UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended August 31, 1998.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______, 19___ to _______, 19___.
Commission File Number: 0-10157
ALFA RESOURCES, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
COLORADO 84-0846529
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(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
216 SIXTEENTH STREET, SUITE 780
DENVER, COLORADO 80202
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Address of Principal Executive Offices
(303) 572-1136
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
There were 44,865,212 shares of the Registrant's $.001 par value common stock
outstanding as of August 31, 1998.
ALFA RESOURCES, INC.
BALANCE SHEET
ASSETS
August 31 May 31
1998 1998
CURRENT ASSETS
Cash and cash equivalents $ 10,815 $ 10,830
Accounts Receivable-trade 700 1,054
Prepaid expense -- 2,900
Total current assets 11,515 14,784
Oil and gas properties using
the full cost method 1,447,289 1,430,126
Less: depletion, depreciation, amortization
and valuation allowance (1,441,095) (1,422,132)
6,194 7,994
Other assets 3,000 3,000
TOTAL ASSETS $ 20,709 $ 25,778
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 21,044 $ 14,727
Dividends Payable 26,673 26,673
Accrued Expenses -- 336
Total current liabilities 47,717 41,736
Commitments and contingencies
SHAREHOLDERS' EQUITY (Deficit)
Preferred Stock, $1.00 par value;
authorized 10,000,000 shares, 292,947
shares issued & outstanding 292,947 292,947
Common stock, $.001 par value; authorized
150,000,000 shares; 44,865,212 shares
issued and outstanding 44,865 44,865
Additional paid-in capital 2,421,976 2,421,976
Accumulated deficit (2,786,796) (2,775,746)
Total shareholders' equity (Deficit) (27,008) (15,958)
TOTAL LIABILITIES AND SHARE-
HOLDERS' EQUITY (DEFICIT) $ 20,709 $ 25,778
The accompanying notes are an integral part of the financial statements.
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ALFA RESOURCES, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended August 31, 1998 and 1997
1998 1997
REVENUES
Oil and gas sales $ 3,400 $ 4,945
Interest and other income 93 273
Total revenues 3,493 5,218
EXPENSES
Production 3,425 4,534
General and Administrative 9,318 13,169
Depletion, depreciation, amortization, and
valuation allowance 1,800 1,800
Interest -- --
Total expenses 14,543 19,503
Net Income (Loss) $ (11,050) $ (14,285)
Net (Loss) per share $ * $ *
Weighted average shares
outstanding 44,865,212 44,865,212
The accompanying notes are an integral part of the financial statements.
3
ALFA RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Three Months Ended August 31, 1998 and 1997
1998 1997
Cash provided by (used in) operations:
Net Income (Loss) $(11,050) $(14,285)
Adjustments:
Depletion, depreciation and amortization 1,800 1,800
(Increase) decrease in accounts receivable 354 280
(Increase) decrease in prepaid expense 2,900 --
Increase (decrease) in accounts payable 6,317 11,421
Increase (decrease) in accrued expenses (336) --
Cash provided by (used in) operations (15) (784)
Net increase (decrease) in cash (15) (784)
Cash, beginning of period 10,830 37,143
Cash, end of period $ 10,815 $ 36,359
The accompanying notes are an integral part of the financial statements.
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ALFA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on the basis of a
going concern. However, the Company has depleted its working capital because
of past operating losses, and has experienced the loss of production income
because most of its oil and gas properties have been sold. Management intends
to use unencumbered production revenue and possibly other sources to meet
reduced administrative costs and continue in operation, but this cannot be
assured. A decrease in the price of oil or other unexpected circumstances
could cause operations to cease within a short period of time.
OIL AND GAS ACCOUNTING
The Company accounts for oil and gas properties using the "full cost" method.
Under this method, all costs associated with property acquisition, exploration
and development activities are capitalized, including costs of unsuccessful
activities. Oil and gas properties are depleted using the units-of-production
method based on the ratio of current period production to estimated proved oil
and gas reserve quantities. No gain or loss resulting from the disposition of
oil and gas properties is recognized unless the relationship between
capitalized costs and reserves in the cost center is significantly changed.
In addition to normal depletion, net capitalized costs are subject to a cei-
ling limitation required by the Securities and Exchange Commission (SEC). Such
costs are limited to the present value (discounted at 10%) of the future net
revenues from proved oil and gas properties, using year end costs and prices,
after considering potential future income tax effects. There were no charges
related to the ceiling limitation during the quarter ending August 31, 1998.
