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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, 1999
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)
218 W. Carmen Lane, Suite 208
Santa Maria, California 93454
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(Address of Principal Executive Office, Including Zip Code)
Registrant's telephone number including area code: (805)928-8688
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, 1999, 99,000,000 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: $820,393.
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.
This Form 10-KSB consists of 30 pages. The Exhibit Index begins on page 13.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS. Alfa Resources, Inc. ("Alfa" or the
"Company"), with its mailing address at 218 West Carmen Lane, Suite 208, Santa
Maria, California 93454, telephone number (805) 928-8688, 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. Management's primary objective is the merger with
another company, possibly one seeking a public "shell", which has potential
for future growth.
PROPERTY ACQUISITION AND SALES
In the past, Alfa attempted to acquire developed and undeveloped oil and gas
properties through the acquisition of leases and other mineral interests or
through the acquisition of financially troubled companies.
EQUIPMENT, PRODUCTS AND RAW MATERIALS
Alfa owns no drilling rigs and has done no drilling for several years.
Alfa's principal products are crude oil and natural gas. Crude oil and
natural gas are sold to various purchasers including pipeline companies which
service the areas in which Alfa's producing wells are located. Alfa's
business is seasonal in nature, to the extent that weather conditions at
certain times of the year may affect its access to oil and gas properties and
the demand for natural gas.
The existence of commercial oil and gas reserves is essential to the ultimate
realization of value from properties, and thus may be considered a raw
material essential to Alfa's business. The acquisition, exploration,
development, production and sale of oil and gas is subject to many factors
which are outside Alfa's control. These factors include national and
international economic conditions, availability of drilling rigs, casing, pipe
and other fuels, and the regulation of prices, production, transportation, and
marketing by federal and state governmental authorities. Alfa acquired oil
and gas properties from landowners, other owners of interests in such
properties, or governmental entities. For information relating to specific
properties of Alfa, see Item 2. Alfa currently is not experiencing any
difficulty in acquiring necessary supplies or services as long as Alfa can pay
for the services and supplies nor is it experiencing any difficulty selling
its products.
COMPETITION
The oil and gas business is highly competitive. Alfa's competitors include
major companies, independents and individual producers and operators. Alfa's
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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, 1999, 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 218 West
Carmen Lane, Suite 208, Santa Maria, California 93454.
(b) OIL AND GAS PROPERTIES. Alfa hold interests in producing oil and gas
leaseholds as of May 31, 1999, 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.
(b)(1)(A) PROVED OR PROVED DEVELOPED RESERVES. The following table sets
forth the proved developed or proved undeveloped oil or gas reserves
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accumulated by Alfa, for the fiscal years ended May 31, 1999, May 31, 1998,
and May 31, 1997. The reserve estimates and related values were prepared by
management.
All such reserves are located in the continental United States.
1999 1998 1997
Oil Gas Oil Gas Oil Gas
(Bbls) (MCF) (Bbls) (MCF) (Bbls) (MCF)
Proved
Reserves 1,275 0 4,206 0 7,860 0
Proved Devel-
oped Reserves 1,275 0 4,206 0 7,860 0
________________
No major discovery or other favorable or adverse event has occurred since May
31, 1999, 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, 1999, May 31, 1998, and May 31,
1997.
1999 1998 1997
Oil (Bbls) 1,241 1,357 1,783
Gas (MCF) 352 519 606
The following table sets forth the average sales price and production cost per
unit of production for the fiscal years ended May 31, 1999, May 31, 1998, and
May 31, 1997.
1999 1998 1997
Average Sales Price: Per
Equivalent Barrel of Oil $11.59 $16.73 $21.42
Average Production (Lifting)
Costs: Per Equivalent
Barrel of Oil $ 9.78 $16.12 $13.22
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, 1999:
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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, 1999 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.
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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
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
August 31, 1998 No Bid No Bid
November 30, 1998 No Bid No Bid
February 28, 1999 No Bid No Bid
May 31, 1999 No Bid No Bid
The number of record holders of Common Stock of Alfa as of August 15, 1999,
was approximately 550. 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. 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, 1999, the
Company had a working capital deficit in the amount of $(29,054). During
the year the Company sold 49,000,000 shares of common stock for $50,000.
