UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
COMMISSION FILE NO. 0-49694
ALFA UTILITY SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 30-0057068
---------------------- ------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
396 CHRISLEA ROAD
WOODBRIDGE, ONTARIO CANADA L4L 8A8
(address of principal executive offices) (Zip Code)
(905) 850-2220, FAX (905) 850-9152
---------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Check whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, of 15(d) of the Exchange Act
subsequent to the distribution of securities under a plan confirmed by the
court.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At November 12, 2002, there were
22,803,058 shares of common stock outstanding.
FORM 10-QSB
ALFA UTILITY SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item I-1. FINANCIAL STATEMENTS 3
Independent Accountant's Report 5/F-1
Consolidated Balance Sheet at September 30, 2002 (Unaudited) 6/F-2
and December 31, 2001
Consolidated Statement of Changes in Stockholders' Equity 7/F-3
for the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
Consolidated Statement of Operations and Comprehensive
Income for the Three and Nine Months Ended
September 30, 2002 and 2001 (Unaudited) 8/F-4
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001 (Unaudited) 9/F-5
Notes to Consolidated Financial Statements 10/F-6
Item I-2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 11
PLAN OF OPERATION
Item I-3. CONTROLS AND PROCEDURES. (Regulation SB
Item 307) 16
PART II. OTHER INFORMATION 16
Item II-1. LEGAL PROCEEDINGS - NOT APPLICABLE 16
Item II-2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- NOT APPLICABLE 16
Item II-3. DEFAULTS UPON SENIOR SECURITIES -
- NOT APPLICABLE 16
Item II-4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS - NOT APPLICABLE 16
Item II-5. OTHER INFORMATION - NOT APPLICABLE 16
Item II-6. EXHIBITS AND REPORTS ON FORM 8-K
- NOT APPLICABLE 16
SIGNATURES 16
- 3 -
PART I. FINANCIAL INFORMATION
ITEM I-1. FINANCIAL STATEMENTS (REG. S-B ITEM 310(B))
ALFA UTILITY SERVICES, INC.
(A DELAWARE CORPORATION)
WOODBRIDGE, ONTARIO CANADA
----------------------------------------------------
FINANCIAL REPORTS
AT
SEPTEMBER 30, 2002
----------------------------------------------------
ALFA UTILITY SERVICES, INC.
(A DELAWARE CORPORATION)
WOODBRIDGE, ONTARIO CANADA
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
Independent Accountant's Report F-1
Consolidated Balance Sheet at September 30, 2002 (Unaudited)
and December 31, 2001 F-2
Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months Ended September 30, 2002 and 2001 (Unaudited) F-3
Consolidated Statement of Operations and Comprehensive Income for the
Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited) F-4
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 (Unaudited) F-5
Notes to Consolidated Financial Statements F-6
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Alfa Utility Services, Inc.
Woodbridge, Ontario Canada
We have reviewed the accompanying consolidated balance sheet of Alfa
Utility Services, Inc. (A Delaware Corporation) as of September 30, 2002, and
the related consolidated statements of operations and comprehensive income for
the three and nine months ended September 30, 2002 and 2001, and the
consolidated statements of changes in stockholders' equity, and cash flows for
the nine months ended September 30, 2002 and 2001. All information included in
these financial statements is the responsibility of the management of Alfa
Utility Services, Inc.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet (presented herein) of Alfa Utility Services, Inc. as of December 31, 2001,
and the related consolidated statements of operations and comprehensive income,
changes in stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report, dated March 29, 2002, except for Note M,
as to which the date is August 14, 2002, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 2001 is
fairly stated, in all material respects. No auditing procedures have been
performed subsequent to the date of our report.
/s/ Rotenberg & Co., LLP
Rotenberg & Co., LLP
Rochester, New York
November 12, 2002
F-1
ALFA UTILITY SERVICES, INC.
