PRELIMINARY COPY
BUFFALO CAPITAL V, LTD.
7331 S. Meadow Court
Boulder, CO 80303
April 30, 1999
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to
attend a Special Meeting of Shareholders of Buffalo Capital V, Ltd.
("Buffalo") to be held at 9:00 a.m. local time on May 24, 1999, at
4750 Table Mesa Drive, Boulder, CO 80303.
The Special Meeting is being held for the purpose of
considering and voting upon two matters: (i) a 1:2 reverse stock split
of all of the Company's issued and outstanding common stock, and
(ii) the proposed merger between Buffalo and Aladdin Oil
Corporation, a Nevada corporation ("Aladdin"), pursuant to the terms
of an Agreement and Plan of Merger and Reorganization dated
November 23, 1998 (the "Agreement").
We are not asking you for a proxy in conjunction with this
Special Meeting, but you are urged to attend the meeting to assure
that your vote is counted.
Sincerely,
Grant W. Peck
President<PAGE>
BUFFALO CAPITAL V, LTD.
7331 S. Meadow Court
Boulder, CO 80303
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held May 24, 1999
TO THE SHAREHOLDERS OF BUFFALO CAPITAL V, LTD.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the
Shareholders (the "Meeting") of Buffalo Capital V, Ltd. ("Buffalo")
will be held at 4750 Table Mesa Drive, Boulder, Colorado, 80303, at
9:00 a.m. local time, on May 24, 1999, for the following purpose:
1. To consider and vote upon a proposed 1:2 reverse split
of Buffalo's issued and outstanding common stock.
2. To consider and vote upon a proposed merger of
Buffalo with Aladdin Oil Corporation, a Nevada corporation, pursuant
to the terms of an Agreement and Plan of Merger and Reorganization
dated November 23, 1998, between Buffalo and Aladdin Oil
Corporation ("Aladdin").
3. To transact such other business as may properly come
before the Meeting and at any and all adjournments, postponements or
continuations thereof.
You are cordially invited and urged to attend the Meeting.
Shareholders are or may be entitled to assert dissenters' rights
under Article 113 of the Colorado Business Corporation Act with
respect to the proposed merger transaction, and a copy of Article 113
of the Colorado Business Corporation Act is included as Appendix A
to the accompanying Information Statement.
By Order of the Board of
Directors
Grant W. Peck
Chairman of the Board
Boulder, Colorado
Dated: April 30, 1999<PAGE>
BUFFALO CAPITAL V, LTD.
7331 S. Meadow Court
Boulder, CO 80303
_________________
INFORMATION STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
To be held May 24, 1999
__________________
GENERAL INFORMATION
This Information Statement is furnished in connection with a
Special Meeting of Shareholders called by the Board of Directors (the
"Board") of Buffalo Capital V, Ltd. ("Buffalo"), to be held at 4750
Table Mesa Drive, Boulder, Colorado 80303, at 9:00 a.m. local time,
and at any and all postponements, continuations or adjournments
thereof (collectively the "Meeting"). This Information Statement and
the accompanying Notice of Special Meeting will be first mailed or
given to Buffalo's shareholders on or about April 30, 1999.
All shares of Buffalo's common stock ("Common Stock"),
represented either in person or by proxy will be eligible to be voted at
the Meeting.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Description Page
<S> <C>
Summary 6
Proposal I - Reverse Stock Split 15
Proposal II - Merger Transaction 18
Disclosure Regarding Forward-Looking
Statement 24
Risk Factors 25
Business and Properties of Buffalo 35
Business and Properties of Aladdin 39
Selected Financial Information
of Buffalo 43
Buffalo Management's Discussion and
Analysis of Financial Condition and
Results of Operations 59
Selected Historical Financial Data
of Old Aladdin 61
Consolidated Financial Statements of
Old Aladdin 63
Consolidated Pro Forma Financial
Statements of Old Aladdin (giving
effect to Merger) 91
Aladdin Management's Discussion and
Analysis of Financial Condition and
Results of Operations 98
Market Price of Buffalo Stock 104
Management of New Aladdin After
the Effective Date 104
Ownership of Capital Stock 112
Description of New Aladdin 115
Common Stock
Preferred Stock 115
Rights of Dissenting Shareholders 117
Other Matters 118
Shareholder Proposals 118
Appendix A - Dissenters' Rights Statute
Appendix B - Agreement and Plan of Merger
and Reorganization
Appendix C - Amended and Restated Articles of
Incorporation and
Bylaws of Aladdin Oil Corporation
Appendix D - Historical financial information
of Industrial International, Inc. 119
/TABLE
<PAGE>
SUMMARY
The following is a brief summary of certain information
contained elsewhere in this Information Statement and the appendices
hereto. This summary does not contain a complete statement of all
material information relating to the Agreement and Plan of Merger
and Reorganization, dated November 23, 1998 (the "Agreement"),
and the transactions contemplated thereby, and is subject to and
qualified in its entirety by reference to the more detailed information
and financial statements contained elsewhere in this Information
Statement, including the appendices. Certain capitalized terms used in
this summary are defined elsewhere in this Information Statement.
Parties to the Transactions
Buffalo Capital V, Ltd.
Buffalo Capital V, Ltd. ("Buffalo") was incorporated under the
laws of the State of Colorado on September 19, 1997. It was
incorporated as a "blind pool" or "blank check" company for the
purpose of seeking to acquire one or more properties or businesses.
Buffalo elected to voluntarily file a registration statement in order to
become a reporting company under the Securities Exchange Act of
1934, as amended (the "34 Act"). The principal executive offices of
Buffalo are located at 7331 South Meadow Court, Boulder Colorado
80303, and its telephone number is (303) 494-3000.
Aladdin Oil Corporation.
Aladdin Oil Corporation ("Old Aladdin") was incorporated
under the laws of the State of Nevada on January 17, 1997. It is an
independent oil and gas company engaged in the acquisition and
exploration of oil and gas within the United States. The principal
executive offices of Old Aladdin are located at 11911 San Vicente
Boulevard, Suite 385, Los Angeles, California, 90049, and its
telephone number is (310) 440-4471.
New Aladdin.
Upon the Effective Date of the merger, Old Aladdin will be
merged with and into Buffalo, and Buffalo will change its name to
Aladdin Oil Corporation ("New Aladdin"). New Aladdin will be a
Colorado corporation, will be a reporting company under the 34 Act,
and will carry on the business activities previously conducted by Old
Aladdin. Old Aladdin will cease to exist. The principal executive
offices of New Aladdin will be located at 11911 San Vicente
Boulevard, Suite 385, Los Angeles, California, 90049, and its
telephone number will be (310) 440-4471.
Description of Meeting
General.
A Special Meeting of the shareholders of Buffalo will be held
at 9:00 a.m. local time on May 24, 1999, at 4750 Table Mesa Drive,
Boulder, CO 80303. The purpose of the Special Meeting will be to
consider and vote upon the proposed 1:2 reverse stock split of the
issued and outstanding common stock of Buffalo, and to consider and
vote upon the proposed merger between Buffalo and Old Aladdin
pursuant to the terms of an Agreement and Plan of Merger and
Reorganization dated November 23, 1998 (the "Agreement").
Voting.
Only holders of record of Buffalo shares at the close of
business on March 31, 1999 ("Record Date") will be entitled to
receive notice of and to vote at the Meeting. On the Record Date
there were 4,620,000 shares of Common Stock outstanding, each of
which will be entitled to one vote on each matter properly submitted
for vote to Buffalo's shareholders at the Meeting. The presence in
person or by proxy of holders of a minimum one-third of the shares
will be required to constitute a quorum for the transaction of business
at the Meeting.
Once a quorum is established for purposes of conducting the
Meeting, the vote required under Colorado law for approval of each
of the two proposals to be considered at the Meeting will be different.
Approval of the proposed reverse stock split will require the
affirmative vote of only a majority of the Shares represented at the
Meeting (assuming that a quorum is represented). Approval of the
proposed merger of Buffalo with Old Aladdin, on the other hand, will
require the affirmative vote of a majority of the total number of
outstanding Shares, regardless of the number of Shares constituting a
quorum at the Meeting.
Votes cast either in person or by proxy at the Meeting will be
counted by the person or persons appointed by Buffalo to act as the
judge of election for the Meeting. With respect to Shares represented
by proxy at the meeting, abstentions and shares for which authority to
vote on any proposal is withheld, will be included in the
determination of the number of Shares present and voting at the
Meeting for purposes of obtaining a quorum, but will not be counted
for purposes of determining whether a proposal has been approved.
Securities Ownership of Directors, Executive Officers and Affiliates
Buffalo.
As of the record date for the Meeting, four individual
shareholders of Buffalo, including the two officers and directors and
two other persons who may be considered to be affiliates of Buffalo,
held voting power with respect to an aggregate of 4,360,000 votes
(approximately 94.37% of the outstanding votes). Each of these
individuals has advised Buffalo that he intends to vote or to direct the
vote of all shares of Buffalo Common Stock over which he has voting
control in favor of the proposed 1:2 reverse stock split and in favor of
completion of the proposed merger with Old Aladdin pursuant to the
terms of the Agreement. Accordingly, Buffalo has elected not to
solicit proxies for the Meeting, but nevertheless anticipates that both
proposals will be affirmed by the requisite vote.
Description of the Transactions
Reverse Stock Split and Cancellation of Shares
Pursuant to the Agreement between Buffalo and Old Aladdin
dated November 23, 1998, Buffalo will have a total of 406,099
shares of common stock issued and outstanding immediately prior to
completion of the merger transaction. In order to reduce Buffalo's
issued and outstanding common stock from 4,620,000 shares to
406,099 shares, a two-step process is proposed. First, the Board of
Directors has proposed a 1:2 reverse split of Buffalo's currently
issued and outstanding common stock. Second, contingent upon
approval of the proposed reverse stock split and the proposed merger
transaction, certain shareholders of Buffalo, including its officers,
directors and affiliates, have agreed to voluntarily surrender for
cancellation a total of 1,903,901 of their remaining shares of common
stock. Following completion of the specified two-step process,
Buffalo will have a total of 406,099 shares issued and outstanding.
<PAGE>
Merger.
The proposed transaction between Buffalo and Old Aladdin
will be structured as a merger of the two entities (the "Merger"). Old
Aladdin will be merged with and into Buffalo pursuant to the laws of
the States of Nevada and Colorado. The surviving entity will be New
Aladdin. For federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
If completed, the Merger will result in an effective change of
control of Buffalo, with current shareholders of Old Aladdin owning
3,718,320 shares of common stock, or approximately 90.15% of the
shares to be issued and outstanding immediately following completion
of the Merger, and with the current shareholders of Buffalo owning
406,099 shares, or approximately 9.85% of the shares to be issued
and outstanding immediately following completion of the Merger.
The entity surviving following completion of the Merger is referred to
herein as "New Aladdin".
As part of the Agreement, all currently outstanding Class A
and Class B Warrants of Buffalo will be cancelled, and Buffalo will
issue a total of 3,718,320 shares of authorized but previously unissued
common stock to the current shareholders of Old Aladdin. In
addition, Buffalo will authorize the issuance of 1,677,000 shares of a
new Series A Convertible Preferred Stock, 1,088,500 new Class A
Warrants, 1,688,000 new Class B Warrants, and 417.6 Units, each of
which consists of a 12% Convertible Debenture in the face amount of
$1,000, 625 Class A Warrants and 625 Class B Warrants, and will
issue such securities on a one-for-one basis to existing holders of like
securities of Old Aladdin. As of the date of this Information
Statement, there are 4 holders of record of Old Aladdin Common
Stock and 36 holders of record of Series A Convertible Preferred
Stock of Old Aladdin.
Series A Convertible Preferred Stock.
Holders of Series A Preferred Stock of New Aladdin will be
entitled to received cash dividends of $0.09 (12%) per annum. The
shares will have a liquidation preference of $0.75 per share. Holders
of Series A Preferred stock will not be entitled to cash dividends after
June 30, 1999. Each holder of Series A Preferred Stock will have the
right at any time to convert such shares into a number of shares of
New Aladdin common stock obtained by dividing the liquidation
preference per share ($0.75) by the "conversion price" per share.
The conversion price will be equal to $0.75 per share. For instance,
each share of Preferred A is convertible into 1 share ($0.75 divided
by $0.75) of common stock of New Aladdin or an aggregate amount
of 1,677,000 shares if every share of Preferred A was converted.
Class A and Class B Warrants.
Holders of Class A Warrants of New Aladdin will be entitled
to purchase one share of New Aladdin common stock at a price of
$1.50 per share until December 31, 1999. Holders of Class B
Warrants will be entitled to purchase one share of New Aladdin
common stock at a price of $1.00 per share until December 31, 1999.
A total of 1,088,500 shares of New Aladdin common stock would be
issued if every Class A Warrant was exercised, and New Aladdin
would receive gross cash proceeds of $1,632,750. A total of
1,688,000 shares of New Aladdin common stock would be issued if
every Class B Warrant was exercised, and New Aladdin would
receive gross cash proceeds of $1,688,000. Neither the Class A nor
the Class B Warrants will hold any of the rights of common stock,
including voting, until such time as they are converted and the
common shares are paid for.
Units.
The Units will consist of one 12% Convertible Debenture in
the face amount of $1,000, bearing interest at 12% per annum for the
first year of issuance only, and convertible at any time for 1.25 shares
of New Aladdin common stock for each $1.00 in face amount of such
Debenture, 625 Class A Warrants, as described above, and 625 Class
B Warrants, as described above.
Amendment of Articles of Incorporation and Change of Name.
Pursuant to the terms of the Agreement, Buffalo's Articles of
Incorporation will be amended to change the name of the Corporation
to Aladdin Oil Corporation and to make certain other minor
modifications at the time of closing of the Merger.
Board of Directors.
The closing of the Merger will result in a change of control of
Buffalo. In conjunction with the change of control, the existing
directors of Buffalo will resign and will appoint the current members
of the board of directors of Old Aladdin as members of the board of
directors of New Aladdin.
Background to the Transaction
Buffalo was incorporated under the laws of the State of
Colorado on September 19, 1997, as a blind pool or blank check
company for the purpose of seeking to acquire one or more properties
or businesses, and as of the date hereof, it remains in the
developmental stage. Its only activities to date have been
organizational ones, directed at developing its business plan and
raising its initial capital. Buffalo has not commenced any commercial
operations. Buffalo has no full-time employees and owns no real
estate.
In June of 1998, Buffalo received some preliminary
information in relation to Aladdin Oil Corporation ("Old Aladdin").
In conversations that ensued, Old Aladdin communicated its desire to
possibly enter into a form of business combination with Buffalo in
order to become a reporting company under the 34 Act. Further
information was exchanged, including Buffalo's most recent filing(s)
of periodical reports.
In late June, definitive discussions were held, and a Letter of
Intent was executed between Buffalo and Old Aladdin on June 30,
1998. Following execution of the Letter of Intent, Buffalo and Old
Aladdin continued further due diligence resulting in the execution of
the Agreement.
Buffalo believes that the proposed merger transaction with Old
Aladdin is consistent with its business plan. It is believed that Old
Aladdin has a sound business plan, a qualified management team, and
an opportunity to grow into a larger oil and gas exploration and
production company.
Recommendation of Buffalo Board
The Board of Directors of Buffalo has unanimously approved
and adopted the Agreement and unanimously recommends, that the
holders of Buffalo's Common Stock vote for adoption of the
Agreement and approval of the proposed Merger. See "Description
of Transactions".
<PAGE>
Finders Fee
Buffalo has agreed to pay a finder's fee equal to $10,000, to
Cynthia Keefover, upon the closing of the Merger. Ms. Keefover
acted as a finder for Buffalo by initiating the preliminary contacts
with Old Aladdin which led to execution of the Agreement.
Risk Factors to be Considered in Connection with the Transactions
The information set forth under "Risk Factors" should be
considered by Buffalo's stockholders with respect to the proposed
Transactions. Specifically, such persons should be aware of the
following risks:
Investment-Specific Risks.
There has been no prior trading for New Aladdin's capital
stock and there can be no assurance as to the future trading prices of
such shares;
After the Effective Date, approximately 74% of the
outstanding shares of Common Stock will be owned by members of
the Robins family, which will enable the family to exercise substantial
influence over Buffalo's affairs; and
Buffalo does not expect to pay dividends on its Common Stock
after the Effective Date.
Industry-Specific Risks.
New Aladdin's operations will be substantially dependent upon
natural gas and oil prices and the economic and operating risks
associated with the oil and gas business;
New Aladdin's future results of operation will depend upon its
ability to develop additional reserves;
New Aladdin's business is subject to certain local, state and
federal regulations; and
New Aladdin operates in a highly competitive industry.
<PAGE>
Conditions to the Consummation of the Transactions
Pursuant to the Agreement, Old Aladdin is obligated to
consummate the proposed Merger subject only to the following: the
accuracy of the representations and warranties given by Buffalo and
performance by Buffalo of its respective obligations under the
Agreement; the absence of any proceeding to prohibit the
consummation of the merger transaction; and, receipt of necessary
shareholder approval. The obligation of Buffalo to close the Merger
is subject to a number of matters, including the accuracy of the
representations and warranties of Old Aladdin and the performance by
Old Aladdin of its obligations under the Agreement, the approval by
Buffalo's stockholders of the proposed Merger and the absence of any
proceeding to prohibit the consummation of the Agreement.
Dissenter's Rights
Under Colorado law, dissenting shareholders of Buffalo will be
entitled to dissenters' rights if the proposed Merger is consummated.
Any shareholder who desires to exercise such dissenters' rights must
strictly comply with the requirements of Article 113 of the Colorado
Business Corporation Act, and failure to so comply may result in the
loss of such dissenters' rights. A copy of Article 113 of the Colorado
Business Corporation Act is attached hereto as Appendix A, and
shareholders are referred to Appendix A for a full statement of its
provisions.
Termination of Agreement
The Agreement may be terminated at any time prior to the
effective date of the Merger: (i) by mutual consent of the Boards of
Directors of Buffalo and Old Aladdin; (ii) by either party in the event
that a representation or warranty made by the other party is incorrect
or in the event the other party has breached the Agreement and
subsequently been unable to cure or otherwise resolve the breach; (iii)
by either party in the event that a condition to consummation of the
Merger has, in the good faith judgment of its Board of Directors,
become impractical to be fulfilled; (iv) by either party in the event of
entry of a permanent injunction or other court order preventing the
consummation of the Merger; or (v) by either party in the event that
the merger has not become effective by December 31, 1998, unless an
extension of such date has been agreed upon in writing.
<PAGE>
Certain Federal Income Tax Consequences
It is the intention of the parties that the Merger qualify as a
statutory merger which is a tax-free reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended. In a merger transaction, the continuing entity absorbs the
corporate enterprise and steps into the shoes of the disappearing entity
by assuming or acquiring all of its assets and liabilities.
There are no specific restrictions or limitations on the nature
of the consideration which may be used in a statutory merger
transaction as long as the doctrine of continuity of interest is met.
Thus, the issuance of not-voting securities such as warrants and units,
will not cause the transaction to fail to qualify as a tax-free
reorganization. The continuity of interest requirement is satisfied in
the event that following completion of the transaction, there is
continuity at the corporate level through a continuation of the business
enterprise, and continuity at the ownership level through continued
participation by the existing group of security holders in ownership
and control of the entity.
The parties believe that the proposed Merger qualifies as a tax-
free reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended. Based upon that belief,
the individual security holders of Old Aladdin will not recognize any
gain or loss upon the exchange of their securities in Old Aladdin for
matching securities in New Aladdin. However, there is no assurance
that, upon audit, the Internal Revenue Service will agree with the
characterization of the transaction as a tax-free reorganization. In the
event the Internal Revenue Service determines that the Merger did not
qualify as a tax-free reorganization, the individual security holders of
Old Aladdin would be required to recognize gain or loss as a result of
completion of the Merger.
Regulatory Requirements
Buffalo is not aware of any federal or state regulatory
requirements which must be complied with, or any federal or state
regulatory approval which must be obtained in connection with the
proposed Merger, other than proxy solicitation requirements under
federal and state securities laws.
<PAGE>
Market Prices and Listings
Old Aladdin is a private company, and there has never been a
public market or any trading activity in its securities. Buffalo
Common Stock is currently approved for trading on the OTC
Electronic Bulletin Board under the symbol "BUFH," although no
actual trading activity has occurred. Until such time as New Aladdin
qualifies for listing on an alternate exchange, the Common Stock is
expected to continue to be eligible to trade on the OTC Electronic
Bulletin Board following completion of the Merger. However, the
fact that the Common Stock remains eligible for trading on the OTC
Electronic Bulletin Board does not provide any assurance that actual
trading activity may occur.
In conjunction with completion of the Merger, Buffalo's name
will be changed to Aladdin Oil Corporation, and it is anticipated that
the Company's trading symbol will also be changed to be consistent
with its new name.
PROPOSAL I
REVERSE STOCK SPLIT
Background.
As of the date hereof, Buffalo has a total of 4,620,000 shares
of common stock issued and outstanding. Under the terms of the
Agreement, Buffalo is to have a total of only 406,099 shares of
common stock issued and outstanding immediately prior to
consummation of the Merger. Thus, in order to comply with the
terms of the Agreement, prior to completion of the Merger, the
number of issued and outstanding shares of common stock of Buffalo
must be reduced from 4,620,000 to 406,099. Buffalo proposes to
reach this figure through a two-step process, including a 1:2 reverse
stock split, and the voluntary surrender of shares by the certain
shareholders, as more fully discussed below.
