-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FuBX0CibZ1yGer8+BwJ71qMbst7rSFKrEdy+/35WujFFryy9GCuPE/qIWlXHNFtq VwK6UcD52io35GosgR4L1w== 0000948830-99-000417.txt : 19990909 0000948830-99-000417.hdr.sgml : 19990909 ACCESSION NUMBER: 0000948830-99-000417 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALFA RESOURCES INC CENTRAL INDEX KEY: 0000354767 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840846529 STATE OF INCORPORATION: CO FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-10157 FILM NUMBER: 99707699 BUSINESS ADDRESS: STREET 1: 216 16TH ST STE 730 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3035721135 MAIL ADDRESS: STREET 1: 216 16TH ST STE 730 CITY: DENVER STATE: CO ZIP: 80202 10KSB 1 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. ----------------------------------------------------------------- (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 --------------------------------------------------------------- (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 2 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 3 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: 4 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 _________________ (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 ____________ (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. 5 (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. 6 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 7 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 8 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. 9 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 10 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.
Summary Compensation Table Long Term Compensation Annual Compensation Awards Payouts Other All Annual Restricted Options/ Other Name & Principal Compen- Stock SARS LTIP Compen- Position Year Salary Bonus sation Award(s) (Number) Payouts sation - ---------------- ---- ------ ----- ------ ---------- -------- ------- ------ C.L. Nordstrom, 1999 $ -- -- $6,316 $1,000 -- -- -- former President 11 Dennis R.Staal, 1999 $ -- -- $ -- $1,135 -- -- -- former Treasurer H. Wayne Hoover, 1999 $ -- -- $ -- $1,000 -- -- -- former Secretary
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 12 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 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 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 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 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 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
Additional Preferred Stock Common Stock Paid In Accumulated Shares Amount Shares Amount Capital Deficit 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)
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 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 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 EX-27 2
5 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. 12-MOS MAY-31-1999 MAY-31-1999 20,860 0 700 0 0 21,560 1,430,126 (1,430,126) 864,560 50,614 0 99,000 0 292,947 421,999 864,560 820,393 820,393 0 45,624 0 0 0 774,769 0 774,769 0 0 0 774,769 0 0
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