During fiscal 1999 Alfa acted as the finder for a significant transaction,
which resulted in a receivable of $805,000. Alfa has negotiated the amount to
be paid in the form of receiving interests in oil and gas properties (LaSalle
Parish, Louisiana leases), 33% interest in Aimsoft, Inc., an AS400 software
development and training company and the balance, if any, is to be paid in the
form of a note or cash or as negotiated by management. The value of oil and
gas properties shall be allocated from the updated reserve report (discounted
cash flow (S.E.C. case PV-10) value less any proportionate liabilities). The
value of the software development company shall be allocated based on third
party valuation. If the combined value of Alfa's interest in oil and gas
properties and Aimsoft, Inc. is greater than the amount owed, then Alfa would
not be obligated to repay any excess value. If the value of these combined
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interests is less than the amount owed to Alfa, then the balance is to be paid
to Alfa in the form of a note or cash as negotiated by the management.
Alfa advanced $35,000 to Capco Resources Corporation ("Capco") for investing
in interests in some oil and gas properties. The transaction on these
interests was not closed and Capco is holding this amount to be invested in
another oil and gas transaction. If the transaction is not completed this
time, it is Alfa's intention to obtain a refund from Capco.
Cash flows used in operations for the fiscal years ended May 31, 1999 and
1998, were $(39,970) and $(26,313) 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.
YEAR 2000 COMPLIANCE
Alfa's Year 2000 Project ("Project") is proceeding on schedule. The Project
is addressing the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000. The Project
covers information systems infrastructure (including hardware and software),
operating systems and significant vendors and customers.
Alfa has no proprietary software. The Company has been evaluating its
embedded technology and at the present time has no indication of significant
problems. Alfa does not expect to incur any significant costs updating its
systems to become Year 2000 compliant.
The Company's software provider has informed the Company that the Company's
systems are Year 2000 compliant.
Alfa relies on third party suppliers for operations, utilities and other key
services. Interruption of supplier operations due to Year 2000 issues could
affect Company operations. The Company has initiated efforts to evaluate the
status of suppliers' efforts to be Y2K compliant.
Alfa is also dependent upon customers for sales and cash flow. Year 2000
interruptions in customers' operations could result in reduced sales and cash
flow reductions. While these events are possible, Alfa's customer base is
major oil companies who are taking steps to monitor the status of Y2K.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The
Project is expected to significantly reduce the Company's level of uncertainty
about the Year 2000 problem and, in particular, about the Year 2000 compliance
and readiness of its significant suppliers and customers.
The Company's Y2K readiness program is an ongoing process; the estimated
completion dates and costs of the Y2K readiness program is subject to change.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1999 COMPARED TO MAY 31, 1998
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Oil and gas sales decreased 36% to $15,113 in 1999 from $23,709 in 1998. This
decrease is mainly due to the decrease in the selling price of oil. Equivalent
barrels of oil produced decreased 8% to 1,241 in 1999 from 1,357 in 1998, the
price of which decreased 31% to $11.59 in 1999 from $16.73 in 1998.
During the year Alfa acted as the finder for a significant transaction, which
resulted in a receivable of $805,000.
Production expenses decreased 39% to $13,871 in 1999 from $22,851 in 1998, and
is due to decreased work over costs. The cost of production per equivalent
barrel of oil produced decreased to $9.78 in 1999 from $16.12 in 1998 because
of workover costs on one property. General and Administrative expenses
decreased to $23,759 in 1999 from $37,959 in 1998, as a result of the
Company's efforts to reduce costs. Depletion, depreciation and amortization
decreased to $7,994 in 1999 from $9,110 in 1998; as all properties are now
fully depleted.
Alfa had a net profit of $774,769 in 1999 compared to net loss of $(42,422) in
1998 as a result of the above factors.
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.
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-13 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
As Director
Name Position of Alfa
Sultan Mahmud Director August, 1999 to Present
Javed Choudry Director August, 1999 to Present
C.L. Nordstrom Director January, 1981 to Present
Nancy Heck Director August, 1999 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.
