UNITED
STATES
SECURITIES
AND
EXCHANGE
COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q/A
(Mark
One)
|
|
|
x
|
Quarterly
Report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the quarterly period ended:
September
30, 2006
or
o
|
Transition
report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the transition period from
______________ to _______________
Commission
file number: 001-15035
ABLE
ENERGY,
INC.
(An
exact name of registrant as
specified in its charter)
Delaware
|
22-3520840
|
(State
or other jurisdiction
of
|
(I.R.S.
employer
|
incorporation
or
organization)
|
identification
No.)
|
198
Green Pond
Road
Rockaway,
NJ
|
07866
|
(Address
of principal
executive
offices)
|
(Zip
code)
|
Registrant's
telephone number, including
area code: (973)
625-1012
Not
Applicable
(Former
name, former address and former
fiscal year, if changed since last report)
Indicate
by check mark whether the
registrant (1) has filed all reports required to
be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90
days.
o Yes x No
Indicate
by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer:
Large
accelerated
filer o |
Accelerated
filer o |
Non-accelerated
filer x |
Indicate
by check mark whether the
registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
o Yes
x No
As
of January 29, 2008,
14,808,090 shares of common stock,
$.001 Par value per share, of Able Energy, Inc. were issued and
outstanding.
EXPLANATORY
NOTE
Able
Energy, Inc. ("the Company") is filing this Amendment No. 1 (the “Amendment”) to
its Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2006
(the "Report"), which Report was previously filed on July 24, 2007, because
the
Company’s former independent registered public accounting firm, Marcum &
Kliegman LLP, withdrew its review of the Report subsequent to their dismissal
by
the Company on August 13, 2007. The financial statements listed under
Part I Financial Information Item 1 have been reviewed in accordance with
SAS
#100 by Lazar Levine & Felix LLP, the Company’s new independent registered
public accounting firm, who commenced its engagement on September 21,
2007. In the Amendment, there were no major changes made to the body or
disclosures in the Report as a result of Lazar Levine & Felix’s review,
except for an amortization cost increase of $540,000 reflected throughout
the
financial statements and applicable note disclosures as a result of not
obtaining the financing, Note 2 (Going Concern, Liquidity and Capital Resources
and Management’s Plans) where the Company updated balances through the date of
the filing and Extension dates and compliance filings and Note 20
(Subsequent Events) to the financial statements regarding subsequent events
that
occurred since July 24, 2007, in which the Company discloses (i) changes
in
officers, (ii) additional loans under and refinancing of various loan and
agreements of the Company (including financing agreements of All American
Plazas, Inc. (now known as All American Properties, Inc.) (“AAP”) that were
assumed by a subsidiary of the Company in the acquisition of assets of AAP
which
closed as of May 30, 2007), (iii) updates of litigation matters (including
the
commencement of arbitration proceedings by the Company and AAP against Manns
Haggerskjold of North America, Ltd. to recover fees paid to Manns to obtain
financing for the Company and AAP, the settlement of an action against Summit
Ventures, Inc., a second subpoena issued to the Company by the SEC for the
production of documents and a summons and complaint served on the Company
and
others which inter alia
seeks class action status filed by the shareholders of CCI Group Inc.), (iv)
entry into a consulting agreement with a related party, (v) the dismissal
of
Marcum & Kliegman as the Company’s independent registered public accounting
firm and the engagement of Lazar Levine & Felix as the Company’s new
independent registered public accounting firm, (vi) the law suit the Company
filed against Marcum & Kliegman for breach of contract, gross negligence and
defamation and (vii) various other narrative changes throughout form
10-Q/A.
ABLE
ENERGY,
INC. AND SUBSIDIARIES
FORM
10-Q/A
For
the Quarter Ended September
30, 2006
INDEX
|
|
Page
|
|
|
|
Part
I.
|
Financial
Information
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance
Sheets as of September
30, 2006 (Unaudited)
and June 30,
2006
|
1
|
|
|
|
|
|
|
Condensed
Consolidated Statements of
Operations for the Three Months Ended September 30, 2006
(Unaudited)
and
2005
(Unaudited)
|
2
|
|
|
|
|
|
|
Condensed
Consolidated Statements
of Changes in Stockholders' Equity and Comprehensive
Loss
for the Three
Months
Ended
September 30, 2006 (Unaudited)
Ended
September
30, 2006 (Unaudited)
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements
of Cash Flows for the Three Months Ended September 30, 2006
(Unaudited)
and 2005
(Unaudited)
|
4
|
|
|
|
|
|
|
Notes
to Condensed
Consolidated
Financial Statements (Unaudited)
|
5
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and
Analysis of Financial Condition and Results of
Operations
|
27
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative
Disclosures About Market Risk
|
37
|
|
|
|
|
|
Item
4.
|
Controls
and
Procedures
|
38
|
|
|
|
|
Part
II
|
Other
Information
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
38
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity
Securities and Use of Proceeds
|
38
|
|
|
|
|
|
Item
3.
|
Default
on Senior
Securities
|
39
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a
Vote of
Security
Holders
|
39
|
|
|
|
|
|
Item
5.
|
Other
Information
|
40
|
|
|
|
|
|
Item
6.
|
Exhibits
|
40
|
|
|
|
|
|
|
41
|
|
|
|
Certifications
|
|
42-44
|
PART
I. FINANCIAL
INFORMATION
|
|
|
|
|
|
|
Item
1. Condensed Consolidated
Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABLE
ENERGY, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER
30,
|
|
|
JUNE
30,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
ASSETS
|
|
(Note
11)
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
3,920,999 |
|
|
$ |
2,144,729 |
|
Accounts
receivable, net
of allowance for doubtful accounts
of
|
|
|
|
|
|
|
|
|
$516,315
and $462,086, at
September 30, 2006 and
|
|
|
|
|
|
|
|
|
June
30,
2006, respectively
|
|
|
3,178,157 |
|
|
|
3,414,894 |
|
Due
from
broker
|
|
|
881,173 |
|
|
|
- |
|
Inventories
|
|
|
1,008,027 |
|
|
|
675,987 |
|
Notes
receivable - current
portion
|
|
|
400,579 |
|
|
|
400,579 |
|
Prepaid
expenses and other current
assets
|
|
|
634,214 |
|
|
|
528,788 |
|
|
|
|
|
|
|
|
|
|
Total
Current
Assets
|
|
|
10,023,149 |
|
|
|
7,164,977 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment,
net
|
|
|
4,507,654 |
|
|
|
4,414,051 |
|
Notes
receivable - less current
portion
|
|
|
725,000 |
|
|
|
725,000 |
|
Intangible
assets,
net
|
|
|
304,144 |
|
|
|
326,658 |
|
Deferred
financing costs,
net
|
|
|
308,934 |
|
|
|
150,264 |
|
Prepaid
acquisition
costs
|
|
|
225,000 |
|
|
|
225,000 |
|
Security
deposits
|
|
|
84,918 |
|
|
|
84,918 |
|
Total
Assets
|
|
$ |
16,178,799 |
|
|
$ |
13,090,868 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
&
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Line
of
credit
|
|
$ |
1,017,816 |
|
|
$ |
1,231,640 |
|
Notes
payable, current
portion
|
|
|
77,430 |
|
|
|
76,181 |
|
Capital
leases payable, current
portion
|
|
|
304,215 |
|
|
|
314,145 |
|
Convertible
debentures and notes
payable, net of unamortized
|
|
|
|
|
|
|
|
|
debt
discounts of $2,703,676 and
$70,368 as of September 30, 2006
|
|
|
|
|
|
and
June 30, 2006,
respectively
|
|
|
258,041 |
|
|
|
62,132 |
|
Accounts
payable and accrued
expenses
|
|
|
2,878,394 |
|
|
|
2,298,937 |
|
Fuel
derivative
contracts
|
|
|
562,753 |
|
|
|
- |
|
Customer
pre-purchase
payments
|
|
|
5,927,361 |
|
|
|
3,336,833 |
|
Unearned
revenue
|
|
|
261,266 |
|
|
|
277,426 |
|
|
|
|
|
|
|
|
|
|
Total
Current
Liabilities
|
|
|
11,287,276 |
|
|
|
7,597,294 |
|
|
|
|
|
|
|
|
|
|
Notes
payable, less current
portion
|
|
|
3,156,343 |
|
|
|
3,176,175 |
|
Capital
leases payable, less
current portion
|
|
|
573,572 |
|
|
|
645,313 |
|
|
|
|
|
|
|
|
|
|
Total
Long Term
Liabilities
|
|
|
3,729,915 |
|
|
|
3,821,488 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
15,017,191 |
|
|
|
11,418,782 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND
CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred
Stock; par value $.001,
authorized 10,000,000 shares;
|
|
|
|
|
|
|
|
|
issued
-
none
|
|
|
- |
|
|
|
- |
|
Common
Stock; $.001 par value;
75,000,000 and 10,000,000 shares authorized;
|
|
|
|
|
|
at
September 30, 2006 and June 30,
2006, respectively
|
|
|
|
|
|
|
|
|
3,141,423
and 3,128,923 shares
issued and outstanding
|
|
|
|
|
|
|
|
|
at
September 30, 2006 and June 30,
2006, respectively
|
|
|
3,141 |
|
|
|
3,129 |
|
Additional
paid in
capital
|
|
|
17,885,048 |
|
|
|
14,812,723 |
|
Accumulated
deficit
|
|
|
(13,218,836 |
)
|
|
|
(11,038,961 |
)
|
Accumulated
other comprehensive
loss
|
|
|
(562,753 |
)
|
|
|
- |
|
Notes
and loans receivable -
related parties
|
|
|
(2,944,992 |
)
|
|
|
(2,104,805 |
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders'
Equity
|
|
|
1,161,608 |
|
|
|
1,672,086 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and
Stockholders' Equity
|
|
$ |
16,178,799 |
|
|
$ |
13,090,868 |
|
See
accompanying notes to these
condensed consolidated
financial statements.
ABLE
ENERGY, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS
OF OPERATIONS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months
Ended |
|
|
|
September
30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
(Note
11)
|
|
|
(Note
5)
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
12,835,553 |
|
|
$ |
13,133,065 |
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
(exclusive
of
depreciation and amortization
|
|
|
|
|
|
|
|
|
shown
separately below)
|
|
|
11,641,623 |
|
|
|
12,009,574 |
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,193,930 |
|
|
|
1,123,491 |
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
Selling,
general
and administrative
|
|
|
2,287,109 |
|
|
|
1,877,822 |
|
Depreciation
and
amortization
|
|
|
171,337 |
|
|
|
272,155 |
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
2,458,446 |
|
|
|
2,149,977 |
|
|
|
|
|
|
|
|
|
|
Loss
from
Operations
|
|
|
(1,264,516 |
)
|
|
|
(1,026,486 |
)
|
|
|
|
|
|
|
|
|
|
Other
Income
(Expenses)
|
|
|
|
|
|
|
|
|
Interest
and
other income
|
|
|
148,821 |
|
|
|
32,691 |
|
Interest
income
- related parties
|
|
|
71,878 |
|
|
|
13,295 |
|
Interest
expense
|
|
|
(178,421 |
)
|
|
|
(152,391 |
)
|
Interest
expense
- related parties
|
|
|
- |
|
|
|
(17,500 |
)
|
Amortization
of
deferred financing costs
|
|
|
(561,128 |
)
|
|
|
(33,568 |
)
|
Amortization
of
debt discounts on convertible debentures
|
|
|
|
|
|
|
|
|
and
note
payable
|
|
|
(195,909 |
)
|
|
|
(278,533 |
)
|
Registration
rights penalty
|
|
|
(200,600 |
)
|
|
|
- |
|
Total
Other Expenses, Net
|
|
|
(915,359 |
)
|
|
|
(436,006 |
)
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$ |
(2,179,875 |
)
|
|
$ |
(1,462,492 |
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common
share
|
|
$ |
(0.70 |
)
|
|
$ |
(0.60 |
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
shares outstanding-basic and diluted
|
|
|
3,133,731 |
|
|
|
2,445,441 |
|
See
accompanying notes to these
condensed consolidated financial statements.
ABLE
ENERGY, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
LOSS
|
|
For
The Three Months Ended
September 30, 2006
|
|
(Uaudited)
|
|
(Restated)
|
|
(Note
11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid
- in
|
|
|
Accumulated
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Notes
and
Loans
Receivable
Related
|
|
|
Total
Stockholders'
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Parties
|
|
|
Equity
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
July 1,
2006
|
|
|
3,128,923 |
|
|
$ |
3,129 |
|
|
$ |
14,812,723 |
|
|
$ |
(11,038,961 |
)
|
|
$ |
- |
|
|
$ |
(2,104,805 |
)
|
|
$ |
1,672,086 |
|
|
$ |
- |
|
Common
stock issued in
connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
option
exercise
|
|
|
12,500 |
|
|
|
12 |
|
|
|
54,488 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
54,500 |
|
|
|
- |
|
Discounts
on
convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debentures
and notes
payable
|
|
|
- |
|
|
|
- |
|
|
|
3,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,000,000 |
|
|
|
- |
|
Amortization
of deferred
compensation
|
|
|
- |
|
|
|
- |
|
|
|
17,837 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,837 |
|
|
|
- |
|
Notes
receivable from related
parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
reimbursement of certain
fees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(415,000 |
)
|
|
|
(415,000 |
)
|
|
|
- |
|
Issuance
of notes
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
related accrued
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
upon advance
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholder
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(425,187 |
)
|
|
|
(425,187 |
)
|
|
|
- |
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,179,875 |
)
|
|
|
- |
|
|
|
- |
|
|
|
(2,179,875 |
)
|
|
|
(2,179,875 |
)
|
Other
comprehensive loss -
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loss
on fuel derivative
contracts
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(562,753 |
)
|
|
|
- |
|
|
|
(562,753 |
)
|
|
|
(562,753 |
)
|
Balance
September 30,
2006
|
|
|
3,141,423 |
|
|
$ |
3,141 |
|
|
$ |
17,885,048 |
|
|
$ |
(13,218,836 |
)
|
|
$ |
(562,753 |
)
|
|
$ |
(2,944,992 |
)
|
|
$ |
1,161,608 |
|
|
$ |
(2,742,628 |
)
|
See
accompanying notes to these
condensed consolidated financial statements.
