UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Delaware 20-2876380
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(State of incorporation) (I.R.S. Employer
Identification Number)
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350 Fifth Avenue, Suite 1103, New York, N.Y. 10118
Registrant's telephone number and area code: (212) 563-4141
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.[x]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No
The Registrant's total revenue for the fiscal year ended December 31, 2006 was $1,182,323.
The aggregate market value of the 13,349,822 shares of voting stock held by non-affiliates of the registrant (based upon the average of the high and low bid prices) on March 30, 2007 was $3,337,456. (SEE: "Market for Common Equity and Related Stockholder Matters").
As of April 17, 2007 the Company had outstanding 35,093,002 shares of common stock, par value $.001 per share ("Common Stock")
The Index to Exhibits appears on page 64.
Alfa International Holdings Corp. Table of Contents to Annual Report on Form 10-KSB
Year Ended December 31, 2006
Page
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Forward-Looking Statements 4
Part I
Item 1. Description of Business 5
Item 2. Description of Property 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote
of Security Holders 21
Part II
Item 5. Market for Common Equity and
Related Stockholder Matters 21
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 32
Item 7. Financial Statements 40
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 41
Item 8A. Controls and Procedures 41
Item 8B. Other Information 41
Part III
Item 9. Directors, Executive Officers and
Control Persons; Compliance with
Section 16(a) of the Exchange Act 42
Item 10. Executive Compensation 46
3
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Item 11. Security Ownership of Certain
Beneficial Owners and Management
And Related Stockholder Matters 59
Item 12. Certain Relationships and Related
Transactions 60
Item 13. Exhibits and Reports on Form 8-K 64
Item 14. Principal Accountant Fees and Services 65
Forward-Looking Statements
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Some of the information contained in this Report may constitute forward-looking statements or statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and projections about future events. The words "estimate", "plan", "intend", "expect", "anticipate" and similar expressions are intended to identify forward-looking statements which involve, and are subject to, known and unknown risks, uncertainties and other factors which could cause the Company's actual results, financial or operating performance or achievements to differ from future results, financial or operating performance, or achievements expressed or implied by such forward-looking statements. Projections and assumptions contained and expressed herein were reasonably based on information available to the Company at the time so furnished and as of the date of this filing. All such projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company's control and no assurance can be given that the projections will be realized. Potential investors are cautioned not to place undue reliance on any such forward- looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Alfa International Holdings Corp. ("Alfa") was incorporated on October 8, 2004 in Delaware and is a holding company which conducts substantially all of its operations through its wholly- owned subsidiary, Journey of Light, Inc., a New York corporation ("JOL"). JOL is engaged primarily in the business of real estate development in the Sultanate of Oman ("Oman"). Alfa and JOL are sometimes collectively referred to herein as the "Company".
Alfa presently has two other wholly owned subsidiaries: Contact Sports, Inc. ("Contact") and Ty-Breakers Corp. ("Ty-Breakers"). Contact and Ty-Breakers are engaged in the business of designing, manufacturing and marketing apparel.
Alfa is the successor to Alfa International Corp. ("Registrant") which was incorporated in New Jersey in 1978. Alfa was organized solely for the purpose of changing the Registrant's corporate domicile from New Jersey to Delaware via a merger which was effective May 23, 2005 of the Registrant with and into Alfa.
On October 11, 2005 Alfa acquired JOL as a wholly owned subsidiary (the "Acquisition"). In connection with the Acquisition, Alfa issued 16,284,278 shares of its $.001 par value common stock (the "Common Stock") to the JOL shareholders in exchange for all of the outstanding capital stock of JOL.
Alfa presently concentrates the majority of its efforts on the development of JOL's business. (See: "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Relationships and Related Transactions").
The Company's executive office is located at The Empire State Building, 350 Fifth Avenue, Suite 1103, New York, N.Y. 10118, and its telephone number is 212-563-4141. The Company also maintains a warehouse in Jersey City, New Jersey which is used for its apparel business. Both facilities are
leased from unaffiliated third parties.
On October 11, 2005, Alfa completed the acquisition of JOL as a wholly owned subsidiary. Prior to its acquisition by Alfa, JOL was a privately-held company engaged primarily in the business of real estate development in the country of Oman, which business continues to date.
On August 1, 2005, the Ministry of Tourism (the "MOT") of the Government of Oman (the "Government") and JOL signed a memorandum of understanding ("MOU") memorializing the legal and commercial aspects of a proposed real-estate project (the "Omagine Project") to be developed in Oman by Omagine LLC ("OmagineCo"), an Omani company to be formed as a wholly owned subsidiary of JOL.
The Omagine Project is planned to be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman (the "Omagine Site") just west of the capital city of Muscat and nearby the Seeb International Airport. The Omagine Project is planned to be an integration of cultural, heritage, educational, entertainment and residential components, including: a "high culture" theme park containing seven pearl shaped buildings, each approximately 60 feet in diameter, associated exhibition buildings, a five star resort hotel; a boardwalk; an open air amphitheater and stage; (collectively, the "Landmark"); an additional five star resort hotel; a canal and enclosed harbor area; boat slips; commercial office buildings; shopping and retail establishments; open space green areas; restaurants; and approximately 3,900 residences. JOL prepared an initial master plan, financial model ("Projected Financial Model") and feasibility study (collectively, the "Feasibility Study") for the Omagine Project with the assistance
of several consultants and consulting companies. The two primary
consultants engaged by JOL to assist and lead the Feasibility
Study process were: (i) the Global Leadership Team, Inc. ("GLT")
- as JOL's strategic adviser, and (ii) Michael Baker Jr., Inc.
("Baker") - as JOL's program manager.
GLT (www.gltweb.com) is headquartered in Birmingham, MI, with a branch office in Beirut, Lebanon and is a networked professional services organization comprised of highly skilled visionaries, branding strategists, management consultants and thought leaders. GLT consults for many U.S. and Arab client companies in areas encompassing leadership capacity building, real-time information, architecture, development, branding, public relations, imagineering, and alliance management for global live events. GLT recently organized and delivered the World Summit on Innovation and Entrepreneurship in Muscat, Oman (www.wsie.org). Mr. Sam Hamdan, GLT's Chairman & Chief Executive, ("Hamdan") is the founder of the prestigous U.S. Arab Economic Forum (www.usaef.org and www.usaeforum.org) and has an extensive network of business, diplomatic and government contacts in the U.S., Europe and throughout the Arab world. Among other things, GLT and Hamdan developed the "Omagine" brand for JOL. Hamdan presently has a consulting agreement with Alfa and, under certain circumstances, Hamdan may become Alfa's President and Chief Operating Officer (See: EXHIBITS - The Hamdan Agreement")
Baker (www.mbakercorp.com) is headquartered in Pittsburgh, PA, with offices throughout the U.S and abroad and is experienced in all aspects of design, program management and construction management for large scale construction and development projects of the magnitude of the Omagine Project. Baker has significant program management and construction management contracts with the United States military worldwide - including in the Middle East.
The March 1, 2006 presentation by JOL of its Feasibility Study to the Government of Oman was favorably received and JOL management thereafter began discussions and negotiations (the "Discussions") with Government officials, which Discussions have, in the opinion of management, modified the terms of the MOU in a positive fashion. The objective of the Discussions is to arrive at the terms and conditions of a development agreement ("Development Agreement") between the Government and OmagineCo
which would govern the development of the Omagine Project. Such Discussions are ongoing as of the date of this Report and have not yet been concluded.
In September 2006 the MOT engaged the services of a third party consultant to give MOT an independent review of the financial viability of that portion of the Omagine Project known as the "Landmark" in the Feasibility Study. The Landmark is expected to consist of the seven pearl buildings, associated exhibition buildings, a hotel and certain as yet unspecified retail and commercial buildings. The consultant's report was delivered to MOT in January 2007 and JOL was thereafter informed that the consultant's report made some minor recommendations but was otherwise positive.
In December 2006, JOL signed a definitive agreement with J&P (See: "The J&P Agreement" below).
In late March 2007, JOL received a letter (the "Approval Letter") from the Minister of Tourism wherein the MOT notified JOL that the Government of Oman had approved the development of the Omagine Project. The Approval Letter specified certain commercial terms to be incorporated into the Development Agreement and JOL and its attorneys are now continuing the Discussions in order to get clarification on some of the commercial terms specified in the Approval Letter and to finalize the Development Agreement. JOL management plans to travel to Oman during April 2007 to finalize such commercial terms and the documentation of the Development Agreement.
Alfa's president, Frank J. Drohan has known J&P for over 20 years and has worked with them previously on significant projects. J&P has been in business for over 50 years, is an active general contractor in the Middle East with over 17,000 employees, has approximately USD $1 billion dollars in annual revenue, and enjoys a reputation for quality workmanship and on time delivery. The J&P Agreement contemplates J&P being a significant investor (a minimum of 15 million U.S. Dollars) in OmagineCo; J&P receiving a minority equity stake in OmagineCo, and J&P being awarded a contract (the "Construction Contract") as a contractor or as the general contractor for the Omagine Project with JOL sharing in the profits of such Construction Contract. The value of the Construction Contract that OmagineCo is obligated to award to J&P is directly proportional to the amount of J&P's investment (the "J&P Investment") in OmagineCo. If the J&P Investment equals 100% of the equity OmagineCo requires (the "Required Equity") to secure the construction financing necessary to build the Omagine Project (the "Construction Financing"), then J&P will be appointed as the general contractor and the Construction Contract will equal 100% of the cost of construction of the Omagine Project exclusive of any design, project management or construction management fees (the "Total Construction Cost"). If J&P chooses to invest less than 100% of the Required Equity, then JOL and OmagineCo may, at their sole discretion, accept or reject such proposed J&P Investment and, if accepted, the Construction Contract will equal at least that percentage of the Total Construction Cost arrived at by dividing the J&P Investment by the Required Equity and multiplying the resulting fraction by the Total Construction Cost.
The Company believes that the J&P Agreement contains the correct incentives and has aligned the interests of all parties toward a successful closing (the "Financial Closing") of the Construction Financing with the banks, lenders and financial institutions (collectively, the "Financial Institutions"). The Financial Closing is a necessary condition precedent to the successful completion, construction and operation the Omagine Project.
contemplates that the Omagine Project will be owned and operated by OmagineCo which will initially be owned one hundred percent (100%) by JOL. The Company anticipates that OmagineCo and J&P will, shortly after the Development Agreement is signed and subject to JOL's acceptance of the J&P Investment, sign a shareholder agreement which will, among other things, memorialize the sale of a percentage of OmagineCo's equity to J&P in exchange for the J&P Investment.
In order to move into the actual development stage of the Omagine Project, JOL and the Government must complete the Discussions and OmagineCo and the Government must sign the Development Agreement - an event which the Company presently expects to occur during the second quarter of 2007.
As presently contemplated, JOL will own eighty-five percent (85%) of OmagineCo, J&P will own fifteen percent (15%) of OmagineCo and the Government will not own any equity of OmagineCo. JOL has been informally advised by local real-estate agents that the present value of the Omagine Site is in excess of 100 Omani Rials (USD $270) per square meter or a total value of USD $270 million. Pursuant to the draft Development Agreement now being discussed, OmagineCo's rights of use and ownership of the Omagine Site will be represented by a "Usufruct Agreement" wherein OmagineCo is granted a fifty (50) year lease over the Omagine Site at an annual lease cost of USD $0.80 per square meter, except that the lease cost during the first five years of the Usufruct (the construction period of the Omagine Project) will be zero. Unlike a standard lease however, a Usufruct Agreement, specifically allows OmagineCo to (i) pledge the land constituting the Omagine Site as collateral in any construction or other financing arrangements, and (ii) sell (on a freehold basis) the land underlying the Lease/Usufruct to third parties. Significantly, the Omagine Site will, as confirmed in the Approval Letter, be designated by the Government as an Integrated Tourism Zone ("ITZ") and as such, OmagineCo will be allowed to sell properties developed on the Omagine Site to non- Omani persons. At the time of such third party sales and only after it receives full payment from the third-party buyer, OmagineCo will become obligated to pay the Government twenty - five (25) Omani Rials (approximately USD $67) per square meter for the land so sold. Pursuant to Omani law, only land located within an ITZ is allowed to be sold to non-Omani persons.
Subsequent to the signing of the Development Agreement, the Omagine Site's value will be definitively determined by a qualified independent real-estate appraiser and such appraisal will be used in OmagineCo's Construction Financing discussions with the Financial Institutions. The sale of residential and commercial properties to foreigners [one of the main driving forces behind nearby Dubai's rapid economic growth] as well as the sharp increase in the value of the Omagine Site over the last eighteen months are the main drivers supporting the estimated cash flow projections in OmagineCo's Projected Financial Model. The Projected Financial Model presently predicts an internal rate of return ("IRR") for the Omagine Project of 20% and net positive cash flow in excess of USD $600 million (the "Projected Cash Flow") over the five year period immediately subsequent to the signing of the Development Agreement. As of the date hereof, the "net-present-value" of such Projected Cash Flow is projected to be approximately USD $300 million. Notwithstanding the positive nature of the foregoing "forward looking statements", no assurances can be given at this time that the Development Agreement will actually be signed, that the Financial Closing will actually occur or that such cash flows will actually be realized.
As indicated earlier in this Report, all such "forward looking statements" are subject to, known and unknown risks, uncertainties and other factors which could cause OmagineCo's and the Company's actual results, financial or operating performance, or achievements to differ from management's projected or predicted future results, financial or operating performance, or achievements as expressed or implied by such forward-looking statements. Projections and assumptions
contained and expressed herein are reasonably based on information available to the Company at the time so furnished and as of the date of this Report. All such projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company's control, and no assurance can be given that the projections will be realized. Potential investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof.
The entire Omagine Project is expected to be owned and operated by OmagineCo. The corporate ownership of the Landmark is planned to be transferred to a new company (the "Landmark Company") which will also be 100% owned by OmagineCo. The Landmark Company will lease the land underlying the Landmark from OmagineCo, will operate and manage the Landmark, and will be restricted from "selling" any of its assets until after the Landmark Company demonstrates twelve consecutive months of net positive cash flow, after which it may, in its sole discretion, sell any and all of its assets. The draft Development Agreement does not contemplate any restriction on sales - or pre-sales - of (i) the approximately 3,900 residences (villas, town homes and apartments), or (ii) any other non-Landmark Company commercial assets of OmagineCo, or (iii) the land underlying such residences and other commercial assets indicated in the foregoing sub-paragraph (ii). JOL expects, based on present assumptions which are subject to modification, that the development costs for the entire Omagine Project will be approximately $1.6 billion dollars.
JOL's website is www.journey-of-light.com. Omagine's website is www.omagine.com.
JOL management plans to return to Oman in April 2007 to conclude the Discussions and finalize the Development Agreement but no assurances can presently be given that such results will actually occur or as to the eventual outcome of these ongoing Discussions.
JOL has engaged in discussions with several commercial and investment banks and prospective investors, partners, contractors and hotel operators regarding the structure and placement of the necessary Construction Financing as well as the ongoing financing arrangements of the Omagine Project
(collectively, the Omagine Financing"). JOL had a Financial Advisory Services Agreement ("Advisory Agreement") with AmeriCapital Renaissance Group, LLC ("AmeriCapital"). The Advisory Agreement was terminated effective March 15, 2007 and JOL may engage the services of The Renaissance Team, Inc. to assist it with the Omagine Financing. (See Item 12, "Certain Relationships And Related Transactions").
Depending upon the outcome of its ongoing negotiations with the Government, JOL, through its ownership interests in OmagineCo and the Landmark Company plans over time to also be in the property management, hospitality and entertainment businesses.
On May 1, 2006 a previously disclosed contract dispute between JOL and the State of Qatar regarding the proposed development of a real-estate project in Doha, Qatar was settled in a friendly manner by the State of Qatar paying JOL $1 million.
On October 11, 2005 the Company acquired JOL as a wholly owned subsidiary. The Boards of Directors and a majority of the shareholders of both Alfa and JOL had previously approved the Merger on May 25, 2005.JOL is engaged primarily in the business of real estate development in the country of Oman. In connection with the acquisition of JOL, Alfa issued 16,284,278 shares of its Common Stock and 984,235 warrants exercisable into Alfa Common Stock at prices ranging from $1.00 to $8.00 per share to the shareholders and warrant holders of JOL in exchange for all of the outstanding capital stock of JOL. Prior to the acquisition, Alfa had outstanding 12,053,565 shares of Common Stock, 108,350 shares of preferred stock convertible into 4,334,000 shares, stock options exercisable into 1,265,000 shares of Common Stock at prices ranging from $0.10 to $1.00 per share, and warrants exercisable into 4,870,500 shares of Common Stock at prices ranging from $0.14 to $0.75 per share - a total of 22,523,065 shares of Common Stock and Common Stock equivalents. Alfa's board of directors and senior management did
not change as a result of the acquisition of JOL and terms of
the acquisition reflected the existence of the Common Stock
equivalents associated with Alfa's preferred stock. Accordingly,
Alfa has been considered the acquirer for accounting purposes.
(See Item 12, "Certain Relationships And Related Transactions".)
The operating results of JOL have been included in the Company's consolidated financial statements from the date of acquisition. Had the acquisition occurred January 1, 2005, proforma net sales, net loss, and diluted loss per share for the year ended December 31, 2005 would have been $271,331, $(6,064,251),and $(0.39), respectively.
Both Contact and Ty-Breakers are in the business of designing manufacturing and marketing apparel. Contact has developed a "private label" product line under the Ty-Breakers label consisting of outerwear. As previously disclosed, Contact exited the "branded business" during the third quarter of 2006 and management is attempting to salvage Contact as a viable business by re-positioning it as a "private label" apparel supplier. As of the date hereof management is examining various strategies and the Company may discontinue Contact's business in its entirety. Contact's sales targets were not met in 2006 and management is studying its alternatives. Between June and December of 2006, the Company and Contact terminated the employment (and consulting agreements) of Contact's former President and of its former Vice-President of Sales.
As previously disclosed Ty-Breakers, during the past several years, has not represented a material portion of the Company's revenue and the Company intends, subject to Contact continuing as viable business, to combine Ty-Breakers into Contact.
Alfa International Holdings Corp. ("Alfa") was incorporated in Delaware in 2004 by Alfa International Corp. (the "Registrant")
solely for the purpose of effecting the change of corporate domicile of the Registrant to Delaware via a merger of the Registrant with and into Alfa. In May 2005 the Registrant's Board of Directors approved the change of its corporate domicile from New Jersey to Delaware and approved the merger of the Registrant with and into Alfa. The merger and change of Registrant's domicile were effective as of May 25, 2005.
JOL was incorporated in 2003 as a privately-held company and was acquired by Alfa on October 11, 2005. In connection with the acquisition, Alfa issued 16,284,278 shares of its Common Stock to the shareholders of JOL in exchange for all of the then outstanding capital stock of JOL. (See Item 12, "Certain Relationships And Related Transactions".)
In December 2005 Alfa sold a $250,000 convertible debenture to Cornell Capital Partners, LLP ("Cornell") and in January 2006 Alfa sold an additional $250,000 convertible debenture to Cornell. (See: Item 5 - "Market for Common Equity and Related Stockholder Matters" and Item 6 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity" and "Notes to Financial Statements - Note 7 - Convertible Debenture").
Since its acquisition of JOL in October 2005, Alfa concentrated its efforts on building and expanding JOL's business and, as indicated above, on re-positioning and attempting to salvage its Contact Sports business. Alfa presently concentrates the majority of its efforts on the development and expansion of JOL's business. Alfa maintains its corporate website at www.alfacorp.net.
The real-estate development business in Oman is a competitive business populated by companies with substantially greater financial, managerial and personnel resources than the Company presently possesses. Management believes that JOL's ability to assemble and coordinate a team of experienced American, European and Middle Eastern consultants in a wide variety of specialized
fields was crucial to JOL's success to date in advancing the
Omagine project to its present status. These consultants, some
of whom, depending upon future events, may become employees of
the Company - (See: "Exhibits - The Hamdan Agreement") - are
each highly experienced in their respective fields. Their fields
of expertise include, but are not limited to, the following:
strategic planning; visioning; branding; marketing; Islamic
scholarship & research; master planning; architecture;
conceptual design; project management; construction management;
general contracting; quantity surveying & costing; interior
design; landscape design; art; public policy; engineering
(structural, civil, mechanical, electrical, marine); Omani law;
cultural and exhibition design; interpretative design; tourism
experience designers; investment banking; structured finance;
motion based ride technology; film technology; training and
hotel management. In addition JOL's president, Frank J. Drohan,
has over 30 years of experience doing business across most of
the Middle East and is familiar with the cultural and business
environment of the region.
