KIT KARSON CORPORATION
4201 I-20 East Service Road
Willow Park, Texas 76087
June 16, 1998
INFORMATION STATEMENT AND
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 1998
To the Shareholders of Kit Karson Corporation:
PLEASE TAKE NOTICE that a Special Meeting of the Stockholders of Kit
Karson Corporation will be held on June 26, 1998 at the Hyatt Regency
(West Tower) at the DFW Airport located in Irving, Texas. The meeting will
convene at 4:00 o'clock in the afternoon for the following purposes:
(1) The approval of a proposal for a 1-for-10 reverse split of the
corporate stock;
(2) The ratification of the Board's decision to acquire certain assets
of Ness Energy International, Inc. and reimbursement expenses for a
total of 18,500,000 common shares;
(3) The approval of a proposal to amend the Articles of Incorporation
to change the name of the Corporation to Ness Energy International,
Inc.; and
(4) The transaction of such other business as may properly come before
the meeting.
Details relating to this matter are set forth in the attached Information
Statement. All shareholders of record as of the close of business on June
3, 1998 will be entitled to notice of, and to vote at, such meeting or at
any adjournment or postponement thereof.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING.
BY THE ORDER OF THE BOARD OF DIRECTORS
Hayseed Stephens
Chairman of the Board
<PAGE>
INFORMATION STATEMENT
KIT KARSON CORPORATION
4201 I-20 East Service Road
Willow Park, Texas 76087
(817) 341-1477
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 26, 1998
This Information Statement is furnished in connection with the Special
Meeting of Kit Karson Corporation (the "Company"), a Washington
corporation, to be held at 4:00 P.M. on June 26, 1998 at the Hyatt Regency
(West Tower) at the DFW Airport located in Irving, Texas or any
adjournment or postponement thereof. The Company is not soliciting
proxies. Approval of the reverse split, the acquisition of certain assets
from Ness Energy International, Inc. and the change of the name of the
Company requires an affirmative vote of a majority of all votes present at
the Special Meeting in person or by proxy. Abstentions and broker
non-votes will be treated as negative votes.
This Information Statement is being distributed on behalf of the Company,
but all of the expenses involved in preparing, assembling, and mailing
this Information Statement and the material enclosed herewith will be paid
by the Company.
This Information Statement will be transmitted to stockholders on or about
June 16, 1998.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The close of business on June 3, 1998, has been fixed by the Board of
Directors of the Company as the record date for the determination of
shareholders entitled to notice and to vote at the Special Meeting. At
such date, there were outstanding 49,959,356 shares of the Company's no
par value common stock (hereinafter referred to as the "Common Stock"),
each of which entitles the holder to one vote per share on each matter
which may come before the meeting. The Company also has Preferred Stock;
however, no preferred shares have been issued or outstanding as of June 3,
1998.
A majority of the issued and outstanding shares of the Common Stock
entitled to vote, represented in person or by proxy, constitutes a quorum
at any shareholders' meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 3, 1998 the Common Stock
ownership of each person known by the Company to be beneficial owner of
five percent (5%) or more of the Company's Common Stock ("Principal
Shareholders"), all Directors and Officers individually and all Directors
and Officers as a group. There are no contractual arrangements or pledges
of the Company's securities, known to the Company, which may at a
subsequent date result in a change of control of the Company.
Before Reverse Split After Reverse Split &
Asset Acquisition
Name and Address Number of Percent Number of Percent
of Beneficial Owner Shares Owned of Class Shares Owned of Class
Hayseed Stephens* 28,229,752** 56.5% 2,822,975 12.02%
365 Cook Road
Willow Park,
Texas 76087
Mary Gene Stephens* -0- -0- -0- -0-
365 Cook Road
Willow Park,
Texas 76087
Ivan Webb -0- -0- -0- -0-
901 West 6th Street
Cisco, Texas 76437
Richard Fessler -0- -0- -0- -0-
One Priors Way
San Antonio, TX 78257
All directors &
officers as a
group (4 persons) 28,229,752 56.5% 2,822,975 12.02%
Ness Energy
International Inc.*
365 Cook Road
Willow Park,
Texas 76087 -0- -0- 18,500,000 78.74%
*Harold "Hayseed" Stephens and Mary Gene Stephens are husband and wife.
There are no other family relationships between the directors and
officers. Hayseed Stephens is President and major stockholder of Ness
Energy International Inc. After the distribution of the shares to Ness
shareholders, Hayseed Stephens will receive 15,965,900 shares from Ness
bringing him and his Company, Hayseed Stephens Oil Inc., to a total of
18,788,875 shares or 79.79% of the Company.
**This amount includes the stock owned by Hayseed Stephens Oil Inc., which
is 14,150,000 shares.
DESCRIPTION OF BUSINESS AND PROPERTIES OF THE COMPANY
Kit Karson Corporation (the "Company") was incorporated under the laws of
Washington on March 1, 1979. The Company's office is located at 4201 I-20
East Service Road, Willow Park, Texas 76087.
During the period from March 1, 1979 to March 31, 1981, the Company
conducted no substantial business, received no material income and had no
material assets or liabilities. On March 31, 1981 a new management group
took control and moved the office from Spokane, Washington to Wichita,
Kansas. This new management group conducted the Company's operations in
two primary segments; oil and gas and real estate. The Company's
activities from March 31, 1981 through December 31, 1984 were limited due
to the availability of funds; however, the Company did enter into a
purchase agreement for an office building in Wichita, Kansas and several
oil and gas projects plus made a few stock acquisitions during this period
of time. Unfortunately, the investments did not sustain the Company and
the raising of additional working capital became more difficult causing
the Company to become inactive.