ABLE
ENERGY, INC. AND
SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months
Ended
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
|
(Note
11)
|
|
|
(Note
5)
|
|
Cash
flow from operating
activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,179,875 |
)
|
|
$ |
(1,462,492 |
)
|
Adjustments
to reconcile net loss
to net cash
|
|
|
|
|
|
|
|
|
provided
by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
171,337 |
|
|
|
272,155 |
|
Provision
for bad
debts
|
|
|
27,130 |
|
|
|
49,505 |
|
Amortization
of discounts on
convertible debentures and notes payable
|
|
|
195,909 |
|
|
|
278,533 |
|
Amortization
of deferred financing
costs
|
|
|
561,128 |
|
|
|
33,568 |
|
Stock-based
compensation
|
|
|
17,837 |
|
|
|
- |
|
Gain
on sale of property and
equipment
|
|
|
(12,594 |
)
|
|
|
- |
|
(Increase)
decrease in operating
assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
209,607 |
|
|
|
(232,952 |
)
|
Inventories
|
|
|
(332,040 |
)
|
|
|
(909,472 |
)
|
Prepaid
expenses and other current
assets
|
|
|
(105,426 |
)
|
|
|
51,015 |
|
Due
from
broker
|
|
|
(881,173 |
)
|
|
|
- |
|
Security
deposits
|
|
|
- |
|
|
|
(5,000 |
)
|
Increase
(decrease) in operating
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued
expenses
|
|
|
579,457 |
|
|
|
121,299 |
|
Customer
pre-purchase
payments
|
|
|
2,590,528 |
|
|
|
3,624,342 |
|
Unearned
revenue
|
|
|
(16,160 |
)
|
|
|
(3,997 |
)
|
Net
cash provided by operating
activities
|
|
|
825,665 |
|
|
|
1,816,504 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing
activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and
equipment
|
|
|
(243,718 |
)
|
|
|
(158,098 |
)
|
Advances
to related
parties
|
|
|
(840,187 |
)
|
|
|
(1,897,500 |
)
|
Deferred
financing
costs
|
|
|
(540,000 |
)
|
|
|
- |
|
Prepaid
acquisition
costs
|
|
|
- |
|
|
|
(155,565 |
)
|
Cash
received on sale of property
and equipment
|
|
|
13,886 |
|
|
|
- |
|
Net
cash used in investing
activities
|
|
|
(1,610,019 |
)
|
|
|
(2,211,163 |
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing
activities:
|
|
|
|
|
|
|
|
|
Net
(repayments) borrowings under
line of credit
|
|
|
(213,824 |
)
|
|
|
51,022 |
|
Repayment
of notes
payable
|
|
|
(18,583 |
)
|
|
|
(17,390 |
)
|
Repayment
of capital leases
payable
|
|
|
(81,671 |
)
|
|
|
(70,300 |
)
|
Proceeds
from exercise of
options
|
|
|
54,500 |
|
|
|
968,001 |
|
Deferred
financing
costs
|
|
|
(179,798 |
)
|
|
|
(122,499 |
)
|
Proceeds
from sale of convertible
debentures and notes payable
|
|
|
3,000,000 |
|
|
|
2,500,000 |
|
Net
cash provided by financing
activities
|
|
|
2,560,624 |
|
|
|
3,308,834 |
|
|
|
|
|
|
|
|
|
|
Net
increase in
cash
|
|
|
1,776,270 |
|
|
|
2,914,175 |
|
Cash
at beginning of
period
|
|
|
2,144,729 |
|
|
|
1,754,318 |
|
Cash
at end of
period
|
|
$ |
3,920,999 |
|
|
$ |
4,668,493 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the quarter for
interest
|
|
$ |
229,574 |
|
|
$ |
128,741 |
|
See
accompanying notes to these
condensed consolidated financial statements.
ABLE
ENERGY, INC. AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note
1 - Basis of
Presentation
The
accompanying unaudited condensed
consolidated financial statements of Able Energy, Inc. and Subsidiaries
(the "Company") have
been
prepared in accordance with United States generally
accepted accounting principles
applicable for interim financial information. Accordingly, these condensed
consolidated financial statements do not include all of the
information and
footnotes required by United States generally
accepted accounting
principles. In the opinion of management, all adjustments (consisting of
normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the
three months ended September 30, 2006
are
not necessarily indicative of the
results that may be expected for the year ending June 30, 2007.
These condensed consolidated financial
statements include the accounts of Able Energy, Inc. and its wholly
owned
subsidiaries (Able Oil Company, Able
Oil Melbourne, Inc., Able Energy New York, Inc., Able Energy Terminal LLC
and
Price Energy Franchising L.L.C.) and majority owned (70.6%) subsidiary
(PriceEnergy.com, Inc. Financial
results are considered to be
of an immaterial nature as
of September 30, 2006 as they relate to the minority interest portion and
therefore are not disclosed). These condensed
consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes there to included
in the Company's
Annual Report on Form 10-K filed on April 12, 2007 for
the year ended June 30, 2006.
Note
2 - Going
Concern, Liquidity and Capital Resources and Management’s
Plans
.
The
Company has incurred a loss from
continuing operations
during the year ended June 30, 2006 of approximately $6,242,000.
Net cash used in operations during the
year ended June 30, 2006 was $1,712,000.
During the three months ended
September 30, 2006, the Company incurred a net loss of approximately $2.2
million. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
These condensed consolidated financial statements do not include any adjustments
relating to the recoverability of the recorded assets or the classification of
the liabilities that
may be necessary should the Company be unable to continue as a going
concern.
As
of November
30, 2007, the Company
had a cash balance
of approximately $1.2 million
and
has approximately $1.6 million
of obligations for funds received in
advance under a
customer pre-purchase fuel program. The Company had available borrowings
through
its credit line facility of approximately $270,000 as of November 30,
2007. In order to meet its liquidity requirements, the Company is negotiating
a
second mortgage on its oil terminal located on Route 46 in Rockaway, New
Jersey,
through which the Company believes it may borrow additional funds.
The
Company has been funding its
operations through an asset-based line of credit (See Note 12), the issuance of convertible
debentures
and notes payable (See Note 15), and the proceeds from
the exercise of
options (See Note 16).
During the three months ended September 30, 2006,
the Company has secured financings of
approximately $3 million
from the proceeds of
convertible debentures and notes payable and approximately $55,000 in proceeds
from option exercises. Other than for the day to day operations of the
Company, approximately $2 million was expended for repayment
of loans, purchase
of investments,
and hedging transactions
during the three months ended September 30, 2006 (See Notes 9 and
18).
On
May
30, 2007 the Company completed a business combination with All American Plazas
Inc. now known as All American Properties, Inc. (“All American”) (See Note
18). The Company is pursuing sales initiatives, cost savings and
other benefits as contemplated in the business combination including
consolidation of business operations where management of the Company deems
appropriate for the combined entity. In order to conserve its capital
resources and to provide
incentives for the Company’s
employees and other service vendors,
the Company expects to continue to issue, from time to time, common stock
and
stock options to compensate employees and non-employees for services
rendered. The Company is focusing
on expanding its distribution
programs and new customer relationships to increase demand for its products.
In
addition, the Company is pursuing other lines of business, which include
expansion of its current commercial business into other products and
services
such as bio-diesel, solar
energy, and other energy related home services. The Company is also evaluating,
on a combined basis, all of its product lines for cost reductions, consolidation
of facilities and efficiency improvements. There can be no assurance,
however, that the Company will
be successful in its efforts to enhance its liquidity
situation.
During
the three months ended September 30, 2006, the Company advanced monies and
loans
totaling $840,000 to All American a stockholder in the Company prior to the
business combination. In addition, the Company accrued interest on those
and
other notes with All American in the amount of $57,654 (See Note 18). As
of
September 30, 2006, a note receivable plus accrued interest in the amount
of
$1,842,000 was due January 15, 2008, which is in the process of being extended,
and a note and accrued interest in the amount of $921,000 is due in July
2008. The Company has granted to All American a series of extensions
of the maturity of the note that was due on January 15, 2008. The business
combination with All American was structured as an asset acquisition and
the
note obligations of All American to the Company were not assumed in connection
with the business combination. Therefore, the notes receivable, as well as
other
amounts due from All American, survive the business combination and are recorded
as contra - equity within these condensed consolidated financial statements.
All
American, the surviving entity, has notified the Company that its ability
to
repay its note and other obligations to the Company will be dependent upon
it
successfully securing financing from a third party.
The
Company will require some
combination of the sales, cost savings and other benefits
originally contemplated from
the business combination
and some combination of the collection of All American notes receivable,
new
financing, restructuring of existing financing, improved receivable collections
and/or improved operating results in order to maintain adequate liquidity
during
the year ending June 30, 2008.
The Company expects to establish and
maintain compliance with the reporting requirements of the Securities and
Exchange Act of 1934, as amended, which include the filing of this Form 10-Q
for
the quarter ended September
30,
2006, and the quarterly
reports on Form 10-Q
for the quarters ended December 31, 2006, March
31, 2007 and September 30, 2007
as well as Form
10-K for the year ended June 30, 2007.
There
can be no assurance that the
financing or the cost saving measures as identified above
will be
satisfactory in addressing the short-term liquidity needs of the Company.
In the
event that these plans cannot be effectively realized, there can be no assurance
that the Company will be able to continue as a going
concern.
Note
3 - Summary of
Significant Accounting Policies
Revenue
Recognition
Sales
of fuel and heating equipment are
recognized at the time of delivery to the customer, and sales of equipment
not related to service
contracts 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. Payment received from customers for the
pre-purchase of fuel is recorded as a current liability until the fuel is
delivered to the customer, at which time it is recognized as revenue
by the Company.
Reclassifications
Certain
reclassifications have been made
to prior period's condensed consolidated financial statements in order to
conform to the current period presentation.
Derivative
Contracts
The
Company uses derivative
instruments (futures
contracts) to manage the commodity price risk inherent in the purchase and
sale
of #2 heating oil. Derivative instruments are required to be marked to market
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (“SFAS
133”), as amended. These
contracts are
designated as cash flow hedges in accordance with SFAS 133 and were recorded
at
fair value as a liability entitled “fuel derivative contracts” on
the Company's condensed consolidated
balance sheet at September
30, 2006.
The
Company believes that these futures
contracts for fuel oil have been effective during their term to offset changes
in cash flow attributable to the hedged risk. The Company performs a prospective
and retrospective assessment of the effectiveness of the futures
contracts at least on
a quarterly basis. All realized and unrealized gains or losses on the futures
contracts at each reporting date are included in accumulated other comprehensive
loss in the equity section of the condensed consolidated balance
sheet and in comprehensive loss
(See Note 9) until the related fuel purchases being hedged are sold at which
time such gains or losses are recorded in cost of goods sold in the condensed
consolidated statements of operations. However, if the Company
expects at any time that continued
reporting of a loss in accumulated other comprehensive income would lead
to
recognizing a net loss on the combination of the futures contracts and the
hedged transaction in one or more future periods, a loss is reclassified
immediately into cost of goods
sold for the amount that is not expected to be recovered. As a result of
the
Company’s
effectiveness assessment at
September 30,
2006, the Company believes
that all open futures contracts will continue to be highly effective
in achieving offsetting changes in
future cash flows.
Note
4 - Recently Issued Accounting
Pronouncements
In
June 2005, the Financial Accounting
Standards Board (FASB) published Statement of Financial Accounting Standards
No.
154, “Accounting
Changes and Error
Corrections” (“SFAS
154”). SFAS 154 establishes
new standards on
accounting for changes in accounting principles. Pursuant to the new rules,
all
such changes must be accounted for by retrospective application to the financial
statements of prior
periods unless it is impracticable
to do so. SFAS 154 completely replaces Accounting Principles Bulletin No.
20 and
SFAS 3, though it carries forward the guidance in those pronouncements with
respect to accounting for changes in estimates, changes in the
reporting entity, and the correction
of errors. The requirements in SFAS 154 are effective for accounting changes
made in fiscal years beginning after December 15, 2005.
The Company will apply these
requirements to any accounting changes after the implementation
date. The application of this
pronouncement did not have an impact on the Company's condensed consolidated
financial position, results of operations, or cash flows.
EITF
Issue No. 05-4 “The Effect of a Liquidated
Damages
Clause on a Freestanding
Financial Instrument Subject to EITF Issue No. 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's
Own
Stock” (“EITF
No. 05-4”) addresses financial
instruments, such
as stock purchase warrants,
which are accounted for under
EITF 00-19 that may be issued at the same time and in contemplation of a
registration rights agreement that includes a liquidated damages clause.
The
consensus of EITF No. 05-4 has not been finalized. In July and August
2006, the Company entered into two
private placement agreements for convertible debentures and a note payable,
a
registration rights agreement and issued warrants in connection with the
private
placement. Based on the interpretive guidance in EITF Issue No.
05-4, view C, since the registration
rights agreement includes provisions for uncapped liquidated damages, the
Company determined that the registration rights are a derivative
liability (See
Note 15). The
Company has measured this liability
in accordance with SFAS No.
5.
In
February 2006, the FASB issued SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments", which
eliminates the exemption from applying SFAS 133 to interests in securitized
financial assets so that similar instruments are accounted for similarly
regardless of the
form of the instruments. SFAS 155 also allows the election of fair value
measurement at acquisition, at issuance, or when
a previously recognized financial
instrument is subject to a remeasurement event. Adoption is effective for all financial
instruments
acquired or issued after the beginning of the first fiscal year that begins
after September 15,
2006. Early adoption is
permitted. The adoption of SFAS 155 is not expected to have a material effect
on
the Company's consolidated
financial position, results of
operations or cash flows.
In
March 2006, the FASB issued SFAS No.
156, “Accounting
for
Servicing of Financial
Assets”, which amended SFAS
No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”,
with respect to the accounting for
separately recognized servicing assets and servicing
liabilities. SFAS 156 permits an entity to choose either the
amortization method or the fair value measurement method for each class of
separately
recognized servicing assets or
servicing liabilities. The application of this statement is not
expected to have an impact on the Company’s
consolidated financial
statements.
In
July 2006, the FASB issued FASB
Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes - an
interpretation, of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions. This interpretation requires
that
the Company recognize in its consolidated financial statements the
impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the
technical merits of the position. The provisions of FIN 48 are effective
as of
July 1, 2007,
with the cumulative effect of the
change in accounting
principle recorded as an adjustment
to opening retained earnings. The Company is currently evaluating the impact
of
adopting FIN 48 on its consolidated financial statements.
In
September 2006, the FASB issued SFAS
No. 157, "Fair Value Measurements", which defines fair value,
establishes a
framework for measuring fair value in United States generally
accepted accounting
principles, and expands disclosures about fair value measurements. Adoption
is
required for fiscal years beginning after November 15, 2007,
and interim periods within those
fiscal years. Early adoption of SFAS 157 is encouraged. The Company is currently
evaluating the impact of SFAS 157 and the Company will adopt SFAS 157 in
the
fiscal year beginning July
1, 2008.
In
September 2006, the staff of the SEC
issued
Staff Accounting Bulletin
("SAB")
No. 108, which provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
SAB 108
becomes
effective in fiscal 2007. Adoption of
SAB 108
did not have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.
In
September 2006, the FASB issued SFAS
No. 158, “Employers
Accounting
for
Defined Pension and Other Post Retirement
Plans an
amendment of FASB No.’s
87, 88, 106 and 132(R).” SFAS 158 requires an
employer and sponsors
of one or more single employer
defined plans to recognize the funded status of
a
benefit plan; recognize as
a component of
other comprehensive income,
net of tax, the gain or losses and prior service costs or credits that may
arise
during the period; measure defined benefit plan assets and obligations as
of the
employer’s
fiscal year; and, enhance footnote
disclosure. For fiscal years
ending after December 15, 2006,
employers with equity securities that trade on a public market are required
to
initially recognize the funded status of a defined benefit post retirement
plan
and to provide the enhanced footnote disclosures. For fiscal
years ending after December 15, 2008,
employers are required to measure plan assets and benefit
obligations. Management of the Company is currently evaluating the
impact of adopting this pronouncement on the consolidated financial
statements.
In
December 2006, the FASB
issued FASB Staff
Position ("FSP") EITF 00-19-2 "Accounting for Registration Payment Arrangements"
("FSP EITF 00-19-2") which specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration
payment arrangement should be
separately recognized and measured in accordance with SFAS No. 5, "Accounting
for Contingencies." Adoption of FSP EITF 00-19-02 is required for fiscal
years
beginning after December
15, 2006, and is not
expected to have
a material impact on the Company's
consolidated financial position, results of operations or cash
flows.