Several of JOL's competitors have already-established businesses
and brand reputations, but management believes that JOL's
advantage lies in the facts that (i) the uniqueness of the
Omagine Project is particularly attractive to the Government
(ii) JOL's senior management and Mr. Hamdan have established
strong and trusting relationships with the relevant Government
officials, and (iii) JOL has signed the J&P Agreement and Alfa
has signed the Hamdan Agreement (See: "Exhibits - The J&P
Agreement and The Hamdan Agreement"). JOL management believes it
can successfully compete in this marketplace through a
combination of unique development concepts, highly professional,
competent and experienced sub-contractors and consultants who
are well known to the Government and effective relationship
management.
The apparel businesses being conducted by Contact and Ty-Breakers in the United States (both branded and private- label) are a highly-competitive businesses populated by many companies with substantially greater financial, managerial and personnel resources than either Contact, Ty-Breakers or the Company possesses. The apparel business is characterized by frequent fashion changes, heavy advertising, promotion and fierce price competition. Ty-Breakers has few competitors but
very little demand for its Tyvek apparel. Within its branded niche of fashion athletic and lifestyle apparel, management believed that Contact's branded products were unique and distinctive, of superior quality and priced competitively. Management concluded, however, that it could successfully compete in Contact's highly competitive marketplace only through aggressive brand-building efforts requiring extensive and expensive marketing, promotion, advertising and public relations expenditures which the Company could not adequately finance. In the third quarter of 2006, management determined that the financial resources required to fund the significant effort to establish Contact's brand identity were too onerous and not available and the attempts to establish the branded business were ended. As discussed above Contact then focused on its private-label business but did not meet its 2006 sales objectives. Management is examining this issue and the Contact business and the Ty-Breakers business may become dormant or be sold or discontinued in their entirety by the Company.
JOL does not own or directly operate any engineering, design or construction companies or facilities and has no present plans to do so in the future. To date, JOL has generally conceived the development concepts and defined the "scope of work" and then, as required, contracted with various designers, architects, contractors and consultants in the United States, Europe and the Middle East to perform those tasks. There are many such designers, architects, contractors and consultants available with competitive pricing and JOL does not believe that the loss or inability to perform of any such designer, architect, contractor or consultant would have a material, adverse impact on JOL's business or operations. JOL believes it maintains a good working business relationship with its designers, architects, contractors and consultants and has written agreements with several of them. All copyrights to documents, designs and drawings executed by such independent designers, architects, contractors and consultants are the property of JOL. (See: "Patents, Copyrights and Trademarks").
JOL has engaged in significant marketing and promotional activities with respect to the Omagine Project and has to date incurred a significant amount of costs associated with these activities. These costs and expenses are generally associated with travel, consulting & professional fees, pre-planning and feasibility studies and with preparing and making presentations to prospective clients. A number of, or possibly all, of these costs may be recoverable as "development expenses" if and when a project is actually developed. Some of these costs, however, may be non-recoverable costs.
Contact had expended resources on marketing and promotion activities in the first half of 2006 in connection with its branded business but is not expected to incur such expenses in connection with its ongoing private label business.
JOL does not engage in any manufacturing activities and as such does not maintain any inventory and has no present plans to do so in the future.
Neither Contact nor Ty-Breakers own or directly operate any manufacturing or production facilities nor do they engage in any significant research and development activities. From time to time, Contact had maintained risk inventories but as of the date of this Report all inventory on hand is for orders already received by Contact.
Ty-Breakers purchasesd all of its Tyvek requirements directly from Du Pont in the United States or from Du Pont's Asian agent.
JOL is not dependent upon any patent, trademark or proprietary right of another with respect to its designs, drawings or development concepts. Under agreements with its outside designers, architects, contractors and consultants, JOL owns the copyrights, if any, to all documents, designs and drawings
executed on behalf of JOL by such independent designers, architects, contractors and consultants.
Contact is not dependent upon any patent, trademark or proprietary right of another with respect to its designs or products. Contact owns all U.S. rights to the trademark "Contact Sports" as registered with the U.S. Patent & Trademarks Office.
Ty-Breakers is the owner by assignment of U.S. Patent number 5,150,660 (the "Patent") which covers the material marketed under its registered trademark, Kensel. Ty-Breakers' exclusive right under the Patent to manufacture and sell Kensel products in the United States runs until the year 2009.
The Company expects that, in the event the Omagine project goes forward, OmagineCo will require several Omani governmental approvals of its services and products during the development, construction and operation of the Omagine Project. JOL does not anticipate any negative effects on its or OmagineCo's business from any existing or probable Omani governmental laws or regulations. OmagineCo will in all likelihood incur certain costs and sustain certain effects on its operations, all of which costs and effects are expected to be in the normal course of its business and associated with compliance with Omani regulation and laws, including environmental laws. Neither Alfa nor JOL requires any U.S. governmental approval of its services, products or activities in Oman nor does the Company anticipate any negative effects on the business of JOL from any existing or probable U.S. or Omani governmental laws or regulations.
Neither Contact nor Ty-Breakers require any governmental approval of their products nor does the Company anticipate any negative effects on the business of either Contact or Ty- Breakers from any existing or probable governmental laws or regulations. Neither Contact nor Ty-Breakers had any costs or effects on either of their operations associated with compliance with any local, state or federal environmental laws.
The Company has no full time paid employees. The Company had been obligated under separate consulting agreements to compensate Contact's former President and former Vice-President of Sales. These two consulting agreements were canceled in accordance with their terms during the third and fourth quarters of 2006, and these two individuals are no longer employees or consultants of the Company. The Company had engaged such former employees as consultants in which capacity they provided services for Contact similar to those previously provided by them as employees.
Alfa is obligated to pay its President and Chief Executive Officer an annual base salary of $125,000 through December 31, 2010 plus an additional amount based on a combination of net sales and earnings before taxes. The majority of salary payments to this individual have been deferred and accrued, effective October 1, 2004.
Alfa had been obligated to employ its Vice-President and Secretary at an annual base salary of $75,000 under an employment agreement which has been canceled. A portion of the salary payments due to this individual have been deferred and accrued and this individual continues to perform services for the Company as a consultant. An employment agreement with this individual may be renegotiated in the future depending upon the Company's financial performance at the time. The terms of such employment agreement, if any, cannot be determined at this time. (See "Directors and Executive Officers" and "Executive Compensation")
On March 19, 2007, Alfa and Mr. Sam Hamdan ("Hamdan") signed a consulting agreement (the "Hamdan Agreement") wherein Hamdan has agreed that up until the Financial Closing Date of the Omagine Project, Hamdan will perform those services for Alfa which a chief operating officer would otherwise perform, if Alfa had such an employee. In addition the Hamdan Agreement contemplates that, subsequent to the Financial Closing Date, Hamdan will become Alfa's President & Chief Operating Officer and an Alfa employee. (See: "Exhibits - The Hamdan Agreement")
The Company maintains its corporate offices at The Empire State Building, Suite 1103, 350 Fifth Avenue, New York, N.Y. 10118. The premises are leased by Contact Sports under a lease expiring February 28, 2013. The lease specifically allows Alfa and JOL as co-occupants. Contact also leases warehouse space in Jersey City, N.J. under a lease which has expired and now continues on a month to month basis. If the Omagine project goes forward, JOL's Omani subsidiary intends to lease office space in Muscat, Oman.
The Company knows of no material legal proceedings pending or threatened against it or any of its subsidiaries which, in the opinion of management, would have a material, adverse effect upon the Company's business or operations.
None.
Prior to October 10, 2005, the Registrant's Common Stock traded in the over-the-counter market under the symbol "TYBR" and from and after October 10, 2005 the new stock ticker symbol for the Registrant's common stock is "AHDS".
The following table sets forth the range of the high and low prices for the Common Stock for the four quarters in 2005 and 2006. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.
Quarter Ended High Low ------------- ---- --- 3/31/05 0.79 0.75 6/30/05 1.00 0.88 9/30/05 0.82 0.82 12/31/05 0.35 0.32 3/31/06 0.70 0.26 6/30/06 0.60 0.31 9/30/06 0.60 0.15 12/31/06 0.22 0.10 |
At December 31, 2006, Alfa had 32,112,964 shares of its $0.001 par value common stock ("Common Stock") issued and outstanding, and there were approximately 1,450 holders of record of such Common Stock.
Alfa has never declared any dividends on its Common Stock, and it is anticipated that any earnings in the foreseeable future will be retained for the Company's business. Any declaration in the future of any cash or stock dividends on Alfa's Common Stock will be at the discretion of the Board of Directors and will depend upon, among other things, earnings, the operating and financial condition of the Company, capital requirements and general business conditions.
Alfa (or, the "Corporation") is authorized to issue up to one million shares of its $0.001 par value preferred stock and has designated 150,000 shares of such preferred stock as Series B Convertible Preferred Stock (the "Preferred Stock"). At December
31, 2006, Alfa had 86,937 shares of Preferred Stock issued and outstanding, with the voting powers, preferences and rights as hereinafter set forth:
Price per Share: $40
Dividends:
(1) The holders of the shares of Preferred Stock (the "Preferred Shares") shall be entitled to receive, out of funds or out of shares of the Corporation's Common Stock legally available therefore, dividends at the annual rate of $2.00 per Preferred Share, either in shares of Common Stock or in cash, at the sole option of the Company, on the "Conversion Date" or on the "Redemption Date" (as those terms are hereinafter defined), and no more, payable in preference and priority to any payment of any cash dividend on the Common Stock or any other shares of capital stock of the Corporation. Such dividends shall be payable to the holders of record of the Preferred Shares on the close of business on either the Conversion Date or on the Redemption Date, as the case may be, (such date is referred to hereinafter as the "Dividend Payment Date"), provided that, before any dividend may be paid with respect to the Common Stock, or any other distribution of corporate assets made thereon, holders of the Preferred Shares shall receive all dividends accrued thereon.
2) Each of such annual dividends shall be fully cumulative and shall accrue, whether or not declared, without interest, from the first day of the period in which such dividend may be payable as herein provided.
(3) No dividends shall be declared or paid or set apart for payment on the Common Stock, or on the preferred stock of any series ranking, as to dividends, junior to the Series B Preferred Stock, for any period unless fully cumulative dividends have been or contemporaneously are declared and paid (or declared and a sum sufficient for the payment thereof has been set aside for such payment) on the Series B Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of such fully cumulative dividends. Unless fully cumulative dividends have been paid on the Series B Preferred Stock, no other distribution shall be made upon the Common Stock of the Corporation or upon any securities junior to the Series B Preferred Stock.
Conversion:
The holders of the Preferred Shares shall have conversion rights as follows:
(1) Mechanics of Conversion
In order for a holder of Preferred Shares to convert all or some portion of the Preferred Shares into shares of Common Stock, and subject to the restrictions set forth herein, such holder shall surrender the certificate or certificates for such Preferred Shares [the "Preferred Share Certificate(s)"] at the office of the transfer agent of the Preferred Stock (or the principal office of the Corporation, if the Corporation serves as its own transfer agent) together with written notice as set forth in the conversion certificate executed by such holder ("Notice") that such holder elects to convert all or a specified number of Preferred Shares represented by such Preferred Share Certificate(s), provided that conversion shall not be permitted with respect to less than 100 Preferred Shares at any one time unless such shares represent the full amount then convertible as set forth herein, and accompanied, if required by the Corporation, by such holder's blank executed stock power. The "Conversion Date" shall be the date of receipt of such Preferred Share Certificate(s) and Notice by the transfer agent (or by the Corporation, if the Corporation serves as its own transfer agent). The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver to such holder of the Preferred Shares, a certificate for the number of shares of Common Stock to which such holder shall be entitled.
(2) Right to Convert
Subject to the provisions for adjustment and Redemption
hereinafter set forth, on or after the date of issuance of the
Preferred Shares (the "Issue Date"), each such Preferred Share
shall be convertible (the "Conversion Right"), at the option of
the holder thereof, into forty (40) shares of Common Stock plus
the number of shares of Common Stock determined by dividing the
sum of (x) the accrued dividends as of the Conversion Date on
the Preferred Shares to be converted, by (y) one dollar ($1.00)
[the "Conversion Price"].
(3) Reservation of Shares of Common Stock
The Corporation shall, for so long as there are Preferred Shares outstanding, reserve and keep available out of its authorized but un-issued shares of Common Stock, for the purpose of effecting the conversion of the Preferred Shares, such number of duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares, and the Corporation will use its reasonable best efforts to take the action necessary to increase the number of reserved shares from time to time, if needed, and to increase the number of authorized shares of Common Stock if such an increase becomes necessary to permit exercise of the Conversion Right.
(4) Conversion Adjustment.
The number of shares of Common Stock into which the Preferred Shares may be converted shall be subject to adjustment from time to time under certain circumstances as follows:
(i) In the event that the Corporation shall at any time prior to such conversion either: (a) subdivide the outstanding shares of Common Stock into a greater number of shares, (b) combine the outstanding shares of Common Stock into a smaller number of shares, (c) change the outstanding shares of Common Stock into the same or a given number of shares of another class or classes of shares, or (d) declare a dividend on or in respect of the outstanding shares of Common Stock or other securities of the Corporation, or (e) offer to all the holders of the shares of Common Stock any rights to subscribe for shares or for other securities of the Corporation, then the holders of the Preferred Shares shall be entitled, as the case may be, to receive the same number of shares of Common Stock or other securities of the Corporation, or to purchase at the same price that the shares or securities are being offered to all the holders of the shares of Common Stock, the number of such shares or the amount of such securities as will represent the same proportional ownership of the outstanding shares of Common Stock prior to such increase or decrease as they would have been entitled to receive or subscribe for, as the case may be, had they been holders of the number of shares of Common Stock into which their Preferred Shares were convertible on the record date for any such event.
(ii) In the event of a merger, including any statutory merger of the Corporation with and into any of its wholly-owned subsidiaries ("Merger"), lawful provision shall be made as part of the terms of such Merger that all the Preferred Shares then outstanding, if any, (together with all accumulated dividends thereon) shall be automatically converted into the right to receive the number of such shares or the amount of such securities or assets as the holders of such Preferred Shares would have been entitled to receive had they been holders of the number of shares of Common Stock into which their Preferred Shares were convertible on the record date for any such Merger.
(iii) In the event of the sale of substantially all the assets of the Corporation, lawful provision shall be made as part of the terms of such sale that all the Preferred Shares then outstanding, if any, (together with all accumulated dividends thereon) shall be automatically converted into the right to receive the same kind and amount of securities or assets as may be issuable, distributable or payable upon such sale with respect to the shares of Common Stock of the Corporation.
(5) Fractional Shares.
The Corporation shall not issue fractional shares in satisfaction of the Conversion Right of the Preferred Shares or in satisfaction of dividends on the Preferred Shares, but, in lieu thereof, all such fractional shares, if any, shall be rounded up to the nearest whole share amount on the Conversion Date or Dividend Payment Date, as the case may be.
(6) From and after the Conversion Date, unless there shall have been a default in payment of the Conversion Price, all rights of the holders of the Preferred Shares designated for conversion in the Notice or in the Merger as holders of the Preferred Shares (except the right to receive the Conversion Price without interest upon surrender of their certificate or certificates) shall cease with respect to such Preferred Shares designated for conversion, and such Preferred Shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
Redemption:
(1) At any time after twelve months after the Issue Date (or at
any time upon the mutual agreement of the Corporation and all holders of Preferred Shares), while there are such Preferred Shares outstanding, the Corporation may, at the option of its Board of Directors, redeem all or any number of such Preferred Shares then outstanding by paying $40 per Preferred Share for each Preferred Share so redeemed plus all accrued but unpaid dividends then outstanding on the Preferred Shares so redeemed (the "Redemption Price"). The Redemption Price may be paid, at the Company's sole discretion, in cash or in shares of the Company's Common Stock valued at one dollar ($1.00) per share of Common Stock.
(2) At least 30 days prior to the date fixed for any redemption of the Preferred Shares (hereinafter referred to as a "Redemption Date"), written notice shall be mailed, by first class or registered mail, postage prepaid, to each holder of record of Preferred Shares to be redeemed, to the address of such holder shown on the records of the Corporation, notifying such holder of the election of the Corporation to redeem such Preferred Shares, indicating whether the Redemption Price will be paid in cash or in shares of Common Stock, specifying the Redemption Date, which will also be the date on which such holder's Conversion Right pursuant to this Certificate as to such Preferred Shares being redeemed shall terminate, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the Preferred Shares to be redeemed (such notice is hereinafter referred to as the "Redemption Notice"). On or prior to the Redemption Date, each holder of the Preferred Shares to be redeemed shall surrender his or its certificate representing such Preferred Shares to the Corporation in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such Preferred Shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of the Preferred Shares designated for redemption in the Redemption Notice as holders of the Preferred Shares (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such Preferred Shares designated for redemption, and such Preferred Shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
3) Subject to the provisions hereof, the Board of Directors of the Corporation shall have authority to prescribe the manner in which the Preferred Shares shall be redeemed. Any Preferred Shares so redeemed shall be permanently retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Preferred Shares accordingly.
Voting:
Except as may be required by the Delaware General Corporation Law or as set forth in the next following sentence, the Preferred Shares shall not be entitled to vote on any matters submitted to the stockholders of the Corporation. Without the approval of holders of a majority of the outstanding Preferred Shares, the Corporation shall not (1) authorize, create or issue any shares of any class or series ranking senior to the Preferred Shares as to liquidation rights, (2) amend, alter or repeal, by any means, the Certificate of Incorporation whereby the powers, preferences, or special rights of the Preferred Shares would be adversely affected or (3) subject the Preferred Shares to any restrictions, other than restrictions arising solely under the Delaware General Corporation Law or existing under the Corporation's Certificate of Incorporation.
Liquidation:
In the event of a liquidation, dissolution or winding up of the Corporation, the holders of the Preferred Shares shall be entitled to receive, after due payment or provision for the payment of the debts and other liabilities of the Corporation and prior to any liquidating distribution in respect to any other class of stock, a liquidating distribution equal to the Redemption Price.
Other:
The Corporation is authorized to issue the balance of the preferred stock not designated or otherwise provided for herein, from time to time in one or more series, with such designations,
relative rights, preferences or limitations permitted by the relevant provisions of the Delaware General Corporation Law as shall be fixed by the Board of Directors in the resolution or resolutions providing for the issuance of such stock, in respect of any class or classes of stock or any series of any class of stock of the Corporation which may be desired but which shall not be fixed by the provisions contained herein. The Board of Directors is expressly authorized to adopt such resolution or resolutions providing for the issuance of such stock, including the power to specify the number of shares in any series, from time to time, as the Board of Directors, in its discretion, may deem desirable.
On December 8, 2005, Alfa entered into a Securities Purchase Agreement (the "Purchase Agreement") with Cornell Capital Partners, LP ("Cornell"). Upon the terms and subject to the conditions contained in the Purchase Agreement and other documents executed coincident with the Purchase Agreement (collectively, the "Transaction Documents"), the Company agreed to sell to Cornell and Cornell agreed to purchase up to $500,000 of secured convertible debentures (each, a "Convertible Debenture" and collectively, the "Convertible Debentures"). Pursuant to the Purchase Agreement, on December 8, 2005 Cornell purchased a Convertible Debenture (the "First Debenture") from the Company in the face amount of $250,000 for a like amount. The principal sum of the First Debenture together with accrued but unpaid interest at an annual rate of 10% was payable on or before December 7, 2008. Pursuant to the Purchase Agreement, on January 24, 2006 Cornell purchased a second Convertible Debenture (the "Second Debenture") from the Company in the face amount of $250,000 for a like amount. The principal sum of the Second Debenture together with accrued but unpaid interest at an annual rate of 10% was payable on or before January 23, 2009.
As of the date of this Report the Convertible Debentures and all accrued interest thereon have been paid in full.
The Company had the right, with three business day's advance written notice, to redeem a portion or all amounts outstanding under the Convertible Debentures prior to their maturity dates as follows: the Company would have had to pay an amount equal to
the principal amount outstanding and being redeemed plus accrued interest thereon, plus a redemption premium of 20% of such principal amount being redeemed.
