsidiaries (see Note l) acquired the following:
1) The assets of B & B Fuels, a retail distributor of home
heating oil in Warrensburg, New York. The assets purchased
include an oil terminal, three oil delivery trucks, and a
customer list of approximately 1,200 customers. The purchase
price was $295,000. The Company also acquired 9.2 acres of
land in Warren County, New York. The property is located 1/4
miles from the B & B Facility. The cost was $125,000, paid in
cash.
2) Property on Route 46, Rockaway, New Jersey. The facility is
a large fuel terminal and also houses the Company's executive
offices and other operating facilities for Able Subsidiaries.
There is also a building rented to an outside party with an
annual rental of approximately $40,000. The purchase price was
$1,150,000.
Note 5 Notes Receivable
The Company has received payment from Able Oil Montgomery,
Inc. for the year ended December 31, 1999 on its notes
receivable of $140,000. The payments totaled $11,761,
including interest of $2,482. Interest of $8,397 has been
recorded as an accrued receivable. The Statement of Income
recognized income on this installment sale of $4,849 for the
year ended December 31, 1999.
Note 6 Inventories
<TABLE>
<CAPTION>
Items 1999
----- ----
<S> <C>
Heating Oil $ 81,737
Diesel Fuel 28,969
Kerosene 4,709
Propane 5,541
Parts and Supplies 92,714
---------
Total $213,670
========
</TABLE>
F-13
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 7 Notes Payable Bank
Notes payable to PNC Bank include a line of credit of $500,000
with interest at the rate of Prime minus 1/2%. The outstanding
balance on the Line of Credit is $201,213 at December 31,
1999. The agreement with Able Oil Company, dated October 20,
1997, and amended August 11, 1999, has a current expiration
date of June 30, 2000. There is also a term loan with PNC
Bank. The term loan was refinanced for a total of $675,000 on
June 12, 1998. The balance as of December 31, 1999 is
$337,500. The bank has released as collateral the stock of the
Company owned by the prior sole shareholder and has released
the subsidiaries and Timothy Harrington as guarantors. The
Company has replaced this by granting the PNC Bank a first
priority lien on collateral consisting of Provident
Institution Money Market Fund containing no less than
$972,000. The Company under a guaranty and suretyship
agreement will unconditionally guarantee payment of the
indebtedness to the bank. All other collateral and covenants
per the agreement have been deleted.
Note 8 Long-Term Debt
Mortgage note payable dated, August 27, 1999, related to the
purchase of B & B Fuels facility and equipment. The total note
is $145,000. The note is payable in the monthly amount of
principal and interest of $1,721.18 with and interest rate of
7.5% per annum. The initial payment was made on September 27,
1999, and continues monthly until August 27, 2009 which is the
final payment. The note is secured by a mortgage made by Able
Energy New York, Inc. on property at 2 and 4 Green Terrace and
4 Horican Avenue, Town of Warrensburg, Warren County, New
York. The balance due on this Note at December 31, 1999 was
$141,710.
Mortgage note payable dated, August 31, 1999, related to the
purchase of the facility and equipment in Rockaway, New Jersey
by Able Energy Terminal, LLC ("Terminal"). The note is in the
amount of $650,000.
Pursuant to Section 4.4 of the Agreement of Sale, the
Principal Sum shall be reduced by an amount equal to one-half
of all sums expended by Borrower on the investigation and
remediation of the property provided, however, that the amount
of said reduction shall not exceed $250,000 (the "Remediation
Amount").
F-14
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 8 Long-Term Debt (cont'd)
The "Principal Sum: Less the "Remediation Amount" shall be an
amount equal to $400,000 (the "Reduced Principal Sum"). The
Reduced Principal Sum shall bear interest from the date hereof
at the rate of 8.25% per annum. Any portion of the Remediation
Amount not utilized in the investigation and remediation of
the property shall not begin to accrue interest until such
time that (i) a "No Further Action Letter" is obtained from
the Department of Environmental Protection and (ii) an
outstanding lawsuit concerning the property is resolved
through settlement or litigation (subject to no further
appeals). All payments on this Note shall be applied first to
the payment of interest, with any balance to the payment to
reduction of the reduced Principal Sum.