(A DELAWARE CORPORATION)
WOODBRIDGE, ONTARIO CANADA
CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
SEPTEMBER 30, December 31,
2002 2001
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 2,491 $ --
Accounts Receivable - Net of Allowances 2,962,419 2,773,513
Inventories 499,098 410,890
Income Taxes Receivable 28 28
Prepaid Expenses, Deposits and Other Current Assets 81,944 106,828
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,545,980 3,291,259
PROPERTY AND EQUIPMENT - NET OF ACCUMULATED DEPRECIATION 499,838 1,083,854
OTHER ASSETS
Due from Related Parties 206,570 204,960
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,252,388 $ 4,580,073
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Demand Loan $ 266,125 $ 257,865
Capital Lease Payable - Due Within One Year -- 53,061
Long-Term Debt - Due Within One Year 59,417 160,528
Deferred Income Taxes - Due Within One Year 272,093 174,628
Accounts Payable and Other Accrued Expenses 2,874,513 2,693,201
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,472,148 3,339,283
OTHER LIABILITIES
Capital Lease Payable - Due After One Year -- 83,808
Long-Term Debt - Due After One Year 88,874 372,056
Deferred Income Taxes - Due After One Year 63,587 87,154
Other Liabilities 8,920 12,246
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,633,529 3,894,547
- ---------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock - $4.00 Par; 1,000 Shares Authorized, Issued and
Outstanding (Liquidation Value of $1,250,000) 4,000 4,000
Common Stock - $.001 Par; 50,000,000 Shares Authorized;
22,803,058 Issued and Outstanding 22,803 22,803
Additional Paid-In Capital 107,169 107,169
Retained Earnings 625,723 698,189
Accumulated Other Comprehensive Loss (140,836) (146,635)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 618,859 685,526
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,252,388 $ 4,580,073
===================================================================================================================
The accompanying notes are an integral part of this financial statement.
- F-2 -
ALFA UTILITY SERVICES, INC.
(A DELAWARE CORPORATION)
WOODBRIDGE, ONTARIO CANADA
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------- ----------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK ACCUMULATED
------------------------------------------------- OTHER
------------------------------------------------- COMPREHENSIVE
LOSS -
NUMBER $4.00 NUMBER $.001 ADDITIONAL CUMULATIVE TOTAL
OF PAR OF PAR PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL EARNINGS ADJUSTMENTS EQUITY
- ----------------------------------------------- ------------------------------------------------------------------------------------
BALANCE JANUARY 1, 2001 1,000 $ 4,000 12,000,000 $ 12,000 $ -- $ 937,929 $(100,494) $ 853,435
May 31, 2001 - Recapitalization as
Alfa Utility Services, Inc. -- -- 10,802,058 10,803 107,169 (117,972) -- --
Net Loss for the Period (Unaudited) -- -- -- -- -- (165,222) -- (165,222)
Foreign Currency Translation
(Unaudited) -- -- -- -- -- -- (38,591) (38,591)
- -------------------------------------------- --------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2001 1,000 4,000 22,802,058 22,803 107,169 654,735 (139,085) 649,622
(Unaudited)
Net Income for the Period (Unaudited) -- -- -- -- -- 43,454 -- 43,454
Foreign Currency Translation
(Unaudited) -- -- -- -- -- -- (7,550) (7,550)
- -------------------------------------------- --------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2001 1,000 4,000 22,802,058 22,803 107,169 698,189 (146,635) 685,526
Net Loss for the Period (Unaudited) -- -- -- -- -- (72,466) -- (72,466)
Foreign Currency Translation
(Unaudited) -- -- -- -- -- -- 5,799 5,799
- -------------------------------------------- --------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2002 1,000 $ 4,000 22,802,058 $ 22,803 $ 107,169 $ 625,723 $(140,836) $ 618,859
(Unaudited)
- -------------------------------------------- --------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
- F-3 -
ALFA UTILITY SERVICES, INC.