The Convertible Debentures were convertible into shares of the Company's Common Stock at the option of Cornell. The number of shares of Common Stock issuable upon a conversion equaled the quotient obtained by dividing the then outstanding amount of the Convertible Debenture to be converted (plus accrued interest thereon, if the interest was also being converted) by a price per share equal to 90% of the lowest volume weighted average price ("VWAP") of the Company's Common Stock during the fifteen trading days immediately preceding the conversion date, subject to adjustments set forth in the Convertible Debentures (the "Conversion Price").
No event of default, as defined in the Convertible Debentures, occurred. The Convertible Debentures were secured pursuant to the terms of a Pledge and Escrow Agreement the Company entered into on December 8, 2005 with Cornell and David Gonzalez, as "Escrow Agent". Pursuant to the Pledge and Escrow Agreement, the Company pledged 3,000,000 shares of its Common Stock (the "Pledged Shares") to secure payment of the Convertible Debentures. The certificate issued in the name of the Company representing the Pledged Shares which was delivered to the Escrow Agent has been returned to the Company for cancellation and Cornell has filed the appropriate documents to extinguish and terminate their security interests in any of the Company's assets.
On December 8, 2005, the Company also entered into a Registration Rights Agreement with Cornell. Pursuant to the Registration Rights Agreement, the Company agreed to prepare and file with the SEC a registration statement for the resale by Cornell of the shares of Common Stock to be issued upon conversion of the Convertible Debentures and the 257,732 shares of Common Stock underlying the Warrant. The Company filed such registration statement with the SEC on Form SB-2 on January 23, 2006. The registration statement was declared effective by the SEC on July 24, 2006.
Pursuant to the Purchase Agreement, the Company issued a warrant dated December 8, 2005 ("Warrant") to Cornell to purchase 257,732 shares of Common Stock at an exercise price of $0.97 per
share, subject to adjustment as set forth in the Warrant (the "Exercise Price"). The Warrant expires on December 7, 2010. If at the time of exercise of the Warrant, the shares of Common Stock underlying the Warrant are not subject to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), the holder of the Warrant, in lieu of making payment of the Exercise Price in cash, may elect a cashless exercise in accordance with the formula set forth in the Warrant.
If, subject to the exceptions set forth in the Warrant, during the time that the Warrant is outstanding the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than a price equal to the then Exercise Price, then the Exercise Price will be reduced to an amount equal to such consideration per share. Upon each such adjustment, the number of shares of Common Stock issuable upon exercise of the Warrant will be adjusted to the number of shares determined by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares issuable upon exercise of the Warrant immediately prior to such adjustment and dividing the product by the Exercise Price resulting from such adjustment. Similar adjustments will be made upon any issuance or sale by the Company of options to purchase Common Stock or convertible securities.
The Debentures and the Warrant were issued pursuant to Rule 506 of Regulation D promulgated under the Act and/or Section 4(2) of the Act. The transaction documents were filed as exhibits to the Company's filing on Form 8-K dated December 9, 2005.
In accordance with Emerging Issues Task Force Issue 98-5, Accounting for Convertible Securities with a Beneficial Conversation Feature or Contingently Adjustable Conversion Ratios ("EITF 98-5"), Alfa recognized an imbedded beneficial conversion feature present in the Debentures.
Alfa allocated a portion of the proceeds equal to the intrinsic value of that feature to capital in excess of par value. Alfa measured an aggregate of $184,986 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, and recognized it to capital in excess of par value and a discount against the debentures. The discount is amortized over the convertible debentures' maturity period
(three years) as interest expense.
In connection with the issuance of the Debentures, Alfa issued a warrant granting the holder the right to acquire 257,732 shares of Alfa's Common Stock at an exercise price of $0.97 per share, subject to certain adjustments.
In accordance with Emerging Issues Task Force Issue 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments ("EITF - 00-27"), Alfa recognized the value attributable to the warrant in the amount of $69,421 to capital in excess of par value and a discount against the Debenture. Alfa valued the warrant in accordance with EITF 00-27 using the Black-Scholes pricing model.
The transfer agent for Alfa's Common Stock is Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004.
The transfer agent for Alfa's Preferred Stock is Alfa International Holdings Corp., 350 Fifth Avenue, Suite 1103, New York, New York 10118.
The financial statements for fiscal years 2006 and 2005 have been audited by the Company's independent certified public accountants. All of the Company's operations are conducted through its wholly-owned subsidiaries, JOL, Contact and Ty- Breakers.
During 2006, Alfa concentrated on (1) concluding the Development Agreement with the Government of Oman with respect to the Omagine Project proposed by JOL, and (ii) re-positioning Contact's business as a private label business.
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.
Revenue Recognition. Revenue is recognized at Contact and Ty- Breakers when goods are shipped to customers from the Company's outside warehouse. The method of revenue recognition at JOL will be determined by management when and if it becomes likely that JOL will begin generating revenue.
Valuation Allowance for Deferred Tax Assets. The carrying value of deferred tax assets assumes that the Company will not be able to generate sufficient future taxable income to realize the deferred tax assets, based on management's estimates and assumptions.
With the exception of historical information, the matters discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements under the 1995 Private Securities Litigation Reform Act that involve various risks and uncertainties. Typically, these statements are indicated by words such as "anticipates", "expects", "believes", "plans", "could", and similar words and phrases. Factors that could cause the company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following:
* Failure of OmagineCo to sign the Development Agreement with the Government of Oman.
* Failure of OmagineCo to obtain the necessary Construction Financing required to design, build and operate the Omagine Project.
* Inability of the Company to secure additional financing;
* Unexpected economic or political changes in the United States or abroad; and
* The imposition of new restrictions or regulations by government agencies in the U.S or abroad that affect the Company's business activities.
The following discussion highlights the Company's business activities during the fiscal years 2006 and 2005.
Results of Operations:
Fiscal Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31, 2005
JOL, which was acquired in October 2005, did not generate any revenue in 2005 and the $1 million revenue in 2006 at JOL was a non-recurring item attributable to a contract settlement. On May 1, 2006 a previously disclosed dispute between JOL and the State of Qatar was settled by the State of Qatar paying JOL $1 million. The present nature of JOL's business is such that it is not expected to generate revenue until after the occurrence of an event - the development of the Omagine project - which, as of the date hereof, is not certain to occur. (See: "Description of Business - Products, Services - The Omagine Project").
The Company's total revenue in 2006 was $1,182,323, an increase of $910,992 (336%) from fiscal year 2005. This increase was attributable to a $1 million contract settlement at JOL mentioned above, net of an approximately $89,000 decrease in apparel product sales during the fiscal year. Although Contact's President and Vice-President of Sales were terminated during 2006 the ongoing business operations of Contact and Ty-Breakers continue and the Company expects to fill the Contact orders presently on hand and will continue to fill any future orders
received for (i) Contact's private-label products, or (ii) Ty- Breakers' products.
The cost of sales percentage (for apparel sales) was 73% in fiscal 2006 and 87% in fiscal 2005. As of the date of this Report Contact has a backlog of $40,000 of unfilled orders. The Company will hereafter rely primarily on its JOL subsidiary's operations for future revenue generation. Management is presently examining other possible sources of revenue for JOL which, subject to the Development Agreement being executed by OmagineCo and the Government of Oman, may be added to JOL's operations.
Contact's inventory at December 31, 2006 was $13,063 and was entirely associated with orders on hand at the time. No future investment in inventory is expected other than inventory manufactured and sold pursuant to specific purchase orders.
Selling and marketing expenses were $105,641 during 2006, compared to $108,003 in 2005. This decrease of $2,362 (2%) was a reflection of a decrease in such costs at Contact and an increase in such costs at JOL. The Company's marketing and promotional expenditures were $53,250 during 2006; $11,950 at Contact and $41,300 at JOL. No further significant selling and marketing expenses are expected to be incurred by Contact or Ty- Breakers until management determines on a strateg for Contact. Assuming a positive outcome of the current Discussions regarding the Omagine Project, the Company (primarily through JOL's ownership of OmagineCo) is expected to incur significant expenses related to marketing, public relations and promotional expenditures in the future.
General and administrative expenses of $1,587,854 in fiscal 2006 were $4,232,776 (73%) lower than the $5,820,630 incurred in fiscal 2005. The primary reason for this decrease was the $5,079,919 non-cash extraordinary expense incurred in 2005 to recognize the goodwill impairment associated with the acquisition of JOL in October 2005. Excluding this 2005 extraordinary item, the Company's general and administrative expenses of $1,587,854 in fiscal 2006 represent an increase of $847,143 (114%) over the $740,711 of corresponding general and administrative expenses in fiscal 2005. This $847,143 increase was primarily attributable to increased costs associated with Alfa's sale of the Debentures and to costs incurred during 2006
at JOL (which was not owned by Alfa during the first nine months of 2005) for travel, consulting, legal and professional fees associated with the Omagine Project, including costs and fees related to JOL's March 2006 presentation of the Omagine Project to the Government of Oman.
The Company sustained a net loss of $767,951 during 2006 as compared to a net loss of $5,900,662 during 2005. The primary reason for this decrease of $5,132,711 (87%) in the Company's net loss was the $5,079,919 extraordinary goodwill expense incurred in 2005 mentioned above. Excluding this 2005 extraordinary item, the Company's net loss of $767,951 in fiscal 2006 represents a decrease of $52,792 (6%) over the corresponding net loss of $820,743 in 2005 and furthermore the Company's 2006 net loss is ameliorated by the $1 million extraordinary income item in 2006 attributable to the above- mentioned settlement with the State of Qatar. Amortization of $84,735 of non-cash costs associated with the Debenture financing and $56,791 of non-cash costs associated with stock based compensation related to stock options were incurred by the Company in 2006. After provision for the payment of $21,042 in dividends on its preferred stock, the Company sustained a net loss applicable to common stockholders of $788,993 in 2006. The 2006 period includes the results of JOL for a full fiscal year as opposed to the 2005 period which only includes JOL's results for one fiscal quarter.
The Company expects to experience losses for at least the next several quarters due to an insufficient level of revenue. The Company will need to raise significant capital and/or secure significant financing in order to execute its presently conceived business plan with respect to JOL. The continued losses for the Company are attributable to the failure to attain a sufficient level of sales and revenue. The Company will need to substantially increase its sales revenue in order to attain profitability.
No significant capital expenditures were incurred during fiscal year 2006. Depending upon the outcome of current negotiations and the availability of resources, the Company may incur significant expenses related to capital expenditures during fiscal 2007.
Liquidity and Capital Resources
The Company has experienced negative cash flows from operations
for the past several years. In 2006, the Company's negative cash
flow from operations of $(306,228) was offset primarily by its
positive cash flow from financing activities of $296,517,
consisting of: the $215,000 net proceeds from the sale by the
Company of a Debenture; the $20,000 net proceeds from the sale
by the Company of shares of its Common Stock; and the $51,517
proceeds from loans to the Company from Officers and Directors.
The Company incurred net losses of $ 767,951; $5,900,662;
[$820,743 before a non-cash charge of $5,079,919 for goodwill
expense] and $1,020,624 in fiscal 2006, 2005 and 2004,
respectively, an aggregate net loss of $7,689,237 [$2,609,318
before a non-cash charge in 2005 of $5,079,919 for goodwill
expense] for those three fiscal periods. The Company does not
expect to incur any expenses in the forseeable future for
advertising, marketing or promotional expenses for Contact but
does expect, subject to the Omagine Project going forward, such
expenses to increase at OmagineCo.
At December 31, 2006, the Company had a working capital deficit of ($920,162), compared to a working capital deficit of ($633,747) at December 31, 2005. This $286,415 increase in the Company's working capital deficit is attributable to a $288,128 increase in current liabilities consisting of:
(a) $196,662 in additional accounts payable [primarily due to professional fees at JOL];
(b) $145,630 of additional accrued payroll liabilities; and
(c) a $51,517 increase in loans to the Company from officers and directors
offset by:
(a) a $16,028 reduction in customer deposits payable;
(b) a $46,670 reduction in accrued expenses
(c) $42,983 decrease in preferred stock dividends payable,
At December 31, 2006, the Company had $67,831 in current assets, consisting of $27,961 in cash, $26,276 in accounts receivable; $13,063 of inventory and $531 of prepaid assets.
The Company's current liabilities at December 31, 2006 totaled $987,993, consisting of $603,783 of accounts payable and accrued expenses, $12,140 of customer deposits, $51,517 due to officers and directors and $320,553 in accrued payroll.
Of the $987,993 of current liabilities at December 31, 2006, - $617,519 or 63% represents amounts which are either (i) due to officers and/or directors ($372,070), or (ii) have, as of the date of this Report, been exchanged for shares of Common Stock ($245,449) in lieu of cash.
The $306,228 of funds used by operating activities during 2006 were used primarily to fund the net loss of $767,951 [less the non-cash charges totaling $157,462] plus the increases in accounts receivable ($23,646) and inventory ($11,643)and the decreases in customer deposits($16,028) and accrued expenses ($46,670). Operating funds were primarily provided by decreases in prepaid expenses ($19,971) and increases in accounts payable ($196,663), accrued interest payable ($40,219) and accrued payroll ($145,630).
Funds totaling $3,894 were invested during 2006 in computer and office equipment.
Funds totaling $296,517 were provided by financing activities during 2006 from proceeds realized from the sale of common stock ($20,000)and a Debenture ($225,000) and from loans and advances to the Company from officers and directors ($51,517).
As a result of the foregoing, the Company had a cash balance at December 31, 2006 of $27,961 as compared to a cash balance of $41,566 at December 31, 2005.
The Company will rely principally upon the business of its JOL subsidiary for revenue growth.
The continuation of JOL's efforts to organize OmagineCo, sign the Development Agreement and develop the Omagine Project is also contingent upon the receipt by Alfa and/or JOL of the necessary financing to fund JOL's operations.
The Company will need to raise significant additional capital and/or secure significant additional financing in order to execute its presently conceived business plan with respect to JOL. There can be no assurance given at this time that the Company will be able to raise or secure the significant amounts of financing necessary for it to execute its presently conceived business plan. The Company's inability to secure or arrange additional funding to implement JOL's business plan will significantly affect JOL's - and the Company's - ability to continue operations.
The Company does not expect the apparel businesses of either Contact or Ty-Breakers to provide the funding necessary for the Company's planned operations.
In March 2004 Contact entered into a one-year agreement (the "Factoring Agreement") with a company ("Factor") specializing in factoring accounts receivable. The Factoring Agreement was deemed renewed from year to year following the initial term unless terminated with notice by either party. In March 2006 Contact gave such notice of termination to the Factor and subsequently the Factor and Contact agreed to continue the Factoring Agreement after March 2006 on a month-to-month basis. The Factoring Agreement continued in effect until March 15, 2007 when it was terminated in accordance with its terms by Contact.
Prior to the date hereof, the Company has to a great extent relied on the net proceeds from private placement sales of its Debentures and equity securities to fund its operations. No assurances can be given that such sales will be able to be made in the future.
As of the date hereof, Alfa has 4,100,500 warrants outstanding
at an exercise price of $0.75 per share of Common Stock. The
Company reduced the exercise price of these warrants to $0.60
for the period beginning June 7, 2005 and ending August 12, 2005
(the "Exercise Period"). During the Exercise Period warrant
holders exercised 253,500 warrants at the reduced exercise price
of $0.60 per share and the Company received net proceeds
therefrom of $137,490. The remaining 4,100,500 unexercised
warrants are exercisable at $0.75 per share and the Board of
Directors has extended their expiration date from April 30, 2007
to July 31, 2007. Alfa has other warrants issued and outstanding
at varying exercise prices and expiration dates. (See: Notes to
Financial Statements - Note 6)
The general level of inflation both in the U.S and Oman has been relatively low during the last several fiscal years and has not had a significant impact on the Company. This condition is expected to continue during fiscal 2007.
As discussed just prior to Item 1, "Description of Business", certain statements made in this report on Form 10-KSB are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could materially differ from those set forth in the forward-looking statements. Certain factors that could cause such differences include but are not limited to: the uncertainty of success associated with JOL's ongoing efforts relative to its contract negotiations with the government of the Sultanate of Oman relating to the Omagine project; the uncertainty associated with political events in the Middle East in general; and the success or failure of Alfa's continuing efforts to secure additional financing.
The response to this item is submitted as a separate section to this report commencing on Page F-1.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
------- -------------------------------------------------
None
Item 8A. Controls and Procedures
------- -----------------------
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Within the 90 days prior to the date of the filing of this Form 10-KSB, the Company carried out an evaluation under the supervision and participation of management, including the Company's chief executive and financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rule 13a-14(c) and 15d-14(c). Based upon that evaluation, the Company's chief executive and financial officer concluded that the Company's disclosure controls and procedures are effective in timely alerting him to material information relating to the Company required to be included in the Company's periodic SEC filings. There have been no significant changes in the Company's internal controls or other factors which could significantly affect internal controls subsequent to the date of the evaluation.
The Company is a non-accelerated filer and is required to comply with the internal control reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act for fiscal years ending on or after July 15, 2007. Although the Company is working to comply with these requirements, the Company has no employees. The Company's lack of employees is expected to make compliance with Section 404 - especially with segregation of duty control requirements - very difficult and cost ineffective.
None
The present Directors and Executive Officers of the Company are as follows:
Name Age Position
---- --- --------
Frank J. Drohan 62 Chairman of the Board of
Directors, President, Chief
Executive & Financial Officer
Charles P. Kuczynski 53 Vice-President, Secretary and
Director
Salvatore J. Bucchere 63 Director
Kevin O'C. Green 59 Director
Louis J. Lombardo 62 Director
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Frank J. Drohan has served as a Director, Chairman of the Board, President and CEO of Alfa since 1991. Mr. Drohan was also Chairman of the Board, President and sole shareholder of Rif International Corp., a privately held company which had extensive overseas activities in the Middle East between 1977 and 1986. Rif ultimately acquired the Ty-Breakers business and was itself acquired by Alfa in 1997. Mr. Drohan serves as a Director and the Chairman of all of Alfa's subsidiaries. He is also a Director and the Chairman of The Renaissance Team, Inc.("TRT") and Renaissance Development Holdings, Inc.("RDH"), both of which are privately held companies offering a wide variety of services including: branding, marketing, management, political and strategic visioning, and development management consulting services.
Charles P. Kuczynski served as a Director and Secretary of Alfa between 1988 and 1993 and from 1996 to the present and is
also President of Ty-Breakers Corp. and Vice-President of Contact Sports, Inc. Mr. Kuczynski serves as a Director and the Secretary of all of Alfa's subsidiaries. He also serves as the Secretary of TRT and RDH.
Salvatore J. Bucchere has served as an outside Director of Alfa since October 2001. Mr. Bucchere holds a bachelors degree in business administration in Accounting from St. Johns University in New York. From 1965 to 1968 he was employed as a management consultant with Arthur Young & Co. and Main LaFrentz & Co. in New York. From 1968 to 1971, Mr. Bucchere taught accounting and law at Bishop Ford high school in Brooklyn. From 1971 to 1977, he served as the Secretary and Vice president of Centennial Industries, as a director of its Biddle Purchasing Co. subsidiary and as president of its Jabro Automotive Co. subsidiary. During this time, he was one of the founders, with Mr. Drohan, of Biddle International Sales Co. From 1977 to 1979, he was a Vice President and Director of Rif International Corp. From 1979 to 1982 he was Executive Vice President of Custom Carburetor Co. From 1982 until its bankruptcy filing in 2003, he was Chairman of the Board and controlling shareholder of Columbia Products Co., formerly a manufacturer and distributor of rebuilt carburetors and automotive parts in the eastern United States. Presently, Mr. Bucchere is president of an energy conservation consulting firm.
Kevin O'C. Green graduated from St. Peter's Preparatory School, Jersey City, New Jersey in 1966 and graduated from the College of St. Thomas, St. Paul in Minnesota in 1970 with majors in Geology and Philosophy. He graduated from the University of Minnesota Law School in 1975 and has practiced law in Minnesota as a trial lawyer since that time. He has extensive experience in business litigation including securities fraud and his law practice has extended to several different states. He has represented many business clients over the years, including the Minneapolis Star and Tribune. Mr. Green also has business interests in Honduras where he is the owner of a mining company. Mr. Green lives and practices law in Mankato, MN and he has been an Alfa director since 2001.
