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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended MAY 31, 1997
Commission File No. 0-10157
ALFA RESOURCES, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-0846529
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
216 16TH STREET, SUITE 730, DENVER, COLORADO 80202
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(Address of Principal Executive Office, Including Zip Code)
Registrant's telephone number including area code: (303) 572-1135
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK,$.001 PAR VALUE
----------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to have filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 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
As of August 29, 1997, 44,865,212 shares of common stock were outstanding.
The aggregate market value of the common stock of the Registrant held by
nonaffiliates on that date was approximately $.00 because the stock has not
been actively traded in the past few years.
State Issuer's revenues for its most recent fiscal year: $59,752.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-KSB is not contained herein, and will not 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
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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. Alfa was organized for the
purpose of engaging in oil and gas exploration, development and production
activities. Granite Alfa Corporation ("Granite Alfa"), was a wholly-owned
subsidiary, which has discontinued operations and will be dissolved. Alfa
also owns approximately 80% of the common stock of Meteor Developments,
Inc. ("Meteor") which has discontinued operations and will be dissolved.
(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 is engaged in the business of producing and selling crude oil and
natural gas in the United States. Alfa is no longer involved in acquiring
or developing oil and gas reserves. 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, pro-duction,
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 in-
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formation 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 availability 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, 1997, Alfa had no employees, but uses the services of related
entities for administrative purposes 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, expiring in 2000.
(b) OIL AND GAS PROPERTIES. Alfa and its subsidiaries, hold interests in
producing oil and gas leaseholds as of May 31, 1997, as follows:
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Producing Properties Non-Producing Properties
Gross Net Gross Net
State Acres Acres Acres Acres
California 40 1 -- --
Montana 320 21 -- --
New Mexico 640 34 -- --
North Dakota 160 1 -- --
Oklahoma 320 44 -- --
Texas 200 4 -- --
Total 1,680 105 -- --
_________________
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, for the fiscal years ended May 31, 1997, May 31, 1996,
and May 31, 1995. The reserve estimates and related values were prepared
by management.
All such reserves are located in the continental United States.
1997 1996 1995
Oil Gas Oil Gas Oil Gas
(Bbls) (MCF) (Bbls) (MCF) (Bbls) (MCF)
Proved
Reserves 7,860 0 9,584 1,360 51,218 1,157
Proved Devel-
oped Reserves 7,860 0 9,584 1,360 51,218 1,157
________________
No major discovery or other favorable or adverse event has occurred since
May 31, 1997, 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, 1997, May 31, 1996, and
May 31, 1995.
1997 1996 1995
Oil (Bbls) 1,783 7,616 17,581
Gas (MCF) 606 1,042 6,191
The following table sets forth the average sales price and production cost
per unit of production for the fiscal years ended May 31, 1997, May 31,
1996, and May 31, 1995.
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1997 1996 1995
Average Sales Price: Per
Equivalent Barrel of Oil $21.42 $16.78 $15.57
Average Production (Lifting)
Costs: Per Equivalent
Barrel of Oil $13.22 $13.37 $14.13
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 total gross and net productive oil and gas wells and developed
acreage as of May 31, 1997:
A. PRODUCTIVE WELLS(1).
OIL GAS
State Gross(2) Net(3) Gross(2) Net(3)
California -- -- 8 .13
Montana 1 .07 -- --
New Mexico 4 .21 -- --
North Dakota 1 .01 -- --
Oklahoma 8 1.09 -- --
Texas 5 .12 -- --
Total 19 1.50 8 .13
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(1) Productive wells are producing wells and wells capable of production
including wells that are shut in.
(2) 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.
(3) 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.
B. DEVELOPED ACREAGE.
State Gross Net(1)
California 40 1
Montana 320 21
New Mexico 640 34
North Dakota 160 1
Oklahoma 320 44
Texas 200 4
Total 1,680 105
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(1) 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.
(b)(5) UNDEVELOPED PROPERTIES. Alfa had no interest as of May 31, 1997
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, 1997 and May
31, 1996.
(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.
None.