(A DELAWARE CORPORATION)
WOODBRIDGE, ONTARIO CANADA
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME--Unaudited
- -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- ----------------------------------------
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
SALES $ 4,055,455 $ 3,808,892 $ 9,605,445 $ 8,477,529
- -----------------------------------------------------------------------------------------------------------------------------------
COST OF GOODS SOLD
Subdivision Material 1,820,936 2,028,000 4,366,739 4,358,730
Wages 1,251,005 939,854 2,829,487 2,179,526
Other 521,370 448,817 1,260,178 1,139,636
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF GOODS SOLD 3,593,311 3,416,671 8,456,404 7,677,892
- -----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 462,144 392,221 1,149,041 799,637
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
General and Administrative 282,601 309,291 1,076,873 787,784
Depreciation and Amortization 9,173 8,349 32,583 24,173
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 291,774 317,640 1,109,456 811,957
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 170,370 74,581 39,585 (12,320)
OTHER INCOME (EXPENSE)
Interest Expense - Net (9,984) (25,299) (39,798) (75,845)
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 160,386 49,282 (213) (88,165)
Provision for Income Taxes 116,805 20,505 72,253 77,057
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 43,581 28,777 (72,466) (165,222)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign Currency Translation, net of
Income tax of $0 in 2002 and 2001 (23,919) (26,655) 5,799 (38,591)
- -----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD $ 19,662 $ 2,122 $ (66,667) $ (203,813)
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE - BASIC $ 0.00 $ 0.00 $ (0.00) $ (0.00)
INCOME (LOSS) PER COMMON SHARE - DILUTED $ 0.00 $ 0.00 $ (0.00) $ (0.00)
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - BASIC 22,802,058 22,802,058 22,802,058 16,866,681
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - DILUTED 26,802,058 26,802,058 22,802,058 16,866,681
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
- F-4 -
ALFA UTILITY SERVICES, INC.
(A DELAWARE CORPORATION)
WOODBRIDGE, ONTARIO CANADA
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
- --------------------------------------------------------------------------------
Nine Months Ended September 30, 2002 2001
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $ (72,466) $(165,222)
NON-CASH ADJUSTMENTS
Depreciation and Amortization 132,607 134,365
Loss on Sale of Equipment 27,286 --
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts Receivable (168,071) (158,371)
Inventories (85,467) 235,080
Income Taxes Receivable -- 641
Prepaid Expenses, Deposits and Other Current Assets 25,871 (54,207)
Accounts Payable and Other Accrued Expenses 161,064 (87,778)
Deferred Income Taxes 72,253 57,595
Other Liabilities (3,442) --
- --------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 89,635 (37,897)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment (51,499) (141,462)
Proceeds from Sale of Property, Plant and Equipment 359,545 --
- --------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES 308,046 (141,462)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Demand Loan 350,493 224,517
Repayment of Demand Loan (344,224) --
Repayment of Long Term Debt (390,704) --
Repayments of Capital Lease Obligation (10,745) (12,264)
- --------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (395,180) 212,253
- --------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (10) --
- --------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 2,491 32,894
Cash and Cash Equivalents - Beginning of Period -- --
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,491 $ 32,894
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for Income Taxes $ -- $ --
Cash Paid During the Period for Interest - Net $ 39,798 $ 75,845
- --------------------------------------------------------------------------------
NON-CASH INVESTING ACTIVITIES
Termination of Capital Leases - Equipment $ 127,989 $ --
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
- F-5 -
ALFA UTILITY SERVICES, INC.
(A DELAWARE CORPORATION)
WOODBRIDGE, ONTARIO CANADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements of Alfa Utility
Services, Inc. (the "Company") included herein have been prepared
by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally included in
financial statements prepared in conjunction with accounting
principles generally accepted in the United States of America have
been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed
consolidated financial statements should be read in conjunction
with the annual audited financial statements and the notes thereto,
included in the Company's Form 10-SB Registration Statement, Form
SB-2 Registration Statement, and other filings with the SEC.
