DEF 14C 1 t300185.txt DEFINITIVE PROXY MATERIAL March 24, 2003 INFORMATION STATEMENT Pursuant to Section 14(c) of the Securities Exchange Act of 1934 Check the appropriate box: [ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) [X] Definitive Information Statement ALFA UTILITY SERVICES, INC. (Name of Registrant As Specified In Its Charter) Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11 (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: ALFA UTILITY SERVICES, INC. 396 Chrislea Road Woodbridge, Ontario, Canada L4L 8A8 Phone (905) 850-2220 Fax (905) 850-9152 jalfano@alfautilityservices.com Attention: JOSEPH ALFANO, President JAMES R. LEONE Attorney at Law P.O. Box 755 New Smyrna Beach, FL 32170-0755 3188 Oak Lane Edgewater, FL 32132 Telephone (386) 478-1743 Fax (386) 478-1744 Mobile (407) 701-8550 E-mail: jrleoneattorney@yahoo.com March 24, 2003 INFORMATION STATEMENT SUMMARY OF INFORMATION STATEMENT. This Information Statement advises you and other shareholders of Alfa Utility Services Inc., a Delaware corporation (the "COMPANY"), about corporate action to dissolve the Company immediately after rescinding (as of June 1, 2001) the stock shares exchange by which it acquired its operating subsidiary on June 1, 2001. Alfa's dissolution will terminate its corporate existence. This corporate action is being taken as approved by a majority (53.5%) but less than unanimous written consent (vote) of shareholders without a meeting. PLEASE BE ADVISED THAT THIS IS ONLY AN INFORMATION STATEMENT. WE ARE NOT ASKING YOU FOR A PROXY (A VOTE OF YOUR SHARES) AND YOU ARE REQUESTED NOT TO SEND US A PROXY. CONTACT INFORMATION. Our executive offices are at 396 Chrislea Road, Woodbridge, Ontario L4L 8A8 Canada, phone (905) 850-2220, attention Robert Simone, Vice President. RECORD DATE FOR SHAREHOLDER NOTICE AND VOTING RIGHTS. Our Board of Directors fixed the close of business on March 22, 2003 as the Record Date to determine stockholders of record on the stock books. They are entitled to receive this Information Statement as notice that if a meeting were being held they would be entitled to vote on the proposal to dissolve the Company after rescinding exchange of shares. On that date 22,803,058 shares of our common stock were outstanding. The proposed dissolution and exchange reversal requires approval by holders of a majority of the outstanding shares of common stock entitled to vote. Each share of common stock entitles the holder to one vote on the proposed transaction. APPROVALS; TERMS OF TRANSACTION. No regulatory approval is needed for the transaction. Effective as of March 22, 2003 the Board of Directors by unanimous written Consent approved the transaction, and then effective as of that date Joseph Alfano (the Company's President) signed a written Consent voting his majority holding of 12,000,000 shares (53.5%) in favor. Accordingly, all corporate actions necessary to authorize the transaction have been taken and no vote by you is needed. Securities Exchange Act of 1934 voting information regulations allows that authorization to become effective 20 or more days (business days if information is incorporated by reference) after we mail this Information Statement to you. Thus, we intend to file the Certificate of Dissolution (ENCLOSURE "A" with this Information Statement) with the Delaware Department of State, intended to be effective about April 14, 2003. MAILING DATE. This Information Statement is first being sent about March 24, 2003 to holders of our common stock, our only outstanding voting securities. BUSINESS CONDUCTED. Prior to recission (as of June 1, 2001) of the exchange just before dissolution, Alfa was engaged in utilities infrastructure construction. That involved trenching for and installing electrical, communications, lighting, and water-sewer-storm drain distribution systems. 2 REASONS FOR DISSOLUTION. We believe dissolution is in the best interests of the Company and our shareholders and creditors. The reasons include the following. The former owners of the Company's operating subsidiary, Ontario Power Contracting Limited ("ONTARIO POWER"), had threatened to unilaterally rescind the stock shares exchange that made it a subsidiary of what became a Company subsidiary ("Alfa Canada"). That would have left the Company with no operations, no revenues, and virtually no assets, but with ongoing administrative and disclosure reporting expenses that no longer serve any useful purpose and merely drain the earnings of Ontario Power (the only practical source of funding for such expenses). For tax reasons, the former Ontario Power owners requested Joseph Alfano to rescind the Company's stock share exchange with him by which it acquired Alfa Canada to be effective (as of the original June 1, 2001 date, for legal and tax purposes) immediately before dissolution, in lieu of the other shares exchange reversal. Because the net effect other than taxes for the former owners was virtually the same on balance, Mr. Alfano agreed. The former owners of Ontario Power desired such action because ongoing preliminary financing and acquisition discussions with new financial advisors made it clear there is not any urgent