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, 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
August 31, 1996 No Bid No Bid
November 30, 1996 No Bid No Bid
February 28, 1997 No Bid No Bid
May 31, 1997 No Bid No Bid
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The number of record holders of Common Stock of Alfa as of August 29, 1997,
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, 1997, the Company had working capital in the amount of
$1,744. Management has sold assets and settled liabilities of its
subsidiary, Meteor Developments, Inc., with the intent to liquidate the
subsidiary. Management's intent is to use the Company as a merger
candidate.
Management intends to use production revenue and other sources, such as
property 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 to pay 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, 1997, and 1996, were $7,353 and ($112,985) respectively. Cash flow
provided during the last fiscal year is principally due to collection of
receivables.
Sale of oil, gas and mineral properties provided $9,966 cash flow in 1996.
There were no sales in 1997, although certain properties were assigned to
an operator to satisfy $11,409 in trade payables.
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
ability to meet long-term needs, if it is able to overcome its current lack
of working capital, will depend on Alfa's ability to find a suitable
merger candidate.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1997 COMPARED TO MAY 31, 1996
Oil and gas sales decreased 63% to $47,722 in 1997 from $129,598 in 1996.
This decrease is mainly due to the elimination of production as producing
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properties were sold. Equivalent barrels of oil produced decreased 76% to
1,822 in 1997 from 7,732 in 1996, the price of which increased 28% to
$21.42 in 1997 from $16.78 in 1996. Gain on sale of property decreased to
$0 in 1997 compared to $210,602 in 1996, as no property was sold in 1997.
Management fees and related revenues decreased from $13,730 in 1996 to
$7,239 in 1997 as Granite Alfa, which has provided these services to a
limited partnership was liquidated. Other income increased as a result of
settlement of certain old liabilities, which will not recur. These
decreases are expected to stabilize in 1998, primarily because the sale of
major properties has ended.
Production expenses decreased 77% to $24,084 in 1997 from $103,272 in 1996,
and is due to selling existing properties. The cost of production per
equivalent barrel of oil produced decreased slightly to $13.22 in 1997 from
$13.37 in 1997. General and Administrative expenses decreased to $41,239
in 1997 from $93,823 in 1996, as a result of the Company's efforts to
reduce costs (e.g. elimination of employees, and natural decreases
resulting from elimination of operations of Meteor Developments). De-pletion,
depreciation and amortization has decreased to $4,000 in 1997 from
$16,362 in 1996. This decrease is due to sale of reserves. Interest
expense decreased to $-0- in 1997 compared to $25,923 in 1996, as the
amortization of debt discount was eliminated when the related notes payable
were extinguished upon transfer of the property which financed their
repayment, and which resulted in an extraordinary gain on extinguishment of
debt of $365,814 in 1996.
Alfa had a net loss of $9,571 in 1997 compared to net income of $415,689
in 1996 as a result of the above factors.
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 were 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.
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Alfa had 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.
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 volatility
and uncertainty in oil and gas prices have made 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. Continued volatility
or downward price pressure could cause the Company 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, 1997, 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 Director
Name Position 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.
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Period Served
All Offices as Officer of
Name Age With Company of Alfa
C.L. Nordstrom 78 President December, 1995 to
Present
H. Wayne Hoover 54 Secretary August, 1987 to
Present
Dennis R. Staal 49 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, 54, 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, 78, 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, 45, 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 is also the President and a
Director of Meteor Industries, Inc. Mr. Names has extensive experience in
mergers and asset acquisitions as well as small business matters such as
business planning, financing, management and contract negotiations. Mr.
Names was President of Alfa Resources, Inc. and its subsidiaries from 1983
to 1995. In 1987, Mr. Names became Special Counsel to the law firm of
Wills and Sawyer, P.C., Denver, Colorado, and maintained that relationship
until December 1992. Mr. Names was associated with the 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.
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DENNIS R. STAAL, 49, 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
the owner and president of Mystique Resources Company. 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 have
employees, but uses administrative services furnished by Meteor Industries,
Inc. and occasionally by Messrs. Nordstrom and Staal.
(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).
(2) 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.
(d) 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.
