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 pres
ented 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 r
e
cording
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, i
n
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 a
d
ditional
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 req
u
ired
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 subse
quent 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
J
u
ne
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 cancell
e
d
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 su
bsequently 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 per
iod 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
t
he
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
Septe
mber
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 discus
sed
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
consis
ted 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 b
e
gan
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 3
0
,
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
Sep
t
ember
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 tr
ucks 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
f
rom
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 p
eriod 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
m
aturities
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
Se
p
tember
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 $88
1,173
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 fa
ir 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
consolidate
d
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 Not
e 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 fi
nancing 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
Convertibl
e 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 bene
f
icial
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 interes
t 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 ma
nagement 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 ent
ered
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 balan
c
e
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 intere
s
t
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
o
n
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 an
d
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 wi
th 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
f
inancing 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
o
f
$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 Agreemen
t 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 i
ncurred 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 princip
a
l
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'
pur
chase 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 wa
r
rants
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
remaini
n
g
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
a
mortizable
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
unde
r 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 wa
i
ved
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 d
ue 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 convert
i
ble
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 deb
enture.
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 intere
st 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 vo
l
ume
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,
16
6,667 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
conver
t
ible
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 convertibl
e
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 a
g
reement
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 th
e
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 i
ncluding 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 wa
ived 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 o
f
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 o
f 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
l
i
ens
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
A
ccumulated 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 in
formation 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 Comp
any 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
t
o
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
t
hen
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 $4.3
6 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
volat
ility 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 mont
hs 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
envir
onmental 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.
Follow
ing
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 ca
u
se
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 "
A
ll
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
S
eptember
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 satisfact
o
ry
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 plai
ntiff
’
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
corpor
ation,
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
w
ill
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
fue
l
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
o
perational.
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
(estimate
d 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
f
acilities
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 expe
n
ses
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 constr
u
cted,
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
n
o
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 Comp
a
ny
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
b
e
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 rec
eived
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
o
f
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
an
y
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
S
E
C
.
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 enter
ed 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 "S
e
llers")
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 s
t
ockholders
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
closin
g
,
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
i
ssued
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 plaza
s 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
s
urvive
the business combination. The
financial information related to the assets acquired and liabilities assumed
i
s
not
yet available. The shares
of the Company were valued at a price of $3.00 per share
det
ermined
on the date the parties reached
agreemen
t 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
repr
esent
ing
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
financ
ing 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
Deb
e
ntures
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% pay
a
ble
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 a
lso 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 a
t 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
Penn
sylvania
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
Agreem
ent
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
C
o
mpany
(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 conversio
n
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 a
n 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 repu
r
chase
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 stoc
k
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 mad
e
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
be
en 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
w
h
ich
had
a maturity date of
January
15
, 2008
,
whi
ch 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 Am
erican,
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 f
or 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 dilige
nce fee.
The
a
mount
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
t
o
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 Compan
y
.
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
Septembe
r
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 arbitrati
on
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-equit
y
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
s
urrender
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, 200
5
). 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 Info
rmation
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 quot
ed 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
p
racticable
following
i
t
s
being in filing compliance as to all
outstanding
SEC
reports.
Purchase
of
Horsham Fr
anchise
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
,
Penn
sy
lvania
,
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
mon
i
es
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 o
f 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 Plaza
s 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
3
0,
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 wi
l
l
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
agre
e
ment
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 15
th
and
30
th
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 15
th
and
30
th
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 T
ransactions
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
purchas
e #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
a
s
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 state
ment 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
ter
mination 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
st
a
ted
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 require
m
ents
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
1
997. 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
Discussio
n 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 Pr
i
vate
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 e
x
pressed
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
rev
ise 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 unce
rtainties 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 servic
e 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
l
iability
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
d
epreciation
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 b
usiness 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 v
a
lue.
