<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: May 31, 1996
or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from: _____ to _____
Commission File No. 0-10157
ALFA RESOURCES, INC.
(Name of small business issuer in its charter)
COLORADO 84-0846529
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or Organization)
216 16TH STREET, SUITE 730, DENVER, COLORADO 80202
(Address of principal executive offices, including zip code)
(303) 572-1135
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
Title of Class
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes -X-
No---
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $357,874.
To the best of management's knowledge, no purchasers or sales of the issuer's
voting stock have occurred, and no market price for such stock has been
quoted, in the past 60 days. As a result, the issuer is unable to compute the
aggregate market value of the voting stock held by non-affiliates by reference
to the price at which the stock was sold, or to the average bid and asked
prices of such stock, as of a specified date within the past 60 days.
DOCUMENTS INCORPORATED BY REFERENCE: Registration Statement 2-73526, as
amended, is incorporated into Part IV of this Report.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS. Alfa Resources, Inc. ("Alfa" or the
"Company"), with its mailing address at 216 16th Street, Suite 730, Denver,
Colorado 80202, telephone number (303) 572-1135, was incorporated as a
Colorado corporation on January 6, 1981. Granite Alfa Corporation ("Granite
Alfa"), a wholly-owned subsidiary, also has the same mailing address and was
incorporated as a Colorado corporation on May 27, 1982. Alfa and Granite Alfa
were organized for the purpose of engaging in oil and gas exploration,
development and production activities. Granite Alfa acts as general partner
of one privately-offered limited partnership formed to conduct oil and gas
developmental drilling activities. Alfa also owns approximately 80% of the
common stock of Meteor Developments, Inc. ("Meteor") which has the same
address and telephone number as Alfa.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. The Company's activities
are confined to oil and gas exploration and development, hence the Company has
no industry segment other than the oil and gas business.
(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
Alfa, through its own interests and through its ownership of controlling
positions in subsidiaries is engaged in the business of developing and
acquiring oil and gas reserves and produces and sells crude oil and natural
gas in the United States. Alfa is no longer involved in acquiring or
developing oil and gas revenues. Management's primary objective now is the
merger with another company, possibly one seeking a public "shell", which has
potential for future growth.
PROPERTY ACQUISITION AND SALES
In the past, Alfa attempted to acquire developed and undeveloped oil and gas
properties through the acquisition of leases and other mineral interests or
through the acquisition of financially troubled companies.
EQUIPMENT, PRODUCTS AND RAW MATERIALS
Alfa owns no drilling rigs and has done no drilling for several years.
Alfa's principal products are crude oil and natural gas. Crude oil and
natural gas are sold to various purchasers including pipeline companies which
service the areas in which Alfa's producing wells are located. Alfa's
business is seasonal in nature, to the extent that weather conditions at
certain times of the year may affect its access to oil and gas properties and
the demand for natural gas.
The existence of commercial oil and gas reserves is essential to the ultimate
realization of value from properties, and thus may be considered a raw
material essential to Alfa's business. The acquisition, exploration,
development, production and sale of oil and gas is subject to many factors
which are outside Alfa's control. These factors include national and
international economic conditions, availability of drilling rigs, casing, pipe
and other fuels, and the regulation of prices, production, transportation, and
marketing by federal and state governmental authorities. Alfa acquired oil
and gas properties from landowners, other owners of interests in such
properties, or governmental entities. For information relating to specific
properties of Alfa, see Item 2. Alfa currently is not experiencing any
difficulty in acquiring necessary supplies or services as long as Alfa can pay
for the services and supplies nor is it experiencing any difficulty selling
its products.
COMPETITION
The oil and gas business is highly competitive. Alfa's competitors include
major companies, independents and individual producers and operators. Alfa's
numerous competitors throughout the country are larger and have substantially
greater financial resources than Alfa. Oil and gas, as a source of energy,
must compete with other sources of energy such as coal, nuclear power,
synthetic fuels and other forms of alternate energy. Domestic oil and gas
must also compete with foreign sources of oil and gas, the supply and avail-
ability of which have at times depressed domestic prices. Alfa has an
insignificant competitive position in the oil and gas industry.
The general economic conditions in the United States and the recession in the
oil and gas industry during the past several years have intensified the search
for capital necessary for participation in the oil and gas business. This
shortage of capital has had the effect of curtailing the operations of many
smaller independent companies with limited resources, including Alfa.
GOVERNMENTAL AND ENVIRONMENTAL LAWS
Alfa's activities are subject to extensive federal, state and local laws and
regulations controlling not only the exploration for oil and gas, but also the
possible effect of such activities upon the environment. Existing as well as
future legislation and regulations could cause additional expense, capital
expenditures, restrictions and delays in the development of properties, the
extent of which cannot be predicted. Since inception, Alfa has not made any
material expenditures for environmental control facilities and does not expect
to make any material expenditures during the current and following fiscal
year.
EMPLOYEES
As of May 31, 1996, Alfa had two part-time employees and also employs
independent consultants as needed.
ITEM 2. PROPERTIES
(a) OFFICE FACILITIES. Alfa's principal offices are located at 216 16th
Street, Suite 730, Denver, Colorado 80202. Alfa's monthly allocated rent is
$400 per month. Through one of its subsidiaries, Alfa has signed a one year
lease, expiring in 1997, relating to approximately 2,000 square feet of office
space. Most of the space is subleased to affiliates.
(b) OIL AND GAS PROPERTIES. Alfa and its subsidiaries, hold interests in
producing oil and gas leaseholds as of May 31, 1996, as follows:
Producing Properties Non-Producing Properties
Gross Net Gross Net
State Acres Acres Acres Acres
California 40 1 -- --
Colorado 440 60 -- --
Montana 320 21 -- --
Nebraska 320 80 -- --
New Mexico 640 34 -- --
North Dakota 804 2 -- --
Oklahoma 320 44 -- --
Texas 280 7 -- --
Utah 200 50 -- --
Total 3,364 299 -- --
_________________
Net acres represent the gross acres in a lease or leases multiplied by Alfa's
working interest in such lease or leases.
(b)(1)(A) PROVED OR PROVED DEVELOPED RESERVES. The following table sets
forth the proved developed or proved undeveloped oil or gas reserves
accumulated by Alfa and its subsidiaries, for the fiscal years ended May 31,
1996, May 31, 1995, and May 31, 1994. The reserve estimates and related
values were prepared by management.
All such reserves are located in the continental United States.
1996 1995 1994
Oil Gas Oil Gas Oil Gas
(Bbls) (MCF) (Bbls) (MCF) (Bbls) (MCF)
Proved
Reserves 9,584 1,360 51,218 1,157 143,535 11,905
Proved Devel-
oped Reserves 9,584 1,360 51,218 1,157 143,535 11,905
________________
No major discovery or other favorable or adverse event has occurred since May
31, 1996, which is believed to have caused a material change in the proved
reserves of Alfa.
(b)(2) RESERVES REPORTED TO OTHER AGENCIES. There have been no reserve
estimates filed with any other United States federal authority or agency.
(b)(3)(a) NET OIL AND GAS PRODUCTION. The following table sets forth the
net quantities of oil (including condensate and natural gas liquids) and gas
produced during the fiscal years ended May 31, 1996, May 31, 1995, and May 31,
1994.
1996 1995 1994
Oil (Bbls) 7,616 17,581 39,156
Gas (MCF) 1,042 6,191 4,577
The following table sets forth the average sales price and production cost per
unit of production for the fiscal years ended May 31, 1996, May 31, 1995, and
May 31, 1994.
1996 1995 1994
Average Sales Price: Per
Equivalent Barrel of Oil $16.78 $15.57 $15.26
Average Production (Lifting)
Costs: Per Equivalent
Barrel of Oil $13.37 $14.13 $17.63
During the periods covered by the foregoing tables, Alfa was not a party to
any long-term supply or similar agreements with foreign governments or
authorities in which Alfa acted as a producer.