The number of shares of Common Stock of Buffalo to be
outstanding immediately prior to completion of the Merger was based
upon arms length negotiations between Buffalo and Old Aladdin. The
negotiations resulted in an agreement that, in order to complete the
Merger, Buffalo would issue one share of its Common Stock for each
presently outstanding share of Common Stock of Old Aladdin, and
one share of Series A Preferred Stock for each presently outstanding
share of Series A Preferred Stock of Old Aladdin. The negotiations
also resulted in an agreement that the current shareholders of Buffalo
would own 7% of the issued and outstanding Common Stock of New
Aladdin on a fully diluted basis, following completion of the Merger.
For purposes of the Agreement, the term "fully diluted" is defined as
including all issued and outstanding common stock, as well as all
Common Stock which would be issued and outstanding if all of the
Series A Preferred Stock was converted to Common Stock in
accordance with its terms (i.e. on a one-for-one basis), but does not
include any shares to be outstanding upon exercise of any Class A or
Class B Warrants.
Based upon the foregoing, the Agreement provides that Buffalo
will issue 3,718,320 shares of its common stock and 1,677,000 shares
of its Series A Preferred Stock to the shareholders of Old Aladdin in
order to complete the Merger. In other words, on a fully diluted
basis, Buffalo will issue a total of 5,395,320 shares of its Common
Stock in order to complete the Merger, and those shares are to
represent 93% of the issued and outstanding common stock of New
Aladdin following completion of the Merger. The current
shareholders of Buffalo will own the remaining 7% of the issued and
outstanding common stock of New Aladdin, or a total of 406,099
shares.
Description of Proposal.
The plan proposed by Buffalo's Board of Directors for
purposes of reducing the number of issued and outstanding shares of
common stock includes completion of 1:2 reverse stock split of the
presently issued and outstanding Common Stock, and the voluntary
surrender of shares for cancellation by Buffalo's officers, directors,
affiliates and others.
In the event that the 1:2 reverse stock split is approved, the
number of issued and outstanding shares of Common Stock will be
reduced from 4,620,000 to 2,310,000. In order to further reduce the
issued and outstanding common stock from 2,310,000 shares to the
agreed upon number of 406,099 shares, the Board of Directors has
requested various shareholders, including Buffalo's officers, directors
and their affiliates, to voluntarily surrender a total of 1,903,901
additional shares for cancellation.
The decision made by Buffalo's Board of Directors to effect
the reduction in issued and outstanding shares partially through a
reverse stock split and partially through a voluntary cancellation of
shares by certain shareholders, was arbitrary and was not made as a
result of arm's length negotiation. In order to complete the required
reduction in the number of issued and outstanding shares solely
through means of a reverse stock split applicable to all shareholders
on a pro-rata basis, it would have been necessary to propose a reverse
stock split of approximately 1:11.38. Thus, although the decision to
accomplish the share reduction partially through a reverse stock split,
and partially through a voluntary cancellation of shares, was arbitrary,
the Board believes the decision is beneficial to shareholders other than
Buffalo's officers, directors and affiliates.
See "Ownership of Capital Stock" for additional information
regarding the ownership of shares by Buffalo's officers, directors and
affiliates, including the number of shares of Common Stock currently
beneficially owned by each such person (as adjusted to reflect
completion of the proposed 1:2 reverse stock split), the number of
shares of common stock which each such person has voluntarily
agreed to surrender following completion of the 1:2 reverse stock
split, and the number of shares of common stock of New Aladdin
which each such person will own following completion of the
proposed Merger.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" PROPOSAL I TO APPROVE A
1:2 REVERSE SPLIT OF BUFFALO'S ISSUED AND
OUTSTANDING COMMON STOCK.<PAGE>
PROPOSAL II
MERGER TRANSACTION
DESCRIPTION OF THE MERGER TRANSACTION
Background
Buffalo was incorporated under the laws of the State of
Colorado on September 19, 1997. It was incorporated as a "blind
pool" or "blank check" company for the purpose of seeking to acquire
one or more properties or businesses, and as of the date hereof
remains in the developmental and promotional stages. To date
Buffalo's only activities have been organizational ones, directed at
developing its business plan and raising its initial capital. Buffalo has
no full-time employees, owns no real estate, and has not commenced
any commercial operations.
In June of 1998, Buffalo received some preliminary
information in relation to Old Aladdin. In conversations that ensued,
Old Aladdin communicated its desire to possibly enter into a form of
business combination with Buffalo. Further information was
exchanged, including Buffalo's most recent periodical report filing(s).
On June 30, 1998, a Letter of Intent relating to a business
combination transaction was executed between Buffalo and Old
Aladdin. Following execution of the Letter of Intent, Buffalo and Old
Aladdin continued further due diligence which ultimately resulted in
the execution of the Agreement on November 23, 1998.
The following is a summary of the Agreement and the
transactions contemplated thereby. A copy of the Agreement is
attached to this Information Statement as Appendix B and is
incorporated herein by reference.
Buffalo - Aladdin Merger.
Pursuant to the Agreement, the transaction will be structured
as a merger of the two entities. Old Aladdin will be merged with and
into Buffalo pursuant to the laws of the States of Nevada and
Colorado, and Buffalo will change its name to Aladdin Oil
Corporation ("New Aladdin"). For federal income tax purposes, it is
intended that the Merger shall qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended.
If completed, the Merger will result in an effective change of
control, with current shareholders of Buffalo retaining ownership of
406,099 shares of Common Stock, representing approximately 7% of
the issued and outstanding Common Stock of New Aladdin on a fully
diluted basis, and with the current shareholders of Old Aladdin
owning 3,718,320 shares of Common Stock, representing
approximately 93% of the issued and outstanding Common Stock of
New Aladdin on a fully diluted basis.
In addition to issuing Common Stock, as part of the
Agreement Buffalo will cancel its existing outstanding Class A and
Class B Warrants and will create and issue Series A Convertible
Preferred Stock, stock purchase warrants, and units consisting of
convertible debentures and stock purchase warrants, to existing
holders of like securities of Old Aladdin on a one-for-one basis.
Therefore, in addition to the 3,718,320 shares of Common Stock to
be issued, Buffalo will issue 1,677,000 shares of Series A Convertible
Preferred Stock, 1,088,500 Class A, $1.50 Stock Purchase Warrants,
1,688,000 Class B, $1.00 Stock Purchase Warrants, and 417.6 Units,
each of which consists of a 12% convertible debenture in the face
amount of $1,000, 625 Class A Warrants and 625 Class B Warrants.
None of the securities to be issued by Buffalo in conjunction
with completion of the Merger will be registered under the Securities
Act of 1933. All such securities will be issued in reliance upon
exemptions from registration under the Securities Act of 1933
provided by Section 4(2) of the Act and Regulation D promulgated
thereunder. As a result, all such securities will constitute "restricted
securities" as that term is defined in Rule 144 under the Act, and will
be subject to the restrictions on resale imposed by Rule 144.
Series A Convertible Preferred Stock.
Holders of Series A Preferred Stock of New Aladdin will be
entitled to received cash dividends of $0.09 (12%) per annum. The
shares will have liquidation preference of $0.75 per share. Holders of
Series A Preferred stock will not be entitled to cash dividends after
June 30, 1999. In conjunction with completion of the Merger,
Buffalo will issue 1,677,000 shares of Series A Preferred Stock on a
one-for-one exchange basis with current holders of Series A Preferred
Stock of Old Aladdin. Each holder of Series A Preferred Stock will
have the right at any time to convert such shares into shares of New
Aladdin Common Stock on a one-for-one basis. Thus, if fully
converted, the Series A Preferred Stock is convertible into 1,677,000
shares of Common Stock.
New Class A Warrants.
The Class A Warrants of New Aladdin will give the holders
thereof the right to purchase one share of New Aladdin Common
Stock at a price of $1.50 per share at any time on or before December
31, 1999. Class A Warrants will not give the holders thereof any
rights as shareholders of New Aladdin until such time as they are
exercised. In conjunction with completion of the Merger, Buffalo will
issue 1,088,500 Class A stock purchase warrants on a one-for-one
exchange basis with current holders of Class A Warrants of Old
Aladdin. Thus, a total of 1,088,500 shares of New Aladdin Common
Stock would be issued if every Class A Warrant is exercised resulting
in gross proceeds of $1,632,750 to New Aladdin.
New Class B Warrants.
The Class B Warrants of New Aladdin will give the holders
thereof the right to purchase one share of New Aladdin Common
Stock at a price of $1.00 per share at any time on or before December
31, 1999. Class B Warrants will not give the holders thereof any
rights as shareholders of New Aladdin until such time as they are
exercised. In conjunction with completion of the Merger, Buffalo will
issue 1,688,000 Class B stock purchase warrants on a one-for-one
exchange basis with current holders of Class B Warrants of Old
Aladdin. Thus, a total of 1,688,000 shares of New Aladdin Common
Stock would be issued if every Class B Warrant is exercised resulting
in gross proceeds of $1,688,000 to New Aladdin.
Units.
The Units will consist of one 12% Convertible Debenture of
New Aladdin in the principal amount of $1,000, bearing interest at
the rate of 12% per annum for one year from the original issuance
date of each Unit, 625 Class A Warrants for purchase of one share of
New Aladdin Common Stock at a price of $1.50 per share at any time
on or before December 31, 1999, and 625 Class B Warrants for
purchase of one share of New Aladdin at a price of $1.00 per share at
any time on or before December 31, 1999. Interest on the
Convertible Debentures is payable monthly, and such Debentures are
convertible at any time on the basis of 1.25 shares of common stock
for each $1.00 in face amount. In conjunction with completion of the
Merger, Buffalo will issue 417.6 Units, on a one-for-one exchange
basis with current holders of Old Aladdin Units. A total of 522,000
shares of New Aladdin Common Stock would be issued upon
conversion of all outstanding debentures, and a total of 522,000 shares
of New Aladdin Common Stock would be issued if every Class A and
Class B warrant issued as a part of the Units is exercised, resulting in
gross proceeds of $652,500 to New Aladdin.
Change of Name.
As part of the Agreement, Buffalo will change its name to
Aladdin Oil Corporation at the time of closing.
Board of Directors.
A change in control of Buffalo will occur as a result of
completion of the Merger. In conjunction with such change in
control, the existing directors of Buffalo have agreed to resign and to
appoint the current members of the board of directors of Old Aladdin
as their successors.
Sale and Cancellation of Existing Class A and Class B Warrants.
As part of the Agreement, Old Aladdin will purchase all of the
issued and outstanding Class A and Class B Warrants of Buffalo from
the current holders thereof for a purchase price of $125,000 prior to
consummation of the Merger. In conjunction with consummation of
the Merger, Buffalo will cause such existing warrants to be cancelled.
Articles of Incorporation and Bylaws.
The articles of incorporation and the bylaws of Buffalo,
amended in the manner specified herein, shall be the articles of
incorporation and the bylaws of New Aladdin following the date of
closing of the Merger. A vote in favor of the Merger will be
considered your assent to the amendment of the Buffalo Articles of
Incorporation and Bylaws, as set forth in Appendix C. The
substantive changes to these documents are as follows: First, the
name has been changed to Aladdin Oil Corporation. Second, they
have been modified to clarify that cumulative voting is not allowed on
any matter. Third, the number of shareholders required to constitute
a quorum has been increased from one-third to the holders of at least
a majority of the shares entitled to vote. The effect of this change is
that holders of at least 50.1% of the shares entitled to vote on a
particular matter must be present, in person or by proxy, in order to
act on that matter. Fourth, the number of directors has been changed
to be no less than two and no more than seven.
Representations and Warranties.
Under the terms of the Agreement, Old Aladdin makes a
number of representations and warranties to and for the benefit of
New Aladdin. Such representations and warranties are consistent with
those normally given in transactions involving oil and gas assets and
include representations to the effect that Old Aladdin has clear title to
all of its assets, that there are no undisclosed liabilities and no
undisclosed litigation or claims that adversely affect such assets, that
Old Aladdin has materially complied with the leases, contracts and
governmental regulations affecting its assets, and that Old Aladdin has
the power and authority to enter into the Agreement.
Conditions to Old Aladdin's Obligation to Close.
Pursuant to the Agreement, Old Aladdin is obligated to close
and to consummate the transactions described therein, subject only to
the following: the accuracy of the representations and warranties
given by Buffalo and performance by Buffalo of its obligations under
the Agreement, the absence of any proceeding to prohibit the
consummation of such transactions, and necessary shareholder
approval by the shareholders of Old Aladdin and by the shareholders
of Buffalo.
Conditions to Buffalo's Obligations to Close.
Pursuant to the Agreement, Buffalo is obligated to close and to
consummate the transactions described therein, subject only to the
following: the accuracy of the representations and warranties of Old
Aladdin and performance by Old Aladdin of its obligations under the
Agreement, the absence of any proceeding to prohibit the
consummation of such transactions, and necessary shareholder
approval by the shareholders of Buffalo and the shareholders of Old
Aladdin.
<PAGE>
Termination.
The Agreement may be terminated at any time prior to its
Effective Date (i) by mutual agreement of the parties, (ii) by either
party in the event of any material misrepresentation or breach by the
other party, unless such misrepresentation or breach is cured or
resolved prior to the closing date to the reasonable satisfaction of the
non-breaching party, (iii) by either party if any condition to
consummation of the Merger becomes impractical to be fulfilled, (iv)
by either party in the event of entry of a permanent injunction or
other court order preventing consummation of the Merger, or (v) by
either party if the Merger has not become effective on or before
December 31, 1998.
Government and Regulatory Approvals.
Buffalo is not aware of any federal or state regulatory
requirements which must be complied with or any federal or state
regulatory approval which must be obtained in connection with
consummation of the Agreement, other than proxy solicitation
requirements under federal and state securities laws.
Buffalo's Reasons for the Transaction.
Buffalo's Board of Directors believes that the terms of the
Agreement are fair to the stockholders of Buffalo and that
consummation of the Merger with Old Aladdin is consistent with
Buffalo's business plan and is in the best interest of the shareholders
of Buffalo. Consummation of the Agreement will result in an
immediate increase in the assets and revenues of Buffalo. In addition,
Buffalo's Board of Directors believes that Old Aladdin has a sound
business plan, qualified management, and a reasonable opportunity to
grow into a larger oil and gas exploration and production company.
The Board of Directors believes that there will be no adverse tax
consequences to shareholders of Buffalo as a result of this Merger.
Buffalo's Common Stock will continue to be listed on the over-the-
counter Bulletin Board following completion of the Merger, although
its trading symbol will be changed to reflect its new name. For the
reasons described herein, subject to the requisite vote of Buffalo's
stockholders which is solicited hereby, approving consummation of
the Merger through the issuance of shares, and other items included in
this Information Statement, the members of the Board of Directors
have unanimously approved the Agreement and consummation of the
Merger described therein.
THE BOARD OF BUFFALO RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR APPROVAL OF THE
CONSUMMATION OF THE PROPOSED MERGER AND
RELATED TRANSACTIONS DESCRIBED IN THE AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION BY AND
BETWEEN BUFFALO AND ALADDIN OIL CORPORATION
DATED NOVEMBER 23, 1998.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENT
This Information Statement includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933, as amended (the "securities Act') and Section 21 E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
All statements other than statements of historical fact included in this
Information Statement regarding reserve estimates, planned capital
expenditures, future oil and gas production and prices, future drilling
activity, financial position of Buffalo, Old Aladdin or New Aladdin,
business strategy and other plans and objectives for future operations,
are forward-looking statements. Although Buffalo, Old Aladdin and
New Aladdin believe that the expectations reflected in such forward-
looking statements are reasonable, Buffalo can give no assurance that
such expectations will prove to be correct. There are numerous
uncertainties inherent in estimating quantities of proved oil and natural
gas reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control
of the participating entities. Reserve engineering is a subjective
process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact way, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result,
estimates made by different engineers often vary from one another.
In addition, results of drilling, testing and production subsequent to
the date of an estimate may justify revisions of such estimate and such
revisions, if significant, would change the schedule of any further
production and development drilling. Accordingly, reserve estimates
are generally different from the quantities of oil and natural gas that
are ultimately recovered. Additional important factors that could
cause actual results to differ materially from the expectations
described herein include changes in oil and gas prices, changes in
regulatory or environmental policies, production difficulties,
transportation difficulties and future drilling results. All subsequent
written and oral forward-looking statements attributable to Buffalo,
Old Aladdin or New Aladdin, or persons acting on their behalf are
expressly qualified in their entirety by such factors.
RISK FACTORS
In determining whether to vote in favor of the proposals
described in this Information Statement, Buffalo's shareholders should
consider all of the risks associated with the transactions and with the
planned business operations of New Aladdin following consummation
of the Merger. Unforeseen conditions and unexpected events may
arise, and the following list may not be all-inclusive. Buffalo's
shareholders should consider all of the risks associated with the
proposed transactions and with the planned business operations
following consummation of the proposed Merger, including the
following risk factors:
Market Conditions and Prices
New Aladdin's success will depend heavily upon its ability to
market its oil and gas production at favorable prices, of which there
can be no assurance. In recent decades, there have been both periods
of worldwide overproduction and underproduction of hydrocarbons
and periods of increased and relaxed energy conservation efforts.
Such conditions have resulted in periods of excess supply of, and
reduced demand for, crude oil on a worldwide basis and for natural
gas on a domestic basis; these periods have been followed by periods
of short supply of, and increased demand for, crude oil and, to a
lesser extent, natural gas. The excess or short supply of oil and gas
has placed pressures on prices and has resulted in dramatic price
fluctuations.
Change in Control; Concentration of Ownership in the Robins Family;
Ability to Influence Election of Directors and Other Matters
Submitted to Stockholders
In the event of consummation of the Merger, there will be a
change in control of Buffalo. The current shareholders of Buffalo
will own only approximately 7% of the issued and outstanding
Common Stock of New Aladdin on a fully diluted basis following
completion of the Merger, and the current officers and directors of
Buffalo will resign and be replaced by the persons who are the current
officers and directors of Old Aladdin. Following consummation of
the Merger, Ms. Meghan Robins and her affiliates and family
members collectively will own an aggregate of 3,049,101 shares of
Common Stock, representing approximately 74% of the issued and
outstanding shares (not including options or warrants) of New
Aladdin. Accordingly, such persons will be able to exercise
substantial influence over the business and affairs of New Aladdin,
including the election of directors and other matters submitted to a
vote of stockholders, and will essentially control New Aladdin. There
are no voting or similar agreements among such persons. See
"Ownership of Capital Stock."
Historical Operating Losses and Variability of Operating Results
Buffalo has had no revenues to date. Although Old Aladdin
has had limited revenues to date, it has incurred net losses since its
inception. As a result, there can be no assurance that New Aladdin
will have significant revenues or that it will be profitable in the future
following completion of the Merger. In addition, the future operating
results of New Aladdin may fluctuate significantly depending upon a
number of factors, including industry conditions, prices of oil and
gas, rates of production, timing of capital expenditures and drilling
success. This variability could have a material adverse effect on the
business, financial condition and results of operations of New
Aladdin. See "Selected Historical Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Uncertainty of Estimates of Oil and Gas Reserves
The proven oil and gas reserves of Old Aladdin, and the
estimated future net revenues therefrom to be received by New
Aladdin, rely upon various assumptions, including assumptions as to
oil and gas prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds. The process of
estimating oil and gas reserves is complex, requiring significant
decisions and assumptions in the evaluation of available geological,
geophysical, engineering and economic data for each reservoir. As a
result, such estimates are inherently imprecise. Actual future
production, oil and gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and
gas reserves may vary substantially from those estimated in the
reports obtained from reserve engineers. Any significant variance in
these assumptions could materially affect the estimated quantities and
present value of the estimated reserves. In addition, the proven
reserves of New Aladdin may be subject to downward or upward
revision based upon production history, results of future exploitation
and development, prevailing oil and gas prices and other factors,
many of which will be beyond the control of New Aladdin. Actual
production, revenues, taxes, development expenditures and operating
expenses with respect to the such reserves will likely vary from the
estimates used, and such variances may be material.
Replacement of Reserves
In general, the volume of production from oil and gas
properties declines as reserves are depleted. Except to the extent New
Aladdin acquires properties containing additional proven reserves or
conducts successful development and exploitation activities, or both,
the proven reserves and the volume of production from proven
reserves of New Aladdin will decline as a result of production from
its existing properties. The future oil and gas production of New
Aladdin will, therefore, be highly dependent upon its level of success
in finding or acquiring additional reserves. The business of acquiring,
enhancing or developing reserves is capital intensive. To the extent
cash flow from operations is reduced and external sources of capital
become limited or unavailable, the ability of New Aladdin to make the
necessary capital investment to maintain or expand its asset base of oil
and gas reserves would be impaired. In addition, there can be no
assurance that the future acquisition and development activities of
New Aladdin will result in additional proven reserves or that New
Aladdin will be able to drill productive wells at acceptable costs.
Reserve Concentration Risk
At the time of completion of the Merger, substantially all of
the reserves of Old Aladdin will be located in Ohio and California.
Any interruption in the production from these reserves following
completion of the Merger could materially adversely affect the
operations of New Aladdin.
Industry Risks
Oil and gas drilling and production activities are subject to
numerous risks, many of which will be beyond the control of New
Aladdin. These risks include the risk that no commercially productive
oil or gas reservoirs will be encountered, that operations may be
curtailed, delayed or canceled, and that title problems, weather
conditions, compliance with governmental requirements, mechanical
difficulties or shortages or delays in the delivery of drilling rigs and
other equipment may limit the ability of New Aladdin to develop,
produce and market its reserves. There can be no assurance that new
wells drilled by New Aladdin will be productive or that New Aladdin
will recover all or any portion of its investment. Drilling for oil and
gas may involve unprofitable efforts, not only from dry wells but also
from wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs. In
addition, the properties of New Aladdin may be susceptible to
hydrocarbon drainage from production by other operators on adjacent
properties.