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, 1997.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Other All
Annual Restricted Options/ Other
Name & Principal Compen- Stock SARS LTIP Compen-
Position Year Salary Bonus sation Award(s) (Number) Payouts sation
C.L. Nordstrom, 1997 $ -- -- $4,040 -- -- -- --
President
Dennis R.Staal, 1997 $1,500 -- $6,779 -- -- -- --
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
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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 29, 1997, the only options issued have
expired. 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 1997. 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, 1997. (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 29, 1997, 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.
Amount & Nature
Name & Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
$.001 Par Paul Roebling A Trust 10,330,000(1) 23.0%
Value Common c/o Bank of New York
Stock 530 5th Avenue
New York, NY 10021
$.001 Par Edward J. Names 3,658,000 8.1%
Value Common 216 16th Street, #730
Stock Denver, CO 80202
_____________
(1) 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.
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(b) Security Ownership of Management. The following table sets forth the
number and 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 29, 1997:
Amount & Nature
Name of of Beneficial Percent
Beneficial Owner Ownership (1) of Class
Edward J. Names 3,658,000 8.1%
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) 7,099,500 15.8%
_______________
(1) Each of the individuals named own all of the shares listed of Alfa's
Common Stock directly and of record unless otherwise indicated.
(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 disin-
terested 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 (also called Meteor) to provide certain operating services. In
September 1992, the chief financial officer sold his shares in MDI to an
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<PAGE>
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 occupies office space
with Alfa and its subsidiaries and now provides accounting and admin-
istrative services to them. Prior to January, 1996, Alfa had provided
administrative services to Industries, and through December, 1996, Meteor
was the lessee for this space and sublet it to Industries and other related
parties. In January 1997, Industries assumed the lease. Alfa continues to
pay $400 per month and Meteor assigned its rent deposit of approximately
$1,400 to Industries in consideration for its lease assumption. Rental and
overhead charges to Meteor Industries, Inc. ("Industries") amounted to
$25,982 in fiscal 1996. At May 31, 1996, Industries and a subsidiary were
indebted to Alfa's subsidiary (Meteor) for $35,126, which was collected in
July, 1996. Additionally, Alfa's subsidiary received $700 and $1,275 from
Yellow Queen (a corporation in which the Company's president, chief
financial officer and its former president have ownership) for rent in 1997
and in 1996.
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. Industries has since provided Alfa and Meteor with certain
administrative services, for which it charged $9,606 in fiscal 1997. At
May 31, 1997, Alfa was indebted to Industries for $407, and Yellow Queen
was indebted to Alfa for $280. At May 31, 1997, Alfa and Alfa's subsidiary
recognized expenses in the amount of $9,606 for all services rendered by
Industries in fiscal 1996.
(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 several years ago to SHF Partnership on
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<PAGE>
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 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
(1) The following Financial Statements are filed as part of this
Report:
Page
Independent Auditor's Report. . . . . . . . . . . F-1
Consolidated Balance Sheet, May 31,
1997. . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the
years ended May 31, 1997 and 1996. . . . . . . . F-3
Consolidated Statements of Changes in Stock-
holders' Equity for the years ended May 31,
1997 and 1996. . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the
years ended May 31, 1997 and 1996. . . . . . . . F-5
Notes to Consolidated Financial Statements. . . . F-6
All other Financial Statements Schedules are omitted because they are not
required, are inapplicable or the information is included in the financial
statements or notes thereto.
(3) EXHIBITS.
Page(1)