(b)(4) PRODUCTION WELLS AND ACREAGE. The following table sets forth Alfa's
and its subsidiaries total gross and net productive oil and gas wells and
developed acreage as of May 31, 1996:
<TABLE>
<CAPTION>
A. PRODUCTIVE WELLS<FN1>
OIL GAS
State Gross<FN2> Net<FN3> Gross<FN2> Net<FN3>
<S> <C> <C> <C> <C>
California -- -- 8 .13
Colorado -- -- 5 .53
Montana 1 .07 -- --
Nebraska 2 .50 -- --
New Mexico 4 .21 -- --
North Dakota 6 .15 -- --
Oklahoma 8 1.09 -- --
Texas 8 .18 -- --
Utah -- -- 2 .50
Total 29 2.20 15 1.16
_________________
<FN>
<FN1>
Productive wells are producing wells and wells capable of production including
wells that are shut in.
<FN2>
A gross well is a well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is owned.
<FN3>
A net well is deemed to exist when the sum of fractional ownership working
interests owned in gross wells equals one. The number of net wells is the sum
of the fractional ownership working interests owned in gross wells, expressed
in whole numbers and fractions thereof.
</FN>
</TABLE>
B. DEVELOPED ACREAGE.
<TABLE>
<CAPTION>
State Gross Net<FN1>
<S> <C> <C>
California 40 1
Colorado 1,440 60
Montana 320 21
Nebraska 320 80
New Mexico 640 34
North Dakota 804 2
Oklahoma 320 44
Texas 280 7
Utah 200 50
Total 3,364 299
____________
<FN>
<FN1>
A net acre is deemed to exist when the sum of the fractional ownership working
interest owned in gross acres equals one. The number of net acres is the sum
of fractional working interests owned in gross acres expressed as whole
numbers and fractions thereof.
</FN>
</TABLE>
(b)(5) UNDEVELOPED PROPERTIES. Alfa and its subsidiaries had no interest as
of May 31, 1996 in undeveloped properties.
Alfa's oil and gas properties are in the form of mineral leases. As is
customary in the oil and gas industry, a preliminary investigation of title is
made at the time of acquisition of undeveloped properties. Title
investigations are generally completed, however, before commencement of
drilling operations. Alfa believes that its methods of investigating are
consistent with practices customary in the industry and that it has generally
satisfactory title to the leases covering its proved reserves.
(b)(6) DRILLING ACTIVITY. Alfa drilled no productive or dry exploratory and
development wells during the fiscal years ended May 31, 1996 and May 31, 1995.
(b)(7) DELIVERY COMMITMENTS. Alfa is not obligated to provide a fixed and
determinable quantity of oil and gas in the future pursuant to existing
contracts or agreements.
ITEM 3. LEGAL PROCEEDINGS.
In 1996, the Company settled its litigation brought by the Natural Resources
Commission of the State of Indiana for $10,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fiscal year covered by this Annual Report, no matter was submitted
to a vote of Alfa's security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR ALFA'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Common Stock of Alfa has been traded over-the-counter since January 4,
1982. The following table sets forth the high and low bid prices of the
Common Stock in the over-the-counter market for the periods indicated. The
bid prices represent prices between dealers, who do not include retail
markups, markdowns or commissions, and may not represent actual transactions.
Public trading in the Common Stock of Alfa is minimal.
Quarter Ended Bid High Bid Low
August 31, 1994 No Bid No Bid
November 30, 1994 No Bid No Bid
February 28, 1995 No Bid No Bid
May 31, 1995 No Bid No Bid
August 31, 1995 No Bid No Bid
November 30, 1995 No Bid No Bid
February 28, 1996 No Bid No Bid
May 31, 1996 No Bid No Bid
The number of record holders of Common Stock of Alfa as of August 26, 1996,
was approximately 560. Additional holders of Alfa's Common Stock hold such
stock in street name with various brokerage firms.
Holders of Common Stock are entitled to receive dividends as may be declared
by the Board of Directors out of funds legally available therefor. No common
stock dividends have been declared to date by Alfa, nor does Alfa anticipate
declaring and paying common stock cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have working capital problems because of continued
losses in prior years, and has sold property to satisfy debts. Several
properties were not able to generate sufficient revenue to pay operating costs
in prior years and were shut in and subsequently disposed of. At May 31,
1996, the Company had a working capital deficit in the amount of $309.
Management has sold assets and settled liabilities of its subsidiary, with the
intent to liquidate the subsidiary over time. Management's intent is to use
the Company as a merger candidate.
Some current production revenue is currently being withheld by operators to
liquidate operators' liens for trade payables and this situation is expected
to continue through fiscal 1997. Management intends to use unencumbered
production revenue and other sources, such as sales proceeds, to meet reduced
administrative costs and continue in operation, but this cannot be assured. A
decrease in the price of oil could cause operations to cease within a short
period of time. If the Company is not able to sell assets or production and
to settle its debts, the Company may not be able to continue in business.
Cash flows provided by (used in) operations for the fiscal years ended May 31,
1996, and 1995, were ($112,985) and $2,955 respectively. Cash flow used
during the last fiscal year is principally due to the settlement of payables
for property sales and the increase in related-party (collected after
year-end)
receivables.
Sale of oil, gas and mineral properties provided $9,966 in cash flow in 1996
and $86,260 cash flow in 1995. Sale of marketable securities provided $-0- in
1996 and $5,817 in 1996. These proceeds were used to purchase oil and gas
equipment of $346 and to settle liabilities and reduce the working capital
deficit.
Alfa sells most of its oil production to major oil companies. However, in the
event these purchasers discontinued oil purchases, Alfa has made contact with
other purchasers who would purchase the oil.
Alfa's past strategy has been the merger with or acquisition of other small
independent oil and gas production companies and the acquisition of interests
in producing oil and gas properties in exchange for cash and shares of Alfa's
equity securities. Alfa's current financial position makes it extremely
difficult to accomplish this business plan. Alfa's long-term needs, if it is
able to overcome its current financial deficit, will depend on Alfa's ability
to find a suitable merger candidate.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1996 COMPARED TO MAY 31, 1995
Oil and gas sales decreased 54% to $129,598 in 1996 from $284,383 in 1995.
This decrease is mainly due to the elimination of production from the
Crossroads, Martin and Glenrock fields. Equivalent barrels of oil produced
decreased 58% to 7,732 in 1996 from 18,269 in 1995, the price of which
increased 8% to $16.78 in 1996 from $15.57 in 1995. Gain on sale of property
increased to $210,602 in 1996 compared to $38,839 in 1995, due to property
sales to settle payables. Other revenues decreased 74% to $17,674 in 1996
from $68,972 in 1995, due primarily to the sale of the mineral overriding
royalty in 1995 and the mid-year elimination of administrative services
provided by the Company. These decreases are expected to continue in 1997,
primarily because of the sale of properties in 1996, such as the Glenrock
field which had produced about 56% of the companies oil and gas sales in 1996.
Production expenses decreased 60% to $103,272 in 1996 from $257,978 in 1995.
This decrease is due to shutting in or selling existing properties. The cost
of production per equivalent barrel of oil produced decreased to $13.37 in
1996 from $14.13 in 1995. General and Administrative expenses increased to
$93,823 in 1996 from $90,771 in 1995. Depletion, depreciation and
amortization has decreased to $16,362 in 1996 from $156,539 in 1995. This
decrease is due to sale of reserves. Interest expense decreased to $14,923 in
1996 compared to $25,953 in 1995, as the amortization of debt discount was
eliminated when the related notes payable were extinguished upon transfer of
the property which financed their repayment, which resulted in a gain on
extinguishment of debt of $365,814.