In
February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement
No.
115", which permits entities to choose to measure many financial instruments
and
certain other items at fair value. The fair value option established by this
Statement permits all entities to choose to measure eligible items at fair
value
at specified election dates. A business entity shall report unrealized gains
and
losses on items for which the fair value option has been elected in earnings
at
each subsequent reporting date. Adoption is required for fiscal years beginning
after November 15, 2007. Early
adoption is permitted as of the
beginning of a fiscal year that begins on or before November 15, 2007, provided
the entity also elects to apply the provisions of SFAS Statement No. 157,
Fair
Value Measurements. The Company is currently evaluating the
expected effect of
SFAS 159 on its consolidated financial statements and is currently not yet
in a
position to determine such effects.
In
December 2007, the FASB issued SFAS
No. 160. “Noncontrolling
Interests in Consolidated Financial Statements –an
amendment of ARB no. 51.” SFAS 160 establishes
accounting and reporting standards pertaining to ownership interests in
subsidiaries held by parties other than the parent, the amount of net
income attributable
to the parent and to the noncontrolling interest,
changes in a
parent’s
ownership interest, and the valuation
of any retained noncontrolling equity investment when a subsidiary is
deconsolidated. This statement also establishes disclosure
requirements that clearly identify and
distinguish between the
interests of the
parent and the interests of the noncontrolling owners. SFAS 160 is
effective for fiscal years beginning on or after December 15,
2008. The Company is in the process of evaluating the
effect that the adoption of SFAS
160 will have on
it’s
consolidated results of operations,
financial position and cash flows.
In
December 2007, the FASB issued No.
141 (revised 2007),
“Business
Combinations” (SFAS 141R). SFAS 141R
establishes principles and requirements for how an acquirer recognizes
and measures in
its financial statements
the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in
the
acquiree and
the goodwill
acquired. SFAS 141R also establishes disclosure requirements to
enable the evaluation of
the nature and financial effects of the business combination. SFAS
141R is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company is currently
evaluating the potential impact of adoption of SFAS 141R on it’s
consolidated financial
statements.
Note
5 - Restatement of Quarterly
Financial Data as of September 30, 2005
and
for the Three Months Then
Ended
The
quarterly financial data as of and
for the three months ended September 30, 2005,
as presented in the condensed
consolidated
financial statements, have been restated and corrected for errors relating
to (1) the amortization of a customer list; (2) the deferral of revenue
recognition associated with certain twelve month service contracts;
(3) the
improper accrual of audit fees; (4)
the issuance and cancellation of common stock in regard to non-performance
by a
consultant under its consulting agreement with the Company; (5) the timing
of
the recording of directors' fees; (6) the timing of the recording
of bad debt expense; and (7) the
deferral of previously recorded revenue.
Customer
List Amortization
The
Company was amortizing customer
lists aggregating approximately, $611,000 (which were purchased in various
acquisitions) over estimated useful lives of 10-15 years
until July 2001,
when the net book value was $422,728, at which time the Company stopped
amortizing the same. The Company has reassessed its position and has determined
that the customer lists should have continued to be amortized, in accordance
with SFAS No. 142, "Goodwill
and Other Intangible Assets", which states that intangible assets must be
amortized over their estimated useful life unless that useful life is determined
to be indefinite. Accordingly, the Company has recognized additional
amortization expense of $10,513
during the three months ended September 30, 2005.
Service
Contract Revenue Deferral
In
the ordinary course of business, the
Company offers a twelve month service contract related to residential customers'
heating equipment. The
Company's policy is to defer the revenue associated with these contracts,
recognizing the revenue over the life of the respective contracts. However,
the
Company's policy was not applied correctly. The Company has recorded the
deferrals required
at the various reporting dates and
the impact has been to increase revenue by $3,996 for the three months ended
September 30,
2005.
Audit
Fee
Accrual
Previously,
the Company recorded an
accrual for audit fees that it estimated would be incurred subsequent to the date of
the consolidated
financial statements as of June 30, 2005.
The Company subsequently determined
that the accrual for the audit services which had not yet been performed
was
improper. The $31,337 of audit fees that were reversed as of June
30, 2005, was recorded during
the three months
ended September 30,
2005.
Cancellation
of Stock Due to Non Performance by Consultant
During
March 2005, the Company issued
common stock to a consultant pursuant to the terms of a consulting agreement.
Subsequently, the Company
determined that the consultant did not perform in accordance with the consulting
agreement and the Company has filed suit demanding that the shares be returned.
The Company's position is that the share issuance has been cancelled ab
initio, as if the shares were never
issued. Accordingly, selling, general and administrative expense was reduced
by
$9,740 during the three months ended September 30, 2005.
Previously, the 142,857 shares issued
to the consultant were treated as cancelled
as of October 1, 2005 (See Note 17)
(Also see Note 20
subsequent events).
Timing
of
the Recording of Directors’
Fees
During
the quarterly period ended
March 31, 2006,
the Company recorded a charge for
Directors' fees, a portion of which it subsequently determined
should have been
recorded in prior periods. Accordingly, adjustments have been reflected to
record a charge of $42,886 during the three months ended September 30, 2005.
Timing
of
Recording of Bad Debt Expense
During
the quarterly period ended December
31, 2005, the Company recorded
a charge for bad
debt expense; a portion of which it subsequently determined should have been
recorded in a prior period. Accordingly, an adjustment has been reflected
to
record a charge of $49,461 during the
three months ended September 30, 2005
with
an offsetting $49,461 credit to the
charge previously recorded during the quarterly period ended December 31, 2005.
The
adjustments reflected in the restated quarterly financial data for
the period
ended September
30, 2005, as presented in the
condensed
consolidated financial statements also correct the condensed consolidated
balance sheet as of September 30, 2005
which is not presented in these
condensed consolidated financial statements.
Cumulative
Effect of
the
Adjustments Described Above on Accumulated Deficit
The
cumulative effect of the adjustments described above increased the accumulated
deficit as of June 30, 2005 in the amount of $371,978.
The
restatement resulted in the recording of an additional loss of $120,460 during
the three months ended September 30, 2006.
Reclassification
of Related
Party Receivables
Related
party receivables in the amount
of $1,997,500 were reclassified from assets to notes and loans
receivable–related
parties, a contra - equity account.
Cancellation
of Stock Issued for Consulting Services
In
addition to the effect included in the adjustments to the accumulated deficit
account above, the cancellation of stock issued for consulting services
decreased additional paid-in capital and prepaid expenses and other current
assets by $71,448.
Note
Payable
Conversion
The
Company recorded the conversion of a $500,000 note payable into common stock
as
of September 30, 2005. Subsequently, the conversion of the note was deemed
to
not be effected until October 13, 2005. As a result, current liabilities
have
been increased by $500,000 and stockholders equity has been decreased by
$500,000 as of September 30, 2005.
Impact
The
following summarizes the effect of
the adjustments discussed
above on the previously reported condensed consolidated balance sheet and
statement of operations as of and for the three months ended September 30, 2005:
Total
assets as previously
reported
|
|
$ |
18,959,068 |
|
Adjustments
|
|
|
(2,433,693 |
)
|
Restated
total
assets
|
|
$ |
16,525,375 |
|
|
|
|
|
|
Total
liabilities as previously
reported
|
|
$ |
14,174,984 |
|
Adjustments
|
|
|
627,655 |
|
Restated
total
liabilities
|
|
$ |
14,802,639 |
|
|
|
|
|
|
Total
stockholders'
equity
|
|
|
|
|
as
previously
reported
|
|
$ |
4,784,084 |
|
Cumulative
Effect of the
Adjustment
|
|
|
(492,438 |
)
|
Adjustments
for Notes Receivables,
Notes Payable and Stock
|
|
|
(2,568,910 |
)
|
Restated
total stockholders'
equity
|
|
$ |
1,722,736 |
|
|
|
For
The
|
|
|
|
Three
Months
|
|
|
|
Ended
September
|
|
|
|
30,
2005
|
|
|
|
|
|
Total
revenues as previously
reported
|
|
$ |
13,131,413 |
|
Adjustments
|
|
|
1,652 |
|
Restated
total
revenues
|
|
$ |
13,133,065 |
|
|
|
|
|
|
Gross
profit as previously
reported
|
|
$ |
923,169 |
|
Adjustments
|
|
|
200,322 |
|
Restated
gross
profit
|
|
$ |
1,123,491 |
|
|
|
|
|
|
Operating
expenses as previously
reported
|
|
$ |
1,797,355 |
|
Adjustments
|
|
|
352,622 |
|
Restated
operating
expenses
|
|
$ |
2,149,977 |
|
|
|
|
|
|
Other
income (expenses) as
previously reported
|
|
$ |
(464,511 |
)
|
Adjustments
|
|
|
28,505 |
|
Restated
other
income(expenses)
|
|
$ |
(436,006 |
)
|
|
|
|
|
|
Net
loss as previously
reported
|
|
$ |
(1,342,032 |
)
|
Adjustments
|
|
|
(120,460 |
)
|
Restated
net
loss
|
|
$ |
(1,462,492 |
)
|
|
|
|
|
|
Basic
and diluted loss per
share:
|
|
|
|
|
As
previously
reported
|
|
$ |
(0.59 |
)
|
Adjustments
|
|
|
(0.01 |
)
|
As
restated
|
|
$ |
(0.60 |
)
|
Note
6 - Net Loss per
Share
Basic
net
loss per common share is computed based on the weighted average number of
shares
outstanding during the periods presented. Common stock equivalents, consisting
of stock options, warrants, and convertible debentures and notes payable
as
further discussed in the notes to the condensed consolidated financial
statements, were not included in the calculation of diluted loss per share
because their inclusion would have been anti-dilutive.
The
total
common shares issuable upon the exercise of stock options and warrants, and
conversion of convertible debentures and note payable (along with related
accrued interest) was 6,760,346 and 621,386 for the three months ended September
30, 2006 and 2005, respectively.
Note
7 - Inventories
Inventories
consisted of the following
at:
|
|
|
September
30,
2006
|
|
|
June
30,
2006
|
|
|
|
|
|
|
|
|
|
#2
heating
oil
|
|
$ |
676,615 |
|
|
$ |
335,485 |
|
Diesel
fuel
|
|
|
|
54,094 |
|
|
|
42,567 |
|
Kerosene
|
|
|
|
26,541 |
|
|
|
9,125 |
|
Propane
|
|
|
|
46,201 |
|
|
|
33,444 |
|
Parts,
supplies and
equipment
|
|
|
204,576 |
|
|
|
255,366 |
|
Total
|
|
|
$ |
1,008,027 |
|
|
$ |
675,987 |
|
Note
8 - Notes
Receivable
On
March
1, 2004, the Company entered
into two notes
receivable totaling $1.4 million related to the sale of its subsidiary, Able
Propane LLC. The notes are secured by substantially all
the assets of Able
Propane LLC. One note for $500,000 bears interest at a rate of 6% per annum
and
the other note for $900,000 is non-interest bearing. Principal payments on
the
$900,000 are payable in four annual installments which began
on the first anniversary of the
note. Principal payment on the $500,000 note is due on March 1, 2008.
Interest on such note is being paid in
quarterly installments through the maturity date. The balance outstanding
of
these two notes as of September 30,
2006 was $950,000.
The
Company had a note from Able Oil
Montgomery, Inc. ("Able Montgomery") and Andrew Schmidt (the owner of Able
Montgomery) related to the sale of Able Montgomery and certain assets to
Mr.
Schmidt. The note was dated June 15, 2000 for
$170,000.
The note bore interest at 9.5%
per annum and payments commenced October 1, 2000.
The note was secured by the stock of
Able Montgomery, Able Montgomery's assets, as well as a personal guarantee
of
Mr. Schmidt. The note balance outstanding at September
30, 2006 was $168,701.
On December 13, 2006, the
Company purchased the assets of Able Montgomery and the note was applied
against
a portion of the purchase price (See Note 20).
The
Company has a note receivable
related to the sale of oil delivery trucks to an independent
driver. This
independent driver also delivers oil for the Company. The note bears interest
at
the rate of 12% per annum. This note was issued in February 1999 and is payable
in eight monthly installments each year during the period from
September through April, through
April 2007, the oil delivery season. The balance on this note at September 30, 2006
was
$6,878.
Maturities
of the notes receivable at
September 30, 2006
are as
follows:
For
the
Year
|
|
Principal
|
|
Ending
September
30,
|
|
Amount
|
|
|
|
|
|
2007
|
|
$ |
400,579 |
|
2008
|
|
|
725,000 |
|
Total
|
|
$ |
1,125,579 |
|
Note
9–Derivative
Instruments
During
the period from July
28, 2006 to August
15, 2006, the Company entered
into futures
contracts for #2 heating oil (“fuel derivative contracts”)
to hedge a portion of its forecasted
heating season requirements. The Company purchased 40 contracts with a series
of
maturities
between October 2006 and April
2007. The contracts total 1,680,000 gallons of #2 heating oil at an average
call
price of $2.20 per gallon. In accordance with SFAS 133, the Company is
accounting for the contracts as a cash flow hedge. Through
September
30, 2006, the Company has deposited
a total
of $948,133 in margin
requirements with the broker. The Company has a realized loss on 4 of the
40
contracts in the amount of $68,262.
The net amount on deposit with the
broker at September 30,
2006 of $881,173
is included in due from broker and
the $68,262 of
realized losses is recorded in cost
of goods sold in these condensed consolidated financial statements since
such
loss is not expected to be recovered in the applicable future period. The
estimated fair value of
open futures contracts as of September 30, 2006
indicated an unrealized loss of
$562,753 which is recorded as fuel derivative contracts with a corresponding
amount recorded in accumulated other comprehensive loss in these condensed
consolidated
financial statements (See Note
16). During the period from October 1, 2006 through March 31, 2007, the Company
had realized a loss of $856,057 on the remaining 36 contracts.
Note
10 - Property and
Equipment
Property
and equipment was comprised of the
following:
|
|
September
30,
2006
|
|
|
June
30,
2006
|
|
Land
|
|
$ |
479,346 |
|
|
$ |
479,346 |
|
Buildings
|
|
|
1,656,106 |
|
|
|
1,656,106 |
|
Bulding
improvements
|
|
|
411,259 |
|
|
|
251,401 |
|
Trucks
|
|
|
3,777,706 |
|
|
|
3,826,414 |
|
Machinery
and
equipment
|
|
|
1,028,768 |
|
|
|
1,028,769 |
|
Office
furniture,
fixtures
|
|
|
|
|
|
|
|
|
and
equipment
|
|
|
219,779 |
|
|
|
219,778 |
|
Fuel
tanks
|
|
|
922,886 |
|
|
|
872,096 |
|
Cylinders
-
propane
|
|
|
408,937 |
|
|
|
385,450 |
|
|
|
|
8,904,787 |
|
|
|
8,719,360 |
|
Less:
accumulated
depreciation
|
|
|
(4,397,133 |
)
|
|
|
(4,305,309 |
)
|
|
|
|
|
|
|
|
|
|
Property
and equipment,
net
|
|
$ |
4,507,654 |
|
|
$ |
4,414,051 |
|
At
September
30, 2006, the Company has equipment
under
capital leases with a net book value of approximately
$1,009,000.
Depreciation
and amortization expense of property and equipment was $148,823 and $151,616
for the three months ended
September
30,
2006 and 2005,
respectively.
