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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended February 28, 1998.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______, 19___ to _______, 19___.
Commission File Number: 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 Identi-
Incorporation or Organization) fication Number)
216 SIXTEENTH STREET, SUITE 730
DENVER, COLORADO 80202
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Address of Principal Executive Offices
(303) 572-1135
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
_____ _____
X Yes No
_____ _____
There were 44,865,212 shares of the Registrant's $.001 par value common stock
outstanding as of February 28, 1998.
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ALFA RESOURCES, INC.
BALANCE SHEET
ASSETS
February 28 May 31
1998 1997
CURRENT ASSETS
Cash and cash equivalents $ 28,791 $ 37,143
Accounts Receivable-trade, net of
allowance for bad debts of 1,578 1,858
Total current assets 30,369 39,001
Oil and gas properties using
the full cost method 1,447,289 1,447,289
Less: depletion, depreciation, amortization
and valuation allowance (1,435,585) (1,430,185)
11,704 17,104
Other assets 7,616 7,616
TOTAL ASSETS $ 49,689 $ 63,721
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 11,616 $ 2,634
Dividends Payable 26,673 26,673
Accrued Expenses 7,950 7,950
Total current liabilities 46,239 37,257
Commitments and contingencies
SHAREHOLDERS' EQUITY (Deficit)
Preferred Stock, $1.00 par value;
authorized 10,000,000 shares, 292,947
shares issued & outstanding 292,947 292,947
Common stock, $.001 par value; authorized
150,000,000 shares; 44,865,212 shares
issued and outstanding 44,865 44,865
Additional paid-in capital 2,421,976 2,421,976
Accumulated deficit (2,756,338) (2,733,324)
Total shareholders' equity (Deficit) 3,450 26,464
TOTAL LIABILITIES AND SHARE-
HOLDERS' EQUITY (DEFICIT) $ 49,689 $ 63,721
The accompanying notes are an integral part of the financial statements.
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ALFA RESOURCES, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended February 28, 1998 and 1997
1998 1997
REVENUES
Oil and gas sales $ 5,721 $ 11,010
Management Fees -- 1,500
Interest and other income 182 202
Total revenues 5,903 12,712
EXPENSES
Production 4,251 3,620
General and Administrative 3,094 3,750
Depletion, depreciation, amortization, and
valuation allowance 1,800 1,800
Total expenses 9,145 9,170
Net Income (Loss) $ (3,242) $ 3,542
Net (Loss) per share $ * $ *
Weighted average shares
outstanding 44,865,212 44,865,212
The accompanying notes are an integral part of the financial statements.
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ALFA RESOURCES, INC.
STATEMENTS OF OPERATIONS
For the Nine Months Ended February 28, 1998 and 1997
1998 1997
REVENUES
Oil and gas sales $ 19,196 $ 31,901
Management Fees -- 4,500
Interest and other income 685 587
Total revenues 19,881 36,988
EXPENSES
Production 15,776 13,807
General and Administrative 21,718 10,687
Depletion, depreciation, amortization, and
valuation allowance 5,400 5,400
Total expenses 42,894 29,894
Net Income (Loss) before discontinued operations $ (23,013) $ 7,094
Loss from discontinued operations $ -- $ (8,123)
Net Income (Loss) $ (23,013) $ (1,029)
Net (Loss) per share $ * $ *
Weighted average shares
outstanding 44,865,212 44,865,212
The accompanying notes are an integral part of the financial statements.
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ALFA RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended February 28, 1998 and 1997
1998 1997
Cash provided by (used in) operations:
Net Income (Loss) $(23,013) $ (1,029)
Adjustments:
Depletion, depreciation and amortization 5,400 5,400
(Increase) decrease in accounts receivable 280 41,086
(Increase) decrease in other assets -- 6,409
Increase (decrease) in accounts payable 8,981 (34,864)
Increase (decrease) in dividends payable -- 210
Increase (decrease) in accrued expenses -- (9,524)
Cash provided by (used in) operations (8,352) 6,788
Cash provided by (used in) investing
activities:
Sale of oil and gas properties and equipment -- 3,286
Cash provided by (used in) investing activities -- 3,286
Cash provided by (used in) financing activities:
Preferred stock -- 52,072
Discontinued operations -- 8,123
Minority interest -- (69,619)
Cash provided by (used in) financing activities -- (9,424)
Net increase (decrease) in cash (8,352) 650
Cash, beginning of period 37,143 29,790
Cash, end of period $ 28,791 $ 30,440
The accompanying notes are an integral part of the financial statements.
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ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
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").
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. Management intends
to use unencumbered production revenue and possibly other sources to meet
admin-istrative 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.