Alfa had a net income of $415,689 in 1996 compared to a net loss of ($133,240)
in 1995 as a result of the above factors, but, as noted above, this did not
result in cash flow to the Company. However, no income is expected in the
next year.
EFFECT OF CHANGES IN PRICES
Changes in prices during the past few years have been a significant factor in
the oil and gas industry. The price received for the oil produced by Alfa and
Meteor fluctuated significantly during the last year. Changes in the price
that Alfa receives for its oil and gas is set by market forces beyond Alfa's
control as well as governmental intervention. The recent volatility and
uncertainty in oil and gas prices make it more difficult for a company like
Alfa to increase its oil and gas asset base and become a significant
participant in the oil and gas industry, and can cause it to cease operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Included at Pages F-1 through F-13 hereof.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No response required.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) IDENTIFICATION OF DIRECTORS. The following table sets forth the names
and ages of all Directors of Alfa as of August 26, 1996, indicating all
positions and offices with Alfa held by each such person, and any periods
during which he has served as a Director.
Period Served as
Name Position Director of Alfa
H. Wayne Hoover Director January, 1984 to Present
C.L. Nordstrom Director January, 1981 to Present
Edward J. Names Director September, 1989 to Present
Alfa's Directors hold office until the next annual meeting of Alfa's
shareholders. There is no arrangement or understanding between any Director
of Alfa and any other person or persons pursuant to which such Director was or
is to be selected as a Director or a nominee for Director.
IDENTIFICATION OF EXECUTIVE OFFICERS. The following table sets forth the
names and ages of all Executive Officers of Alfa, indicating all positions and
offices with Alfa held by each such person, and the period during which he has
served as such.
All Offices Period Served as
Name Age With Company Officer of Alfa
C.L. Nordstrom 77 President December, 1995 to Present
H. Wayne Hoover 53 Secretary August, 1987 to Present
Dennis R. Staal 48 Treasurer September, 1992 to Present
Alfa's Executive Officers hold office until the next annual meeting of
Directors of Alfa. There is no arrangement or understanding between any
Executive Officer and any other person or pursuant to which such Executive
Officer was selected as an Officer of Alfa.
BUSINESS EXPERIENCE. Following is a brief account of the business experience
during the past five years of each Director and Executive Officer of Alfa
indicating his principal occupation and employment during that period, and,
the name and principal business of any organization in which such occupations
and employment were carried on.
H. WAYNE HOOVER, 53, a Director since January, 1984, and Secretary since
August, 1987, is a certified public accountant and received a Bachelors Degree
in Accounting from Colorado State University in 1969. Since 1969, Mr. Hoover
has been engaged in a public accounting practice in Greeley, Colorado.
Currently, Mr. Hoover is an officer in Hoover, Harris & Co., P.C., CPA's, a
Public Accounting Firm. Mr. Hoover's practice involves all aspects of public
accounting including auditing, management advisory services, tax planning and
tax return preparation.
C.L. NORDSTROM, 77, President and a director, has been a Director of Alfa
since its inception in 1981 and President since December, 1995. From June
1979 to March 1994, Mr. Nordstrom was a Director of Winco Petroleum
Corporation, a publicly-held Colorado corporation engaged in oil and gas
exploration and development. Since 1973, Mr. Nordstrom has been self-employed
as a private investor. From 1970 until 1973, Mr. Nordstrom served as Manager
of Operations for the Rocky Mountain District for Champlin Petroleum Company,
a subsidiary of Union Pacific Railroad Company, including Petroleum Engineer
and Division Petroleum Engineer with the Rocky Mountain Division. Mr.
Nordstrom received a Bachelor of Science Degree in Geology and Engineering
from Montana School of Mines in 1947.
EDWARD J. NAMES, 44, a Director received a Bachelor of Arts Degree in
Economics from the University of Colorado in 1973 and a Juris Doctorate from
the University of Denver, 1980. Mr. Names was associated with the law firm of
Nelson & Harding, Denver, Colorado, from 1980 to 1981, and the law firm of
Schmidt, Elrod, & Wills, Denver, Colorado, where he practiced corporate and
securities law and became a Partner in that firm in October, 1982. Mr. Names
became President of Alfa on May 1, 1983, and served as a Director of Alfa from
May 1, 1983 until January 11, 1984, and then was reappointed in September,
1989. Mr. Names was also a shareholder and a Director of Matter & Names,
P.C., from February, 1984 through March, 1985. Mr. Names was Chairman of the
Board, President and a Director of Petro Quest, Inc. from December, 1985 until
May 1986 (the period during which Alfa controlled the Company). Between
November 1, 1986 and February 1994, Mr. Names worked half time for the Company
as well as practicing law half time. From 1988 to 1992, Mr. Names was Special
Counsel to the law firm of Wills and Sawyer, P.C., Denver, Colorado. In
January 1993, Mr. Names began practicing law as a sole practitioner. In
February 1994, Mr. Names became employed full time as Chief Executive Officer
of Meteor Industries, Inc., an S.E.C. reporting company.
DENNIS R. STAAL, 48, Treasurer, is a graduate of the University of Nebraska,
where he received a Bachelor of Science degree in Business Administration in
1970. From 1970 through 1973, he was a CPA with Arthur Andersen and Co. From
1973 through 1976, he was Controller for the Health Planning Council of Omaha.
From 1977 through 1981, he served as a Director of Wulf Oil Corporation and as
President from 1979 to 1981. Form 1979 through 1982, he served as a Director
of Chadron Energy Corporation, and as Director of the First National Bank of
Chadron. From 1982 through 1984 he was Chief Financial Officer of High Plains
Genetics, Inc. Form 1984 through 1986, Mr. Staal was a Financial Consultant.
From 1986 to 1991 Mr. Staal was Director and President of Saba Petroleum
Company. Mr. Staal is a Director of Mystique Developments, Inc., an S.E.C.
reporting company. Mr. Staal is also the owner and president of Mystique
Resources Company, which owns 46% of Mystique Developments, Inc. Mr. Staal is
Secretary/Treasurer and director of Meteor Industries, Inc., an S.E.C.
reporting company.
(b) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES. Alfa does not employ
persons, other than the above-named President and Secretary/Treasurer, who
make or are expected to make significant contributions to the business of
Alfa. Meteor Developments, Inc. employed two persons, including the
Secretary/Treasurer in fiscal 1996, but now has no employees.
(c) FAMILY RELATIONSHIPS. There is no family relationship between any
Director or Executive Officer of Alfa (there currently are no persons chosen
to become Directors or Executive Officers).