The Reduced Principal Sum and interest shall be due and
payable monthly commencing on September 30, 1999, and
continuing on the last day of each month thereafter up to and
including July 31, 2004.
The Note is collateralized by the property and equipment
purchased and assignment of the leases. The balance due on
this Note at December 31, 1999 was $628,142.
Notes Payable to Orix Credit Alliance, Inc. at a range of
interest rates from 9.00% to 11.25% with an average monthly
payment of $9,695 (1999). The earliest of theses Notes;
originated on October 1, 1993 and the last Note matures on
August 24, 2001. The Notes are collateralized by various fuel
oil trucks.
<TABLE>
<CAPTION>
1999
<S> <C>
Notes Balance $162,861
Two Notes Payable to Chrysler Financial at a range of interest
from of 8.9% to 9.15% with total monthly payments of
$830.57. The earliest of these Notes
originated on March 25, 1999 and the last Note matures in
March 2004. These Notes are collateralized by a 1999 and a
1998 Dodge truck.
Notes Balance $ 34,788
</TABLE>
F-15
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999
Note 8 Long Term Debt (Cont'd)
Note Payable to World Omni at an interest rate of 8.869% with
a monthly payment of $234.99. The Note originated November 21,
1997 and matures December 21, 2000 with a final payment of
$13,780. The Note is collateralized by a Ford F-150 Pick-up
Truck.
1999
Note Balance $ 15,182
Note Payable to Orix Leasing Corp. At an interest rate of
9.111% with a monthly payment of $4,846. The Note originated
on March 19, 1997 and matures on March 19, 2001. The Note is
collateralized by 254 propane cylinders and 2 propane delivery
trucks.
Note Balance $ 54,565
Note Payable to Summit Leasing Corp. At an interest rate of
8.50% with a monthly payment of $1,124.52. The Note originated
on November 10, 1997 and matures on November 10, 2001. The
Notes are collateralized by a 1998 Freightliner fuel oil
truck.
Note Balance $ 23,789
Note Payable to PNC Bank with a monthly payment of $1,250 plus
interest at 1%, plus Prime. The Note originated on November 6,
1997 and matures October 30, 2000. Proceeds of the Note were
used to buy two oil trucks, a customer list and to fund a
non-compete payout to the seller of these assets.
Note Balance $ 12,500
F-16
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 8 Long Term Debt (Cont'd)
The Company and Able Propane, LLC have a lease/purchase
agreement with First Sierra Financial, Inc. The agreement
calls for 48 payments of $1,457.50, including principal,
interest and sales tax and a final purchase option payment of
$5,576.02 plus sales tax. The interest rate is approximately 8
1/2%. The agreement is collateralized by the equipment
purchase.
1999
Balance Due $ 44,134
Able Oil Company and Able Propane, LLC have a lease/purchase
agreement with Summit Leasing Corporation, Lease #002,
collateralized by a 1998 Peterbilt Model 375 truck and a
Trinity trailer. The lease and payments began August 20, 1998
at $1,605.50 per month for 48 payments thereafter until all
payments are made through and including July 20, 2002.
Balance Due $ 47,028
Able Oil Company and Able Propane have a lease/purchase
agreement with Summit Leasing Corporation, Lease #003,
collateralized by a Freightliner truck. The lease commenced
November 10, 1998 and has 48 monthly payments of $1,286.12
until November 2002 with a final purchase option payment of
$12,682.
Balance Due $ 51,024
Notes Payable to Greentree Consumer Discount Company at an
interest rate of 8.95% with an average monthly payment of
$1,322.37. The Notes originated on October 1, 1996 and
December 10, 1996 and matures on October 1, and December 10,
2000. The Notes are collateralized by two 1997 Freightliner
Oil Trucks.
Note Balance $ 31,287
F-17
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 8 Long Term Debt (Cont'd)
Term Loan payable to PNC Bank. The current payments are
$18,750 per month with interest at a rate of prime plus 1%.