Revenue from oil and gas production is recognized upon sale to unaffiliated
purchasers.
CASH EQUIVALENTS
Cash equivalents include money-market accounts or other highly-liquid debt
instruments with an original maturity of three months or less.
USE OF ESTIMATES
Preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates. The unaudited oil and
gas reserve estimates prepared by management should be considered as
reasonably possible to change, which can affect depletion and the net carrying
value of oil and gas properties.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing the net income (loss) by the
weighted average number of common shares outstanding during the period.
Shares issued to insiders are considered to be outstanding from the beginning
of the period issued. Common stock equivalents represented by options are
not included as shares outstanding if their effect is antidilutive, or if
estimated market value has not exceeded exercise price.
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2. ADJUSTMENTS
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting of normal recurring accruals only)
necessary to present fairly, the Balance Sheet as of August 31, 1998, and the
Statement of Operations and the Statement of Cash flow for the three months
then ended.
3. ADDITIONAL DETAILS
For additional details of the Company's financial condition, refer to the
notes to the Company's annual financial statements for the year ended May 31,
1998, filed in the Company's Form 10-KSB annual report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have working capital problems because of continued
losses and has sold property to satisfy debts. Several properties were not
able to generate sufficient revenue to pay operating costs in prior years and
were shut in and subsequently disposed of. At August 31, 1998, the Company
had a working capital deficit in the amount of $36,202. Management's intent
is to use the Company as a public shell merger candidate.
Management intends to use unencumbered production revenue and other sources,
such as sales proceeds, to meet reduced administrative costs and continue in
operation, but this cannot be assured. A decrease in the price of oil could
cause operations to cease within a short period of time. If the Company is
not able to sell assets and to settle its debts, the Company may not be able
to continue in business.
Cash flows provided (used) in operations for the three months ended August 31,
1998, and 1997, were $(15)and $(784) respectively. The decrease in cash
provided during the last period is principally due the Company's net loss.
Alfa sells most of its oil production to three major oil companies. However,
in the event these purchasers discontinued oil purchases, Alfa has made
contact with other purchasers who would purchase the oil.
Alfa's past strategy has been the merger with or acquisition of other small
independent oil and gas production companies and the acquisition of interests
in producing oil and gas properties in exchange for cash and shares of Alfa's
equity securities. Alfa's current financial position makes it extremely
difficult to accomplish this business plan. Alfa's long-term needs, if it is
able to overcome its current financial deficit, will continue to depend on
many outside factors beyond its control, such as the demand for oil and
natural gas, the price of oil and gas, the general economic climate and Alfa's
ability to raise additional capital and to find a merger candidate.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1998 COMPARED TO AUGUST 31, 1998
Alfa's oil and gas sales decreased 31% to $3,400 in 1998 from $4,945 in 1997.
This decrease is primarily due to the sale of properties. Interest and other
income decreased to $93 in 1998 from $273 in 1997.
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Production expenses decreased 24% to $3,425 in 1998 from $4,534 in 1997. This
decrease resulted primarily from previous sale of properties. General and
Administrative expenses decreased 29% to $9,318 in 1998 from $13,169 in 1997.
This decrease is due to decreased activity of the Company and management's
attempt to decrease expenses and other costs.
Since net operating revenues from Alfa's oil production are very sensitive to
changes in the price of oil, it is difficult for management to predict whether
or not the Company will be profitable in the future. Unless oil prices
increase, the Company will not be able to produce its marginal properties and
since management has reduced its services, total revenues will continue to
decline.
EFFECT OF CHANGES IN PRICES
Changes in prices during the past few years have been a significant factor in
the oil and gas industry. The price received for the oil and gas produced by
Alfa has fluctuated significantly during the last year. Changes in the price
that Alfa receives for its oil and gas is set by market forces beyond Alfa's
control. That uncertainty in oil and gas prices make it more difficult for a
company like Alfa to increase its oil and gas asset base and become a
significant participant in the oil and gas industry.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALFA RESOURCES, INC.
By: /s/ C.L. Nordstrom
Dated: October 6, 1998 C.L. Nordstrom, President
By: /s/ Dennis R. Staal
Dated: October 6, 1998 Dennis R. Staal, Chief
Financial and Accounting
Officer
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