Industry operating risks include the risks of fire, explosions,
blow-outs, pipe failure, abnormally pressured formations and
environmental hazards, such as oil spills, natural gas leaks, ruptures
or discharges of toxic gases, the occurrence of any of which could
result in substantial losses to New Aladdin due to injury or loss of
life, severe damage to or destruction of property, natural resources
and equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension
of operations. In accordance with customary industry practice, it is
anticipated that New Aladdin will maintain insurance against some,
but not all, of the risks described above. There can be no assurance
that any insurance will be adequate to cover losses or liabilities. It is
not possible for New Aladdin to predict the continued availability of
insurance at premium levels that justify its purchase.
Acquisition Risks
The growth of New Aladdin following consummation of the
proposed Merger is expected to be attributable largely to acquisitions
of producing oil and gas properties containing proven reserves. In
conjunction with acquisition of such properties, New Aladdin will
make an effort to assess recoverable reserves, future oil and gas
prices, operating costs, potential environmental and other liabilities
and other factors. However, such assessments are necessarily inexact
and their accuracy inherently uncertain, in part because many of the
factors being assessed are not subject to control. In connection with
making such an assessment, it is anticipated that New Aladdin will
perform a review of the subject properties that it believes to be
generally consistent with industry practices. Such a review, however,
will not reveal all existing or potential problems, nor will it permit
New Aladdin to become sufficiently familiar with the properties to
fully assess their deficiencies and capabilities. Inspections may not
always be performed on every well, and structural and environmental
problems are not necessarily observable even when an inspection is
undertaken. In most cases, it is anticipated that New Aladdin will not
be entitled to contractual indemnification for pre-closing liabilities,
including environmental liabilities, and that it will generally acquire
interests in the properties on an "as is" basis with limited remedies for
breaches of representations and warranties. In those circumstances in
which New Aladdin is able to negotiate contractual indemnification
rights for pre-closing liabilities, there can be no assurance that the
seller will be able to fulfill its contractual obligations. In addition,
competition for producing oil and gas properties is intense and many
of New Aladdin's competitors will have financial and other resources
which are substantially greater than those available to New Aladdin.
Therefore, no assurance can be given that New Aladdin will be able
to acquire producing oil and gas properties which contain
economically recoverable reserves or that it will make such
acquisitions at acceptable prices.
Substantial Capital Requirements
It is currently anticipated that New Aladdin will continue to
make substantial capital expenditures in its exploration and
development projects. Initially, New Aladdin intends to finance these
capital expenditures with the cash flow from operations and its
existing financing arrangements. However, it is anticipated that
additional financing may be required in the future to fund the
developmental and exploration activities of New Aladdin. No
assurance can be given as to the availability or terms of any such
additional financing that may be required or that financing will
continue to be available under any existing or new financing
arrangements. If additional capital resources are not available to New
Aladdin, its developmental and other activities may be curtailed and
its business, financial condition and results of operations could be
materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition and Capital Resources."
Marketability of Production
The marketability of the natural gas production of New
Aladdin will depend in part upon the availability, proximity and
capacity of natural gas gathering systems, pipelines and processing
facilities. Most of the natural gas produced by New Aladdin is
expected to be delivered through natural gas gathering systems and
natural gas pipelines that will not be owned by New Aladdin.
Federal, state and local regulation of oil and gas production and
transportation, tax and energy policies, changes in supply and demand
and general economic conditions all could adversely affect the ability
of New Aladdin to produce and market its oil and gas. Any dramatic
change in market factors could have a material adverse effect on the
financial condition and results of operations of New Aladdin. See
"Business and Properties" and "Governmental Regulation."
Dependence on Key Personnel
The business of New Aladdin will depend on the continued
services of its president and chief executive officer, Meghan Robins.
Effective as of January 5, 1998, Old Aladdin entered into an
employment agreement with Ms. Robins for a period of 5 years which
will be assumed by New Aladdin following completion of the Merger.
The loss of the services of Ms. Robins would be particularly
detrimental to New Aladdin because of her background and
experience in the oil and gas industry.
Competition
The oil and gas industry is highly competitive in all its phases,
and Old Aladdin has encountered significant competition in the past.
New Aladdin is expected to encounter significant competition in the
future, and such competition is expected to be particularly intense
with respect to the acquisition of desirable producing properties,
acquisition of oil and gas prospects suitable for enhanced production
efforts, and the hiring of experienced personnel. The competitors of
Old Aladdin in oil and gas acquisition, development, and production
have included the major oil companies as well as numerous
independent oil and gas companies, individual proprietors, and drilling
programs. New Aladdin is expected to face the same competitors and
many of these competitors will possess and employ financial and
personnel resources substantially in excess of those which are
available to New Aladdin. Therefore, they may be able to pay more
for desirable producing properties and prospects and to define,
evaluate, bid for, and purchase a greater number of producing
properties and prospects than the financial or personnel resources of
New Aladdin will permit. The ability of New Aladdin to generate
reserves in the future will be dependent upon its ability to select and
acquire suitable producing properties and prospects in competition
with these companies.<PAGE>
Governmental Regulation
Domestic exploration for, and production and sale of, oil and
gas are extensively regulated at both the federal and state levels.
Legislation affecting the oil and gas industry is under constant review
for amendment or expansion, frequently increasing the regulatory
burden. Also, numerous departments and agencies, both federal and
state, are authorized by statute to issue, and have issued, rules and
regulations affecting the oil and gas industry which often are difficult
and costly to comply with and which carry substantial penalties for
noncompliance. State statutes and regulations require permits for
drilling operations, drilling bonds, and reports concerning operations.
Most states in which New Aladdin will operate also have statutes and
regulations governing conservation matters, including the unitization
or pooling of properties and the establishment of maximum rates of
production from wells. Many state statutes and regulations may limit
the rate at which oil and gas could otherwise be produced from
acquired properties. Some states have also enacted statutes
prescribing ceiling prices for natural gas sold within their states. The
operations of New Aladdin will also be subject to numerous laws and
regulations governing plugging and abandonment, the discharge of
materials into the environment or otherwise relating to environmental
protection. The heavy regulatory burden on the oil and gas industry
increases its costs of doing business and consequently affects its
profitability. Although Old Aladdin believes it is currently in
compliance with such laws, rules and regulations, there can be no
assurance that a change in such laws, rules or regulations, or the
interpretation thereof, will not have a material adverse effect on the
financial condition or results of operations of New Aladdin following
completion of the Merger.
Lack of Active Trading Market
Buffalo has voluntarily registered under the 34 Act, and its
Common Stock is approved for trading in the over-the-counter market
on the NASD Bulletin Board. However, no actual trading activity has
occurred with respect to such shares. Following completion of the
Merger, the shares of Common Stock of New Aladdin will continue
to be approved for trading in the over the counter market on the
NASD Bulletin Board. There can be no assurance that a trading
market will develop for such shares, that holders of such shares will
ever enjoy the benefit of liquidity created as a result of an active
trading market, or that the trading price for such shares in the public
market will accurately reflect the value of such shares as calculated
through traditional means involving book value, earnings per share,
and the like.
Regulation of Penny Stocks
It is anticipated that immediately following completion of the
Merger, and for an indefinite period of time thereafter, any trading
market which may develop for the common stock of New Aladdin
will be subject to a Securities and Exchange Commission rule that
imposes special sales practice requirements upon broker-dealers who
sell low-priced securities (commonly referred to as "penny stocks") to
persons other than established customers or accredited investors. For
transactions covered by the rule, the broker-dealer must make a
special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the rule may affect the ability of the shareholders of
New Aladdin to sell their securities in any market that might develop
therefor.
Shareholders should be aware that, according to Securities and
Exchange Commission Release No. 34-29093, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include (i) control of the market for the security by one
or a few broker-dealers that are often related to the promoter or
issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii)
"boiler room" practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons; (iv)
excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those
prices and with consequent investor losses. Although the management
of New Aladdin will use its best efforts, within the confines of
practical limitations to prevent the described patterns from being
established with respect to its securities, there can be no assurance
that some or all of such abuses will not occur in any trading market
which may develop with respect to the securities of New Aladdin.
Shares Eligible for Future Sale
Immediately following completion of the Merger, New Aladdin
will have 4,124,419 shares of its Common Stock issued and
outstanding. The 3,718,320 shares to be issued pursuant to the terms
of the Agreement will all constitute restricted securities as that term is
defined in Rule 144 adopted under the Securities Act of 1933, and
will not be eligible for resale without registration under the Securities
Act and applicable state securities laws or an exemption therefrom. A
substantial majority of the 406,099 shares of Common Stock to be
owned by the current shareholders of Buffalo following completion of
the Merger will also constitute restricted securities. Although most of
such shares may be available for immediate resale under Rule 144
because the holders of such shares will have satisfied applicable
holding period requirements under Rule 144, a total of approximately
320,000 of such shares, which will be owned by persons who are
currently principal shareholders of Buffalo, are expected to be subject
to standstill agreements for a period of up to 12 months. The
standstill restrictions are being imposed because resale of significant
quantities of such shares could have an adverse effect on the market
price of the Common Stock of New Aladdin.
In general, under Rule 144 as currently in effect, a person (or
persons) whose shares are aggregated, who has beneficially owned
shares for at least one year (including in certain cases, the holding
period of any prior owner except an affiliate), is entitled to sell in
"broker's transactions" or to market makers, within any three-month
period, a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of Common Stock or (ii) generally, the
average weekly trading volume in the Common Stock during the four
calendar weeks preceding the sale and certain other limitations and
restrictions. Under Rule 144(k), a person who is not deemed to have
been an affiliate of the company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least two years, would be entitled to sell such shares
without having to comply with the manner of sale, volume limitation
or notice filing provisions described above.
Certain of the holders of Series A Preferred Stock and the
Class A and Class B Warrants of New Aladdin to be issued in
conjunction with consummation of the Merger, will have demand
registration rights with respect to the shares of Common Stock
issuable upon the exercise of their warrants or conversion of their
Series A Preferred Stock. Holders of demand registration rights may,
under certain circumstances and subject to customary limitations,
require New Aladdin to use its best efforts to register the resale of the
shares of Common Stock held by such holder when New Aladdin
otherwise files a registration statement with the SEC registering shares
of its Common Stock.
Preferred Stock
In accordance with the provisions of the articles of
incorporation of New Aladdin, the Board of Directors will be
authorized, without shareholder action, to issue Preferred Stock in one
or more series and to designate the dividend rate, voting rights and
other rights, preferences and restrictions of each such series. It will
not be possible to state the actual effects, if any, of the potential
issuance of additional Preferred Stock upon the rights of holders of
Common Stock of New Aladdin, unless and until the Board of
Directors of New Aladdin determines to issue additional preferred
stock and establishes the specific rights, preferences and restrictions
of the class of Preferred Stock to be issued. Such effects might
include restricting dividends on the Common Stock, diluting the
voting power of the Common Stock, impairing the liquidation rights
of the Common Stock, and delaying or preventing a change in control
of New Aladdin without further action by the shareholders. See
"Description of Securities - Preferred Stock."
Investment Risks as to Minority or Royalty Interest Purchases
New Aladdin may in the future acquire interests in oil and gas
properties which consist of less than a controlling working interest, or
which consist of an overriding (or other form of) royalty interests. In
such cases, it is likely that these properties would not be operated by
New Aladdin. It is anticipated that New Aladdin will seek to limit
such acquisitions to properties operated by competent entities with
which New Aladdin has discussed the operator's plans for the
properties, but New Aladdin will not have complete control over
decisions affecting such properties.
Environmental Liability
Oil and gas activities can result in liability under federal, state
and local environmental regulations for activities involving, among
other things, water pollution and hazardous waste transport, storage,
and disposal. Such liability can attach not only to the operator of
record of the well, but also to other parties that may be deemed to be
current or prior operators or owners of the wells or the equipment
involved. See "Business and Properties - Environmental Matters."
<PAGE>
No Dividends on Common Stock
The Board of Directors of Old Aladdin has indicated that
following its appointment as the Board of Directors of New Aladdin,
it intends to retain all of the earnings of New Aladdin for the
expansion of its business, except as required by the terms of the
issued and outstanding Preferred Stock. New Aladdin therefore does
not anticipate the distribution of cash dividends on its Common Stock
in the foreseeable future. Any future decision of the Board of
Directors of New Aladdin to pay cash dividends will depend, among
other factors, upon its earnings, financial position, and cash
requirements at the time such decision is made. See "Price Range of
Common Stock and Dividend Policy."
Cumulative Voting, Preemptive Rights, and Control
The persons who are holders of the Common Stock of New
Aladdin following completion of the Merger will have no preemptive
rights in connection with such shares. As a result, the shareholders of
New Aladdin may be further diluted in their percentage ownership of
New Aladdin if additional shares of Common Stock are issued by
New Aladdin in the future. Cumulative voting in the election of
directors for New Aladdin will also be prohibited. Immediately after
the Effective Date, Ms. Meghan Robins and her affiliates and family
members will collectively own an aggregate of 3,049,101 shares of
Common Stock, representing approximately 74% of the outstanding
shares. Accordingly, such persons will be able to exercise control
over the business and affairs of the Company, including the election
of directors and other matters submitted to a vote of stockholders. See
"Ownership of Capital Stock."
BUSINESS AND PROPERTIES OF BUFFALO
General
Buffalo was incorporated under the laws of the State of
Colorado on September 19, 1997, and remains in the developmental
stage. Its only activities to date have been organizational ones, and
activities related to completing the proposed Merger with Old
Aladdin.
Buffalo was formed as a "blind pool" or "blank check"
company, with a business plan of seeking to acquire one or more
properties or businesses, and it voluntarily elected to file a registration
statement on Form 10-SB under the 34 Act in order to become a
reporting company. The registration statement became effective on or
about May 4, 1998, and since that date, Buffalo has filed all required
periodical reports and remained current in its reporting obligations.
In accordance with Buffalo's business plan, its acquisition of a
business opportunity could be made by purchase, merger, exchange of
stock, or otherwise, and may encompass assets or a business entity,
such as a corporation, joint venture, or partnership. Buffalo's
business plan also provided that its discretion in selection of business
opportunities would be unrestricted, subject to the availability of such
opportunities, economic conditions, and other factors. However, its
search for a business acquisition was intended to be directed toward
small and medium-sized enterprises having a desire to become a
public corporation and which may be able to satisfy, or anticipate,
within a reasonable period of time following completion of a merger
or acquisition with Buffalo, being able to satisfy the minimum asset
requirements in order to qualify shares for trading on the National
Market System, or on an exchange such as the American Stock
Exchange. It was also intended that Buffalo would concentrate its
acquisition efforts on properties or businesses that it believed to be
undervalued or that it believed could realize a substantial benefit from
being publicly owned with a public trading market for their securities.
The types of factors to be considered by Buffalo in selecting a
business opportunity included the following:
(1) Potential for growth and profitability, indicated by new
technology, anticipated market expansion, or new products;
(2) Buffalo's perception of how any particular business
opportunity would be received by the investment community and by
Buffalo's stockholders;
(3) Whether, following the business combination, the financial
condition of the business opportunity would be, or would have a
significant prospect in the foreseeable future of becoming sufficient to
enable its securities to qualify for listing on an exchange or on a
national automated securities quotation system, such as NASDAQ, so
as to permit the trading of such securities to be exempt from the
restrictions imposed on broker-dealers by the Securities and Exchange
Commission in conjunction with dealings in penny stocks. (See "Risk
Factors - Buffalo - Regulation of Penny Stocks").
(4) Capital requirements and anticipated availability of re-
quired funds, to be provided from operations, through the sale of
additional securities, through joint ventures or similar arrangements,
or from other sources;
(5) Competitive position as compared to other companies of
similar size and experience within the industry segment as well as
within the industry as a whole;
(6) Strength and diversity of existing management, or man-
agement prospects that are scheduled for recruitment; and,
(7) The accessibility of required management expertise, per-
sonnel, raw materials, services, professional assistance, and other
required items.
Form and Terms of Acquisition
Buffalo had a substantial amount of discretion in negotiating
both the form and the terms of its proposed Merger with Old Aladdin.
The possibility of structuring the Merger as an asset purchase or as a
share exchange, in which Aladdin would have become a wholly
owned subsidiary of Buffalo, were both considered. However, based
primarily upon the desire of Old Aladdin to structure the Merger as a
tax-free reorganization, and the desire of Old Aladdin to include
various types of securities, including preferred stock, warrants and
debentures, as part of the consideration, the parties agreed to structure
the proposed transaction as a statutory merger. The number of shares
to be retained by the current shareholders of Buffalo and the cash
consideration to be paid by Old Aladdin for purchase of the
outstanding warrants of Buffalo, were determined by arms length
negotiations with Old Aladdin.
In conjunction with completion of the proposed Merger, it was
determined that it would be in the best interest of the Buffalo
shareholders for Buffalo's officers and directors to resign and to
nominate the current Board of Directors of Old Aladdin as their
successors on the Board of Directors of New Aladdin. None of the
current officers or directors of Buffalo has experience in the operation
of an oil and gas business, and Old Aladdin represented that it had an
experienced group of officers and directors which would be capable of
managing the on-going business operations of New Aladdin.
Administrative Offices
Buffalo currently maintains a mailing address at 7331 S.
Meadow Court, Boulder, Colorado 80301, which is the office address
of its President. The Company's telephone number there is (303)
530-3353. Other than this mailing address, the Company does not
currently maintain any other office facilities, and does not anticipate
the need for maintaining office facilities at any time in the foreseeable
future. Following completion of the proposed Merger, this mailing
address will be closed and all operations and activities will be
transferred to the offices of New Aladdin.
Employees
Buffalo currently has no employees. It has used consultants,
attorneys and accountants as necessary to assist in completion of its
organizational activities and for purposes of negotiating the terms and
conditions of the proposed business combination transaction with Old
Aladdin. Following completion of the proposed Merger, all
employees of New Aladdin will be persons currently employed by Old
Aladdin or persons hired by New Aladdin following completion of the
Merger.
Legal Proceedings
Buffalo is not a party to any legal proceedings, and its board
of directors is not aware of any threatened proceedings that can
reasonably be expected to have a material adverse effect on the
Buffalo's properties or financial condition, or its ability to complete
the proposed Merger.
<PAGE>
BUSINESS AND PROPERTIES OF ALADDIN
General
Old Aladdin was incorporated under the laws of the State of
Nevada on January 17, 1997. It is an independent oil and gas
company engaged in the acquisition and exploration of oil and gas
within the United States. Since its inception, Old Aladdin has focused
its business strategy on the acquisition of producing oil and gas
properties in geographic areas where fragmented ownership should
create the opportunity for a consolidation or "roll-up of these assets.
Furthermore, these assets generally would provide for increases in
reserves, or production as a result of enhancement, better field
management, and tighter financial controls.
In addition, Old Aladdin holds certain exploration sub-surface
easements within the Los Angeles Basin of California, which
encompass several portions of the producing Salt Lake Field.
Following completion of the Merger, New Aladdin intends to develop
these pass-through easements into a drilling district, followed by the
drilling and exploration for potential oil and natural gas. In addition,
Old Aladdin recently acquired interests in 16 natural gas wells in the
state of Ohio, the operations of which are more specifically described
below. Finally, Old Aladdin seeks to apply modern exploration
technology and applications to certain producing oil and gas basins
where such technology has yet to be applied.
Appalachian Operations
Effective June 30, 1998, Old Aladdin acquired interests in 16
natural gas wells within the counties of Morgan and Muskingham,
Ohio, from Industrial International, Inc., an Ohio corporation
("Industrial International") in exchange for issuance of 419,219 shares
of Common Stock of Old Aladdin. Industrial International was
previously owned by Mr. Max P. Lammers, who is an officer and
director of Old Aladdin. The natural gas wells purchased from
Industrial International comprise the Appalachian Operations, which
are being operated by Aladdin - International, Inc., an Ohio
corporation ("Aladdin International"), a subsidiary of Old Aladdin.
As the time the Appalachian Operations were acquired from
Industrial International, Old Aladdin entered into a management
agreement with Mr. Lammers (the "Lammers Management
Agreement") pursuant to which Mr. Lammers is to act as Vice
President - Appalachian Region on behalf of Old Aladdin. To provide
Mr. Lammers with certain assurances, the Lammers Management
Agreement provides that if New Aladdin is not a "public reporting"
company as defined by the 34 Act, and the Common Stock of New
Aladdin is not publicly quoted prior to June 30, 1999, Mr. Lammers
will have the right to purchase 100% of the outstanding shares of
Common Stock of Aladdin International for the sum of $1.00.
Old Aladdin believes that the Merger will in fact qualify New
Aladdin as a "public reporting" company as defined by the 34 Act,
and that following completion of the Merger, the Common Stock of
New Aladdin will be publicly quoted. As a result, Old Aladdin
believes that the consummation of the Merger will extinguish the right
of Mr. Lammers to purchase the shares of Aladdin International.
California Operations
In its California operations, Old Aladdin has specialized in
development and production of oil and gas from leases on town lots
located in areas within the Los Angeles Basin, including Culver City,
Cheviot Hills, Sawtelle, Santa Monica and West Salt Lake. After
acquiring leases from landowners, Old Aladdin has coordinated
production arrangements with major petroleum companies. Following
completion of the Merger, it is anticipated that New Aladdin will
continue to seek to capitalize on development and production of town-
lot oil leases in the urban Los Angeles area.
Operator Activities
Old Aladdin currently acts as the operator of the 16 oil and/or
natural gas wells acquired from Industrial International. To facilitate
these activities, Old Aladdin has established a field office in
Cleveland, Ohio, and utilizes certain contract service providers for the
day to day operation, upkeep, and maintenance of these properties.