The Company has not been involved in any bankruptcy, receivership, or
similar proceeding and underwent no material reclassification, merger, or
consolidation during the dormant years from January 1, 1985 through
September 30, 1997. However, on October 8, 1997 an agreement was made to
revive the Company by issuing 14,150,000 shares of stock to Harold
(Hayseed) Stephens for certain oil and gas properties located in Parker
County, Texas. On December 22, 1997, Mr. Stephens became President of the
Company and the oil and gas interests were approved to be assigned to the
Company for 14,150,000 shares.
COMPETITION
Competition in the oil and gas business is intense, particularly with
respect to the acquisition of producing properties, proved undeveloped
acreage and leases. Major and independent oil and gas companies actively
bid for desirable oil and gas properties and for the equipment and labor
required for their operation and development. Many of the Company's
competitors will have financial resources and exploration and development
budgets that are substantially greater than those of the Company, and
these may adversely affect the Company's ability to compete.
REGULATION AND TAXATION
The Company's oil and gas business will be subject to various federal,
state and local laws and governmental regulations which may be changed
from time to time in response to economic or political conditions.
Matters subject to regulation include discharge permits for drilling
operations, drilling bonds, reports concerning operations, the spacing of
wells, unitization and pooling of properties, taxation and environmental
protection. From time to time, regulatory agencies have imposed price
controls and limitations on production by restricting the rate of flow of
oil and gas wells below actual production capacity in order to conserve
supplies of oil and gas.
The Company's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation
and clean-up costs and other environmental damages. The Company could be
liable for environmental damages caused by previous property owners. As a
result, substantial liabilities to third parties or governmental entities
may be incurred, the payment of which could have a material adverse effect
on the Company's financial condition and results of operations. The
Company intends to maintain insurance coverage for its operations,
including limited coverage for sudden environmental damages, but does not
believe that insurance coverage for environmental damages that occur over
time will be available at a reasonable cost. Moreover, the Company does
not believe that insurance coverage for the full potential liability that
could be caused by sudden environmental damages will be available at a
reasonable cost. Accordingly, the Company may be subject to liability or
may lose substantial portions of its properties in the event of certain
environmental damages. The Company could incur substantial costs to
comply with environmental laws and
regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws
or regulations, including regulations promulgated pursuant to the Oil
Pollution Act of 1990, could have a material adverse impact on the
Company.
The recent trend toward stricter standards in environmental legislation
and regulation is likely to continue. For instance, legislation has been
introduced in Congress that would reclassify certain exploration and
production wastes as "hazardous wastes" which would make the reclassified
wastes subject to much more stringent handling, disposal and clean-up
requirements. If such legislation were enacted, it could have a
significant impact on the operating costs of the Company, as well as the
oil and gas industry in general. Initiatives to further regulate the
disposal of oil and gas wastes are also pending in certain states, and
these various initiatives could have a similar impact on the Company.
EMPLOYEES
The business of the Company was carried on primarily by Arthur Sykes,
President, during the dormant years. The directors, Jereta Sykes and
Debra Vaughan, devoted such time as was necessary to carry on the
Company's business. The Company has no bonus, pension, or profit sharing
plans.
New directors and officers were appointed on December 22, 1997 when change
of control occurred. The new President is Harold (Hayseed) Stephens and
the Secretary/Treasurer is his wife, Mary Gene Stephens. The Company also
added two new directors, Ivan Webb and Richard Fessler. On March 6, 1998
the shareholders elected Hayseed Stephens, Ivan Webb and Richard Fessler
as directors for a one year period.
The day to day operations are under the direction of Mr. and Mrs.
Stephens. The Company has two full-time and three part-time employees.
LEGAL PROCEEDINGS
The Company knows of no pending or threatened legal proceedings which
could result in a material loss to the Company.
COMPENSATION
No compensation was paid in 1997 other than the assignment of the working
interest in the gas well in Beaver County, Oklahoma and 87,400 shares of
Black Giant Oil Company owned by Kit Karson to Arthur Sykes, Jr. for
maintaining the Company during the dormant years. The amount of this
compensation is calculated to be $4,622.
The following table shows the proposed annual compensation to be paid to
the officers of Kit Karson Corporation in 1998 subject to funding and/or
the availability of funds.
Name and Principal Position Salary
Hayseed Stephens, President & CEO $60,000
Ivan Webb, CFO 24,000
Mary Gene Stephens, Secretary/Treasurer 18,000
All compensation and other arrangements between the Company and its
officers and directors are to be approved by a Compensation Committee of
the Board of Directors, a majority of whom are to have no affiliation or
relationship with the Company other than as directors.
Compensation of Directors: Directors are not compensated for attendance
at meetings of the Board, although certain travel expenses relating to
attending meetings are reimbursed.
Compensation Committee
Report
No compensation committee has been appointed by the Board of Directors
since the election of the new board on March 6, 1998 at the annual meeting
of shareholders. Following the Special Meeting on June 26, 1998, a
Compensation Committee will be selected by the Board to make
recommendations to the Board for compensation and incentive packages for
the Company's officers and employees.
No employment contracts are currently outstanding as of this date;
however, it is anticipated that some employment contracts may be entered
into during the current year.
PROPOSAL FOR A 1-FOR-10 REVERSE SPLIT
OF THE COMPANY'S COMMON STOCK
General
The Board of Directors recommends a 1-for-10 reverse split of the stock
from 49,959,356 outstanding to approximately 4,995,936 shares outstanding
after the split.
The proposed reverse split will not require a change in the authorized
shares, nor a change in the par value of the Common Stock as the Company
shares are without a par value.