The note matures in 36 months, June 2001.
Note Balance $337,500
Notes payable to AEL Leasing Co., Inc. under a master lease
agreement dated March 3, 1997. During 1997 Able Propane, LLC
was advanced $133,456, with no principal payments. AEL had
extended Able Propane a line of credit of $150,000 in 1997. In
June 1998 the loan was finalized at $178,920 with 36 monthly
payments of $4,970, including principal and interest, with an
interest rate of 8.25%. The note is collateralized by the
tanks and equipment purchased. The note matures in June 2001.
Note Balance $ 72,986
Able Oil Company and able Propane, LLC have a lease/purchase
agreement with Summit Leasing Corporation, Lease #004,
collateralized by a Ford F-450 truck and a 1997 Chevy 3/4 ton
van. The lease and payments began January 1, 1999 at $1,591.87
per month for 48 payments thereafter until all payments are
made through and including December 2002. Interest at 6.92%
Note Balance $ 63,153
Note Payable Commonwealth Finance Inc. at an interest rate of
7.90%, 36 payments of $447.33 The first payment began
February 1999 and matures January 2002. The Note is
collateralized by propane tanks.
Note Balance $ 10,279
F-18
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND
Note 8 Long Term Debt (Cont'd)
Able Oil Company has a lease/purchase agreement with Summit
Leasing Corporation, Lease #005, collateralized by a 1999
Freightliner FL-70, 2800 gallon Tri State Truck tank and a
1999 Kenworth Model T-300 conventional cab and chassis. The
lease payments began January 5, 1999 at $2,810.62 per month
for 48 months and 5 additional days until all payments are
made through January 10, 2003. Able Oil Company has the option
to purchase all the equipment for an amount agreed upon as the
fair market value at the end of the lease term.
1999
Note Balance $ 111,849
Two Notes payable to Ford Credit at interest rates of 3.90%
and 8.79%, with monthly payments of $602.32 and $737.34
including interest. The Notes originated in January 1999 and
include 48 monthly payments and mature December 2002. The
Notes are collateralized by two 1998 Ford Econo-Line trucks.
Note Balance $ 43,748
The Company and Able Propane, LLC have a lease/purchase
agreement with First Sierra Financial, Inc. The agreement
calls for 48 payments of $559, including principal and
interest and sales tax and a final purchase option payment of
$2,191.10, plus sales tax. The lease began February 1999 and
ends January 2003. The interest rate is approximately 8 1/2%.
The agreement is collateralized by the equipment purchase.
Note balance $ 16,237
Two Notes payable to Ford Credit at interest rates of 8.60%
and 6.02% with monthly payments of $629.46 and $695.83
including interest. The Notes originated June 1999 and
December 1999, they each include 48 monthly payments and
mature May 2003 and November 2003, respectively. The Notes are
collateralized by two 1999 Ford Vans.
Note balance $ 52,282
F-19
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 8 Long Term Debt (Cont'd)
Able Oil Company has a lease/purchase agreement with Summity
Leasing Corporation, lease #007, collateralized by equipment
as stated in the agreement. The lease payments began December
25, 1999 at $9,023.46 per month for 48 months and 5 additional
days until all payments are made through November 25, 2003.
The interest is an average of 4.5% per annum. Able Oil Company
has the option to purchase all the equipment for an amount
agreed upon as the fair market value at the end of the lease
term.
Note balance $ 364,378
Maturities on the Notes Payable subsequent to December 31,
1999 are as follows:
For the Year Ending Principal
December 31, Amount
------------ ------
2000 $ 789,977
2001 519,676
2002 347,966
2003 251,348
2004 329,341
Balance 81,114
----------
Total $2,319,422
==========
Note 9 Covenant Not To Compete
On October 28, 1996, a Covenant Not To Compete was originated
by the Able Oil Company, Connell's Fuel Oil Company and
William Toriello. The Covenant is to last 5 years from the
date of inception with a monthly installment of $3,059.44
starting December 1, 1996. The balance was paid in full
September 7, 1999. The covenant is in effect until October 29,
2001.