(d) DIRECTORSHIPS. Except as described above, Alfa has no Director who is
also a director of any other company with a class of securities registered
pursuant to Section 15(d) of that Act or any company registered as an
investment company under the Investment Company Act of 1940.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. No event has occurred during
the past five years which is material to any evaluation of the ability or
integrity of any Director.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely on a review of Forms 3 and 4 furnished to the Company during
its most recent fiscal year, no persons who were either a director, officer,
beneficial owner of more than 10% of the Company's common stock, failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act
during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and chief financial officer. No
executive officer received compensation in excess of $100,000 for the fiscal
year ended May 31, 1996.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
C.L. Nordstrom, 1996 $ 2,400 -0- -0-
President
Dennis R. Staal, 1996 $17,431 -0- -0-
Treasurer
LONG-TERM COMPENSATION
AWARDS PAYOUTS ALL
RESTRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL STOCK SARs LTIP COMPEN-
POSITION YEAR AWARDS (NUMBER) PAYOUTS SATION
C.L. Nordstrom, 1996 -0- -0- -0- -0-
President
Dennis R. Staal, 1996 -0- -0- -0- -0-
Treasurer
COMPENSATION PURSUANT TO PLANS. Alfa has two stock option plans in effect as
of September 1, 1995, its "Amended Incentive Stock Option Plan" (ISOP) and its
"1982 Bargain Stock Option Plan" (BSOP). Under the ISOP, the exercise price
of the options granted must be at least equal to the market value of Alfa
stock at the time of grant and under the BSOP the exercise price must be at
least $.12 per share. A total of 5,000,000 shares of Alfa's Common Stock has
been reserved for issuance pursuant to the ISOP and 8,000,000 shares of Alfa's
Common Stock has been reserved for issuance under the BSOP. As of August 6,
1996, the only options issued have been issued to Edward J. Names pursuant to
the ISOP in the amount of 4,000,000 shares, 2,000,000 exercisable at $.004 per
share and 2,000,000 at $.002 per share. All 4,000,000 options are currently
vested. These options are exercisable for a period of five years or three
months after an employee terminates his employment with Alfa, whichever is
sooner. Additional options have been issued to the officers of Meteor, but
have expired. For additional information, see Footnote 3 to the Company's
financial statements.
No other compensation was paid or distributed pursuant to a plan during fiscal
year ended 1996. Alfa has no other plans in existence other than those
described herein.
COMPENSATION OF DIRECTORS. The Directors of Alfa who do not receive annual
salaries from Alfa, receive fees of $350 per Board Meeting attended in person,
and reimbursement for travel expenses. These fees may be increased or
decreased from time to time by a majority vote of the Board of Directors. In
addition, any Director who presents a prospect to Alfa which is acceptable to
a majority of disinterested Board members or if a Director substantially
assists in the sale of a Company property the Board may grant such a Director
an overriding royalty interest, and/or pay such a Director a commission or
finder's fee in varying amounts on a case-by-case basis. Commissions, if
paid, are a minimum of two percent of the purchase or sale price of the
property. Other than the fees mentioned above, no consulting fees, finder's
fees or commissions were paid to Directors of Alfa during the fiscal year
ended May 31, 1996. (See also Item 13(a), Transactions With Management and
Others.)
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENT. Alfa has no
compensation plan or arrangement with any of its current or former Officers or
Directors which results or will result from the resignation, retirement or any
other termination by such individual of employment with Alfa.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
following table sets forth the number and percentages of shares of Alfa's
$.001 par value Common Stock (its only class of voting securities) owned
beneficially by any person, who as of August 26, 1996, is known to Alfa to be
the beneficial owner of 5% or more of the issued and outstanding Common Stock
other than the Officers and Directors listed below.
<TABLE>
<CAPTION>
Amount & Nature
Name & Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
<S> <C> <C> <C>
$.001 Par Paul Roebling A Trust 10,330,000<FN1> 23.0%
Value Common c/o Bank of New York
Stock 530 5th Avenue
New York, NY 10021
$.001 Par Edward J. Names 7,458,000<FN2> 16.6%<FN3>
Value Common 216 16th Street, #730
Stock Denver, CO 80202
_____________
<FN>
<FN1>
Includes 2,000,000 shares held in the name of the estate of Paul Roebling
individually and 8,330,000 shares in the name of Paul Roebling A Trust.
<FN2>
Includes Incentive Stock Options to purchase 4,000,000 shares of common stock
which are currently exercisable.
<FN3>
Calculated as if the options owned by Mr. Names are exercised.
</FN>
</TABLE>
(b) SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
number of percentage of shares of Company's $.001 par value Common Stock (its
only class of equity securities outstanding) owned beneficially by each
Director of Alfa, and by all Directors and Officers of Alfa as a group, as of
August 26, 1996:
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership<FN1> of Class
<S> <C> <C>
Edward J. Names 7,458,000<FN2> 16.6%<FN3>
C.L. Nordstrom 891,500 2.0%
Dennis R. Staal 2,000,000 4.5%
H. Wayne Hoover 550,000 1.2%
All Officers and
Directors as a Group
(4 Persons) 10,899,500 24.2%<FN3>
_______________
<FN>
<FN1>
Each of the individuals named own all of the shares listed of Alfa's Common
Stock directly and of record unless otherwise indicated.
<FN2>
Includes Incentive Stock Options for 4,000,000 shares, 2,000,000 exercisable
at $.004 per share and 2,000,000 exercisable at $.002 per share, which are
currently exercisable.
<FN3>
Calculated as if the vested options owned by Mr. Names are exercised.
</FN>
</TABLE>
(c) CHANGES IN CONTROL. There are no arrangements, known to the Company,
including any pledge by any person of securities of Alfa or any of its
parents, the operation of which may at a subsequent date result in a change of
control of Alfa.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS. No Director or Officer of
Alfa, nominee for election as a Director, security holder who is known to Alfa
to own of record or beneficially more than 5% of any class of the Company's
voting securities, or any relative or spouse of any of the foregoing persons,
or any relative of such spouse, who has the same home as such person or who is
a director or officer of any parent or subsidiary of Alfa, has had any
transaction or series of transactions exceeding $60,000, during Alfa's last
two fiscal years, or has any presently proposed transaction, to which Alfa was
or is to be a party, in which any of such persons had or is to have any direct
or indirect material interest.
As a matter of policy, directors who are not employees of the Company may
receive finder's fees or commissions if they present a property or prospect to
the Company which is considered acceptable to a majority of disinterested
board members. Such commissions or finder's fees will be determined on a case
by case basis if a transaction is consummated with regard to such prospect or
property.
In fiscal year 1992, the Company's chief financial officer, acting through
another corporation, formed a company called Meteor Developments of Indiana,
Inc. ("MDI"), which contracted with various parties to operate certain oil and
gas properties in Indiana. MDI then contracted with Alfa's subsidiary to
provide certain operating services. In September 1992, the chief financial
officer sold his shares in MDI to an unrelated third party. In August, 1994,
Alfa's subsidiary and the Company's president and chief financial officer were
named as defendants, with several other parties, in litigation brought by the
Natural Resources Commission of the State of Indiana. Generally, Alfa's
subsidiary and the Company's officers were named because of assumed associated
with and control over MDI, which was alleged to have improperly maintained and
abandoned certain oil wells in Indiana. The lawsuit was settled by payment of
$10,000 in fiscal 1996.
In 1994, a Company's director and the chief financial officer organized a
corporation ("Industries") which sublets office space from Alfa's subsidiary
and through December 31, 1995, was allocated certain overhead charges. Rental
and overhead charges to this company amounted to $25,982 and $33,892 in fiscal
1996 and 1995, respectively. At May 31, 1996, Industries and a subsidiary were
indebted to Alfa's subsidiary for $35,126, which was collected in July, 1996
Additionally, Alfa's subsidiary received $1,275 and $1,200 from Yellow Queen
(a corporation in which the Company's president, chief financial officer and
its former president have ownership) for rent in 1996 and in 1995.
Saba Petroleum Company ("Saba") previously served as operator for certain of
the Company's oil and gas properties, and holds 240,875 shares of Alfa's
Series A preferred stock. In 1995, Alfa's subsidiary loaned $95,000 to Capco
Resources Ltd. ("CAPCO"), Saba's parent company, to partially finance CAPCO's
purchase of shares in "Industries." This loan, which was guaranteed by Alfa's
president and chief financial officer, was repaid with interest in July, 1995.