Note
11 –Deferred
Financing Costs and Debt
Discounts
The
Company incurred deferred financing
costs in conjunction with the sale of convertible debentures on July
12, 2005 and August
8, 2006
(See Note 15), notes payable on May 13, 2005 (See Note 13), a line of credit
on
May 13, 2005 (See Note 12),
a
convertible note payable
on July 5, 2006 (See Note 15), and due diligence
fees related to
potential financing (See Note 18).
These
costs were capitalized to deferred
financing costs and are being amortized over the term of the related debt.
Amortization of deferred financing costs was $561,128 (this
amount includes $540,000 that was
reclassed/restated to amortization of deferred financing costs originally
presented as
part of contra equity since the financing did not occur) and $33,568 for the
three months ended
September 30, 2006, and 2005, respectively.
In
accordance with EITF 00-27,
"Application of Issue 98-5 to Certain Convertible Instruments", the
Convertible Debentures
issued on July 12, 2005
and
August
8, 2006, as well as a convertible
note issued
July 5, 2006 (See
Note 15) were considered to have a
beneficial conversion premium feature. The Company recorded debt discounts
of
$5,500,000 related to the beneficial
conversion features and warrants
issued in connection with the financings. The Company amortized $195,909
and
$278,533 of the debt discounts during the three months ended September 30, 2006
and
2005,
respectively.
Note
12 - Line Of
Credit
On
May
13, 2005,
the Company entered into a $1,750,000
line-of-credit agreement due on demand with
Entrepreneur Growth Capital, LLC.
The loan is secured by accounts receivable, inventory and certain other assets
as defined in the agreement. The line carries interest at Citibank's prime
rate, plus 4% per
annum (11.25% at September
30, 2006) not to exceed 24%
with a minimum
interest of $11,000 per month. The line also requires an annual facility
fee of
2% of the total available facility limit and monthly collateral management fees equal
to .025%. The
outstanding balance fluctuates over time. The balance due as of September 30, 2006
was $1,017,816 and approximately
$732,000
was available under this credit
line.
Note
13 - Notes
Payable
On
May
13, 2005, the Company entered
into a term loan with Northfield
Savings Bank for $3,250,000. Principal and interest are payable in monthly
installments of approximately $21,400 which commenced July 1, 2005.
The initial interest rate is 6.25% per
annum on the unpaid principal balance
for the first five years, to be reset
every fifth anniversary date at 3% over the five year treasury rate, but
not
lower than the initial rate; at that time the monthly payment will be reset.
The
interest rate on default is 4% per annum above the interest
rate then in effect. The note is
secured by Company-owned real property located in Rockaway, New Jersey and
an assignment of leases and rents at
such location. At the maturity date of June 1, 2030,
all remaining amounts are due. The
balance outstanding on
this note at September 30, 2006
was
approximately
$3,180,000.
On
August 27, 1999, the Company entered
into a note related to the purchase of equipment and facilities from B & B
Fuels Inc. The total principal of the note originally was $145,000. The note is payable
in the monthly
amount of principal and interest of $1,721 with an interest rate of 7.5%
per
year through August 27,
2009. The note is secured
by a mortgage granted by Able Energy New York, Inc. on properties at 2 and
4
Green Terrace and 4
Horicon Avenue, Town of Warrensburg,
Warren County, New York. The balance
due on this note at September 30, 2006
was
approximately $54,000.
Maturities
of the notes payable as of
September 30, 2006
are as
follows:
For
the Year
Ending
|
|
|
|
September
30,
|
|
Amount
|
|
|
|
|
|
2007
|
|
$ |
77,430 |
|
2008
|
|
|
82,640 |
|
2009
|
|
|
86,480 |
|
2010
|
|
|
72,628 |
|
2011
|
|
|
77,299 |
|
Thereafter
|
|
|
2,837,296 |
|
|
|
|
|
|
|
|
$ |
3,233,773 |
|
Note
14 - Capital Leases
Payable
The
Company
has entered into various capital
leases for equipment expiring through November 2010, with aggregate monthly
payments of approximately $33,000.
The
following is a schedule by years of
future minimum lease payments under capital leases together with the present value
of the net minimum
lease payments as of September 30, 2006:
For
the
Year
|
|
|
|
Ending
September
30,
|
|
Amount
|
|
|
|
|
|
2007
|
|
$ |
364,178 |
|
2008
|
|
|
331,314 |
|
2009
|
|
|
214,856 |
|
2010
|
|
|
72,660 |
|
2011
|
|
|
7,561 |
|
Total
minimum lease
payments
|
|
|
990,569 |
|
Less:
amounts representing
interest (from 8% to 12%)
|
|
|
112,782 |
|
Present
value of net minimum lease
payments
|
|
|
877,787 |
|
Less:
current
portion
|
|
|
304,215 |
|
Long
term
portion
|
|
$ |
573,572 |
|
Note
15 - Convertible Debentures and
Convertible Notes Payable
Convertible
Debentures –
July
2005
On
July
12, 2005, the Company consummated
a
financing in the amount
of
$2.5 million. Under such financing, the Company sold debentures evidenced
by a
Variable Rate Convertible Debenture (the "Convertible Debentures"). During
the
year ended June 30, 2006
$2,367,500
of principal
plus accrued interest of
$49,563 were converted into 371,856
shares of the Company’s
common shares. As of September 30, 2006,
the remaining outstanding balance of
Convertible Debentures totaled $132,500 plus accrued interest of
$57,243. The
amortization of discounts on these Convertible Debentures was $15,883 for the three months
ended
September 30, 2006 and the unamortized portion was $54,485 at September 30,
2006.
Convertible
Note Payable to Laurus
On
July
5, 2006, the Company closed
a Securities
Purchase Agreement entered
into on June 30, 2006
whereby
it sold a
$1,000,000 convertible term note to The Laurus Master Trust Fund, Ltd.
(“Laurus”).
The
note is for two years. The
Company paid fees of $49,000 to
Laurus and received net proceeds of $951,000. The Company incurred escrow fees
of $1,500.
Thereafter, the Company loaned $849,500 of the Laurus proceeds to All American
in exchange for a note receivable in the amount of $905,000, which included
reimbursement of $50,500 of transaction fees. All American loaned
the net
proceeds received from Able to CCI
Group, Inc. ("CCIG") (a 70% owned investment of
All
American) who utilized such
funds toward the
development and operation of a project operated by CCIG’s
subsidiary Beach Properties Barbuda
Limited (“BPBL”).
Commencing
August
1, 2006,
the Company was required to pay
interest on the note monthly in arrears at a rate equal to the prime rate
published in the Wall Street Journal plus 2%, calculated as of the last business
day of the calendar month. Amortizing payments of the principal
amount of the note shall be made by
the Company commencing on June 30, 2007 and
on the first business day of each
succeeding month thereafter in the amount of $27,778 through the maturity
date
of the note on June 30,
2009. The note is
convertible at the option
of Laurus into shares of the
Company's common stock, at an initial fixed conversion price of $6.50 per
share.
The conversion rate of the note is subject to certain adjustments and
limitations as set forth in the note.
In
connection with Laurus'
purchase of the note,
the
Company granted Laurus a warrant exercisable through June 30, 2011 to
purchase 160,000 shares of the
Company's common stock at a price of $5.57 per share, subject to the adjustments
and limitations set forth in the warrant. These warrants
were valued at approximately
$986,000, using the Black-Scholes model, applying an interest rate of 5.19%,
volatility of 98.4%, dividends of $0 and a contractual term of five
years.
In
accordance with EITF 00-27
“Application
of Issue 98-5 to Certain
Convertible Instruments”
and
EITF 98-5, "Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjusted Conversion Ratios", on a relative fair value basis, the warrants
were
recorded at a value of approximately $472,000. The
conversion feature, utilizing an
effective conversion price and market price of the common stock on the date
of
issuance of $3.00 and $7.70, per share, respectively, was valued at
approximately $723,000 which was then limited to $528,000, the
remaining
undiscounted value of the proceeds of
the convertible term note. Accordingly, the Company has recorded a debt discount
related to the warrants of $472,000 and the beneficial conversion feature
of the
convertible term note of $528,000, which amounts are amortizable
utilizing the interest method
over the three year term of the convertible term note. Amortization of debt
discounts on this convertible note payable amounted to $79,743 for the three
months ended September 30,
2006 and the unamortized
portion of these debt
discounts was $920,257 at September 30, 2006.
The
Company agreed that within sixty days from the date of issuance of the note
(September 3, 2006) and warrant that it would file a registration statement
with
the SEC covering the resale of the shares of the Company's stock issuable
upon
conversion of the note and the exercise of the warrant. This registration
statement would also cover any additional shares of stock issuable to Laurus
as
a result of any adjustment to the fixed conversion price of the note or the
exercise price of the warrant. As of November 30, 2007, the Company
was not able to file a registration statement and Laurus has not yet waived
its
rights under this agreement. As a result of its failure to comply with the
registration rights provision, the Company has included all the amounts due
for
the convertible term note as a current liability in the condensed consolidated
balance sheet as of September 30, 2006. There are no stipulated liquidated
damages outlined in the Registration Rights Agreement. Under the Agreement,
the
holder is entitled to exercise all rights granted by law, including recovery
of
damages, and will be entitled to specific performance of its rights under
this
agreement. Mr. Frank Nocito, an officer and a stockholder and Mr.
Stephen Chalk, a director, have each provided a personal guarantee, of up
to
$425,000 each, in connection with this financing.
The
Company received from Laurus a
notice of a claim of default dated January 10, 2007.
Laurus claimed default
under section 4.1(a) of
the
Term Note as a result of non-payment of interest and fees in the amount of
$8,826 that were due on January 5, 2007,
and a default under sections 6.17 and
6.18 of the Securities Purchase Agreement for failure to use best efforts
(i) to
cause CCIG to provide Laurus on an
ongoing basis with evidence that any and all obligations in respect of accounts
payable of the project operated by CCIG’s
subsidiary BPBL, have been met; and
(ii) cause CCIG to provide within 15 days after the end of each
calendar month, unaudited/internal
financial statements (balance sheet, statements of income and cash flow)
of BPBL
and evidence that BPBL is current in all of their ongoing operational
needs. On March 7,
2007, Laurus notified the
Company that it waived
the event of default and that Laurus
had waived the requirement for the Company to make the default payment of
$154,000.
Convertible
Debentures –August
2006
On
August
8, 2006, the Company issued
$2,000,000 of
convertible debentures to certain investors which are due on August
8, 2008. The convertible debentures
are
convertible into shares of the Company's common stock at a conversion price
of
$6.00 per share, which was the market value of the Company's common stock
on the
date of issuance. The Company received net proceeds
of $1,820,000 and incurred
expenses of legal fees of $40,000 and broker fees of $140,000 in connection
with
this financing that were recorded as deferred financing costs and amortized
on a
straight-line basis over the two year term of the convertible
debentures. The convertible
debentures bear interest at the greater of either LIBOR (5.4% as of September 30, 2006) plus
6.0%, or 12.5%, per
annum, and such interest is payable quarterly to the holder at the option
of the
Company either in cash or in additional
convertible
debentures.
At
any time, the holder may convert the
convertible debenture into shares of common stock at $6.00 per share, or
into
333,333 shares of common stock which represents a conversion at the face
value
of the convertible debenture.
On
May
30, 2007, upon consummation
by the Company of
the business combination transaction with All American (See Note 18), the
Company may redeem the convertible debentures at a price of 120% of the face
amount, plus any accrued but unpaid interest and any unpaid liquidated
damages or
under certain conditions, the Company may redeem the amount at 120% of the
face
amount in cash, or redeem through the issuance of shares of common stock at the
lower of the existing conversion price or 90% of the volume
weighted average price, as
stipulated in the agreement.
The
investors may elect to participate
in up to 50% of any subsequent financing of the Company by providing written
notice of intention to the Company.
The
investors also were issued 333,333,
166,667 and 172,667
five-year warrants to purchase additional shares of the Company's common
stock
at $4.00, $6.00 and $7.00 per share, respectively. These warrants were valued
at
$3,143,000 using the Black-Scholes model, applying an interest rate of
4.85%, volatility
of 98.4%, dividends
of 0%
and a term of five years. In
accordance with EITF 00-27 and EITF 98-5, on a relative fair value basis,
the
warrants were recorded at a value of approximately
$1,222,000.
The
beneficial conversion feature,
utilizing an effective
conversion price and market price of the common stock on the date of issuance
of
$2.00 and $6.00, per share, respectively, was valued at approximately $1,333,000
which was then limited to $778,000, the remaining undiscounted value of the
convertible
term note. Accordingly, the Company
has recorded a debt discount related to the warrants of $1,222,000, the
beneficial conversion feature of the convertible term note of $778,000, which
amounts are amortizable over the two year term of the convertible debentures. Amortization
of
these debt discounts was $100,284 for the three months ended September 30, 2006
and
the unamortized portion was
$1,899,716 at September 30,
2006.
The
Company had agreed to file a
registration statement within forty-five days or September
22, 2006, covering the resale
of the shares of
common stock underlying the convertible debentures and warrants issued to
the
investors, and by October
15, 2006, to have such
registration statement declared effective. The registration rights agreement
with the investors provides for
partial liquidated damages in the case that these registration requirements
are
not met. From the date of violation, the Company is obligated to pay liquidated
damages of 2% per month of the outstanding amount of the convertible
debentures, up to a total
obligation of 24% of such obligation. The Company has not yet filed a
registration statement regarding these securities. As a result of its
failure to comply with the registration rights provision, the Company has
included all amounts due on the convertible debentures as a current liability
in
the condensed consolidated balance sheet as of September 30, 2006. Also, as of September 30,
2006, the Company has estimated
the fair value of the liquidated damages obligation including interest of
approximately $200,000. The expense is included as registration rights
penalty on the condensed consolidated statement of operations and the corresponding liability
in
accounts payable and accrued expenses on the condensed consolidated balance sheet. The
Company is
obligated to continue to pay 18% interest per annum on any damage
amount
not paid in full within 7 (seven) days. As of December 31, 2007, the Company was not able to file
a
registration statement and the holder has not yet waived its rights under
this agreement and
the Company had not received a default notice from the lender on these matters.
EITF 05-04 view (C) allows the Company to account for the value of the warrants
as equity and separately record the fair value of
the registration right as a derivative
liability. Until these liquidated damages are cured, the incurred liquidated
damages and an estimate of future amount will be accounted for as a derivative
liability by the Company under view (C).
The
obligations of the Company in this
financing
transaction are secured by a first mortgage on certain property owned by
the
Company in Warrensburg,
New
York, a pledge of certain
rights the Company
has in securities of CCIG, guarantees by the Company's subsidiaries and
liens
on certain other
property.
Note
16-Stockholders’ Equity
Increase
in
Common Shares Authorized
On
August
29, 2006, the stockholders
approved an increase
in authorized shares of common stock from 10,000,000 to 75,000,000
shares.
Accumulated
other
comprehensive loss
The
Accumulated other comprehensive
loss of
$562,753 represents changes in the effective portion of the Company’s
open fuel contracts (See Note
9).