Period Served
All Offices as Officer of
Name Age With Company of Alfa
Sultan Mahmud 43 President August, 1999 to Present
Nancy Heck 53 Secretary/Treasurer August, 1999 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.
SULTAN MAHMUD, 43, President and a Director. Mr. Mahmud has 16 years of
experience in various aspects of management in public and private companies.
He has MBA degrees in Finance and Marketing from American International
College in Massachusetts.
JAVED CHOUDRY, 31, Director, has an MBA in Finance and International Business
from Hofstra University in New York. As a consultant he has been involved with
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Asset and Portfolio Management, projects with World Bank and has worked as
Financial Analyst at Koonz Securities.
NANCY HECK, 53, Chief Financial Officer, Treasurer and Director, 53, is a
Colorado-licensed Certified Public Accountant with twenty years experience in
business and finance. Ms. Heck's educational background includes a Bachelors
and Masters of Science degree in biology from the University of Michigan,
supplementary education in business and accounting from Ft. Lewis College in
Colorado, and yearly continuing professional educational required for CPA
licensure.
C. L. NORDSTROM, 80, Director, has been a Director of Alfa since its inception
in 1981. 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.
(b) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES. Alfa does not have
employees, but uses administrative services furnished by officers and others.
FAMILY RELATIONSHIPS. There is no family relationship between any Director or
Executive Officer of Alfa.
(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 com-
pensation 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, 1999.
<TABLE>
<CAPTION>
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> <C> <C> <C> <C> <C> <C> <C> <C>
C.L. Nordstrom, 1999 $ -- -- $6,316 $1,000 -- -- --
former
President
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Dennis R.Staal, 1999 $ -- -- $ -- $1,135 -- -- --
former
Treasurer
H. Wayne Hoover, 1999 $ -- -- $ -- $1,000 -- -- --
former
Secretary
</TABLE>
Compensation Pursuant to Plans. Alfa has two stock option plans in effect as
of August 15, 1999, 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,
1999, 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 1999. 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, 1999. (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
the beneficial owner of 5% or more of the issued and outstanding Common Stock
and, in addition, by each Officers and by all Directors as a Group.
Amount & Nature
Name & Address of Beneficial Percent
Title of Class of Beneficial Owner(2) Ownership of Class
$.001 Par Paul Roebling A Trust 10,330,000(1) 10.4%
Value Common c/o Bank of New York
Stock 530 5th Avenue
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New York, NY 10021
$.001 Par Edward J. Names 4,658,000 6.5%
Value Common 216 16th Street, #730
Stock Denver, CO 80202
$.001 Par Sultan Mahmud 9,800,000 9.9%
Value Common 3838 Mira Loma Drive
Stock Santa Maria, CA 93455
$.001 Par Imran Jattala 9,800,000 9.9%
Value Common 13763 Harvard Avenue
Stock Chino, CA 91710
$.001 Par Tariq Chaudhary 9,800,000 9.9%
Value Common 3834 Mira Loma Drive
Stock Santa Maria, CA 93455
$.001 Par Javed Choudry 9,800,000 9.9%
Value Common 330 E. Enos Drive #170
Stock Santa Maria, CA 93454
$.001 Par Faisal Chaudhary 9,800,000 9.9%
Value Common 5753-G Santiago Road #5100
Stock Anaheim Hills, CA 92807
$.001 Par C. L. Nordstrom 1,891,500 1.9%
Value Common 1735 Clark Street
Stock Aurora, CO 80011
All Officers and
Directors as a Group
(3 Persons) 21,491,500 21.7%
_______________
(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.
(2) 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 fore-going 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.
13
<PAGE>
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 former Company director (former president) and the former chief
financial officer organized a corporation ("Industries"). In 1998, Industries
charged Alfa $18,392 for accounting and administrative services. In 1998,
$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.
(b) TRANSACTIONS WITH PROMOTERS. Not applicable.
(c) CERTAIN BUSINESS RELATIONSHIPS. None.
(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.