F-20
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 and 1998
Note 10 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:
<TABLE>
<CAPTION>
1999 1998
---- ----
Percent of Percent
Pretax of
Amount Income Amount Pretax
------ ------ ------ Income
------
<S> <C> <C> <C> <C>
Statutory Federal Income Tax (Benefits) $(32,600) (15.0%) $ 4,430 15.0%
Increase resulting from State Income
Tax, net of Federal Tax benefit (4,268) (6.5%) 2,210 7.6%
-------- ------ ------- ----
$ 6,640
Income Taxes $(36,868) (21.5%) 22.6%
======== ====== ====
Income Taxes consist of: 6,020
Current (18,658) 620
--------
Deferred (18,210) $ 6,640
------- =======
Total $(36,868)
========
</TABLE>
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:
<TABLE>
<CAPTION>
1999
Temporary Tax
Difference Effect
<S> <C> <C>
Depreciation $(179,389) $(56,201)
Allowance for Doubtful Accounts 157,974 44,235
Gain on Sale of Subsidiary 18,766 4,035
</TABLE>
F-21
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 and 1998
Note 11 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 $10,120 (1999) and $10,384
(1998).
Note 12 Commitments and Contingencies
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to
quantify with certainty the potential impact of actions
regarding environmental matters, in the opinion of management,
compliance with the present environmental protection laws will
not have a material adverse effect on the financial condition,
competitive position, or capital expenditures of the Company.
Able Oil Company has contracted with Unocal to take deliveries
of 24,000 barrels of #2 oil. The oil will be stored in Able
storage tanks and remain the property of Unocal until
purchased by Able Oil. Able Oil is under contract to purchase
the product in the months of November and December 1999 and
January and February 2000. The pricing will be the NYMEX less
$.01 per barrel on 12,000 barrels and flat on 12,000 barrels.
At December 31, 1999, Able Oil had in their tanks 12,000
barrels or 504,000 gallons of oil belonging to Unocal. The
total exposure for the cost of this oil priced at future
January, and February 2000 is $481,169. This oil was purchased
at this price on January 24, 2000.
In accordance with the agreement on the purchase of the
property on Route 46, Rockaway, New Jersey by Able Energy
Terminal, LLC, the purchaser shall commence after the closing,
the investigation and remediation of the property and any
hazardous substances emanating from the property in order to
obtain a No Further Action letter from the New Jersey
Department of Environmental Protection (NJDEP). The purchaser
will also pursue recovery of all costs and damages related
thereto in the lawsuit by the seller against a former tenant
on the purchased property. Purchaser will assume all
responsibility and direction for the lawsuit, subject to the
sharing of any recoveries from the lawsuit with the seller,
50-50. The seller by reduction of its mortgage will pay costs
related to the above up to $250,000 (see Note 8). In the
opinion of management, the Company will not sustain costs in
this matter which will have a material adverse effect on its
financial condition.
F-22
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 12 Commitments and Contingencies (Cont'd)
Able Oil Company has been examined by the Internal Revenue
Service through the year ended December 31, 1995. The only
open year for Able Oil Company is December 31, 1996 and Able
Energy, Inc., et al, open years are December 31, 1997 and
December 31, 1998.
Note 13 Operating Lease
Able Energy Terminal, LLC, has acquired the following lease on
the property it purchased on Route 46 in Rockaway, New Jersey.
The lease with Able Oil Company, a wholly owned subsidiary of
Able Energy, Inc., has an expiration date of July 31, 2004.
The lease provides for a monthly payment of $1,200 plus a one
cent per gallon through put, as per a monthly rack meter
reading.
Estimated future rents are $14,400 per year, plus the one cent
per gallon through put charges per the monthly rack meter
readings.
The Company leased an additional facility on Route 46 in
Rockaway, New Jersey. The lease has a term of one year from
September 1, 1999 to August 31, 2000. The rent is $1,300 per
month, $15,600 for the year, plus 10% of the increase in real
estate taxes over the base year, 1999. The Company has the
option to renew for five additional one-year terms. The
renewals are at an increase of $100 per month during each
renewal term. The estimated Future rent upon one year renewal
is $16,800. The rent expense for the period is $5,200.