If the proposed reverse stock split is approved by shareholders, each
holder of record of Common Stock on the effective date of the proposed
reverse stock split will thereafter be deemed to hold one (1) share of
Common Stock for every ten (10) shares held as of the effective date.
No fractional shares will be issued. Fractional shares resulting from the
proposed reverse stock split will be rounded up to the next whole number
of shares. This method will cause a slight increase in the total number of
outstanding shares after the reverse split from the number stated. The
actual number of outstanding shares will not be determined until the
record date for the reverse split.
Purpose and Effect of the Proposed Reverse Stock Split
The principal effect of the proposed reverse stock split will be to
decrease the number of outstanding shares of Common Stock from 49,959,356
to approximately 4,995,936. The acquisition of the assets from Ness will
cause the number of shares to be increased by 18,500,000 shares for a
total of 23,495,936 shares outstanding. For further information regarding
the acquisition of assets from Ness, please see "Proposed
Acquisition".
The Board of Directors is of the opinion that the proposed reverse split
is advisable and in the best interest of the Company and its shareholders.
The Company is currently listed on the Electronic Bulletin Board, with a
goal to obtain listing on the Small Cap NASDAQ. In order to achieve the
stock price requirement the Directors proposed the 1-for-10 reverse split.
The Board of Directors believes that having Kit Karson Corporation listed
on the NASDAQ market will result in the increased tradability of the
shares with a much broader market for the Common Stock.
A listing on the NASDAQ Small Cap Market offers more visibility of the
Company's stock as major financial newspapers carry this market. Exposure
through NASDAQ also builds analyst confidence, as well as attracts more
sophisticated investors. Also of importance are the benefits gained from
the special services provided by this exchange.
Because of the dramatic change in the Company's operations in December
1997, coupled with the funding programs planned for 1998, management
expects the Company's December 31, 1998 audited financial statements to
meet the listing requirements to move up to the NASDAQ Small Cap Market.
Currently, the Company does not meet the financial requirements to move up
to a small cap market, and there is no assurance that such financial
requirements will ever be satisfied. The stock price requirement has not
been met, and the purpose of the proposed reverse split would be to assist
in getting the price up to a more suitable level for consideration by
NASDAQ. The increased price level may encourage interest and trading in
the Company's Common Stock. However, there is no assurance that the
proposed reverse stock split will result in increased stock prices, or if
the price per share level of the Common Stock immediately after the
reverse stock split will increase by year end to satisfy the listing
requirements for NASDAQ. The basic requirements for listing on NASDAQ
Small Cap are: $4.00 per share stock price and $4,000,000 in net assets.
The Common Stock issued pursuant to the proposed reverse stock split will
be fully paid and non-assessable. The voting rights and other rights that
accompany the Common Stock will not be altered by the change. It is not
anticipated that the number of stockholders of record of Common Stock will
be reduced in any material respect by this transaction.
The receipt of Common Stock in the proposed reverse split should not
result in any taxable gain or loss to shareholders for federal income tax
purposes. For tax purposes, the holding period of the shares immediately
prior to the effective date of the proposed reverse stock split will be
included in the holding period of the Common Stock received in the
proposed reverse stock split.
Effectiveness
If the proposal is approved by the shareholders, the Board of Directors
will set the date of record for determining holders who will participate
in the proposed reverse stock split.
Upon the effectiveness of the proposed reverse stock split, the Company
will mail to each shareholder a letter of transmittal with instructions
for the surrender of each shareholders' shares of Common Stock. Please do
not transmit shares of Common Stock for exchange prior to notification and
receipt of the letter of transmittal.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock is necessary for the adoption of this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
PROPOSAL TO EFFECT A 1-FOR-10 REVERSE SPLIT OF THE COMPANY'S COMMON STOCK.
THE PROPOSED
ACQUISITION
The Parties
The principal executive offices of the registrant, Kit Karson Corporation
(Kit Karson), are located at 4201 I-20 East Service Road, Willow Park,
Texas 76087. The telephone number is (817) 341-1477. Hayseed Stephens is
President and principal stockholder of Kit Karson.
The assets to be acquired are from Ness Energy International Inc. (Ness)
with its offices at 365 Cook Road, Willow Park, Texas 76087. Hayseed
Stephens is President and principal stockholder of Ness.
Kit Karson is a recently revived public oil and gas Company with no recent
business activity, with the exception of December 22, 1997 when a 25%
working interest in a gas field, known as the Greenwood Gas Field, located
in Parker County, Texas was acquired with an effective date of January 1,
1998. On this date, Kit Karson had a change in control as the existing
management and major shareholders contributed 14,079,752 shares to the new
group and agreed to acquire the 25% working interest in the Greenwood Gas
Field for 14,150,000 shares from the Company's unissued but authorized
shares. Prior to this acquisition, the Company had been dormant and
inactive since 1985. The new management team plans to focus the Company
on oil and gas projects located within the oil and gas producing states of
southern central United States and a deep drilling project at the edge of
the Dead Sea in Israel.
Ness was organized in October 1993 to engage in exploration, drilling and
production of natural gas and oil on a domestic and international basis.
Ness is a private Company that began acquiring oil and gas leases in 1997
for drilling and development.