In fiscal 1996, Alfa and Alfa's subsidiary sold their interests in a producing
unit in Wyoming (which accounted for 56% of oil and gas sales in 1996, and
$11,854 of $26,326 in net income from oil and gas operations) to Yellow Queen
for $8,400 in cash and a receivable of $1,300. Additionally, this transaction
relieved Alfa and Alfa's subsidiary of future dismantlement costs, which were
being accrued over the productive life of the unit, and for which $33,048 had
been accrued at May 31, 1995. The purchase price was based on the purchase by
Yellow Queen of Phillip 66's interest in the South Glenrock "B" Unit which
also included a tract which Alfa and its subsidiary did not have an interest
in. Alfa and its subsidiary also sold their interest in two producing leases
which were outside the unit. Therefore, an exact similar interest was not
available to base the purchase price on; however, the Board of Directors
considered the facts and believed the purchase price was objectively
determined and due to the relatively small nature of the transaction did not
obtain an independent evaluation of the property.
In January, 1996, Alfa's subsidiary's employees became employees of
Industries. Alfa pays its president and former president, its only two
employees, nominal amounts for their part-time services. At May 31, 1996, the
Company and Alfa's subsidiary were indebted to Industries in the amount of
$11,545 and $2,266, respectively, for services rendered.
(b) TRANSACTIONS WITH PROMOTERS. Not applicable.
(c) CERTAIN BUSINESS RELATIONSHIPS. H. Wayne Hoover, a member of Alfa's
Board of Directors and its Secretary, is a partner of SHF Partnership, which
is an investment partnership. SHF Partnership, was a co-working interest
owner and SHF Operating Company was the operator of certain of Alfa's oil and
gas properties located in Weld County, Colorado. Alfa sold or promoted this
working interest to SHF Partnership on terms which in the judgment of Alfa's
Board of Directors were at least as favorable as could be obtained from
unaffiliated third parties. As a co-working interest owner, SHF Partnership
had participated in the drilling of approximately seven wells in which Alfa
has or had an interest.
(d) INDEBTEDNESS OF MANAGEMENT. Except as described above, no Director or
Executive Officer of Alfa, nominee for election as a Director, any immediate
family member of the above, any affiliated corporation, organization, trust or
estate was indebted to Alfa in excess of $60,000 at any time since the
beginning of Alfa's last fiscal year.
(e) TRANSACTIONS WITH PROMOTERS. Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1. FINANCIAL STATEMENTS. The following financial statements are
filed as part of this report:
PAGE(S)
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . .F-1
Consolidated Balance Sheet as of May 31, 1996. . . . . . . . . . . . .F-2
Consolidated Statements of Operations for the years ended
May 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the years ended May 31, 1996 and 1995. . . . . . . . .F-4 - F-6
Consolidated Statements of Cash Flows for the years ended
May 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . .F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . .F-8 - F-20
(a) 2. FINANCIAL INFORMATION SCHEDULES. All schedules have been
omitted, as the required information is inapplicable or the information is
presented in the financial statements or the notes thereto.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
3. Articles of Incorporation Incorporated by reference to Exhibits 4
and Bylaws and 5 to the Company's Registration
Statement (No. 2-73529)
3.1 Articles of Amendment Incorporated by reference to the Com-
pany's Annual Report on Form 10-K for the
fiscal year ended May 31, 1984
3.2 Articles of Amendment Incorporated by reference to the Com-
pany's Annual Report on Form 10-K for the
fiscal year ended May 31, 1985
4. Instruments Defining the See Exhibit 3. above
Rights of Security Holders,
Including Indentures
10.01 Employment Agreement be- Incorporated by reference to Exhibit 14
tween the Company and to the Company's Registration Statement
Ilyas Chaudhary (No. 2-73526)
10.02 Stock Option Plan Incorporated by reference to Exhibit 16
to the Company's Registration Statement
(No. 2-73526)
10.03 Amended Stock Option Plan Incorporated by reference to the Com-
dated May 26, 1982 pany's Annual Report on Form 10-K for the
fiscal year ended May 31, 1983
10.04 Bargain Stock Option Plan Incorporated by reference to the Com-
dated May 26, 1982 pany's Annual Report on Form 10-K for the
fiscal year ended May 31, 1983
10.05 Employment Agreement be- Incorporated by reference to the Com-
tween Alfa and William G. pany's Annual Report on Form 10-K for the
Kimball fiscal year ended May 31, 1983
10.06 Option Agreement between Incorporated by reference to the Com-
tween the Company and pany's Annual Report on Form 10-K for the
William G. Kimball fiscal year ended May 31, 1983
10.07 Employment Agreement be- Incorporated by reference to the Com-
tween Alfa and Michael G. pany's Annual Report on Form 10-K for the
Langton fiscal year ended May 31, 1983
10.08 Option Agreement between Incorporated by reference to the Com-
tween the Company and pany's Annual Report on Form 10-K for the
Michael G. Langton fiscal year ended May 31, 1983
10.09 Employment Agreement be- Incorporated by reference to the Com-
tween Alfa and Edward G. pany's Annual Report on Form 10-K for the
Names fiscal year ended May 31, 1983
10.10 Option Agreement between Incorporated by reference to the Com-
tween the Company and pany's Annual Report on Form 10-K for the
Edward G. Names fiscal year ended May 31, 1983
10.11 Employment Agreement be- Incorporated by reference to the Com-
tween Alfa and Theodore E. pany's Annual Report on Form 10-K for the
Dann fiscal year ended May 31, 1983
10.12 Stock Purchase Agreement Incorporated by reference to Exhibit B to
between Alfa and Petro Schedule 13d filed by Alfa on or about
Quest, Inc. February 12, 1986
10.13 Purchase Agreement between Incorporated by reference to Exhibit 1 to
Alfa and Bordeaux Petro- Form 8-K filed by Alfa in March, 1991
leum Corporation dated
February 28, 1991
10.14 Stock Purchase Agreement Incorporated by reference to Exhibit 2 to
between Alfa and Meteor Form 8-K filed by Alfa in March, 1991
Developments, Inc.
22. List of Subsidiaries Incorporated by reference to the Com-
pany's Annual Report on Form 10-K for the
fiscal year ended May 31, 1983
23. Consent of William G. Attached
LaJoie, P.C.
27. Financial Data Schedule Filed herewith electronically
28(a) Stock Purchase Agreement Incorporated by reference to Exhibit
between Ilyas Chaudhary 28(a) to Form 8-K filed by Alfa on or
and Edward J. Names about May 31, 1983
28(b) Voting Agreement between Incorporated by reference to Exhibit
Bushra Chaudhary and 28(b) to Form 8-K filed by Alfa on or
Edward J. Names about May 31, 1983
28(c) Stock Subscription Agree- Incorporated by reference to Form 8-K
ment between the Company filed by Alfa on or about ___________
and Paul Roebling A Trust
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
fourth quarter of the year ended May 31, 1996.
<PAGE>
WILLIAM G. LAJOIE, P.C.
CERTIFIED PUBLIC ACCOUNTANT
5951 SOUTH MIDDLEFIELD ROAD, SUITE 100
LITTLETON, COLORADO 80123
(303) 798-9972
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Alfa Resources, Inc.
I have audited the accompanying consolidated balance sheet of Alfa Resources,
Inc., as of May 31, 1996, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years
ended May 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Alfa Resources,
Inc., as of May 31, 1996, and the results of its operations and its cash flows
for the years ended May 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered significant losses in 1995
and prior years, has sold most of its oil and gas properties and has no
working capital, the effects of which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
William G. Lajoie., P.C.
