U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File Number: 0-10301
NESS ENERGY INTERNATIONAL, INC.
A WASHINGTON CORPORATION IRS No. 91-1067265
4201 East I-20 Service Road
Willow Park, Texas 76087
(817) 341-1477
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, no par value
The registrant (1) has 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,
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No___
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of April 26, 2000.
Common Stock, no par value, 28,151,589 shares, $28,641,436 Market Value
On December 31, 1999 the Registrant had 54,634,740 shares of Common Stock
outstanding with no par value. On April 26, 2000 the total number of shares
outstanding were 55,555,228. The Registrant also has 10,000,000 shares of
Preferred Stock with a par value of $0.10 of which no shares have been issued.
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Part I
Item 1. Description of Business.
(a) General Development of Business
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.
After the Company became current in its filings with the Securities and Exchange
Commission, the Company began trading on January 23, 1998 on the NASDAQ OTC-BB.
On March 6, 1998, the Company held its annual meeting to ratify the selection of
auditors, elect new directors, increase the authorized shares from 50,000,000 to
200,000,000 shares plus add 10,000,000 Preferred Shares to the capitalization of
the Company.
The Company changed its name to Ness Energy International, Inc. effective July
6, 1999.
(b) Financial Information About Industry Segments
The Company's revenues for 1999 were derived solely from the gas wells on the
Greenwood Gas Field in which the Company holds a 25% working interest. Gross
revenues from this interest for 1998 were $22,301 and $ 21,208 for 1999. The
Company's gross revenues for the previous two years were solely derived from one
gas well located in Beaver County, Oklahoma in which the Company owns a 4.6125%
working interest. The Company's interest in this well generated $1,934 in 1997
and $1,671 in 1996.
In May 1999 the Company acquired a 4% working interest in the Cross "L" and
Susan Peak Leases in Schleicher and Sutton counties Texas. These leases have
multi-pay potential. In June 1999 the Company acquired approximately 2,081 acres
adjoining the proven Greenwood Gas Field in Parker County, Texas. In September
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1999 an affiliated company, Hesed, Inc. acquired the Metzada License from the
State of Israel. Hesed has 87.5% interest and the State has 12.5% interest. This
License is contiguous to the northern border of the Hesed License, extends
northward along the Dead Sea and contains 91,125 acres. This license contains
various requirements beginning with the presentation of Geophysical Maps by
August 15, 2000 continuing to a well spud date by October 1,2001. Hesed has an
agreement with the Company whereby the Company will have the opportunity to
acquire 45% of Heseds' interest in the Metzada License.
(c) Narrative Description of Business
The principle business of the company is the exploration for and development of
oil and natural gas and in particular the exploration for oil on the Hesed
license area and the drilling of the Elohim Perazim #1 deep test well. During
the years 1985-1987, the Company was seeking working capital to continue its
operations but because of a downtime in the oil and gas industry in the period
from 1986-1987 project funding became more and more difficult. The lack of
working capital let the Company become dormant. During the years, several
opportunities were presented to revive the Company but were perceived by
management as not favorable to the Company's interest or did not close due to an
inability of the interested parties to do so.
On December 22, 1997, a change of control occurred and new officers and
directors were appointed. Since that time, the Company President, Hayseed
Stephens, has principally conducted the business of the Company.
In Spring of 1998, Hesed Energy International, Inc. ("Hesed") an affiliate of
the Company, which at that time was known as Ness Energy International, Inc.,
entered into a contract with the Israel Oil Company. Pursuant to this, Hesed was
entitled to acquire, subject to regulatory approvals in Israel, drilling rights
in part of the Dead Sea area in Israel. This was, subsequently, designated as
the "Hesed License." In early fall, 1998, the necessary regulatory approvals in
Israel were granted. While the Hesed License itself was granted to I.O.C., the
Petroleum Commissioner specifically approved I.O.C.'s assignment of the rights
in over 95% of the license area to Hesed. Pursuant to its agreement with Hesed,
I.O.C. retained a 12-1/2% back-in-after-pay-out working interest in the first
well to be drilled by Hesed in the area of the Hesed License. The Israeli
regulatory authority set an April 1, 2000 deadline for "spudding-in" a well
within the Hesed License area. That date has since been extended to September
10, 2000 so additional funding arrangements can be put in place to allow the
Company to acquire 45% of the working interest in the Hesed License and pay for
the Company's pro rata share of drilling the Elohim Perazim #1 deep test. The
estimated total cost of the Israel project, including the drilling rig, is
approximately $35,000,000.
