U.S. SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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FORM 10-QSB / A |
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND |
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EXCHANGE ACT OF 1934 |
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For The Quarter Ended December 31, 2003 |
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0-643 |
Corning Natural Gas Corporation |
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(Commission File Number) |
(Exact name of registrant as specified in its charter) |
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New York |
16-0397420 |
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(State or other jurisdiction of |
(IRS Employer ID No) |
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incorporation or organization) |
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330 W William Street, PO Box 58, Corning, New York 14830 |
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(Address of principal executive offices) |
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607-936-3755 |
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(Registrants telephone number, including area code) |
Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 Or 15(d) of the Exchange Act of 1934 during the past 12 months and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No ______.
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ____ No _X__.
Number of shares of Common Stock outstanding at the end of the quarter. 508,191
There is only one class of Common Stock and no Preference Stock outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to the Form 10-QSB of CORNING NATURAL GAS CORPORATION (the "Company") for the quarterly period ended December 31, 2003, which was originally filed February 17, 2004 ("Form 10-QSB") without review by an independent public accountant is being amended to indicate that the Companys current independent accountant, Rotenberg & Company, LLP, has subsequently reviewed the financial statements for the quarter ended December 31, 2003 and there were no material changes as a result of this review.
The remainder of the Quarterly Report on Form 10-QSB, as previously filed is included herein and remains unchanged.
CORNING NATURAL GAS CORPORATIONFORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 2003
Managements Discussion & Analysis
As the Companys business is seasonal, the interim results should not be used as an indication of what results of the fiscal year 2004 may be. Consolidated revenue of $6,472,000 for the quarter decreased $433,500 compared to the same quarter last year due primarily to the sale of the assets of the Appliance Corporation in September 2003.
AMENDMENT TO MD&A PORTION OF QUARTERLY REPORT (FORM 10QSB/A, AS LAST SUBMITTED MARCH 19, 2004)
Substitute the following for the third and fourth paragraphs of MD&A:
Consolidated net loss for the quarter was $41,800 compared to net income of $130,200 in the same quarter the previous year. Corning Realty produced earnings of $46,000 for the quarter compared to a profit of $64,500 for the same quarter last year. The decrease is the result of increased commission expense due to a structure that compensates the highest producing agents in the final months of the calendar year. The Foodmart Plaza experienced earnings of $22,000 compared to earnings of $17,300 last year. The Tax Center International experienced earnings of $22,900 compared to $29,000 last year. Corning Mortgage experienced earnings of $5,800 compared to $5,000 last year. A net loss of $2,900 was experienced in utility operations compared to a loss of $15,000 last year.
The primary reason for the decline in consolidated net income is the net loss incurred by the Appliance Corporation of $136,500 versus net income of $29,300 the prior year. The assets of the Appliance Corporation were sold in September 2003; but that segment still incurs expense allocations that were established in the Companys last rate case by the New York Public Service Commissions (PSCs) December 23, 2002 Order Adopting the Terms of a Joint Proposal (2002 Order). The pre-sale allocations between regulated and unregulated business segments were used as a basis for setting the rates that became effective as of January 11, 2003 and that are to continue through 2005. Upon sale of the Appliance Corporation assets, the amounts allocated to unregulated operations became overstated and, conversely, the amounts allocated to regulated operations, which would otherwise be recoverable in rates, became understated.
The 2002 Order also provided for incentive revenues of $174,000 which the Company would be permitted to record as income (equating to approximately $104,000 in net income) if certain conditions were met. The Company is in the process of making the required demonstration to the PSC to enable it to treat the $174,000 attributable to the Rate Year ending December 31, 2003 as income.