Littleton, Colorado
August 15, 1996
F-1
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,790
Accounts receivable-trade, net of
allowance for bad debts of $52,245 (notes 5 and 6) 43,472
Other receivables 4,997
Total current assets 78,259
Oil and gas properties, using the full cost
method (notes 4 and 7) 1,441,535
Less - depletion, depreciation, and
amortization and valuation allowance (1,409,022)
32,513
Other assets 9,038
TOTAL ASSETS $ 119,810
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable (note 6) $ 42,335
Dividends payable (Note 8) 26,463
Accrued expenses 9,770
Total current liabilities 78,568
Minority interest 69,619
Commitments and contingencies (Notes 5 and 9)
Stockholders' equity (deficit) Notes 3 and 8):
Preferred stock, $1.00 par value; authorized
10,000,000 shares; 240,875 shares issued and
outstanding 240,875
Common stock, $.001 par value; authorized
150,000,000 shares; issued and outstanding
44,865,212 shares 44,865
Additional paid-in capital 2,409,636
Accumulated deficit (2,723,753)
Total stockholders' equity (deficit) (28,377)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 119,810
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
1996 1995
REVENUES:
Oil and gas sales $ 129,598 $ 284,383
Gain on sale of oil and mineral
properties 210,602 38,829
Gain on sale of securities -- 5,817
Management fees 13,730 31,289
Production royalties -- 36,314
Interest and other income 3,944 1,369
357,874 398,001
EXPENSES:
Production 103,272 257,978
General and administrative (Note 6) 93,823 90,771
Depletion, depreciation and amortization 16,362 156,539
Interest 14,923 25,953
Litigation settlement (Note 6) 10,000 --
238,380 531,241
Income (Loss) before minority interest
and extraordinary item 119,494 (133,240)
Minority interest 69,619 --
Net income (loss) before extraordinary item 49,875 (133,240)
Extraordinary item - debt extinguishment 365,814 --
NET INCOME (LOSS) $ 415,689 $ (133,240)
Net income (loss) per share, before
extraordinary item $ * $ *
Net income per share from extraordinary
item $ .01 $ --
Net income (loss) per share $ .01 $ *
Weighted average shares outstanding 44,865,212 44,865,212
*less than $(.01) or $.01 per share
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid In
Accumulated
Shares Amount Shares Amount Capital
Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1994 240,875 $240,875 44,865,212 $44,865 $2,409,636
$(3,006,202)
Net loss -- -- -- -- --
(133,240)
Balance May 31, 1995 240,875 $240,875 44,865,212 $44,865 $2,409,636
$(3,139,442)
Net income -- -- -- -- --
415,689
Balance May 31, 1996 240,875 $240,875 44,865,212 $44,865 $2,409,636
$(2,723,753)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1996 AND 1995
1996 1995
Cash provided by (used in) operations
Net Income (loss) $415,689 $(133,240)
Adjustments to reconcile to cash provided
by operations:
Gain attributable to minority interests 69,619 --
Amortization of debt discount 14,923 25,588
Debt extinguishment (365,814) --
Depletion, depreciation and amortization 16,362 156,539
Gain on sale of mineral properties (210,602) (38,829)
Gain on sale of marketable securities -- (5,817)
Impairment of other assets 4,284 --
(Increase) decrease in receivables (14,305) 15,787
(Decrease) in accounts payable (41,235) (15,929)
(Decrease) in accrued expenses (1,906) (1,144)
Cash provided by (used in) operations (112,985) 2,955
Cash provided by (used in) investing activities:
Proceeds from sale of marketable securities -- 5,817
Purchase of oil and gas equipment (346) --
Proceeds from sale of oil & gas properties 9,966 46,260
Proceeds from sale of mineral override -- 40,000
Cash provided by investing activities 9,620 92,077
Net increase (decrease) in cash and cash
equivalents (103,365) 95,032
Cash and cash equivalents, beginning of year 133,155 38,123
Cash and cash equivalents, end of year $ 29,790 $133,155
Supplemental information:
(1) There were no income taxes or interest paid in 1996 or 1995.
(2) Non-cash transactions
$302,717 of oil and gas properties were sold for settlement of trade
payables and elimination of accruals for future dismantlement costs
of $149,169 and $153,548, respectively. Additionally, in conjunction
with the disposal of certain oil properties, notes payable to un-
related parties solely from overriding royalties were extinguished in
the amount of $365,814.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BASIS OF ACCOUNTING
The financial statements include the accounts of Alfa Resources, Inc., (Alfa
or the Company); its wholly owned subsidiary, Granite Alfa Corporation; and an
80% owned subsidiary, Meteor Developments, Inc. (Meteor, Alfa's subsidiary).
The accompanying financial statements have been prepared on the basis of a
going concern. However, the Company has depleted its working capital because
of past operating losses, and has experienced the loss of production income
because most of its oil and gas properties have been sold. At May 31, 1996,
the Company had a working capital deficit in the amount of $309. Certain
current production revenue is being withheld by operators to liquidate trade
payables, and this situation is expected to continue through much of fiscal
year 1997. Management intends to use unencumbered production revenue and
other sources to meet reduced administrative costs and continue in operation,
but this cannot be assured. A decrease in the price of oil or other
unexpected circumstances could cause operations to cease within a short period
of time.
As disclosed elsewhere, management has sold all of Meteor's oil and gas
properties, with the intent to liquidate Meteor over time. Management has
also sold some of Alfa's properties, with the intent to use it as a merger
candidate.
OIL AND GAS ACCOUNTING
The Company and its subsidiaries account for oil and gas properties using the
"full cost" method. Under this method, all costs associated with property
acquisition, exploration and development activities are capitalized, including
costs of unsuccessful activities. Oil and gas properties are depleted using
the units-of-production method based on the ratio of current period production
to estimated proved oil and gas reserve quantities. No gain or loss resulting
from the disposition of oil and gas properties is recognized unless the
relationship between capitalized costs and reserves in the cost center is
significantly changed.
In 1996, Alfa's subsidiary assigned its interest in its remaining oil
properties and recognized a gain on sale of $210,602. Consideration received
included cash, settlement of trade payables, and elimination of accrued
dismantlement costs.
In addition to normal depletion, net capitalized costs are subject to a
ceiling limitation required by the Securities and Exchange Commission (SEC).
Such costs are limited to the present value (discounted at 10%) of the future
net revenues from proved oil and gas properties, using year end costs and
prices, after considering potential future income tax effects. There were no
charges related to the ceiling limitation during the years ending May 31, 1996
and 1995.
Revenue from oil and gas production is recognized upon sale to unaffiliated
purchasers.
F-6
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
OFFICE FURNITURE AND EQUIPMENT
The Company depreciated furniture and equipment over its estimated useful life
(generally seven years) using an accelerated method. As of May 31, 1996, all
furniture and equipment have been fully depreciated.
CASH EQUIVALENTS
Cash equivalents include money-market accounts or other highly-liquid debt
instruments with an original maturity of three months or less. At May 31,
1996, cash equivalents included money-market accounts of $28,504.
MAJOR CUSTOMERS
The Company had major purchasers of oil in 1996 and 1995 as follows;
PURCHASER 1996 1995
A 56% 36%
B 18% 30%
C --% 15%
D 27% --%
E 11% --
The Company has sold its properties whose production was purchased by
Purchaser A (see Note 6).
MINORITY INTEREST
The minority interest in Alfa's subsidiary's common stock (approximately 20%)
was reduced to zero in fiscal year 1995 in recognition of its share of Alfa's
subsidiary's net loss to that extent, but was not reduced below zero since
there is no guarantee of debt or commitment to contribute additional capital
by the minority shareholders. In fiscal year 1996, the minority interest
increased by $69,619 in recognition of its share of current year income and to
record its share of previously unrecognized losses.
USE OF ESTIMATES
Preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates. The unaudited oil and
gas reserve estimates prepared by management should be considered as
reasonably possible to change, such as indicated in Note 7, which can affect
depletion and the net carrying value of oil and gas properties.
INCOME (LOSS) PER SHARE
For the years ended May 31, 1996, and 1995, income (loss) per share is
computed by dividing the net income (loss) by the weighted average number of
common shares outstanding during the year. Shares issued to insiders are
considered to be outstanding from the beginning of the fiscal year issued.