Louis J. Lombardo became an Alfa Director on July 1, 2005. Mr. Lombardo retired after 35 years at American Express where he was Executive Vice President - Travel Related Services. In this capacity he led an organization of worldwide operating centers
employing over 14,000 people and managed a $1.3 billion operating budget and a $600 million capital budget. His responsibilities included controlling International Risk Management & Global Fraud as well as customer service for both Cardmembers and Merchants. Mr. Lombardo holds an MBA degree from New York University. Presently, Mr. Lombardo runs his own consulting company and owns and operates two privately held businesses. He lives in New York City.
At December 31, 2005, the Board of Directors of Alfa consisted of two inside directors: Frank J. Drohan and Charles P. Kuczynski, and three independent outside directors: Salvatore J. Bucchere, Kevin O'C. Green and Louis J. Lombardo. Directors are elected to serve for one-year terms or until their successors are duly elected and qualified. Officers serve at the discretion of the Board of Directors. Inside Directors receive no fees for acting as such. Independent outside Directors receive stock options and receive a minimal fee for attendance at the Company's annual meeting and are entitled to reimbursement of reasonable out-of-pocket expenses incurred in attending meetings.
The Company has an audit committee and a compensation committee each designated by the Board of Directors. The members of the Audit Committee are Mr. Bucchere, Mr. Green and Mr. Drohan. Mr. Bucchere, who is an independent outside director, is the Chairman of the Audit Committee and is an audit committee financial expert. See: ("Item 9 - Salvatore J. Bucchere").
The Company intends to adopt during the second quarter of 2007 a code of ethics that applies to its principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions. More time was needed to complete the drafting of the Company's code of ethics and to get it approved by the Board of Directors. The Company intends to post a copy of its code of ethics on the Company's website, www.alfacorp.net in 2007.
JOL's primary strategic consultant, Mr. Sam Hamdan ("Hamdan"), President & Chief Strategist of the Michigan based Global Leadership Team, is a native of Lebanon, a citizen of the U.S. and widely known across the Middle East for his work in organizing and directing various high level conferences dealing with leadership, strategic planning, entrepreneurship,
innovation and economic matters. Mr. Hamdan, who has two Masters
Degrees and is fluent in both Arabic and English, is the
isionary who created the "U.S.- Arab Economic Forum" held bi-
nnually in the United States (see: www.usaeforum.org and
www.usaeforum.org). The Forum is held in cooperation with, among
others, the U.S. Departments of State and Commerce. In 2006 Mr.
Hamdan and GLT also organized and delivered the World Summit on
Innovation and Entrepreneurship in Muscat, Oman (www.wsie.org)
and Mr. Hamdan and his branding experts at GLT were the
developers of the Omagine brand for JOL. On March 19, 2007 Alfa
and Hamdan signed a consulting agreement (the "Hamdan
Agreement") wherein Hamdan has agreed that up until the
Financial Closing Date of the Omagine Project, Hamdan will
perform those services for Alfa which a chief operating officer
would otherwise perform, if Alfa had such an employee. The
Hamdan Agreement does not obligate Alfa to pay any cash
compensation to Hamdan for his services thereunder but does
grant Hamdan options to purchase up to 800,000 shares of Alfa's
Common Stock at a purchase price of $0.25 per share, exercisable
ratably over five (5) years from the date of the Hamdan
Agreement (the "Hamdan Options"). In addition the Hamdan
Agreement contemplates that, subsequent to the Financial Closing
Date, Hamdan will become Alfa's President and Chief Operating
Officer and an Alfa employee. The Hamdan Options are exercisable
only during periods which (i) the Hamdan Agreement remains in
effect, or (ii) Mr. Hamdan is an employee of Alfa. (See:
"Exhibits - The Hamdan Agreement")
Section 16(a) Beneficial Ownership Reporting Compliance
NONE
The following table sets forth information relating to the aggregate compensation received by the then current Executive Officers of the Company for services in all capacities during the Registrant's three fiscal years indicated for (i) the Chief Executive and Financial Officer, and (ii) each then current executive officer whose total cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
(a) (b) (c) (d) (e) (f) (g)
Accrued Salary Option
Name and Principal Salary(1) Bonus Payable(1) Awards(2) Total
Position Year ($) ($) ($) ($) ($)
------------------- ---- --------- ----- ------------- ------ ----------
Frank J. Drohan
Chief Executive and
Financial Officer 2006 $26,042 0 98,958 $ 7,500 $132,500
2005 $ 0 0 125,000 $ 0 $125,000
2004 $79,167 0 45,833 0 $125,000
(1) Amounts included under Column (c) represent cash salary
payments and amounts included under Column (e) represent
unpaid salary which has been accrued on registrant's books.
46
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(2) Column (f) represents the dollar amount recognized as
compensation expense for financial statement reporting
purposes for the year indicated under SFAS No. 123(R),
and not an amount paid to or realized by the named
Executive Officer. The amount shown represents awards
granted prior to 2006. There can be no assurance that the
amounts determined by SFAS No. 123(R) will ever be
realized. Assumptions used in the calculation of these
amounts are included in Note 1- STOCK-BASED COMPENSATION
- to the Company's audited financial statements for the
fiscal year ended December 31, 2006.
Management has concluded that the aggregate amount of personal
benefits does not exceed 10% of the total compensation reported
in column (g) of the foregoing table as to any person
specifically named in such table.
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The following table shows the number of shares covered by exercisable and unexercisable options held by the Company's Chief Executive Officer on December 31, 2006.
ALFA INTERNATIONAL HOLDINGS CORP.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
DECEMBER 31, 2006
(b) (c)
Number of Number of
Securities Securities
Underlying Underlying (d)
Unexercised Unexercised Option Exercise (e)
(a) Options (#) Options (#) Price Option Expiration
Name Exercisable Unexercisable ($) Date
---- ---------- ------------- ------------- -----------------
Frank J. Drohan 500,000 0 $0.25 August 31, 2011
There were no shares of the Company's common stock acquired
during 2006 upon the exercise of options.
No stock options were granted in 2006 to the Company's Chief
Executive Officer or any other Officer. There can be no
assurance that the Grant Date Fair Value of Stock Option
Awards will ever be realized.
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The following table summarizes information as of the close of business on December 31, 2006 about (i) the options under the Alfa International Corp 2001 Stock Option Plan (the "Alfa Plan") which was approved by the Company's stockholders, options issued outside of the Alfa Plan and warrants.
Equity Compensation Plan Information
------------------------------------
Number of securities
remaining available
for future issuance
Number of securities Weighted-average under equity
to be issued upon exercise price of compensation plans
exercise of outstanding (excluding securities
outstanding options, options, warrants in column (a)
warrants and rights and rights
(a) (b) (c)
------------------ ----------------- --------------------
The Alfa Plan 1,040,000 $0.38 1,460,000
-----------------------------------------------------------------------------------------
Non-Alfa Plan 125,000 $0.10 0
-----------------------------------------------------------------------------------------
Warrants 4,450,467 $0.78 0
-----------------------------------------------------------------------------------------
TOTAL 5,615,467 $0.69 1,460,000
-----------------------------------------------------------------------------------------
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Our current stock option plan (the "Alfa Plan") is explained in detail below under the heading "Stock Options" and in Note 6 to the accompanying consolidated financial statements.
The following chart summarizes the annual compensation for the Company's non-employee directors during 2006.
Director Compensation
---------------------
(b) (c) (e)
Fees Stock (d) All Other (f)
(a) Earned Awards Option Awards Compensation Total
Name ($) ($) ($) (1) ($) ($)
------------------------ ----- ------- ------------- ------------ -----
Salvatore Bucchere $1,000 0 1,200 0 2,200
Kevin Green $1,000 0 1,200 0 2,200
Louis Lombardo $1,000 0 4,111 0 5,111
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(1) Column (d) represents the dollar amount recognized as
compensation expense for financial statement reporting
purposes for the year indicated under SFAS No. 123(R),
and not an amount paid to or realized by the named
Director. The amount shown represents awards
granted prior to 2006. There can be no assurance that the
amounts determined by SFAS No. 123(R) will ever be
realized. Assumptions used in the calculation of these
amounts are included in Note 1- STOCK-BASED COMPENSATION
- to the Company's audited financial statements for the
fiscal year ended December 31, 2006. Directors who are not
Company employees are compensated for their service as a
director as shown in the chart below:
Schedule of Director Fees December 31, 2006
Compensation Item Amount ($) -------------------------------------------- ---------- Annual Retainer $ 0 Attendance at Annual Meeting 500 Per Board Meeting Fee (attendance in person) 500 Per Board Meeting Fee (attendance by teleconference) 250 Per Committee Meeting Fee (in person or by teleconference) 0 Appointment Fee Upon Election to Board of Directors 0 Non-qualified stock options (1)(2) |
(1) On the date of appointment to the Board, new non-employee outside Directors are entitled to a one-time grant of 30,000 non-qualified stock options at the closing price on the date of grant, vested ratably over three years.
(2) For non-employee outside Board members that have served on the Board for at least 3 years, 10,000 options (or such other number of shares determined by the Board in its discretion) will be granted on the first business day of each fiscal year, at the closing price on the date of grant, vesting ratably over three years (or such other vesting period as determined by the Board in its discretion).
On the date of appointment to the Board, new non-employee outside Directors are entitled to a one-time grant of 30,000 non-qualified stock options (or such other number of shares determined by the Board in its discretion) effective on the date of appointment. The price of the option is the closing bid price on the date of grant and the option vest over three years provided the Board member continues to hold office. On November 14, 2004, the Company awarded options to purchase 30,000 shares of its common stock to each of its then two outside Directors - Mr. Green and Mr. Bucchere, at an exercise price of $0.17 per share. The options expire five years after the date of grant. Effective January 1, 2004, 2005 and 2006 10,000 of such options vested to each of Messrs. Bucchere and Green. On July 1, 2005, the Company awarded options to purchase 30,000 shares of its common stock to Mr. Louis J. Lombardo, an outside Director, at an exercise price of $1.00 per share. The options expire five years after the date of the grant. Effective July 1, 2005 and July 1, 2006, 10,000 of such options vested to Mr. Lombardo. Effective July 1, 2007, an additional 10,000 of such options shall vest to Mr. Lombardo provided he is still a director of the Company on such date. Non-employee outside Board members that have served on the Board for at least 3 years will be granted 10,000 options (or such other number of options as determined by the Board of Directors in its discretion) at an exercise price equal to the closing bid price on the date of grant and vesting immediately upon grant. The date of grant shall be the first business day of each fiscal year next following completion of such three years of service. During 2006, no additional options were granted to Board members. Directors of the Company, who are employees of the Company do not receive additional compensation for their services as Directors.
There was no repricing of any options during fiscal year 2006 The Company has never issued any stock appreciation rights.
In September 2001, Alfa entered into an employment agreement (the "Drohan Agreement") with Mr. Frank J. Drohan, Chief Executive Officer of the Company. Pursuant to the Drohan Agreement, Alfa is obligated through December 31, 2010 to pay its President and Chief Executive Officer, Mr. Frank J. Drohan, an annual base salary of $125,000, plus an additional amount based on a combination of net sales and earnings before taxes. Mr. Drohan's employment agreement provides for an option to purchase 100,000 shares of Common Stock at $0.25 per share during each of the first 5 years of the employment term, and payment by the Company of certain life and disability insurance premiums on Mr. Drohan's behalf. By mutual agreement between the Company and Mr. Drohan, effective October 1, 2004, the Drohan Agreement was modified and, except for a six week period in 2006, the Company suspended salary payments to Mr. Drohan. Beginning November 1, 2004 and continuing to date, Mr. Drohan has continued to provide services to the Company pursuant to the Drohan Agreement and the Company has accrued Mr. Drohan's unpaid salary. The Company, has agreed to pay such unpaid and accrued salary to Mr. Drohan without interest when, and if, the Company has the financial resources to do so.
Pursuant to a written employment agreement effective September 1, 2001 (the "Kuczynski Agreement"), Alfa was obligated through December 31, 2009 to pay its Vice-President & Secretary, Mr. Kuczynski, an annual base salary of $75,000, plus an additional bonus based on a combination of net sales and earnings before taxes. The Kuczynski Agreement was terminable by the Company as of December 31, 2003 provided that the Company's net sales for 2003 were not at least $1,000,000. Mr. Kuczynski's employment agreement provided for an option to purchase 50,000 shares of Common Stock at $0.25 per share during each of the first 5 years of the employment term (the "Kuczynski Options"). By mutual agreement between the Company and Mr. Kuczynski, effective October 1, 2004, the Kuczynski Agreement was canceled and the Company discontinued making salary payments to Mr. Kuczynski. The Company has accrued $46,672 of unpaid salary due to Mr. Kuczynski and has agreed to pay such unpaid and accrued salary to Mr. Kuczynski without interest when, and if, the Company has the financial resources to do so. Beginning November 1, 2004 and
continuing to date, the Company has engaged the services of Mr. Kuczynski as a consultant and an employee and has agreed to keep the Kuczynski Options in effect until Mr. Kuczynski ceases to be either a consultant or employee of the Company. The Company has made payments to him for such consulting services which comprised services similar to those he provided as an Alfa employee plus services associated with Contact and JOL. Provided JOL is successful in signing the Development Agreement with the Government of Oman, the Company intends to enter into a new employment agreement with Mr. Kuczynski.
Pursuant to a written employment agreement effective September 1, 2001 (the "Giscombe Agreement"), Contact was obligated through December 31, 2006 to pay its President and Chief Operating Officer, Mr. Kye Giscombe, an annual base salary of $75,000, plus an additional bonus based on a combination of Contact's net sales and earnings before taxes. The Giscombe Agreement was terminable by the Company as of December 31, 2003 provided that the Company's net sales for 2003 were not at least $1,000,000. Mr. Giscombe's employment agreement provided for an option to purchase 50,000 shares of Alfa's Common Stock at $0.25 per share during each of the first 5 years of the employment term (the "Giscombe Options"). By mutual agreement between the Company and Mr. Giscombe, effective October 1, 2004, the Giscombe Agreement was cancelled and the Company discontinued making salary payments to Mr. Giscombe. Beginning November 1, 2004 and continuing through April 30, 2006, the Company had engaged the services of Mr. Giscombe as a consultant and the Company had made payments to him for consulting services which comprised services essentially identical to those he provided to Contact as a Contact employee. Pursuant to a May 1, 2006 letter agreement Mr. Giscombe was rehired by Contact as an "at will" employee without any employment agreement. Pursuant to the Alfa Plan, the Company had agreed to keep the Giscombe Options in effect until Mr. Giscombe ceased to be either a consultant or employee of Contact. Provided Contact was successful in its "branded-product" business, the Company intended to enter into a new employment agreement with Mr. Giscombe. Contact was not successful in its "branded-product" business and in July 2006 Mr. Giscombe ceased to be either an employee or consultant of Contact or the Company. The Giscombe Options expired unexercised in 2006 in accordance with their terms.
In February 2004, Contact hired Edward Baker ("Baker") as its Vice President of Sales. Contact and Baker entered into an interim employment agreement covering the period February 9, 2004 to June 30, 2004 and providing for customary fringe benefits (the "Interim Agreement"). At June 30, 2004, Contact and Baker agreed to extend the Interim Agreement. In accordance with a Letter Agreement (the "January Letter Agreement") dated January 15, 2005, Baker ceased to be an employee of Contact or the Company effective January 15, 2005. Effective January 16, 2005, the individual became a consultant to Contact, providing services similar to those performed by him as a Contact employee. Pursuant to the January Letter Agreement, Alfa also granted Baker an option to purchase up to 50,000 shares of its common stock at a purchase price of $.10 per share (the "Baker Option"), such option valid until January 30, 2007 but exercisable only if Baker is employed by, or engaged as a consultant to, Contact at the time of such exercise. Pursuant to a May 4, 2006 letter agreement (the "May Letter Agreement") Mr. Baker was re-engaged by Contact as a consultant and the Company agreed to keep the Baker Option in effect until Mr. Baker ceased to be either a consultant or employee of Contact. Provided Contact met its sales goals in its "private-label" business, the Company intended to enter into a new employment agreement with Mr. Baker. Contact did not attain its sales goals for 2006 in its "private-label" business and in December 2006 Mr. Baker ceased to be either an employee or consultant of Contact. In December 2006, the Baker Option expired unexercised in accordance with its terms.
The Company is or was a party to several consulting agreements with different parties as follows:
A. Consulting Agreement:
Alfa entered into a three-year consulting agreement beginning March 1, 2002 which was terminated on April 30, 2004 by a settlement agreement. Pursuant to the settlement agreement Alfa issued a warrant entitling the consultant to purchase up to 500,000 shares of Common Stock at $0.14 per share. The warrant expired unexercised on April 29, 2006.
B. Consulting Agreement:
On June 1, 2004 Alfa entered into a two-year consulting agreement which was terminated on April 1, 2005. Pursuant to the agreement Alfa issued a warrant to the consultant for 250,000 shares of Common Stock at an exercise price of $0.14 per share. The warrant expired unexercised on May 31, 2006. Effective December 29, 2003 JOL entered into a two-year consulting agreement with the same consultant which agreement was terminated on April 2, 2005. Pursuant to that agreement Alfa issued warrants (in exchange for JOL warrants) to the consultant for a total of 62,235 shares of Common Stock at an exercise price of $1.00 per share. These warrants expire on June 8, 2007.
C. Consulting Agreement:
Effective December 20, 2004 the Company entered into a two-year agreement whereby the consultant would assist the Company in its financial public relations, marketing, promotional and capital raising activities. This agreement expired in accordance with its terms on December 19, 2006. Pursuant to the agreement Alfa issued 100,000 shares of its unregistered and restricted Common Stock to the consultant and issued the consultant a warrant for 20,000 shares of Common Stock at an exercise price of $0.20 per share. The warrant expires on December 19, 2007.
D. Consulting Agreement:
Effective March 19, 2007 Alfa entered into a consulting
agreement with Mr. Sam Hamdan (See: "Employees and Consultants"
and "Exhibits - The Hamdan Agreement") whereby (i) Mr. Hamdan
will provide ongoing consulting services to the Company, and
(ii) under certain circumstances and conditions precedent, Mr.
Hamdan may become the Company's President and Chief Operating
Officer. Pursuant to the Hamdan Agreement, the Company issued
Hamdan options to purchase up to 800,000 shares of Alfa's Common
Stock at $0.25 per share (the "Hamdan Option"), exercisable
ratably at 160,000 shares per year during the first 5 years
subsequent to the Hamdan Agreement. The Hamdan Option is
exercisable only if (i) the Hamdan Agreement is effect, or (ii)
Hamdan is an Alfa employee.
Employment Benefits
The Company provides and pays for group medical insurance for
all employees choosing to participate in its plan. The Company has maintained its group medical coverage in effect for its former employees who have agreed to continue providing services to the Company as consultants.
Stock Options
The Company instituted the "Alfa International Corp. 2003 Stock Option Plan" (the "Alfa Plan"). The Alfa Plan provides for the granting of Incentive Stock Options and Non-qualified Stock Options to all employees and others who perform key services, to purchase up to 2,500,000 shares of Common Stock at an exercise price equal to at least the fair market value of a share of Common Stock on the date of grant. Exercise prices for incentive options for holders of more than 10% of the outstanding Common Stock must be at least 110% of the fair market value on the date of grant. Incentive stock options are exercisable in 20% increments commencing one year after the date of grant and generally expire five years after the date of grant. The Alfa Plan was approved by the Company's shareholders and expires on February 28, 2014.
On March 19, 2007, in accordance with the Hamdan Agreement, Alfa issued Hamdan options to purchase up to 800,000 shares of Alfa's Common Stock at $0.25 per share exercisable ratably at 160,000 shares per year during the first 5 years subsequent to the Hamdan Agreement. These options are exercisable only if (i) the Hamdan Agreement is effect, or (ii) Hamdan is an Alfa employee. 160,000 of such options are currently exercisable.
On December 16, 2005, in accordance with a contract, Alfa granted Agora Public Relations an option to purchase up to 200,000 shares of Common Stock at a purchase price of $0.82 per share. All such options are currently exercisable.
