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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] 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, 1998
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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-0846529
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
216 16th Street, Suite 780, Denver, Colorado 80202
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(Address of Principal Executive Office, Including Zip Code)
Registrant's telephone number including area code: (303) 572-1136
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 15, 1998, 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: $27,499.
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
DOCUMENTS INCORPORATED BY REFERENCE: None.
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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.
(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, 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.
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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, 1998, 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 780, Denver, Colorado 80202. Alfa's monthly allocated rent is
$400 per month, expiring in 2000.
(b) OIL AND GAS PROPERTIES. Alfa hold interests in producing oil and gas
leaseholds as of May 31, 1998, as follows:
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.
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(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, 1998, May 31, 1997,
and May 31, 1996. The reserve estimates and related values were prepared by
management.
All such reserves are located in the continental United States.
1998 1997 1996
Oil Gas Oil Gas Oil Gas
(Bbls) (MCF) (Bbls) (MCF) (Bbls) (MCF)
------ ----- ------ ----- ------ -----
Proved Reserves 4,206 0 7,860 0 9,584 1,360
Proved Devel-
oped Reserves 4,206 0 7,860 0 9,584 1,360
No major discovery or other favorable or adverse event has occurred since May
31, 1998, 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, 1998, May 31, 1998, and May 31,
1996.
1998 1997 1996
----- ----- -----
Oil (Bbls) 1,357 1,783 7,616
Gas (MCF) 519 606 1,042
The following table sets forth the average sales price and production cost per
unit of production for the fiscal years ended May 31, 1998, May 31, 1997, and
May 31, 1996.
1998 1997 1996
---- ---- ----
Average Sales Price: Per
Equivalent Barrel of Oil $16.73 $21.42 $16.78
Average Production (Lifting)
Costs: Per Equivalent
Barrel of Oil $16.12 $13.22 $13.37
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, 1998:
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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, 1998 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.
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(b)(6) DRILLING ACTIVITY. Alfa drilled no productive or dry exploratory and
development wells during the fiscal years ended May 31, 1998 and May 31,
1997.
(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, 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
August 31, 1997 No Bid No Bid
November 30, 1997 No Bid No Bid
February 28, 1998 No Bid No Bid
May 31, 1998 No Bid No Bid
The number of record holders of Common Stock of Alfa as of August 15, 1998,
was approximately 546. 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 current and prior years, and has sold property to satisfy debts.
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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, 1998, the Company had working capital in the amount of $(26,952).
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 further 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,
1998, and 1997, were $(26,313) and $7,353 respectively.
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.
Alfa has no proprietary software and has checked with the manufacturers of its
software package and have been informed that new versions addressing the year
2000 problem will be available by the end of 1999. At this time Alfa has no
reason to believe that there will be any significant problems or costs
associated with the year 2000 problem.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1998 COMPARED TO MAY 31, 1997
Oil and gas sales decreased 39% to $23,709 in 1998 from $39,026 in 1997. This
decrease is mainly due to the elimination of production as producing
properties were sold and the decrease in the selling price of oil. Equivalent
barrels of oil produced decreased 24% to 1,417 in 1998 from 1,822 in 1997, the
price of which decreased 20% to $16.73 in 1998 from $21.42 in 1997.
Production expenses decreased 5% to $22,851 in 1998 from $24,084 in 1997, and
is due to decreased production. The cost of production per equivalent barrel
of oil produced increased to $16.12 in 1998 from $13.22 in 1997 because of
significant workover costs on one property. General and Administrative
expenses decreased to $37,959 in 1998 from $41,239 in 1997, as a result of the
Company's efforts to reduce costs. Depletion, depreciation and amortization
has increased to $9,110 in 1998 from $4,000 in 1997; primarily because of a
"ceiling" adjustment of $4,310.
Alfa had a net loss of $(42,422) in 1998 compared to net loss of $(9,571) in
1997 as a result of the above factors.
YEAR ENDED MAY 31, 1997 COMPARED TO MAY 31, 1996
Oil and gas sales decreased 70% to $39,026 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). Depletion, 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.
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
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-12 hereof.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No response required.