On March 12, 2004, the Company filed with the PSC a Petition to amend the Joint Proposal approved by the 2002 Order to address certain aspects of the Joint Proposal which, if corrected, should improve the Companys financial position, increase cash flow, and avoid subsidizing the regulated utility operations with funds from the unregulated business segments. In addition to revising the allocations between regulated and unregulated operations to reflect the sale of the Appliance Corporations assets and to authorize recording of the $174,000 revenue incentive as income, the Petition seeks other relief, including discontinuance, during the remaining term of the Joint Proposal (through 2005), of certain pension and other post-employment benefits amortizations totaling $400,000 and a change in the computation of the cost of natural gas stored underground to reflect substantial increases in the unit cost of natural gas. The Company has requested that such relief be granted through a procedure permitting shortened notice of PSC action and, if necessary, implementation of revised rates on a temporary basis, subject to further review by the PSC. Although the Company cannot predict when the PSC will issue its decision on the Petition, it is reasonable to expect that such action will be taken during the second quarter of 2004.
The Company finances its capital additions, as well as gas purchased, through a combination of internally generated funds and short-term borrowing. For all operations, the Company has $7,750,000 available through lines of credit at local banks, the terms of which are disclosed in the Companys latest annual report on Form 10-KSB. It is expected that, on a consolidated basis, current capital resources will continue to be sufficient for the Companys operations over the next twelve months. As described in the Companys Petition to the PSC, however, the sufficiency of cash flow for regulated operations continues to be dependent upon resources from the Companys unregulated operations. If the relief sought in the Companys Petition is granted promptly, the regulated utility operations should be able to generate adequate cash flows to enable it to avoid further reliance on resources from the unregulated business segments. The Company currently projects that it will need to refinance a portion of its short-term borrowings as long-term debt to avoid a potential cash shortage during 2005. The Companys ability to effect such a refinancing is dependent, in part, on the PSC granting the requested relief.
Segment Overview:
The following table reflects year to date results of the segments consistent with the Companys internal financial reporting process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resources to, each of these segments.
Gas |
Appliance |
Tax |
Corning |
Foodmart |
Corning |
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Company |
Corporation |
Center |
Realty |
Plaza |
Mortgage |
Total |
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Revenue:( 1) |
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03: |
5,036,873 |
14,026 |
135,137 |
1,199,267 |
75,550 |
11,545 |
6,472,398 |
02: |
4,887,874 |
707,978 |
121,980 |
1,103,726 |
72,669 |
11,712 |
6,905,939 |
Net income (loss): |
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03: |
(2,958) |
(136,512) |
22,941 |
46,918 |
22,034 |
5,792 |
(41,783) |
02: |
(15,038) |
29,342 |
28,991 |
64,504 |
17,339 |
5,023 |
130,161 |
Interest Income: (1) |
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03: |
30,747 |
24,067 |
3,040 |
-------- |
-------- |
-------- |
57,854 |
02: |
20,568 |
14,909 |
2,567 |
-------- |
35 |
-------- |
38,079 |
Interest Expense: (1) |
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03: |
294,811 |
4,510 |
-------- |
28,086 |
14,700 |
1,886 |
343,993 |
02: |
256,147 |
6,233 |
121 |
22,832 |
17,056 |
3,071 |
305,460 |
Total assets: (1)&(2) |
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03: |
30,477,847 |
3,899,910 |
621,478 |
1,593,699 |
1,130,549 |
198,077 |
37,921,560 |
02: |
28,872,172 |
4,108,241 |
478,466 |
1,634,147 |
1,139,606 |
202,393 |
36,435,025 |
Depreciation and amortization: |
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03: |
132,736 |
900 |
3,982 |
16,340 |
7,966 |
-------- |
161,924 |
02: |
124,784 |
52,405 |
3,409 |
12,640 |
7,966 |
-------- |
201,203 |
Income tax expense(benefit): |
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03: |
34,098 |
8,803 |
11,818 |
24,170 |
(11,351) |
2,984 |
70,523 |
02: |
29,773 |
9,747 |
15,245 |
35,897 |
(11,810) |
2,778 |
81,631 |
(1) Before elimination of intercompany transactions.
(2) Total assets include property, plant and equipment, accounts receivable, inventories, cash and other amounts specifically related to each identified segment.