In July 2005, the Company issued 30,000 non-qualified stock options to Mr. Louis J. Lombardo, an outside director. The options are exercisable at a price of $1.00 per share and expire five years after the date of the grant. As of the date of this Report, 20,000 of Mr. Lombardo's options are vested. Effective
July 1, 2007, an additional 10,000 of such options shall vest to Mr. Lombardo provided he is still a director of the Company on such date.
On January 16, 2005, Alfa granted Mr. Edward T. Baker an option to purchase up to 50,000 shares of Common Stock at a purchase price of $0.10 per share. Mr. Baker is no longer an employee or consultant of Contact and this option expired unexercised in December 2006.
In November 2004, the Company issued 30,000 non-qualified stock options to Mr. Salvatore J. Bucchere, an outside director and 30,000 non-qualified stock options to Mr. Kevin O'C. Green an outside director. The options are exercisable at a price of $0.17 per share and expire five years after the date of grant. All such options are currently exercisable.
In September 2001 in connection with their employment agreements, the Company issued non-qualified stock options to Messrs. Drohan, Giscombe and Kuczynski to purchase a total of 1,000,000 shares of the Company's Common Stock. The options are exercisable at a price of $0.25 per share, vest ratably over five years and expire ten years after the date of grant. Mr. Giscombe's 250,000 options expired unexercised in 2006. The 500,000 options held by Mr. Drohan and the 250,000 options held by Mr. Kuczynski are currently exercisable.
In 1997, in connection with the settlement of an outstanding obligation with Brown & Bain, P.A, the Company granted Brown & Bain the option to purchase 125,000 shares of the Company's Common Stock at $0.10 per share. This option expires on November 5, 2007 and is currently exercisable.
As of December 31, 2006, there were no incentive stock options outstanding under the Alfa Plan, and there were 1,165,000 non- qualified options issued and outstanding as follows:
Name No. of options Option Price Date of Grant --------------- -------------- ------------ ----------- Brown & Bain 125,000 $0.10 11/6/1997 Frank Drohan 500,000 $0.25 9/l/2001 Charles Kuczynski 250,000 $0.25 9/l/2001 Salvatore Bucchere 30,000 $0.17 11/1/2004 Kevin Green 30,000 $0.17 11/1/2004 Louis Lombardo 30,000 $1.00 7/1/2005 Agora P. R. 200,000 $0.82 12/16/2005 |
The following table sets forth as of December 31, 2006: (i) the number of shares of the Company's Common Stock beneficially owned by (a) owners of more than five percent of the Company's outstanding Common Stock who are known to the Company, and (b) the Directors of the Company, individually, and the officers and Directors of the Company as a group, and (ii) the percentage of ownership of the outstanding Common Stock represented by such shares.
Beneficial
Name and Address Ownership (7) Percent
---------------- -------------- -------
Frank J. Drohan (1)(3) 6,048,006 18.8%
Charles P. Kuczynski (l)(4) 613,669 1.9%
Salvatore S. Bucchere (1)(5) 51,644 0.2%
Louis J. Lombardo (1)(6) 281,300 0.9%
Kevin O. Green (1)(5) 77,016 0.2%
Robert F. Peacock (2) 1,982,500 6.2%
Muftah Benomran (2) 4,661,078 14.5%
Mohammed K. Al-Sada (2) 3,111,292 9.7%
Mahmoud Gebril El-Warfally (2) 1,936,637 6.0%
All officers and Directors
As a Group of 5 Persons 7,071,635 22.0%
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(2) The address for each of these individuals is c/o the Company.
(3) Does not include Mr. Drohan's 500,000 currently exercisable stock options granted under his employment agreement. All such options are exercisable at $0.25 per share.
(4) Does not include Mr. Kuczynski's 250,000 currently exercisable stock options granted under his employment agreement. All such options are exercisable at $0.25 per share.
(5) Does not include the 60,000 currently exercisable stock options (30,000 held by Mr. Bucchere and 30,000 held by Mr. Green) granted to them upon their election as outside directors. All such options are exercisable at $0.17 per share.
(6) Does not include Mr. Lombardo's 20,000 currently exercisable stock options granted to him upon his election as an outside director. All such options are exercisable at $1.00 per share.
(7) None of these shares are subject to rights to acquire beneficial ownership, as specified in Rule 13d-3 (d) (1) under the Securities Exchange Act of 1934, as amended, and the beneficial owner has sole voting and investment power, subject to community property laws where applicable.
On October 11, 2005 the Company acquired Journey of Light, Inc., ("JOL") as a wholly owned subsidiary. In connection with the acquisition of JOL, Alfa issued 16,284,278 shares of its Common Stock to the shareholders of JOL in exchange for all of the
outstanding capital stock of JOL. As disclosed in Alfa's Report on Form 8-K dated October 11, 2005, Frank J. Drohan, President and a Director of Alfa was a JOL shareholder at the time of the acquisition. In addition, Charles P. Kuczynski, Vice-President and a Director of Alfa and Salvatore J. Bucchere a Director of Alfa were also each shareholders of JOL at the time of the acquisition. The terms of the acquisition are more fully described in the Agreement and Plan of Merger dated May 19, 2005 by and among Alfa, JOL and the Merger-Sub, a copy of which has been previously filed as an exhibit to Alfa's Report on Form 8-K dated May 27, 2005.
To the best of the Company's information and belief, AmeriCapital Renaissance Group, LLC ("AmeriCapital"), is a New York limited liability corporation but management is uncertain if AmeriCapital is a corporation in good standing in the State of New York. JOL had a Financial Advisory Services Agreement (the "Advisory Agreement") with AmeriCapital. In March 2007, the parties agreed that the Advisory Agreement was terminated effective March 15, 2007. To the best of the Company's information and belief, the president and sole shareholder of AmeriCapital is Mr. Agron Telaku ("Telaku"). Frank Drohan, Alfa's President, never was and is not now a minority shareholder nor an officer or director of AmeriCapital as previously reported in the Company's Report on Form 10-KSB for the fiscal period ended December 31, 2005. This inaccuracy occurred based upon the false written representation of Telaku verifying its accuracy, which written representation Telaku has apparently recently disavowed. The Advisory Agreement was executed in February 2006 in Oman by JOL subject to the explicit contemporaneous understanding between JOL and AmeriCapital (confirmed by Telaku) that the Advisory Agreement would be reviewed, modified and amended to JOL's satisfaction before the end of 2006. Based upon Telaku's continued representations to the Company regarding the foregoing, the Company made significant payments to Telaku during 2006. From February 2006 and continuing to date, an array of legal, financial and personal difficulties and issues has overwhelmed Telaku making him habitually unavailable and unable and unwilling to perform his duties. The Company and JOL consider the Advisory Agreement to be null and void for a variety of reasons, not the least of
which is Telaku's acknowledgement of that fact. In March 2007 concurrent with the termination of the Advisory Agreement, Telaku and TRT (as defined below) agreed in principle that, subject to certain conditions precedent, TRT would employ Telaku to pursue TRT's pending financial advisory and investment banking projects (other than the Omagine Project) and in such capacity to perform the tasks and the work for JOL as contemplated by the Advisory Agreement. Notwithstanding this agreement, the Company received an incoherent e-mail communication from Mr. Telaku on April 12, 2007 which, to the best of the Company's understanding, seemed to indicate his disavowal of these arrangements and agreements. Since February 2006 it has been difficult to locate or communicate with Mr. Telaku and recent attempts have been unsuccessful. While the Company is hopeful that Mr. Telaku can resolve his present legal and financial difficulties and take up his responsibilities and position with TRT as agreed, based on Mr. Telaku's personal difficulties and recent actions, no assurances can be given at this time that this will actually occur or that this matter can or will be resolved amicably. Mr. Telaku's intentions are unclear and JOL is unable to ascertain them. While management deems it unlikely at this time, litigation may result as the only feasible method of resolution of this matter. Although management has not yet consulted with counsel on this matter, the Company believes that neither it nor JOL has any liability toward AmeriCapital or Telaku and that the Advisory Agreement is null and void. JOL will make other arrangements with respect to engaging the services of a financial adviser and under no circumstances will it engage AmeriCapital in such a role. There are many such competent financial advisory firms with competitive pricing available and the Company believes it maintains a good relationship with several such financial advisory firms. The Company does not believe that the loss or inability of Telaku to perform the services contemplated by the Advisory Agreement would have a material, adverse impact on JOL's or the Company's business or operations.
Mr. Sam Hamdan, who has a consulting agreement with Alfa and who, under certain circumstances, may become Alfa's president (See: "EMPLOYEES and CONSULTANTS" and "CONSULTING AGREEMENTS" and "EXHIBITS - The Hamdan Agreement") is also the president of
The Renaissance Team, Inc., a privately held company ("TRT"). Frank J. Drohan ("Drohan"), Alfa's President and Chief Executive Officer, is the Chairman of TRT and Charles P. Kuczynski, Alfa's Vice- President and Secretary, is the Secretary of TRT. TRT was organized in December 2006 by Mr. Hamdan and Mr. Drohan and its business is not in competition with that of the Company. Mr. Drohan's employment agreement with the Company permits him to be involved in any other business enterprise that does not compete with the Company. Each of Mr. Hamdan and Mr. Drohan own 50% of TRT's equity and, as of the date of this Report, TRT is in the process of concluding the acquisition of the business and certain assets of The Global Leadership Team, Inc. ("GLT"). Mr. Hamdan is currently the president and sole shareholder of GLT (www.gltweb.com). Prior to the organization of TRT, Mr. Hamdan and GLT had performed significant services, including branding, strategic consulting, strategic visioning, marketing, financial and project finance planning, public relations, event management and management consulting services for JOL with respect to the proposed Qutopia Project in Qatar and the Omagine Project in Oman. On March 19, 2007, concurrent with the execution of the Hamdan Agreement, Alfa entered into another agreement with GLT and Hamdan (the "Subscription Agreement") whereby pursuant to the Subscription Agreement, the unpaid account payable of $245,449 due to GLT from JOL for services rendered between 2003 and 2006 was extinguished and exchanged for 2,454,490 shares of Alfa Common Stock. There have been no transactions between TRT and the Company to date, but based upon JOL's use of GLT's services in the past - and assuming TRT's ultimate acquisition of GLT's business - the Company anticipates that such transactions will occur in the future. TRT had planned to employ Telaku but based on the circumstances described above, unless Telaku is able to resolve his difficulties, that seems unlikely to occur. TRT may act as the financial advisor to OmagineCo but no such agreement has yet been concluded. Hamdan, Drohan and TRT have agreed with respect to any such possible future transaction(s) between TRT and the Company (a "Related Party Transaction") that any such Related Party Transaction will be structured such that it provides substantially better terms and conditions to the Company than would otherwise be available to the Company if the Company were to negotiate and conclude such Related Party Transaction on an "arms-length" basis with a company with which Mr. Hamdan and/or Mr. Drohan were not associated. Furthermore, any such Related Party Transaction will be in compliance with the Company's Code of Ethics.
At December 31, 2006, the Company has included $372,070 in its balance sheet as related party payables representing accrued and unpaid salary and unreimbursed expenses due to Mr. Drohan and Mr. Kuczynski and accrued and unpaid fees and unreimbursed expenses due to its outside directors.
(a) Exhibits numbered in accordance with Item 601(a) of Regulation S-B.
Exhibit Page Numbers Description Number ------- ------------- ------- 31 Sarbanes-Oxley certification 64 32 Sarbanes-Oxley certification 66 99.1 The J&P Agreement 99.2 The Hamdan Agreement |
(b) Reports on Form 8-K
On March 30, 2006 the Company filed a Form 8-K/A amending the the pro-forma financial information contained in the Form 8K/A dated November 17, 2005. The Company changed the accounting method from the "reverse-purchase" accounting it had originally used to account for the acquisition of JOL in October 2005.
On April 18, 2006 the Company filed a Form 8-K disclosing the press release it issued updating shareholders and interested parties on its Omagine real estate project in Oman.
On May 2, 2006 the Company filed a Form 8-K disclosing the press release updating shareholders and interested parties on the conclusion of the one million dollar settlement with the State of Qatar.
On September 29, 2006 the Company filed a Form 8-K disclosing the press release announcing the extension of the warrants associated with its Series B Preferred Stock and giving an update regarding corporate events.
On January 2, 2007 the Company filed a Form 8-K disclosing the press release announcing the signing of an agreement between JOL and Joannou & Paraskevaides (Overseas) Ltd.
The registrant was billed by its independent registered public accounting firm $17,000 in 2005 and $24,000 in 2006 for all auditing and review services performed by him for the registrant in connection with registrant's regulatory filings during such fiscal years.
None
The registrant was billed by its independent registered public accounting firm $3,000 in 2005 and $5,000 in 2006 for all tax accounting work performed by him associated with the registrant's tax return filings for such fiscal years.
On behalf of the audit committee, Mr. Salvatore Bucchere hired the Company's registered public accounting firm to perform the audit of the Company's financial statements.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Alfa International Holdings Corp.
By: /s/ Frank J. Drohan
FRANK J. DROHAN, Chairman
of the Board of Directors,
President and Chief
Executive and Financial Officer
By: /s/ Charles P. Kuczynski
CHARLES P. KUCZYNSKI,
Secretary and Director
By: /s/ Salvatore J. Bucchere
SALVATORE J. BUCCHERE,
Director
By: /s/ Kevin O'C. Green
KEVIN O'C. GREEN,
Director
By: /s/ Louis J. Lombardo
LOUIS J. LOMBARDO,
Director
Dated: April 17, 2007
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following person who is the Principal Executive Officer, the Principal Financial Officer and a Director on behalf of the Registrant and in the capacity and on the date indicated.
Name Title Date
---- ----- ----
Chairman of the Board,
/s/ Frank J. Drohan President and Chief April 17,2007
FRANK J. DROHAN Executive and Financial
Officer
|
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14 AND 15d-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Frank J. Drohan, certify that:
1. I have reviewed this annual report for the period ended December 31, 2006 on Form 10-KSB of Alfa International Holdings Corp. (the "Registrant");
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and I have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; and
b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. I have disclosed, based on my most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls.
6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: April 17, 2007 /s/ Frank J. Drohan -------------------------- Frank J. Drohan Chief Executive Officer and Chief Financial Officer |
The originally executed copy of this Certification will be maintained at the Company's offices and will be made available for inspection upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Alfa International Holdings Corp. on Form 10-KSB for the period ending December 31, 2006 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, the undersigned certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Alfa International Holdings Corp.
/s/Frank J. Drohan ------------------------- Frank J. Drohan Chief Executive and Financial Officer April 17, 2007 |
The originally executed copy of this Certification will be maintained at the Company's offices and will be made available for inspection upon request.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Alfa International Holdings Corp.
I have audited the accompanying consolidated balance sheets of Alfa International Holdings Corp. and subsidiaries (the "Company") as of December 31, 2006 and 2005 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alfa International Holdings Corp. and subsidiaries as of December 31, 2006 and 2005 and the results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements referred to
above have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company's present financial situation
raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ Michael T. Studer CPA P.C.
April 12, 2007 ------------------------------
Freeport, New York F-1
|
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 2006 2005
-------- -------
CURRENT ASSETS:
Cash $ 27,961 $ 41,566
Accounts receivable 26,276 2,630
Inventories 13,063 1,420
Prepaid expenses and other current assets 531 20,502
-------- --------
Total Current Assets 67,831 66,118
-------- --------
PROPERTY AND EQUIPMENT:
Office and computer equipment 104,292 100,398
General plant 17,799 17,799
Furniture and fixtures 15,951 15,951
Leasehold improvements 866 866
-------- --------
138,908 135,014
Less: Accumulated depreciation and amortization (123,273) (107,337)
-------- --------
15,635 27,677
-------- --------
OTHER ASSETS:
Other assets 13,749 13,514
-------- --------
TOTAL ASSETS: $ 97,215 $ 107,309
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 583,908 $ 387,245
Customer Deposits 12,140 28,168
Accrued officer payroll 320,553 174,923
Due officers and directors 51,517 -
Accrued expenses and other current liabilities 19,876 66,546
Dividends payable - 42,983
-------- --------
Total Current Liabilities 987,994 699,865
-------- --------
LONG-TERM LIABILITIES:
Convertible Debentures, net of Discounts 77,922 18,341
Accrued Interest payable on
Convertible Debentures 41,794 1,575
------- --------
119,716 19,916
------- --------
TOTAL LIABILITIES: 1,107,710 719,781
========= =======
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock:
$0.001 par value
Authorized: 1,000,000 shares,
Undesignated preferred stock:
Authorized - 850,000 shares:
Issued and outstanding: - none - -
Series B preferred stock:
Authorized - 150,000 shares:
Issued and outstanding:
86,937 shares in 2006 and
107,100 shares in 2005 87 107
Common stock:
$0.001 par value
Authorized: 50,000,000 shares
Issued and outstanding:
32,112,964 shares in 2006 and
28,389,587 shares in 2005 32,113 28,390
Capital in excess of par value 14,365,056 13,977,789
Retained earnings (deficit) (15,407,751) (14,618,758)
----------- -----------
Total Stockholders' Equity (Deficit) (1,010,495) (612,472)
----------- -----------
$ 97,215 $ 107,309
=========== ===========
See accompanying notes to consolidated financial statements.
|
ALFA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------
2006 2005
----------- -----------
REVENUES:
Net sales $ 182,323 $ 271,331
Settlement of dispute 1,000,000 -
---------- -----------
Total revenues 1,182,323 271,331
---------- -----------
COSTS AND EXPENSES:
Cost of sales 132,318 236,997
Selling, general and administrative 1,693,495 848,714
Impairment of Goodwill - 5,079,919
---------- -----------
Total Costs and Expenses 1,825,813 6,165,630
---------- -----------
OPERATING LOSS (643,490) (5,894,299)
Interest income 492 182
Interest expense (124,953) (6,545)
---------- -----------
NET LOSS (767,951) (5,900,662)
PREFERRED STOCK DIVIDENDS 21,042 45,242
---------- -----------
LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (788,993) $(5,945,904)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.03) $ (.38)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC AND DILUTED 29,774,011 15,476,713
=========== ===========
See accompanying notes to consolidated financial statements.
|
ALFA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Pref. Stock Capital in Retained
Par Par Excess of Earnings
Shares Value Shares Value Par Value Deficit)
--------------------------------------------------------
BALANCES, DECEMBER 31, 2004 11,305,552 $11,306 107,400 $107 $8,551,751 (8,672,854)
========== ====== ======= === ========= ===========
Issuance of common stock for
consulting services 150,000 150 21,600
Issuance of common stock for
cash net of expenses 577,725 578 303,137
Issuance of preferred stock for
cash, net of expenses 1,450 1 28,999
Conversion of preferred stock
for common stock 70,000 70 (1,750) (1) (69)
Issuance of preferred stock
dividends in common stock 2,032 2 1,743
Issuance of common stock to
the JOL shareholders 16,284,278 16,284 4,868,999
Beneficial conversion feature
of convertible Debenture 132,208
Value of warrant attached to
convertible Debenture 69,421
Preferred stock dividends (45,242)
Net loss (5,900,662)
---------- ------ ------- --- ---------- -----------
BALANCES, DECEMBER 31, 2005 28,389,587 $28,390 107,100 $107 $13,977,789 $(14,618,758)
---------- ------ ------- --- ---------- -----------
Issuance of common stock
for cash 50,000 50 19,950
Issuance of common stock
upon conversion of debentures 2,475,160 2,475 194,902
Conversion of preferred stock
for common stock 806,500 807 (20,163) (20) (787) -
Issuance of preferred stock
dividends in common stock 391,717 391 - - 63,633 -
Stock option expense - - - - 56,791 -
Beneficial conversion feature
of convertible debenture - - - - 52,778 -
Preferred stock dividends - - - - - (21,042)
Net loss - - - - - (767,951)
---------- ------ ------ --- ---------- -----------
Balances At December 31,2006 32,112,964 $ 32,113 86,937 $87 $14,365,056 $(15,407,751)
---------- ------ ------ --- ---------- -----------
See accompanying notes to consolidated financial statements.
|
ALFA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
2006 2005
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $( 767,951) $(5,900,662)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 100,671 20,204
Impairment of Goodwill - 5,079,919
Stock based compensation related to stock options 56,791 -
Issuance of common stock for Consulting services - 21,750
Changes in operating assets and liabilities:
Accounts receivable (23,646) 10,819
Inventories (11,643) 43,262
Prepaid expenses and other current assets 19,971 (15,008)
Other assets (235) (990)
Accounts payable 196,663 66,878
Customer Deposits (16,028) 28,168
Accrued expenses and other current liabilities (46,670) 70,544
Accrued officers payroll 145,630 121,743
Accrued interest payable on convertible debentures 40,219 1,575
---------- ----------
Net cash flows used by operating activities (306,228) (451,798)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (3,894) (1,755)
---------- -----------
Net cash flows used by investing activities (3,894) (1,755)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from affiliate - (52,596)
Loans from officers and directors 51,517 -
Proceeds from issuance of common stock 20,000 303,715
Proceeds from issuance of preferred stock - 29,000
Proceeds from issuance of convertible debentures 225,000 215,000
---------- ----------
Net cash flows from financing activities 296,517 495,119
---------- ----------
NET CHANGE IN CASH (13,605) 41,566
CASH BEGINNING OF YEAR 41,566 -
----------- ----------
CASH END OF YEAR $ 27,961 $ 41,566
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded) $ - $ -
=========== ==========
Interest paid $ - $ -
=========== ==========
NON-CASH FINANCING ACTIVITIES:
Preferred stock dividend $ (21,042) $ (45,242)
=========== ==========
Acquisition of JOL through issuance of
Common stock and warrants:
Fair value of assets acquired $ -0- $ 49,146
Intangible assets acquired -0- 5,079,919
Fair value of liabilities assumed -0- (243,782)
=========== ===========
Total Purchase Price $ -0- $ 4,885,283
=========== ===========
See accompanying notes to consolidated financial statements.
|
ALFA INTERNATIONAL HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements include the accounts of Alfa International Holdings Corp. ("Alfa") and its wholly-owned subsidiaries, Journey of Light, Inc. ("JOL"), Contact Sports, Inc. ("Contact") and Ty- Breakers Corp. ("Ty-Breakers"), collectively referred to as the "Company". All inter-company transactions have been eliminated in consolidation.