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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 15, 1998, 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
Name Position As Director of Alfa
---- -------- --------------------
H. Wayne Hoover Director January, 1984 to Present
C.L. Nordstrom Director January, 1981 to Present
Dennis R. Staal Director April 1, 1998 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
Name Age With Company As Officer of Alfa
---- --- ------------ -------------------
C.L. Nordstrom 79 President December, 1995 to Present
H. Wayne Hoover 55 Secretary August, 1987 to Present
Dennis R. Staal 50 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, 55, 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.
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C.L. NORDSTROM, 79, 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.
DENNIS R. STAAL, 50, Treasurer and Director, 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. From 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. From 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 also
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, 1998.
<TABLE>
<CAPTION>
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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
- ---------------- ---- ------ ----- ------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C.L. Nordstrom, 1998 $ -- -- $5,971 -- -- -- --
President
Dennis R.Staal, 1998 $ -- -- $2,783 -- -- -- --
Treasurer
</TABLE>
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 15,
1998, the only options issued 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 1998. 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, 1998. (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 15, 1998, is known to Alfa to be
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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.
(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 15, 1998:
Amount & Nature
Name of of Beneficial Percent
Beneficial Owner Ownership (1) of Class
- ---------------- ---------------- --------
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
(3 Persons) 3,441,500 7.7%
_______________
(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
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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 1994, a Company director (former president) and the chief financial officer
organized a corporation ("Industries") which occupies office space with Alfa
and now provides accounting and administrative services to Alfa. In 1998 and
1997, Industries charged Alfa $18,392 and $9,606, respectively for accounting
and administrative services. Additionally, $2,500 was paid to a director
(Chief Financial Officer) for accounting services related to S.E.C. filings.
A payment of $2,900 was also made to Industries as prepayment for preparation
of the 1998 Form 10KSB. 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 $375 in
fiscal 1997. Additionally, Alfa's subsidiary received $0 and $700 from Yellow
Queen (a corporation in which the Company's president, chief financial officer
and its former president have ownership) for rent in 1998 and in 1997.
(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 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.
13
<PAGE>
<PAGE>
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,
1998. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the
years ended May 31, 1998 and 1997. . . . . . . . . F-3
Consolidated Statements of Changes in Stockholders'
Equity for the years ended May 31, 1998 and 1997 . F-4
Consolidated Statements of Cash Flows for the
years ended May 31, 1998 and 1997. . . . . . . . . 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) . . . . . . . . . . . . . . --
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). . . . . . . . . . . . . . . . . . --
14
<PAGE>
<PAGE>
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. * . . . . . . . . . . . . . . . . . . . . . . . .
13. * . . . . . . . . . . . . . . . . . . . . . . . .
18. * . . . . . . . . . . . . . . . . . . . . . . . .
19. * . . . . . . . . . . . . . . . . . . . . . . . .
22. List of Subsidiaries (2) . . . . . . . . . . . . . --
23. * . . . . . . . . . . . . . . . . . . . . . . . .
24. * . . . . . . . . . . . . . . . . . . . . . . . .
25. * . . . . . . . . . . . . . . . . . . . . . . . .
27 Financial Data Schedule (filed herewith electronically)
15
<PAGE>
<PAGE>
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 (incorporated 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
16
<PAGE>
<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 Resources,
Inc., as of May 31, 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years
ended May 31, 1998 and 1997. 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, 1998, and the results of its operations and its cash flows
for the years ended May 31, 1998 and 1997, 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 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, P.C.
William G. Lajoie, P.C.