need (as previously believed) to issue registered stock for such purposes. Thus, there is little or no reason for the high cost of dilution of Ontario Power earnings and assets by virtue of the high percentage (46.5%) of the "float" stock left in the hands of the shareholders of the Company when it was known as Envirotech Mfg. Corp., now renamed Alfa. Our Board of Directors believes the Company would not benefit from attempting to continue its existence, because its inability to pay its expenses would be unfair to its creditors and would only lead to litigation and cessation of ability to conduct any activity. Because of the large dilution referred to above and such expenses, the Board does not wish to pursue attempting to utilize the Company as a "shell" corporation to pursue a business combination. Because of the expenses and lack of income for reports required to be a "shell," no other alternative to the dissolution is deemed practical or beneficial to the Company's shareholders and creditors after rescission of the shares exchange. NO APPRAISAL RIGHTS. Under Delaware General Corporation Law Section 262 dissenting shareholders are not entitled to appraisal rights as to dissolution, only merger, etc. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information as of March 6, 2003 as to beneficial ownership of our common stock by (i) each director and executive officer, (ii) all executive officers and directors as a group and (iii) each over 5% owner: OWNER NAME AND ADDRESS SHARES OWNED PERCENTAGE (1) ---------------------- ------------- -------------- Joseph Alfano (2) 12,200,000 53.5% Director, President and CEO Robert Simone (2) None -0- Director, V.P. Finance and CFO Anthony Sanginesi (2) None -0- Director, V.P. Operations and COO, General Manager All Directors and Executive Officers as a group 12,200,000 53.5% Douglas Murdock (3) 2,721,276 11.9% (1) Based on 22,803,058 shares of Common Stock issued and outstanding. 4,000,000 shares of Alfa (Delaware) Common Stock had been issuable pursuant to a conversion (exchange) option granted to the former corporate holders of stock of Ontario Power Contracting Limited, the operating subsidiary of an Alfa (Delaware) subsidiary, Alfa (Canada), which corporations are controlled by Mr. Alfano. (2) Address 396 Chrislea Road Woodbridge, Ontario L4L 8A8 Canada (3) Address 2170 Stanfield Road, Mississauga, Ontario L4Y 1R5 Canada. Mr. Murdock directly owns 144,000 shares, and is the apparent owner, officer, or other controlling person of Belmont Management Services (which owns 332,170 shares) and Interlock Steel (475,000 shares), subtotal 951,170 shares or 4.2%. He also is believed to have an adult relative, Cathy Murdock (500,000 shares). In January 2003 Alfa was advised that her stockholding address is the same as Mr. Murdock's business address, as is the address of Glencario Sanbro (600,000 shares), and that Ernest Anderson (220,000 shares) is listed as "c/o Doug Murdock", and that his shares and 450,106 shares listed as In Trust by the Transfer Agent, Olde Monmouth Stock Transfer, were transferred from 650,106 shares formerly held by Edward M. "Ted" Slessor, at the request of Mr. Murdock, and that the In Trust shares are subject to transfer at Mr. Murdock's directions. Thus, Mr. Murdock appears to control, and beneficially own, such shares in other persons' names, subtotal 1,770,106 or 7.8%, plus his own and his corporate shares, subtotal 951,170 or 4.2%, making a grand total of 2,721,276 shares or 11.9% (not 12% due to decimal rounding off). Mr. Murdock has made stock transfers on the same dates as 18 other shareholders owning 6,890,000 shares, which might or might not be significant. See "Conversion Option" Under Part II Item II-1 "Market for Common Equity and Related Stockholder Matters" in Amendment No. 5 to Alfa's Form 10-SB Registration Statement under the Securities Exchange Act, if information is desired about a no longer effective 4,000,000 share conversion option formerly held by two corporations controlled by Mr. Alfano. FINANCIAL INFORMATION. ENCLOSED or incorporated by reference as listed below are the financial data listed. Any incorporated information will be sent upon request (oral or written to the address or phone listed above) at no charge, within one business day. 3 ALFA INFORMATION AT SEC OFFICE AND WEBSITE. We must comply with the Securities Exchange Act of 1934 disclosure reporting requirements until the Certificate of Dissolution is filed. Then we will cease to exist and be unable to take any action. For further information about us, you may refer to our Form 10-QSB Quarterly Reports for June 30, 2002 and September 30, 2002 and to our latest Amendment (No. 5) to our Form 10-SB Registration Statement. You can review them at the SEC public reference facility, Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 (phone 1-800-SEC-0330 or 1-800-732-0330), or electronically on the World Wide Web at http://www.sec.gov. March 24, 2003 By the Order of the Board of Directors By: /s/ JOSEPH ALFANO -------------------------------- JOSEPH ALFANO, President ENCLOSURES ---------- "A" Certificate Of Dissolution (form of) "B" Alfa Form 10-QSB Quarterly Report for September 30, 2002 "C" Alfa Financial Statements from Form 10-SB Amendment No.5 INFORMATION INCORPORATED BY REFERENCE ------------------------------------- None 4 ENCLOSURE "A" CERTIFICATE OF DISSOLUTION OF ALFA UTILITY SERVICES, INC. UNDER SECTIONS 103 and 275 OF THE DELAWARE GENERAL CORPORATION LAW THE undersigned, being the president of Alfa Utility Services, Inc., hereby certifies: 1. The name of the corporation is ALFA UTILITY SERVICES, INC. (the "CORPORATION"). 