Nature of the Business - Alfa is a holding company which operates through its JOL, Contact and Ty-Breakers subsidiaries. JOL is in the real estate development business in Oman. Contact and Ty-Breakers' design, manaufacture and distribute apparel products.
Financial Instruments - Financial instruments include cash, accounts receivable, accounts payable and accrued expenses, dividends payable, convertible debenture and accrued interest on convertible debenture. The amounts reported for financial instruments are considered to be reasonable approximations of their fair values, based on market information available to management.
Estimates and Uncertainties - The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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, as determined at a later date, could differ from those estimates.
Revenue Recognition - The Company follows the guidelines of SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB101). Revenue from the sale of
products at Contact and Ty-Breakers is recognized upon shipment when goods are shipped to customers from the Company's outside warehouse. Products produced and sold by Contact and Ty-Breakers carry an implied warranty of merchantability and fitness for purpose only, and, except in the case of manufacturing defects, customers do not have the right to return products sold. Products sold on a "guaranteed sale" or "consignment" basis are maintained on Contact's records as inventory until they are paid for by the customer at which time the revenue is recognized. In the event that JOL, or a subsidiary of JOL, signs a development agreement with the Government of Oman, JOL, or such subsidiary of JOL, will recognize revenue ratably over the development period, measured by methods appropriate to the services or products provided.
Concentration of Credit Risk - The Company maintains cash balances in several financial institutions which are insured by the Federal Deposit Insurance Corporation up to $100,000 each. At times, such balances may be in excess of the FDIC insurance limit.
Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment - Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets.
Income Taxes - The Company is subject to income taxes at both the federal and state level. Separate state income tax returns are filed with each state in which the Company is incorporated or qualified as a foreign corporation. The Company is not presently subject to income taxes in any foreign country.
Financial Statement Presentation - In May 2005, Alfa International Corp., a New Jersey corporation merged with and in to Alfa International Holdings Corp., a Delaware corporation for the sole purpose of changing the Company's corporate domicile from New Jersey to Delaware. The par value of the common stock of Alfa-New Jersey was $0.01 and the par value of the common stock of Alfa-Delaware is $0.001. For financial statement presentation purposes, the Company has shown the adjustment to the par value of its Common Stock as of December 31, 2004.
Deferred tax assets and liabilities are recognized based on differences between the book and tax bases of assets and liabilities using presently enacted income tax rates. The Company will establish a provision for income taxes by applying the provisions of the applicable enacted tax laws to taxable income, if any, for that period. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Advertising and marketing costs - Advertising, promotional and marketing/selling costs of approximately $53,520 in 2006 and $31,000 in 2005 were expensed as incurred.
STOCK-BASED COMPENSATION:
On January 1, 2006, we adopted Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123(R), that addresses the accounting for share-based payments transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation transactions, using the intrinsic value method as prescribed by Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, and generally requires that such transactions be accounted for using a fair- value-based method and recognized as expenses in our consolidated statement of income.
We adopted SFAS 123 (R) using the modified prospective method which requires the application of the accounting standard as of January 1, 2006. Our consolidated financial statements as of December 31, 2006 and for the year then ended reflect the impact of adopting SFAS 123 (R). In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123 (R).
For stock based awards granted, we have recognized compensation expense based on the estimated grant date fair value method using the Black-Scholes valuation model. For these awards, we have recognized compensation expense using a straight-line amortization method. SFAS 123 (R) requires that stock-based compensation expense be based on swards that are ultimately expected to vest. The impact on our results of operations for recording stock-based compensation for the year ended December 31, 2006 amounted to $56,791.
The following table illustrates the effect on results of operations if the Company had applied the fair-value-recognition provisions of SFAS 123 (R) for the year ended December 31, 2005:
Year Ended
December 31,
2005
------------
Loss applicable to
common stockholders,
as reported $(5,945,904)
Deduct:
Total stock-based Employee
Compensation determined under
fair value method for stock
options, net of tax ( 28,398)
Pro forma loss applicable to
common stockholders $(5,974,302)
Basic loss per share, as reported $(.38)
Basic loss per share, pro forma $(.39)
Diluted loss per share, as reported $(.38)
Diluted loss per share, pro forma $(.39)
|
Net Loss Per Share - Basic and diluted loss per share are based upon the weighted-average number of common shares outstanding during the period. The computation of diluted earnings per share does not assume the conversion, exercise or contingent issuance of securities that would have an anti-
dilutive effect on loss per share.
NOTE 2 - GOING CONCERN AND LIQUIDITY:
The Company has incurred significant operating losses and is in a weak financial position, raising substantial doubt about its ability to continue as a going concern. The continued existence of the Company is dependent upon its ability to attain profitable operations and procure additional financing. In an effort to attain profitable operations, the Company will attempt to increase revenue by attempting to (i) develop new revenue streams for JOL, and (ii) obtain reimbursement of JOL's development expenses incurred in conceiving the Omagine Project in Oman. There can be no assurance that either of these events will in fact occur or that the Company will be able to procure additional financing. Should the Company be unsuccessful in its attempts to create new revenue streams at JOL, obtain reimbursement of JOL's development expenses or obtain additional funding, the Company may not be able to continue operations.
NOTE 3 - JOURNEY OF LIGHT, INC.:
On October 11, 2005 the Company acquired Journey of Light, Inc., ("JOL") as a wholly owned subsidiary. JOL is engaged primarily in the business of real estate development in the country of Oman. In connection with the acquisition of JOL, Alfa issued 16,284,278 shares of its Common Stock and 984,235 warrants exercisable into Alfa Common Stock at prices ranging from $1.00 to $8.00 per share to the shareholders and warrant holders of JOL in exchange for all of the outstanding capital stock of JOL. Prior to the acquisition, Alfa had outstanding 12,053,565 shares of Common Stock, 108,350 shares of preferred stock convertible into 4,334,000 shares of Common Stock, stock options exercisable into 1,265,000 shares of Common Stock at prices ranging from $0.10 to $1.00 per share, and warrants exercisable into 4,870,500 shares of Common Stock at prices ranging from $0.14 to $0.75 per share - a total of 22,523,065 shares of Common Stock and Common Stock equivalents. Alfa's board of directors and senior management did not change as a result of the acquisition of JOL and the terms of the acquisition reflected the existence of the Common Stock equivalents associated with Alfa's preferred stock. Accordingly, Alfa was considered the acquirer for accounting purposes.
The identifiable net assets of JOL at the date of acquisition were:
Cash $ 145
Due from Alfa International Holdings Corp. 47,747
Equipment - net 1,254
------
Total Assets 49,146
Liabilities (243,782)
-------
Negative identifiable net assets $(194,636)
=======
|
As the Company believed that the estimated fair value of JOL's goodwill was $0 at October 11, 2005, goodwill of $5,079,919 (excess of $4,885,283 estimated value of 16,284,278 shares of Alfa Common Stock issued to the JOL shareholders on October 11, 2005 over the negative $194,636 value of JOL's identifiable net assets other than goodwill) was written off as an impairment loss on the date of acquisition.
The operating results of JOL have been included in the Company's consolidated financial statements from the date of acquisition. Had the acquisition occurred January 1, 2005, pro forma net sales, net loss and diluted loss per share for the year ended December 31, 2005 would have been $271,331, $(6,064,251) and $(0.39) respectively.
NOTE 4 - SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Alfa has designated 150,000 shares of its $0.001 par value preferred stock as "Series B Preferred Stock". The face value of the Series B Preferred Stock is $40 per share and dividends accrue at 5.0% per annum. Each share of Series B Preferred Stock is convertible at the option of the holder, at any time, into 40 shares of Common Stock. Accrued dividends shall, at the Company's option, be paid in cash or in shares of Common Stock valued at $1.00 per share. The expiration date for all common stock purchase warrants held by holders of Series B Preferred Stock is July 31, 2007.
At anytime after twelve months from the date of issue, the Company may redeem all or any number of the Series B Preferred Stock then outstanding for $40 per share in cash or in exchange for common stock at a rate of $1.00 per share. The Series B Preferred Stock has been excluded from the computation of diluted earnings per share for the fiscal years ended December 31, 2006 and December 31, 2005, as the conversion would be anti- dilutive after adding back preferred stock dividends to the respective net losses for each of those years.
NOTE 5 - COMMITMENTS
Leases
The Company leases its executive office in New York, N.Y. under a ten-year lease entered into in February 2003. Rent expense for the Company's executive offices for 2006 and 2005 was $61,753, and $60,702, respectively. Contact also rents warehouse space in Jersey City, New Jersey under a month to month lease. Rent expense for the warehouse space for 2006 and 2005 was $12,000, and $13,000, respectively.
The minimum lease payments under non-cancelable operating leases are as follows:
2007 $ 51,800
2008 $ 51,800
2009 $ 51,800
2010 $ 51,800
2011 $ 51,800
Thereafter $ 60,433
----------
Total $ 319,433
|
Employment Agreements
Alfa is obligated to pay its President and Chief Executive Officer an annual base salary of $125,000 through December 31, 2010 plus an additional amount based on a combination of net sales and earnings before taxes. Except for a six week period in 2006, all salary payments to this individual have been deferred and accrued, effective October 1, 2004.
Alfa had been obligated to employ its Vice-President and
Secretary under an employment agreement with this individual. This employment agreement has been canceled and the individual continues to perform services for the Company as a consultant. An employment agreement with this individual may be renegotiated in the future depending upon the Company's financial performance at the time. The terms of such employment agreement, if any, cannot be determined at this time.
The Company had been obligated to employ Contact's President and Vice-President of Sales under separate agreements with these two individuals. These two agreements have been canceled and the individuals' service with the Company has been terminated.
Factoring Agreement
In March 2004 Contact entered into a one-year agreement (the "Factoring Agreement") with a company ("Factor") specializing in factoring accounts receivable. The Factoring Agreement was deemed renewed from year to year following the initial term unless terminated with notice by either party. In March 2006 Contact gave such notice of termination to the Factor and subsequently the Factor and Contact agreed to continue the Factoring Agreement after March 2006 on a month-to-month basis. The Factoring Agreement continued in effect until March 15, 2007 when it was terminated in accordance with its terms by Contact.
NOTE 6 - STOCK OPTIONS AND WARRANTS:
At its annual meeting held on September 1, 2004, Alfa's
shareholders ratified the adoption by the Company of the "Alfa
International Corp. 2003 Stock Option Plan" ("Plan"). The Plan
provides for the granting of Incentive Stock Options and Non-
Qualified Stock Options to all employees, directors, consultants
and other professional advisers who perform key services for the
Company, to purchase up to 2,500,000 shares of Common Stock at
an exercise price equal to at least the fair market value of a
share of Common Stock on the date of grant (exercise prices for
incentive options for holders of more than 10% of the
outstanding Common Stock must be at least 110% of the fair
market value on the date of grant). Incentive stock options are
exercisable in 20% increments commencing one year after the date
of grant and generally expire five years after the date of
grant. Alfa's Board of Directors has approved the extension of
the expiration date of the Plan from August 10, 2010 to February
28, 2014.
On September 1, 2001, the Company issued a total of 1,000,000 non-qualified stock options to three individuals (one of whom has since left the employ of the Company) in connection with their employment agreements (two of which employment agreements have been terminated). The options are exercisable at a price of $0.25 per share and expire on August 31, 2011. As of the date hereof 750,000 of such options are fully vested and the remaining 250,000 of such options expired unexercised in accordance with their terms.
In 2004 and 2005, the Company issued a total of 90,000 non- qualified stock options to three individuals in connection with their election as independent outside directors. As of the date hereof 80,000 of such options are vested and the remaining 10,000 of such options are scheduled, in accordance with their terms, to vest on July 1, 2007. 60,000 of such options are exercisable at a price of $0.17 per share and expire in November 2009 and 30,000 of such options are exercisable at a price of $1.00 per share and expire in June 2010.
In accordance with a Letter Agreement dated January 15, 2005, Alfa granted an option to purchase up to 50,000 shares of Common Stock at $0.10 per share to Contact's Vice-President of Sales. This individual is no longer in the employ of the Company and such option expired unexercised in December 2006.
In accordance with a contract dated December 16, 2005 with its financial public relations firm, Alfa granted its public relations firm an option to purchase up to 200,000 shares of Common Stock at $0.82 per share. All 200,000 of such options are fully vested.
During 1997, in connection with the settlement of an outstanding obligation with a creditor, the Company paid $9,647 in cash and granted the creditor the option to purchase 125,000 shares of the Company's Common Stock, exercisable at $.10 per share through November 5, 2007. As of December 31, 2006, the creditor had not exercised any portion of that option.
A summary of stock option and warrant activity is as follows:
Year Ended December 31,
------------------------------------------------------
2006 2005
------------------------- ------------------------
Stock Options Warrants Stock Options Warrants
------------- -------- ------------- --------
Outstanding at January 1 1,465,000 6,112,467 1,185,000 5,066,000
Granted and Issued - - 280,000 1,299,967
Exercised - - - (253,500)
Forfeited/expired/cancelled (300,000) (1,662,000) - -
---------- --------- --------- ---------
Outstanding at December 31 1,165,000 4,450,467 1,465,000 6,112,467
---------- --------- --------- ---------
Exercisable at December 31 1,155,000 4,450,467 1,025,000 6,112,467
---------- --------- --------- ---------
|
Stock options outstanding at December 31, 2006 (all non-qualified) consist of:
Year Number Number Exercise Expiration
Granted Outstanding Exercisable Price Date
------- ----------- ----------- -------- ----------
1997 125,000 125,000 $ .10 November 5, 2007
2001 750,000 750,000 $ .25 August 31, 2011
2004 60,000 60,000 $ .17 October 31, 2009
2005 30,000 20,000 $1.00 June 30, 2010
2005 200,000 200,000 $ .82 December 14, 2010
--------- ----------
Totals 1,165,000 1,155,000
========= ==========
|
The 10,000 unvested options relating to the 2005 grant are scheduled to vest on July 1, 2007. As of December 31, 2006, there was $8,166 of total unrecognized compensation cost related to un-expensed stock options. That cost is expected to be recognized $6,111 in 2007, and $2,055 in 2008.
Warrants outstanding at December 31, 2006 consist of:
Year Number Number Exercise Expiration
Issued Outstanding Exercisable Price Date
------ ----------- ----------- -------- ----------
2002-2005 4,100,500 4,100,500 $ .75 July 31, 2007
2005 20,000 20,000 .20 December 19, 2007
2005 62,235 62,235 1.00 June 8, 2007
2005 10,000 10,000 8.00 February 3, 2007
2005 257,732 257,732 .97 December 7, 2010
--------- ---------
Totals 4,450,467 4,450,467
========= =========
|
NOTE 7 - CONVERTIBLE DEBENTURES:
On December 8, 2005, Alfa sold a convertible debenture ("First
Debenture") in the face amount of $250,000 to an investor in
exchange for $215,000, net of placement costs and fees. On
January 24, 2006 Alfa sold a second convertible debenture
("Second Debenture") in the face amount of $250,000 to the same
investor in exchange for $225,000, net of placement costs and
fees. The First Debenture was payable on or before December 7,
2008 and the Second Debenture was payable on or before January
23, 2009. Both the First Debenture and the Second Debenture
(collectively "Debentures") accrued interest at 10% per annum.
The holder had the option, at any time, to convert the then
outstanding balance of the Debenture together with accrued and
unpaid interest thereon into shares of Alfa's Common Stock at a
price per share equal to 90% of the lowest volume weighted
average price of Alfa's Common Stock during the fifteen trading
days immediately preceding the conversion date, subject to
certain adjustments. As of March 21, 2007 the Debentures
together with all accrued and unpaid interest thereon have been
paid in full through such conversions into shares of Alfa's
Common Stock.
At December 31, 2006 and 2005, the Debentures consisted of:
December 31
-----------
2005 2006
---- ----
Convertible Debentures - Face amount $ 250,000 $ 175,000
Debt Discount - beneficial conversion
Feature net of accumulated amortization
of $52,594 and $2,777, respectively (129,431) (54,879)
Debt Discount - value attributable to
Warrant Issued, net of accumulated
Amortization of $20,261 and $1,458,
respectively (67,963) (26,907)
Debt Discount - placement costs and fees
paid to lender and affiliate, net of
accumulated amortization of $16,850 and
$735, respectively (34,265) (15,292)
-------- --------
Convertible Debentures, net of discounts $ 18,341 $ 77,922
====== ======
F-18
|
In accordance with Emerging Issues Task Force Issue 98-5, Accounting for Convertible Securities with a Beneficial Conversation Feature or Contingently Adjustable Conversion Ratios ("EITF 98-5"), Alfa recognized an imbedded beneficial conversion feature present in the Debentures. Alfa allocated a portion of the proceeds equal to the intrinsic value of that feature to capital in excess of par value. Alfa measured an aggregate of $132,208 of the proceeds of the First Debenture and an aggregate of $52,788 of the proceeds of the Second Debenture, which is equal to the intrinsic values of the imbedded beneficial conversion features, and recognized it to capital in excess of par value and a discount against the debenture. The discount is amortized over the Debenture's maturity periods (three years) as interest expense.
In connection with the issuance of the First Debenture, Alfa issued a warrant granting the holder the right to acquire 257,732 shares of Alfa's Common Stock at an exercise price of $.97 per share, subject to certain adjustments.
In accordance with Emerging Issues Task Force Issue 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments ("EITF - 00-27"), Alfa recognized the value attributable to the warrant in the amount of $69,421 to capital in excess of par value and a discount against the First Debenture. Alfa valued the warrant in accordance with EITF 00-27 using the Black- Scholes pricing model and the following assumptions: contractual terms of five years, an average risk free interest rate of 4.42%, a dividend yield of 0% and volatility of 176%. The debt discount attributed to the value of the warrant issued is amortized over the First Debenture's maturity period (three years) as interest expense.
In 2006, the holder of the Debentures converted $325,000 of the Debentures into a total of 2,475,160 shares of Alfa's Common Stock. In the three months ended March 31, 2007, the holder converted the remaining $175,000 of the Debentures together with all accrued and unpaid interest into shares of Alfa's Common Stock.
NOTE 8 - INCOME TAXES:
Deferred tax assets are comprised of the following:
December 31
----------------------
2006 2005
---------- ----------
Federal net operating loss
carry forwards $3,580,000 3,570,000
State net operating loss
carry forwards, net of
federal tax benefit 630,000 630,000
---------- ----------
4,210,000 4,200,000
Less: Valuation allowance 4,210,000 4,200,000
----------- -----------
Total $ - $ -
========== ==========
|
The Company's effective tax rate differs from the expected federal income tax rate due to changes in the valuation allowance at December 31, 2006 and 2005.