Littleton, Colorado
July 30, 1998
F-1
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
May 31,
1998 1997
---------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 10,830 $ 37,143
Accounts receivable-trade 1,054 1,858
Prepaid expense - related party (Note 4) 2,900 --
Total current assets 14,784 39,001
Oil and gas properties, using the
full cost method (note 5) 1,430,126 1,430,126
Less - depletion, depreciation, and
amortization and valuation allowance (1,422,132) (1,413,022)
7,994 17,104
Other assets 3,000 7,616
TOTAL ASSETS $ 25,778 $ 63,721
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 14,727 $ 2,634
Dividends payable (Note 6) 26,673 26,673
Accrued expenses 336 7,950
Total current liabilities 41,736 37,257
Stockholders' equity (deficit) (Notes 3
and 6): Preferred stock, $1.00 par
value; authorized 10,000,000 shares;
292,947 shares issued and
outstanding 292,947 292,947
Common stock, $.001 par value;
authorized 150,000,000 shares;
issued and outstanding 44,865,212
shares 44,865 44,865
Additional paid-in capital 2,421,976 2,421,976
Accumulated deficit (2,775,746) (2,733,324)
Total stockholders' equity (deficit) (15,958) 26,464
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 25,778 $ 63,721
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
1998 1997
----------- ---------
REVENUES:
Oil and gas sales $ 23,709 $ 39,026
Management fees -- 7,239
Interest and other income 3,790 13,487
27,499 59,752
EXPENSES:
Production 22,851 24,084
General and administrative (Note 4) 37,959 41,239
Depletion, depreciation and amortization 9,110 4,000
69,920 69,323
NET INCOME (LOSS) $ (42,422) $ (9,571)
Net (loss) per share $ * $ *
Weighted average shares outstanding 44,865,212 44,865,212
*less than $(.01) per share
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
<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,
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 6)
Net loss -- -- -- -- -- (9,571)
Balance May 31,
1997 292,947 $292,947 44,865,212 $44,865 $2,421,976 $(2,733,324)
Net loss -- -- -- -- -- (42,422)
Balance May 31,
1998 292,947 $292,947 44,865,212 $44,865 $2,421,976 $(2,775,746)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
1998 1997
--------- ----------
Cash provided by (used in) operations
Net Income (loss) $(42,422) $ (9,571)
Adjustments to reconcile to cash provided
by operations:
Depletion, depreciation and amortization 9,110 4,000
(Increase) in prepaid expense (2,900) --
(Increase) decrease in other assets 4,616 1,422
(Increase) decrease in receivables 804 41,614
Increase (decrease) in accounts payable 12,093 (28,292)
(Decrease) in accrued expenses (7,614) (1,820)
Cash provided by (used in) operations (26,313) 7,353
Cash and cash equivalents, beginning of year 37,143 29,790
Cash and cash equivalents, end of year $ 10,830 $ 37,143
Supplemental information:
(1) There were no income taxes or interest paid in 1998 or 1997.
(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.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BASIS OF ACCOUNTING
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, 1998,
the Company had a negative working capital in the amount ($26,952). Certain
current production revenue is being withheld by operators to liquidate trade
payables, and this situation is expected to continue through fiscal 1999.
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. The Company is seeking a merger partner and additional
equity, but has not yet been successful. Further decreases 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 year ending May 31, 1997,
but $4,310 was recognized in fiscal 1998.
Revenue from oil and gas production is recognized upon sale to unaffiliated
purchasers.
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, 1998, 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.
F-6
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 AND 1997
(Continued)
MAJOR CUSTOMERS
The Company had major purchasers of oil in 1998 and 1997 as follows:
PURCHASER 1998 1997
A 42% 40%
B 47% 47%
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 dissolved Meteor in fiscal 1998
(operations were discontinued in 1997). Because of this 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.
(LOSS) PER SHARE
For the years ended May 31, 1998, and 1997, (loss) per share is computed by
dividing the net (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>
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 AND 1997
(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.
These were no significant temporary difference between amounts reported for
financial reporting purposes and those reported for income tax purposes in
1997 and 1998. 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:
1998 1997
Operating loss carryforwards $718,000 $1,014,000
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, 1998, the Company had available estimated tax operating loss
carryovers which expire as follows:
Originating Year Carryover Expiration
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
1998 42,400 2013
----------
$1,841,100
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
prices no less than the market value of the common stock on the date of grant.
As of May 31, 1998, 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.
F-8
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998 and 1997
(Continued)
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, 1998, no options under this plan are outstanding or
exercisable.