1A. The Certificate of Incorporation of said Corporation was filed with the Delaware Department of State on December 15, 1994. 1B. The Certificate of Incorporation of the Corporation was subsequently amended more than once (August 30, 1995 and June 1, 2001), changing the Corporation's name to Envirotech Mfg. Corp. and then to Alfa Utility Services, Inc., and for other purposes. 2. The execution and filing of this Certificate of Dissolution of the Corporation has been duly authorized by the unanimous written consent of the Board of Directors of the Corporation dated March 22, 2003, followed by the written consent dated March 22, 2003, of the holder of at least a majority of all outstanding shares of the Corporation entitled to vote on approval of the Certificate of Dissolution. 3. In accordance with Delaware General Corporation Law Section 275(a) and (b) it was determined to be desirable, necessary and in the best interests of the Corporation and its shareholders and creditors, for the Corporation to terminate its existence by executing and filing this Certificate of Dissolution. The Board of Directors caused an Information Statement to be mailed to each stockholder entitled to vote, notifying them of the Board's written consent adopting a resolution recommending dissolution as described herein. It also notified them of the written consent of the holder of a majority of shares, voting to approve dissolution, effective upon filing this Certificate of Dissolution. 4. The Corporation's directors' and officers' names and address are as follows: Joseph Alfano, Director, President, CEO c/o Alfa Utility Services, Inc. Robert Simone, Director, V.P. Finance, 396 Chrislea Road Secy./Treas., CFO, Woodbridge, Ontario L4L 8A8 Canada Anthony Sanginese, Director, V.P. Operations, COO, G. Mgr. 5. The written consent of majority shareholder and written notice to other shareholders were given in accordance with Delaware General Corporation Law Sec. 228(a) and (d). IN WITNESS WHEREOF, I have signed this Certificate on April ____, 2003, and I affirm the statements contained herein as true under penalties of perjury. /s/ JOSEPH ALFANO -------------------- JOSEPH ALFANO, President ENCLOSURE "A" To Information Statement 5 ENCLOSURE "B" 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) ENCLOSURE "C" ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) Woodbridge, Ontario Canada -------------------------------------------- FINANCIAL REPORTS AT DECEMBER 31, 2001 -------------------------------------------- ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA TABLE OF CONTENTS -------------------------------------------------------------------------------- Independent Auditor's Report 1 Consolidated Balance Sheet at December 31, 2001 and 2000 2 Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2001 and 2000 3 Consolidated Statement of Operations and Comprehensive Income for the Years Ended December 31, 2001 and 2000 4 Consolidated Statement of Cash Flows for the Years Ended December 31, 2001 and 2000 5 Notes to Consolidated Financial Statements 6-12 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Alfa Utility Services, Inc. Woodbridge, Ontario Canada We have audited the accompanying consolidated balance sheet of Alfa Utility Services, Inc. as of December 31, 2001 and 2000, and the related consolidated statements of changes in stockholders' equity, operations and comprehensive income, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alfa Utility Services, Inc. as of December 31, 2001 and 2000, and the results of its operations and comprehensive income and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note M, the financial statements have been restated to give effect to the deferred gain on the sale-leaseback transaction. /s/ Rotenberg & Co., LLP ------------------------ Rotenberg & Co., LLP Rochester, New York March 29, 2002 except Note M, as to which the date is Ausust 14, 2002 F-1
ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA CONSOLIDATED BALANCE SHEET ========================================================================================== (Restated) December 31, 2001 2000 ------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Accounts Receivable - Net of Allowances $ 2,773,513 $ 1,735,448 Inventories 410,890 570,826 Income Taxes Receivable 28 674 Prepaid Expenses, Deposits and Other Current Assets 106,828 80,158 ------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 3,291,259 2,387,106 PROPERTY AND EQUIPMENT - NET OF ACCUMULATED DEPRECIATION 1,083,854 1,289,512 OTHER ASSETS Due from Related Parties 204,960 219,063 ------------------------------------------------------------------------------------------ TOTAL ASSETS $ 4,580,073 $ 3,895,681 ========================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Demand Loan $ 257,865 $ 305,003 Capital Lease Payable - Due Within One Year 53,061 -- Long-Term Debt - Due Within One Year 160,528 247,112 Deferred Income Taxes 174,628 80,631 Accounts Payable and Other Accrued Expenses 2,693,201 1,646,699 ------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 3,339,283 2,279,445 OTHER LIABILITIES Capital Lease Payable - Due After One Year 83,808 -- Long-Term Debt - Due After One Year 372,056 730,953 Deferred Income Taxes 87,154 31,848 Other Liabilities 12,246 -- ------------------------------------------------------------------------------------------ TOTAL LIABILITIES 3,894,547 3,042,246 ------------------------------------------------------------------------------------------ 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 12,000 Additional Paid-In Capital 107,169 -- Retained Earnings 698,189 937,929 Accumulated Other Comprehensive Loss (146,635) (100,494) ------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 685,526 853,435 ------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,580,073 $ 3,895,681 ==========================================================================================
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 ==================================================================================================================================== ACCUMULATED OTHER COMPREHENSIVE LOSS- PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE TOTAL NUMBER OF $4.00 PAR NUMBER OF $.001 PAR PAID-IN RETAINED TRANSLATION STOCKHOLDERS' SHARES VALUE SHARES VALUE CAPITAL EARNINGS ADJUSTMENTS EQUITY ------------------------------------------------------------------------------------------------------------------------------------ BALANCE - JANUARY 1, 2000 1,000 $ 4,000 12,000,000 $ 12,000 $ -- $ 934,562 $ (73,592) $ 876,970 (AFTER RECAPITALIZATION) Net Income -- -- -- -- -- 3,367 -- 3,367 Foreign Currency Translation -- -- -- -- -- -- (26,902) (26,902) ------------------------------------------------------------------------------------------------------------------------------------ BALANCE - DECEMBER 31, 2000 1,000 4,000 12,000,000 12,000 -- 937,929 (100,494) 853,435 May 31, 2001 - Acquisition of Shell Company -- -- 10,803,058 10,803 107,169 (117,972) -- -- Net Loss (Restated) -- -- -- -- -- (121,768) -- (121,768) Foreign Currency Translation -- -- -- -- -- -- (46,141) (46,141) (Restated) ------------------------------------------------------------------------------------------------------------------------------------ BALANCE - DECEMBER 31, 2001 1,000 $ 4,000 22,803,058 $ 22,803 $ 107,169 $ 698,189 $ (146,635) $ 685,526 (Restated) ====================================================================================================================================
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 ================================================================================ (Restated) For the Years Ended December 31, 2001 2000 -------------------------------------------------------------------------------- SALES $ 12,090,683 $ 9,862,552 -------------------------------------------------------------------------------- COST OF GOODS SOLD Subdivision Material 5,298,096 6,172,921 Wages 3,110,267 2,086,529 Other 2,018,976 422,883 -------------------------------------------------------------------------------- TOTAL COST OF GOODS SOLD 10,427,339 8,682,333 -------------------------------------------------------------------------------- GROSS PROFIT 1,663,344 1,180,219 -------------------------------------------------------------------------------- OPERATING EXPENSES General and Administrative 1,236,780 846,081 Depreciation and Amortization 300,946 211,036 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 1,537,726 1,057,117 -------------------------------------------------------------------------------- INCOME FROM OPERATIONS 125,618 123,102 -------------------------------------------------------------------------------- INTEREST EXPENSE, net of interest income of $7,742 in 2001 and $0 in 2000 (86,690) (103,524) -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 38,928 19,578 PROVISION FOR INCOME TAXES 160,696 16,211 -------------------------------------------------------------------------------- NET (LOSS) INCOME (121,768) 3,367 OTHER COMPREHENSIVE LOSS, NET OF INCOME TAX Foreign Currency Translation, net of income tax of $0 in 2001 and 2000 (46,141) (26,902) -------------------------------------------------------------------------------- COMPREHENSIVE LOSS FOR THE PERIOD $ (167,909) $ (23,535) ================================================================================ (LOSS) INCOME PER COMMON SHARE - BASIC $ (0.01) $ 0.00 (LOSS) INCOME PER COMMON SHARE - DILUTED $ (0.01) $ 0.00 ================================================================================ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 18,301,784 12,000,000 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED 18,301,784 16,000,000 ================================================================================