In October of 1999 the Company entered into a rig purchase agreement to acquire
an IDECO H3000 drilling rig and equipment. Substantial payments have been made
by the Company toward the purchase price. However, other funding commitments,
obtained during prior years to complete the purchase of the rig, have not
materialized to date. As a result, the Company announced that an agreement to
renew and extend its initial financing arrangements with the lien holder has not
been finalized and negotiations are continuing. Refurbishment of the rig, on
behalf of the Company, has ceased and the Company has received a notice of
default in its payments to the seller of the rig. The Company does not accept
the notice of default because the issue of default is not covered in the
contract and no arbitration has been requested by the sellers. The Company's
legal counsel is presently responding to the purported notice of default. The
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Company is continuing to negotiate with the rig owners to establish new terms
for the purchase as well as seek alternative financing sources.
Competition and Markets
The oil and gas industry is highly competitive in all of its phases, with
competition for favorable prospects being particularly intense. The Company
believes that price, geological and geophysical skill and familiarity with an
area of operations are the primary competitive factors in the acquisition of
desirable leases and suitable prospects for oil and gas drilling operations. The
Company competes with independent operators and occasionally major oil
companies, a number of which have substantially greater technical and financial
resources than the Company.
States, countries and other jurisdictions in which the Company plans to have
operations regulate the exploration, development, production and prices on the
sale of oil and gas. The Federal Power Commission regulates the sale of natural
gas production sold in interstate commerce and the U.S. Government regulates the
price on oil. Markets for, and value of, oil and gas discovered are dependent on
such factors as regulation, including well spacing and production allowable,
import quota competitive fuels, and proximity of pipelines and price-fixing by
governments, all of which are beyond the control of the Company.
On December 31, 1999, 40-degree oil (good gravity crude) was selling for
approximately $22.75 per barrel, compared to a December 31, 1998 figure of $9.50
per barrel. Prices also vary according to gravity. Natural gas prices for
December 31, 1999 were $1.84 per MCF and were $1.82 per MCF on December 31,
1998.
Foreign Taxes and United States Tax Credits
The Company's income is also subject to taxation under the United States
Internal Revenue Code of 1986, as amended (the "Code"). The Code provides that a
taxpayer may obtain a tax credit for certain taxes paid to a foreign country or
may take a deduction for such taxes. A tax credit is generally more favorable
than a deduction. The tax credit applicable to particular foreign income
generally arises when such income is included in the Company's taxable income
under the provisions of the Code. There are, however, substantial restrictions
and limitations on the amount of the tax credit that can actually be claimed.
Other Regulations
Oil and gas operations are and will be subject to federal, state and local laws
and regulations and by political developments. The domestic production and sale
of oil and gas are subject to federal regulation by the Department of Energy and
the Federal Energy Regulation Commission. Rates of production of oil and gas
have for many years been subject to federal and state conservation laws and
regulations. In addition, oil and gas operations are subject to extensive
federal and state regulations concerning exploration, development, production,
transportation and pricing, and to interruption or termination by governmental
authorities.
In foreign countries, the Company may be subject to governmental restrictions on
production, pricing and export controls. Furthermore regulations existing or
imposed upon the Company at the time of its acquisition of properties may change
to an unpredictable extent. The Company will have little or no control over the
change of regulations or imposition of new regulations and restrictions by
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foreign governments, ex-appropriation or nationalization by foreign governments
or the imposition of additional foreign taxes and partial foreign ownership
requirements.