The following summarizes the month to month operating leases
for the other subsidiaries:
Able Oil Melbourne $238.50, per month
Total 1999 rent expense, $2,862
Note 14 Related Party Transactions
$44,690 is due from the major Shareholder/Officer of the
Company. This amount is evidenced by a Note bearing interest
at a rate of 8 1/2% between the Shareholder and the Company.
F-23
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999
Note 15 Income Taxes payable - Prior
Able Oil Company's tax returns have been examined by the
Internal Revenue Service for the years ending December 31,
1992, 1993, 1994 and 1995. The Company has been assessed the
following liabilities including interest and penalties:
<TABLE>
<CAPTION>
<S> <C>
1992 and 1993 $52,005
Paid (5,000)
1994 and 1995 6,805
--------
Total Due $53,810
Payments Made and Adjustments (53,810)
--------
Due December 31, 1999 $ 0
========
</TABLE>
The State of New Jersey, Division of Taxation has billed the
Company based upon information received from the Internal
Revenue Service for the years 1992 and 1993, approximately
$20,150. The above amounts are included on the balance sheet
in Income Taxes Payable - Prior.
Total Due December 31, 1999 $ 0
The above assessed income taxes resulted for years prior to
the formation of Able Energy, Inc. and has been charged to
Able Oil Company's prior retained earnings.
Note 16 Sale of Subsidiaries
The Company sold two of their wholly owned subsidiaries, one
on December 29, 1998 and one on December 31, 1998. The
Statement of Income reflects the operations of these
subsidiaries for the Calendar year 1998. These subsidiaries
have been eliminated from the Balance Sheet as of December 31,
1998.
One subsidiary, Able Oil Company Montgomery, Inc. was sold for
$140,000. The note receivable is payable in 60 monthly
payments of $2,940.26, including principal and interest.
Interest is at 9.5%, per annum. The first payment was January
1, 1999 and the final payment is December 1, 2003. As
collateral to secure payment to the Company, the buyer has
pledged the stock and all of the assets of Able Oil Company
Montgomery, Inc. A UCC-1 financing statement has been filed in
respect to the collateral.
Note Receivable .. $140,000
Current Portion .. 28,000
--------
Due After One Year $112,000
========
The gain of $72,739 from the sale is shown on the balance
sheet as deferred income. The income will be recognized on an
installment basis upon collection of the notes receivable.
F-24
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 16 Sale of Subsidiaries (cont'd)
The Company has a ten year franchise agreement with the buyer.
The buyer will use the Able name, Able Oil Company is the
exclusive supplier of #2 fuel oil through its credit facility
with major suppliers and also assists the buyer with
advertising and other marketing. The Company has a mark-up on
the sale of the product and receives a 1% royalty fee on
monthly gross sales.
The Company sold all its shares in A & O Environmental
Services, Inc. on December 31, 1998 to Owl Environmental, Inc.
for a selling price of $10. The buyer by purchasing the stock
of the subsidiary assumed all its assets and liabilities. An
amount of $54,404 in the Statement of Income and Retained
Earnings was recorded as the excess of subsidiary losses over
investment.
All advances to the two subsidiaries by Able Oil Company were
transferred to Able Energy, Inc. and recorded as investment in
subsidiaries and these costs were written off against the
subsidiary sales.
Summary of Assets and Liabilities and Gain on Sale of
Subsidiaries sold.
<TABLE>
<CAPTION>
A & O Environmental Able Oil
Services, Inc. Montgomery, Inc.