The Transaction
The transaction (referred to as "Acquisition") involves the acquisition by
Kit Karson of $714,168 in net assets and $73,985 in expenses incurred by
Ness for a total of $788,153 for 18,500,000 shares of the Company's common
stock. Of the $714,168 net assets being acquired from Ness, $400,000 is
cash. This cash position is very important to Kit Karson , as this will
be the first time that the Company has had any material cash on hand since
the early 1980's. The following is an allocation of the assets being
acquired from Ness:
Category Amount
Cash* $ 400,000
Non-Producing Leases** 140,784
1996 Ford Truck 21,884
Israel Deposit*** 50,000
Account Receivable**** 35,000
Office Building***** 106,000
---------
Total Assets 753,668
Office Building Debt (39,500)
---------
NET ASSETS FROM NESS $ 714,168
=========
Notes:
*An important part of the assets being acquired from Ness is $400,000 in
cash which will be placed in interest bearing accounts pending investment
and/or use for operating expenses.
**The non-producing properties consist of three leases identified below
and further described in this section under the heading "The Properties of
the Acquisition".
Appraised
Lease Name Actual Cost Value
Theis $ 44,733 $ 75,733
Susan Peak North 74,766 105,733
Hazelwood 21,285 60,785
---------- ----------
Totals $ 140,784 $ 242,284
========== ==========
***On May 10, 1998 Ness placed a $50,000 deposit in Israel pending the
signing of a lease agreement. Ness has also incurred $18,500.43 in travel
expense during the first three months of 1998 on trips to Israel and here
in the United States seeking to acquire the lease and/or obtain a farm-out
arrangement on the area of interest. Also incurred were legal fees in
preparation of certain legal documents on the Israel project which amount
to $4,063 during the first quarter by Ness. There is no assurance that the
Company can obtain a lease or if a lease is obtained that financing can be
arranged to meet the financial requirements. At the time the lease
agreement is effective an additional $50,000 will be paid. Ness will
receive all geological and geophysical data for the two payments totaling
$100,000. Ness will transfer the rights to this deposit, data and lease to
Kit Karson.
****Ness loaned $35,000 to Trinity Financial Services, L.C. to assist them
in obtaining funding of which a part is directed toward Ness' Israel
Project. Ness will transfer this receivable to Kit Karson.
*****The building cost $66,000 and $40,000 in improvements have been made
for a total cost of $106,000. Currently, Ness owes approximately $39,500
on the building; this debt will also convey to Kit Karson. During the
first quarter Ness made expenditures of $8,313 on the building, primarily
related to the repairs to the roof.
In addition to the $714,168 in net assets, Ness Energy has paid expenses
on behalf of Kit Karson $73,985 from January 1, 1998 through March 31,
1998. The categories of these expenses are as follows:
Advertising $ 11,327
Professional Fees 16,657
Salaries 19,346
Contract Labor 1,107
Office Expenses 11,156
Utilities 1,121
Postage & Freight 6,362
Telephone 6,909
---------
Total $ 73,985
=========
Description of Securities
The common stock of Kit Karson is traded on the Electronic Bulletin Board
and is quoted under the symbol "KTKC". Kit Karson began trading on
January 23, 1998 with an opening price of $0.04 and is currently trading
around $0.20 to $0.25 per share. This price does not reflect the proposed
reverse stock split of 1-for-10. The common stock of Ness is not traded
as Ness is a private Company.
The Properties of the Acquisition
On April 3, 1998 Kit Karson and Ness entered into an agreement where Kit
Karson would cause the issuance of 18,500,000 shares (after the 1-for-10
reverse) to Ness for a total benefit of $788,153 in assets and paid
expenses. The Board of Directors approved the agreement subject to
shareholder approval.
The following definitions are provided to assist the reader in
understanding the description of the properties being acquired from Ness.
Development Well is a well which is drilled to and completed in a known
producing formation adjacent to a producing well in a previously
discovered field and in a formation known to be
productive.
Prospect as used herein is a location or acreage position that has been
delineated by geological evaluation that may prove to have commercial oil
and/or gas reserves.
Working interest as used herein means all or a fractional part of the
ownership rights granted by a concession or lease. The working interest,
or a part thereof, pays all costs of operation and is entitled to the
gross production less royalties retained by the grantor or lessor and less
other royalties or non-operating interests created and assigned from the
working interest.
Abbreviations
BOPW - barrels of oil per well MCFG - thousand cubic feet gas
BCF - billion cubic feet MMCFG - million cubic feet gas
D&A - dry and abandoned WI - working interest
The following is a description of the oil and gas leases to be acquired by
Kit Karson from Ness:
Israel Elohim Perazim #1 Prospect - Beginning in 1982, Mr. Stephens has
made 54 trips to Israel in a long term quest to drill a deep oil test in
the Rift Valley at the southwest corner of the Dead Sea. Mr. Stephens has
negotiated with the last elected government officials of Israel for an oil
and gas lease covering at least 25,000 acres in order to drill the test
well. It is Mr. Stephens belief, based upon conventional geology and
biblical prophecy, that a large field exists at the southwestern corner of
the Dead Sea on the eastern edge of Israel. Although oil and gas have been
discovered in Israel, the country remains a net importer. Currently, Ness
Energy International, Inc. does not have a lease for the drilling of the
Elohim Perazim #1 Prospect. Upon obtaining a lease, a budget of
approximately $25,000,000 will be required to purchase a rig to drill and
complete a 20,000 foot
well.
There is no assurance that the Company can obtain a lease or if a lease is
obtained that financing can be arranged to meet the financial
requirements.