Common stock equivalents represented by options are not included as shares
outstanding if their effect is antidilutive, or if estimated market value has
not exceeded exercise price.
F-7
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
2. INCOME TAXES
The Company and its subsidiaries file a consolidated income tax return.
Investment tax credits were accounted for using the flow-through method. In
fiscal 1995, the principal timing differences related to accrued future
dismantlement costs of $87,300 for financial statement purposes and
amortization of a previous ceiling adjustment for tax purposes of $111,600.
In 1996, the remaining ceiling adjustments of approximately $248,600 and the
accrued dismantlement costs are considered to have reversed upon disposal of
oil and gas properties. Due to uncertainty as to whether the Company will
continue as a going concern and realize its net deferred tax asset, the
Company has established a valuation allowance for its entire amount.
Deferred income taxes and benefits reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by enacted tax laws. The significant
items comprising the Company's deferred tax assets are as follows:
1996 1995
Operating loss carryforwards $1,007,800 $ 979,100
Full cost ceiling limitation adjustments -- 97,000
Total $1,007,800 $1,076,100
A change in majority ownership of the Company will significantly limit the
amount of the net operating loss which may be used.
As of May 31, 1996, the Company had available estimated tax operating loss
carryovers which expire as follows:
Originating Year Carryover Expiration
1982 $ 77,800 1997
1983 640,400 1998
1984 187,600 1999
1985 238,000 2000
1986 86,500 2001
1987 283,400 2002
1988 147,400 2003
1989 108,600 2004
1990 192,600 2005
1991 87,400 2006
1994 377,000 2009
1995 157,500 2010
$2,584,200
3. STOCK OPTIONS
On September 30, 1981, the Board of Directors approved the adoption of an
Incentive Stock Option Plan (ISOP). The ISOP reserved 5,000,000 shares of the
Company's $.001 par value common stock for grants to employees at exercise
F-8
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
prices no less than the market value of the common stock on the date of grant.
As of May 31, 1996, options to acquire 4,000,000 shares were outstanding. In
September 1991, an option for 2,000,000 shares, which vested immediately, was
granted to the Company's then president at an exercise price of $.004 per
share. An option for an additional 2,000,000 shares, which also vested, was
granted to him in May, 1996, at $.002 per share.
Options granted are exercisable for a period of five years or three months
after an employee terminates his employment with the Company, whichever is
sooner.
On May 18, 1982, the Board of Directors established a Bargain Stock Option
Plan (BSOP). The BSOP reserved 8,000,000 shares of the Company's $.001 par
value common stock for grants to officers, directors and employees. The
exercise price will be determined by the Compensation Committee of the Board
of Directors, but in no event will the exercise price be less than $.12 per
share. As of May 31, 1996, no options under this plan are outstanding or
exercisable. Since inception of the BSOP, no options have been exercised.
In February, 1990, the directors of Alfa's subsidiary approved the adoption of
an Incentive Stock Option Plan. The plan provides for issuance of up to
100,000 shares of the Company's common stock. The minimum option price is
100% of the fair market value of the stock at date of grant (110% for
shareholders who own more than 10% of the stock of the Company). Stock
options must be exercised within ten years of date of grant (five years for
10% shareholders). All options granted under this plan expired without being
exercised.
4. DEBT EXTINGUISHMENT
At May 31, 1995, Alfa's subsidiary was obligated under two non-recourse notes
payable to two individuals, which were payable solely from a 9% overriding
royalty interest encumbering certain oil properties in New Mexico. These
notes had been discounted at inception, resulting in an effective interest
rate of 13.5%.
The notes were released by the holders during fiscal 1996, and the leases were
assigned to an unrelated party, primarily to avoid any liability for plugging
the wells. The debt extinguishment of $365,814 is accounted for as an
extraordinary item in the accompanying statement of operations. $14,923 in
discount was amortized in fiscal 1996 prior to the release of the overriding
royalty interests.
5. MANAGEMENT OF LIMITED PARTNERSHIP
In November, 1982, Granite Alfa Corporation, a subsidiary of the Company,
acting as the general partner, completed the sale of units in Rocky Mountain
Developmental Oil and Gas, Ltd. 1982A. (the Partnership). Pursuant to the
partnership agreement, Granite Alfa Corporation receives $500 monthly as
reimbursement for administrative and overhead expenses. Accordingly,
management fees for both 1996 and 1995 amounted to $6,000. At May 31, 1996,
the Partnership owed Granite Alfa $3,000, and this amount is included in
accounts receivable at that date.
F-9
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
Granite Alfa Corporation, as general partner to the Partnership, and possibly
Alfa Resources, Inc. are liable for any unpaid debts of the Partnership and
may also be subject to certain unknown contingent liabilities by virtue of
their affiliation with the Partnership.
6. RELATED PARTY TRANSACTIONS
In fiscal year 1992, the Company's chief financial officer, acting through
another corporation, formed a company called Meteor Developments of Indiana,
Inc.("MDI"), which contracted with various parties to operate certain oil and
gas properties in Indiana. MDI then contracted with Alfa's subsidiary to
provide certain operating services. In September 1992, the chief financial
officer sold his shares in MDI to an unrelated third party. In August, 1994,
Alfa's subsidiary and the Company's president and chief financial officer were
named as defendants, with several other parties, in litigation brought by the
Natural Resources Commission of the State of Indiana. Generally, Alfa's
subsidiary and the Company's officers were named because of assumed
association with and control over MDI, which was alleged to have improperly
maintained and abandoned certain oil wells in Indiana. The lawsuit was
settled by payment of $10,000 in fiscal 1996.
In 1994, a Company director (former president) and the chief financial officer
organized a corporation ("Industries") which sublets office space from Alfa's
subsidiary and through December 31, 1995, was allocated certain overhead
charges. Rental and overhead charges to this company amounted to $25,982 and
$33,892 in fiscal 1996 and 1995, respectively. At May 31, 1996, Industries and
a subsidiary were indebted to Alfa's subsidiary for $35,126, which was
collected in July, 1996. Additionally, Alfa's subsidiary received $1,275 and
$1,200 from Yellow Queen (a corporation in which the Company's president,
chief financial officer and its former president have ownership) for rent in
1996 and in 1995.
Saba Petroleum Company ("Saba") previously served as operator for certain of
the Company's oil and gas properties, and holds 240,875 shares of Alfa's
Series A preferred stock. In 1995, Alfa's subsidiary loaned $95,000 to Capco
Resources Ltd. ("CAPCO"), Saba's parent company, to partially finance CAPCO's
purchase of shares in "Industries." This loan, which was guaranteed by Alfa's
president and chief financial officer, was repaid with interest in July, 1995.
In fiscal 1996, Alfa and Alfa's subsidiary sold their interests in a producing
unit in Wyoming (which accounted for 56% of oil and gas sales in 1996 and
$11,854 of $26,326 in net income from oil and gas operations) to Yellow Queen
for $8,400 in cash and a receivable of $1,300. Additionally, this transaction
relieved Alfa and Alfa's subsidiary of future dismantlement costs, which were
being accrued over the productive life of the unit, and for which $33,048 had
been accrued at May 31, 1995.
In January, 1996, Alfa's subsidiary's employees became employees of
Industries. Alfa pays its president and former president, its only two
employees, nominal amounts for their part-time services. At May 31, 1996,
Alfa and Alfa's subsidiary were indebted to Industries in the amount of $1,545
and $12,266, respectively, for all services rendered in fiscal 1996, including
accounting and administration, and expense reimbursement.
F-10
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
7. SUPPLEMENTAL OIL AND GAS FINANCIAL AND RESERVE INFORMATION (UNAUDITED)
Reserve estimates for 1996 and 1995 were prepared by Company management.