The accompanying unaudited interim consolidated financial
statements reflect all adjustments of a normal and recurring nature
which are, in the opinion of management, necessary to present
fairly the financial position, results of operations and cash flows
of the Company for the interim periods presented. The results of
operations for these periods are not necessarily comparable to, or
indicative of, results of any other interim period of or for the
fiscal year taken as a whole. Factors that affect the comparability
of financial data from year to year and for comparable interim
periods include non-recurring expenses associated with the
Company's registrations with the SEC and the seasonal fluctuations
of the business. Certain financial information that is not required
for interim financial reporting purposes has been omitted.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
- F-6 -
ITEM I-2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(REG. S-B ITEM 303)
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
Statements in this Form 10-QSB which are not historical facts,
nonexclusively including statements below, may contain forward-looking
statements that are subject to important factors that could cause actual results
to differ materially from those in the forward-looking statement. Such factors
nonexclusively include product demand; the effect of economic conditions; the
impact of competitive services, products, and pricing; product developments;
supply restraints or difficulties; industry regulation; the continued
availability of capital resources and financing; acts of terrorism, war or civil
unrest; and other risks set forth or incorporated herein and in Alfa's other
Securities and Exchange Commission filings. Alfa does not undertake to update
any forward-looking statement that may be made from time to time by or on behalf
of Alfa.
Alfa has not released and does not presently intend to release any
projections of revenues or net income, or other forward-looking statements,
without complying with the requirements for such statements.
INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Effective between the close of business on May 31, 2001 and the opening
of business on June 1, 2001, pursuant to the terms and condition of an Amended
Assignment of Stock and Amended Option Agreements and Amended Consents of
Directors and Shareholders, Alfa Utility Services Inc. (a Canadian Corporation)
and its wholly owned subsidiary Ontario Power Contracting Limited, became wholly
owned subsidiaries of Alfa Utility Services, Inc. (a Delaware Corporation, the
registrant herein, referred to as "Alfa"). That transaction has been accounted
for as a recapitalization, resulting in the historical operations of Ontario
Power Contracting Limited being the historical operations of Alfa Utility
Services, Inc. (a Delaware Corporation). Prior to the recapitalization, Alfa
Utility Services, Inc. (a Delaware Corporation) had not engaged in any form of
business activity and as a result, has no operating history. Accordingly, the
following discussion and analysis of financial conditions and results of
operations is a discussion of the historical financial performance of Ontario
Power Contracting Limited.
Alfa generates revenue by:
o Installation of the joint use underground primary, secondary and
streetlight distribution systems for residential developments
o Reconstruction and rehabilitation of parts of a Public Utility's primary
and secondary distribution systems
o General civil/electrical and maintenance work for existing power producers
and energy service providers
o Installation of new underground communications distribution systems
o Installation of natural gas, waterworks, and sewer distribution systems
o Design and installation of electrical utilities, communications, natural
gas pipelines, sewer and waterworks systems in new development sites for
developers and municipalities
The following discussion and analysis of Alfa's financial condition and
results of operations should be read in conjunction with the financial
statements appearing in Item 1 of this Form 10-QSB.
11
RESULTS OF OPERATIONS
The following table sets forth a statement of operations and
comprehensive income data of Alfa expressed as a percentage of sales for the
periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
----------------------------------------------------------
PERCENTAGES PERCENTAGES
Total Sales 100.0 100.0 100.0 100.0
Total Cost of Goods Sold 88.6 89.7 88.0 90.6
----------------------------------------------------------
Gross Profit 11.4 10.3 12.0 9.4
Total Operating Expenses 7.2 8.3 11.6 9.6
----------------------------------------------------------
Income (Loss) From Operations 4.2 2.0 0.4 -0.2
Interest Expense, Net -0.2 -0.7 -0.4 -0.9
----------------------------------------------------------
Income (Loss) Before Income Taxes 4.0 1.3 0.0 -1.1
Provision for (Recovery of) Income Tax 2.9 -0.5 -0.8 -0.9
----------------------------------------------------------
Net Income (Loss) 1.1 0.8 -0.8 -2.0
Other Comprehensive Income (Loss),
Net of Income Tax -0.6 -0.7 0.1 -0.4
----------------------------------------------------------
Comprehensive Income (Loss) 0.5 0.1 -0.7 -2.4
==========================================================
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001
SALES
Sales for the three months ended September 30, 2002 increased
$247,000 or 6% to $4,055,000 from $3,809,000 for the three months ended
September 30, 2001.