3. Articles of Incorporation and Bylaws (incorporated
by reference to Exhibits 4 and 5, respectively, to
Registration Statement No. 2-73529). . . . . . . . . --
3.1 Articles of Amendment(3) . . . . . . . . . . . . . . --
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<PAGE>
3.2 Articles of Amendment(4) . . . . . . . . . . . . . . --
4. Instruments Defining the Rights of security Holders,
Including Indentures (see Exhibit 3. above). . . . . --
9. * . . . . . . . . . . . . . . . . . . . . . . . . . --
10.01 Employment Agreement between the Company and Ilyas
Chaudhary (incorporated by reference to Exhibit 14
to Registration Statement No. 2-73526 ). . . . . . . --
10.02 Stock Option Plan (Incorporated by reference to
Exhibit 16 to Registration Statement No. 2-73526). . --
10.03 Amended Stock Option Plan, dated
May 26, 1982(2). . . . . . . . . . . . . . . . . . --
10.04 Bargain Stock Option Plan, dated May 26, 1982(2) . --
10.05 Employment Agreement between Alfa and William G.
Kimball(2) . . . . . . . . . . . . . . . . . . . . --
10.06 Option Agreements between the Company and
William G. Kimball(2). . . . . . . . . . . . . . . --
10.07 Employment Agreement between the Company and
Michael G. Langton(2). . . . . . . . . . . . . . . --
10.08 Option Agreement between the Company
and Michael G. Langton(2). . . . . . . . . . . . . --
10.09 Employment Agreement between the
Company and Edward J. Names(2) . . . . . . . . . . --
10.10 Option Agreement between the Company
and Edward J. Names. . . . . . . . . . . . . . . . --
10.11 Employment Agreement between the
Company and Theodore E. Dann(2). . . . . . . . . . --
10.12 Stock Purchase Agreement between Alfa and Petro
Quest, Inc. (incorporated by referenced to Exhibit
B to Schedule 13d filed by Alfa on or about
February 12, 1986(5) . . . . . . . . . . . . . . . --
10.13 Purchase Agreement between Alfa and Bordeaux
Petroleum Corporation dated February 28, 1991
(incorporated by reference to Exhibit 1 to Form
8-K filed by Alfa in March, 1991). . . . . . . . . --
10.14 Stock Purchase Agreement between Alfa and Meteor
Developments, Inc. dated February 28, 1991
(incorporated by reference to Exhibit 2 to Form
8-K filed by Alfa in March, 1991). . . . . . . . . --
11. * . . . . . . . . . . . . . . . . . . . . . . . .
12. * . . . . . . . . . . . . . . . . . . . . . . . .
-16-
<PAGE>
13. * . . . . . . . . . . . . . . . . . . . . . . . .
18. * . . . . . . . . . . . . . . . . . . . . . . . .
19. * . . . . . . . . . . . . . . . . . . . . . . . .
22. List of Subsidiaries (2) . . . . . . . . . . . . . --
23. * . . . . . . . . . . . . . . . . . . . . . . . .
24. * . . . . . . . . . . . . . . . . . . . . . . . .
25. * . . . . . . . . . . . . . . . . . . . . . . . .
28(a). Stock Purchase Agreement between Ilyas Chaudhary
and Edward J. Names (incorporated by reference to
Exhibit 28(a) to Form 8-K filed by Alfa on or about
May 31, 1983)(2). . . . . . . . . . . . . . . . . . --
28(b). Voting Agreement between Bushra
Chaudhary and Edward J. Names (incor-
porated by referenced to Exhibit 28(b)
to Form 8-K filed by Alfa on or about
May 31, 1983)(2). . . . . . . . . . . . . . . . . . --
28(c). Stock Subscription Agreement between
the Company and the Paul Roebling A
Trust (incorporated by reference to
Form 8-K)(2). . . . . . . . . . . . . . . . . . . . --
* Not applicable.
(1) Page number in sequential numbering system (required on manually
signed copy only).
(2) Previously filed as exhibits to Alfa's Form 10-K for the fiscal year
ended May 31, 1983.
(3) Previously filed as exhibits to Alfa's Form 10-K for the fiscal year
ended May 31, 1984.
(4) Previously filed as exhibits to Alfa's Form 10-K for the fiscal year
ended May 31, 1985.
(5) Previously filed as exhibits to Alfa's Form 10-K for the fiscal year
ended May 31, 1986.
(b) Reports on Form 8-K. None
-17-
<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.
/signed/ C. L. Nordstrom
Dated: August 29 1997 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.
/signed/ C. L. Nordstrom
Dated: August 29, 1997 By ______________________________
C.L. Nordstrom, President,
Chief Executive Officer and,
Director
/signed/ Dennis R. Staal
Dated: August 29, 1997 By _____________________________
Dennis R. Staal, Principal
Financial and Accounting
Officer
/signed/ Edward J. Names
Dated: August 29, 1997 By _____________________________
Edward J. Names, Director
/signed/ H. Wayne Hoover
Dated: August 29, 1997 By ____________________________
H. Wayne Hoover, Secretary
and Director
-18-
<PAGE>
WILLIAM G. LAJOIE, P.C.