Drilling Activities
To date, Old Aladdin has not drilled any wells. It has,
however, established a capital expenditure budget for the 3rd quarter
of 1998 to enhance and work over certain of the 16 wells acquired
from Industrial International.
Old Aladdin currently anticipates that it will commence and/or
participate in one or more developmental drilling programs on certain
acreage within the Appalachian Basin.
Marketing
Old Aladdin does market its production based upon the
applicable operating agreement for each property and/or well. Old
Aladdin or its agents sell its production, as well as the production of
other interest owners' in each property on the spot market and by
entering into marketing arrangements, processing agreements,
transportation agreements and oil and natural gas condensate
agreements. Old Aladdin does not charge itself marketing fees for its
own activities, but it does pay for its pro rata share of transportation
and processing expenses.
Title to Properties
As is customary in the natural gas and oil industry, Old
Aladdin makes only a cursory review of title to farm-out acreage and
to undeveloped natural gas and oil leases upon the execution of
contracts. In the case of acquisitions, a thorough title examination is
conducted and curative work is performed with respect to significant
defects at prospective properties. To the extent title opinions or other
investigations reflect title defects, the seller of the properties, rather
than Old Aladdin is responsible to cure any such title defects at its
expense. Old Aladdin has obtained title on substantially all of its
producing properties and believes that it has satisfactory title to such
properties in accordance with standards generally accepted in the oil
and gas industry. Old Aladdin's natural gas and oil properties are
subject to customary royalty interests, liens for current taxes and other
burdens that Old Aladdin believes do not materially interfere with the
use of, or affect the value of, such properties.
Operational Risks and Insurance
Old Aladdin's operations are subject to the usual hazards
incident to the drilling and producing of oil and natural gas, such as
blowouts, cratering, explosions, uncontrollable flows of oil, natural
gas or well fluids, fires, formations with abnormal pressures,
pollution, releases of toxic gases and other environmental hazards and
risks. These hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, pollution or
environmental damages and suspension of operations. As a result,
Old Aladdin could incur substantial liabilities to third parties or
governmental entities, the payment of which could reduce or eliminate
the funds available for development, acquisitions or exploration, or
result in the loss of Old Aladdin's properties.
Old Aladdin is covered by various types of insurance policies
with the minimum being a $1,000,000 liability policy and a
$5,000,000 umbrella policy. Old Aladdin is also covered under
additional insurance, including both commercial property and workers
compensation policies. This insurance coverage does not cover every
potential risk associated with the drilling and production of oil and
natural gas. Among other things, coverage is not obtainable for
certain types of environmental hazards. The occurrence of a
significant adverse event, the risks of which are not fully covered by
insurance, could have a material adverse effect on Old Aladdin's
financial condition and results of operation. Moreover, there can be
no assurances that Old Aladdin's insurance coverage will be adequate
to cover any losses or exposure to liability or that Aladdin will be
able to maintain adequate insurance coverage in the future at rates it
considers reasonable.
Regulatory and Environmental Matters
Old Aladdin's business and properties are subject to substantial
governmental regulation, including regulations affecting production,
transportation and environmental matters.
Legal Proceedings
Old Aladdin is not a party to any legal proceedings, and its
board of directors is not aware of any threatened proceedings that can
reasonably be expected to have a material adverse effect on Old
Aladdin's properties or financial condition.
Employees
Old Aladdin currently has three full-time employees and one
part-time office assistant. It also pays for a percentage of certain
office expenses incurred in Ohio, including office staff.
Offices
Old Aladdin currently maintains its corporate offices at 11911
San Vicente Blvd., Suite 385, Los Angeles California 90049, where
it has entered into a two-year lease with an option for an additional
two years. The lease covers approximately 3,400 square feet and
requires payment of monthly rental of $4,250. In addition, Old
Aladdin pays $2,500 per month toward office expenses in Ohio.
These expenses are broken down between office expenses and clerical
staff support.
SELECTED FINANCIAL INFORMATION OF BUFFALO
Set forth below is certain selected financial information of
Buffalo for the periods and as of the dates indicated. The information
is derived from and should be read in conjunction with, the financial
statements of Buffalo, including the Notes thereto, which have been
incorporated by reference in this Information Statement.
<TABLE>
<CAPTION>
Year ended Year ended
12/31/98 12/31/97
(audited) (audited)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues 0 0
Net Loss (38,176) (10,184)
Net Loss Per Share (0.01) nil
Weighted Average Shares
Outstanding 4,384,384 4,080,000
</TABLE>
<TABLE>
<CAPTION>
12/31/98 12/31/97
(audited) (audited)
<S> <C> <C>
BALANCE SHEET DATA
Total Assets 1,659 7,366
Total Liabilities 129 0
Deficit Accumulated During
Development Stage (48,360) (10,184)
Stockholders Equity (deficit) (48,360) 7,366
</TABLE>
<PAGE>
BUFFALO CAPITAL V, LTD.
FINANCIAL STATEMENTS
Attached hereto are the financial statements of Buffalo Capital
V, Ltd., as of and for the year ending December 31, 1998, the year
ending December 31, 1997, and for the period from inception through
December 31, 1998, follow.
<PAGE>
Buffalo Capital V, Ltd.
(A Development Stage Company)
<TABLE>
<CAPTION>
Index to Financial Statements Page
<S> <C>
Report of Independent Certified Public Accountants 46
Balance Sheet 47
Statement of Loss and Accumulated Deficit 49
Statement of Stockholders' Equity 52
Statements of Cash Flows 54
Notes to Financial Statements 56
/TABLE
<PAGE>
The Board of Directors and Stockholders of
Buffalo Capital V, Ltd.
We have audited the accompanying balance sheet of Buffalo Capital
V, Ltd. (a development state company) as of December 31, 1998, and
the related statements of loss and accumulated deficit, cash flows, and
stockholders' equity for the year ended December 31, 1998, the initial
period ended December 31, 1997, and for the period from inception
(September 19, 1997) to December 31, 1998. 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 audit.
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 provides 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 Buffalo Capital
V, Ltd. (a development stage company) as of December 31, 1998, and
the results of its operations and its cash flows for the year ended
December 31, 1998, the initial period ended December 31, 1997, and
for the period from inception (september 19, 1997) to December 31,
1998, in conformity with generally accepted accounting principles.
Comiskey and Company P.C.
Denver, Colorado
January 29, 1999<PAGE>
Buffalo Capital V, Ltd.
(A Development Stage Company)
BALANCE SHEET
as of December 31, 1998
<TABLE>
<CAPTION>
December 31, 1998
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 1,159
Total current assets: 1,159
OTHER ASSETS:
Organizational costs (net
of amortization) 500
TOTAL ASSETS 1,659
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 129
Total current liabilities 129
STOCKHOLDERS' EQUITY
Common stock, no par value;
100,000,000 shares authorized;
1,135,000 shares issued and
outstanding at December 31, 1998
32,900
Preferred stock, no par value
10,000,000 shares authorized;
no shares issued and outstanding -
Additional paid-in capital 16,990
Deficit accumulated
during the
development stage (48,360)
Total stockholders' equity (48,360)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 1,659
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Buffalo Capital V, Ltd.
(A Development Stage Company)
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Period
9/19/97 For the For the
(Inception) year ended initial
to 12/21/98 12/31/98 12/31/97
<S> <C> <C> <C>
REVENUES
Investment income - - -
EXPENSES
Advertising 246 246
Amortization 100 100
Consulting fees 25,400 15,500 9,900
Legal and
accounting 20,630 20,514 117
Office expense 1,234 1,216 17
Rent expense 750 600 150
TOTAL EXPENSES 48,360 38,176 10,184
NET LOSS
Accumulated deficit
Balance, Beginning
of period - (10,184) -
Balance, End of
period (48,360) (48,360) (10,184)
NET LOSS PER
SHARE (0.01) (0.01) (NIL)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 4,224,316 4,384,384 4,080,000
</TABLE>
The accompanying notes are an integral part of the financial statements.<PAGE>
Buffalo Capital V, Ltd.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the period from inception (September 19, 1997)
to December 31, 1998
(page 1 of 2)
<TABLE>
<CAPTION>
Common Stock Additional
Number of Paid-in
shares Amount Capital
<S> <C> <C> <C>
Common stock issued
for service,
April 1997
at $.0025
per share 3,960,00 9,900 -
Common stock issued
for cash,
September 1997
at $.0625
per share 120,000 7,500 -
Rent provided at
no charge - - 150
Balance
12/31/97 4,080,000 17,400 150
Common stock issued
for services,
June 1998 at
.025 per share 460,000 11,500 -
Common Stock issued
for services
July, 1998 at
.05 per share 80,000 4,000 -
Rent provided at
no charge
for 1998 - - 600
Expenses paid by
shareholders
December 1998 - - 16,240
Net loss for the
period ended
December 31, 1998 - - -
Balance
December 31,
1998 4,620,000 32,900 16,990
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
Buffalo Capital V, Ltd.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
for the period from inception (September 19, 1997)
to December 31, 1998
(page 2 of 2)
<TABLE>
<CAPTION>
Deficit
Accumulated
during the Total
development stockholders'
stage equity
<S> <C> <C>
Common stock issued
for service, April 1997
at $.0025 per share - 9,900
Common stock issued for
cash, September 1997
at $.0625 per share - 7,500
Rent provided at
no charge - 150
Balance 12/31/97 - 17,550
Common stock issued
for service, June 1998
at .025 per share - 11,500
Common Stock issued
for services
July 20, 1998
at .05 per share - 4,000
Rent at no charge
for 1998 - 600
Expenses paid by
shareholders
December 1998 - 16,240
Net loss for the
period ended
December 31, 1998 (48,360) (48,360)
Balance
December 31, 1998 (48,360) 1,530
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
Buffalo Capital V, Ltd.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period For For the
9/19/97 the year initial
(inception)to ended period
December December December
31, 1998 31, 1998 31, 1997
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss (48,360) (38,176) (10,184)
Adjustments to reconcile
net loss to cash used
by operating activities:
Amortization 100 100 -
Rent expense 750 600 150
Stock issued for
consulting fees 25,400 15,500 -
Expenses paid by
shareholders 16,240 16,240 9,900
Changes in
Current
liabilities 129 129 -
Net cash used
by operating
activities (5,741) (5,607) (134)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Organization costs (600) (600) -
Net cash provided
by investing
activities (600) (600) -
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of
common stock 7,500 - 7,500
Net cash provided
by financing
activities 7,500 - 7,500
Net increase (decrease)
in cash and cash
equivalents 1,159 (6,207) 7,366
CASH AND CASH EQUIVALENTS,
Beginning of Period - 7,366 -
CASH AND CASH EQUIVALENTS,
End of Period 1,159 1,159 7,366
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Buffalo Capital V, Ltd.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development stage company
Buffalo Capital V, Ltd. (the "Company") was incorporated under the
laws of the State of Colorado on September 19, 1997. The initial
registered office of the Company is 4750 Table Mesa Drive, Boulder,
Colorado 80303. The initial principal office of the corporation is
7331 South Meadow Court, Boulder, CO 80301.
The Company is a new enterprise in the development stage as defined
by Statement No. 7 of the Financial Accounting Standards Board and
has not engaged in any business other than organizational efforts. It
has no full-time employees and owns no real property. The Company
intends to seek to acquire one or more existing businesses which have
existing management, through merger or acquisition, that may have
potential for profit, and to that end, intends to acquire properties or
businesses, or a controlling interest therein. Management of the
Company will have virtually unlimited discretion in determining the
business activities in which the Company might engage.
Accounting Method
The Company records income and expenses on the accrual method.
Loss per share
Loss per share was computed using the weighted number of shares
outstanding during the period.
Statement of cash flows
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Use of Estimates
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that effect the
amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
Stock basis
Shares of common stock issued for other than cash have been assigned
amounts equivalent to the fair value of the service or assets received in
exchange.
2. MERGER AGREEMENT
Effective November 23, 1998, the Company entered into an
Agreement and Plan of Merger and Reorganization ("the Agreement)
with Aladdin Oil Corporation ("Aladdin"), an independent oil and gas
company engaged in the acquisition of oil and gas within the United
States.
The Agreement provides that the Company will have a total of
406,099 shares outstanding immediately prior to the completion of the
merger transaction. This will be accomplished through a 1 for 2
reverse stock split, followed by the surrender and cancellation of
1,903,901 outstanding common shares by certain of the Company's
shareholders, including its officers, directors, and affiliates. Aladdin
will be merged into the Company, with the Company as the surviving
corporation. This Company will change its name to Aladdin Oil
Corporation.
To effect the merger, the Company will issue 3,718,230 shares of
newly issued common stock (approximately 90.15% of the post-merger
outstanding shares) to the current shareholders of Aladdin. The
Company will also cancel all currently outstanding A and B warrants.
In addition, the Company will authorize the issuance of 1,677,000
shares of a new Series A Convertible Preferred stock, 1,088,500 new
Class A Warrants, 1,688,000 new Class B Warrants, and 417.6 Units,
each of which consists of a 12% Convertible Debenture in the face
amount of $1,000, 625 Class A Warrants and 625 Class B Warrants,
and will issue such securities on a one-for-one basis to existing holders
of like securities of Aladdin.
The Series A Preferred to be issued in the merger provides for a 12%
per year dividend through June 30, 1999, carried a $.75 liquidation
preference, and each Preferred share is convertible into a single share
of common stock at the option of the holder. The Class A and Class
B Warrants will entitle the holder to purchase common shares at $1.50
and $1.00 per share, respectively, through December 31, 1999. Each
Convertible Debenture will bear interest at 12% for the first year of
issuance only, and will be convertible into common at the rate of 1.25
shares for each $1.00 of face value of the Debentures, Class A
Warrants, and Class B Warrants.
A finders fee of $10,000 is due and payable to the Company at the
close of the merger.
3. STOCKHOLDERS' EQUITY
As of December 31, 1998, 4,620,000 Units were issued pursuant to the
terms of a Pre-Incorporation Consultation and Subscription Agreement
dated April 1, 1997. The Units were issued for consideration
consisting of preincorporation services by directors and promoters
value at $.0025 per Unit (or a total of $3,300 per person). Each of the
units consists of one share of common stock, two Class A Warrants to
purchase common stock for $2.00 per share, and one Class B Warrant
to purchase common stock for $4.00 per share. Issuance of the Units
was approved in the organizational consent dated September 20, 1997.
Pursuant to the Consent of Directors dated September 30, 1997, an
additional 20,000 units were issued to each of three shareholders.
These Units were issue for cash consideration of $.125 per Unit, or a
total of $2,500 per person.
On December 15, 1997, the Board of Directors authorized a 2-for-1
stock split, increasing the number of issued and outstanding shares and
decreasing the stock basis by half. The number of outstanding war-
rants was not changed. On July 17, 1998, the Board of Directors
authorized a 4-for-1 stock split, thereby increasing the number of
issued and outstanding shares to 4,620,000 (on 12/31/98) and
decreasing the stock basis by three quarters. All references in the
accompanying financial statements to the number of common shares
and per share amounts have been restated to reflect the stock splits.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
10,000,000 shares of preferred stock, no part value per share. The
Board of Directors of the Company is authorized to issue preferred
stock from time to time in services and is further authorized to
establish such series, to fix and determine the variations in the relative
rights and preferences as between the series, and to allow for the
conversion of preferred stock into common stock. No preferred stock
has been issued by the Company.
4. RELATED PARTY TRANSACTIONS
The Company's directors and officers are also principal shareholders.
Each controls 1,308,800 - 1,309,600 shares of stock (approximately
32% each of the outstanding shares). In each case, the shares were
issued for services provided which have been valued at $6,600.
Gary Joiner, corporate counsel who is not an officer or director, owns
1,309,600 shares and is one of the principal shareholders of the
Company. His shares were issued for services valued at $3,300. He
has been paid a total of $72 for legal services rendered during the
initial period ended December 31, 1997. For the year ended
December 31, 1998, he was compensated for legal services rendered in
the amount of $18,866.
Rent is being provided to the Company at no charge by its President.
For purposes of the financial statements, the Company is accruing $50
per month as additional paid-in capital for this use.
5. INCOME TAXES
The Company has Federal net operating loss carryforwards of
approximately $48,360 expiring in the year 2013. The tax benefit of
these net operating losses, which totals approximately $9,600, has been
offset by a full allowance for realization. This carryforward may be
limited upon the consummation of a business combination under IRC
Section 381. For the period ended December 31, 1998, the valuation
allowance increased by $1,900.
6. SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES
The Company recorded rent expense for the year ended December 31,
1998 of $50 per month for a total of $600.
Common stock was issued for consulting and/or legal services on the
following dates: April 1997 3,960,000 shares at .0025 per share
($9,900); June 1998, 460,000 shares at .025 per share ($11,500); and
July 1998, 80,000 shares at .05 per share ($4,000).
BUFFALO CAPITAL V, LTD. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Buffalo remains in the development stage and, since inception,
has experienced no significant change in liquidity or capital resources
or stockholder's equity other than the receipt of proceeds in the
amount of $7,500 from its inside capitalization funds. Buffalo's
balance sheet as of December 31, 1998, reflects current assets of
$1,159 in the form of cash, and a total asset value of $1,659.
Buffalo believes that it has sufficient liquidity and capital
resources to meet its cash needs until completion of the proposed
Merger with Old Aladdin. However, in the event the proposed Merger
is not approved, or is not completed in a timely manner, it is
anticipated that Buffalo will require additional capital in order to meet
its cash needs. Completion of the proposed Merger with Old Aladdin
will result in an increase in the capital resources of the company.
Results of Operations
During the period from September 19, 1997 (inception) through
December 31, 1998 (the latest date for which financial information
concerning Buffalo is available), Buffalo has engaged in no significant
operations other than organizational activities, acquisition of capital
and preparation for registration of its securities under the 34 Act, as
amended, and activities related to negotiating and completing the
proposed Merger with Old Aladdin. No revenues were received by
Buffalo during this period.
For the current fiscal year, Buffalo anticipates incurring a loss
as a result of organizational expenses, expenses associated with
registration under the 34 Act, and expenses associated with locating,
evaluating, negotiating and completing the proposed Merger with Old
Aladdin. The consolidated results of operations of Buffalo and Old
Aladdin for the current fiscal year, will primarily reflect the results of
operation of Old Aladdin.
Need for Additional Financing
Buffalo believes that its existing capital will be sufficient to
meet its cash needs, including the costs of compliance with the
continuing reporting requirements of the Securities Exchange Act of
1934, as amended, and the cost of completing the proposed Merger, in
the event that the Merger is completed in a timely manner.
Accordingly, in the event the Company is able to complete the
proposed Merger prior to December 31, 1998, it anticipates that its
existing capital will be sufficient to allow it to accomplish the goal of
completing a business combination. Once the proposed Merger is
completed, the needs of the company for additional financing will
increase substantially.
No commitments to provide additional funds have been made
by management or other stockholders, and Buffalo has no plans,
proposals, arrangements or understandings with respect to the sale or
issuance of additional securities prior to completion of the proposed
Merger. Accordingly, in the event that additional funds are required
prior to completion of the proposed Merger, there is no assurance that
they will be available. Old Aladdin has agreed to reimburse Buffalo
for up to $5,000 of expenses it incurs in conjunction with the
completion of the proposed Merger.
SELECTED HISTORICAL FINANCIAL DATA OF OLD ALADDIN
Set forth below is certain selected financial information of Old
Aladdin for the periods and as of the dates indicated. The information
is derived from and should be read in conjunction with, the financial
statements of Old Aladdin, including the Notes thereto, which follow
this summary information.
<TABLE>
<CAPTION>
Period ended Period ended
12/31/98 6/30/98
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues 19,909 0
Total Costs & Expenses 348,345 669,202
Net Loss (328,436) (669,202)
Net Loss Per Share (0.13) (0.23)
BALANCE SHEET DATA:
Total Assets 844,195 925,427
Total Liabilities 576,999 160,578
Accumulated Deficit (1,055,855) (669,202)
</TABLE>
<PAGE>
The Consolidated Financial Statements of Old Aladdin as of its fiscal
year ended June 30, 1998 (audited) and as of the period ended
December 31, 1998 (unaudited) are set forth on the following pages.
Financial Statements reflecting the historical oil and gas
revenues and direct operating expenses of Industrial International, Inc.,
for the period from inception to June 30, 1997, and for the year ended
June 30, 1998, are attached to this Information Statement as Appendix
D and incorporated herein by this reference. Also included in
Appendix D is Pro Forma Financial Information prepared assuming
that the acquisition by Old Aladdin of the oil and gas assets of
Industrial International, Inc., had been consummated on July 1, 1997.
<PAGE>
ALADDIN OIL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
JUNE 30, 1998<PAGE>
ALADDIN OIL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements
<S> <C>
Report of Brown, Armstrong, Randall, Reyes, 65
Paulden and McCown Independent Auditors
Consolidated Financial Statements 66
Balance Sheets at June 30, 1998 and
December 31, 1998 (Unaudited)
Statements of Operations for the Year Ended 68
and Six Months Ended June 30, 1998
and December 31, 1998 and 1997
(Unaudited), respectively
Statements of Stockholders' Equity for the Year 69
Ended and Six Months Ended June 30, 1998
and December 31, 1998 (Unaudited)
Statements of Cash Flows for the Year Ended 71
and Six Months Ended June 30, 1998 and
December 31, 1998 and 1997
(Unaudited), respectively
Notes to the Financial Statements 73
Supplemental Information About Oil and Gas Producing
Activities (Unaudited) 86
</TABLE>
Financial statement schedules have been omitted since they are either
not required, are not applicable, or the required information is shown
in the financial statements and related notes.<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Aladdin Oil, Inc.