COST OF GOODS SOLD
Cost of Goods Sold for the three months ended September 30, 2002 was
$3,593,000 or 88.6% of sales as compared to $3,417,000 or 89.7% of sales for the
three months ended September 30, 2001.
The decrease in cost of goods sold as a percentage of sales is due to
better purchasing of materials and increased efficiency. In addition, Alfa is
taking advantage of just-in-time inventory as much as possible which is helping
to reduce the materials costs. In addition, there has been a change in the mix
of Alfa's business toward Natural Gas which has lower material costs and a
resulting higher gross profit.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense for the three months ended
September 30, 2002 decreased $26,000 or 9% to $283,000 from $309,000 for the
three months ended September 30, 2001.
12
INTEREST EXPENSE
Interest expense for the three months ended September 30, 2002
decreased $15,000 or 61% to $10,000 from $25,000 for the three months ended
September 30, 2001.
This decrease is a product of three factors; the improved management
of operating debt, the repayment of term debt and the increased use of operating
leases to finance the acquisition of debt.
Alfa has implemented cash flow forecasting models along with other
cash management practices that have reduced Alfa's dependence on bank operating
debt. These practices have permitted Alfa to finance increased revenues and
accounts receivable with reduced dependence on bank lines of credit.
PROVISION FOR INCOME TAXES
The provision for income taxes has increased $96,000 to $117,000 for
the three months ended September 30, 2002 from $21,000 for the three months
ended September 30, 2001 due to the adjustment to deferred taxes related to
accounts receivable and fixed assets.
NET INCOME
The net income for the three months ended September 30, 2002
increased $15,000 to $44,000 from $29,000 for the three months ended September
30, 2001. The main factors contributing to this was an increase in gross profit
of $70,000, a decrease is general and administrative expense of $26,000 and a
decrease in interest of $15,000 offset by an increase in the provision for
income taxes of $96,000.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001
SALES
Sales for the nine months ended September 30, 2002 increased
$1,128,000 or 13% to $9,605,000 from $8,478,000 for the nine months ended
September 30, 2001.
Sales growth was driven by increased activities in the Residential
Subdivision. The growth is attributed to management's focus on quality service.
This focus on quality has strengthened relationships in the client community
which in turn has resulted in increased business for Alfa. In addition to
improved volume generated by the aforementioned group, the Natural Gas group
increased capacity in the second quarter of 2001 to allow for the complete
internal fulfillment of gas infrastructure requirements. Historically, Ontario
Power had jointly bid on projects and contracted out the natural gas portion.
Management expects the volume of revenue obtained from the Natural Gas group to
grow in importance and represent 10% of Alfa's gross volume by the end of 2002.
Previously, this group represented less than 3% of Alfa's volumes as the natural
gas portion was contracted out to other companies.
13
COST OF GOODS SOLD
Cost of Goods Sold for the nine months ended September 30, 2002 was
$8,456,000 or 88.0% of sales as compared to $7,678,000 or 90.6% of sales for the
nine months ended September 30, 2001.
The decrease in cost of goods sold as a percentage of sales is due to
better purchasing of materials and increased efficiency. In addition, Alfa is
taking advantage of just-in-time inventory as much as possible which is helping
to reduce the materials costs. In addition, there has been a change in the mix
of Alfa's business toward Natural Gas which has lower material costs and a
resulting higher gross profit.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense for the nine months ended
September 30, 2002 increased $289,000 or 37% to $1,077,000 from $788,000 for the
nine months ended September 30, 2001.