Stock
options
A
summary of the Company's stock option
activity, and related information for the three
months ended
September 30, 2006
is as
follows:
|
|
|
Number
of
Options
|
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
June 30,
2006
|
|
|
91,500 |
|
|
$ |
5.92 |
|
Granted
|
|
|
50,000 |
|
|
|
4.55 |
|
Cancelled
|
|
|
(50,000 |
)
|
|
|
4.55 |
|
Exercised
|
|
|
(12,500 |
)
|
|
|
4.36 |
|
Outstanding,
September 30,
2006
|
|
|
79,000 |
|
|
$ |
6.17 |
|
On
July
31, 2006, an option was granted
to Frank Nocito,
a Vice President and stockholder of
the Company, to purchase 50,000 shares of common stock of the Company at a price of $4.55
per share.
Thereafter, in error, the Company issued the shares to Mr. Nocito. Mr. Nocito
had not formally exercised the option, nor had he paid Able the cash
consideration for the shares. Mr. Nocito returned the stock certificates
to
the Company and the shares were
cancelled by the transfer agent. On October 7, 2006,
Mr. Nocito and the Company agreed to
cancel the option and further, Mr. Nocito agreed in writing to waive any
and all
rights that he had to the option. The option was then
cancelled and deemed null and void
and the statements reflect no expense related to the cancelled
grant.
On
August
25, 2006, Steven Vella, the
Company's former
Chief Financial Officer, elected to exercise 12,500 options with an exercise
price of $4.36 that were
granted to him on June 23,
2006, as part of a
negotiated severance package. As a result of the option exercise, the Company
received proceeds of $54,500. Black Scholes variables
used
were 3 year term, risk free
interest
rate of 5.23% and
volatility of
86.9%.
There
were no other options granted
during the three months ended September 30, 2006.
The
Company incurred $17,837 of
compensation expense from amortization of deferred compensation related to
the
issuance of options during the three months ended September
30, 2006.
Options
exercisable are as
follows:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
September
30,
2006
|
|
|
79,000 |
|
|
$ |
6.17 |
|
The
following is a summary of stock
options outstanding and exercisable at September 30, 2006 by exercise price
range:
Exercise
Price
Range
|
|
|
Number
of
options
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.55
-
$3.16
|
|
|
|
30,000 |
|
|
|
2.3 |
|
|
$ |
2.86 |
|
$8.09
-
$8.32
|
|
|
|
49,000 |
|
|
|
4.3 |
|
|
|
8.20 |
|
|
|
|
|
|
79,000 |
|
|
|
3.5 |
|
|
$ |
6.17 |
|
Warrants
A
Summary
of the Company’s stock warrant activity and related information for the three
months ended September 30, 2006 is as follows:
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
June 30,
2006
|
|
|
5,332,309 |
|
|
$ |
7.49 |
|
Granted
|
|
|
832,667 |
|
|
|
5.32 |
|
Outstanding,
September 30,
2006
|
|
|
6,164,976 |
|
|
$ |
7.20 |
|
Note
17- Commitments and
Contingencies
Purchase
Commitments
The
Company is obligated to purchase #2 heating
oil under various
contracts with its suppliers. As of September 30, 2006,
total open commitments under these
contracts which expire at various dates through April 2007 were
approximately $5,977,000. See Note 20 for additional contracts entered
into subsequent to September 30, 2006.
Litigation
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 consolidated financial
condition, competitive position, or capital expenditures of the
Company.
Following
an explosion and fire that occurred
at the Company's Facility in Newton,
NJ
on
March
14, 2003, and through the subsequent
clean up
efforts, the Company has cooperated fully with all local, state and federal
agencies in their investigations into the cause
of this accident.
A
lawsuit (known as Hicks
vs.
Able Energy, Inc.) was
filed against the Company by residents who allegedly suffered property damages
as a result of the March
14, 2003 explosion and
fire. The Company's insurance carrier is defending the Company as it related
to compensatory
damages. The Company has retained separate legal counsel to defend the Company
against the punitive damage claim. On June 13, 2005,
the Court granted a motion certifying
a plaintiff class action which is defined as "All
Persons and Entities that on and
after March 14,
2003, residing within a
1,000 yard radius of Able Oil Company's fuel depot facility and were damaged
as
a result of the March 14,
2003 explosion". As
of June 30,
2007, this lawsuit is still
in discovery. The
class certification is limited to
economic loss and specifically excludes claims for personal injury from the
Class Certification. The Company believes that the Class Claims for compensatory
damages is within the available limits of its insurance. On September
13, 2006, the plaintiffs counsel
made a
settlement demand of $10,000,000, which the Company believes to be excessive
and
the methodology upon which is fundamentally flawed. The Company intends to
vigorously defend the claim.
Relating
to the Hicks action, a
total of 227 claims
have been filed against the Company for property damages and 222 claims have
been settled by the Company's insurance carrier. In addition to the Hicks
action, four property owners, who were unable to reach satisfactory
settlements with the Company's
insurance carrier, have filed lawsuits for alleged property damages suffered
as
a result of the March 14,
2003 explosion and fire.
The Company's insurance carrier is defending the Company as it relates to
the
Hicks action and
remaining four property damage
claims. The Company's counsel is defending the remaining five (5)
punitive
and
compensatory damage claims. The
Company believes that
compensatory damage claims are within the available limits of insurance and
reserves for losses have
been established, as deemed appropriate, by the insurance carrier. The Company
believes the remaining five unsettled lawsuits will not have a material adverse
effect on the Company's consolidated financial condition or operations
based on plaintiff’s
interrogatories.
The
Company has been involved in non
material lawsuits in the normal course of business. These matters are handled
by
the Company's insurance carrier. The Company believes that the outcome of
the
above mentioned legal matters will not have a material
effect on the
Company's consolidated financial statements.
USA
Biodiesel
LLC Joint Venture
On
August
9, 2006, the Company entered
into a joint
venture agreement with BioEnergy of America, Inc. ("BEA"), a privately-held
Delaware corporation,
for the purpose of producing
biodiesel fuel using BEA's exclusive production process at plants to be
constructed at truck stop plazas, home heating depots and terminals used
to
house petroleum products for distribution or resale. The joint venture
will
operate through USA Biodiesel LLC
("USA"),
a New Jersey limited
liability company in which the
Company and BEA will each have a 50% membership interest. Each plant, when
fully
operational, will produce approximately 15 million gallons of biodiesel
fuel per
year. USA will
pay all of the operating,
production and processing expenses for each plant, including an annual use
fee
to the Company for use of the plant in the amount of $258,000, payable
quarterly, commencing ninety days after the plant is fully operational.
USA
will
operate the plants and the Company
shall have the exclusive right to purchase all bio-diesel fuel produced at
the
plants.
The
Company's initial contribution to
USA will be: (i) the costs of construction of each of the plants
(estimated to be $1.5
million each) and related equipment necessary for operating the plants, all
of
which, after construction of the plants shall be owned by the Company; (ii)
initial capital by means of a loan to USA for funding the operations of USA;
(iii) the facilities
at which the plants are to be
constructed; and (iv) office facilities and access to office technology for
the
Company. BEA's initial contribution to USA will be: (i) the license design,
engineering plans and technology and related costs and expenses
necessary to construct and operate
the plants at the facilities; (ii) access to equipment supplier purchase
agreements for equipment for the plants; (iii) access to soy oil, methanol
and
other material purchasing agreements; (iv) for each plant constructed,
six months of training consisting
of three months during the construction of each of the plants and
three months during initial full production; and (v) exclusive territorial
rights to the manufacturing process to be used at the plants. There were
no
costs incurred by the Company through
November 30,
2007. As of the date of this
report the
Company has been advised that BEA is no longer in business.
Other
Contingencies
Related
to its 1999 purchase of the
property on Route 46 in Rockaway, New Jersey, the Company settled
a lawsuit with a
former tenant of the property and received a lump sum settlement of $397,500.
This sum was placed in an attorney's escrow account for payment of all
environmental remediation costs. Through September 30, 2006,
the Company
has been reimbursed for approximately
$290,000 of costs and another approximately $87,000 are un-reimbursed and are
included in prepaid
expenses and other current assets in the accompanying condensed consolidated
balance sheet at September
30, 2006 and must
be presented to the attorney for
reimbursement. The environmental remediation is still in progress on this
property. The majority of the free standing product has been extracted from
the
underground water table. The remainder of the remediation will be
completed over the course of the next
eight to ten years using natural attenuation and possible bacterial injection
and based upon the information available to the Company at June 30,
2007, in the opinion of the
Company's management, the amount remaining available in the trust
is sufficient to
fund the remaining remediation.
On
September
26, 2006, the New Jersey Department
of
Environmental Protection ("NJDEP") conducted a site update inspection, which
included a review of the Route 46 site and an update of the progress of
the approved
remediation. The NJDEP Northern Office director who conducted the inspection,
concluded that the remediation progress was proceeding appropriately and
that
the NJDEP approved of the Company's continued plan to eliminate the remaining
underground
product.
During
the year ended June 30, 2006, certain officers of the Company exercised stock
options for the purchase of 100,000 shares of the Company’s stock at an exercise
price of $6.68 per share that would have resulted in additional compensation
to
them if, at the time of exercise, the stock was either not subject to a
substantial risk of forfeiture or transferable. The Company has
concluded that the stock received upon exercise was subject to a substantial
risk of forfeiture and not transferable until the time of sale. Since the
sales
price of the stock was less than the exercise price, the Company has further
concluded that there is no additional compensation that would be subject
to
income tax withholdings for inclusion in payroll tax returns. There can be
no
assurance that the Internal Revenue Service (“IRS”) will agree with the
Company’s position. In the event that the IRS does not agree, the
Company estimates that its maximum exposure for income tax withholdings will
not
exceed approximately $85,000 excluding any potential interest and
penalties. In addition, the Company has not yet filed certain SEC
filings related to these option exercises.
On
December 8, 2006, the Company commenced an action in the Superior Court of
California, for the County of Los Angeles against Summit Ventures, Inc.
(“Summit”), Mark Roy Anderson (“Anderson”), the principal of Summit and four
other companies controlled by Anderson, Camden Holdings, Inc., Summit Oil
and
Gas, Inc. d/b/a Nevada Summit Oil and Gas, Harvest Worldwide LLC and Harvest
Worldwide, Inc. seeking to compel the return of 142,857 shares (the “Shares”) of
the Company’s common stock issued to Summit. The shares were issued
to Summit in connection with a consulting agreement the Company had entered
into
with Summit in January 2005 (also See Note 5). The complaint also sought
damages
as a result of Summit’s and Anderson’s breach of contract, fraud, and
misrepresentation with respect to the consulting agreement. On June
28, 2007, Summit and Anderson interposed a cross-complaint against the Company,
Greg Frost, the Company’s Chief Executive Officer and Chairman, Chris Westad,
the Company’s President, Frank Nocito, Vice President of Business Development
for the Company, Stephen Chalk, a Director of the Company and Timothy
Harrington, the former Chief Executive Officer of the Company. The
Company has recently settled the Anderson Litigation (see Note 20).
SEC
Formal
Order
of Private Investigation
On
September
7, 2006, the Company received
a copy of a Formal Order from the
SEC pursuant
to which the Company, certain
of its officers and a director were served with subpoenas requesting certain
documents and information. The Formal Order authorizes an investigation of
possible violations of
the anti-fraud provisions of the
federal securities laws with respect to the offer, purchase and sale of the
Company's securities and the Company's disclosures or failures to disclose
material information. The Company believes that it did not violate
any securities
laws and intends to cooperate
fully with and assist the Commission in its inquiry. The scope, focus and
subject matter of the SEC
investigation
may change
from time to time and the Company may be unaware of matters under consideration
by the SEC.
The Company has produced and continues
to produce responsive documents and intends to continue cooperating with
the
SEC in
connection with the
investigation.
Note
18 - Related Party
Transactions
Acquisition
of Assets of All American
The
Company entered into an Asset Purchase
Agreement
dated as of June 16, 2005 (which was originally contemplated as a stock purchase
agreement) ("Purchase Agreement") with all of the stockholders (and then
with
All American with respect to the Purchase Agreement) (the "Sellers")
of All American in connection
with the Company's acquisition of substantially all the operating assets
(not
including real estate properties) of All American. This transaction was approved
on August 29, 2006
at
a special meeting of the
Company's stockholders
and was consummated on
May 30, 2007.
In accordance with applicable
Delaware law,
the transaction was approved by at
least two-thirds (2/3) of the disinterested stockholders of the
Company. Under the terms of the Purchase Agreement, upon
closing,
the Company issued an aggregate of
11,666,667 shares of the Company’s,
unregistered and restricted common
stock. Of the approximately 11.67 million shares, 10 million
shares were issued directly to All American and the remaining 1,666,667 shares
were issued
in the name of All American in
escrow pending the decision by the Company’s
Board of Directors relating to the All
American Secured Debentures described in the paragraph below. The Company
purchased the operating
businesses of eleven truck stop plazas owned and operated
by All American.
The acquisition included all assets comprising the eleven truck plazas other
than the underlying real estate and the buildings thereon. The Company also assumed
all liabilities
related to the operations of those truck stops. The Company
did not assume any
liabilities related to the underlying real estate. In addition, the obligations
of All American to the Company relating to the notes and other amounts as
described in these condensed consolidated financial statements survive
the business combination. The
financial information related to the assets acquired and liabilities assumed
is not
yet available. The shares
of the Company were valued at a price of $3.00 per share determined
on the date the parties reached
agreement and when the
transaction was announced for purposes of the
Purchase
Agreement. The share price of the Company’s
common stock as of May 30, 2007 as
listed on the Pink Sheets was
$1.65.
Please
see Note 20 for the unaudited proforma
income statement
representing
consolidated
results of operations of
the Company had the acquisition of All American occurred at the beginning
of the
earliest period presented.
All
American
Financing
On
June
1, 2005, All American completed
a
financing that may impact
the Company. Pursuant to the terms of the Securities Purchase Agreement (the
"Agreement") among All American and certain purchasers ("Purchasers"), the
Purchasers loaned All American an aggregate of $5,000,000, evidenced by Secured
Debentures
dated June 1, 2005 (the
"Debentures"). The Debentures were
due and payable on June 1,
2007, subject to the
occurrence of an event of default, with interest payable at the rate per
annum
equal to LIBOR for the applicable interest period, plus 4% payable
on a quarterly basis on April 1st,
July 1st, October 1st and January 1st, beginning on the first such date after
the date of issuance of the Debentures. As of November 30,
2007, the Company's Board has not
approved the transfer of the debt that would also require the transfer
of additional
assets from All American as consideration for the Company to assume the debt.
Should the Company’s
Board approve the transfer of the
debt, the Debentures
will be convertible into
shares of the Company's common stock at a conversion rate
of the lesser of (i)
the purchase price paid by the Company for each share of All American common
stock in the acquisition, or (ii) $3.00, subject to further adjustment as
set
forth in the agreement.
The
loan is secured by real estate
property owned by All
American in Pennsylvania
and
New
Hampshire. Pursuant to the Agreement,
these
Debentures are in default, as All American did not complete the merger with
the
Company prior to the expiration of the 12-month anniversary of the
Agreement. Pursuant
to the Additional Investment
Right (the "AIR
Agreement")
among All
American and the Purchasers, the Purchasers may loan All American up to an
additional $5,000,000 of secured convertible debentures on the same terms
and
conditions as the initial $5,000,000
loan, except that the
conversion price will be $4.00.