West Los Angeles, California
We have audited the accompanying consolidated balance sheet of
Aladdin, Inc. and Subsidiary (a Nevada corporation) as of June 30,
1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the financial position of Aladdin
Oil, Inc. and Subsidiary, as of June 30, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
November 13, 1998, except for Notes 1 and 9, whose date is February
20, 1999<PAGE>
ALADDIN OIL, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1998 (unaudited) 1998
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 98,427 160,363
Accounts receivable 15,936 -
Total Current Assets 114,363 160,363
Oil and Gas Properties (successful
efforts basis, net) 670,035 699,886
Equipment and Fixtures, net 59,188 64,569
729,223 764,455
Other Assets
Start up costs 609 609
844,195 925,427
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALADDIN OIL, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1998 (unaudited) 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable 32,784 -
Accrued interest and dividends 18,925 12,578
Due to working interests 5,491 -
Other accrued liabilities 4,199 -
Total Current Liabilities 61,399 12,578
Commitments and contingencies - -
Convertible debentures 515,600 148,000
Total Liabilities 576,999 160,578
STOCKHOLDERS' EQUITY
Common stock, .01 par value,
20,000,000 shares authorized;
3,718,320 shares
issued and outstanding 37,183 37,183
Convertible preferred stock,
Series A, .01 par value,
4,000,000 shares authorized;
1,677,000 shares
issued and outstanding 16,770 16,770
Additional paid in capital 1,269,098 1,380,098
Accumulated deficit (1,055,855) (669,202)
Total Stockholders' Equity 267,196 764,849
844,195 925,427
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
ALADDIN OIL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AND SIX MONTHS ENDED
JUNE 30, 1998 AND DECEMBER 31, 1998 AND 1997
(UNAUDITED), RESPECTIVELY
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, December 31, Year Ended
1998 1997 June 30,
Unaudited Unaudited 1998
<S> <C> <C> <C>
REVENUE
Oil and Gas 19,909 - -
COSTS AND EXPENSES
Lease operating expense 10,722 - -
General and administrative 135,465 172,078 250,176
Officer's compensation 25,000 43,750 136,601
Legal and accounting 115,505 86,783 136,436
Marketing 5,177 5,714 20,744
Depreciation, depletion
and amortization 35,232 5,381 10,761
Interest 21,244 53,019 114,484
Total Costs and Expenses 348,345 366,725 -
LOSS BEFORE
INCOME TAX EXPENSE (328,436) (366,725) (669,202)
INCOME TAX EXPENSE - - -
NET LOSS (328,436) (366,725) (669,202)
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS (386,653) (366,725) (669,202)
BASIC LOSS PER SHARE (.13) (.12) (.23)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALADDIN OIL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AND SIX MONTHS ENDED JUNE 30, 1998 AND
DECEMBER 31, 1998 (UNAUDITED) Page 1 of 2
<TABLE>
<CAPTION>
Preferred Stock
Common Stock Series A
Number of Number of
Shares issued Shares issued
and and
Outstanding Amount Outstanding Amount
<S> <C> <C> <C> <C>
Balance, July 1, 1997 3,000,000 30,000 - -
Shares issued in connection with
preferred stock Series A
Conversion - - 1,677,000 16,770
Shares issued in connection with
fund raising activity 250,000 2,500 - -
Shares issued in connection with
property acquisition 419,219 4,192 - -
Shares issued in lieu of
compensation 49,101 491 - -
Net loss - - - -
Balance, June 30, 1998 3,718,320 37,183 1,677,000 16,770
Cost of capital - - - -
Dividends - - - -
Net loss - - - -
Balance, December 31, 1998
(Unaudited) 3,718,320 37,183 1,677,000 1,6770
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALADDIN OIL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AND SIX MONTHS ENDED
JUNE 30, 1998 AND DECEMBER 31, 1998
(UNAUDITED) Page 2 of 2
<TABLE>
<CAPTION>
Additional
Paid In Accumulated
Capital Deficit Total
<S> <C> <C> <C>
Balance, July 1, 1997 (30,000) - -
Shares issued in connection with
preferred stock Series A
Conversion 966,230 - 983,000
Shares issued in connection with
fund raising activity (2,500) - -
Shares issued in connection with
property acquisition 397,758 - 401,950
Shares issued in lieu of
compensation 48,610 - (669,202)
Net loss - - (669,202)
Balance, June 30, 1998 1,380,098 (669,202) 764,849
Cost of capital (111,000) - (111,000)
Dividends - (58,217) (58,217)
Net loss - (328,436) (328,436)
Balance, December 31, 1998
(Unaudited) 1,269,098 (1,055,855) 267,196
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
ALADDIN OIL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AND SIX MONTHS ENDED
JUNE 30, 1998 AND DECEMBER 31, 1998 AND 1997
(UNAUDITED), RESPECTIVELY
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended Year Ended
December 31, December 31, June 30,
1998 1997 1998
Unaudited Unaudited
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (328,436) (366,725) (669,202)
Adjustment to reconcile net loss to net
cash used by operating activities:
Officer's compensation paid in stock - - 49,101
Depreciation, depletion and
amortization 35,232 5,381 10,761
Change in:
Accounts receivable (15,936) - -
Accrued interest and dividends 6,347 - 12,578
Accounts payable 32,784 - -
Due to working interest 5,491 - -
Other accrued liabilities 4,199 79 -
Net Cash Provided (Used) by
Operating Activities (260,319) (361,265) (596,762)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in note receivable - (51,125) -
Expenditures for oil and gas properties - (220,691) (297,936)
Expenditures for furniture and fixtures - (7,769) (30,257)
Expenditures for computers and equipment - (33,939) (45,073)
Expenditures for start-up costs - (609) (609)
Net Cash Used by Investing Activities - (314,133) (373,875)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (58,217) - -
Issuance of convertible debentures 367,600 - 148,000
Proceeds from stock issuance - 1,117,677 1,257,750
Less cost of issuance (111,000) (43,625) (274,750)
Net Cash Provided by
Financing Activities 198,383 1,074,052 1,131,000
Net Increase (Decrease) in Cash
and Cash Equivalents (61,936) 398,654 160,363
Cash at Beginning of Year 160,363 - -
Cash at End of Year 98,427 398,654 160,363
SUPPLEMENTAL INFORMATION:
Cash paid for interest 14,522 53,019 128,672
NONCASH TRANSACTIONS:
Common stock issued for the acquisition
of oil producing property - - 401,950
Common stock issued in lieu of
officer's compensation - - 49,101
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALADDIN OIL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This summary of significant accounting policies of Aladdin Oil, Inc.
and Subsidiaries (the "Company") is presented to assist in
understanding the Company's consolidated financial statements. The
financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
Description of Business and Principles of Consolidation
Aladdin is an independent oil and gas company engaged in the
acquisition and exploration of oil and gas properties within the United
States. The consolidated financial statements include the accounts of
Aladdin Oil Corporation and its wholly-owned subsidiaries, Aladdin
International, Inc. and Aladdin Oil of Ohio, both Ohio corporations.
Both companies were formed to be holding companies for various oil
and gas interests. Presently, Aladdin Oil of Ohio is dormant, having
not yet commenced operations. Aladdin International is the holding
company for certain oil and gas interests in Ohio as discussed herein.
All significant intercompany items and transactions have been
eliminated in consolidation.
In January 1997, the Company acquired certain oil and gas interests in
the Los Angeles Basin, California, consisting of certain exploration
sub-surface easements from a related entity under the common control
of the Company's sole shareholder and President. The assets were
acquired in exchange for 3,000,000 shares of the Company's common
stock. The transaction was accounted for as an exchange between
entities under common control; accordingly, the assets were recorded
at the historical cost basis of the contributing entity, which was
determined to be 0. Subsequent capital expenditures incurred by the
Company after the acquisition have been capitalized, consistent with
the successful efforts method of accounting, and are currently reported
in oil and gas properties. As of December 31, 1998, the Company had
not commenced commercial operation of the California property.
<PAGE>
Appalachian Operations
Effective June 30, 1998, the Company, through its wholly-owned
subsidiary, Aladdin International, Inc. an Ohio Corporation, acquired
interests in 16 natural gas wells within Morgan and Muskingham
Counties, Ohio, (the "Appalachian Operations"). At this time, the
Company owns an average 83% working interest in these wells and is
the owner-operator of the fields. The properties were acquired from
Industrial International, Inc. (I.I.I.), an Ohio Corporation in exchange
for 419,219 shares of the Company's .01 par value common stock for
an inferred price of 401,950. I.I.I. previously operated the wells
commencing in February, 1997 until the time of sale. The acquisition
has been accounted for as a purchase and the results of operations of
the acquired properties are included in the Company's results of
operations effective July 1, 1998. The assets acquired were recorded
at their fair market value, as determined by an independent petroleum
engineer, using the discounted future net cash flows method of valuing
the acquired reserves, since no market value readily exists for the
Company's common stock.
The Company also executed a Management Agreement dated June 30,
1998 with Max Lammers, the sole shareholder and president of I.I.I. in
which the parties agreed that Mr. Lammers would conduct the day to
day operations of the Appalachian Operations. The monthly
consideration for his services are 2,500 plus 25% of the net cash
flows from operations over an established limit. Pursuant to this
agreement, the Company also agreed to sell 100% of the issued and
outstanding shares of Aladdin International to Mr. Lammers for 1 if
the Company fails to obtain a public quote for its common stock by
June 30, 1999. As discussed in Note 9, the Company has executed an
agreement to merge with a publicly traded reporting company in order
to comply with the provisions of the Management Agreement. The
merger will have an effective date of December 31, 1998, and is
subject to vote and approval by the shareholders of the target
company.
The following summarized unaudited proforma financial information
assumes the acquisition of the Appalachian Operations occurred on
July 1, 1997. The historical results of the Company's operations have
been adjusted to reflect (a) historical revenues and direct operating
expenses of the Appalachian Operations, and (b) increases in
depreciation, depletion, and amortization directly attributable to the
Appalachian Operations acquisition.<PAGE>
<TABLE>
<CAPTION>
Pro Forma Information
Year Ended
June 30, 1998
<S> <C>
Revenues 55,678
Net Loss (640,320)
Loss per Share (.22)
</TABLE>
The pro forma results do not necessarily represent results which would
have occurred if the transaction had taken place on the basis assumed
above, nor are they indicative of the results of future combined
operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Material estimates that are particularly susceptible to significant change
relate to the estimate of Company oil and gas reserves prepared by an
independent engineering consultant. Such estimates are subject to
numerous uncertainties inherent in the estimation of quantities of
proved reserves. Estimated reserves are used in the calculation of
depletion, depreciation and amortization as well as the Company's
assessment of proved oil and gas properties for impairment.
Revenue Recognition
The Company will recognize revenues from the sales of oil and gas in
the period of delivery.
<PAGE>
Oil and Gas Property and Equipment (Successful Efforts)
The Company accounts for its oil and gas exploration and development
costs using the successful efforts method. Under this method, costs to
acquire mineral interests in oil and gas properties, to drill and
complete development wells, and drill and complete exploratory wells
that find proved reserves are capitalized. Exploratory dry-hole costs
and other exploratory costs, including geological and geophysical
costs, are charged to expense when incurred. The costs of carrying
and retaining unproved properties are also expensed when incurred.
Depletion, depreciation and amortization of oil and gas producing
properties are computed on an aggregate basis using the units-of-
production method.
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and/or Long-
Lived Assets to be Disposed of." This statement requires that long-
lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. It establishes guidelines for determining recoverability
based on future net cash flows from the use of the asset and for the
measurement of the impairment loss. Impairment loss under SFAS No.
121 is calculated as the difference between the carrying amount of the
asset and its fair value. Any impairment loss is recorded in the current
period in which the recognition criteria are first applied and met.
Under the successful efforts method of accounting for oil and gas
operations, the Company periodically assessed its proved properties for
impairments by comparing the aggregate net book carrying amount of
all proved properties with their aggregate future net cash flows. The
statement requires that the impairment review be performed on the
lowest level of asset groupings for which there are identifiable cash
flows. In the case of the Company, this results in a field by field
impairment review.
Upon the sale of oil and gas reserves in place, costs less accumulated
amortization of such property are removed from the accounts and
resulting gain or loss on sale is reflected in operations. Upon
abandonment of properties, the reserves are deemed fully depleted and
any unamortized costs are recorded in the statement of operations
under loss on leases.
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit, and
highly liquid debt instruments with maturities of three months or less.
Equipment and Fixtures
Equipment and fixtures are stated at cost and depreciated over the
estimated useful lives of the assets, which range from three to seven
years, using the straight-line method. Repairs and maintenance are
charged to expense as incurred. When assets are sold or retired, the
cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in income.
Maintenance and repairs, which neither materially add to the value of
the property nor appreciably prolong its life, are charged to expense as
incurred. Gains or losses on dispositions of property and equipment,
other than oil and gas, are reflected in operations.
Capitalization of Interest
Interest cost is capitalized on construction and development programs
until placed into operation. During the year, the Company incurred
14,187 in capitalizable interest cost. No capitalizable interest was
incurred for the six months ending December 31, 1998.
Earnings Per Share (SFAS 128)
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share", which was adopted by the Company for
the year ended June 30, 1998. SFAS 128 replaces the presentation of
primary earnings per share with a presentation of basic earnings per
share based upon the weighted average number of common shares for
the period. It also requires dual presentation of basic and diluted
earnings per share for companies with complex structures. In January
1997, 3,000,000 shares of common stock were issued at a .01 par
value. During the year ended June 30, 1998, 718,320 shares of
common stock were issued at a .01 par value. No additional shares
have been issued for the six month period ended December 31, 1998.
Diluted earnings per share are not computed for any period as it
would be antidilutive.
<PAGE>
Basic loss per share is calculated as follows:
<TABLE>
<CAPTION>
For the Year Ended 1998
Loss Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Loss available to
common stockholders (669,202) 3,001,968 (.23)
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended December 31, 1998
(Unaudited)
Loss Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Loss available to
common stockholders (386,653) 3,001,968 (.13)
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended December 31, 1997
(Unaudited)
Loss Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Loss available to
common stockholders (366,725) 3,000,000 (.12)
</TABLE>
There was no dividend due to preferred shareholders at June 30, 1998,
as their conversion from debentures occurred at June 30, 1998, or
shortly before with a June 30,1998 effective date.
Economic Dependency, Major Customers, and Concentrations of
Credit Risk
The following major customers represent 10% or more of total
operating revenues for the six months ended December 31, 1998:
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Customer A 50%
Customer B 40%
Customer C 10%
</TABLE>
Income Taxes
The provision for income taxes is based on pretax financial accounting
income. Deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the tax
basis of assets and liabilities and their reported net amounts.
Fair Values of Financial Instruments
Disclosure of the estimated fair value of financial instruments is
required under SFAS No. 107, "Disclosure About Fair Value of
Financial Instruments." The fair value estimates are made at discrete
points in time based on relevant market information and information
about the financial instruments. These estimates may be subjective in
nature and involve uncertainties and significant judgment and therefore
cannot be determined with precision.
The Company includes fair value in the notes to financial statements
when the fair value of its financial instruments is different from the
book value. The Company assumes that the book value of financial
instruments that are classified as current approximate fair value
because of the short maturity of these instruments. For noncurrent
financial instruments, the Company uses quoted market prices or, to
the extent that there are no available quoted market prices, market
prices for similar instruments.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 (SFAS 130), Reporting Comprehensive Income.
This statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 was adopted by
the Company for the year ended June 30, 1998. Upon adoption, the
SFAS 130 did not have a material affect upon the Company's financial
condition or results of operations.
In June 1997, the FASB issued Statements of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an
Enterprise and Related Information. The statement requires the
Company to report income/loss, revenue, expense and assets by
business segment including information regarding the revenues derived
from specific products and services and about the countries in which
the Company is operating. The Statement also requires that the
Company report descriptive information about the way that operating
segments were determined, the products and services provided by the
operating segments, differences between the measurements used in
reporting segment information and those used in the Company's
general-purpose financial statements, and changes in the measurement
of segment amounts from period to period. SFAS 131 was adopted by
the Company for the year ended June 30, 1998, and had no material
effect upon the financial condition or results of operations.
Interim Period Financial Statements
The financial statements included herein as of December 31, 1998, and
for the six months ended December 31, 1998 are unaudited, and, in the
opinion of management, the information furnished reflects all material
adjustments, consisting of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods presented.
NOTE 2 - OIL AND GAS PROPERTIES, EQUIPMENT AND
FIXTURES
Oil and gas properties, equipment and fixtures consist of the following
at June 30, 1998:
<TABLE>
<CAPTION>
Oil and Gas
December 31,
1998 June 30
(Unaudited) 1998
<S> <C> <C>
Proved properties:
Producing properties, including
intangible drilling costs 220,350 220,350
Lease and well equipment 181,600 181,600
401,950 401,950
Accumulated depletion, depreciation
and amortization (29,851) -
372,099 401,950
Prospects 297,936 297,936
670,035 699,886
Commercial and Other
Furniture and equipment 75,330 75,330
Accumulated depreciation (16,142) (10,761)
59,188 64,569
729,223 764,455
</TABLE>
The following sets forth costs incurred for oil and gas property acquisition and
development activities, whether capitalized or expended:
<TABLE>
<CAPTION>
December 31,
1998 June 30
(Unaudited) 1998
<S> <C> <C>
Acquisition - 401,950
Development - 297,936
</TABLE>
Results of Operations from Oil and Gas Producing and Exploration
Activities
The results of operations from oil and gas producing and exploration
activities (excluding corporate overhead and interest costs) are as
follows:
<TABLE>
<CAPTION>
Six Months Six Months For the
Ended Ended Year Ended
December December June 30,
31, 1998 31, 1997 1998
(Unaudited)
<S> <C> <C> <C>
Revenues from oil and gas
producing activities 19,909 - -
Production (lifting) costs and expenses:
Operating costs 10,722 - -
Provision for depletion,
depreciation and amortization 29,851 - -
Total expenses 40,573 - -
Results of operations from
oil and gas producing activities (20,664) - -
</TABLE>
NOTE 3 - CONVERTIBLE DEBT
<TABLE>
<CAPTION>
December 31,
1998 June 30
(Unaudited) 1998
<S> <C> <C>
Convertible debentures at 12% per annum
interest to Preferred Series A stock
bearing a 12 % per annum dividend.
These debentures are expected to be
converted to common stock and
therefore have been classified as
non-current notes. 515,600 148,000
Maturities of long-term debt for years
subsequent to June 30, 1998 are
as follows:
1999: - 148,000
2000: 367,600 -
</TABLE>
<PAGE>
NOTE 4 - INCOME TAXES
There are no provisions for income taxes for the year ended June 30,
1998 as the Company experienced a loss. Management has established
a complete allowance for the deferred tax asset arising from possible
future utilization of the operating loss.
As of June 30, 1998, the Company had an approximate federal net
operating loss carryforwards as indicated:
Year Originated: 1998
Year of Expiration: 2016
Net Operating Loss: 600,000
The components of the net deferred tax assets were as follows:
1998:
Deferred Tax Assets:
Net operating loss carry forwards 210,000
Valuation Allowance 210,000
Net Deferred Tax Assets -
A full valuation allowance has been established for the deferred tax
assets generated by net operating loss carry forwards due to the
uncertainty of future utilization.
NOTE 5 - SERIES A PREFERRED STOCK
In June 1998, the Company's Board of Directors authorized the
conversion of 1,257,750 in convertible debentures at a 12% per
annum interest rate to 1,677,000 shares of Preferred Series A Stock,
bearing a 12% per annum dividend with a "sunset" of June 30, 1999.
Under this provision, preferred shareholders will not be entitled to
dividends after June 30, 1999.
<PAGE>
NOTE 6- STOCK WARRANTS
Changes in the Company's common stock warrants were as follows:
<TABLE>
<CAPTION>
Year Ended
June 30, 1998
<S> <C>
Outstanding warrants at
beginning of period 2,776,000
Additional warrants issued 2,776,000
- - - Exercise of stock warrants -
- - - Warrants expired or ineligible -
Outstanding warrants at
end of period 2,776,000
</TABLE>
The Board of Directors, on June 30, 1998 issued one Class A 1.50
warrant for every two Series A Preferred Stock owned for the
purchase of the Company's common stock. The total number of Class
A 1.50 warrants issued amounted to 1,088,000. In addition, the
Company also issued one Class B 1.00 warrant for every Class A
warrant owned. The total number of Class B 1.00 warrants issued
equaled 1,088,000 plus additional 600,000 granted as part of a
contractual agreement, for a total amount of 1,688,000. The warrants
expire at the close of business on December 31, 1999.
NOTE 7 - OPERATING LEASES
In October 1997 the Company entered into a twenty four month
noncancellable operating lease, which expires in September 1999. The
lease calls for monthly payments of 4,250. Future minimum lease
obligations as of June 30, 1998 are as follows:
Year Ended June 30, 1999 - 51,000
Year Ended June 30, 2000 - 12,750
Total - 63,750
Rental expense was 42,520 for the year ended June 30, 1998, and
17,000 and 24,590 for the six months ended December 31, 1998 and
1997, respectively.
NOTE 8 - ENVIRONMENTAL MATTERS
The Company has established procedures for the on-going evaluation
of its operations to identify potential environmental exposures and
assure compliance with regulatory policies and procedures.
Management monitors these laws and regulations and periodically
assesses the propriety of its operational and accounting policies related
to environmental issues. The nature of the Company's business
requires routine day-to-day compliance with environmental laws and
regulations. The Company incurred no environmental investigation,
compliance and remediation costs in 1998.