This increase in general and administrative expense is mainly a
result of increased spending in a number of areas. Office salaries increased
$110,000 to accommodate the growth in sales which began in 2001. In conjunction
with that, related office expenses related to the increased staffing increased
$24,000. Insurance expense increased $31,000 due to the need for more insurance
to cover the growth of Alfa since the prior year. Management fees paid to Alfa's
President increased $45,000 in 2002 as no fees paid in the first six months of
2001. Professional service fees increased $48,000 due to the costs associated
with the registration of Alfa's securities with the Securities and Exchange
Commission.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 2002
decreased $36,000 or 48% to $40,000 from $76,000 for the nine months ended
September 30, 2001.
This decrease is a product of three factors; the improved management
of operating debt, the repayment of term debt and the increased use of operating
leases to finance the acquisition of debt.
Alfa has implemented cash flow forecasting models along with other
cash management practices that have reduced Alfa's dependence on bank operating
debt. These practices have permitted Alfa to finance increased revenues and
accounts receivable with reduced dependence on bank lines of credit.
NET LOSS
The net loss for the nine months ended September 30, 2002 decreased
$93,000 to $72,000 from $165,000 for the nine months ended September 30, 2001.
The main factors contributing to this increase was an increase in gross profit
of $349,000 and a decrease in interest expense of $36,000, offset by an increase
in general and administrative expenses of $289,000.
CAPITAL RESOURCES AND LIQUIDITY
Alfa's cash flow provided by operations was $90,000 for the nine
months ended September 30, 2002 and cash flows used by operations was $38,000
for the nine months ended September 30, 2001. The increase is due to a decrease
in the net loss, an increase in prepaid expenses, an increase in accounts
payable and accrued expenses and an increase in deferred taxes. This was offset
by an increase in accounts receivable and inventories.
14
Cash provided by investing activities was $308,000 for the nine
months ended September 30, 2002. Cash used in investing activities was $141,000
for the nine months ended September 30, 2001. The increase in cash provided is
due to the fact that there were lower purchases of property, plant and equipment
and higher proceeds from sales of property, plant and equipment in 2002.
Cash used in financing activities was $395,000 for the nine months
ended September 30, 2002. Cash provided by financing activities was $212,000 for
the nine months ended September 30, 2001. The change is due to net repayment on
borrowings in the nine months ended September 30, 2002 and net borrowings in the
nine months ended September 30, 2001.
Property, plant and equipment, net has decreased from $1.1 million at
December 31, 2001 to $0.5 million at September 30, 2002 and long-term debt has
decreased from $0.5 million at December 31, 2001 to $0.1 million at September
30, 2002 due to the sale-leaseback of equipment during the nine months ended
September 30, 2002.
Alfa generally does not maintain cash balances as all funds are
currently being reinvested into Alfa to continue to grow the Company. Alfa
currently has a Revolving Demand Loan in the amount of the lesser of $1 million
(CDN) or 80% of the receivables value, as defined in the credit agreement (of
which $266,125 was outstanding as of September 30, 2002). The loan bears
interest at the prime rate plus 1%. Alfa also must pay an administration fee of
$50 monthly.
The demand loan is renewable yearly. Interest only is payable monthly
on the demand loan. The demand loan is secured by all assets of Alfa, various
insurance policies and a personal guarantee of one of the directors of Alfa.
The demand loan contains various covenants pertaining to the
maintenance of net worth, direct borrowings, leverage and liquidity
requirements. At September 30, 2002, Alfa was not in compliance with the net
worth, leverage and liquidity ratios. Under the terms of the agreement, the bank
may call the loan if Alfa is in violation of any restrictive covenant. Alfa has
not obtained a waiver from the bank. The management of Alfa has the means and
the willingness to refinance the debt should demand for payment be made through
collateralizing its fixed assets. As of November 13, 2002, the bank has not
called the loan and continues to allow Alfa to borrow under the original terms
of the agreement, having renewed it twice while out of compliance with one or
more ratio maintenance provisions.