Management has determined, based on the Company's current condition, that a full valuation allowance is appropriate at December 31, 2006.
At December 31, 2006, the Company had Federal net operating loss carry forwards of approximately $10,530,000, expiring in various amounts from fiscal year 2007 to fiscal year 2026. The Company's issuance of shares during fiscal 1995 and subsequent thereto resulted in a "Change of Ownership" as defined by the Internal Revenue Code of 1986, which significantly limits the Company's use of these net operating loss carry forwards.
NOTE 9 - SEGMENT INFORMATION:
Alfa is a holding company that operates through its wholly owned subsidiaries. Since its acquisition of Journey of Light, Inc. ("JOL") in October 2005, the Company has reported results in two business segments: real estate development and apparel.
The real estate development business of the Company is conducted through its wholly owned subsidiary JOL which is in its initial stages of business development. JOL is presently conducting negotiations with the Government of Oman with respect to JOL's proposed development, in cooperation with the Government of Oman, of an approximately $1.6 billion tourism related project.
The apparel business of the Company is conducted primarily through its wholly owned subsidiaries - Contact Sports, Inc. ("Contact") and Ty-Breakers Corp. ("Ty-Breakers").
Summarized financial information by business segment for the fiscal years ended December 31, 2006 and December 31, 2005 is as follows:
2006 2005
================================================================
Revenue:
Real Estate Development $ 1,000,000 $ 0
Apparel 182,323 271,331
------- -------
Total $ 1,182,323 $ 271,331
================================================================
Operating Expenses:
Real Estate Development $ 1,002,378 $ 299,514
Apparel 335,863 424,493
Corporate 487,572 5,441,623
--------- ---------
Total $ 1,825,813 $ 6,165,630
================================================================
Operating Loss:
Real Estate Development $ ( 2,378) $ (299,514)
Apparel (153,540) (153,162)
Corporate ( 487,572) (5,441,623)
--------- ---------
Total $( 643,490) $(5,894,299)
--------- ---------
================================================================
|
Identifiable Assets:
Real Estate Development $ 1,880 $ 11,916
Apparel 80,239 59,622
Corporate 15,096 35,771
------- -------
Total $ 97,215 $ 107,309
================================================================
Capital Expenditures:
Real Estate Development $ -0- $ -0-
Apparel -0- -0-
Corporate 3,894 1,755
------- -------
Total $ 3,894 $ 1,755
================================================================
Depreciation and Amortization:
Real Estate Development $ 936 $ 234
Apparel -0- -0-
Corporate 15,000 15,000
------- -------
Total $ 15,936 $ 15,234
================================================================
Geographic Information - net revenue:
United States $ 182,323 $ 271,331
Qatar 1,000,000 -0-
Oman -0- -0-
------- -------
$1,182,323 $ 271,331
================================================================
|
Revenue includes a non-recurring item in JOL in 2006 of $1,000,000 attributable to the settlement of a dispute between JOL and the State of Qatar.
Operating loss is total revenue less operating expenses, which include: cost of sales, selling, general and administrative expenses, and other corporate expenses.
Operating expenses include a non-recurring charge in 2005 of $5,079,919 to recognize the immediate impairment of the goodwill associated with the acquisition of JOL in 2005 and non-cash
interest charges of $84,735 in 2006 and $4,970 in 2005 associated with the Debenture sold by Alfa in December 2005 and January 2006.
The real estate development segment includes the results for JOL since the date of acquisition in October 2005.
Identifiable assets are year-end assets at their respective net carrying value segregated as to segment and use.
In 2006, one customer of the real estate segment accounted for 100% of total revenues and one customer of the apparel segment accounted for 84% of total revenues and another customer accounted for 16% of total revenues. In 2005, one customer of the apparel segment accounted for 79% of total revenues and another customer accounted for 11% of total revenues.
NOTE 10 - SUBSEQUENT EVENT:
In the three months ended March 31, 2007, the holder of the Debentures converted the remaining $175,000 of the Debentures together with all accrued and unpaid interest into 952,826 shares of Alfa's Common Stock.
CONSULTING AGREEMENT
This consulting agreement (the "Agreement") is entered into as of the 19th day of March 2007 by Alfa International Holdings Corp., a corporation organized under the laws of the State of Delaware ("Alfa") which maintains its corporate office at 350 Fifth Avenue, New York, NY 10018 and Sam Hamdan, an individual ("Hamdan"), whose address is 555 South Old Woodward Ave., Birmingham, MI 48009-6679. Alfa and Hamdan are sometimes referred to herein individually as a "Party" or collectively as the "Parties".
WHEREAS Alfa is a holding company and a publicly traded corporation, whose common stock is quoted on NASDAQ's OTC Electronic Bulletin Board under the symbol "AHDS", and
WHEREAS Journey of Light, Inc., a New York corporation ("JOL") is engaged in the real estate development business in the Sultanate of Oman ("Oman") and JOL is a wholly owned subsidiary of Alfa, and
WHEREAS JOL intends to organize Omagine LLC ("OmagineCo") as a wholly owned subsidiary under the laws of Oman and plans to have OmagineCo be the owner and developer of a real estate project (the "Omagine Project") in Oman, and
WHEREAS Alfa and JOL are desirous of further developing JOL's business including its sales and marketing efforts, and
WHEREAS Hamdan has expertise in the real estate business, business management, strategic planning, sales, marketing and business development in the U.S. and the Middle East, and
WHEREAS Alfa and JOL are desirous of ultimately hiring Hamdan as Alfa's President and Chief Operating Officer under the terms and conditions outlined in the draft employment agreement attached hereto as Exhibit A (the "Draft Employment Agreement"), and
WHEREAS Hamdan is desirous of ultimately being hired as Alfa's President pursuant to the terms outlined in the Draft Employment Agreement provided certain conditions precedent have been met, and
WHEREAS Hamdan has agreed to act in the capacity of the Company's "General Manager" and strategic management and business consultant pursuant to this Agreement and to consult for the Company on such other general business matters as the Parties deem desirable and advisable.
NOW THEREFORE, for and in consideration of the compensation to be paid and the services to be rendered under the terms of this Agreement, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged by the Parties, the Parties hereby agree as follows:
1. Preamble / Definitions. The above stated preamble clauses are all incorporated herein as if fully set forth in the body of this Agreement. All capitalized terms in this Agreement shall, unless otherwise indicated herein, have the meanings assigned to them in the Draft Employment Agreement. In this Agreement the word "Company" shall be deemed to include Alfa, JOL and OmagineCo.
2. Term. The term of this Agreement (the "Term") shall, unless otherwise terminated in accordance with the provisions of Article 8 hereof, be for the period beginning on March 19, 2007 and ending on that date which is the earlier of:
(i) the date (the "Financial Closing Date") on which OmagineCo signs the definitive documents with financial institutions and/or banks (collectively, the "Financial Institutions") whereby the Financial Institutions become legally obligated to provide OmagineCo with the construction financing necessary to design and construct the Omagine Project, or
(ii) December 31, 2007, or
(iii) the date Alfa ceases all operations and business or files for bankruptcy protection.
3. Hamdan's Obligations. Hamdan agrees to exert his best efforts (i) to assist the Company in accomplishing its primary objective of completing all actions and tasks necessary to cause OmagineCo to arrive at the Financial Closing Date, and (ii) to perform those duties outlined in the Draft Employment Agreement. In this respect, Hamdan agrees to devote that portion of his business time and efforts to the business affairs of the Company as he deems necessary to accomplish the foregoing. Hamdan as part of his present business activities operates a real-estate development business ("Paramount") and a title insurance and mortgage business ("Premier") in the United States and is an equity owner of The Renaissance Team, Inc., a New York corporation ("TRT") and Renaissance Development Holdings Corp., a New York corporation ("RDH"). Paramount, Premier, TRT, RDH and any of their subsidiaries or affiliates are herein referred to as the "Hamdan Affiliated Companies". Notwithstanding anything to the contrary contained herein, the Company hereby expressly agrees that Hamdan, at his sole discretion, shall be permitted to consult for other businesses, including the Hamdan Affiliated Companies during the Term, provided only, that such businesses are not competitors of the Company. The Company has disclosed certain
portions of the Proprietary Information (as hereinafter defined) to Hamdan and agrees to disclose to Hamdan such further portions of the Proprietary Information which, in the judgment of the Parties, is necessary to enable Hamdan to determine the needs and requirements of the Company and to perform his obligations hereunder.
4. Financial Disclosure by the Company. The Company agrees to disclose to Hamdan during the Term such corporate and financial information, some of which may be material non-public information, about their past and present operations and future plans to allow Hamdan to develop a strategy to fulfill his obligations and to accomplish the Company's objectives.
5. Effectiveness of Employment Agreement. The Parties agree (i) that pursuant to this Agreement Hamdan is neither an employee, officer or director of the Company and further (ii) that:
(i) if the Term of this Agreement ends as a result
of the occurrence of either of the events described in Section 2
(ii) or 2 (iii) herein, then Hamdan and Alfa will not execute any
employment agreement and no Party will have any further
obligations to the other Party except as specified in this
Agreement, but
(ii) if the Term of this Agreement ends as a result of the occurrence of the event described in Section 2 (i) herein, then on the first day of the month next following the Financial Closing Date, Hamdan agrees that he will execute and deliver an employment agreement with Alfa, the terms and conditions of which will be as generally described in the Draft Employment Agreement.
6. Non-Disclosure by Hamdan . Hamdan understands and
acknowledges the importance of maintaining the secrecy and
confidentiality of all information relating to or concerning the
Company and its products and plans, including but not limited to:
marketing plans, drawings, prototypes, products, designs,
documents, manuals, notes, photographs, customer lists, customer
notes, sales materials, customer proposals, sales orders, things
and information, whether oral or written, relating to the Company
or its products as well as all other confidential information,
financial or otherwise, relating to Alfa, (the "Proprietary
Information"), and Hamdan agrees to treat as confidential any and
all information, including the Proprietary Information, obtained
from the Company pursuant to this Agreement, and to that end
Hamdan further agree:
(a) except in the interest of fulfilling his obligations under this Agreement, to not disclose the Proprietary Information (which the Parties acknowledge may include material non-public information, financial or otherwise, pertaining to Alfa), or any
portion thereof to third parties; and
(b) to keep any and all of the Proprietary Information obtained under this Agreement in strict confidence and to segregate the Proprietary Information in a safe and secure location to which only persons authorized herein to use such information have access; and
(c) to insure that the Proprietary Information, or any portion thereof, is disclosed only to those employees of Hamdan who have a need to know the Proprietary Information and to advise those employees to whom the Proprietary Information is disclosed of its confidential nature and of Hamdan 's obligations to treat such Proprietary Information as confidential and to the extent such employees are likewise obligated to maintain such Proprietary Information in confidence in accordance with the terms of this Agreement.
6.1. Hamdan shall be responsible for the acts or omissions of any of his employees, affiliates or agents to whom Hamdan shall disclose the Proprietary Information or any portion thereof and Hamdan hereby warrants and guarantees the full and substantial performance by such employees, affiliates or agents of the terms, conditions and obligations of confidentiality of this Agreement.
6.2. Hamdan agrees not to use the Proprietary Information, or any portion thereof, for any purpose other than that contemplated by this Agreement.
6.3 Hamdan agrees that at the end of the Term (unless the term ends pursuant to Section 2 (i) hereof) he shall return to Alfa within two weeks of such end of the Term any and all of the Proprietary Information provided to him by the Company, and he shall destroy all records of Hamdan which refer to or relate to the Proprietary Information disclosed to him under this Agreement.
6.4 The Company agrees that the obligations of Hamdan under this Agreement with respect to the confidentiality of the Proprietary Information shall not be applicable to any information disclosed by the Company to Hamdan which:
(a) is already in the possession of Hamdan from sources other than from the Company,
(b) is generally known to and readily ascertainable by proper means by other persons, or which, through no act or failure of Hamdan, becomes generally known to and readily ascertainable by proper means by other persons; or
(c) is disclosed to Hamdan by a third party not under an
obligation to maintain the information in confidence.
If any part of the information disclosed by the Company to Hamdan should ever meet any of the criteria established in the above sub-paragraphs 6.4(a), (b) or (c), such shall not affect Hamdan 's continuing obligation to maintain in confidence in accordance with the terms of this Agreement any other part of the Proprietary Information which does not meet such criteria.
6.5. The Parties understand and agree that no license(s) or rights are granted under this Agreement to any aspect of the Proprietary Information or the like, other than for the limited purposes contemplated by this Agreement.
6.6. Title to and ownership of the Proprietary Information shall at all times remain with the Company.
7. Compensation. Alfa hereby agrees to compensate Hamdan for his services under this Agreement as follows:
7.1 Pursuant to the Plan, Alfa shall, upon execution of this Agreement, grant Hamdan the option ("Option") to purchase up to 800,000 shares of Alfa's $0.001 par value common stock (the "Alfa Common Stock") at an exercise price of $0.25 per share. The Option is exercisable ratably (160,000 shares per year) over the five year period beginning April 1, 2007.
7.1.1 If this Agreement expires or is terminated in accordance with Section 2 (ii) or 2 (iii) hereof, then, in that event, the unexercised balance of the Option shall immediately be terminated.
7.1.2 If this Agreement expires or is terminated in accordance with Section 2 (i) hereof, then, in that event, the Option shall remain in full force and effect.
7.1.3 Hamdan's right to purchase the shares of Alfa Common Stock subject to the Option shall be governed by the terms and conditions of the Plan, all of which are incorporated herein by reference.
7.1.4 The Option may be exercised on one or more
occasions, but, if the Option has not been terminated pursuant to
Section 7.1.1 hereof, Hamdan's right to exercise the Option shall
terminate on March 31, 2017 after which date any unexercised
portion of the Option shall be cancelled.
7.1.5 If this Agreement is terminated early in accordance with the provisions of Section 8 hereof, then the Option shall expire on the last day of the third month next
following the "Termination Date" (as hereinafter defined) and Hamdan or his personal representative may exercise the Option in accordance with its terms through such Termination Date.
Hamdan acknowledges that (i) the shares of Alfa Common Stock underlying the Option (the "Shares") are "restricted securities" within the meaning of the Securities Act of 1933, as amended (the "Act"), (ii) as such the Shares have not been registered under the Act or the securities laws of any state, (iii) the resale or other transfer of the Shares may be restricted under the Act and/or applicable state securities laws and such Shares therefore may not be sold, pledged, assigned or otherwise disposed of, unless they are registered under the Act, or an exemption from such registration is available and, (iv) Alfa is under no obligation to register the Shares under the Act or any state securities law, or to take any action to make any exemption from any such registration provisions available. Hamdan further acknowledges that Alfa will endorse all certificates representing the Shares with a legend, together with any legend that any state authority may require substantially in the following form:
"These Securities have not been registered under the Securities Act of 1933, as amended, (the "Act") or the securities laws or regulations of any state. They may not be offered for sale or sold, absent an effective registration statement under the Act or an opinion of counsel, satisfactory to the Company, that such registration is not required under the Act or any applicable State laws or regulations".
7.2 The Company agrees to pay, or reimburse Hamdan for, all travel, entertainment and other business expenses incurred or expended by Hamdan in performing his duties and responsibilities on behalf of the Company under this Agreement. Hamdan agrees to provide proof of the expenses for which he seeks reimbursement in accordance with the Company's present expense reporting policies.
7.3 The Parties agree that no cash compensation shall be paid to Hamdan under this Agreement.
8. Termination. If, during the Term, Hamdan shall become disabled so as to be unable to perform his duties or obligations hereunder or shall die, then this Agreement shall automatically terminate on such date of disability or death (a "Termination Date"). Other than as stated in the foregoing sentence, this Agreement may not be terminated prior to the expiration of the Term for any reason whatsoever.
9. Governing Law; Jurisdiction; Venue. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts
made and to be entirely performed therein and without regard to principles of conflict of laws. Any litigation based hereon, or arising out of, under or in connection with this Agreement shall be brought and maintained exclusively in the courts of the State of New York or in the United States District Court for the Southern District of New York. The Company and Hamdan each hereby expressly and irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York for the purpose of any such litigation set forth above. The Company and Hamdan each hereby expressly and irrevocably waives, to the fullest extent permitted by law, any objection which they have or hereafter may have to the laying of venue of any such litigation brought in any such court referred to above and any claim that any such litigation has been brought in an inconvenient forum.
10. Assignment; Binding Nature; No Beneficiaries. This Agreement may not be assigned by any Party hereto without the written consent of the other Party. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties hereto and their respective heirs, personal representatives, legatees, successors and permitted assigns. This Agreement shall not confer any rights or remedies upon any person other than to the Parties hereto and their respective heirs, personal representatives, legatees, successors and permitted assigns.
11. Counterparts. For the convenience of the Parties any number of counterparts hereof may be executed. Each such executed counterpart shall be deemed an original and all such counterparts together shall constitute one and the same instrument.
12. Amendment. This Agreement may be modified or amended only by an instrument in writing duly executed by the Parties.
13. Nonwaiver. No waiver by any Party of any term, provision, covenant, representation or warranty contained in this Agreement (or any breach thereof) shall be effective unless it is in writing and executed by the Party against which such waiver is to be enforced; no waiver shall be deemed or construed as a further or continuing waiver of any such term, provision, covenant, representation or warranty (or breach) on any other occasion or as a waiver of any other term, provision, covenant, representation or warranty (or the breach of any other provision) contained in this Agreement on the same or any other occasion.
14. Headings. The headings in this Agreement are inserted for convenience only and shall not constitute a part thereof.
15. Construction. In this Agreement (i) words denoting
the singular include the plural and vice versa, (ii) "it" or "its"
or words denoting any gender include all genders, (iii) the word
"including" shall mean "including without limitation," whether or
not expressed, (iv) any reference herein to a Section refers to a
Section of this Agreement, unless otherwise stated, (v) when
calculating a period of time within or following which any act is
to be done or steps taken, the date which is the reference day in
calculating such period shall be excluded and if the last day of
such period is not a business day, then the period shall end on
the next day which is a business day, and (vi) except as otherwise
expressly provided herein, all dollar amounts are expressed in
United States funds.
16. Entire Agreement. This Agreement (including Exhibit A - the Draft Employment Agreement) constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all other prior representations, agreements and understandings, both written and oral, between the Parties with respect to such subject matter.
17. Notices. Unless otherwise specifically provided in this Agreement, all notices, requests, consents, approvals, agreements or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered in one of the following means: (a) by hand; (b) by facsimile transmission or e-mail transmission to those Parties with fax numbers and/or e-mail addresses indicated below [with subsequent written confirmation by another means in compliance with this Section 17 ]; (c) by registered or certified mail, first class postage prepaid, return receipt requested; or (d) by nationally recognized overnight courier, addressed to the respective address of the Parties as follows:
If to Alfa: If to Hamdan: ----------- ------------- Alfa International Holdings Corp. Mr. Sam Hamdan The Empire State Building c/o The Renaissance Team, Inc. 350 Fifth Avenue 360 Hamilton Row New York, NY 10118 Birmingham, MI 48009 Fax: (212) 563-3355 Fax: (248) 593-9355 Conf:(212) 563-4141 Conf:(248) 593-9344 e-mail: fdrohan@journey-of-light.com e-mail: shamdan@trtiweb.com |
or to such other address as any Party shall designate for himself or
itself by notice to the other Parties given in accordance herewith.
Any such notice or other communication shall be deemed to have been
given or made (i) upon delivery, if delivered personally, (ii) one
(1) business day after transmission, if delivered by e-mail or
facsimile transmission during normal business hours, (iii) three (3)
business days after mailing, if mailed, or (iv) one (1) business day after delivery to the courier, if delivered by overnight courier service.
18. The invalidity or un-enforceability of any provision of this Agreement shall not affect or limit the validity or enforceability of any other provision hereof and any such invalid or unenforceable provision shall be construed or deemed amended by the Parties only to the extent necessary to make it valid and enforceable.
19. No publicity release or announcement concerning this Agreement or the transactions contemplated hereby shall be made without advance written approval thereof by Alfa.