14
<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, August 27, 1999. . . . . F-1
Independent Auditor's Report, July 30, 1998. . . . . . F-2
Consolidated Balance Sheet, May 31,
1999. . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the
years ended May 31, 1999 and 1998. . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended May 31, 1999 and 1998 . F-5
Consolidated Statements of Cash Flows for the
years ended May 31, 1999 and 1998. . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . F-7
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). . . . . . . . . . . . . . . . . . . --
15
<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. * . . . . . . . . . . . . . . . . . . . . . . . .
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
16
<PAGE>
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/ Sultan Mahmud
Dated: August 30, 1999 By ____________________________
Sultan Mahmud, 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/ Sultan Mahmud
Dated: September 8, 1999 By ______________________________
Sultan Mahmud President,
Director
/signed/ Javed Choudry
Dated: September 8, 1999 By _______________________________
Dr. Javed Choudry, Director
/signed/ Nancy Heck
Dated: September 8, 1999 By _______________________________
Nancy Heck, Treasurer, Chief
Financial Officer, Director
/signed/ C.L. Nordstrom
Dated: September 8, 1999 By _______________________________
C. L. Nordstrom, Director
19
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Alfa Resources, Inc.
Santa Maria, California
We have audited the balance sheets of Alfa Resources, Inc. (a Colorado
corporation), as of May 31, 1999, and the related statements of income,
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. We believe that our audit provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alfa Resources, Inc., as of
May 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/signed/ Glenn, Burdette, Phillips & Bryson
Glenn, Burdette, Phillips & Bryson
Certified Public Accountants
A Professional Corporation
1150 Palm Street
San Luis Obispo, California 93401
August 27, 1999
F-1
WILLIAM G. LAJOIE, P.C.
CERTIFIED PUBLIC ACCOUNTANT
5961 SOUTH MIDDLEFIELD ROAD, SUITE 100
LITTLETON, COLORADO 80123
(303)798-3991; FAX (303)798-2760
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Alfa Resources, Inc.
I have audited the accompanying statements of operations, changes in
stockholders' equity (deficit), and cash flows of Alfa Resources, Inc. for the
year ended May 31, 1998. 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 audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit 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 audit provides a reasonable basis
for my opinion.
In my opinion the financial statements referred to above present fairly in all
material respects the results of operations and cash flows of Alfa Resources,
Inc. for the year ended May 31, 1998, in conformity with generally accepted
accounting principles.
The financial statements for the year ended May 31, 1998, 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. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/signed/ William G. Lajoie, P.C.
William G. Lajoie., P.C.
Littleton, Colorado
July 30, 1998
F-2
ALFA RESOURCES, INC.
BALANCE SHEET
May 31, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,860
Accounts receivable-trade 700
Total current assets 21,560
Oil and gas properties, using the
full cost method (note 5) 1,430,126
Less - depletion, depreciation, and
amortization and valuation allowance (1,430,126)
Other assets 843,000
TOTAL ASSETS $ 864,560
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 23,941
Dividends payable (Note 4) 26,673
Total current liabilities 50,614
Stockholders' equity(deficit) (Notes 3,4
and 5): 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 99,000,000 shares 99,000
Additional paid-in capital 2,422,976
Accumulated deficit (2,000,977)
Total stockholders' equity 813,946
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 864,560
The accompanying notes are an integral part of the financial statements.