Theis Prospect (688.20 acres) - The Theis Prospect is located in
Schleicher County, Texas situated in a series of 6,000 feet oil prospects
in the southern part of the Fort Chadbourne Fault System. Production is
generally from the Strawn Formation at 5,500 feet. This lease covers 688
acres and has additional prospects at 4,300 feet, and 4,800 feet. The
Theis Prospect (a typical example) should have 13 Strawn wells, 11 of them
dual with the Canyon Reef. This is expected to yield 2,600,000 barrels of
oil reserves and 22 BCF gas reserves. A 100% working interest will be
assigned to Kit Karson Corporation. A location has been staked and the
preparation for drilling has been initiated. Drilling is expected to begin
during the summer of 1998. The lease terms are paid up through January
11, 1999 on a portion of the acreage and September 9, 2000 on the balance.
Kit Karson will acquire 100% of the working interest in the Theis
Prospect. Ness' cost basis for the 688.20 acre lease, including geology
and lease acquisition cost, is $44,733 with a fair value of $75,733.
There is no assurance the Company can raise the funding to drill and
complete a well on the Theis Prospect.
Susan Peak North Prospect (1150.25 acres) -During January 1998 Ness Energy
acquired oil and gas leases over the Susan Peak North Prospect which is
located in south central Tom Green County, Texas, on the eastern shelf of
the Permian Basin. The prospect is part of the Fort Chadbourne Fault
system which runs through part of Sutton, Schleicher, Tom Green, Coke and
other counties to the north. Production comes from the Palo Pinto
Limestone (70,000 to 100,000 BOPW), Harkey Sandstone (50,000 - 100,000
BOPW), Canyon Limestone (33,000 - 47,000 BOPW), Strawn Limestone (200,000
- - 300,000 BOPW), Ellenburger (50,000 - 100,000 BOPW), and the Cambrian
Sand (150,000 BOPW). The depth in this part of the trend ranges between
4,500' and 5,200'. The country is flat and easily accessible. The multipay
aspect makes this one of the most prolific trends in the area. A 100%
working interest will be assigned to Kit Karson. The lease terms are paid
up through February 8, 2001. Ness' cost basis for the 1150.25 acre lease,
including geology and lease acquisition cost, is $74,766.25 with a fair
value of $105,766. A well is planned on this acreage prior to the end of
1998.
There is no assurance the Company can raise the funding to drill and
complete a well on the Susan Peak North Prospect
Hazelwood Prospect (163 acres) - The Hazelwood Prospect covers 250 acres
located approximately fifteen miles northwest of Midland, Texas in
south-central Martin County. This area is a part of the Midland Basin of
West Texas where production is primarily from formations from 7,200 feet
to 9,000 feet. However the area is noted for the Strawn limestone at
10,300 feet and the Fusselman dolomite at 11,700 feet. A 100% working
interest will be assigned to Kit Karson. Ness' cost basis for the 163 acre
lease including geology and lease acquisition cost is $21,285 with a fair
value of $60,785. A well is planned on this acreage prior to the end of
the lease term which is August 22, 1998. In the event a well is not
drilled then an extension will be requested.
There is no assurance the Company can raise the funding to drill and
complete a well on the Hazelwood Prospect.
The following two leases have not been acquired by Ness, however,
negotiations are in progress for lease terms. Ness will agree to assign
its rights to Kit Karson on the terms it negotiates if they are not
acquired prior to the closing with Kit Karson:
Buckwheat Prospect (200 acres) - Ness is in the process of acquiring oil
and gas leases over the heart of the Buckwheat Prospect which is located
in Tom Green County, Texas. The Prospect is part of the Fort Chadbourne
Fault system which runs through parts of Sutton, Schleicher, Tom Green,
Coke and other counties to the north. Production along this trend comes
from the Palo Pinto limestone (70,000 - 100,000 BOPW), Harkey sandstone
(50,000 - 100,000 BOPW), Canyon limestone (33,000 - 47,000 BOPW), Strawn
limestone (200,000 - 300,000 BOPW), the Ellenburger (50,000 - 100,000
BOPW) and the Cambrian sand (150,000 BOPW). A 100% working interest will
be assigned to Kit Karson. Ness' lease acquisition cost is estimated to be
$75.00 per acre including geology.
Baker Ranch Prospect (approximately 2,000 acres) - The Baker Ranch
Prospect is located approximately 120 miles west of San Antonio in Edwards
County, Texas. Production in this area ranges from 2,400 feet to 4,200
feet and is well situated in a very prolific gas producing area. The
acreage is the largest in the Company's portfolio of drilling projects,
exceeding 2,000 acres. The lease acquisition cost for the 2,000 acres is
approximately $150,000. Ness will assign its rights (100% working
interest) to acquire the Baker Ranch Prospect to Kit Karson.
Independent Appraisal of the Properties
Johnnie B. Brown, a geologist, has evaluated each of the non-producing
properties to be acquired by Kit Karson. His report is an independent
evaluation as to the geological soundness of each prospect, as presented,
and also gives an estimate of the fair value of each, exclusive of lease
acquisition costs. It is his understanding the geological interpretations
are based solely on subsurface well control and the information available
from drilling, testing and completion reports on each well. Estimates of
potential recoverable reserves were based on an evaluation of oil and gas
production from the target formations in similar geological settings in
the prospect areas.
The following estimates of fair market value of each prospect, exclusive
of lease acquisition costs are based on his 25 years of experience in
selling prospects in the Permain Basin:
Fair Value ORRI
(1)Theis Ranch Prospect $15,000-$20,000 2%-4%
(2)Susan Peak North $15,000-$20,000 2%-4%
(3)Hazelwood $ 7,500-$10,000 2%-4%
SUMMARY AND CONCLUSIONS
(1) The prospects are the results of geological interpretations based
solely on subsurface well control and the information available from
drilling and completion well records.
(2) As mapped, the Theis and Susan Peak North Prospects both offer the
potential for discovery of multimillion barrel oil fields at relatively
shallow depths. Both of these prospects contain more risk than the
Hazelwood Prospect, but offer much greater
rewards.