If
the Company’s
Board approves the transfer of the
debt, upon such assumption the Company will assume the obligations of All
American under the Agreement, the Debentures and the AIR Agreement
through the execution of a
Securities Assumption, Amendment and Issuance Agreement, Registration Rights
Agreement, Common Stock Purchase Warrant Agreement and Variable Rate Secured
Convertible Debenture Agreement, each between the Purchasers and the
Company
(the "Able Energy Transaction
Documents"). Such documents provide that All American shall cause the real
estate collateral to continue to secure the loan, until the earlier of full
repayment of the loan upon expiration of the Debentures or conversion by
the Purchasers of the Debentures into
shares of the Company's common stock at a conversion rate of the lesser of
(i)
the purchase price paid by the Company for each share of All American common
stock in the acquisition, or (ii) $3.00, (the "Conversion Price"),
subject to further adjustment
as set forth in the Able Energy Transaction Documents. However, the Conversion
Price with respect to the AIR Agreement
shall be $4.00. In addition,
the Purchasers shall have the right to receive five-year warrants to purchase
2,500,000 of the Company's
common stock at an exercise price of $3.75 per share.
In
the event the Company’s
Board of Directors does approve the
transfer of debt and pursuant to the Able Energy Transaction
Documents, the Company shall also have an optional redemption
right (which right
shall be mandatory upon the occurrence of an event of default) to repurchase
all
of the Debentures for 125% of the face amount of the Debentures plus all
accrued
and outstanding interest, as well as a right to repurchase
all of the Debentures in the event
of the consummation of a new financing in which the Company sells securities
at
a purchase price that is below the Conversion Price. The stockholders of
All
American have placed 1,666,667 shares of Able common stock in
escrow shares to satisfy
the conversion of the $5,000,000 in outstanding Debentures in full should
the
Company’s
Board approve the transfer of the
debt.
Note
Receivable –
Related
Party
In
connection with two loans entered
into by the Company in May 2005, fees in the amount
of $167,500
were paid to Unison Capital Corporation ("Unison"), a company controlled
by Mr.
Nocito, an officer of the Company. This individual also has a related-party
interest in All American. Subsequent to the payments being made
and based on discussions with Unison,
it was determined the $167,500 was an inappropriate payment
and Unison agreed to reimburse
this amount to the Company over a twelve month period beginning in October
2005.
As of September 30,
2006, no payments have
been made and this note
is
still outstanding. The maturity date of the note was extended to January
15, 2008, which is in the process of being extended, and was personally
guaranteed by Mr. Nocito. Interest income related to this note for
the three months ended September 30, 2006 was $2,533 and accrued interest
receivable as of that date is $14,263. The note and accrued interest
in the
amount of $181,763 have been classified as contra-equity in the accompanying
condensed consolidated balance sheet as of September 30,
2006.
Notes
and
Loans to All American
The
Company loaned All American
$1,730,000 as evidenced by a promissory note dated July 27, 2005.
As of September 30, 2006, this note is
still outstanding which
had a maturity date of
January
15, 2008,
which is currently in
process of being
extended. Interest income
related to this note for the three months ended September 30, 2006
was
$41,425 and accrued interest
receivable as of that date is $112,000. The
note and accrued interest receivable
in the amount of $1,842,000
have been classified as contra-equity on the Company's condensed consolidated
balance sheet as of
September 30,
2006.
On
May 19, 2006, the Company entered
into a letter of interest agreement with Manns Haggerskjold of North American,
Ltd. ("Manns"), for a bridge
loan to the Company in the amount of $35,000,000 and a possible loan in the
amount of $50
million based upon the business
combination with All American ("Manns Agreement"). The terms of the letter
of
interest provided for the
payment of a commitment fee of $750,000, which was non-refundable to cover
the
due-diligence cost incurred by Manns. On June 23, 2006,
the Company advanced to Manns $125,000
toward the Manns Agreement due diligence fee. During the period from July
7, 2006 through November 17, 2006, the Company advanced an additional $590,000
toward the Manns Agreement due diligence fee. The
amount expensed
relating
to these advances as of
September 30, 2006, was
$540,000, as a result of not
obtaining the
financing.
As
a result of the Company receiving a
Formal Order from the SEC
on
September
22, 2006, the Company and Manns
agreed that the
commitment to fund being sought under the Manns Agreement would be issued
to All
American, since the stockholders had approved an acquisition of All
American by Able and
since the collateral for the financing by Manns would be collateralized by
real
estate owned by All American. Accordingly, on September 22, 2006,
All American agreed that in the event
Manns funds a credit facility to
All American rather than the Company,
upon such funds being received by All American, it will immediately reimburse
the Company for all expenses incurred and all fees paid to Manns in connection
with the proposed credit facility from Manns to the Company.
On or about February 2, 2007,
All American received a term sheet
from UBS Real
Estate Investments, Inc.
(“UBS”)
requested by Manns as co-lender to All
American. All American rejected the UBS offer
as not consistent with the
Manns’commitment
of September
14,
2006. All American subsequently
demanded
that Manns refund all fees paid to Manns by Able and All American. In order
to
enforce its rights in this regard All American has retained legal counsel.
The
Company and All American have commenced an arbitration
proceeding against Manns and its
principals to pursue their remedies. All recoveries and
fees and costs of the
litigation will be allocated between the Company and All American in proportion
to the amount of the Manns due diligence fees paid.
On
July
5, 2006,
the Company loaned $905,000 of the
Laurus proceeds to All American (See Note 15). Interest income on the
note for the three months ended September 30, 2006 was
$25,055. The note and
accrued interest of $16,229 have been classified as contra-equity on the Company's
condensed
consolidated balance sheet as of September 30, 2006.
In
consideration for the loan, All American has granted the Company an option,
("the Option") exercisable in the Company's sole discretion, to acquire 80%
of
the CCIG stock All American acquired from CCIG pursuant to a Share Exchange
Agreement. In addition, in the event that the Company exercises the Option,
80%
of the outstanding principal amount of the All American note will be cancelled
and shall be deemed fully paid and satisfied. The remaining principal balance
of
the All American note and all outstanding and accrued interest on the loan
shall
be due and payable one year from the exercise of the Option. The Option must
be
exercised in whole and not in part and the Option expires on July 5, 2008.
In
the event the Company does not exercise the Option, the All American note
shall
be due in two years, on July 6, 2008, unless the Company has issued a
declaration of intent not to exercise the Option, in which case the All American
note shall be due one year from such declaration. The Company has determined,
that given the lack of liquidity in the shares of CCIG and the lack of
information in regard to the financial condition of CCIG, that this option
has
no value and has not been recorded by the Company.
On
August
14, 2006, the Company loaned
All American
$600,000. On August 30,
2006, All American repaid
the $600,000 plus interest in the amount of $2,684.
Note
Payable
Related Party
On
February 22, 2005, the Company
borrowed $500,000 from Able
Income Fund, LLC
("Able
Income"), which is
partially-owned by the Company's former CEO, Timothy Harrington. The loan
from
Able Income bore interest at the rate of 14% per annum payable interest only
in
the amount of $5,833 per month with the principal balance
and any accrued
unpaid interest due and payable on May 22, 2005.
The Note was secured by a mortgage on
property located in Warrensburg Industrial Park, Warrensburg, New York, owned
by
Able Energy New York, Inc. Able Income agreed to surrender
the note on October 14, 2005 representing
this loan in exchange for
57,604 shares of Able common stock (based on a conversion price equal to
80% of
the average closing price of our common stock during the period October 3, 2005 to
October
14, 2005). Interest
expense related
to the note payable paid to Able Income during the three months ended
September 30, 2005
was
$17,500.
Change
in
Officers Status
On
September 28, 2006, Gregory Frost, gave notice to the Board of Directors
that he was taking an indefinite leave of absence as Chief Executive Officer
of
the Company and resigned as Chairman of the Board. Mr. Christopher P.
Westad, the acting Chief Financial Officer of the Company, was designated
by the
Board to serve as acting Chief Executive Officer. In connection with Mr.
Westad's service as acting Chief Executive Officer, Mr. Westad stepped down,
temporarily, as acting Chief Financial Officer. The Board designated Jeffrey
S.
Feld, the Company's Controller, as the acting Chief Financial Officer. Mr.
Feld
has been with the Company since September 1999. Mr. Frost resumed his duties
as
Chief Executive Officer effective May 24, 2007. The Company had
further management changes on September 24, 2007 (See Note 20).
Note
19 - Product Information
The
Company sells several types of
products and provides services. The following are revenues by product groups
and
services for the three months ended September 30, 2005
and
2006.
|
|
Three
Months
Ended
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
#
2 heating
oil
|
|
$ |
6,107,271 |
|
|
$ |
5,810,897 |
|
|
|
|
|
|
|
|
|
|
Gasoline,
diesel
fuel,
|
|
|
|
|
|
|
|
|
kerosene,
propane and
lubricants
|
|
|
6,111,720 |
|
|
|
6,606,451 |
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
|
|
|
|
|
|
sales,
services and
installation
|
|
|
616,562 |
|
|
|
715,717 |
|
Net
Sales
|
|
$ |
12,835,553 |
|
|
$ |
13,133,065 |
|
Note
20 - Subsequent
Events
Voluntary
NASDAQ
Delisting
On
October
4, 2006, the Company announced
its intention to
voluntarily delist the Company's common stock from the NASDAQ Capital Market,
effective as of the start of trading on October 13, 2006.
The Company's common stock is
currently quoted on the
Pink Sheets. The management of the Company has indicated that the Company
will
apply for listing on the OTC Bulletin Board as soon as practicable following
its
being in filing compliance as to all
outstanding SEC
reports.
Purchase
of
Horsham Franchise
On
December
13, 2006, the Company purchased
the assets of
its Horsham franchise from Able Oil Montgomery, Inc., a non-related party,
for
$764,175. Able Oil Montgomery is a full service retail fuel oil and service
company located
in Horsham,
Pennsylvania,
which until said acquisition, was a
franchise operation of the Company.
The
purchase price of the Horsham franchise
was
allocated as shown below. This
purchase price allocation has not been finalized and represents management's
best estimate.
Description
|
|
Amount
|
|
|
|
|
|
|
HVAC
parts and
tools
|
|
$ |
28,000 |
|
Furniture
and
fixtures
|
|
|
5,000 |
|
Vehicles
|
|
|
|
34,000 |
|
Customer
list - fuel
distribution
|
|
|
500,000 |
|
Customer
list - HVAC
business
|
|
|
197,175 |
|
|
|
|
|
|
|
Total
|
|
|
$ |
764,175 |
|
|
|
|
|
|
|
The
purchase price was paid as
follows:
|
|
|
|
|
|
|
|
|
|
|
Down
payment
|
|
$ |
128,000 |
|
Note
to
seller
|
|
|
345,615 |
|
Note
payable to
seller
|
|
|
269,480 |
|
Accounts
receiveable from
seller
|
|
|
21,080 |
|
|
|
|
|
|
|
Total
|
|
|
$ |
764,175 |
|
Subsequent
events continued
The
Customer lists are included in the intangible assets on the condensed
consolidated balance sheet as of December 31, 2006 and will be amortized
over a
15 year period.
The
purchase agreement called
for a down payment by
the
Company of $128,000, a 5 year, 7.0% per annum note in favor of the seller
in the
amount of $345,615 and the offset of money owed by the seller to the buyer
of
$290,560. Separately, the sellers paid to the Company $237,539 of
monies
collected in advance by Able Oil
Montgomery.
In
addition, Able entered into a
consulting agreement with Drew Schmidt, the owner of Able Oil Montgomery
Inc.,
to assist Able with the transition and on going development of the Horsham
business. The term of the
consulting agreement was from December 13, 2006 to
April
14, 2007 at a rate of $6,000
per
month.
The
following unaudited proforma income
statement represents consolidated results of operations of the Company had
the
acquisition of All American Plazas and Able Oil Montgomery
Inc. occurred
at the beginning of the earliest period presented:
|
|
Three
months
ended
|
|
|
Three
months
ended
|
|
|
|
September
30,
2006
|
|
|
September
30,
2005
|
|
Net
Revenue
|
|
$ |
67,619,435 |
|
|
$ |
55,690,120 |
|
Net
loss
|
|
$ |
(5,209,791 |
)
|
|
$ |
(3,895,262 |
)
|
Basic
and Diluted Earnings (loss)
per Share
|
|
|
(0.35 |
)
|
|
|
(0.28 |
)
|
The
above proforma information does not
purport to be indicative of what would have occurred had the acquisitions
been
made as of such date or the
results which may occur in the future.
Capital
Leases
On
September
8, 2006, the Company entered
into a five year
capital lease for five new oil delivery trucks for an aggregate purchase
price
of approximately $506,000. One truck was delivered and placed into service
in December
2006, two in January 2007 and two in February 2007.
Fuel
Supply
Contract
In
December 2006, the Company entered
into a Fuel Purchase agreement with All American. Under the agreement the
Company pre-paid $350,000 to All American in exchange
for fuel purchased
pursuant to this agreement to be provided by All American at a $.05 per gallon
discount from the Newark,
New
Jersey Daily spot market price.
A pre-paid balance
of $11,058 remains
under this agreement as of
November 30,
2007.
Change
of
Officers
On
September 24, 2007, the Company’s Board of Directors appointed (i) Richard A.
Mitstifer, the former President of All American as President of the
Company; (ii) William Roger Roberts, the former Chief Operating Officer of
All
American, as the Company’s Chief Operating Officer; (iii) Daniel L. Johnston,
the former Controller of All American, as Chief Financial Officer of the
Company; and (iv) Louis Aponte, the President of All American Industries,
Inc.
and all American Realty and Construction Corp., which are affiliates
of All American specializing in real estate development and
construction, as the Company’s Vice-President of Special Projects. The Board
also promoted Frank Nocito, the Company’s Vice-President of Business
Development, to Executive Vice President and expanded his duties to include
heading the Company’s expansion into alternative and clean energy fuels and
products. Mr. Nocito is the controlling person of the Cheldnick Family Trust,
the largest shareholder of the Company. Messrs. Mitstifer, Roberts and Aponte
were officers of All American in June 2005 when the Company entered into
an
asset purchase agreement with All American, pursuant to which the Company
agreed
to acquire substantially all of All American’s assets and assume all liabilities
of All American other than mortgage debt liabilities. They were also officers
of
All American at the time the transaction closed in May 2007. Effective September
24, 2007, Christopher P. Westad stepped down as President of the Company
and
Jeffrey Feld stepped down as Acting Chief Financial Officer of the Company.
The
Board subsequently appointed Mr. Westad as the President of the Company’s home
heating oil subsidiaries, namely Able Oil, Inc., Able Energy New York, Inc.
and
Able Oil Melbourne, Inc.
Credit
Card
Receivable Financing
On
March
20, 2007, the Company entered
into a credit card
receivable advance agreement with Credit Cash, LLC ("Credit Cash") whereby
Credit Cash agreed to loan the Company $1.2 million. The loan is secured by the Company's
existing and
future credit card collections. Terms of the loan call for a repayment of
$1,284,000, which includes the one-time finance charge of $84,000, which
is
payable over a seven-month period. This finance charge payment will
be accomplished through Credit Cash
withholding 18% of credit card collections of Able Oil Company and 10% of
credit
card collections of PriceEnergy.com, Inc. over the seven-month period beginning
March 21, 2007.
There are certain provisions in the
agreement
which allows Credit Cash to
increase the withholding, if the amount withheld by Credit Cash over the
seven-month period is not sufficient to satisfy the required repayment of
$1,284,000.
Subsequent
events
continued
On
July
18, 2007, August 3, 2007, November 9, 2007, December 28, 2007 and January
18,
2008, the Company, in accordance with its agreement with Credit Cash, refinanced
the loan in the amounts of $250,000, $300,000, $1,100,000, $250,000 and
$500,000 respectively. The outstanding Credit Cash loan as of the date of
January 18, 2008 was $997,315.