The continued availability of the demand loan is necessary in
order for management to continue to grow the business. If the demand loan or
similar financing was not available, Alfa would be required to slow growth in
order to have the necessary cash to meet its obligations.
INFLATION
Alfa does not believe its operations have been materially affected by
inflation. Inflation is not expected to have a material future effect.
15
ITEM I-3. CONTROLS AND PROCEDURES. (REGULATION SB ITEM 307)
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
- ------------------------------------------------
The conclusions of Alfa's principal executive officer and principal
financial officer about the effectiveness of Alfa's disclosure controls and
procedures (as defined in Securities Exchange Act of 1934 Rule 13a-14(c) and
summarized below), based on evaluation within 90 days of filing the report, are
that they are effective in their design and implementation, except as follows:
NOT APPLICABLE.
"DISCLOSURE CONTROLS AND PROCEDURES" means controls and other
procedures designed to ensure that information required to be disclosed in
reports under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in SEC rules and
forms. DISCLOSURE CONTROLS AND PROCEDURES include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in
the reports under the Act is accumulated and communicated to the issuer's
management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
(b) CHANGES IN INTERNAL CONTROLS. There were no significant changes in the
internal controls or in other factors that could significantly affect them (for
better or worse) after the above described evaluation, including any corrective
actions as to significant deficiencies and material weaknesses, except as
follows: NOT APPLICABLE.
PART II. OTHER INFORMATION
Item II-1. Legal Proceedings (Reg. S-B Item 103) - Not applicable
Item II-2. Changes in Securities and Use of Proceeds (10-QSB Item II-2,
Reg. S-B Item 701, Rule 463) - Not applicable
Item II-3. Defaults upon senior securities - Not applicable
Item II-4. Submission of matters to a vote of security holders - Not applicable
Item II-5. Other Information (Form 8-K) - Not applicable
Item II-6. Exhibits and reports on Form 8-K - Not applicable
(A) Exhibits:
SEC Ref. No. Title of Document Location
Not applicable (Previously reported, and no contracts entered into during the
quarter are deemed by management to be material in the light of the registrant's
operating results, financial conditions and other factors.)
(B) Reports on Form 8-K: None in this quarter.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized
ALFA UTILITY SERVICES, INC.
November 14, 2002 By: /S/ JOSEPH ALFANO
-------------------------------------------------
Joseph Alfano, President
November 14, 2002 By: /S/ ROBERT SIMONE
-------------------------------------------------
Robert Simone, CFO, Vice President Finance
(Principal Financial and Chief Accounting Officer)
16
CERTIFICATION
In connection with the Quarterly Report of Alfa Utility Services,
Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Joseph Alfano, Principal Executive Officer of the Company and Robert
Simone, Chief Financial Officer of the Company, each hereby certifies, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects the financial condition and results of the Company.
Date: November 14, 2002 /S/ JOSEPH ALFANO
-------------------------------------------
Joseph Alfano
President
(Principal Executive Officer)
/S/ ROBERT SIMONE
--------------------------------------------
Robert Simone,
Vice President Finance, Treasurer and CFO
(Principal Financial Officer)
17
I, JOSEPH ALFANO, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ALFA
UTILITY SERVICES, INC.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "EVALUATION DATE"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/S/ JOSEPH ALFANO
-----------------------------
/s/ JOSEPH ALFANO, President
(Principal Executive Officer)
18
I, ROBERT SIMONE, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ALFA
UTILITY SERVICES, INC.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "EVALUATION DATE"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/S/ ROBERT SIMONE
--------------------
ROBERT SIMONE,
Vice President Finance, Treasurer and CFO
(Principal Financial Officer)