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 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 quarter ending February
28, 1998.
Revenue from oil and gas production is recognized upon sale to unaffiliated
purchasers.
CASH EQUIVALENTS
Cash equivalents include money-market accounts or other highly-liquid debt
instruments with an original maturity of three months or less.
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, which can affect depletion and the net carrying
value of oil and gas properties.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing the net income (loss) by the
weighted average number of common shares outstanding during the period.
Shares
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issued to insiders are considered to be outstanding from the beginning of the
period 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. ADJUSTMENTS
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting of normal recurring accruals only)
necessary to present fairly, the Balance Sheet as of February 28, 1998, and
the Statement of Operations and the Statement of Cash flow for the six months
then ended.
3. ADDITIONAL DETAILS
For additional details of the Company's financial condition, refer to the
notes to the Company's annual financial statements for the year ended May 31,
1997, filed in the Company's Form 10-KSB annual report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have working capital problems because of continued
losses 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 February 28, 1998, the Company
had a working capital deficit in the amount of $15,870. Management's intent
is to use the Company as a public shell merger candidate.
Management intends to use unencumbered production revenue and other sources,
such as sales proceeds, to meet 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 and to settle its debts, the Company may not be able to
continue in business.
Cash flows provided (used) in operations for the nine months ended February
28, 1998, and 1997, were $(8,352) and $(6,788) respectively. The decrease in
cash provided during the last period is principally due the Company's net
loss.
Alfa sells most of its oil production to three 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 continue to depend on
many outside factors beyond its control, such as the demand for oil and
natural gas, the price of oil and gas, the general economic climate and Alfa's
ability to raise additional capital and to find a merger candidate.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO FEBRUARY 28, 1997
Alfa's oil and gas sales decreased 52% to $5,721 in 1998 from $11,010 in 1997.
This decrease is primarily due to decreased production. Management fees
decreased to $-0- in 1998 from $1,500 in 1997. This decrease is due to
discontinuation of the services the Company was providing. Interest and other
income decreased to $182 in 1998 from $202 in 1997.
Production expenses increased 17% to $4,251 in 1998 from $3,620 in 1997. This
increase resulted primarily from workovers on the Company's properties.
General and Administrative expenses decreased to $3,094 in 1998 from $3,750 in
1997. This decrease is due professional fees.
Since net operating revenues from Alfa's oil production are very sensitive to
changes in the price of oil, it is difficult for management to predict whether
or not the Company will be profitable in the future. Unless oil prices
increase, the Company will not be able to produce its marginal properties and
since management has reduced its services, total revenues will continue to
decline.
NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO FEBRUARY 28, 1997
Alfa's oil and gas sales decreased 60% to $19,196 in 1998 from $31,901 in
1997. This decrease is primarily due to loss of production. Management fees
decreased to $-0- in 1998 from $4,500 in 1997. This decrease is due to
discontinuation of the services the Company was providing. Interest and other
income increased to $685 in 1998 from $587 in 1997.
Production expenses increased 14% to $15,776 in 1998 from $13,807 in 1997.
This increase resulted primarily from workovers of properties. General and
Administrative expenses increased 103% to $21,718 in 1998 from $10,687 in
1997. This increase is due to audit and professional fees.
Since net operating revenues from Alfa's oil production are very sensitive to
changes in the price of oil, it is difficult for management to predict whether
or not the Company will be profitable in the future. Unless oil prices
increase, the Company will not be able to produce its marginal properties and
since management has reduced its services, total revenues will continue to
decline.
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 and gas
produced by Alfa has 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. That 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K. None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALFA RESOURCES, INC.
/s/ C.L. Nordstrom
By____________________________
Dated: April 9, 1998 C.L. Nordstrom, President
/s/ Dennis R. Staal
Dated: April 9, 1998 By____________________________
Dennis R. Staal, Chief
Financial and Accounting
Officer
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<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
page 2, 3 and 4 of the Company's Form 10-QSB for the quarter ended February
28, 1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1998
<CASH> 28,791
<SECURITIES> 0
<RECEIVABLES> 1,578
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,369
<PP&E> 1,447,289
<DEPRECIATION> (1,435,585)
<TOTAL-ASSETS> 49,689
<CURRENT-LIABILITIES> 46,239
<BONDS> 0
<COMMON> 44,865
0
292,947
<OTHER-SE> (334,362)
<TOTAL-LIABILITY-AND-EQUITY> 49,689
<SALES> 19,196
<TOTAL-REVENUES> 19,881
<CGS> 15,776
<TOTAL-COSTS> 15,776
<OTHER-EXPENSES> 27,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,013)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,013)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,013)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