(3) The Hazelwood Prospect is a very low-risk development well to test the
Spraberry-Dean formation. However, the quality of potential reserves is
much less than the above mentioned prospects ( Theis and Susan Peak
North). The Hazelwood Prospect also has two other formations (Fusselman
and Strawn) which have potential for viable commercial production. These
two formations in the Hazelwood Prospect have the highest risk to be an
economic producer of all the prospective formations to be tested including
those of the Theis and Susan Peak North Prospects.
(4) Success, as projected, on only one of the oil and gas prospects could
make the entire program an economic success.
Plan for Ness Assets After Acquisition
Kit Karson's plans for the assets acquired from Ness for the next year is
to drill at least one well on each of the prospects. Drilling offset
locations to further define the prospects is planned as each of the leases
prove to have geological and economic merit to justify drilling the offset
wells. Kit Karson plans to pay for 50% of the actual drilling of each of
these wells and farm out the remaining 50% to maximize the use of its
working capital. A well is planned on each of the three prospects being
acquired from Ness before the end of 1998, subject to funding. Upon the
completion of a successful well on any one of the prospects being
acquired, then a development drilling program will be planned.
The cash acquired during the acquisition ($400,000) will be transferred to
Kit Karson for working capital and to further enhance the operations of
Kit Karson.
Background and Events Leading up to the Acquisition
Kit Karson had been inactive since 1985 and was revived by Hayseed
Stephens to pursue oil and gas projects by funding them through a public
offering. The price of oil fell to a low of $11.00 per barrel during
March 1998 and continues to remain in the $13 to $14 per barrel range
(posted price or well head price). This caused problems in arranging
financing through a secondary offering to acquire properties to drill and
or develop. In light of the financing problems facing Kit Karson, a
meeting was held with Ness to structure an agreement where Kit Karson
could acquire certain assets and cash from Ness for stock. Ness has oil
and gas leases and cash, which then led to discussions as to how an
equitable trade could be made. See "Determination of Shares for
Acquisition" for more information.
Reasons for the Acquisition - Recommendation of the Board of Directors
The majority of the Board of Directors of both Kit Karson and Ness each
concluded that the Acquisition is fair in all respects to, and in the best
interest of, both companies and the shareholders. The majority of the Kit
Karson Board approved and adopted the Acquisition. Hayseed Stephens
abstained because of being a related party to Ness. The majority of the
Board also voted to recommend the Acquisition be ratified by the
shareholders of Kit Karson.
In making its determination set forth above, the Board considered the
following factors:
Financial:
Dramatically Increase Cash position of the Company
Dramatically Increase Assets
Dramatically Increase Stockholders' Equity
Incur no significant liabilities ($39,500) from the
acquisition
Properties:
Oil and gas leases with huge reserve potential - excellent
drill sites
International opportunity for lease in Israel - deep oil
prospect
Potential Funding:
The Ness group has financial resources from its investor base
to fund private offerings.
Ness has contacts with financial institutions for public
offerings and private placements.
Marketing:
Ness has access to several marketing groups to attract
interest in Kit Karson stock.
Advantages and Disadvantages of the Proposed Acquisition to Shareholders
The shareholders of Kit Karson will incur advantages and disadvantages
upon completion of the Acquisition of the assets from Ness. The following
are some advantages to the Kit Karson shareholders:
(1) Acquisition yields stronger asset base:
(a)$400,000 in Cash
(b)Oil and gas leases with large reserve potential
(2) The office building to be acquired from Ness only has a debt
of approximately $39,500 on a value greater than $100,000.
(3) The Acquisition opens the door for International exposure to a
deep oil prospect located in Israel.
(4) Ness has access to marketing groups to assist in maintaining
an active market plus the potential of funding certain programs
for the Company's various projects.
Following are the disadvantages to the Acquisition. The Company is not
aware of any other material disadvantages:
(1) Dilution of the Kit Karson shares through the issuance of
18,500,000 shares will equal approximately 73%.
(2) Kit Karson will be responsible for paying its share of the
drilling and completion costs on each of the leases being acquired
from Ness.
Effective Time for Issuance of Stock and Closing
The Acquisition shall become effective upon the day after the Kit Karson
shareholders ratify the Acquisition at their annual meeting set for June
26, 1998. Kit Karson and Ness will begin closing proceedings immediately
following the Annual Meeting to expedite the issuance of shares to Ness
and Ness will cause the transfer of title to the oil and gas properties
and transfer of the funds to Kit Karson's bank account.
Determination of Number of Shares for Acquisition
The Acquisition of the assets from Ness is calculated based on a ratio of
assets between the two entities. Kit Karson has one asset with a fair
market value of $111,323 (fair market value of reserves $89,265 and value
of equipment of $22,058) while the net assets being acquired from Ness is
$714,168 of which $400,000 is in cash and $73,985 is expenses incurred on
behalf of Kit Karson for a total of $788,153. This represents a ratio of
7.08 to 1. Ness agreed to accept 18,500,000 shares for the certain assets
and expenses paid. This equals a ratio of 3.7 to 1, being approximately
half of the ratio of 7.08 to 1 favoring Kit Karson.
To complete the acquisition with Ness, Kit Karson would be required to
issue 18,500,000 shares of its common stock and Ness would be required to
assign the assets to Kit Karson.. Kit Karson will have 4,995,935 shares
issued after the 1-for-10 reverse split but before the Acquisition of
certain assets from Ness.