Personnel
Since December 22, 1997, the President, Hayseed Stephens, has principally
conducted the business of the Company. 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. Subsequently, Richard Fessler
resigned as a director of the Company. Following his resignation, Mr. David
Boyce was appointed by the Board of Directors to fill this vacancy until the
next annual meeting. At the Annual Meeting held November 5th, 1999 the
shareholders elected Richard Nash as a Director. For more information on the new
officers and directors refer to Part III Item 9. "Directors and Executive
Officers, Promoters and Control Persons". Subsequent to year-end Ivan Webb
resigned as a Director and CFO of the Company.
The daily operations are under the direction of Mr. and Mrs. Stephens. The
Company currently has four full time and one part time employee in addition to
the Stephens's. On April 15,1998 the Company entered into an agreement with Ness
Energy International, Inc., which subsequently changed its name to Hesed where
Hesed would provide Management, Secretarial, Receptionist, Clerical and
Accounting for a turnkey flat rate monthly fee of $2,750.00 beginning date of
January 1, 1998. The contract was for a term of two-years ending December 31,
1999.
Definitions
"Gravity" is a measure of the density of oil. As defined in the petroleum
industry, a higher gravity corresponds to a lower density. Gravity of crude oils
range from about 12 degrees (heavy oil) to 60 degrees (distillate or
gasoline-like oil). Lower gravity oils are generally worth less, and they may
require unconventional technology to produce.
"Gross production" as used herein is defined as the total production of oil,
gas, or natural gas liquids from a property or group of properties for any
specified period of time.
Initial Potential ("IP") is a test performed before any significant production
from a well is marketed. An oil well potential is an indication of the maximum
rate at which a well can produce. Usually, wells produce at lower rates than
their potentials. Reasons for lower rates can involve natural decline,
government regulations, difficulties with operations or infrastructure, and
reservoir management considerations.
The term "overriding royalty" (ORRI) as used herein is defined as an interest
carved out of the lessee's leasehold or working interest. Overriding royalties
are payments calculated as a percentage of either gross production or gross
revenue from a concession or lease, free and clear of production and operations
costs, except for production taxes and marketing expenses.
The term "royalty" is generally defined as a share of the production reserved by
the grantor of an oil or gas lease or concession. Customarily, the royalty
interest is free of cost or expense incident to exploration, development, or
production, except for production taxes and marketing expenses.
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"Spudded in" means that drilling an oil or gas well has commenced.
The term "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
BOPD - barrels of oil per day MCFG - thousand cubic feet gas BOPM - barrels of
oil per month MMCFG - million cubic feet gas BCF - billion cubic feet WI -
working interest D&A - dry and abandoned
Item 2. Description of Property.
On December 31, 1996 the Company owned a 4.6125% working interest in a gas well
in Beaver County, Oklahoma. Redstone Oil & Gas Company of Dallas, Texas operate
the well, Benjegerdes #1. Revenues from this working interest for 1995 were
$1,418 less operating expenses of $574 for a net income of $844 before taxes. In
1996 the revenues were $1,696 with operating expenses of $600, leaving a net
income of $1,096 before taxes and in 1997 the revenues were $1,934 with
operating expenses of $609, leaving a net income of $1,325 before taxes.
Change of control of the Company from Art Sykes to Hayseed Stephens was on
December 22, 1997. At the time of change of control it was mutually agreed
between these two parties that Art Sykes would receive the above mentioned asset
as compensation for taking care of the Company during the dormant years and that
Hayseed Stephens would vend in an oil and gas asset for 14,150,000 shares of
stock. The following is a description of the oil and gas asset (Greenwood Gas
Field) located in Parker County, Texas.
The Company acquired a 25% working interest on December 22, 1997 (effective date
of January 1, 1998) in the Greenwood Gas Field located in Parker County, Texas.
The Greenwood Gas Field is a developmental, multipay, Strawn Sand Field, located
about 35 miles due west of Fort Worth. This 1100 acre field in the Fort Worth
basin is in its early state of development, although there has been prolific
production on it, and around it, since the 1960's. These particular leases were
drilled initially to find production in the conglomerates. This proved
unsuccessful, but a 2,800 foot Strawn Sand was discovered to be very successful
in two wells on Greenwood leases. One well produced 310,000 MCFG, while the
other one produced 244,000 MCFG in six years and in 1972 they were both plugged
while still producing, due to low gas prices.