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 inve
stment 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 an
d 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 provisi
on. 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 exp
e
cted
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”
(“
S
FAS
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 impr
a
cticable
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
c
orrection
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 applicati
o
n
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 u
n
der
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
t
wo
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, sin
c
e
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 r
e
gardless
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
financ
ial 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 p
o
sition,
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 Liabili
ties”
,
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 s
e
rvicing
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 Inco
me 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 posi
t
ion,
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
a
s
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 a
nd 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
misstateme
n
t.
SAB
108
becomes effective in fiscal 2007.
Adoption of
SAB
108
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
Ac
counting 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; reco
g
nize
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
footn
o
te
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
foot
n
ote
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 fina
n
cial
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 transfe
r 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, 20
0
6
,
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 Fina
ncial 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
re
q
uired
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
V
alue
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. “
No
ncontrolling
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 disclo
s
ure
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 e
v
aluating
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
establi
s
hes
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 ev
a
luating
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 3
0,
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,
2
006
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 c
o
ntracts
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 Compan
y 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 ap
proximately
$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 off
s
et
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
oth
er
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
sou
rces 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 lo
ans, 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
. The working capital
decrease of approximately $900,000 was primarily due to an increase in customer
pre purchase payment liability of $2.6 million and an accounts payable increase
of $400,000 offset by an increase in cash of $1.8 mi
l
lion.
As
of
November
30,
2007, the Company had a cash balance
of approximately
$
1.2
million and
has
approximately
$
1.5
million
of obligations for funds
received in advance under the pre-purchase fuel program. At
November 30
,
2007
, the Company had availabl
e
borrowings through its credit line
facility of approximately
$
270,000
. In
order to meet our
liquidity requirements, the Company is negotiating a second mortgage on our
oil
terminal located on Route 46 in Rockaway,
New Jersey
,
through which the Company
b
elieves it may borrow
an
additional funds.
On
May 30, 2007, the Company completed
its previously announced business combination between All American
and the Company whereby
the Company in
exchange for an aggregate of 11,666,6
67 shares of the Company
’
s
restricted common stock 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 est
a
te
and the buildings thereon. The
Company anticipates that the business combination will result in greater
net
revenue and reduce overall operational expenses by consolidating positions
and
overlapping expenses. The Company also expects that the
combina
t
ion
will result in the expansion of the
Company
’
s
home heating business by utilizing
certain of the truck plazas as additional distribution points for the sale
of
the Company
’
s
products. Additionally, the Company
expects that the business combination will
lessen
the impact on seasonality on the
Company
’
s
cash flow since the combined Company
will generate year-around revenues. The Company also plans to utilize certain
of
the truck plazas for the construction of bio-diesel producing facilities
and the
distri
b
ution
of those fuels which should
further increase the Company
’
s
revenues.
In
order to conserve its capital
resources as well as to provide an incentive for the Company
’
s
employees and other service vendors,
the Company will continue to issue, from ti
me to time, common
stock and stock
options to compensate employees and non-employees for services
rendered. The Company is also focusing on its home heating-oil business by
expanding distribution programs and developing new customer relationships
to
incre
a
se
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 all of
its product lines on a combined basis for cost reductions, consolidation
of
facilities and efficiency improvements.
On
July 5, 2006, the Company closed a
Securities Purchase Agreement entered into on June 30, 2006 wh
ereby it sold a $1,000,000
convertible
term note to Laurus Master Fund, Ltd. ("Laurus"). The Company paid fees of
$49,000 to Laurus and received net proceeds of $951,000, of which $905,000
was
advanced in the form of a note to All American. The Company in
c
urred
escrow fees of $1,500 which in the
aggregate will be capitalized as deferred financing costs and amortized on
a
straight-line basis over the three year term of the convertible term note.
The
Company will pay interest on the note monthly in arrears
c
ommencing
on
August 1, 2006
at
a rate equal to the prime rate
published in the Wall Street Journal plus two percent (2.0%), 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 th
e
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 gra
n
ted
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.