Source of Kit Karson Shares
The Kit Karson shares which will be issuable in the acquisition of Ness'
assets, will be newly issued from authorized and unissued Kit Karson
shares. Kit Karson has 200,000,000 shares authorized, of which only
4,995,935 are issued and outstanding (adjusted to reflect the number of
shares after a 1-for-10 reverse split). The acquisition of the oil and
gas leases plus $400,000 in cash requires the issuance of 18,500,000
shares of common stock to Ness. The Kit Karson shares, when delivered to
Ness, will be duly authorized and validly issued, fully paid, and
non-assessable. The total number of shares outstanding following the
issuance of 18,500,000 after the Ness acquisition will be 23,495,936
shares outstanding.
Conditions Precedent to Consummating the Acquisition
The following are the conditions for the Acquisition of Ness assets to be
consummated:
(1) Shareholders to ratify Directors approval to issue 18,500,000
shares of the Company's common stock for certain oil and gas leases,
rights to other certain oil and gas leases here in the USA and Israel
and $400,000 in cash from Ness.
(2) The effective date of the acquisition will occur the day after the
shareholders ratify the acquisition of the assets.
(3) Ness to transfer title to oil and gas leases, vehicle and office
building to Kit Karson.
(4) Ness to transfer $400,000 in cash to Kit Karson's bank account
(5) Ness to transfer accounts receivable for $35,000 to Kit Karson
(6) Ness to transfer rights to $50,000 deposit for the Israel lease to
Kit Karson
(7) Kit Karson to instruct the transfer agent to issue 18,500,000
shares of common stock with a restrictive legend to Ness.
Comparison of Rights of Security Holders
Upon consummation of the Acquisition of the assets from Ness, the holders
of issued and outstanding shares of Ness will receive shares of common
stock of Kit Karson. The rights of Ness stockholders are governed by the
Articles of Incorporation, By-laws and Texas Law, while the rights of
holders of Kit Karson stock are governed by its Articles of Incorporation,
By-laws and Washington Law.
PRO FORMA COMBINED FINANCIAL INFORMATION
The following table presents unaudited pro forma condensed Balance Sheets
as of March 31, 1998. The historical balances are based on actual cost and
not market value. The "Balances After Acquisition" present the totals from
the combination of the assets acquired from Ness Energy and Kit Karson.
No adjustments were made to the historical balances to the combined
balance.
Pro Forma Balance Sheet
As of March 31, 1998
Historical Balances
Pro Forma Combined
Ness Assets Kit Karson Adjustments Balances
Current Assets
Cash $ 400,000 $ - $ - $ 400,000
Receivable 35,000 3,286* - 38,286
Israel Deposit 50,000 - - 50,000
--------- --------- --------- ---------
Total current assets 485,000 3,286 0 488,286
Other Assets
Non-Producing
Properties 140,784 0 0 140,784
Producing
Properties 0 0 0 0
Office Building
& Land 106,000 0 0 106,000
Vehicle 21,884 0 0 21,884
--------- --------- --------- ---------
Total Assets $ 753,668 $ 3,286 $ 0 $ 756,954
========= ========= ========= =========
Liabilities
Office Building
& Land $ 39,500 $ 0 $ 0 $ 39,500
Payable to Ness 0 73,985 (73,985) 0
Net Equity 714,168 (70,699) 73,985 717,454
--------- --------- --------- ---------
Total Liabilities
and Equity $ 753,668 $ 3,286 $ 0 $ 756,954
========= ========= ========= =========
Common Stock (3)
Notes:
(1) The receivable of $3,286 is from Ness' net share (25% working
interest) of the gas sold for the first quarter of 1998 off of the
Greenwood Gas Lease. Gross revenues were $5,015.54 for the working
interest before production taxes and operating expenses.
(2) Kit Karson Corporation has one producing oil and gas asset with an
estimated value of $111,323 based on reserves ($89,265) and fair
market value of equipment ($22,058); however, this lease was acquired
from Hayseed Stephens Oil Inc., owned and operated by Hayseed
Stephens, President of Kit Karson. Therefore, for accounting purposes,
it has been given a zero basis.
(3) Kit Karson currently has 49,959,356 shares outstanding prior to
the proposed 1 for 10 reverse stock split disclosed on pages 5, 6 and
7 of this Information Statement. After the reverse stock split Kit
Karson will have approximately 4,995,936 shares prior to the issuance
of 18,500,000 shares for the net assets being acquired from Ness.
After the acquisition Kit Karson will have approximately 23,495,936
shares. Kit Karson has 200,000,000 shares authorized without par
value. In addition to the common stock, Kit Karson has 10,000,000
shares of Preferred Stock authorized with a $0.10 par value. No
preferred shares have been issued as of June 5, 1998.
Pro Forma Statement of Operations
For twelve months ended December 31, 1997
Historical Results Pro Forma Combined
Ness Assets Kit Karson Adjustments Balances
Total Revenue $ - (1) $ 46,938(2) $ (1,934)(3) $ 45,004
Production expenses
& taxes - 12,717(2) (756)(3) 11,961
General and
administrative
expenses - 4,143 - 4,143
--------- --------- --------- ---------
Total Expenses - 16,860 (756) 16,104
Net Income (Loss) $ - $ 30,078 $ (1,178) $ 28,900
========= ========= ========= =========
Notes:
(1) The properties owned by Ness are non-producing and therefore
generated no revenues or operating expenses during 1997.
(2) Revenues for the 12 month period ending December 31, 1997 from the
Greenwood Gas Field in which Kit Karson acquired a 25% lease with an
effective date of January 1, 1998, were added to actual revenues for
the year. The operating expenses and taxes are for the same 12 month
period and for the same properties.