4. RELATED PARTY TRANSACTIONS
In 1994, a Company director (former president) and the chief financial officer
organized a corporation ("Industries") which occupies office space with Alfa
and provides accounting and administrative services to Alfa (which no longer
has employees). In 1998 and 1997, Industries charged Alfa $18,392 and $9,606
respectively, for accounting and administrative services. Additionally,
$2,500 was paid to a director (Chief Financial Officer) for accounting
services related to S.E.C. filings. Certain expenses are paid for the Company
president for services rendered in lieu of salary, and amounted to $5,971 in
fiscal 1998. A payment of $2,900 to Industries for preparation of the 1998
Form 10KSB is included in prepaid expenses at May 31, 1998. Through December,
1996, Meteor was the lessee for office 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 $375 in fiscal
1997. Additionally, Alfa's subsidiary received $0 and $700 from Yellow Queen
(a corporation in which the Company's president, chief financial officer and
its former president have ownership) for rent in 1998 and in 1997.
5. SUPPLEMENTAL OIL AND GAS FINANCIAL AND RESERVE INFORMATION (UNAUDITED)
Reserve estimates for 1998 and 1997 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.
F-9
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998 and 1997
(Continued)
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, 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 --
Extensions and discoveries -- --
Purchase of minerals in place -- --
Sales of minerals in place -- --
Production (1,357) (519)
Revisions of previous estimates (2,297) 519
Reserves at May 31, 1998 4,206 -0-
There are no reserves attributable to partnership or minority interests at May
31, 1998, or 1997.
All capitalized costs related to oil and gas activities at May 31, 1998 and
1997 are considered related to proved properties.
OIL AND GAS OPERATIONS
Depletion, depreciation and amortization (including the 1998 ceiling
adjustment) per equivalent unit of production for the years ended May 31, 1998
and 1997 was $6.43 and $2.20, respectively.
In 1998 and 1997, 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
F-10
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998 and 1997
(Continued)
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.
1998 1997
Future cash inflows $ 56,843 $ 158,188
Future cash outflows:
Production costs (47,796) (107,269)
Future net cash flows before
future income taxes 9,047 50,919
Future income taxes -- --
Future net cash flows 9,047 50,919
Adjustment to discount future
annual net cash flows at 10% (1,053) (12,684)
Standardized measure of discounted
future net cash flows $ 7,994 $ 38,235
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, 1998 and 1997.
1998 1997
Standardized measure, beginning of
period $ 38,235 $ 52,913
Sales of oil and gas, net of
production costs (3,273) (14,942)
Net change in sales prices, net of
production costs (25,559) (4,679)
Changes in estimated future
development costs -- --
Purchases of minerals in place -- --
Sales of minerals in place -- --
Revisions of quantity estimates (10,886) (296)
Accretion of discount 3,823 5,291
Other, including changes in production
rates (timing) 5,654 (52)
Standardized measure, end of period $ 7,994 $ 38,235
F-11
<PAGE>
<PAGE>
ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998 and 1997
(Continued)
6. 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.
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). Only dividends payable to outside
parties (Saba and the former minority interest shareholders in Meteor) are
included in the accompanying balance sheet. Unpaid and undeclared dividends
to outside parties amount to $76,898 at May 31, 1998.
The president and former president of Alfa and its chief financial officer
were officers of Meteor and constituted three of the five Board members.
7. 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-12
<PAGE>
<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.
Dated: August 24, 1998 By:/s/ C. L. Nordstrom
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.
Dated: August 24, 1998 By:/s/ C. L. Nordstrom
C.L. Nordstrom, President,
Chief Executive Officer and,
Director
Dated: August 24, 1998 By:/s/ Dennis R. Staal
Dennis R. Staal, Principal
Financial and Accounting
Officer and Director
Dated: _________, 1998 By:____________________________
H. Wayne Hoover, Secretary
and Director
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
27. Financial Data Schedule Filed herewith electronically
<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, 1998,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 10,830
<SECURITIES> 0
<RECEIVABLES> 1,054
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,784
<PP&E> 1,430,126
<DEPRECIATION> 1,422,132
<TOTAL-ASSETS> 25,778
<CURRENT-LIABILITIES> 41,736
<BONDS> 0
<COMMON> 44,865
0
292,947
<OTHER-SE> (353,770)
<TOTAL-LIABILITY-AND-EQUITY> 25,778
<SALES> 27,499
<TOTAL-REVENUES> 27,499
<CGS> 0
<TOTAL-COSTS> 69,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,422)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