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 ================================================================================ (Restated) For the Years Ended December 31, 2001 2000 -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES NET (LOSS) INCOME $ (121,768) $ 3,367 NON-CASH ADJUSTMENTS Depreciation and Amortization 300,946 211,036 Gain on Sale of Equipment (22,285) (381) CHANGES IN OPERATING ASSETS AND LIABILITIES Accounts Receivable (1,174,636) 725,591 Inventories 130,550 (114,953) Income Taxes Receivable 625 (25,419) Prepaid Expenses, Deposits and Other Current Assets (33,318) 10,477 Accounts Payable and Other Accrued Expenses 1,177,999 (261,159) Deferred Income Taxes 160,696 16,211 Other Liabilities 12,625 -- -------------------------------------------------------------------------------- NET CASH FLOWS FROM OPERATING ACTIVITIES 432,434 564,770 -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Repayments from (Advances to) Related Party 1,361 (107,665) Purchases of Property, Plant and Equipment (471,726) (828,838) Proceeds from Sale of Property, Plant and Equipment 494,881 15,416 -------------------------------------------------------------------------------- NET CASH FLOWS FROM INVESTING ACTIVITIES 24,516 (921,087) -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of Demand Loan (30,249) (231,926) Proceeds from Long-Term Debt 251,852 752,845 Repayment of Long-Term Debt (652,296) (164,602) Repayment of Capital Lease Obligation (26,257) -- -------------------------------------------------------------------------------- NET CASH FLOWS FROM FINANCING ACTIVITIES (456,950) 356,317 -------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS -- -- -------------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents -- -- Cash and Cash Equivalents - Beginning of Year -- -- -------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS - END OF YEAR $ -- $ -- ================================================================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Year for Income Taxes $ (625) $ 25,419 Cash Paid During the Year for Interest - Net $ 86,690 $ 103,524 -------------------------------------------------------------------------------- NON-CASH INVESTING ACTIVITIES Acquisition of Equipment Under Capital Leases $ 168,066 $ -- ================================================================================
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 - THE COMPANY The original company was incorporated under the laws of the state of Delaware on December 15, 1994 as Triad Instrument Co. Inc. Subsequently, Triad's name was changed to Envirotech Mfg. Corp. (Envirotech), then Alfa Utility Services, Inc. (A Delaware Corporation) (the Company) on June 1, 2001. On June 1, 2001, pursuant to a reorganization, 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 transaction was accounted for as a recapitalization, resulting in the historical operations of Ontario Power Contracting Limited being the historical operations of Alfa Utility Services, Inc. Accordingly, the accompanying financial statements have been restated to reflect the financial position, results of operations, and cash flows for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented. The January 1, 2000 balance (after recapitalization) represents the stockholder's equity of Alfa Utility Services, Inc.'s subsidiary, Ontario Power Contracting Limited, prior to the recapitalization plus the 12,000,000 common shares and 1,000 preferred shares issued in conjunction with the recapitalization. On May 31, 2001, Envirotech was acquired by exchanging shares of Alfa Utility Services, Inc. on a 1 for 1 basis for shares of Envirotech. Envirotech had no assets or liabilities at such time. This transaction is represneted by showing the number of shares, the share value, additional paid-in capital and retained earnings of Envirotech at the date of acquisition. SCOPE OF BUSINESS The Company is a full service utility construction and maintenance company, concentrating on electrical utilities, communications, natural gas pipelines, sewer and waterworks systems, currently serving the city of Toronto, Ontario Canada and surrounding areas. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES METHOD OF ACCOUNTING The Company maintains its books and prepares its financial statements on the accrual basis of accounting. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Alfa Utility Services Inc. and Ontario Power Contracting Limited. All significant intercompany balances and transactions have been eliminated in the consolidation. RECLASSIFICATIONS Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation. FOREIGN CURRENCY TRANSLATION The Company's foreign operations, Alfa Utility Services Inc. (Canada) and Ontario Power Contracting Limited, are measured using the local currency, Canadian dollars, as the functional currency. Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues, expenses and cash flows are translated at weighted average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders' equity and comprehensive income. There are no foreign currency transaction gains and losses as all operations are currently conducted in Canada. CASH AND CASH EQUIVALENTS Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents at financial institutions which periodically may exceed federally insured amounts. -continued- F-6 ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on accelerated methods over the estimated useful lives as follows: Automotive Equipment 3 - 4 Years Computers 3 - 4 Years Machinery and Equipment 5 Years Office Equipment 5 Years Leasehold improvements are being depreciated on a straight-line basis over five years. Maintenance and repairs are charged to expense as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is recognized. IMPAIRMENT OF ASSETS In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," the Company assesses all long-lived assets for impairment at least annually or whenever events or circumstances indicate that the carrying amount may not be recoverable. INVENTORY Inventory is comprised of raw materials and is stated at the lower of cost or market. Cost is determined by the first-in, first-out method and market is based on the lower of replacement cost or net realizable value. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results can differ from those estimates. ADVERTISING The Company expenses advertising costs as incurred. REVENUE RECOGNITION The Company earns revenue primarily under service contracts that are time and materials based. The Company determines the percentage of work completed on a monthly basis and measures this based on the labor hours incurred and the materials used. The Company recognizes revenue based on the services performed. The final holdback amount, which approximates ten per cent of the total contract, is recognized after final completion and acceptance of the project. This generally occurs within 30 days of the completion of work. Contracts generally do not extend for periods in excess of one year. Holdbacks as of December 31, 2001 and 2000 were $423,000 and $345,000, respectively, and are included in accounts receivable. -continued- F-7 ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED GOVERNMENT CONTRACTS The Company has no material amount of business under government contracts providing for renegotiation of profits, or termination at the convenience or discretion of the government, or other adverse terms. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, accounts receivable, long-term debt and accounts payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying value, unless otherwise noted. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in the income tax rates upon enactment. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Accounting for Goodwill and Other Intangibles", which specifies that goodwill and some intangible assets will no longer be amortized, but instead will be subject to periodic impairment testing. The pronouncement is effective for the Company beginning January 1, 2002. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 142. Management does not anticipate that the adoption of SFAS No. 142 will have any material impact on the financial statements but may impact the financial statements for later quarters for the effects of future business acquisitions. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which specifies that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The pronouncement is effective for the Company beginning January 1, 2003. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 143. Management does not anticipate that the adoption of SFAS No. 143 will have any material impact on the financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for the Company beginning January 1, 2002. This statement supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of" and other related guidance. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 144. Management does not anticipate that the adoption of SFAS No. 144 will have any material impact on the financial statements. NOTE C - ACCOUNTS RECEIVABLE Accounts receivable consisted of the following: ------------------------------------------ --------------- ------------ December 31, 2001 2000 ------------------------------------------ --------------- ------------ Accounts Receivable $ 2,776,656 $ 1,744,795 Less: Allowance for Doubtful Accounts 3,143 9,347 ------------------------------------------ --------------- ------------ Net Accounts Receivable $ 2,773,513 $ 1,735,448 ------------------------------------------ --------------- ------------ NOTE D - PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
---------------------------------- ---------- ---------- ----------- ----------- OWNED LEASED TOTAL Total December 31, 2001 2000 ---------------------------------- ---------- ---------- ----------- ----------- Automotive Equipment $ 595,365 $ -- $ 595,365 $ 666,120 Computer Equipment and Software 88,116 -- 88,116 50,945 Contractor's Equipment 902,384 168,066 1,070,450 1,193,457 Furniture and Fixtures 54,262 -- 54,262 44,467 Office Equipment 16,656 -- 16,656 11,779 Leasehold Improvements 25,640 -- 25,640 22,024 ---------------------------------- ---------- ---------- ----------- ----------- $1,682,423 $ 168,066 $ 1,850,489 $ 1,988,792 Less: Accumulated Depreciation 750,402 16,233 766,635 699,280 ---------------------------------- ---------- ---------- ----------- ----------- Net Property and Equipment $ 932,021 $ 151,833 $ 1,083,854 $ 1,289,512 ---------------------------------- ---------- ---------- ----------- -----------