(3) Adjustments consist of elimination of the working interest which
was transferred to the Company's previous president as part of the
transfer of control.
Pro Forma Statement of Operations
For three months ended March 31, 1998
Historical Results Pro Forma Combined
Ness Assets Kit Karson Adjustments Balances
Total Revenue $ - (1) $ 6,317 $ - $ 6,317
--------- --------- --------- ---------
Production expenses
& taxes - (1) 3,011 - 3,011
Professional fees - 16,657 (2) - 16,657
Advertising - 11,327 (2) - 11,327
Postage and freight - 6,362 (2) - 6,362
Utilities and
telephone - 8,030 (2) - 8,030
Personnel costs - 20,453 (2) - 20,453
Office expenses - 11,156 (2) - 11,156
--------- --------- --------- ---------
Total Operating
Expenses - 76,996 - 76,996
--------- --------- --------- ---------
Net Income (Loss) $ - $ (70,679) $ - $ (70,679)
========= ========= ========= =========
Notes:
(1) The properties owned by Ness are non-producing and therefore
generated no revenues or operating expenses during 1997.
(2) These costs were incurred in obtaining audits, filing reports with
the SEC, and bolstering the Company's stock price, and, although not
expected to recur, may be indicative of similar ongoing costs.
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
Due to the fact that the Company has changed control the Board recommends
a change in the name of the Company from Kit Karson Corporation to Ness
Energy International Inc. The Board feels that this new name reflects the
Company's change in management and a new direction.
The following is the proposed amendment to Article I of the Company's
Articles of
Incorporation:
ARTICLE I
The corporate name of the corporation shall be:
Ness Energy International Inc.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
The affirmative vote of the majority of the issued and outstanding shares
of Common Stock is necessary for the adoption of this proposal.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL TO AMEND
THE COMPANY'S ARTICLES OF INCORPORATION FOR THE NAME CHANGE.
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS
The Company has been inactive and dormant with no market for its common
stock since 1987. A comparison of the Company to the NASDAQ Stock Market
or NASDAQ Non-Financial Stock would not be representative of the Company
as it only resumed trading on January 23, 1998 with an opening bid of
$0.04 per share. The stock price on June 1, 1998 was 20 cents bid and 23
cents ask.
The following table sets forth the range of high and low bid quotations
for the first five months of 1998, as reported by National
Quotations
Bureau:
Month High Low
January $ .05 $ .04
February .625 .05
March .32 .20
April .24 .21
May .24 .20
The foregoing bid quotations reflect inter-dealer bid prices and not ask
prices, without mark-down or commissions, and may not necessarily
represent actual transactions.
As of June 1, 1998 there were approximately 896 holders of record of the
Company's Common Stock.
No cash dividends have been declared with respect to the Common Stock
since its inception, and the Company has no present intentions to pay
such dividends in the foreseeable future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 8, 1997, the management of the Company entered into an
agreement with Hayseed Stephens where he would take over operations in
conjunction with vending in certain oil and gas leases. Included in the
agreement, Mr. Stephens agreed to cause the accounting and filings to
become current with the Securities and Exchange Commission and other
regulatory authorities.
Change of control of the Company from Mr. Sykes to Mr. Stephens was on
December 22, 1997. At the time of change of control it was mutually
agreed between these two parties that Mr. Sykes would receive the assets
of the Company (certain stocks and a small oil and gas interest - valued
at $4,622), as compensation for taking care of the Company during the
dormant years and that Mr. Stephens would vend in an oil and gas asset
(Greenwood Gas Field) located in Parker County, Texas for 14,150,000
shares of stock.
Several of the officers and directors of the Company have invested in the
oil and gas business, either directly or through entities in which they
have an interest. Certain of these interests could directly compete with
the interests of the Company. Although the Company is not aware of any
present conflicts of interest, such present or future activities on the
part of the officers and directors could directly compete with the
interests of the Company. If the Company should enter into future
transactions with its officers, directors or other related parties, the
terms of any such transactions will be as favorable to the Company, as
those which could be obtained from an unrelated party in an arm's length
transaction.
FINANCIAL STATEMENTS
Financial statements are not included in this Information Statement;
however, they are included in the accompanying SEC Form 10-KSB for the
year ended December 31, 1997, which includes audited financial statements.
This report is not incorporated in this Information Statement and is not
deemed to be a part of the Information Statement material.
COMPLIANCE WITH SECTION 16(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
The Company has been recently revived and on February 10, 1998 filed with
the Securities and Exchange Commission Forms 8-K and 10-KSB reporting the
material changes and the audited financial statements for the year ended
December 31, 1996 and 1997. The Company and its officers and directors
have not filed timely all reports regarding transactions in the Company's
securities required to be filed during the last fiscal year by Section
16(a) under the Securities Exchange Act of 1934. The Company and its new
officers and directors do plan to file timely all filings required by
Section 16(a).
STOCKHOLDERS PROPOSALS
Any interested stockholder may submit a proposal concerning the Company to
be considered by the Board of Directors of the Company for inclusion in
the proxy statement and form of proxy relating to next year's Annual
Meeting of Stockholders. In order for any proposal to be so considered by
the Board for inclusion in the proxy statement, all proposals must be in
writing in proper form and received by the Company on or before March 1,
1999. Any stockholder so interested may do so by submitting such proposal
to: Kit Karson Corporation, Attention: Mary Gene Stephens, 4201 I-20 East
Service Road, Willow Park, Texas 76087.
OTHER
MATTERS
The Board of Directors knows of no other matters to be brought before this
Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Hayseed Stephens
Hayseed Stephens
President & Chairman
Willow Park, Texas
June 16, 1998