CERTIFIED PUBLIC ACCOUNTANT
5961 SOUTH MIDDLEFIELD ROAD, SUITE 100
LITTLETON, COLORADO 80123
(303) 798-3991
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Alfa Resources, Inc.
I have audited the accompanying consolidated balance sheet of Alfa Re-
sources, Inc., as of May 31, 1997, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the
years ended May 31, 1997 and 1996. 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, 1997, and the results of its operations and
its cash flows for the years ended May 31, 1997 and 1996, 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 prior years, has sold most of its oil and gas properties and has
practically 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.
/s/ William G. LaJoie
William G. Lajoie, P.C.
Littleton, Colorado
August 27, 1997
F-1
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,143
Accounts receivable-trade 1,858
Total current assets 39,001
Oil and gas properties, using the full cost
method (note 7) 1,430,126
Less - depletion, depreciation, and
amortization and valuation allowance (1,413,022)
17,104
Other assets 7,616
TOTAL ASSETS $ 63,721
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (note 6) $ 2,634
Dividends payable (Note 8) 26,673
Accrued expenses 7,950
Total current liabilities 37,257
Stockholders' equity (Notes 3 and 8):
Preferred stock, $1.00 par value; authorized
10,000,000 shares; 292,947 shares issued and
outstanding 292,947
Common stock, $.001 par value; authorized
150,000,000 shares; issued and outstanding
44,865,212 shares 44,865
Additional paid-in capital 2,421,976
Accumulated deficit (2,733,324)
Total stockholders' equity 26,464
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 63,721
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, 1997 AND 1996
1997 1996
REVENUES:
Oil and gas sales $ 39,026 $ 129,598
Gain (loss) on sale of oil and mineral
properties -- 210,602
Management fees 7,239 13,730
Interest and other income 13,487 3,944
59,752 357,874
EXPENSES:
Production 24,084 103,272
General and administrative (Note 6) 41,239 93,823
Depletion, depreciation and amortization 4,000 16,362
Interest -- 14,923
Litigation settlement (Note 6) -- 10,000
69,323 238,380
Income (Loss) before minority interest
and extraordinary item (9,571) 119,494
Minority interest (income) expense -- 69,619
Net income (loss) before extraordinary item (9,571) 49,875
Extraordinary item - debt extinguishment (Note 4) -- 365,814
NET INCOME (LOSS) $ (9,571) $ 415,689
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, 1997 AND 1996
Additional
Preferred Stock Common Stock Paid In Accumulated
Shares Amount Shares Amount Capital Deficit
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)
Elimination
of minority
interest 52,072 $ 52,072 -- -- 12,340 --
(Note 8)
Net loss -- -- -- -- -- (9,571)
Balance
May 31, 1997 292,947 $292,947 44,865,212 $44,865 $2,421,976 $(2,733,324)
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, 1997 AND 1996
1997 1996
Cash provided by (used in) operations
Net Income (loss) $ (9,571) $ 415,689
Adjustments to reconcile to cash provided
by operations:
Gain attributable to minority interests -- 69,619
Amortization of debt discount -- 14,923
Debt extinguishment -- (365,814)
Depletion, depreciation and amortization 4,000 16,362
Gain on sale of mineral properties -- (210,602)
(Increase)decrease in other assets 1,422 4,284
(Increase) decrease in receivables 41,614 (14,305)
(Decrease) in accounts payable (28,292) (41,235)
(Decrease) in accrued expenses (1,820) (1,906)
Cash provided by (used in) operations 7,353 (112,985)
Cash provided by (used in) investing activities:
Purchase of oil and gas equipment -- (346)
Proceeds from sale of oil & gas properties -- 9,966
Cash provided by investing activities -- 9,620
Net increase (decrease) in cash and cash
equivalents 7,353 (103,365)
Cash and cash equivalents, beginning of year 29,790 133,155
Cash and cash equivalents, end of year $ 37,143 $ 29,790
Supplemental information:
(1) There were no income taxes or interest paid in 1997 or 1996.