Interest income and expense have been displayed in the segment in which it has been earned or incurred. Segment interest expense other than the Gas Company is included within unregulated expenses in the consolidated statements of income.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 discontinues the practice of amortizing goodwill and indefinite-lived intangible assets and initiates a review, at least annually, for impairment. Intangible assets with a determinable useful life will continue to be amortized over their useful lives. SFAS No. 142 applies to existing goodwill and intangible assets, and such assets acquired after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Accordingly, the Company adopted this standard as of October 1, 2002, and no longer amortizes its existing goodwill after that date. The Company completed its initial assessment of the carrying value of goodwill and concluded that an impairment charge was not required.
The effect of the amortization of the Companys existing goodwill on net income, and basic and diluted net income per share for the quarters ended December 31, 2003 and December 31, 2002, respectively, is as follows:
For the quarter ended |
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December 31, |
December 31, |
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2003 |
2002 |
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Net Income(loss): |
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Reported net income(loss) |
$ |
(41,783) |
$ |
130,161 |
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Goodwill amortization |
-- |
-- |
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Adjusted net income(loss) |
$ |
(41,783) |
$ |
130,161 |
Basic and diluted net income(loss) per share: |
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Reported basic and diluted net income (loss) per weighted average share |
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$ |
(0.085) |
$ |
0.278 |
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Goodwill amortization |
|
|
|
-- |
|
-- |
|
|
Adjusted basic and diluted net income (loss) per share |
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|
$ |
(0.085) |
$ |
0.278 |
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The following tables set forth total comprehensive income (loss) for the quarter indicated below.
Quarter ended |
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December 31, |
December 31, |
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2003 |
2002 |
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Net income(loss) |
$ |
(41,783) |
$ |
130,161 |
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Other comprehensive income(loss) |
64,613 |
48,249 |
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Total comprehensive income |
$ |
22,830 |
$ |
178,410 |
During the first quarter of fiscal year 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for Impairment or Disposal of Long Lived Assets." There was no effect on the Companys consolidated financial position, results of operations or cash flows resulted from the adoption of SFAS No. 144 for the quarter ended December 31, 2003.
In June 2002, The Financial Accounting Standards Board ( FASB) issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of this statement will not have a material effect on the Companys consolidated financial position, results of operations or cash flows.
The information furnished herewith reflects all adjustments, which are in the opinion of management necessary to a fair statement of the results for the period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principals generally accepted in the United States of America have been condensed or omitted pursuant to SEC rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading.
The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys latest annual report on Form 10-KSB. These unaudited interim financial statements have not been audited or certified by a firm of certified public accountants.
There were no sales of unregistered securities (debt or equity) during the quarter ended December 31, 2003.
Controls and Procedures
a. Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this quarterly report Form 10-QSB/A the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15). Based upon that evaluation, or Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that material information relating to us and our consolidated subsidiaries is recorded, processed, summarized and reported in a timely manner.
b. Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
SIGNATURESIn accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:
April 2, 2004
Thomas K. Barry, Chairman of the Board, President and CEO. |
Date:
April 2, 2004
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Kenneth J. Robinson, Chief Financial Officer |
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY |
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Condensed Consolidated Statements of Income |
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Unaudited |
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Form 10 QSB |
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Quarter Ended |
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December 31, 2003 |
December 31, 2002 |
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Utility Operating Revenues |
$5,036,873 |
$4,887,874 |
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Cost and Expense |
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Operating Expense |
4,737,578 |
4,637,709 |