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 June 30, 2007, the Company is
not able to file a registration statement and Laurus has not yet waived its
rights under this agreement. 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's obligations to Laurus
under the Securities Purchase Agreement, the convertible term note and other
related agreements are guaranteed by the following subsidiaries of the Company:
Able O
il Co.; Able Propane
Co, LLC; Able Energy New York, Inc.; Able Oil Melbourne, Inc.; Able Energy
Terminal, Inc.; Priceenergy.com, Inc.; and, Priceenergy.com Franchising,
LLC.
As
discussed above, on
July 5, 2006
,
the Company loaned to All American the
sum o
f $905,000 from the
$1
million the Company received for the sale of the convertible term note to
Laurus. All American subsequently loaned the $905,000 received from Able
to
CCIG, (a 70% owned subsidiary 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”
).
On
January
10, 2007
, the Company received
from Laurus a
notice of a claim of default. Laurus claimed default under section 4.1(a)
of the
conv
ertible 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 BPBL, have been met; and (ii) cause CCIG to provide within
15 days after the end of each calendar month, unaudited/i
n
ternal
financial statements (balance
sheet, statements of income and cash flow) of the Beach House and evidence
that
BPBL and the Beach House are current in all of their ongoing operational
needs.
In connection with the claim of default, Laurus claimed an
acceleration
of maturity of the
principal amount of the note of $1,000,000 and approximately $154,000 default
payment ("Default Payment") as well as accrued interest and fees of
approximately $12,000.
The
aforementioned interest and fees
were paid by the
Company on
January 11, 2007. Further, the Company has attempted to cause CCIG to provide
reports and information to Laurus as provided for in the Securities Purchase
Agreement. On
March 7,
2007
, Laurus notified the
Company that it waived the event of defa
u
lt
and that Laurus had waived the
requirement for the Company to make the default payment
.
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 sh
are, 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
will be charged
to deferred
issuance costs and amortized on a straight-line basis over the two year term
of
the convertible debenture. The debentures bear interest at the greater of
either
LIBOR (5.4% at
September
30, 2006
) plus 6.0%, or
12.5%, per annum, and su
c
h
interest is payable quarterly to the
holder either in cash or in additional convertible
debentures.
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, $6.0
0 and $7.00 per share,
respectively.
At
any time, the holder may convert the
convertible debenture into shares of common stock at a conversion price of
$6.00
per share, or into 333,333 shares of common stock which represents a conversion
at
the face value of
the
convertible debenture. 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. The Company has recorded a debt
dis
c
ount
related to the value of the
beneficial conversion feature of the convertible term note of $778,000 which
is
amortizable on the interest method over the two year term of the debenture.
In
accordance with EITF 98-5, "Accounting for Convertible Securiti
e
s
with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios" ("EITF 98-5") and EITF 00-27,
"Application of Issue NO. 98-5 to Certain Convertible Instruments" ("EITF
00-27"), on a relative fair value basis, the warrants were recorded
at
a value of approximately $1,222,000.
The 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, were valued at approximately $1,333,000 which
was
then limited to $778,000, the
remaining undiscounted value of the proceeds from 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 and
for issuance costs of $140,000, which amounts are amortizable utilizing the
interest method over the two year term of the convertible term
note. The amortization of debt discounts and deferred financing costs
related to the con
v
ertible
debentures for the quarter ended
September 30, 2006
were $100,284 and $9,015,
respectively.
The
Company had agreed to file a
registration statement within forty-five days which was
September 22, 2006
,
covering the resale of the shares of
common st
ock 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 2.0% per month of the outstanding amount of
the
convertible debentures, up to a total obligation of 24.0% of such
obligation.
The Company has not yet
filed a registration statement regarding these securities. Accordingly, through
June 30, 2007
,
the Company has estimated the fair
value of the liquidated damages obligation to be approximately $450,000,
none of
which has been
paid. The
Company is obligated to pay 18.0% interest per annum on any liquidated damages
amount not paid in full within 7 (seven) days. As of
June 30, 2007
,
the Company is not able to file a
registration statement and the holder has not yet waived
i
ts
rights under this agreement. However,
the Company, as of
June 30,
2007
, has not received
a
notice of default regarding these matters. EITF 05-04, The Effect of a
Liquidated Damages Clause on a Freestanding Financial Instrument Subject
to EITF
Issue No.