F-8 ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE E - DEMAND LOAN The demand loan consisted of the following: ======================================================================= December 31, 2001 2000 ----------------------------------------------------------------------- Demand Loan, prime plus 1.0%, secured by all assets of the Company, various insurance policies and a personal guarantee of one of the directors of the Company. $ 257,865 $ 305,003 ----------------------------------------------------------------------- The prime rate was 4.00% and 7.50% at December 31, 2001 and 2000, respectively. The demand loan is for a one-year term and is renewable annually. Interest only is payable monthly on the demand loan. The maximum amount of borrowings under the demand loan is the lesser of $1 million (CDN) or 80% of the receivables value, as defined in the credit agreement. The loan could have been increased to $1.5 million (CDN) between October 31, 2000 and February 28, 2001. The demand loan contains various covenants pertaining to the maintenance of net worth, direct borrowings, leverage, and liquidity requirements. At December 31, 2001 and 2000, the Company was not in compliance with certain ratios. Under the terms of the agreement, the bank may call the loan if the Company is in violation of any restrictive covenant. As of March 29, 2002, the Company had not obtained a waiver from the bank. Non-compliance with the covenants has had no impact on the Company's ability to borrow funds or on the terms of the loan. The management of the Company has the means and the willingness to refinance the debt should demand for payment be made. NOTE F - LONG-TERM DEBT Long-term debt consisted of the following: ----------------------------------------------------------------------- December 31, 2001 2000 ----------------------------------------------------------------------- Lien Notes, 3.0% to 4.9%, secured by automotive and contractor's equipment, due in installments through 2005. $ 150,722 $ 269,672 Lien Notes, 5.90% to 10.25%, secured by automotive and contractor's equipment, due in installments through 2005. 381,862 708,393 ---------------------------------------------- --------- ----------- Total Long-Term Debt $ 532,584 $ 978,065 Less: Current Portion 160,528 247,112 ---------------------------------------------- --------- ----------- Amount Due After One Year $ 372,056 $ 730,953 ==================================================================== Annual maturities of debt for the five years succeeding December 31, 2001 are as follows: 2002 2003 2004 2005 2006 Total ----------- ----------- ----------- ----------- ----------- ----------- $ 160,528 $ 167,328 $ 164,493 $ 40,235 $-- $ 532,584 ======================================================================= F-9 ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE G - CAPITAL LEASES During the third quarter of 2001, the Company entered into capital leases for various construction equipment valued at $168,066. Such capital leases expire in 2004. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are depreciated over the lower of their related lease terms or their estimated productive lives. Depreciation of assets under capital lease is included in depreciation expense for the year ended December 31, 2001. Minimum future lease payments under capital leases as of December 31, 2001 for each of the next five years and thereafter are: ======================================================================= Year Ended December 31, Amount -------------------------------------------------- ------------------- 2002 $ 57,390 2003 57,390 2004 43,917 2005 -- 2006 -- Subsequent to 2006 -- -------------------------------------------------- ------------------- Total Minimum Lease Payments $ 158,697 Less: Amount Representing Interest 7,530 -------------------------------------------------- ------------------- Present Value of Net Minimum Lease Payments $ 151,167 ======================================================================= NOTE H - LEASE ARRANGEMENTS The Company leases a facility and contractor's equipment under operating leases which expire at various dates through 2005. During 2001, the Company entered into sale-leaseback arrangements with unrelated third parties. Under the arrangements, the Company sold certain contractor's equipment and leased it back over periods ranging from 3 to 4 years. The leases have an option at the end of the term to purchase the equipment at fair value, renew the lease or return the equipment. The Company is responsible for ordinary maintenance on the equipment. The leasebacks have been accounted for as operating leases. The gain of $18,046 realized in this transaction is being deferred over the lease's term and is netted against general and administrative expense. At December 31, 2001, the Company's future minimum lease payments are as follows: 