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Interest Expense |
294,812 |
251,837 |
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Income Tax |
34,098 |
29,773 |
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Other Deductions, Net |
4,431 |
4,311 |
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Total Costs and Expenses |
5,070,919 |
4,923,630 |
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Utility Operating Loss |
(34,046) |
(35,756) |
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Other Income |
31,088 |
20,718 |
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Net (Loss) Income from Utility Operations |
(2,958) |
(15,038) |
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Net (Loss) Income from Non-Utility Operations |
97,687 |
115,857 |
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Net (Loss) Income from Continuing Operations |
94,729 |
100,819 |
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(Loss) Income from Discontinued Operations, Net of Income Tax |
(136,512) |
29,342 |
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Net (Loss) Income |
(41,783) |
130,161 |
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Weighted average earnings(loss) per share- |
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basic & diluted |
($0.085) |
$0.278 |
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Weighted average earnings per share = Net Income as shown above divided |
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by 491,330 and 467,667 shares at December 31, 2003 and 2002, respectively. |
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY |
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Consolidated Balance Sheets |
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Unaudited |
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Form 10 QSB |
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Assets |
December 31, 2003 |
September 30, 2003 |
|
Plant: |
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Utility property, plant and equipment |
$25,147,388 |
$24,953,757 |
|
Non-utility - property, plant and equipment |
1,833,913 |
1,803,271 |
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Less accumulated depreciation |
9,791,130 |
9,617,894 |
|
Total plant utility and non-utility net |
17,190,171 |
17,139,134 |
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Investments: |
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Marketable securities available for sale at fair value |
1,895,540 |
1,741,050 |
|
Investment in joint venture and associated companies |
197,875 |
201,151 |
|
Total investments |
2,093,415 |
1,942,201 |
|
Current assets: |
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Cash and cash equivalents |
235,750 |
266,160 |
|
Customer accounts receivable, less allowance for uncollectibles |
2,542,553 |
1,274,897 |
|
Notes Receivable |
45,000 |
43,000 |
|
Gas stored underground, at average cost |
2,961,224 |
3,175,948 |
|
Gas and appliance inventories |
231,862 |
231,217 |
|
Prepaid expenses |
529,598 |
707,510 |
|
Total current assets |
6,545,987 |
5,698,732 |
|
Deferred debits and other assets: |
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Regulatory assets: |
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Income taxes recoverable through rates |
1,016,661 |
1,016,661 |
|
Unrecovered gas costs |
1,611,410 |
1,151,694 |
|
Other |
998,937 |
1,134,986 |
|
Goodwill net of amortization |
1,493,719 |
1,493,719 |
|
Unamortized debt issuance cost |
280,015 |
285,084 |
|
Other |
994,558 |
873,705 |
|
Total deferred debits and other assets |
6,395,300 |
5,955,849 |
|
Total assets |
$32,224,873 |
$30,735,916 |
|
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY |
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Consolidated Balance Sheets |
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Unaudited |
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Form 10 QSB |
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Capitalization and liabilities: |
December 31, 2003 |
September 30, 2003 |
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Common stockholders' equity: |
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Common stock (common stock $5.00 par value per share. |
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Authorized 1,000,000 shares; issued and outstanding |
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508,191 and 482,900 shares at Dec 31, 2003 and |
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September 30, 2003, respectively.) |
$2,703,216 |
$2,415,000 |
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Other paid-in capital |
790,886 |
790,886 |
|
Retained earnings |
1,678,541 |
2,008,540 |
|
Accumulated other comprehensive loss- |
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net unrealized loss on securities available for sale and |
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minimum pension liability |
(1,685,870) |
(1,750,483) |
|
Total common stockholders' equity |
3,486,773 |
3,463,943 |
|
Long-term debt, less current installments |
10,482,336 |
10,539,867 |
|
Current liabilities: |
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Current portion of long-term debt |
309,977 |
309,977 |
|
Borrowings under lines-of-credit |
7,050,000 |
6,550,000 |
|
Accounts payable |
2,337,484 |
2,136,859 |
|
Accrued expenses |
582,871 |
511,267 |
|
Customer deposits and accrued interest |
1,575,566 |
1,300,797 |
|
Deferred income taxes |
0 |
570,083 |
|
Total current liabilities |
11,855,898 |
11,378,983 |
|