The Company is unable to predict whether its future operations will be
materially affected by these laws and regulations. Management
believes that legislation and regulations relating to environmental
protection will not materially affect the results of operations of the
Company.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 1, the Company's purchase of the Appalachian
Operations is contingent upon its obtaining public trading status for its
common stock. Pursuant to a Management Agreement executed
between the Company and the sole shareholder and president of I.I.I.
on June 30, 1998, the Company agreed to sell 100% of the issued and
outstanding stock of its wholly-owned subsidiary, Aladdin
International, Inc. to Mr. Lammers for 1 in the event the Company
does not acquire public trading status by June 30, 1999. Aladdin
International is the holding company for the Appalachian Operations.
In September, 1998 the Company entered a formal agreement with a
reporting shell corporation traded on the OTC Bulletin Board in order
to comply with the provisions of this agreement. Final approval of the
merger plan is contingent upon approval by the target company
shareholders and the SEC's approval of the Information Statement to
be provided to the shareholders of the target company. The merger
will be recorded as a reverse acquisition with the Company as
survivor.
Effective January 5, 1998, the Company entered into a five year
agreement with the Company's sole shareholder and officer, Meghan
Robins. Pursuant to this agreement, Mrs. Robins is to receive base
annual compensation of 120,000 plus annual increases of 10%.
Through December 31, 1998, Mrs. Robins had elected to waive any
shortfalls in her contractual compensation. Accordingly, no liability has
been established as of December 31, 1998, for unpaid compensation
under this contract.
NOTE 10 - SUBSEQUENT EVENTS
The Company has undertaken efforts to raise additional capital of up
to 1,000,000 through a private placement of convertible debentures.
The debentures bear interest at 12% per annum and are convertible
within one year of issuance to common stock on a 1 for 1.33 basis for
every one dollar of money loaned. As of December 31, 1998, the
Company had raised an additional 367,600 in capital from the
proceeds of debentures. Capital raising efforts have been suspended
during merger negotiations. See Notes 1 and 9.
ALADDIN OIL CORPORATION
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED)
The following estimates of proved oil and gas reserves, both developed
and undeveloped, represent interests owned by the Company located
solely in the United States. Proved reserves represent estimated
quantities of crude oil and natural gas which geological and
engineering data demonstrate to be reasonably certain to be
recoverable in the future from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through
existing wells, with existing equipment and operating methods. Proved
undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells
for which relatively major expenditures are required for completion.
Disclosures of oil and gas reserves which follow are based on
estimates prepared by independent engineering consultants for the year
ended June 30, 1998, and by management for the six month period
ending December 31, 1998. Such estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves
and in the projection of future rates of production and the timing of
development expenditures. These estimates do not include probable or
possible reserves.
These estimates are furnished and calculated in accordance with
requirements of the Financial Accounting Standards Board and the
Securities and Exchange Commission (SEC). Because of unpredictable
variances in expenses and capital forecasts, crude oil and natural gas
price changes, largely influenced and controlled by U.S. and foreign
government actions, and the fact that the bases for such estimates vary
significantly, management believes the usefulness of these projections
is limited. Estimates of future net cash flows presented do not
represent management's assessment of future profitability or future
cash flows to the Company. Management's investment and operating
decisions are based upon reserve estimates that include proved reserves
prescribed by the SEC as well as probable reserves, and upon different
price and cost assumptions from those used here.
It should be recognized that applying current costs and prices and a 10
percent standard discount rate does not convey absolute value. The
discounted amounts arrived at are only one measure of the value of
proved reserves.
Changes in Estimated Reserve Quantities
The net interest in estimated quantities of proved developed reserves of
crude oil and natural gas at June 30, 1998 and changes in such
quantities during the year then ended, were as follows:
<TABLE>
<CAPTION>
1998
Oil Gas
(BBL) (MCF)
<S> <C> <C>
Proved developed and undeveloped reserves:
Beginning of period - -
Revisions of previous estimates - -
Production - -
Extensions, discoveries and
improved recovery - -
Purchase of minerals in place 5,506 280,871
Sale of minerals in place - -
Proved reserves, June 30, 1998 5,506 280,871
Gas equivalent reserve 33,036
Production 941 19,290
Proved reserves, December 31, 1998 4,565 261,581
Gas equivalent reserve 27,390
Proved developed reserves:
Beginning of period - -
End of period, June 30, 1998 5,506 280,871
Production 941 19,290
Proved reserves,
December 31, 1998 4,565 261,581
</TABLE>
Standardized measure of discounted future net cash flows relating to
proved oil and gas reserves:
The standardized measure of discounted future net cash flows is
presented below for the year ended June 30, 1998.
The future net cash inflows are developed as follows:
(1) Estimates are made of quantities of proved reserves and the
future periods during which they are expected to be produced based on
year-end economic conditions.
(2) The estimated future production of proved reserves is priced on
the basis of year-end prices.
(3) The resulting future gross revenue streams are reduced by
estimated future costs to develop and to produce proved reserves,
based on year end estimates.
(4) The resulting future net revenue streams are reduced to present
value amounts by applying a ten percent discount.
Disclosure of principal components of the standardized measure of
discounted future net cash flows provides information concerning the
factors involved in making the calculation. In addition, the disclosure
of both undiscounted and discounted net cash flows provides a
measure of comparing proved oil and gas reserves both with and
without an estimate of production timing. The standardized measure
of discounted future net cash flow relating to proved reserves reflects
estimated income taxes.
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
(Unaudited)
<S> <C> <C>
Future cash inflows 1,062,424 1,076,259
Future production costs (284,298) (288,000)
Future development costs (132,805) (134,534)
Future severance tax expenses (65,074) (65,922)
Future net cash flows 580,247 587,803
10% annual discount for estimated
timing of cash flows (183,464) (185,853)
Standardized measure of discounted
future net cash flow 396,783 401,950
</TABLE>
Changes in standardized measure of discounted future net cash flow
from proved reserve quantities
This statement discloses the sources of changes in the standardized
measure from year to year. The amount reported as "Net changes in
prices and production costs" represents the present value of changes in
prices and production costs multiplied by estimates of proved reserves
as of the beginning of the year. The "accretion of discount" was
computed by multiplying the ten percent discount factor by the
standardized measure on a pretax basis as of the beginning of the year.
The "Sales of oil and gas produced, net of production costs" are
expressed in actual dollar amounts. "Revisions of previous quantity
estimates" is expressed at year-end prices. The "Net change in income
taxes" is computed as the change in present value of future income
taxes.
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
(Unaudited)
<S> <C> <C>
Standardized measure -
beginning of year 401,950 -
Sales of oil and gas produced, net of
production costs (9,187) -
Purchase of minerals in place - 401,950
Revisions of estimates of reserves
provided in prior years:
Net changes in prices and production
costs - -
Sales of minerals in place - -
Extensions, discoveries and
improved recovery - -
Accretion of discount 4,020 -
Net change in income taxes - -
Net increase (decrease) (5,167) 401,950
Standardized measure -
end of year 396,783 401,950
</TABLE>
<PAGE>
ALADDIN OIL CORPORATION
REVIEWED PRO FORMA FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
The following unaudited consolidated pro forma combined balance
sheet as of December 31, 1998, and the unaudited consolidated pro
forma statements of income and cash flows for the year ending
December 31, 1998, give effect to the merger based on the historical
financial statements of Buffalo and Old Aladdin and Subsidiaries under
the assumptions and adjustments set forth in the accompanying notes
to the consolidated pro forma financial statements.
<PAGE>
INDEX TO CONSOLIDATED PRO FORMA FINANCIAL
STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Balance Sheet as of December 31, 1998 93
Statements of Income for the Year Ended 96
December 31, 1998
Notes to Pro Forma Financial Statements 97
</TABLE>
<PAGE>
ALADDIN OIL CORPORATION
CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Aladdin Oil
Historical
Information Aladdin Oil
as of Pro Forma
December Pro Forma December
31, 1998 Adjustments 31, 1998
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 98,427 1,159<F1> 99,586
Accounts receivable 15,936 - 15,936
Total Current Assets 114,363 1,159 115,522
PROPERTY AND EQUIPMENT
Oil and natural gas
properties, net 670,035 - 670,035
Equipment, net 59,188 - 59,188
Total Property and Equipment 729,223 - 729,223
OTHER ASSETS
Start-up Costs 609 500<F1> 1,109
TOTAL ASSETS 844,195 1,659 845,854
<FN>
<F1> Adjustment to record the reverse acquisition of Buffalo's net assets as of
December 31, 1998.
</FN>
</TABLE>
<PAGE>
ALADDIN OIL CORPORATION
CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Aladdin Oil
Historical
Information Aladdin Oil
as of Pro Forma
December 31, Pro Forma December 31,
1998 Adjustments 1998
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 32,784 129<F1> 32,913
Due to working interests 5,491 - 5,491
Accrued dividends and interest 18,925 - 18,925
Other accrued liabilities 4,199 - 4,199
Total Current Liabilities 61,399 129 61,528
Convertible Debentures 515,600 - 515,600
Commitments and
Contingencies - - -
Total Liabilities 576,999 129 577,128
STOCKHOLDERS' EQUITY
Convertible preferred stock,
Series A, $.01 par value,
4,000,000 shares
authorized; 1,677,000
shares issued and
outstanding 16,770 - 16,770
Common stock, $.01 par value,
20,000,000 shares authorized;
3,718,320 shares issued and
outstanding 37,183 12,150<F1> 41,244
(8,089)<F2>
Additional paid-in capital 1,269,098 37,740<F1> 1,314,927
8,089<F2>
Accumulated earnings (deficit) (1,055,855) (48,360)<F1> (1,014,215)
Total Stockholders' Equity 267,196 1,530 268,726
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 844,195 1,659 845,854
<FN>
<F1> Adjustment to record the reverse acquisition of Buffalo's net
assets as of December 31, 1998.
<F2> Adjustment to reflect 1:2 stock split of Buffalo shares,
voluntary cancellation of 1,903,901 shares of outstanding Buffalo
shares, and recapitalization of existing shares at a stated par value of
$.01. The adjustment to reflect the cancellation of the 3,718,320 of
Old Aladdin shares, $.01 par, and issuance of 3,718,320 Buffalo
("New Aladdin") shares on a 1 for 1 basis, par value $.01 has not been
explicitly presented as the net effect is no change to equity.
</FN>
/TABLE
<PAGE>
ALADDIN OIL CORPORATION
CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Aladdin Oil
Historical
Information Aladdin Oil
as of Pro Forma
December 31, Pro Forma December 31,
1998 Adjustments 1998
<S> <C> <C> <C>
REVENUES
Oil and gas 19,909 - 19,909
COSTS AND EXPENSES
Lease operating expense 10,722 - 10,722
Officer's compensation 117,851 - 117,851
General and administrative 219,287 17,316<F1> 236,603
Legal and professional 165,158 20,514<F1> 185,672
Marketing 14,482 246<F1> 14,728
Depreciation, depletion,
and amortization 40,612 100<F1> 40,712
Interest 82,710 - 82,710
Total Costs and Expenses 650,822 38,176 688,998
NET INCOME (LOSS) (630,913) (38,176) (669,089)
Net Loss Available to
Common Shareholders (689,130) (38,176) (727,306)
Basic EPS
Loss per Share of Common Stock (.21) (.20)
Weighted Average Shares
Outstanding 3,359,160 3,718,320
<FN>
<F1> Adjustment to record the reverse acquisition of Buffalo's net assets as of
December 31, 1998.
</FN>
</TABLE>
<PAGE>
ALADDIN OIL CORPORATION
NOTES TO CONSOLIDATED PRO FORMA FINANCIAL
STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The following unaudited consolidated pro forma combined balance
sheet as of December 31, 1998, and the unaudited consolidated pro
forma statements of income and cash flows for the year ending
December 31, 1998, give effect to the merger based on the historical
financial statements of Buffalo and Old Aladdin and Subsidiaries under
the assumptions and adjustments set forth in the accompanying notes
to the consolidated pro forma financial statements.
The shareholders of Buffalo Capital V, Ltd. ("Buffalo") intend to vote
on the acquisition of Aladdin Oil Corporation ("Old Aladdin") by
merger pursuant to the Agreement and Plan of Merger and
Reorganization dated November 23, 1998 ("the Merger"). Buffalo, a
Colorado Corporation, intends to merge with and into Old Aladdin, a
Nevada Corporation, and the name of Buffalo Capital V, Ltd. is to be
changed to Aladdin Oil Corporation ("New Aladdin"). In accordance
with the Agreement and Plan of Merger and Reorganization, Buffalo
will undergo a 1:2 reverse stock split to reduce the number of
outstanding shares to 2,310,000. Additionally, Buffalo, including its
officers, directors and affiliates, agreed to voluntarily surrender for
cancellation a total of 1,903,901 of their remaining shares of common
stock upon the approval of the Merger. After both processes are
complete, Buffalo will have a total of 406,099 shares outstanding.
Buffalo will then issue 3,718,320 shares of previously unissued
common stock to the shareholders of Old Aladdin, as well as other
securities: 1,677,000 of a new Series A Convertible Stock, 1,088,500
new class A Warrants, 1,688,500 new Class B Warrants, 417.6 Units,
each of which consists of a 12% Convertible Debenture in the face
amount of $1,000, 625 Class A Warrants and 625 Class B Warrants.
Buffalo issued the aforementioned securities on a one-for-one basis to
existing holders of like securities of Old Aladdin. For additional
information regarding the Merger, see the Agreement and Plan of
Merger and Reorganization included.
The unaudited pro forma combined balance sheets and statements of
income assume the Merger was consummated on December 31, 1998.
The merger of Aladdin and Buffalo will be treated as a purchase by
Aladdin of the net assets of Buffalo in exchange for stock. Consistent
with accounting standards for reverse acquisitions, Aladdin is deemed
the accounting Acquiror, and the merger is reported as a capital
transaction rather than a business combination.
These unaudited financial statements should be read in conjunction
with the notes thereto and with the historical consolidated financial
statements and related notes thereto of Buffalo and Old Aladdin. The
unaudited pro forma combined financial statements have been prepared
based upon assumptions deemed appropriate by the management of
Buffalo and Old Aladdin, and are for informational purposes only and
are not necessarily indicative of the actual or future results of
operations or financial condition that would have been achieved had
the Merger occurred at the date assumed.
NOTE 2 - PRO FORMA ADJUSTMENTS
The pro forma adjustments reflect the adjustments necessary to report
the merging of Buffalo and Old Capital as if the merger had been
consummated on December 31, 1998.
(a) Adjustment to record the reverse acquisition of Buffalo's net
assets as of December 31, 1998.
(b) Adjustment to reflect 1:2 stock split of Buffalo shares,
voluntary cancellation of 1,903,901 shares of outstanding Buffalo
shares, and recapitalization of existing shares at a stated par value of
$.01. The adjustment to reflect the cancellation of the 3,718,320 of
Old Aladdin shares, $.01 par, and issuance of 3,718,320 Buffalo
("New Aladdin") shares on a 1 for 1 basis, par value $.01 has not been
explicitly presented as the net effect is no change to equity.
ALADDIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion is intended to assist in the
understanding of Old Aladdin's historical financial position and results
of operations. Old Aladdin is an independent oil and gas company
engaged in the development, production and acquisition of, and the
exploration for, natural gas and oil. Old Aladdin owns working
interest in 16 wells in Ohio, and sub surface pass through easements in
several proven producing fields in the Los Angeles basin. Old
Aladdin was formed in January 1997, but did not conduct any business
operations until July 1, 1997, when it acquired the oil and gas assets of
the Murray Metzenbaum Trust. Since inception, Old Aladdin has been
incurring operating losses, due in part to its stage of development, and
the on-going process of implementing its business strategy. Old
Aladdin intends to grow through the acquisition of producing
properties, wherein it can utilize its financial resources for further
exploration to increase production volumes and cash flow. Old
Aladdin has completed one acquisition in Ohio, through the purchase
of the oil and gas assets of Industrial International, Inc., effective June
30, 1998.
The Selected Historical Financial Data for the period presented
represent the revenues and direct operating expenses of the operations
of Old Aladdin. For purposes of this discussion, Old Aladdin
commenced operations in July of 1997, thereby the financial
information presented represents its only year of operations.
The future results of New Aladdin will depend on its ability to
locate and develop additional natural gas and oil properties. Due to
the nature of its business activities and the general risks relating to
exploration for and production of natural gas and oil, including
volatility of prices for natural gas and oil products, there can be no
assurances that these efforts will be successful.
Historically, the markets for natural gas and oil have been
volatile and are likely to continue to be volatile in the future.
Although the price of natural gas has recently declined, such decline
has not had material adverse effects on Old Aladdin. However, lower
oil and natural gas prices in the future may reduce the amount of New
Aladdin's natural gas and oil reserves that are economical to produce
and accordingly negatively impact New Aladdin's cash flow.
On June 30, 1998, Old Aladdin entered into the Agreement
with Buffalo Capital V, Ltd. Under the terms of the Agreement, Old
Aladdin will merge into Buffalo in exchange for 3,718,320 shares of
Common Stock, and Buffalo will change its name to Aladdin Oil
Corporation ("New Aladdin").
<PAGE>
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30,
1998
Revenues.
All of Old Aladdin's activities for the year ended June 30,
1998 were based upon the establishment of the company, the
acquisition of the oil and gas assets from the Metzenbaum Trust, and
the formulation and execution of its business strategy. As a result, Old
Aladdin recognized no revenues for the year ended June 1998.
General and administrative.
For the year ended June 30, 1998, Old Aladdin incurred
general and administrative expenses of $250,176. These expenses are
the result of commencing operations, including the establishment of
corporate offices, the retention of certain personnel, and the
preparation of certain geological studies and reports. Old Aladdin also
incurred legal and accounting expenses of $136,436 as a result of the
formation of the Company, the acquisition of certain oil and gas assets,
and the raising of initial seed capital. Management believes that these
expenses will be reduced in 1999, based in part on lower legal and
accounting activities. Finally, Old Aladdin incurred Officer's
compensation expense of $136,601 representing the employment
agreement executed with Ms. Meghan Robins, President and CEO of
the company.
Depreciation, depletion, and amortization.
Depreciation, depletion and amortization expenses equaled
$10,761 for the year ended June 30, 1998. The bulk of these expenses
were related to equipment purchased by the company during the year.
Management anticipates that depreciation, depletion and amortization
expense will increase in fiscal 1999 as a result of the recent acquisition
of certain producing properties.
Interest Expense.
Interest expense of $114,484 was the result of the interest
payable on the debentures sold by Old Aladdin to raise its initial seed
capital. These debentures have since been converted into Series A
Preferred stock, paying an annual dividend, which ceases on June 30,
1999. It is anticipated by management that interest and dividend
expenses will increase for fiscal 1999 as a result of certain financing
activities to be undertaken by the company.
Taxes.
Old Aladdin paid no taxes in 1998, and anticipates that little or
no taxes will be paid in 1999, with the exception of production taxes
and the like associated with its oil and gas operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was ($596,762) for the
year ended June 30, 1998. These losses resulted from expenses related
to the formation of Old Aladdin and the initial expenses related to the
establishment of corporate offices, the retention of personnel and the
preparation of certain geological studies and reports.
During the year ended June 30, 1998, Old Aladdin received net
proceeds of $983,000 from the issuance of securities. These proceeds
were utilized by the company to cover its net operating losses and to
position the company to commence the acquisition of certain
producing properties. As of June 30, 1998, Old Aladdin had working
capital of $147,785.
The company has held discussions with certain group(s) of
investors to raise no less than $1,000,000 in fiscal 1999. The terms
and conditions of such investment, if made, are yet to be determined
by management.
It is anticipated by management that as a result of this capital
being raised, interest expenses will be approximately $120,000 in fiscal
1999. Management further believes that as a result of this capital
commitment, the recent acquisition of certain producing properties, and
the reduction in certain expenses related to the establishment of the
company and its operations, these funds will provide sufficient
working capital and liquidity through fiscal 1999.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998
Revenues
For the six months ended December 31, 1998, Old Aladdin
recognized revenues from the sale of oil and natural gas of $19,909.
The revenue is the result of the acquisition of certain producing
properties in Ohio. For the period ended December 31, 1997, Old
Aladdin had no revenues.
Lease Operating Expense
Lease operating expenses for the period ended December 31,
1998 were $10,722 compared to no such expense in the period in
1997. Lease operating expenses directly correlate to the production of
oil and natural gas, and the recognition of these expenses result from
the revenues generated in the period.
General and administrative
For the period ended December 31, 1998, general and
administrative expenses decreased $36,613 or 21%. Old Aladdin has
been able to recognize certain savings on general and administrative
expenses, which resulted in the decrease in expenditures. In addition,
in the period ended December 31, 1997, Old Aladdin had incurred
certain one time expenses related to geological work and studies which
it did not incur for the period in 1998. Officers compensation for the
period was $25,000 compared to $43,750 for the same period in 1997,
as a result from additional cost savings recognized by the company.
However, legal and accounting expenses for the period ended
December 31, 1998, were $115,505 compared to $86,783 or an
increase of $28,722. These expenses increased as a result of certain
expenditures related to the proposed merger of Old Aladdin with
Buffalo Capital V, Ltd. and the resulting requirements to comply with
public reporting requirements.
Depreciation, depletion and amortization
Depreciation, depletion and amortization expenses equaled $35,232 for
the period ended December 31, 1998. These figures represent a 554%
increase over the same period ended December 31, 1997. The basis
for the increase in these expenses is related to the production of oil
and natural gas, resulting from the acquisition of 16 producing wells in
Ohio effective June 30, 1998. Management anticipates that
depreciation depletion and amortization expense should increase in
fiscal 1999 as a result of the anticipated acquisitions of producing
properties.