2002 2003 2004 2005 2006 Total ----------- ----------- ----------- ----------- --------- ------------- $ 278,952 $ 208,522 $ 181,190 $ 78,982 $-- $ 747,646 ======================================================================= Rent expense under operating leases was $248,177 and $46,819 for the years ended December 31, 2001 and 2000, respectively. F-10 ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE I - CONVERSION OPTION The acquisition as of June 1, 2001 by Alfa Utility Services Inc. (A Canadian Corporation) of its operating subsidiary Ontario Power Contracting Limited involved the issuance to Ontario's two corporate shareholders of 1,000 of Alfa Canada's Class A Preference Shares. An Amended Option Agreement was entered into to allow the Class A Preference Shares to be converted into 4,000,000 restricted shares of Alfa Utility Services, Inc. (A Delaware Corporation) Common Stock. Alfa's financial statements reflect earnings per share on a fully diluted basis as if the 4,000,000 shares are outstanding for the period December 31, 2000. For the period ended December 31, 2001, the financial statements do not include the 4,000,000 shares, as they are antidilutive . Until converted, the Class A Preference Shares bear a 6% non-cumulative dividend totaling $75,000 per year and would be entitled to a liquidation preference of $1,250,000 and, beginning June 1, 2003, a redemption payment at the shareholder's election (on 30 days notice) of $1,250,000. The redemption option has been permanently waived by the shareholders. Such 1,000 Class A Preference Shares are held in equal amounts by Carmine Industries, Ltd. and 815748 Ontario Limited. Both are Ontario corporations controlled by Alfa's President, Joseph Alfano. The option will expire on May 31, 2006. NOTE J - RETIREMENT PLAN The Company maintains a defined contribution retirement savings plan, which covers substantially all employees. The Company makes matching contributions to the plan up to 2% of each employee's base salary. The Company's matching contributions for 2001 and 2000 amounted to approximately $6,500 and $3,900 for 2001 and 2000, respectively. NOTE K - RELATED PARTY TRANSACTIONS Sales for the years ended December 31, 2001 and 2000 include $-0- and $123,200, respectively, to a related party. The amounts included in accounts receivable from this related party amounted to $-0- and $51,500 for the years ended December 31, 2001 and 2000, respectively. One of the shareholders of the related party is also a shareholder of the Company. The amount due from related parties, who are related parties by virtue of common stockholders, is non-interest bearing, unsecured, with no set terms of repayment. The Company paid management fees in the amount of $45,820 and $-0- for the years ended December 31, 2001 and 2000, respectively, to a related company. One of the directors of the Company is the shareholder of the related company. NOTE L - INCOME TAXES The components of the provision for income taxes are as follows: ================================================================== December 31, 2001 2000 ------------------------------------------------------ ----------- CURRENT U.S. $ -- $ -- Foreign -- -- DEFERRED U.S. -- -- Foreign 160,696 16,211 ----------------------------------------------------- ----------- Totals $ 160,696 $ 16,211 ================================================================= F-11 ALFA UTILITY SERVICES, INC. (A DELAWARE CORPORATION) WOODBRIDGE, ONTARIO CANADA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE L - INCOME TAXES - CONTINUED Deferred tax (liabilities) assets consist of the following: ------------------------------------------ ------------- -------------- December 31, 2001 2000 ------------------------------------------ ------------- -------------- Property and equipment basis difference $(87,154) $(31,848) Contracts (198,877) (102,130) ------------------------------------------ ------------- -------------- Gross Deferred Tax Liabilities (286,031) (133,978) ------------------------------------------ ------------- -------------- Net Operating Loss Carryforward 24,249 21,499 ------------------------------------------ ------------- -------------- Gross Deferred Tax Assets 24,249 21,499 ------------------------------------------ ------------- -------------- Net Deferred Tax Liability $(261,782) $(112,479) ------------------------------------------ ------------- -------------- The net operating loss carryforward expires in 2007. NOTE M - RESTATEMENT In 2002, after giving consideration to guidance provided by Statement of Financial Accounting Standards No. 28, "Accounting For Sales with Leasebacks," the Company deferred the gain on the sale-leaseback transaction that occurred in 2001. YEAR ENDED DECEMBER 31, 2001 -------------------------------------------------------------------------------- COMPREHENSIVE LOSS FOR THE PERIOD $ (151,135) AS ORIGINALLY REPORTED Deferred Gain on Sale-Leaseback ( 16,774) -------------------------------------------------------------------------------- COMPREHENSIVE LOSS FOR THE PERIOD, RESTATED $ (167,909) ================================================================================ F-12