0
0-19,
"Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's
Own
Stock" ("EITF 05-4"), view (C) allows Able to account for the value of the
warrants as equity and separately record the fair value of the
regist
r
ation
right as a derivative liability.
Accordingly, in determining whether the transaction was recorded properly,
Able
followed view (C) to measure the amount of the registration rights derivative
liability. Unless these liquidated damages are cured, the
i
ncurred
liquidated damages and an
estimate of future amount will be accounted for as a derivative liability
by the
Company.
The
obligations of the Company in this
financing transaction are secured by a first mortgage on certain property
owned
by the Compa
ny 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.
On
September
8, 2006
, the Company entered
into a five year
lease, treated as a cap
ital
lease, for five new oil delivery trucks, that were delivered during December
2006, for an aggregate purchase price of approximately
$506,000.
On
December 13, 2006, the Company
purchased the assets of its Horsham franchise from Able Oil Montgomery,
In
c., a non-related party,
for $764,175. Able Oil Montgomery is a full service retail fuel oil and service
company located in
Horsham
,
Penn
sylvania
.
Pursuant to the agreement, the Company
paid cash at closing of $128,000, issued a 5 year note payable beari
n
g
interest at a rate of 7% per annum in
the amount of $345,615 and forgave an amount of $290,560 due from the seller
to
the Company. Separately, the seller paid to the Company $237,359 for monies
collected in advance by Able Oil Montgomery from its custom
e
rs.
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 c
ard collections.
Terms
of the loan call for a repayment
of $1,284,000, which includes the one-time finance charge of $84,000, over
a
seven-month period. This will be accomplished through Credit Cash withholding
18% of Credit Card collections of Able Oil C
ompany 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 allow Credit Cash to increase the withholding, if the amount
withheld by Credit Ca
s
h
over the seven-month period is not
sufficient to satisfy the required repayment of $1,284,000.
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
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 newly formed,
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 All American 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 Plazas.
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%. 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.
Our
net loss for the quarter ended
September 30, 2006
was
approximately $
2,180,000
,
including non-cash charges totaling
approximately $400,000. The Company has been funding its operations through
an
asset-based line of credit, the issuance of convertible debentures and a
note
payable and th
e proceeds
from the exercise of options and warrants. The Company will need some
combination of the collection of All American notes receivable, new financing,
restructuring of existing financing, improved receivable collections and/or
improved operating
r
esults
in order to maintain adequate
liquidity over the course of the 2008 fiscal year.
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 all of its business segments for
cost
reductions, consolidation of facilities and efficiency improvements. There
can
be no assurance that we will be successful in our efforts
t
o
enhance our liquidity
situation.
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 approximately $1,712,000.
During the three months ended September 30, 2006, the Company incurred a
net
loss of approximately $2.2 million and had a working capital deficiency of
approximately $1.3 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.
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 June 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
Penn
sylvania
and
New
Hampshire
. Pursuant to the Agreement,
these
Debentures are in default, as All American did not complete the merger with
the
Compan
y prior to the
expiration of the 12-month anniversary of the Agreement. Pursuant to the
Additional Investment Right Agreement (the "
AIR
Agreement")
among All American and the
Purchasers, the Purchasers may loan All American up to an additional $5,000,000
o
f
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 assumes the
obligations of All American under the Agreement, the Debentures and the
AIR
Agree
ment
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
C
ompany
(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 conversi
o
n
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
t
o
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
t
o
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
comm
o
n
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.
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
i
nterest 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
July
7, 2006 through
November 17, 2006, the Company advanced an additional $590,000 toward the
Manns
Agreement due dilige
nce fee.
Amounts out standing relating to these advances as of September 30, 2006
were
$540,000 and have been
expensed
on
the Co
mpany's condensed consolidated
income
statement
as of September
30, 2006
, as a result of
not obtaining the financing
.