<PAGE>
Interest expense
Interest expense of $21,244 was the result of the interest
payable on the debentures sold by Old Aladdin to raise additional
capital. For the period ended December 31, 1997, interest expense
equaled $53,019 representing a higher amount of debt being serviced
by the Company.
Taxes
Old Aladdin paid no taxes in 1998, and anticipates that little or
no taxes will be paid in 1999, with the exception of production taxes
and the like with its oil and gas operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was ($260,319) for
the period ended December 31, 1998. These losses resulted from
expenses related to the formation of Old Aladdin, and the initial
expenses related to the establishment of corporate offices, the retention
of personnel and preparation of certain geological studies and reports.
As of December 31, 1998, Old Aladdin had working capital of
$52,964.
Management continues to hold discussions with various investor
group(s) about continuing investment into the company. In addition,
Old Aladdin continues to seek property acquisitions which could result
in higher rates of oil and/or natural gas production, which could off-set
some of the operating expenses being incurred. Management believes
that it has sufficient financial resources to meet its current financial
obligations.
Other Matters
Old Aladdin has certain obligations based on federal, state and
local laws relating to the protection of the environment. Costs of
compliance through December 31, 1998, have not been material and
currently Aladdin does not anticipate that such costs will become
material in the near term.
Inflation has not had a significant effect on Old Aladdin's
financial condition or earnings since inception.
<PAGE>
MARKET PRICE OF BUFFALO CAPITAL STOCK
Buffalo Common Stock is currently approved for trading over
the counter on the NASD Bulletin Board under the symbol "BUFH".
After completion of the proposed Merger, it is expected that the
Common Stock of New Aladdin will continue to trade over the
counter, but it is likely that the trading symbol will be changed to be
consistent with the new name, Aladdin Oil Corporation. Although
Buffalo's Common Stock is approved for trading, no reported
transactions have occurred, and as a result, there are no bid or ask
prices to report. It is not anticipated that there will be a public market
for either the Series A Preferred Stock or the Class A or Class B
Warrants of New Aladdin.
There are currently approximately 60 holders of record of
Buffalo Common Stock.
Buffalo did not declare or pay any cash dividends on its
Common Stock during the periods indicated.
MANAGEMENT OF NEW ALADDIN AFTER THE EFFECTIVE
DATE
Upon closing under the terms of the Agreement, the Board of
Directors of New Aladdin will consist of four persons, all four of
whom currently serve as directors of Old Aladdin. The terms of office
of the directors expire at the annual meeting of stockholders on an
annual basis. The officers are elected by, and serve until their
successors are elected by, the Board of Directors.
Set forth below is certain information with respect to those
individuals who will serve as members of the Board of Directors and
executive officers of New Aladdin after consummation of the proposed
Merger:
<TABLE>
<CAPTION>
Name Age Position with the Company
<S> <C> <C>
Meghan R. Robins 50 Chairman of the Board, President
Chief Executive Officer
Max P. Lammers 69 Vice President, Director
Haskell Robins 73 Director
Amy R. Montano 30 Director
</TABLE>
Meghan Robins is President and Founder of Old Aladdin, a
Nevada Corporation, which was incorporated January 17, 1997. Prior
to this, Ms. Robins was employed (since June 1965) by Aladdin Oil, a
California corporation established in February, 1953 (the predecessor
to Aladdin Oil Corporation of Nevada). Ms. Robins' responsibilities
included title research, landowner liaisons, coordination of recordation
data and permit requirements and filings. Ms. Robins is a graduate of
the University of Southern California and is the wife of Haskell
Robins.
Mr. Max P. Lammers has served as a director of Old Aladdin
since June of 1998 when Old Aladdin acquired substantially all of the
oil and gas assets of Industrial International, Inc. Prior to this, Mr.
Lammers was President and Chairman of Industrial International, Inc,
from 1976 to June, 1998. Mr. Lammers continues to serve as
President of Maxwell Capital Corporation a financial advisory and
consulting firm which commenced operations in April of 1996. Prior
to this, Mr. Lammers served as an account executive in the brokerage
industry with Maxus Securities from January, 1996, to April, 1996,
and with Robert Thomas Securities from April, 1995, to December,
1995. Mr. Lammers served as Vice President for the brokerage firm
of A.T. Brod & Company from October 1, 1993, until March, 1995.
Haskell Robins is President of H. Robins, Inc., a packaging
distribution company he established in 1987 in Nevada. The company
is a distributor of corrugated shipping containers and packaging
supplies. It serves major national manufacturers and distribution
centers across the commercial spectrum. Prior to establishing H.
Robins, Inc., Mr. Robins was employed by Container Corporation of
America from 1955 to 1987. Mr. Robins is a retired naval pilot. He
joined the board of directors of Old Aladdin in July, 1998 and is the
husband of Meghan Robins.
Ms. Amy R. Montano has served as director of Old Aladdin
since June of 1998. Since August, 1996, Ms. Montano has also served
as the President of Investors Information Services, an investor relations
firm headquartered in Irvine, California, which primarily services
smaller oil and gas companies. Since July, 1996, Ms. Montano has
also served as an Officer and Director of C. K. Cooper & Company an
investment banking firm headquartered in Irvine, California, which
focuses on smaller oil and gas companies. From April, 1995, to June,
1996, Ms. Montano served as Syndicate Manager for Brookstreet
Securities Corporation of Irvine, California. From August, 1992 to
December, 1994, Ms. Montano served as Vice President - Syndicate &
Branch Operations for Montano Securities Corporation.
Ms. Montano filed a personal bankruptcy petition in Orange
County, California, in December, 1997, as a result of an award entered
against her and several other parties in an NASD Arbitration
Proceeding. After Montano Securities Corporation was sold, the
Arbitration Proceeding was brought by certain shareholders of
Montano Securities Corporation against Ms. Montano and 15 other
defendants, and involved allegations of false advertising,
mismanagement, misrepresentation and conversion of corporate funds.
Although Ms. Montano was not an executive officer of Montano
Securities Corporation and had no operating discretion at the firm, she
was found to be jointly and severally liable for the arbitration award.
Any personal liability which Ms. Montano may have had in this matter
was discharged as a result of her bankruptcy filing, and she has no
further liability as a result of this occurrence.
Committees of the Board of Directors
Upon consummation of the proposed Merger, New Aladdin will
have no standing committees of the Board of Directors. However,
following completion of the proposed Merger, it is anticipated that the
Board will establish both a compensation committee and an audit
committee. As of the date of this Information Statement, no
committee members have been designated.
Compensation of Directors
General.
For serving on New Aladdin's Board of Directors, each of the
directors who are not also officers of the company, or its subsidiaries,
will be paid $250 for each Board of Directors meeting attended. In
addition, they will be entitled to reimbursement for their reasonable
out-of-pocket expenses in connection with travel to and from meetings
of the Board of Directors or committees thereof and to periodic grants
of options to purchase Common Stock.
<PAGE>
Executive Compensation
As described above in "Business and Properties of Aladdin",
Old Aladdin has three full time employees and several part-time staff
people.
Also from time to time Old Aladdin has engaged, and it is
anticipated that New Aladdin will engage, independent consultants to
provide evaluation work regarding geologic, engineering and
environmental issues.
Set forth below is certain information with respect to the
compensation paid to Ms. Meghan Robins by Old Aladdin. Ms.
Robins is the Chairman of the Board of the Company and President
and CEO. She will continue to serve in such positions after the
consummation of the Merger.
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
LONG TERM COMPENSATION
Name and Awards Payouts All Other
Principal Position LTIP Compensation
<S> <C> <C> <C>
Meghan Robins - - -
Chief Executive Officer
Bonus
</TABLE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
Name and Year Salary Bonus SARs
Principal
Position ($) ($) (#)
<S> <C> <C> <C> <C>
Meghan Robins 1997 0 0 -
Chief Executive Officer 1998 120,000 16,601
</TABLE>
Robins Employment Agreement
Old Aladdin entered into the Robins Employment Agreement
with Ms. Robins effective January 5, 1998 pursuant to which Ms.
Robins was employed as President and Chief Executive Officer of Old
Aladdin and will be employed as President and Chief Executive
Officer of New Aladdin. The employment contract signed by Ms.
Robins calls for a base salary of $120,000 in fiscal 1999, and requires
that she devote her full-time attention to the affairs of New Aladdin
following completion of the Merger. Her employment agreement has
an initial term of five years and provides for a 10% per year increase
in base salary throughout its term. After its initial five-year term, the
Robins Employment Agreement will be subject to automatic one year
renewals unless terminated by either party thereto.
<PAGE>
Employment and Consulting Agreements
In connection with the acquisition of the oil and gas assets of
Industrial International, Inc., Old Aladdin entered into a two year
management agreement with Mr. Max Lammers pursuant to which Mr.
Lammers will be employed as Vice President Appalachian Region for
New Aladdin. Mr. Lammers will not devote his full-time attention to
the affairs of New Aladdin and will not be compensated in the form of
salary. Mr. Lammers will, however, be entitled to a monthly bonus
equal to 25% of the net cash flow increase from any properties
acquired or operated by New Aladdin in the Appalachian region. For
purposes of calculating this monthly bonus, New Aladdin will establish
a benchmark for net cash flow based upon production during the 30
days immediately prior to acquisition of any property by New Aladdin.
The bonus amount payable to Mr. Lammers will be equal to 25% of
the net cash flow received by New Aladdin each month in excess of
the established benchmark.
In addition, the Lammers Management Agreement will have an
initial term of two years and will be subject to automatic one year
renewals unless terminated by either party thereto.
Certain Relationships and Related Transactions
In connection with its founding in January, 1997, Old Aladdin
acquired all of the oil and gas assets of the Metzenbaum Trust (of
which Meghan Robins is the trustee) in exchange for the issuance of
3,000,000 shares of Common Stock. The oil and gas assets acquired
by Old Aladdin from the Metzenbaum Trust included royalty and
working interests in wells and subsurface easements in areas of the Los
Angeles basin. The subsurface easements cover a portion of the Salt
Lake Field in Los Angeles, a well-known oil field which has been in
production since the 1920's. For purposes of the acquisition
transaction, the parties assigned a value of $1,500,000 to the oil and
gas assets of the Metzenbaum Trust, and assigned a value of $0.50 per
share to the 3,000,000 shares of Common Stock of Old Aladdin issued
in exchange for such assets.
The terms of the acquisition transaction were established by
Meghan Robins acting both in her capacity as the trustee of the
Metzenbaum Trust, and in her capacity as a shareholder, president and
sole director of Old Aladdin. The valuations were not based upon
independent appraisals and were not the result of arms length
negotiation. However, to provide assistance in arriving at a fair
valuation for the oil and gas assets of the Metzenbaum Trust, prior to
completion of the acquisition transaction Ms. Robins commissioned
two independent geologists to assess the merits of the subsurface
easements owned by the Metzenbaum Trust and to compile
background information relating to the Salt Lake Field, including both
historical operating data and information regarding known productive
hydrocarbon formations within the Salt Lake Field. The valuations
which Ms. Robins ultimately assigned to these assets were based, in
part, on the information and assessments provided by these
independent geologists.
Although a valuation of $1,500,000 was assigned to the oil and
gas assets of the Metzenbaum Trust for acquisition purposes, for
financial accounting purposes the transaction was required to be
accounted for as an exchange between entities under common control.
As a result, on the books of Old Aladdin, the assets were recorded at
the cost basis of the Metzenbaum Trust which was determined to be $
0. Subsequent capital expenditures incurred by Old Aladdin after the
transaction have been capitalized, consistent with the successful efforts
method of accounting, and are currently reported in oil and gas
properties.
Meghan Robins is the President and Chairman of the Board of
Old Aladdin. She is married to Haskell Robins who is also a director
and Corporate Secretary of Old Aladdin.
In August, 1998, Old Aladdin retained Investors Information
Services to act as investor relations consultant for Old Aladdin for a
period of six months. The terms of the agreement include monthly
compensation of $1,500 plus a non-refundable expense advancement of
$1,500 upon engagement. The President of Investors Information
Services is Amy R. Montano who also serves as a Director for Old
Aladdin. Ms. Montano also is an officer of C. K. Cooper &
Company, financial advisor to Old Aladdin.
In January, 1998, Old Aladdin formally retained C.K. Cooper
& Company, Inc., as financial advisor to assist in the creation and
implementation of a strategic growth plan. As a result of advice
obtained from C.K. Cooper & Company, Inc., through this
relationship, Old Aladdin acquired the oil and gas assets of Industrial
International, Inc., in June, 1998 and was introduced to Buffalo
regarding the proposed Merger. C.K. Cooper & Company, Inc., is
paid $3,000 per month by Old Aladdin, and may receive additional
compensation based upon certain events taking place, including a fee
of $10,000 should Old Aladdin merge into a reporting "public"
company. Furthermore, C.K. Cooper & Company, Inc., has been
granted warrants to purchase up to 600,000 shares of common stock of
Old Aladdin for a period of up to 3 years. The exercise price on these
warrants is $1.00 per share. The term of this engagement expires on
June 30, 1999.
On June 30, 1998, Old Aladdin entered into an agreement
wherein it purchased the working interests and operating interests of
Industrial International, including 16 natural gas wells in Ohio. The
terms of this acquisition were negotiated at arms length and placed a
total value of $500,000 on 100% of the working interests to be
acquired. Old Aladdin issued a total of 419,219 shares of common
stock with an inferred value of $1.00 per share to acquire the working
interests of Industrial International. In connection with this
acquisition, Old Aladdin also formed Aladdin International, Inc., a
wholly-owned subsidiary as an acquisition company. When the
acquisition was completed, Mr. Max Lammers was appointed to the
Board of Directors of Old Aladdin with the intent that he would assist
it in searching for additional producing property acquisitions.
At the time of its acquisition of the working interests owned by
Industrial International, Old Aladdin was a privately held company.
Included in the acquisition agreement was the caveat that if Aladdin
common stock did not become publicly quoted on or before June 30,
1999, Mr. Lammers would have the right to purchase all of the issued
and outstanding shares of Aladdin International, Inc., for $1.00.
The management of Old Aladdin believes that upon completion
of the Merger the common stock of Aladdin will be publicly quoted,
that it will have met the requirements of the agreement with Industrial
International, and that the right of Mr. Lammers to purchase the shares
of Aladdin International will thereby be extinguished. It is anticipated
that shortly after completion of the Merger, Aladdin International will
be merged into Aladdin Oil of Ohio, the wholly-owned operating
subsidiary of New Aladdin, and will cease to exist.
As of June 30, 1998 and December 31, 1998 Aladdin
International, Inc., had respectively, total assets of $401,950 and
$381,286, stockholders equity of $401,950 and $381,286 and net
income of $ 0 and $ (20,664).
<PAGE>
OWNERSHIP OF CAPITAL STOCK
Ownership of the Capital Stock of the Company After the Effective
Date
Buffalo currently has 4,620,000 shares of Common Stock
issued and outstanding. As discussed above (See "Proposal I"), the
number of issued and outstanding shares of Buffalo Common Stock
must be reduced to 406,099 shares prior to consummation of the
proposed Merger. Upon consummation of the proposed Merger,
Buffalo will issue an additional 3,718,320 shares of its Common Stock
to the existing holders of Old Aladdin Common Stock, on a one for
one basis. The following table sets forth the amount of Common
Stock expected to be beneficially owned immediately after the closing
of the Merger by (i) each person who is known to Old Aladdin who
will own 5% or more of the outstanding shares of Common Stock of
New Aladdin immediately after the closing, (ii) each person who will
be a director or officer of New Aladdin immediately after the closing,
and (iii) all directors and officers of New Aladdin as a group. Unless
otherwise indicated, the information in the table is based upon the
listed person's current ownership of Common Stock of Old Aladdin.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned Class
<S> <C> <C>
Meghan R. Robins <F1> 3,049,101 74%
Max P. Lammers <F2> 419,219 10%
Haskell R. Robins <F3> - -
Amy R. Montano - -
Metzenbaum Trust <F1> 3,000,000 73%
Directors and Executive
Officers as a Group 3,468,320 84%
Behrooz Sarafraz 250,000 6%
<FN>
<F1> As to Meghan Robins includes 3,000,000 shares held by the
Metzenbaum Trust, a trust in which Ms. Robins serves as the sole
trustee. As the trustee, Ms. Robins has sole discretion with respect to
the disposition of assets held by the trust, including sole voting power
with respect to the shares of Common Stock of New Aladdin owned
by the trust. The assets of the trust are required to be distributed in
2004 at the time that Ms. Hilary Lord, the daughter of Meghan
Robins, reaches the age of 35. At that time, 10% of the assets of the
trust are to be distributed to Ms. Lord, and the remaining 90% of the
assets of the trust are to be distributed to Ms. Robins. As a result of
the control of the Metzenbaum Trust by Ms. Meghan Robins, in her
capacity as sole trustee, she is currently the beneficial owner of all of
the shares of Common Stock owned by the trust. As a result of the
control of the Metzenbaum Trust by Ms. Meghan Robins, it is very
unlikely that there would be a change in control of New Aladdin.
<F2> Includes 419,219 owned by Industrial International, Inc. of
which Max P. Lammers serves as President and Chairman, and is the
sole shareholder.
<F3> Meghan Robins and Haskell Robins are husband and wife.
</FN>
</TABLE>
Ownership of Buffalo Capital Stock
The following table reflects the current ownership of Buffalo
Common Stock and the ownership of New Aladdin Common Stock
following completion of the proposed Merger, by (i) persons or groups
who are known to Buffalo to be the beneficial owners of more than
5% of the outstanding shares of Buffalo Common Stock, (ii) each
director and (iii) all directors and executive officers as a group. The
share ownership reflected in this table has been adjusted to take into
effect the reduction in the number of shares of Buffalo to be issued
and outstanding, as a result of completion of the proposed 1:2 reverse
stock split, and the agreed-upon voluntary surrender of shares for
cancellation by certain persons following approval of the proposed 1:2
reverse stock split. Buffalo believes that, except as noted, the
stockholders listed below have sole investment and voting power with
respect to Buffalo Common Stock beneficially owned by them.
<PAGE>
<TABLE>
<CAPTION>
% of Class % of Shares
Beneficially Prior to Following
Name of Beneficial Owner Owned Merger Merger
<S> <C> <C> <C>
Grant Peck <F1, F2> 81,830 20.15% 1.98%
Dean Sessions <F1, F3> 81,830 20.15% 1.98%
Gary Joiner <F3> 81,830 20.15% 1.98%
Mark DiSalvo <F4> 75,000 18.47% 1.82%
All Officers and
Directors as a Group
(2 in number) 163,660 40.30% 3.97%
<FN>
<F1> The person listed is an officer, a director, or both, of the
Company.
<F2> Reflects ownership after completion of 1:2 reverse stock split
and voluntary surrender for cancellation of 572,750 shares. Prior to
completion of the 1:2 reverse stock split and the voluntary surrender of
shares for cancellation, Mr. Peck was the owner of 1,308,800 shares of
Buffalo common stock representing approximately 28.33% of its
outstanding common stock.
<F3> Reflects ownership after completion of 1:2 reverse stock split
and voluntary surrender for cancellation of 572,970 shares. Prior to
completion of the 1:2 reverse stock split and the voluntary surrender of
shares for cancellation, Mr. Sessions and Mr. Joiner each owned
1,309,600 shares of Buffalo common stock representing approximately
28.35% of its outstanding common stock.
<F4> Reflects ownership after completion of 1:2 reverse stock split
and voluntary surrender for cancellation of 141,000 shares. Prior to
completion of the 1:2 reverse stock split and the voluntary surrender of
shares for cancellation, Mr. DiSalvo was the owner of 432,000 shares
of Buffalo Common Stock, representing approximately 9.35% of its
outstanding common stock.
</FN>
</TABLE>
<PAGE>
DESCRIPTION OF NEW ALADDIN COMMON STOCK
The authorized capital stock of New Aladdin upon completion
of the Merger will consist of 20,000,000 shares of Common Stock,
$0.01 par value, and 4,000,000 shares of Preferred Stock, $0.01 par
value. The following description is a summary of the material terms
of the capital stock of New Aladdin. For a complete description of the
terms of the capital stock, reference is made to the Old Aladdin's
Articles of Incorporation and Bylaws which are attached hereto as
Appendix C.
Common Stock
Holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
stockholders. Holders of Common Stock do not have the right to
cumulate their votes in the election of directors. Holders of Common
Stock are entitled to receive dividends when, as and if declared by the
Board of Directors of New Aladdin out of funds legally available
therefor, subject to any dividend preferences of any outstanding shares
of Preferred Stock. In the event of the liquidation, dissolution or
winding up of New Aladdin, holders of Common Stock have the right
to share ratably in any assets remaining after the satisfaction in full of
the liabilities of New Aladdin and of all liquidation preferences on any
outstanding shares of Preferred Stock. Holders of Common Stock
have no preemptive or preferential rights to purchase or subscribe for
any part of any additional securities or rights to convert their Common
Stock into other securities and are not subject to future calls or
assessments by the Company. All shares of Common Stock to be
issued and outstanding following completion of the Merger and all
shares of Common Stock which may be issued in the future upon
conversion of the Series A Preferred Stock will be fully paid and
nonassessable.
PREFERRED STOCK
Generally
Under the Articles of Incorporation of New Aladdin, the Board
of Directors is authorized, without further action by the stockholders,
to issue up to 4,000,000 shares of Preferred Stock and to fix and
determine the designations, series, powers, preferences, rights,
qualifications, limitations and restrictions of the Preferred Stock. The
rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any such Preferred
Stock issued from time to time. The issuance of any new series of
Preferred Stock by New Aladdin could have the effect of delaying,
deferring or preventing a change of control of New Aladdin.
Series A Convertible Preferred Stock.