Deferred credits and other liabilities: |
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Deferred income taxes |
1,873,446 |
1,171,966 |
|
Deferred compensation and post-retirement |
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benefits |
1,579,741 |
1,600,187 |
|
Deferred pension costs |
2,524,054 |
2,241,547 |
|
Other |
422,625 |
339,423 |
|
Total deferred credits and other liabilities |
6,399,866 |
5,353,123 |
|
Concentrations and commitments |
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Total capitalization and liabilities |
$32,224,873 |
$30,735,916 |
|
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY |
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Consolidated Statements of Cash Flows |
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For the Quarter Ended December 31, 2003 and 2002 |
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Unaudited |
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Form 10-QSB |
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December 31, 2003 |
December 31, 2002 |
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Cash flows from operating activities: |
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Net income |
($41,783) |
$130,161 |
|
Adjustments to reconcile net income to net cash |
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used in operating activities: |
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Depreciation and amortization |
161,924 |
201,204 |
|
(Gain) loss on sale of marketable securities |
(11,735) |
(137) |
|
Deferred income taxes |
(30,262) |
287,810 |
|
Changes in assets and liabilities: |
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(Increase) decrease in: |
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Accounts receivable |
(1,267,657) |
(1,095,732) |
|
Gas stored underground |
214,724 |
(14,967) |
|
Gas and appliance inventories |
(645) |
91,818 |
|
Prepaid expenses |
177,912 |
127,756 |
|
Unrecovered gas costs |
(459,716) |
(559,098) |
|
Prepaid income taxes |
0 |
(144,528) |
|
Deferred charges - pension and other |
218,956 |
191,853 |
|
Increase (decrease) in: |
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Accounts payable |
200,625 |
354,912 |
|
Customer deposit liability |
274,769 |
(289,924) |
|
Accrued general taxes |
0 |
9,344 |
|
Supplier refunds |
0 |
29,945 |
|
Other liabilities and deferred credits |
352,256 |
(14,555) |
|
Net cash used in operating activities |
(210,632) |
(694,138) |
|
Cash flow from investing activities: |
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Purchase of securities available for sale |
(37,974) |
(78,488) |
|
Capital expenditures, net of minor disposals |
(224,273) |
(406,840) |
|
Net cash used in investing activities |
(262,247) |
(485,328) |
|
Cash flows from financing activities: |
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Net borrowings under lines-of-credit |
500,000 |
1,375,000 |
|
Repayment of long-term debt |
(57,531) |
18,137 |
|
Net cash provided by financing activities |
442,469 |
1,393,137 |
|
Net increase in cash |
(30,410) |
213,671 |
|
Cash and cash equivalents at beginning of period |
281,036 |
||
Cash and cash equivalents at end of period |
$494,707 |
||
Supplemental disclosures of cash flow information: |
|||
Cash paid during the period for: |
|||
Interest |
$299,868 |
$280,474 |
|
Income taxes |
$0 |
$5,648 |
INFORMATION WITH RESPECT TO FINANCIAL STATEMENTS
The financial statements for the quarter ended December 31, 2003 that were previously filed included unaudited financial statements that had not been reviewed by an independent public accountant in accordance with Rule 10-01(d) of Regulation S-X promulgated by the Securities and Exchange Commission, as the Company had dismissed its auditors, Deloitte & Touche, LLP effective January 7, 2004. As previously reported on Form 8-K/A, Rotenberg & Company, LLP of Rochester, NY has been engaged as the Companys new independent public accountants. Rotenberg & Company, LLP has subsequently reviewed the financial statements for the quarter ended December 31, 2003 and there were no material changes as a result of this review.
Corning Natural Gas Corporation Certification under Section 906 of the Sarbanes/Oxley Act filed as part of the 10-QSB for Quarter Ended December 31, 2003.
Presented on signature page of 10-QSB
CERTIFICATION
Each of the undersigned hereby certifies in his capacity as an officer of Corning Natural Gas Corporation (the "Company") that the Quarterly Report of the Company on Form 10-QSB/A for the period ended December 31, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.
Dated: April 2, 2004
Thomas K. Barry, Chairman of the Board,
Chief Executive Officer
Kenneth J. Robinson, Executive Vice President,
Chief Financial Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
We, Thomas K. Barry and Kenneth J. Robinson, certify that:
1. We have reviewed this quarterly report on Form 10-QSB/A of Corning Natural Gas Corporation,
2. Based on our 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 our 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. We are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we 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. We have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants 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 registrants internal controls; and
6. We 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: April 2, 2004 |
||
Thomas K. Barry, Chairman of the Board, Chief Executive Officer |
Kenneth J. Robinson, Executive Vice President, Chief Financial Officer |