(2) Non-cash transactions
1997 -- $11,409 of oil and gas properties were assigned for settlement
of trade payables. Preferred stock of Alfa which had been owned by a
subsidiary was distributed to the subsidiary's shareholders which
resulted in an increase in preferred stock of $52,072 and additional
paid in capital of $12,340 and a reduction in receivables of $5,207
and elimination of the minority interest of $69,619. These changes
had been previously reported in Form 10-QSB as financing activities.
1996 -- $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 unrelated 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, 1997 AND 1996
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
(Granite Alfa); 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 produc-
tion income because most of its oil and gas properties have been sold. At
May 31, 1997, the Company had working capital in the amount of only $1,744.
Certain current production revenue is being withheld by operators to
liquidate trade payables, and this situation is expected to continue
through fiscal 1998. Management intends to use unencumbered production
revenue and possibly 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, basically liquidating Meteor. Management has also sold some of
Alfa's properties, and intends to use it as a merger candidate. Granite
Alfa is no longer an operating entity, and has no assets or liabilities at
May 31, 1997.
OIL AND GAS ACCOUNTING
The Company accounts 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, Meteor 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, 1997 and 1996.
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, 1997 AND 1996
(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,
1997, 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,
1997, cash equivalents included money-market accounts of $23,407.
MAJOR CUSTOMERS
The Company had major purchasers of oil in 1997 and 1996 as follows:
PURCHASER 1997 1996
A --% 56%
B 7% 18%
C 40% --%
D 47% 27%
E 1% 11%
The Company has sold its properties whose production was purchased by
Purchaser A (see Note 6). At May 31, 1997, Purchaser C owed the Company
$515 and Purchaser D owed the Company $967.
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 was 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. In
fiscal year 1997, Meteor distributed 52,072 shares of preferred stock of
Alfa to its minority shareholders, and the rights to a declared dividend of
$5,207, as a liquidating dividend, and management intends to formally
dissolve Meteor in fiscal 1998. Because of this and the fact that Meteor
has no net assets, the minority interest has been eliminated, and the
excess of its carrying value over assets distributed recorded as additional
paid-in capital.
USE OF ESTIMATES
Preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates, and actual results
could differ from these estimates. The unaudited oil and gas reserve
estimates prepared by management should be considered as reasonably
possible to change, as indicated in Note 7, which can affect depletion and
the net carrying value of oil and gas properties.
F-7
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(Continued)
INCOME (LOSS) PER SHARE
For the years ended May 31, 1997, and 1996, 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.
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 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. These were no significant temporary
difference between amounts reported for financial reporting purposes and
those reported for income tax purposes in 1997. 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:
1997 1996
Operating loss carryforwards $1,014,000 $1,007,800
Any 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, 1997, the Company had available estimated tax operating loss
carryovers which expire as follows:
Originating Year Carryover Expiration
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 87,500 2005
1991 8,100 2008
1993 513,200 2009
1995 130,200 2010
1997 8,200 2012
$2,439,100
F-8
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(Continued)
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 exer-
cise prices no less than the market value of the common stock on the date
of grant. As of May 31, 1997, no options are outstanding. 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, 1997, no options under this plan are
outstanding or exercisable.
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 and because this company is being liquidated, the plan is
basically inoperative.
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 received
$500 monthly as reimbursement for administrative and overhead expenses.
F-9
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(Continued)
Management and other fees for 1997 and 1996 amounted to $6,103 and $6,000,
respectively. At May 31, 1996, the Partnership owed Granite Alfa $3,000,
and this amount is included in accounts receivable at that date. The
partnership was dissolved for accounting purposes in fiscal 1997, and
although not legally dissolved, Granite Alfa had no assets or liabilities
at May 31, 1997.
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 occupies office space
with Alfa and its subsidiaries and now provides accounting and
administrative services to them. Through December, 1996, Meteor was the
lessee for this space and sublet it to Industries and other related
parties. In January 1997, Industries assumed the lease. Alfa continues to
pay $400 per month and Meteor assigned its rent deposit of approximately
$1,400 to Industries in consideration for its lease assumption. Until
January, 1996, Alfa had provided administrative services to Industries, and
rental and overhead charges to Industries amounted to $25,982 in fiscal
1996. At May 31, 1997, Industries and a subsidiary were indebted to Alfa's
subsidiary for $35,126, which was collected in July, 1996. Additionally,
Alfa's subsidiary received $700 and $1,275 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.