As
a result of the Company receiving a
Formal Order of Investigation from the
SEC
on
September
22, 2006
, the Company and Manns
agreed
th
at 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
t
h
e
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
”
)
requ
e
sted
by Manns as co-lender to All
American. All American rejected the
UBS
offer
as it was 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
.
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.
On
August
13, 2007
, the Company dismissed
Marcum &
Kliegman LLP (“
M&K”
)
as its independent registered public
accounting firm. The report of M&K on the Company's financial statements for
the fisc
al 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
it
s
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
s
e
curities
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.
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 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.
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
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.
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 15
th
and
30
th
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 15
th
and
30
th
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 aforementioned real estate
mortgages.
On
October 5, 2007, All American reclassified all outstanding trade payables
with
Transmontagine 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 was added to the note to begin a prepaid purchase program whereby
Plazas 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.
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.
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.
The
Company must also bring current each
of its
SEC
filings
as part of a plan to raise
additional capital. In addition to the filing of this Form 10-Q for the quarter
ended
Se
ptember
30, 2006
, the Company must
also complete and
file its Form 10-Q's for the quarters
ended December
31,
2006 and March 31, 2007
and the Company
’
s
Form 10-K for the year ended June 30,
2007 and the subsequent Form 10-Q for the quarter ended September
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 can not be effectively realized, there c
an be no assurance
that the Company will
be able to continue as a going concern.
CONTRACTUAL
OBLIGATIONS
The
following schedule summarizes our
contractual obligations as of
September 30, 2006
in
the periods
indicated:
|
|
|
|
|
|
Less
Than
|
|
|
|
|
|
|
|
|
More
then
|
|
|
Contractual
Obligations
|
|
Total
|
|
|
1
Year
|
|
|
1-3
Years
|
|
|
3-5
years
|
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term
debt
|
|
$
|
7,384,090
|
|
|
$
|
1,338,859
|
|
|
$
|
3,058,007
|
|
|
$
|
149,928
|
|
|
$
|
2,837,296
|
|
|
Capital
lease
obligation
|
|
|
877,787
|
|
|
$
|
304,215
|
|
|
$
|
496,445
|
|
|
|
77,127
|
|
|
|
-
|
|
|
Operating
leases
|
|
|
566,955
|
|
|
|
242,638
|
|
|
$
|
324,317
|
|
|
|
|
|
|
|
|
|
|
Unconditional
purchase
obligations
|
|
|
5,976,780
|
|
|
$
|
5,976,780
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other
long term
obligations
|
|
|
469,275
|
|
|
$
|
469,275
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interest
on LTD and capital
leases
|
|
|
3,733,000
|
|
|
$
|
604,000
|
|
|
|
774,000
|
|
|
|
368,000
|
|
|
|
1,987,000
|
|
|
Unconditional
purchase obligations
post September 30, 2006
|
|
|
3,299,000
|
|
|
$
|
3,299,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual
obligations
|
|
$
|
22,306,887
|
|
|
$
|
12,234,767
|
|
|
$
|
4,652,769
|
|
|
$
|
595,055
|
|
|
$
|
4,824,296
|
|
SEASONA
LITY
Approximately
65% of the Company's
revenues are earned and received from October through March, and the
overwhelming majority of such revenues are derived from the sale of home
heating
oil. During the spring and summer months, revenues from the sale
of diesel and gasoline
fuels increase
due to the increased use of automobiles and construction
apparatus.
Each
of the Company's divisions is
seasonal. From May through September, Able Oil experiences considerable
reduction of retail heating oil sales.
Ab
le
Energy
NY
's
propane operation can experience up
to 80% decrease in heating related propane sales during the months of April
to
September, which is offset somewhat by an increase of pool heating and cooking
fuel.
Over
90% of Able Melbourne's revenues
ar
e derived from the
sale
of diesel fuel for construction vehicles, and commercial and recreational
sea-going vessels during
Florida
's
fishing season, which begins in April
and ends in November. Only a small percentage of Able Melbourne's revenues
are
deriv
e
d
from the sale of home heating fuel.
Most of these sales occur from December through March,
Florida
's
cooler months.