F-3
ALFA RESOURCES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
1999 1998
REVENUES:
Oil and gas sales $ 15,113 $ 23,709
Finders fee 805,000 --
Interest and other income 280 3,790
820,393 27,499
EXPENSES:
Production 13,871 22,851
General and administrative (Note 4) 23,759 37,959
Depletion, depreciation and amortization 7,994 9,110
45,624 69,920
NET INCOME (LOSS) $ 774,769 $ (42,422)
Net income(loss) per share $ .01 $ *
Weighted average shares outstanding 71,932,606 44,865,212
*less than $(.01) per share
The accompanying notes are an integral part of the financial statements
F-4
ALFA RESOURCES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
<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, 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)
Issuance of stock -- -- 54,134,788 54,135 1,000 --
Net income -- -- -- -- -- 774,769
Balance May 31, 1999 292,947 $292,947 99,000,000 $99,000 $2,422,976 $(2,000,977)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
ALFA RESOURCES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
1999 1998
Cash provided by (used in) operations
Net income (loss) $774,769 $ (42,422)
Adjustments to reconcile to cash provided
by operations:
Finders fee (805,000) --
Depletion, depreciation and amortization 7,994 9,110
Stock issued for services 5,135 --
(Increase)decrease in prepaid expense 2,900 (2,900)
(Increase)decrease in other assets (35,000) 4,616
Decrease in receivables 354 804
Increase in accounts payable 9,214 12,093
(Decrease) in accrued expenses (336) (7,614)
Cash provided by (used in) operations (39,970) (26,313)
Cash flows from financing activities:
Sale of 49,000,000 shares of stock 50,000 --
Net increase in cash and equivalents 10,030 --
Cash and cash equivalents, beginning of year 10,830 37,143
Cash and cash equivalents, end of year $ 20,860 $ 10,830
Supplemental information:
(1) There were no income taxes or interest paid in 1999 or 1998.
(2) A finders fee more fully described in Note 1 did not provide cash, and
accordingly the revenue and increase in other assets are omitted from the
statement of cash flows.
The accompanying notes are an integral part of the financial statements.
F-6
ALFA RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATION
The Company was incorporated in 1981. The Company operates in the oil and gas
production business principally in the Rocky Mountain States.
LIQUIDITY AND BASIS OF ACCOUNTING
The basis of accounting for accompanying financial statements for the year
ended May 31, 1998, is that of a going concern, as described in the 1998 Form
10-KSB. However, the notes to financial statements for that filing disclosed
that because of the lack of working capital and the decrease in production
revenue, and other factors, operations could cease within a short period of
time. Management believes that these conditions have now been mitigated,
primarily because of certain fees realized in fiscal 1999, and that resources
are sufficient to continue operations through fiscal 2000.
During fiscal 1999 Alfa acted as the finder for a significant transaction,
which resulted in a receivable of $805,000. Alfa has negotiated the amount to
be paid in the form of receiving interests in oil and gas properties (LaSalle
Parish, Louisiana leases), 33% interest in Aimsoft, Inc., an AS400 software
development and training company and the balance, if any, is to be paid in the
form of a note or cash or as negotiated by management. The value of oil and
gas properties shall be allocated from the updated reserve report (discounted
cash flow (S.E.C. case PV-10) value less any proportionate liabilities). The
value of the software development company shall be allocated based on third
party valuation. If the combined value of Alfa's interest in oil and gas
properties and Aimsoft, Inc. is greater than the amount owed, then Alfa would
not be obligated to repay any excess value. If the value of these combined
interests is less than the amount owed to Alfa, then the balance is to be paid
to Alfa in the form of a note or cash as negotiated by the management.
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, 1999,
but $4,310 was recognized in fiscal 1998.
Revenue from oil and gas production is recognized upon sale to unaffiliated
purchasers.
F-7
ALFA RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
(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, 1999, all
furniture and equipment have been fully depreciated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of short term or other highly-liquid
investments readily converted into cash, with an original maturity of three
months or less.
MAJOR CUSTOMERS
The Company had major purchasers of oil in 1999 and 1998 as follows:
PURCHASER 1999 1998
A 45% 42%
B 53% 47%
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.
INCOME (LOSS) PER SHARE
For the years ended May 31, 1999, and 1998, 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.
There are no common stock equivalents represented by options.
2. INCOME TAXES
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
1999 and 1998. Due to uncertainty as to whether the Company will 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:
F-8
ALFA RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
(Continued)
1999 1998
Operating loss carryforwards $416,000 $718,000
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, 1999, the Company had available estimated tax operating loss
carryovers which expire as follows:
Originating Year Carryover Expiration
1987 20,700 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
$1,066,300
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, 1999 and 1998, no options were 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 31,1999 and 1998, no options under this plan were
outstanding or exercisable.
4. PREFERRED STOCK
The Series A Preferred Stock issued February 28,1991, 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. Dividends were declared at May 31,
1993, of which only $2,261 has been paid. Unpaid and undeclared dividends to
outside parties amount to $91,543 at May 31, 1999.