In January, 1996, Alfa's subsidiary's employees became employees of
Industries. Industries has provided Alfa and Meteor with certain
administrative services, for which it charged $9,606 in fiscal 1997. At
May 31, 1997, Alfa was indebted to Industries for $407, and Yellow Queen
was indebted to Alfa for $280. At May 31, 1997, Alfa and Alfa's subsidiary
were indebted to Industries in the amount of $13,811 for all services
rendered in fiscal 1996.
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.
F-10
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(Continued)
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 disman-
tlement costs, which were being accrued over the productive life of the
unit, and for which $33,048 had been accrued at May 31, 1995.
7. SUPPLEMENTAL OIL AND GAS FINANCIAL AND RESERVE INFORMATION (UNAUDITED)
Reserve estimates for 1997 and 1996 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, 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
Extensions and discoveries -- --
Purchase of minerals in place -- --
Sales of minerals in place -- --
Production (1,783) (606)
Revisions of previous estimates 59 (754)
Reserves at May 31, 1997 7,860 -0-
F-11
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(Continued)
There are no reserves attributable to partnership or minority interests at
May 31, 1997, or 1996.
All capitalized costs related to oil and gas activities at May 31, 1997 and
1996 are considered related to proved properties.
OIL AND GAS OPERATIONS
Depletion, depreciation and amortization per equivalent unit of production
for the years ended May 31, 1997 and 1996 was $2.20 and $1.89, respec-
tively.
In 1997 and 1996, 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.
1997 1996
Future cash inflows $ 158,188 $ 197,761
Future cash outflows:
Production costs (107,269) (130,632)
Future net cash flows before
future income taxes 50,919 67,129
Future income taxes -- --
Future net cash flows 50,919 67,129
Adjustment to discount future
annual net cash flows at 10% (12,684) (14,216)
Standardized measure of discounted
future net cash flows $ 38,235 $ 52,913
F-12
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(Continued)
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, 1997 and 1996.
1997 1996
Standardized measure, beginning of
period $ 52,913 $ 155,762
Sales of oil and gas, net of
production costs (14,942) (26,326)
Net change in sales prices, net of
production costs (4,679) 10,347
Changes in estimated future
development costs -- --
Purchases of minerals in place -- --
Sales of minerals in place -- (65,819)
Revisions of quantity estimates (296) (14,480)
Accretion of discount 5,291 15,576
Other, including changes in production
rates (timing) (52) (22,147)
Standardized measure, end of period $ 38,235 $ 52,913
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%.
In fiscal 1997, as part of its planned liquidation, Meteor distributed the
preferred shares of Alfa which it held to its shareholders (Alfa received
210,428 preferred shares and the minority shareholders received an
aggregate 52,072 preferred shares). Shares distributed to Alfa are
considered to be retired.
F-13
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(Continued)
The Series A Preferred Stock has a par value and liquidation value of $1.00
per share, a cumulative 5% dividend and is redeemable solely 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). Only dividends payable
to outside parties (Saba and the minority interest shareholders in Meteor)
are included in the accompanying balance sheet. Unpaid and undeclared
dividends to outside parties amount to $62,251 at May 31, 1997.
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.
9. 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. Management knows of no environmental
damage for which the Company could be held liable, and believes that any
plugging liabilities for existing properties will be adequately covered by
salvage upon cessation of production.
F-14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found
on pages 2 and 3 of the Company's Form 10-KSB for fiscal year ended May 31,
1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 37,143
<SECURITIES> 0
<RECEIVABLES> 1,858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,001
<PP&E> 1,447,289
<DEPRECIATION> 1,430,185
<TOTAL-ASSETS> 63,721
<CURRENT-LIABILITIES> 37,257
<BONDS> 0
<COMMON> 44,865
0
292,947
<OTHER-SE> (311,348)
<TOTAL-LIABILITY-AND-EQUITY> 63,721
<SALES> 39,026
<TOTAL-REVENUES> 59,752
<CGS> 24,084
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 69,323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,571)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,571)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