Prior
to
the business combination between the Company and All American, (now known
as All
American Properties, Inc.). All American entered into a loan agreement
with Credit Cash, which was an advance against credit card receivables at
the
truck stop plazas then operated by All American. As a result of the
business combination this obligation was assumed by the Company’s wholly-owned
subsidiary, All American Plazas, Inc. (“Plazas”) as it became the operator of
the truck stop plazas. Credit Cash, while acknowledging the business
combination, has continued to obligate both Properties and Plazas in their
loan
documents as obligors of the loan. Accordingly, on July 16, 2007, Credit
Cash
agreed to extend further credit of $400,000 secured by the credit card
receivables at the truck stops operated by All American.
This
July
16, 2007 extension of credit agreement was in addition to and supplemented
all
previous agreements with Credit Cash. Terms of the original loan and extensions
called for repayment of $1,010,933 plus accrued interest which will be repaid
through Credit Cash withholding 15% of credit card collections from the
operations of the truck stop plazas until the loan balance is paid in full.
The
interest rate is prime plus 3.75% (12% at September 30, 2006). There are
certain
provisions in the agreement, which allows the Lender to increase the
withholding, if the amount it is withholding is not sufficient to satisfy
the
loan in a timely manner. The outstanding balance of the loan as of October
31,
2007 was $321,433 plus accrued interest. However, on November 2, 2007, and
again
on January 18, 2008, Credit Cash again agreed to extend an additional credit
in
the amount of $1,100,000 and $600,000 respectively. Terms of the agreement
are
the same as the prior July 16, 2007 financing. The Credit Cash loan
balance as of January 18, 2008 was $1,376,804.
Accounts
Receivable
Financing
On
January 8, 2007, All American entered into an Account Purchase Agreement
with
Crown Financial (“Crown”) whereby Crown advanced $1,275,000 to All American in
exchange for certain existing accounts receivables and taking ownership of
new
accounts originated by All American.
Repayment
of the loan is to be made from the direct payments to Crown from the accounts
it
purchased from All American and a fee equal to 2.5% of the outstanding advance
for the preceding period payable on the 15th
and
30th
day of each month.
The
Crown
loan is secured by the mortgages on the real property and improvements thereon
owned by All American known as the Strattanville and Frystown Gables truck
stop
plazas and a personal guarantee by Frank Nocito.
Subsequent
to the May 2007 closing of the business combination between the Company and
All
American, on July 1, 2007 the Account Purchase Agreement between All American
and Crown Financial has been amended and modified from “Eligible Accounts having
a 60 day aging” to a “90 day aging that are not reasonably deemed to be doubtful
for collections” and the fee of 2.5% payable on the 15th
and
30th day
of each month has been modified to 1.375%. The Company has assumed this
obligation based on the business combination; however, All American has agreed
to continue to secure this financing with the aforementioned real estate
mortgages.
Related
Party Transactions
On
December 10, 2007, All American Properties Inc, concluded a refinancing allowing
them to repay approximately $910,000
on their
note to the Company (see Note 18 on related party
note)
Purchase
Commitments
The
Company is obligated to
purchase #2 heating oil
under various contracts with its suppliers. Subsequent to
September 30,
2006, the Company entered
into additional contracts in the amount of approximately $3,299,000, through
May
2008.
Fuel
Financing
On
October 17, 2007, the Company entered into a loan agreement with S&S NY
Holdings, Inc. for $500,000 to purchase #2 heating fuel. The term of the
agreement is for 90 days with an option to refinance at the end of the 90
day
period for an additional 90 days. The repayment of the principal amount will
be
$.10 cents per gallon of fuel sold to the Company’s customers excluding
pre-purchase gallons. An additional $.075 per gallon will be paid as interest.
The agreement also provides that in each 30 day period the interest amount
can
be no less than $37,500.00. As of January 17, 2008 the Company had repaid
approximately $100,000 and exercised its right to refinance the amount until
March 31, 2008. The company is still negotiating the final terms of
this refinancing.
Subsequent
events
continued
On
December 20, 2007, the Company entered in to a second loan agreement with
S&S NY Holdings, Inc for $500,000 to purchase #2 heating
fuel. The term of the agreement is thru March 31,
2008. The repayment of principle is not due until the maturity
date. An additional $.075 per gallon will be paid as interest. The
agreement also provides that in each 30 day period the interest amount can
be no
less than $37,500.00.
On
October 5, 2007, All American reclassified all outstanding trade payables
with
Transmontagine, a supplier of fuel to a note payable in the amount of
approximately $15,000,000. Interest at the rate of 8% is being
accrued on all past due amounts as of October 5, 2007. In addition,
an amount of $1,550,000.00 was added to the note to begin a prepaid purchase
program whereby All American will prepay for its fuel prior to delivery.
Repayment of this note is to commence on or about March 15, 2008 with a 25
year
amortization schedule with a maturity of November 15, 2009. If a threshold
payment is made on or before March 15, 2008 and before August 15, 2008 (after
initial 25 year amortization begins) in the amount of $3,000,000 then
a new 25 year amortization schedule will commence effective July 31, 2009
and
mature on March 31, 2011. Collateral on this note are certain
properties owned by All American.
Litigation
On
June
26, 2007, the Company and its affiliate, All American (together with the
Company
the “Claimants”), filed a Demand for Arbitration and Statement of Claim in the
Denver, Colorado office of the American Arbitration Association against Manns
Haggerskjold of North America, Ltd. (“Manns”), Scott Smith and Shannon Coe
(collectively the “Respondents”), Arbitration Case No. 77 148 Y 00236 07 MAV.
The Statement of Claim filed seeks to recover fees of $1.2 million paid to
Manns
to obtain financing for the Company and All American. The Claimants commenced
the Arbitration proceeding based upon the Respondents breach of the September
14, 2006 Commitment letter from Manns to All American that required Manns
to
loan All American $150 million. The Statement of Claim sets forth claims
for
breach of contract, fraud and misrepresentation and lender liability. On
July
23, 2007, Respondents filed their answer to the Statement of Claim substantially
denying the allegations asserted therein and interposing counterclaims setting
forth claims against the Company for breach of the Non-Circumvention Clause,
breach of the Exclusivity Clause and unpaid expenses. Respondents also assert
counterclaims for fraudulent misrepresentation and unjust enrichment. On
Respondents’ counterclaim for breach of the Non-Circumvention Clause,
Respondents claim damages of $6,402,500. On their counterclaim for breach
of the
Exclusivity Clause, Respondents claim damages of $3,693,750, plus an unspecified
amount related to fees on loans exceeding $2,000,000 closed by All American
or
the Company over the next five years. Respondents do not specify damages
relative to their other counterclaims.
On
August
7, 2007, the Claimants filed their reply to counterclaims denying all of
Respondents material allegations therein. Respondents’ counterclaims were based
on the false statement that the Claimants had, in fact, received the financing
agreed to be provided by Manns from a third party.
The
parties have selected an Arbitrator and are presently engaged in discovery
exchanging documents, which will be followed by the taking of a limited number
of depositions. The hearing of the parties’ claims is scheduled to commence
before the Arbitrator on April 7, 2008.
On
October 10, 2007, the Company entered into a Stipulation settling the action
it
had commenced against Mark Roy Anderson, Camden Holdings, Inc., Summit Oil
and
Gas, Inc., Summit Ventures, Inc., Harvest Worldwide, LLC and Harvest Worldwide,
Inc. in the Superior Court of California for the County of Los Angeles, Case
No.
BC363149, as well as the counterclaims asserted therein by Summit Ventures,
Inc.
and Mark Anderson against the Company and certain of its present and former
directors and officers, Gregory Frost, Tim Harrington, Christopher Westad,
Timothy Harrington and Frank Nocito. The Stipulation provides that in
consideration of the parties discontinuing with prejudice all their claims
against each other, Summit Ventures, Inc. will return its stock certificate
evidencing its ownership of 142,857 shares of the Company’s common stock and
upon such return it will be issued a new certificate for such shares free
of any
restrictive legend. Upon execution of the Stipulation of Settlement the parties
exchanged general releases of all claims they had or may have had against
each
other to the date of the releases.
On
October 1, 2007, the Company and its Chief Executive Officer (“CEO”) filed an
action in New York state court against Marcum & Kliegman, LLP (the Company’s
former auditors) and several of its partners for numerous claims, including
breach of contract, gross negligence and defamation. The Company and
its CEO are seeking compensatory damages in the amount of at least $1 million
and punitive damages of at least $20 million. The claims asserted by the
Company
and its CEO arise out of Marcum & Kliegman’s conduct with respect to the
preparation and filing of the Company’s SEC reports. On November 26,
2007, Marcum & Kliegman and its partners filed a motion to dismiss the
complaint on the ground that it fails to state a claim for relief as a matter
of
law. As of the date of this report, the court has not ruled on this
motion to dismiss.
Subsequent
events continued
Consulting
Agreement
On
August
27, 2007 the Company entered into a service agreement with Axis Consulting
Services LLC. The agreement calls for Axis Consulting to develop a marketing
plan (phase 1) and manage (phase 2) “The Energy Store” (an e-commerce retail
sales portal for energy products and services). During phase 1 the terms
are
$2,750 per month and once phase 2 commences an amount of $5,600 per month.
This
agreement ends on December 31, 2008. Axis Consulting’s President (Joe
Nocito) has a direct relationship as the son of the Company’s Executive Vice
President Frank Nocito.
SEC
Formal
Order of
Private Investigation
On
August
31, 2007, the Company was served with a second subpoena duces tecum (the
“Second
Subpoena”) from the Securities and Exchange Commission (“SEC”) pursuant to the
Formal Order of Investigation issued by the SEC on September 7, 2006 (see
note
17). The Company continues to gather, review and produce documents to the
SEC
and is cooperating fully with the SEC in complying with the Second Subpoena.
As
of November 30, 2007, the Company has produced documents in response to the
Second Subpoena and the Company expects to produce additional documents in
response to the Second Subpoena as soon as practicable. As of the date of
this
report, the Company is not aware of any information that has been discovered
pursuant to the Formal Order of Investigation which would indicate that the
Company or any of its officers and directors was guilty of any
wrongdoing.
Changes
in
Registrant's Certifying Account
On
August 13, 2007, the Company
dismissed Marcum & Kliegman LLP as its independent registered public
accounting firm. The report of Marcum & Kliegman LLP on
the Company's financial statements
for the fiscal year ended June 30, 2006 (“FY
2006”) was modified as to
uncertainty
regarding (1) the Company’s
ability to continue as a going concern
as a result of, among other factors, a working capital deficiency as
of June 30, 2006 and
possible failure to meet its short
and long-term liquidity needs, and (2) the impact on the Company’s
financial statements as a result of a
pending investigation by the SEC of
possible federal securities law
violations with respect to
the offer, purchase and sale of the
Company’s
securities and the Company’s
disclosures or failures to disclose
material information.
The
Company’s
Audit Committee unanimously
recommended and approved the decision to change independent registered public
accounting
firms
In
connection with the audit of the
Company’s
financial statements for FY 2006, and
through August 13,
2007, there have been no
disagreements with Marcum
& Kliegman LLP
on
any matter of accounting
principles or practices, financial statement disclosure or
auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
Marcum & Kliegman
LLP
would have caused it to make
reference to the
subject matter of such disagreements in connection with its audit report.
There
were no reportable
events
as defined in Item 304(a)(1)(v) of Regulation S-K. On
August 24, 2007, Marcum &
Kliegman LLP sent a responsive letter to the Current Report on Form 8-K dated
August 13,
2007, filed by the Company,
which
discussed the Company’s
termination of Marcum
and Kliegman LLP as
its auditors. This
responsive letter claimed that there were two reportable
events. The
Company filed an amended Form 8-K report acknowledging one
reportable event that Marcum
and Kliegman LLP had
advised the Company of material
weaknesses in
the Company’s internal controls over financial reporting. The Company added
disclosure in the Amended 8-K to reflect this reportable event. This reportable
event occurred in conjunction with Marcum & Kliegman’s audit of the
consolidated financial statements for the year ended June 30, 2006 and not,
as
stated in the Auditor’s Letter, in conjunction with Marcum & Kliegman’s
“subsequent reviews of the Company’s condensed consolidated financial statements
for the quarterly periods ended September 30, 2006 and December 31, 2006.” In
June 2007, when Marcum & Kliegman began its review of the Company quarterly
financial statements for the periods ended September 30, 2006 and December
31,
2006, the Company had already disclosed the material weakness in its internal
controls over financial reporting in the Company’s annual report on Form 10-K
for the year ended June 30, 2006 (filed on April 12, 2007). Further, no such
advice of these material weaknesses over internal controls was discussed,
in
writing or orally, with the Company by representatives of Marcum & Kliegman
during the review of such quarterly financial statements.
The
Company engaged Lazar Levine & Felix LLP (“LLF”) as its new independent
registered public accounting firm as of September 21, 2007. Prior to its
engagement, LLF had been and continues to act as independent auditors for
All
American, an affiliate and the largest stockholder of the Company.
On
Monday, January 7, 2008, the Company, its Chief Executive Officer, Gregory
D.
Frost, and its Vice-President of Business Development, Frank Nocito, were
served
with a summons and complaint in a purported class action complaint filed
in the
United States District Court, District of New Jersey. This action, which
seeks
class certification, was brought by shareholders of CCI Group, Inc. (“CCIG”).
The complaint relates to a Share Exchange Agreement (the “Share Exchange
Agreement”), dated July 7, 2006, between All American Properties (f/k/a All
American Plazas, Inc.) (“All American”) with CCIG, pursuant to which seventy
percent (70%) of the outstanding and issued shares of CCIG were exchanged
into
618,557 shares of the Company which were owned by All American of which 250,378
shares were to be distributed to the shareholders of CCIG and the balance
of the
shares were to be used to pay debts of CCIG. Neither the Company nor
Messrs. Frost or Nocito were parties to the Share Exchange Agreement. All
American remains the largest shareholder of the Company. The Share Exchange
Agreement was previously disclosed by the Company in its Current Report on
Form
8-K filed with the SEC on July 7, 2006 as part of a disclosure of a loan
by the
Company to All American.
Each
of
the Company and Messrs. Frost and Nocito believes it/he has defenses against
the
alleged claims and intends to vigorously defend itself/himself against this
action.
ITEM
2. MANAGEMENT'S DISCUSSION
AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Statements
in this Quarterly Report on
Form 10-Q/A
concerning
the Company's outlook or
future economic performance, anticipated profitability, gross billings, expenses
or other financial items, and statements concerning assumptions made or
exceptions to any future events, conditions, performance or other matters are "forward
looking
statements," as that term is defined under the Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties, and other
factors that would cause actual results to differ materially from those
stated
in such statements. Such risks, and
uncertainties and factors include, but are not limited to: (i) changes in
external competitive market factors or trends in the Company's results of
operation; (ii) unanticipated working capital or other cash requirements
and (iii) changes in the Company's
business strategy or an inability to execute its competitive factors that
may
prevent the Company from competing successfully in the
marketplace.