In conjunction with completion of the Merger, New Aladdin
will issue 1,677,000 shares of Series A Convertible Preferred Stock in
exchange for outstanding shares of Old Aladdin Preferred Stock. The
terms and provisions of the Preferred Stock are substantially identical
to those of the Old Aladdin Preferred. The Preferred Stock will rank
senior to the Common Stock with respect to dividends and
distributions of assets upon the liquidation, dissolution or winding up
of New Aladdin. No shares of Preferred Stock are outstanding as of
the date hereof.
Holders of shares of Preferred Stock will be entitled to receive,
when as and if declared by the Board of Directors of the Company,
out of any funds legally available therefor, cash dividends at the
annual rate of 12%, or $0.09 per share, accruing without interest and
cumulative from the date of first issuance, payable monthly.
Dividends and distributions (other than dividends payable solely in
junior ranking capital stock) may not be declared, paid or set apart for
payment or for purchase, redemption or other acquisition of shares of
Common Stock or other junior ranking capital stock unless all accrued
and unpaid dividends on the Preferred Stock have been paid or
declared, or funds have been set apart for payment.
In the event of a voluntary or involuntary liquidation,
dissolution or winding up of New Aladdin, holders of shares of Series
A Preferred Stock will be entitled to receive, out of the assets of New
Aladdin legally available therefor, a sum equal to $0.75 per share of
Preferred Stock, subject to adjustments for stock splits or
combinations, plus all dividends, if any, accrued and unpaid to the
distribution date.
Holders of shares of Series A Preferred Stock will have no
voting rights, except as required by law.
The Holders of shares of Preferred stock will have the right, at
the holder's option, to convert any or all such shares into Common
Stock at any time prior to redemption. Each share of Series A
Preferred Stock will be convertible into shares of Common Stock at a
conversion rate which is equal to the then liquidation preference of the
shares of Series Preferred Stock, divided by the conversion price
(which is currently $0.75, but is subject to customary adjustments).
Thus, as of the date hereof, the Series A Preferred Stock is convertible
into shares of Common Stock on a one-for-one basis.
Transfer Agent: The transfer agent for New Aladdin is:
Corporate Stock Transfer, Inc.
370 17th Street, Suite 2350
Denver, CO 80202
RIGHTS OF DISSENTING SHAREHOLDERS
Under Colorado Law, dissenting shareholders of Buffalo will
be entitled to dissenters' rights if the proposed Merger is
consummated. Any shareholder who desires to exercise such
dissenters' rights must strictly comply with the requirements of Article
113 of the Colorado Business Corporation Act; failure to so comply
may result in the loss of such dissenters' rights. A copy of Article
113 is attached hereto as Appendix A, and shareholders are referred to
Appendix A for a full statement of its provisions.
In general, Article 113 requires a shareholder seeking to
enforce dissenter's right to:
(a) file with Buffalo, prior to the vote, a written statement
that the shareholder intends to demand payment for his or her share if
the Merger is effectuated:
(b) not vote in favor of the Merger; and
(c) file with Buffalo, within 30 days after receipt of a
notice from Buffalo stating that the Merger was approved by Buffalo's
shareholders, a written notice to demand payment in compliance with
Article 113 and to deposit with the company the shareholder's
certificate(s) representing shareholder's shares. After filing the
demand payment notice, the shareholder will retain all the rights of a
shareholder, except for the ability to transfer Shares, until the effective
date of the Merger, upon which date all shareholders' rights as a
shareholder shall terminate except only to receive the fair value of the
shares.
Upon receipt of the shareholders' notice, in the event that
Buffalo and the shareholder do not agree on the fair market value of
such shareholders' Common Stock, Buffalo or the Shareholder may
institute a special court proceeding to determine the rights of the
dissenting shareholder and to fix the fair value of shareholder's shares
of the Common Stock.
A vote against the Merger will not satisfy the notice
requirement under Colorado Law. Any shareholder wishing to enforce
his rights under Article 113 must file a separate notice of election to
exercise dissenter's rights, in the manner and within the time frames,
specified in Article 113. All such notices may be sent to the Company
at 7331 S. Meadow Court, Boulder, Colorado 80301.
FAILURE TO COMPLY WITH ANY OF THE
PROCEDURAL REQUIREMENTS OF ARTICLE 113 MAY
RESULT IN A TERMINATION OR WAIVER OF DISSENTERS'
RIGHTS UNDER ARTICLE 113.
OTHER MATTERS
Buffalo is not aware of any business to be presented for
consideration at the Meeting, other than that specified in the Notice of
Special Meeting.
SHAREHOLDER PROPOSALS
New Aladdin has not determined when it plans to hold its
annual meeting each year. As soon as that determination is made, it
will notify shareholders and advise them of the deadline for submitting
shareholder proposals to be considered at the next annual meeting.
By Order of the Board of Directors
Grant W. Peck
Chairman of the Board
Boulder, Colorado
April 30, 1999.<PAGE>
APPENDIX D - ALADDIN OIL CORPORATION
AUDIT OF HISTORICAL OIL AND GAS
REVENUES AND DIRECT OPERATING EXPENSES
OF THE INDUSTRIAL INTERNATIONAL, INC. PROPERTIES
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE ACQUIRED PROPERTY: PAGE
<S> <C>
Independent Auditor's Report 121
Statement of Historical Oil and Gas Revenues 122
and Direct Operating Expenses
for the Period from Inception to June 30, 1997
and for the Year Ended June 30, 1998
Notes to Statement of Historical Oil and Gas 123
Revenues and Direct Operating Expenses
Supplementary Financial Information for Oil 124
and Gas Producing Activities (Unaudited)
PRO FORMA FINANCIAL INFORMATION:
Pro Forma Consolidated Balance Sheet of 130
Aladdin Oil Corporation as of June 30, 1998
- Unaudited
Pro Forma Consolidated Statement of Operations 133
of Aladdin Oil Corporation for the Year Ended
June 30, 1998 - Unaudited
Notes to Consolidated Pro Forma Financial Statements 135
/TABLE
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors - Aladdin Oil Corporation
We have audited the accompanying statement of historical oil and gas
revenues and direct operating expenses of the oil and gas properties
(the "Acquisition properties") of Industrial International, Inc. for the
period from inception to June 30, 1997 and for the year ended June
30, 1998, acquired by Aladdin Oil Corporation. This financial
statement is the responsibility of Aladdin Oil Corporation's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 statement of revenues
and direct operating expenses is free of material misstatement. An
audit of the statements of revenues and direct operating expenses
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit of statements of
revenues and direct operating expenses 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 of the statement of revenues
and direct operating expenses provides a reasonable basis for our
opinion.
The accompanying statement was prepared as described in Note 1 for
the purpose of complying with certain rules and regulations of the
Securities and Exchange Commission (SEC) for inclusion in certain
SEC regulatory reports and filings and are not intended to be a
complete presentation of the revenues and direct operating expenses of
the acquisition properties.
In our opinion, the statement of historical oil and gas revenues and
direct operating expenses referred to above presents fairly, in all
material respects, the revenues and direct operating expenses of the
acquisition properties described in Note 1 for the period from
inception to June 30, 1997 and for the year ended June 30, 1998, in
conformity with generally accepted accounting principles.
BROWN ARMSTRONG RANDALL REYES PAULDEN &
McCOWN ACCOUNTANCY CORPORATION
Bakersfield, California
February 18, 1999<PAGE>
THE INDUSTRIAL INTERNATIONAL, INC. PROPERTIES
STATEMENT OF HISTORICAL OIL AND GAS
REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PERIOD FROM INCEPTION TO JUNE 30, 1997 AND
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Period from
Year Ended Inception to
June 30, 1998 June 30, 1997
<S> <C> <C>
Revenue
Oil 13,587 -
Gas Sales 42,091 8,779
Total Revenues 55,678 8,779
Direct Operating Expenses
Well operations 34,905 16,251
Royalties 10,565 2,196
Taxes 576 90
Total Direct Operating Expenses 46,046 18,537
Excess (deficiency) of revenues over
direct operating expenses 9,632 (9,758)
</TABLE>
See accompanying notes to statement of revenues and direct operating
expenses.<PAGE>
THE INDUSTRIAL INTERNATIONAL, INC. PROPERTIES
NOTES TO STATEMENT OF HISTORICAL OIL AND GAS
REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PERIOD FROM INCEPTION TO JUNE 30, 1997 AND FOR THE
YEAR ENDED JUNE 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statement presents the historical oil and
gas revenues and direct operating expenses of Industrial International,
Inc.'s (I.I.I.) interests in 16 natural gas wells (the "Acquisition
Properties") for the period from inception to June 30, 1997 and for the
year ended June 30, 1998. These properties were purchased by Aladdin
Oil Corporation ("Aladdin") effective June 30, 1998 for $401,950. The
properties consist of working interests in 16 natural gas wells in
Morgan County and Muskingham County, Ohio.
The accompanying statement of historical oil and gas revenues and
direct operating expenses of the properties does not include general
and administrative expenses, interest expense, depreciation, depletion
and amortization, or any provision for income taxes since historical
expenses of this nature incurred by I.I.I. are not necessarily indicative
of the costs to be incurred by Aladdin.
Revenues and direct operating expenses, as set forth in this financial
statement, include oil and gas revenues and associated direct operating
expenses related to the net working interest in the acquisition
properties. Each owner recognizes revenue and expenses based on its
proportionate share of the related production and costs. Expenses
include labor, repairs and maintenance, fuel consumed and supplies
utilized to operate and maintain the wells and related equipment and
facilities, royalties, production taxes and ad valorem taxes.
Historical financial information reflecting financial position, results of
operations, and cash flows of the properties is not presented because
the purchase price was assigned to the oil and gas property interests
and related equipment acquired. Other assets acquired and liabilities
assumed were not material. Development and exploration expenditures
related to these properties were insignificant in the relevant period.
Accordingly, the historical statement of revenues and direct operating
expenses of I.I.I. interest in the acquisition properties is represented in
lieu of the financial statements required under Item 3-05 of Securities
and Exchange Commission Regulations S-X.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Supplementary Financial Information for Oil and Gas Producing
Activities (Unaudited)
The following reserve estimates present Aladdin's estimate of the
proved oil and gas reserves and net cash flow of the properties
represent interests solely in the United States. Aladdin emphasizes that
reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, the estimates are expected to change as future
information becomes available. The estimates have been prepared by
I.I.I.'s petroleum reservoir engineers.
Proved reserve estimates
Oil and gas proved reserves cannot be measured exactly. Reserve
estimates are based on many factors related to reservoir performance
which require evaluations by the engineers interpreting the available
data, as well as price and other economic factors. The reliability of
these estimates at any point in time depends on both the quality and
quantity of the technical and economic data, the production
performance of the reservoirs, as well as extensive engineering
judgement. Consequently, reserve estimates are subject to revision as
additional data becomes available during the producing life of a
reservoir. When a commercial reservoir is discovered, proved reserves
are initially determined based on limited data from the first well or
wells. Subsequent data may better define that extent of the reservoir
and additional production performance, well tests and engineering
studies will likely improve the reliability of the reserve tests and
engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the
application of improved recovery techniques such as supplemental or
enhanced recovery projects, or both, which have the potential to
increase reserves beyond those envisioned during the early years of a
reservoir's producing life. Revisions to reserves are based on
engineering analysis of individual reservoirs at the field level.
Proved reserves are those quantities which, upon analysis of geological
and engineering data, appear with reasonable certainty to be
recoverable in the future from known oil and gas reservoirs under
current prices and costs as of the date the estimate is made. For major
revisions, extensions and discoveries, proved reserves must also be
recoverable under future prices and costs forecasted by Aladdin.
Proved developed reserves are those reserves which can be expected to
be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those reserves
which are expected to be recovered from new wells on undrilled
acreage or from existing wells where a relatively major expenditure is
required. Net proved reserves represent the estimated recoverable
volumes after deducting from gross reserves the portion due land
owners or others are royalty or operating interests.
The following estimates of proved oil and gas reserves, both developed
and undeveloped, represent interests owned by the Company located
solely in the United States. Proved reserves represent estimated
quantities of crude oil and natural gas which geological and
engineering data demonstrate to be reasonably certain to be
recoverable in the future from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas
reserves are reserves that can be expected to be recovered through
existing wells, with existing equipment and operating methods. Proved
undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells
for which relatively major expenditures are required for completion.
Disclosures of oil and gas reserves which follow are based on
estimates prepared by independent engineering consultants for the year
ended June 30, 1998. Such estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves
and in the projection of future rates of production and the timing of
development expenditures. These estimates do not include probable or
possible reserves.
These estimates are furnished and calculated in accordance with
requirements of the Financial Accounting Standards Board and the
Securities and Exchange Commission (SEC). Because of unpredictable
variances in expenses and capital forecasts, crude oil price changes,
largely influenced and controlled by U.S. and foreign government
actions, and the fact that the bases for such estimates vary
significantly, management believes the usefulness of these projections
is limited. In any case, many factors such as unanticipated technical
problems or changes in prices or costs or errors in sound technical
judgement made on the best information available may cause actual
production to any significantly from estimated reserves.
It should be recognized that applying current costs and prices and a ten
percent standard discount rate does not convey absolute value. The
discounted amounts arrived at are only one measure of the value of
proved reserves.
Net proved reserves represent the estimated recoverable volumes after
deducting from gross proved reserves the portion due land owners or
others as royalty or operating interests.
Estimated quantities of net proved oil and natural gas reserves and of
changes in net quantities of proved developed reserves proved
undeveloped are not material. Proved developed approximate total
proved for each of the periods indicated were as follows:
<TABLE>
<CAPTION>
Oil Gas
(bbls) (mcf)
<S> <C> <C>
Proved reserves:
Balance at June 30, 1996 - -
Purchases of minerals in place 6,447 303,772
Production - (3,611)
Balance at June 30, 1997 6,447 300,161
Production (941) (19,290)
Balance at June 30, 1998 5,506 280,871
</TABLE>
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Oil and Gas Reserves
The following disclosures concerning the standardized measure of
future cash flows from proved oil and gas reserves are presented in
accordance with the Statement of Financial Accounting Standards No.
69. As prescribed by this statement, the amounts shown are based on
prices and costs at the end of each period and a 10 percent annual
discount factor. Since prices and costs do not remain static, and no
price or cost changes have been considered, the results are not
necessarily indicative of the fair market value of estimated proved
reserves, but they do provide a common benchmark which may
enhance the users' ability to project future cash flows.
Extensive judgements are involved in estimating the timing of
production and the costs that will be incurred throughout the remaining
lives of these fields. Therefore, the results may not be comparable to
estimates disclosed by other oil and gas producers.
The standardized measure of discounted future net cash flows related
to proved oil and gas reserves at June 30, was as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Future cash flows 941,725 414,125
Future production and
development costs 353,922 155,638
Future net cash inflows 587,803 258,487
10% annual discount for
estimated timing of
cash flows 185,853 81,729
Standardized Measure
(before income taxes) of
discounted future net
cash flows 401,950 176,758
/TABLE
<PAGE>
The standardized measure of discounted future net cash flows is based on the
following oil and gas prices at June 30,:
<TABLE>
<CAPTION>
<S> <C> <C>
Oil (per Bbl.) 18.00 18.00
Gas (per Mcf) 3.00 3.00
</TABLE>
Crude oil and natural gas price realizations for the Aladdin properties
at June 30, 1998 were $9.00 per Bbl and $2.00 per Mcf, respectively.
The aggregate change in standardized measure of discounted future net
cash flows was a decrease of $233,941 in 1998, an increase of
$168,009 in 1997. The principal sources of change for the years ended
June 30, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Standardized Measure,
beginning of year 176,758 -
Sales and transfers of oil and
gas produced, net of production
costs (9,632) 9,758
Purchases of reserves in place - 167,000
Revisions of previous reserve estimates 218,024 -
Accretion of discount 16,800 -
Standardized Measure, end of year 401,950 176,758
/TABLE
<PAGE>
PRO FORMA FINANCIAL INFORMATION
ALADDIN OIL CORPORATION
The following Pro Forma Financial Information has been prepared
assuming that Aladdin acquired working interests in the 16 natural gas
wells in Ohio on July 1, 1997.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
ALADDIN OIL CORPORATION
CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
As of Pro Forma
June 30, as of
1998 Pro Forma June 30,
Aladdin Adjustments 1998
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 160,363 9,632<F1> 169,995
PROPERTY AND EQUIPMENT
Oil and natural gas properties,
net 699,886 (29,851)<F2> 670,035
Equipment, net 64,569 - 64,569
Total Property and Equipment 764,455 (29,851) 734,604
OTHER ASSETS
Start-up Costs 609 - 609
TOTAL ASSETS 925,427 (20,219) 905,208
<FN>
<F1> To record cash receipts, gross revenues, and direct operating
expenses of the acquired properties for well operations for the year
ended June 30, 1998.
<F2> To adjust depreciation, depletion, and amortization amounts on
a historical basis to amounts that would have been recorded if the
property had been included in the financial statements effective July 1,
1997.
</FN>
/TABLE
<PAGE>
ALADDIN OIL CORPORATION
CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
As of Pro Forma
June 30, as of
1998 Pro Forma June 30,
Aladdin Adjustments 1998
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accrued interest payable 12,578 - 12,578
Convertible Debentures 148,000 - 148,000
Commitments and
Contingencies - - -
Total Liabilities 160,578 - 160,578
STOCKHOLDERS' EQUITY
Convertible preferred stock,
Series A, $.01 par value,
4,000,000 shares authorized;
1,677,000 shares issued and
outstanding 16,770 - 16,770
Common stock, $.01 par value,
20,000,000 shares authorized;
3,718,320 shares issued and
outstanding 37,183 - 37,183
Additional paid-in capital 1,380,098 - 1,380,098
Accumulated earnings
(deficit) (669,202) (20,219)<F1><F2> (689,421)
Total Stockholders' Equity 764,849 (20,219) 744,630
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 925,427 (20,219) 905,208
<FN>
<F1> To record cash receipts, gross revenues, and direct operating expenses of
the acquired properties for well operations for the year ended June 30, 1998.
<F2> To adjust depreciation, depletion, and amortization amounts on a
historical basis to amounts that would have been recorded if the property had
been included in the financial statements effective July 1, 1997.
</FN>
</TABLE>
<PAGE>
ALADDIN OIL CORPORATION
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended Pro Forma
June 30, As of
1998 Pro Forma June 30,
Aladdin Adjustments 1998
<S> <C> <C> <C>
REVENUES
Oil and gas - 55,678<F1> 55,678
Interest and other - - -
Total Revenues - 55,678 55,678
COSTS AND EXPENSES
Oil and natural gas operating - 46,046<F1> 46,046
Depletion and depreciation 10,761 29,851<F2> 40,612
General and administrative 250,176 - 250,176
Officer's compensation 136,601 - 136,601
Interest 114,484 - 114,484
Legal and accounting 136,436 - 136,436
Marketing 20,744 - 20,744
Total Costs and Expenses 669,202 75,897 745,099
INCOME (LOSS) BEFORE
INCOME TAXES (669,202) (20,219) (689,421)
NET TAX EXPENSE (BENEFIT) - - -
NET INCOME (LOSS) (669,202) (20,219) (689,421)
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
NET INCOME (LOSS) PER SHARE
Basic (.23) (.01) (.23)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
Outstanding 3,001,968 3,001,968 3,001,968
<FN>
<F1> To record cash receipts, gross revenues, and direct operating expenses of
the acquired properties for well operations for the year ended June 30, 1998.
<F2> To adjust depreciation, depletion, and amortization amounts on a
historical basis to amounts that would have been recorded if the property had
been included in the financial statements effective July 1, 1997.
</FN>
/TABLE
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1998
NOTE 1 - BASIS OF PRESENTATION
Effective June 30, 1998, Aladdin Oil Corporation (the "Company"),
through its wholly owned subsidiary, Aladdin International, Inc.,
acquired certain working interests in 16 natural gas wells located in
Morgan and Muskingham Counties, Ohio (the "acquisition properties")
from Industrial International, Inc. in exchange for 419,219 shares of
the Company's common stock.
The acquired properties consist an approximate 83% working interest
in 16 natural gas wells with approximately 12 of the wells currently
producing at the aggregate daily rates of approximately 1 barrel of oil
and 53 million cubic feet of gas. The Company is the field operator,
and the remaining working interests in the properties are owned by
various third parties.
The consolidated pro forma balance sheet at June 30, 1998 and the
related consolidated proforma statement of operations for the year
ended June 30, 1998 have been prepared assuming that the Property
Acquisition was consummated on July 1, 1997.
The preparation of the combined pro forma financial statements is
based on certain adjustments to the historical consolidated financial
statements of the Company and the historical consolidated statements
of revenues and direct operating expenses of the property and are not
necessarily indicative of the financial position or results of operations
had the above described property acquisition occurred on the assumed
date. These consolidated pro forma financial statements should be read
in conjunction with the financial statements of the property and of the
Company contained in this proxy.
NOTE 2 - PRO FORMA ADJUSTMENTS
Pro forma entries necessary to adjust the historical consolidated
financial statements are as follows:
(a) To record cash receipts, gross revenues, and direct operating
expenses of the acquired properties for well operations for the year
ended June 30, 1998.
(b) To adjust depreciation, depletion, and amortization amounts on
a historical basis to amounts that would have been recorded if the
property had been included in the financial statements effective July 1,
1997.
NOTE 3 - PRO FORMA COMBINED SUPPLEMENTARY OIL
AND GAS AND STANDARDIZED MEASURE INFORMATION
Pro forma supplemental disclosure of oil and gas information has not
been provided because the Company, prior to the acquisition at June
30, 1998, held no other interest in proved oil and gas properties.
As such, the results of any analysis would be identical to the historical
supplemental disclosures provided for the acquired properties herein.