F-9
ALFA RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1999 and 1998
(Continued)
5. COMMON STOCK ISSUED
During fiscal 1999 the Company sold 49,000,000 shares of common stock for
$50,000 in a private transaction to 5 individuals. The Company also issued
5,134,788 shares to former officers and directors and others for services
valued at $5,135.
6. RELATED PARTY TRANSACTIONS
In 1994, a now former Company director (former president) and the now former
chief financial officer organized a corporation ("Industries"). In 1998,
Industries charged Alfa $18,392, for accounting and administrative services.
Additionally, $2,500 was paid to a former director 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 $6,316 and $5,971 in
1999 and 1998. A payment of $2,900 to Industries for preparation of the 1998
Form 10KSB is included in expenses for the year ended May 31, 1999.
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.
8. SUPPLEMENTAL OIL AND GAS FINANCIAL AND RESERVE INFORMATION (UNAUDITED)
Reserve estimates for 1999 and 1998 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:
F-10
<PAGE>
ALFA RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1999 and 1998
(Continued)
Oil (Bbl) Natural Gas (MCF)
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-
Extensions and discoveries -- --
Purchase of minerals in place -- --
Sales of minerals in place -- --
Production (1,241) 352
Revisions of previous estimates (1,690) (352)
Reserves at May 31, 1999 1,275 -0-
There are no reserves attributable to partnership or minority interests at May
31, 1999, or 1998.
All capitalized costs related to oil and gas activities at May 31, 1999 and
1998 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, 1999
and 1998 was $6.44 and $6.43, respectively.
In 1999 and 1998, 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.
F-11
<PAGE>
ALFA RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1999 and 1998
(Continued)
1999 1998
Future cash inflows $ 15,306 $ 56,843
Future cash outflows:
Production costs (12,313) ( 47,796)
Future net cash flows before
future income taxes 1,992 9,047
Future income taxes -- --
Future net cash flows 1,992 9,047
Adjustment to discount future
annual net cash flows at 10% (161) (1,053)
Standardized measure of discounted
future net cash flows $ 1,831 $ 7,994
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, 1999 and 1998.
1999 1998
Standardized measure, beginning of
period $ 7,994 $ 38,235
Sales of oil and gas, net of
production costs (1,242) (3,273)
Net change in sales prices, net of
production costs (5,953) (25,559)
Changes in estimated future
development costs -- --
Purchases of minerals in place -- --
Sales of minerals in place -- --
Revisions of quantity estimates -- (10,886)
Accretion of discount 799 3,823
Other, including changes in production
rates (timing) 233 5,654
Standardized measure, end of period $ 1,831 $ 7,994
Because of the Company's negligible standard of measure of discounted future
net cash flows, no value is given to oil and gas properties owned in the
accompanying balance sheet at May 31, 1999.
9. YEAR 2000 ISSUES.
Like other organizations and individuals around the world, Alfa could be
adversely affected if the computer systems it uses and those used by
significant third parties (e.g. vendors) do not properly process and calculate
date-related information and data. This is commonly known as the "Year 2000
(Y2K) issue." Management is assessing its business processes and has
initiated actions to address the Y2K needs identified. Management is also
assessing the actions being taken by significant third parties that interface
with Alfa. At this time management is not able to determine the impact,
including any costs of remediation, of the "Year 2000 issue" on Alfa.
F-12
<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, 1999,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 20,860
<SECURITIES> 0
<RECEIVABLES> 700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,560
<PP&E> 1,430,126
<DEPRECIATION> (1,430,126)
<TOTAL-ASSETS> 864,560
<CURRENT-LIABILITIES> 50,614
<BONDS> 0
<COMMON> 99,000
0
292,947
<OTHER-SE> 421,999
<TOTAL-LIABILITY-AND-EQUITY> 864,560
<SALES> 820,393
<TOTAL-REVENUES> 820,393
<CGS> 0
<TOTAL-COSTS> 45,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 774,769
<INCOME-TAX> 0
<INCOME-CONTINUING> 774,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 774,769
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