Management cautions that there are many inherent uncertainties in estimating
proved reserve quantities and related revenues and expense, and in projecting
future production rates and the timing and amount of development expenditures.
Accordingly, these estimates will change as future information becomes
available.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
Proved developed reserves are those reserves expected to be recovered through
existing wells with existing equipment and operating methods.
ANALYSIS OF CHANGES IN PROVED RESERVES
Estimated quantities of proved reserves and proved developed reserves of crude
oil and natural gas (all of which are located within the United States) as
well as changes in proved reserves during the past two years are indicated
below:
Oil (Bbl) Natural Gas (MCF)
Reserves at May 31, 1994 143,535 11,905
Extensions and discoveries -- --
Purchase of minerals in place -- --
Sales of minerals in place (96,917) --
Production (17,581) (6,191)
Revisions of previous estimates 22,181 (4,557)
Reserves at May 31, 1995 51,218 1,157
Extensions and discoveries -- --
Purchase of minerals in place -- --
Sales of minerals in place (30,219) --
Production (7,616) (1,042)
Revisions of previous estimates (3,799) 1,245
Reserves at May 31, 1996 9,584 1,360
There are no reserves attributable to partnership interests at May 31, 1996,
or 1995. Reserves attributable to the minority interest in Alfa's subsidiary,
which are included in consolidated reserves, are 0 and 6,115 barrels of oil at
May 31, 1996 and 1995, respectively.
All capitalized costs related to oil and gas activities at May 31, 1996 and
1995 are considered related to proved properties.
F-11
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
OIL AND GAS OPERATIONS
Depletion, depreciation and amortization per equivalent unit of production for
the years ended May 31, 1996 and 1995 was $1.89 and $8.45, respectively.
In 1996 and 1995, there were no acquisition, exploration or development costs
incurred.
STANDARDIZED MEASURE OF DISCOUNTED NET CASH FLOW AND CHANGES THEREIN
The following table sets forth a standardized measure of the discounted future
net cash flows attributable to the Company's proved oil and gas reserves.
Future cash inflows were computed by applying year-end prices of oil and gas
(with consideration of price changes only to the extent provided by
contractual arrangements) and using the estimated future expenditures to be
incurred in developing and producing the proved reserves, assuming
continuation of existing economic conditions. Future income tax expenses were
computed by applying statutory income tax rates to the difference between
pretax net cash flows relating to the Company's proven oil and gas reserves
and the tax basis of proved oil and gas properties and available operating
loss and excess statutory depletion carryovers reduced by investment tax
credits. Discounting the annual net cash flows at 10% illustrates the impact
of timing on these future cash flows.
1996 1995
Future cash inflows $ 197,761 $ 918,336
Future cash outflows:
Production costs (130,632) (716,914)
Future net cash flows before
future income taxes 67,129 201,422
Future income taxes -- --
Future net cash flows 67,129 201,422
Adjustment to discount future
annual net cash flows at 10% (14,216) (45,660)
Standardized measure of discounted
future net cash flows $ 52,913 $ 155,762
The minority interest ownership in Alfa's subsidiary accounts, which are
included in these discounted future net cash flows, amount to $0 and $14,158
at May 31, 1996 and 1995, respectively.
The following table summarizes the principal factors comprising the changes in
the standardized measure of discounted net cash flows for the years ended May
31, 1996 and 1995.
F-12
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
1996 1995
Standardized measure, beginning of
period $ 155,762 $ 476,449
Sales of oil and gas, net of
production costs (26,326) (26,405)
Net change in sales prices, net of
production costs 10,347 13,996
Changes in estimated future
development costs -- --
Purchases of minerals in place -- --
Sales of minerals in place (65,819) (330,957)
Revisions of quantity estimates (14,480) 68,331
Accretion of discount 15,576 47,648
Other, including changes in production
rates (timing) (22,147) (93,300)
Standardized measure, end of period $ 52,913 $ 155,762
8. INVESTMENT IN METEOR DEVELOPMENTS, INC.
In January and May, 1990, Alfa purchased 61,250 and 19,250 shares,
respectively, of common stock of Alfa's subsidiary, a privately held
corporation, resulting in ownership of 33.5% at a cost of $8,000. Saba, which
is controlled by a former director and shareholder of Alfa, also acquired a
33.5% interest.
On February 28, 1991, Alfa acquired from Saba its 80,500 shares of common
stock of Alfa's subsidiary and certain oil, gas, and mineral rights ("Saba
Properties"). These assets were acquired in exchange for 240,875 shares of
Alfa's Series A Preferred Stock. Alfa also acquired from Alfa's subsidiary
207,143 shares of common stock in exchange for (i) 262,500 shares of Alfa's
Series A Preferred Stock and (ii) the Saba Properties. As a result of the two
purchases of Alfa's subsidiary's stock by Alfa in February 1991 and the prior
purchase of a minority interest in Alfa's subsidiary's common stock, Alfa
acquired approximately 82.3% of the issued and outstanding common stock of
Alfa's subsidiary. In 1993, 12,000 shares of Alfa's subsidiary's common stock
were issued for services rendered, diluting Alfa's ownership to approximately
80%. Because Alfa's subsidiary is consolidated, the preferred shares held by
Alfa's subsidiary are not considered outstanding in the accompanying financial
statements.
The Series A Preferred Stock has a par value and liquidation value of $1.00
per share, a cumulative 5% dividend and is redeemable by Alfa at 110% of par
value. $50,337 in dividends were declared at May 31, 1993, of which only
$2,261 has been paid (to Saba in 1994). Of this amount $26,250 is due to
Alfa's subsidiary. However, only the amount of $4,997 applicable to the
minority interest and the $21,466 due to Saba are considered a liability in
the accompanying balance sheet. Unpaid and undeclared dividends amount to
$81,798 at May 31, 1996, including $42,657 applicable to shares held by Alfa's
subsidiary.
The president and former president of Alfa and its chief financial officer are
officers of Alfa's subsidiary and constitute three of the five Board members.
F-13
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
(Continued)
9. COMMITMENTS
Alfa's subsidiary entered into a three year lease for office space in March,
1993, which was extended for one year and for which it has the following lease
commitment at May 31, 1996:
1997 $14,301
Net rental expense for 1996 amounted to $5,238, and $6,493 for 1995 (See Note
6).
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
ALFA RESOURCES INC.
/s/ C.L. Nordstrom
Dated: August 26, 1996 By ____________________________
C.L. Nordstrom, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
/s/ C.L. Nordstrom
Dated: August 26, 1996 By ______________________________
C.L. Nordstrom, President, Chief
Executive Officer and, Director
/s/ Dennis R. Staal
Dated: August 26, 1996 By _____________________________
Dennis R. Staal, Principal
Financial and Accounting
Officer
/s/ Edward J. Names
Dated: August 26, 1996 By _____________________________
Edward J. Names, Director
/s/ H.Wayne Hoover
Dated: August 26, 1996 By ____________________________
H. Wayne Hoover, Secretary
and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and statements of operations found on pages F-2 and F-3 of the
Company's Form 10-KSB for the fiscal year ended May 31, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 29,790
<SECURITIES> 0
<RECEIVABLES> 48,469
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,259
<PP&E> 1,441,535
<DEPRECIATION> 1,409,022
<TOTAL-ASSETS> 119,810
<CURRENT-LIABILITIES> 78,568
<BONDS> 0
0
240,875
<COMMON> 44,865
<OTHER-SE> (314,117)
<TOTAL-LIABILITY-AND-EQUITY> 119,810
<SALES> 129,598
<TOTAL-REVENUES> 357,874
<CGS> 103,272
<TOTAL-COSTS> 103,272
<OTHER-EXPENSES> 120,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,923
<INCOME-PRETAX> 415,689
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 415,689
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