IN WITNESS WHEREOF, the Parties have executed this Agreement this 19th day of March 2007
Sam Hamdan Alfa International Holdings Corp.
a Delaware corporation
By: /s/ Sam Hamdan By: /s/ Frank J. Drohan
----------------------- ----------------------------
Sam Hamdan Frank J. Drohan
President
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This agreement dated as of November 1, 2006 (the "Agreement") is between Journey of Light, Inc., a corporation organized and existing under the laws of the state of New York in the United States of America ("JOL") and Joannou & Paraskevaides (Overseas) Ltd. a corporation organized and existing under the laws of Guernsey in the Channel Islands ("J&P). Each of JOL and J&P are sometimes referred to herein as a "Party" or collectively as the "Parties".
1. The Development Agreement. As of the date hereof, JOL is negotiating a development agreement ("Development Agreement") with the government ("Government") of the Sultanate of Oman ("Oman"). A draft copy of the Development Agreement (the "Draft Development Agreement") which is subject to further negotiation and changes by the Government and JOL is attached hereto as Exhibit A. The Draft Development Agreement memorializes the terms and conditions of a proposed real estate development project (the "Omagine Project") to be undertaken in Oman by a subsidiary of JOL (the "Project Company").
2. Definitions. All capitalized terms in this Agreement shall, unless otherwise indicated herein, have the meanings assigned to them in Exhibit A - the Draft Development Agreement.
3. Purpose of Agreement. The purpose of this Agreement is to specify the relationship between the Parties:
(i) from the date hereof up to and including that date the "Financial Closing Date") on which the legally binding documents providing the Construction financing to the Project Company are executed and delivered by the relevant financial institutions or entity ("Financial Institutions"), and
(ii) subsequent to the Financial Closing Date and in particular to specify the agreed upon terms and conditions of:
a. a proposed construction contract ("Construction Contract") between J&P and the Project Company for the construction of some or all of the Omagine Project, and
b. a proposed stock purchase agreement ("Stock
Purchase Agreement") whereby J&P will become a shareholder of the Project Company, and
(iii) with respect to such other terms and conditions as the Parties have agreed upon regarding the development of the Omagine Project.
4. Relationship of the Parties. From and after the
date hereof, the Parties agree to cooperate for the purpose of
(i) completing the negotiations with the Government with
respect to the Development Agreement, and (ii) arranging with
the Financial Institutions the necessary Construction
Financing required to construct the Omagine Project.
5. Term. Other than as provided in Section 8.1 hereof and in this Section, this Agreement can only be terminated upon:
1. the mutual written consent of the Parties. The date specified in such mutual written consent is hereby defined as the "Termination Date", or
2. upon the execution by the Parties of the following three agreements: the Construction Contract, the Stock Purchase Agreement and the Shareholders' Agreement (collectively the "Project Agreements"), or
3. on the Financial Closing Date if the Project Agreements are not signed as of the Financial Closing Date, or
4. on the calendar date next following the Equity Notice Date as specified in Section 8.1 (iii) (c) hereof, if the Equity Notice is not delivered to JOL on or before such Equity Notice Date therein specified.
Notwithstanding the foregoing, this Agreement shall automatically expire on April 1, 2007 if the Development Agreement is not signed by the Government on or before March 31, 2007.
6. Expenses. The Parties hereby agree that each Party shall be solely responsible for its own costs and expenses incurred as a result of this Agreement or the transactions contemplated hereby. The Parties hereby agree that, subject to the agreement (if required) of the Financial Institutions providing the Construction Financing, each Party shall be reimbursed in full for its Development Expenses at the Financial Closing. "Development Expenses" are hereby defined
as the sum of all direct cash expenses incurred by a Party and
associated with the negotiation of the Development Agreement
and/or the preparation, planning, design and promotion of the
Omagine Project prior to the signing of the Development
Agreement between the Government and the Project Company
(including any such expenses incurred after the date hereof)
but they specifically exclude any profit, overhead expenses or
officers' salaries of any Party. The Parties hereby agree
that as of November 1, 2006 JOL's Development Expenses are
approximately three million eight hundred thousand U.S.
Dollars ($3,800,000) and J&P's Development Expenses are
approximately five hundred thousand U.S. Dollars ($500,000).
7. The Financial Models. JOL has, together with its financial adviser AmeriCapital Renaissance Corp. and J&P, prepared and delivered to the Government and to J&P, a preliminary financial model for the Omagine Project (the "Preliminary Model"). The Preliminary Model is attached hereto as Exhibit B and reflects the best current estimate by JOL, J&P and their consultants and advisers with respect to the projected future costs to be incurred and revenues to be generated by the development, construction and operation of the Omagine Project, as well as a calculation of the net present value of the Omagine Project's projected future cash flows (the "NPV"). The Parties agree that between the date hereof and the Financial Closing Date it is likely that the Preliminary Model will be adjusted and/or modified to reflect updated data and/or then current assumptions and that ultimately a final financial model (the "Final Financial Model") will be agreed upon between the Project Company and the Financial Institutions. The Parties hereby agree that the Final Financial Model (and the NPV calculated therein) shall be the basis used to calculate J&P's ownership percentage of the Project Company as further specified in this Agreement.
8. The Stock Purchase Agreement and the Shareholders' Agreement . On the Financial Closing Date or on such other date prior to the Financial Closing Date to which the Parties may mutually agree, the following two agreements shall be executed by J&P and the Project Company:
1. a shareholders' agreement in relation to the Project Company (the "Shareholders' Agreement") which shall reflect the principles agreed upon in this Agreement, and
2. a stock purchase agreement (the "Stock Purchase Agreement") whereby J&P agrees to invest a sum of
money (the "J&P Investment") in the Project Company in return for the issuance by the Project Company of a percentage (the "J&P Percentage") of the Project Company's capital stock.
The Parties agree that "time is of the essence" with respect to the execution by J&P and the Project Company on or before the Financial Closing Date of the Stock Purchase Agreement and the Shareholders' Agreement. The Stock Purchase Agreement and the Shareholders' Agreement will contain the usual and customary conditions found in such agreements as well as the principle that J&P will undertake the Construction Contract.
8.1 The J&P Investment and the J&P Percentage. The Parties agree that the J&P Investment and the J&P Percentage shall be based on the Final Financial Model as follows:
(i) The Final Financial Model will, among other things, contain a calculation of (i) the NPV, and (ii) the equity investment in the Project Company necessary to support the provision to the Project Company by the Financial Institutions of the Construction Financing (the "Required Equity Investment"). The Parties hereby agree that the J&P Percentage shall be equal to that percentage (carried out to two decimal points) calculated by dividing the J&P Investment multiplied by 1.5 by the NPV. (For example, if the J&P Investment is $30 million and the NPV is $300 million; then the J&P Percentage would be fifteen percent (15.00 %).
(ii) The Parties hereby agree that (i) the J&P Investment shall be a minimum of fifteen million U.S. Dollars ($15,000,000) but may, at J&P's option, be equal to 100% of the Required Equity Investment, and (ii) if the proposed J&P Investment is less than 100% of the Required Equity Investment (a "Reduced Investment"), then such Reduced Investment may be accepted or rejected by the Project Company at its sole option.
(iii) The Parties hereby agree that the award of the Construction Contract by the Project Company to J&P is specifically linked to the amount of the J&P Investment as follows:
a. If J&P elects to invest 100% of the Required Equity Investment, then J&P shall be the Project Company's General Contractor for the Omagine Project and the value of the Construction Contract (the "Contract Value") shall be equal to the negotiated total cost of construction (exclusive of construction management and design fees) for the Omagine Project (the "Total Construction Costs").
b. If J&P proposes to invest a Reduced
Investment (and such Reduced Investment is
accepted by the Project Company pursuant to
Section 8.1 (iii) (b) (i) (2) below), then
J&P shall, at the Project Company's sole
option, be either the General Contractor or
a sub-Contractor for the Omagine Project and
the Contract Value shall be at least equal
to that number which is calculated by
dividing the Reduced Investment by the
Required Equity Investment and multiplying
the result thereof by the Total Construction
Costs. (For example, if the Required Equity
Investment is $30 million and J&P elects to
invest $15 million and JOL and the Project
Company accepts such Reduced Investment;
then the Contract Value would be at least
50% of the Total Construction Costs.
1. reject the proposed Reduced Investment and terminate this Agreement without any further obligation to J&P other than the obligation to reimburse J&P for that portion of its Development Expenses which were incurred by J&P during the period beginning on the date hereof and ending on the Reduced Investment Notice Date (as hereinafter defined), or
2. accept the Reduced Investment and cause the Project
Company to award the Construction Contract to J&P in
accordance with the provisions of this Agreement and
Section 8.1 (iii) (b) above
a. Within sixty (60) days after the date the Development Agreement is signed by the Government (or on such later date as may be agreed to in writing by the Parties), J&P shall notify JOL in writing (an "Equity Notice") whether the J&P Investment shall represent 100% of the Required Equity Investment or a Reduced Investment . The date of such Equity Notice is the Equity Notice Date.
b. If such Equity Notice represents a Reduced Investment, JOL shall, within sixty (60) days after receipt by it of such Equity Notice (or on such later date as may be agreed to in writing by the Parties), notify J&P in writing (a "Reduced Investment Notice") whether such Reduced Investment is accepted or rejected by JOL. The date of such Reduced Investment Notice is the Reduced Investment Notice Date.
c. The Parties acknowledge that many "financial investors" (i.e. investors who are neither developers nor contractors) have expressed interest in investing in the Omagine Project and it is the Parties intention to cooperate with each other to examine and carefully consider these potential investment options subsequent to the signing of the Development Agreement and to maintain maximum flexibility in order to attain the optimum financial structure for the Omagine Project. A Reduced Investment by J&P which is accepted by the Project Company, in combination with financial or other investors, shall not preclude nor obligate the Project Company from appointing J&P as the general contractor and awarding the Construction Contract to J&P for a Contract Value equal to the Total Construction Costs. Conversely, a proposed Reduced Investment by J&P shall not preclude the Project Company from rejecting such proposed Reduced Investment and appointing one or more contractors other than J&P as the general contractor or sub-contractor and awarding some or all of the contracts for
the construction of the Omagine Project to such other contractors. Should J&P elect to make the J&P Investment equal to the Required Equity Investment however, the Project Company shall be obligated to appoint J&P as the general contractor and award the Construction Contract to J&P for a Contract Value equal to the Total Construction Costs.
d. J&P agrees that it will fund the full amount of the J&P Investment in accordance with the terms and conditions required by the Financial Institutions providing the Construction Financing.
9. The Construction Contract / Completion Warranty. As of the date hereof, JOL intends to engage the services of Michael Baker Corporation of Pittsburgh , PA or some such similar company ("Baker") as the Construction Manager and as the Program Manager for the Omagine Project. As soon as practicable after the signing of the Development Agreement by the Government, the Parties and Baker shall begin the process of further design and costing of the Omagine Project as well as all efforts necessary to achieve the Financial Closing. The Parties shall with the assistance and input of Baker negotiate in good faith to arrive at a fair and commercially reasonable value for the Total Construction Costs and Contract Value on or before the Financial Closing Date. J&P agrees that it shall conduct the negotiations with respect to the Total Construction Costs and the Contract Value in a completely transparent manner so that Baker and the Project Company are aware of all projected costs, overhead and profits associated with the Total Construction Costs, the Contract Value and the Construction Contract. The Total Construction Costs, the Contract Value and the Construction Contract shall be negotiated based on viable arms-length prices and business practices conforming to rules of transparency, international best practices and the requirements of this Agreement so as to enable, among other things, the successful arrangement of the Construction Financing for the Omagine Project. Such prices shall be based on competitive prices for similar services offered by disinterested third party contracting companies of at least equal standing as J&P.
J&P agrees that should it be awarded the Construction Contract that it will execute and deliver the "Contractor's Completion Warranty" in the form attached hereto as Exhibit C.
10. Representations and Warranties
10.1 JOL Representations.
JOL hereby represents and warrants to J&P that:
(i) JOL is a corporation organized and in good
standing under the laws of the State of New York
in the United States of America, and
(ii) On the Financial Closing Date, the Project
Company will be a corporation organized and in
good standing under the laws of the Sultanate of
Oman, and
(iii) Frank J. Drohan has been duly authorized by the
Board of Directors of JOL to execute and deliver
this Agreement on behalf of JOL and when so
executed and delivered it shall be binding on JOL
and on JOL's successors and permitted assigns,
and
(iv) the execution and delivery of this Agreement by
JOL will not violate any of the provisions of
JOL's Certificate of Incorporation or By-Laws nor
violate any provision of any contract or other
agreement by which JOL is bound.
10.2 J&P Representations.
J&P hereby represents and warrants to JOL that:
(i) J&P is a corporation organized and in good
standing under the laws of Guernsey in the
Channel Islands, and
(ii) George S. Demetriou has been duly authorized by
the Board of Directors of J&P to execute and
deliver this Agreement on behalf of J&P and when
so executed and delivered it shall be binding on
J&P and on J&P's successors and permitted
assigns, and
(iii) the execution and delivery of this Agreement by
J&P will not violate any of the provisions of
J&P's Articles of Association or By-Laws nor
violate any provision of any contract or other
agreement by which J&P is bound.
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11. Governing Law; Jurisdiction; Venue. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the country of Switzerland. Any disputes arising out of or in connection with this Agreement shall be finally settled by arbitration under the ICC Rules. The venue for any such arbitration shall be Geneva, Switzerland. The arbitration shall be conducted by three (3) arbitrators who shall be proficient in the English language and shall be appointed by the Secretary General of the International Court of Arbitration of the ICC in accordance with the ICC Rules. The language of the proceedings, documentation and award shall be English. The expense of the arbitration shall be borne by the Parties in such manner as the arbitrator may determine, provided, however, that each Party shall pay for and bear the cost of its own experts, evidence and legal counsel, irrespective of the outcome. No arbitrator appointed pursuant to this Clause shall be a national of the United States, Greece or Cyprus nor shall any such arbitrator be an employee, agent, consultant or former employee, agent or consultant of either Party.
12. Miscellaneous
12.1 Intellectual Property. The Parties agree that the Omagine Project as presented to the Government and to J&P, including the architectural, engineering and technical drawings, Feasibility Study, and marketing studies (collectively, the "Intellectual Property") are all the property of JOL. J&P hereby covenants with JOL that, without the prior written approval and consent of JOL, J&P will not use, publish or exploit the Intellectual Property, or any part of it, in any way shape or form.
12.2 Confidential Information. For the purposes of this Clause 12.2 "Confidential Information" means this Agreement and any and all information, data, or material provided by either Party to the other, including but not limited to (a) patent and patent applications, (b) trade secrets, and (c) proprietary information, ideas, techniques, sketches, drawings, work of authorship, models, inventions, know-how, processes, apparatuses, equipment, software programs, and including, without limitation, their respective information concerning research, experimental work, development, design details and specifications, engineering, financial information, procurement requirements, purchasing, manufacturing, customer lists, investors, employees, business and contractual relationships (actual or prospective), business forecasts, sales and merchandising, marketing plans
and information the disclosing party provides regarding third parties. Any information that is not readily available to the public shall be considered as Confidential Information and, therefore, within the scope of this Agreement, unless specified otherwise in writing.
Each Party shall at all times and notwithstanding any termination or expiration of this Agreement hold in strict confidence and not disclose to any third party Confidential Information, save to the extent such information may be required by the Parties or the Government or their consultants or representatives for the purposes of the performance of their duties hereunder, or as may be required by judicial decision, requirements of applicable law or governmental regulation, the rules and regulations of any applicable stock exchange or securities law or administrative process, or to comply with any such laws, rules or regulations, except as approved in writing by the other Party, and will use the Confidential Information for no purpose other than what is contemplated hereunder. Each Party shall only permit access to Confidential Information to those of its employees or authorized representatives or parties having a need to know and who have signed confidentiality arrangements or are otherwise bound by confidentiality obligations at least equivalent to those contained herein. Notwithstanding the foregoing, each of the Parties shall have the right to communicate with potential investors and financial institutions with respect to the Omagine Project and to take such actions and to perform such tasks as are usual and customary when arranging project financing and a financial closing for the Omagine Project.
12.3 Amendments. This Agreement may not be amended or modified except by a written instrument signed by both Parties.
12.4 Entire Agreement. The Parties hereto agree that this Agreement (together with Exhibits A, B and C attached hereto) constitutes the entire agreement between the Parties and supersedes any prior agreements whether written or verbal between the Parties.
12.5 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered, as follows (or to such other address as any party shall designate by notice given as herein provided):
(i) if to JOL, to:
Journey of Light, Inc.
The Empire State Building
350 Fifth Avenue
New York, N.Y. 10118
Attn: President
Tel: +1-212-563-4141
Fax: +1-212-563-3355
(ii) if to J&P, to:
Joannou & Paraskevaides (Overseas) Ltd.
Canada Court, Upland Road
St. Peter Port
Guernsey, GY1 3BQ
Channel Islands
Attn: President
Tel: +44 1481 744000
Fax: +44 1481 744520
12.6 Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement the date first above written.
Joannou & Paraskevaides (Overseas) Ltd.
By: /s/ George S. Demetriou
-------------------------------
George S. Demetriou
Director and Member of
the Management Committee
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Journey of Light, Inc.
By: /s/ Frank J. Drohan
--------------------------
Frank J. Drohan
President
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Exhibit A
Draft Copy of Development Agreement
Exhibit B
The Preliminary Financial Model
Exhibit C.
FORM OF CONTRACTOR'S COMPLETION WARRANTY
This Warranty is made the ....... day of .............2006 between:
(1) THE GOVERNMENT OF THE SULTANATE OF OMAN, as represented
by the Ministry of Tourism ("MOT"), P. O. Box 200, Post
Code 115, Muscat, Sultanate of Oman (the "Government");
and,
(2) Omagine LLC, a limited liability company registered in the Sultanate of Oman with certificate of registration No. xxxxxxxx and registered office at P. O. Box xx, Post Code xxx Muscat, Oman (the "Project Company");
and
(3) Joannou & Paraskevaides (Overseas) Ltd., whose registered office is at Canada Court, Upland Road, St. Peter Port, Guernsey, GY1 3BQ, Channel Islands (the " Lead Sub- Contractor").
WHEREAS:
(A) The Lead Sub-Contractor has entered into a construction
contract dated [xxxxxxxxx] with the Project Company (the
Construction Contract") for the construction of all items
covered by the Construction Contract (the "Construction
Activities") all as more fully indicated by a copy of
such Construction Contract attached hereto as Appendix I.
(B) The Lead Sub-Contractor has been engaged by the Project Company to carry out the Construction Activities.
(C) The Lead Sub-Contractor has, in consideration of such Construction Contract, agreed to give a Warranty in this form to the Project Company and to the Government.
NOW THIS WARRANTY WITNESSETH as follows:
1.1 The Lead Sub-Contractor WARRANTS AND UNDERTAKES to the Government and to the Project Company that it shall accomplish the Substantial Completion of the construction of all items comprising the Construction Activities at the date shown on the Construction Schedule (attached hereto as Appendix II), as amended from time to time. By Substantial Completion the Lead Sub-Contractor means the point at which all material Construction Activities are completed, and the elements so constructed are ready for use for the purpose for which they were intended, irrespective of any minor or immaterial items that may remain to be corrected or constructed with respect to such Construction Activities.
2. The Government has no authority to issue any direction or instruction to the Lead Sub-Contractor in relation to the performance of the Construction Activities by the Lead Sub-Contractor under the Construction Contract.
3. The construction, validity and performance of this Warranty shall be governed by the Laws of the Sultanate of Oman.
4. Nothing in this Warranty confers or purports to confer on any third party any benefit or any right to enforce any term hereof except an expressly so stated herein.
5. Any notice to be given by the Lead Sub-Contractor shall be deemed to be duly given if it is delivered by hand or is sent by registered post or recorded delivery to the Government or to the Project Company at their registered offices as noted herein and any notice given by the Government or the Project Company hereunder shall be deemed to be duly given if it is addressed to "The Managing Director" and delivered by hand at, or sent by registered post or recorded delivery to, the above mentioned address of the Lead Sub-Contractor and in the case of any such notices, the same shall, if sent by registered post or recorded delivery, be deemed to have been received forty eight hours after being so posted.
IN WITNESS whereof the parties hereto have duly executed this Warranty the day and year first above written.
THE GOVERNMENT
..................
THE PROJECT COMPANY
..................
THE LEAD SUB-CONTRACTOR
..................