<S> <C> <C>
Current Assets $ 214,233 $ 29,190
Equipment - Net 35,386 17,166
Intangible Assets - Net - 27,340
--------- ----------
Total Assets 249,619 73,696
--------- ----------
Current Liabilities 523,953 114,968
Long Term Debt (Less Current Portion) 8,038 13,750
--------- ----------
Total Liabilities 531,991 128,718
--------- ----------
Liabilities in Excess of Assets $(282,372) $ (55,022)
========== ==========
Sale Price $ 10 $ 140,000
---------- ----------
Cash Investment (128,945) (115,385)
Negative Investment in
Subsidiaries - Prior Loss 183,339 48,124
---------- ----------
Excess of Subsidiary Cumulative Losses
Over Investment 54,394 (67,261)
---------- ---------
Total Gain $ 54,404 $ 72,739
========== ==========
</TABLE>
F-25
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 17 Proform Statement of Income
<TABLE>
<CAPTION>
The following shows the effect on the Statement of Income for
the year ended December 31, 1998 with the removal of the
subsidiaries sold:
<S> <C>
Net Income per Statement of Income and Retained Earnings $40,693
Add: Losses on Subsidiaries sold, Net of Tax Savings
A & O Environmental Services, Inc. 97,123
Able Oil Montgomery, Inc. 11,434
Less: Excess of Subsidiary Losses over Investment
Recorded as Income (54,404)
--------
Net Income - Removing effect of Subsidiaries Sold $94,846
========
</TABLE>
Note 18 Extraordinary Item
The extraordinary item is the income realized on the
extinguishment of debt for less than its carrying amount. The
amount shown is net of income taxes of $9,710. On September 7,
1999, the Company paid two loans to Connell's Fuel Oil Company
and William Toriello which had original due dates of November
1, 2001.
<TABLE>
<CAPTION>
<S> <C>
Total Amount Due $312,454
Amount Paid 247,725
--------
Income on Extinguishment of Debt 64,729
Less Income Taxes 9,710
---------
Extraordinary Item $ 55,019
========
</TABLE>
Note 19 Common Stock Split
In conjunction with the Company's initial public offering, its
common stock was split 1000-for-l.
<TABLE>
<CAPTION>
Original After Split and
Public Offering
<S> <C> <C>
Authorized Shares 10,000 10,000,000
--------- ----------
Issued and Outstanding Shares 1,000 1,000,000
Public Offering Shares 0 1,000,000
----------
Total Issued and Outstanding Shares 2,000,000
==========
Par Value $.001 per Share $1 $ 2,000
============
</TABLE>
F-26
<PAGE>
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
DECEMBER 31, 1999 AND 1998
Note 19 Per share Information
Per share information has been computed based on the weighted
average number of shares. The shares give effect to a
1,000-for-1 stock split by the Company and its public offering
of 1,000,000 shares.
F-27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 30th day of March, 2000.
ABLE ENERGY, INC.
/s/ Timothy Harrington
Timothy Harrington, Chief Executive Officer
/s/ Christopher P. Westad
Christopher P. Westad, President
/s/ James Purcaro
James Purcaro, Director
/s/ Gregory Sichenzia
Gregory Sichenzia, Director
/s/ Patrick O'Neill
Patrick O'Neill, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1 Financial Data Schedule
This schedule contains summary financial information extracted from financial
statements as at December 31, 1999 and is qualified in its entirety by reference
to such financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> dec-31-1999
<CASH> 2,926
<SECURITIES> 0
<RECEIVABLES> 2,154
<ALLOWANCES> 158
<INVENTORY> 230
<CURRENT-ASSETS> 5,499
<PP&E> 5,401
<DEPRECIATION> 1,266
<TOTAL-ASSETS> 10,500
<CURRENT-LIABILITIES> 3,077
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 5,782
<TOTAL-LIABILITY-AND-EQUITY> 10,500
<SALES> 19,670
<TOTAL-REVENUES> 19,670
<CGS> 16,320
<TOTAL-COSTS> 3,816
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187
<INCOME-PRETAX> (5143)
<INCOME-TAX> (37)
<INCOME-CONTINUING> (4770)
<DISCONTINUED> 0
<EXTRAORDINARY> 55
<CHANGES> 0
<NET-INCOME> (422)
<EPS-BASIC> (.27)
<EPS-DILUTED> 0
</TABLE>