OVERVIEW
Able
Energy Inc. ("Able") was
incorporated in Delaware
in
1997. Able Oil, a wholly-owned
subsidiary
of Able, was established in 1989 and sells both residential and commercial
heating oil and complete HVAC service to its heating oil customers. Able
Energy
NY, a wholly-owned subsidiary of Able, sells residential and commercial heating
oil, propane, diesel
fuel, and kerosene to customers around the Warrensburg, NY area. Able
Melbourne,
a wholly-owned subsidiary of Able, was
established in 1996 and sells various grades of diesel fuel around the
Cape Canaveral,
Florida area. PriceEnergy.com,
Inc., a majority
owned subsidiary of Able, was established in 1999 and has developed an internet
platform that has extended the Company's ability to sell and deliver liquid
fuels and related energy products.
Management's
Discussion and Analysis of Financial
Condition
and Results of Operation contain forward-looking statements, which are based
upon current expectations and involve a number of risks and uncertainties.
In
order for us to utilize the "safe harbor" provisions of the Private
Securities Litigation Reform Act of
1995, investors are hereby cautioned that these statements may be affected
by
the important factors, among others, set forth below, and consequently, actual
operations and results may differ materially from those expressed
in these forward-looking
statements. The important factors include:
|
§
|
Customers
Converting to Natural
Gas
|
|
§
|
Alternative
Energy
Sources
|
|
§
|
Winter
Temperature Variations
(Degree Days)
|
|
§
|
Customers
Moving Out of The
Area
|
|
§
|
The
Availability (Or Lack
of) Acquisition
Candidates
|
|
§
|
The
Success of Our Risk Management
Activities
|
|
§
|
The
Effects of
Competition
|
|
§
|
Changes
in Environmental
Law
|
|
§
|
General
Economic, Market, or
Business Conditions
|
We
undertake no obligation to update or
revise any such
forward-looking statements.
CRITICAL
ACCOUNTING
POLICIES
We
consider the following policies to be
the most critical in understanding the judgments involved in preparing the
condensed consolidated financial statements and the uncertainties that could
impact our results
of operations, financial condition and cash flows.
REVENUE
RECOGNITION, UNEARNED REVENUE
AND CUSTOMER PRE-PURCHASE
PAYMENTS
Sales
of fuel and heating equipment are
recognized at the time of delivery to the customer, and sales of equipment,
not related to service contracts,
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.
Payments received from customers for the pre-purchase of fuel is recorded
as a
current liability
until the fuel is delivered to
the customer, at which time it is recognized as revenue by the
Company.
DEPRECIATION,
AMORTIZATION AND IMPAIRMENT
OF LONG-LIVED
ASSETS
We
calculate our depreciation and
amortization based on estimated useful lives and salvage values
of our assets. When
assets are put into service, we make estimates with respect to useful lives
that
we believe are reasonable. However, subsequent events could cause us to change
our estimates, thus impacting the future calculation of depreciation
and
amortization.
Additionally,
we assess our long-lived
assets for possible impairment whenever events or changes in circumstances
indicate that the carrying value of the assets may not be recoverable. Such
indicators include changes in our business plans, a change
in the extent or
manner in which a long-lived asset is being used or in its physical condition,
or a current expectation that, more likely than not, a long-lived asset that
will be sold or otherwise disposed of significantly before the
end of its previously estimated
useful life. If the carrying value of an asset exceeds the future undiscounted
cash flows expected from the asset, an impairment charge would be recorded
for
the excess of the carrying value of the asset over its fair value.
Determination as to whether and how
much an asset is impaired would necessarily involve numerous management
estimates. Any impairment reviews and calculations would be based on
assumptions that
are consistent with our business
plans and long-term investment decisions.
ALLOWANCE
FOR DOUBTFUL
ACCOUNTS
We
routinely review our receivable
balances to identify past due amounts and analyze the reasons such amounts
have
not been collected. In many instances, such uncollected amounts involve billing
delays and discrepancies or
disputes as to the appropriate price or volumes of oil delivered, received
or
exchanged. We also attempt to monitor changes in the credit worthiness of
our
customers as a result
of developments related to each
customer, the industry as a whole, and the general
economy. Based on
these analyses, we have established an allowance for doubtful accounts that
we
consider being adequate, however, there is no assurance that actual amounts
will
not vary significantly from estimated amounts.
INCOME
TAXES
As
part of the process of preparing
consolidated financial statements, the Company is required to estimate income
taxes in each of the jurisdictions in which it operates. Significant judgment
is
required in determining the income tax expense provision. The Company recognizes
deferred tax
assets and liabilities based on differences between the financial reporting
and
tax bases of assets and liabilities using the enacted tax rates and laws
that
are expected to be in effect when the differences are expected
to be recovered. The
Company assesses
the likelihood of our deferred
tax assets being recovered from future taxable income. The Company then provides
a valuation allowance for deferred tax assets when the Company does not consider
realization of such assets
to be more likely than not. The Company considers future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the valuation
allowance. Any decrease in the valuation allowance could have a material
impact
on net income in the year
in which such determination is made.
RECENT
ACCOUNTING
PRONOUNCEMENTS
In
June 2005, the Financial Accounting
Standards Board (FASB) published Statement of Financial Accounting Standards
No.
154, “Accounting Changes
and Error Corrections”(“SFAS
154”). SFAS 154 establishes
new standards on
accounting for changes in accounting principles. Pursuant to the new rules,
all
such changes must be accounted for by retrospective application to the financial
statements of prior periods unless it is impracticable
to do so. SFAS 154 completely
replaces Accounting Principles Bulletin No. 20 and SFAS 3, though it carries
forward the guidance in those pronouncements with respect to accounting for
changes in estimates, changes in the reporting entity, and the correction
of errors. The requirements in
SFAS 154 are effective for accounting changes made in fiscal years beginning
after December 15,
2005. The Company will
apply these requirements to any accounting changes after the implementation
date. The application
of this pronouncement did not have an
impact on the Company's condensed consolidated financial position, results
of
operations, or cash flows.
EITF
Issue No. 05-4 “The Effect of a Liquidated
Damages
Clause on a Freestanding Financial Instrument Subject to EITF Issue No.
00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a
Company's Own Stock” (“EITF
No. 05-4”) addresses financial
instruments, such
as stock purchase warrants, which are accounted for under
EITF 00-19 that may be issued at the
same time and in contemplation of a registration rights agreement that includes
a liquidated damages clause. The consensus of EITF No. 05-4 has not been
finalized. In July and August 2006, the Company entered into two
private placement agreements for
convertible debentures and note payable, a registration rights agreement
and
issued warrants in connection with the private placement (See Note 15). Based
on
the interpretive guidance in EITF Issue No. 05-4, view C, since
the registration rights agreement
includes provisions for uncapped liquidated damages, the Company determined
that
the registration rights is a derivative liability (See Note 15). The
Company has measured
this liability in accordance with SFAS No. 5.
In
February
2006, the FASB issued SFAS No.
155 - "Accounting for Certain Hybrid Financial Instruments", which eliminates
the exemption from applying SFAS 133 to interests in securitized financial
assets so that similar instruments are accounted for similarly regardless
of the form of the instruments.
SFAS 155 also allows the election of fair value measurement at acquisition,
at
issuance, or when
a previously recognized financial
instrument is subject to a remeasurement event. Adoption is effective for
all
financial instruments
acquired or issued after the beginning of the first fiscal year that begins
after September 15,
2006. Early adoption is
permitted. The adoption of SFAS 155 is not expected to have a material effect
on
the Company's consolidated financial position,
results of operations or cash
flows.
In
March 2006 the FASB issued SFAS No.
156, “Accounting for
Servicing of Financial Assets”, which amended SFAS
No. 140,
“Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities”,
with respect to the accounting for
separately recognized servicing assets and servicing
liabilities. SFAS 156 permits an entity to choose either the
amortization method or the fair value measurement method for each class of
separately recognized servicing
assets or servicing
liabilities. The application of this statement is not expected to
have an impact on the Company’s
consolidated financial
statements.
In
July 2006, the FASB issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation
of FASB
Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty
in
tax positions. This interpretation requires that the Company recognize in
its
consolidated financial statements, the impact of a tax position,
if that position is more likely
than not of being sustained on audit, based on the technical merits of the
position. The provisions of FIN 48 are effective as of July 1, 2007,
with the cumulative effect of the
change in accounting principle recorded as
an adjustment to opening retained
earnings. The Company is currently evaluating the impact of adopting FIN
48 on
its consolidated financial statements.
In
September 2006, the FASB issued SFAS
No.157, "Fair Value Measurements", which defines fair value, establishes a framework
for measuring
fair value in United States
generally
accepted
accounting principles, and expands disclosures about fair value measurements.
Adoption is required for fiscal years beginning after November 15, 2007,
and interim periods within
those fiscal years. Early
adoption of SFAS 157 is encouraged. The Company is currently evaluating the
impact of SFAS 157 and the Company will adopt SFAS 157 in the fiscal year
beginning July 1,
2008.
In
September 2006, the staff of the
Securities and Exchange
Commission (“SEC”)
issued Staff Accounting Bulletin
("SAB")
No. 108, which provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year
misstatement.
SAB108
becomes effective in fiscal 2007.
Adoption of SAB108
did not have a material impact on
the Company's condensed consolidated financial position, results of operations
or cash flows.
In
September 2006, the FASB issued SFAS
no. 158, “Employers
Accounting for Defined
Pension and Other Postretirement Plans-an amendment of FASB No.’s
87, 88, 106 and 132(R).” SFAS 158 requires an
employer and sponsors of one or more single employer defined plans to recognize
the funded status of a benefit plan; recognize
as a component of other
comprehensive income, net of tax, the gain or losses and prior service costs
or
credits that may arise during the period; measure defined benefit plan assets
and obligations as of the employer’s
fiscal year; and, enhance
footnote
disclosure. For fiscal
years ending after December 15, 2006, employers with equity securities that
trade on a public market are required to initially recognize the funded status
of a defined benefit postretirement plan and to provide the enhanced
footnote
disclosures. For fiscal
years ending after December 15, 2008, employers are required to measure plan
assets and benefit obligations. Management of the Company is
currently evaluating the impact of adopting this pronouncement on the
consolidated financial
statements.
In
December 2006, the FASB issued FASB
Staff Position ("FSP") EITF 00-19-2 "Accounting for Registration Payment
Arrangements" ("FSP EITF 00-19-2") which specifies that the contingent
obligation to make future payments or otherwise transfer consideration under
a registration
payment arrangement should be separately recognized and measured in accordance
with SFAS No. 5, "Accounting for Contingencies." Adoption of FSP EITF 00-19-02
is required for fiscal years beginning after December 15, 2006,
and is not expected to have a material
impact on the Company's condensed consolidated financial position, results
of
operations or cash flows.
In
February 2007, the FASB issued SFAS
No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities -
Including an
amendment of FASB Statement No. 115", which permits entities to choose to
measure many financial instruments and certain other items at fair value.
The
fair value option established by this Statement permits all entities to
choose to measure eligible
items at fair value at specified election dates. A business entity shall
report
unrealized gains and losses on items for which the fair value option has
been
elected in earnings at each subsequent reporting date. Adoption is
required
for fiscal years beginning after
November 15,
2007. Early adoption is
permitted as of the beginning of a fiscal year that begins on or before
November 15,
2007, provided the entity
also elects to apply the provisions of SFAS Statement No. 157, Fair Value
Measurements. The Company is
currently evaluating the expected effect of SFAS 159 on its condensed
consolidated financial statements and is currently not yet in a position
to
determine such effects.
In
December 2007, the FASB issued SFAS
no. 160. “Noncontrolling
Interests in Consolidated
Financial Statements –
and
amendment of ARB no.
51.” SFAS 160
establishes accounting and reporting standards pertaining to ownership interests
in subsidiaries held by parties other than the parent, the amount of
net income
attributable to the parent and to
the noncontrolling interest, changes in a parent’s
ownership interest, and the valuation
of any retained noncontrolling equity investment when a subsidiary is
deconsolidated. This statement also establishes disclosure
requirements that clearly identify
and distinguish between the interests of the parent and the interests of
the
noncontrolling owners. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company is in the
process of evaluating
the effect that the adoption of
SFAS 160 will have on it’s
consolidated results of operations,
financial position and cash flows.
In
December 2007, the FASB issued No.
141 (revised 2007), “Business Combinations” (SFAS
141R). SFAS 141R
establishes principles and
requirements for how an acquirer recognizes and measures in it’s
financial statements the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in
the
acquiree and the goodwill acquired. SFAS 141R also
establishes
disclosure requirements to enable
the evaluation of the nature and financial effects of the business
combination. SFAS 141R is effective for financial statements issued
for fiscal years beginning after December 15, 2008. The Company is
currently evaluating
the potential impact of adoption
of SFAS 141R on it’s
consolidated financial
statements.
RESULTS
OF
OPERATIONS
Three
Months Ended September 30, 2006
Compared
To Three Months Ended
September 30,
2005
Revenue
for the three months ended
September 30,
2006 decreased approximately
$300,000 or 2.3%
compared to the three months ended September 30, 2005.
This decrease can be attributed
primarily to the reduction in on road diesel fuel sales.
Gross
profit margin for the three months
ended September 30,
2006 increased
by $70,000 from the three
months ended September 30,
2005. The increase in gross
profit margin was primarily the result of an increase in gross margins on
#2
heating oil of approximately $120,000 or 2% partially offset by a loss on
future contracts
for #2 Heating Fuel of
approximately $68,000.
Selling,
general and administrative
expenses for the three months ended September 30, 2006 increased by
approximately $409,000 or
21.8% compared to the three
months ended September 30, 2005. The Company attributes this primarily
to an
increase in professional fees of approximately $326,000 related to audit
and
legal expenses.
Depreciation
and amortization expense
for the three months ended September 30, 2006
decreased
by approximately $101,000
or 37%
compared
to the three months ended
September 30,
2005. This decrease was
primarily related to the reduction of $100,000 in website development
amortization for the Price Energy platform.
Operating
loss for the three months
ended September 30, 2006
was approximately
$1.3 million compared to
approximately $1.0 million for the three months ended September 30, 2005.
The net increase in the operating loss
for the current period was directly related to increased selling, general
and
administrative expenses offset
by a decrease in depreciation and
amortization.
Other
income
(expense) increased to
a net expense of approximately
$915,359 in
the three months ended September 30,
2006 from approximately $436,000 in the three months ended September 30,
2005.
The increase in
other expense net is primarily related
to an increase
in amortization of deferred
financing costs of $540,000, and decrease in net interest income
of approximately
$125,000.
Net
loss for the three months ended
September 30, 2006 was approximately $2.2
million
compared to approximately $1.5
million for the three months ended September 30, 2005. These results are
directly related to an increase in selling, general and administrative
expenses and
an increase in amortization expense
and decrease in
other
income.
LIQUIDITY
AND
CAPITAL
RESOURCES
During
the three months ended September
30, 2006, we incurred a net loss of approximately $2.2 million
but had cash provided by
operating activities of approximately $0.8 million. Our principal
sources of working capital
have been the proceeds from public and private placements of securities,
primarily consisting of convertible debentures and notes payable. During
the
three months ended September 30, 2006,
the Company has secured financings of
approximately $3 million
from the proceeds of convertible debentures and note payable and approximately
$55,000 in proceeds from option exercises. Other than for the
day to day
operations of the Company,
approximately $2 million
was expended for repayment
of loans, purchase of investments
and hedging
transactions during the three months ended September 30,
2006.
We
had a working capital deficiency of
approximately $1.3 million at September 30, 2006
compared
to a working capital deficiency
of approximately $400,000
at June 30,
2006