The Greenwood Field was reactivated in 1984 to produce the left over gas from
the 2,800-foot sand while gas prices were high. Then it was discovered that
other shallower Strawn Sands also were very commercially productive. These wells
are drilled on 40 to 80 acre spacing and each producing well, in this field
averages between 300,000 MCFG to 1BCF, only drilling to a depth of 3,000 feet.
The known productive zones are located at 2,800 feet, 2,100 feet and 1,850 feet
on the leases within the Greenwood Gas Field. Other potentially productive zones
are also known in the area ranging from 500 feet to 1,600 feet.
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There are currently 5 gas wells on the leases in which the Company owns a 25%
working interest. Gas sales from these wells for the Company's working interest
was $21,208 for 1999. Lease operating expenses, production taxes and compression
expenses totaled $13,533leaving a profit from this lease of $7,675.
A reserve report and equipment evaluation was prepared on the Greenwood leases
as of December 31, 1999. The reserve report reflects a fair market value of $
29,643, a present value of $ 61,378 and the equipment is valued at $22,058 for
the 25% working interest owned by the Company as of December 31, 1999.
Gas Reserves
The following table summarizes certain information regarding the estimated
proved natural gas reserves and estimated future net revenues of the Company and
attributable to the Company's net revenue interests in the Greenwood Gas Field
located in Parker County, Texas. Such estimated reserves are based upon an
evaluation report prepared by Walter Peterson, Petroleum Engineer of San
Antonio, Texas.
PROVED GAS RESERVES
December 31, 1999
Gas
(Mcf)
Proved developed producing reserves 15,020
Proved developed non-producing reserves 85,964
Proved undeveloped reserves 141,266
Total proved reserves 242,250
The reserve data herein represent only estimates that are based on subjective
determinations. Accordingly, the estimates are expected to change, as additional
information becomes available. Further, estimates of gas reserves, of necessity,
are projections based on engineering and economic data. There are uncertainties
inherent in the interpretation of such data, and there can be no assurance that
the proved reserves set forth herein will ultimately be produced.
Proved developed producing reserves are those expected to be recovered from
currently producing zones under continuation of present operating methods.
Proved developed non-producing reserves consist of (i) reserves from wells which
have been completed and tested but are not yet producing due to lack or market
or minor completion problems which are expected to be corrected, and (ii)
reserves currently behind the pipe in existing wells and which are expected to
be productive due to both the well log characteristics and analogous production
in the immediate vicinity of the well. Proved undeveloped reserves are those
reserves which may be expected either from existing wells that will require
major expenditure to develop or from un-drilled acreage adjacent to productive
units, which are reasonably certain of production when, drilled.
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Item 3. Legal Proceedings.
During 1999, the Company settled two lawsuits filed in 1998 through the issuance
of unrestricted stock. In January 2000, the Company was served with a lawsuit
demanding that the Company pay to the Plaintiff 500,000 shares of the companys
common stock. The suit is filed in the United States District Court for the
District of Kansas, bearing civil action number 00-1018-JTM. The Plaintiff was
not a shareholder at the time present management took control of Ness Energy
International, Inc. (then Kit Karson Corporation) on December 22, 1997, and had
not been a stockholder since November of 1985. Management believes that the
Plaintiff has no standing to bring this legal action and that the demand is
totally without merit.
Item 4. Submission of Matters to a Vote of Securities Holders.
The annual meeting of shareholders was held on November 5, 1998. The
shareholders elected new directors for 1999 (Hayseed Stephens, Ivan Webb and
Richard Nash). Ivan Webb subsequently resigned as a Director on April 28, 2000
and was replaced by the Board with the appointment of Mark Bassham until the
next Annual Meeting. Weaver & Tidwell LLP of Fort Worth, Texas were ratified as
the Company's auditors for the 1999 report. There were 30,226,622 shares
represented at the meeting or 56% of the total issued and outstanding shares as
of that date. All matters presented to the shareholders for a vote passed with
100% of the shares represented voting affirmatively.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
The Company's Common Stock is traded on the over-the-counter market and is
quoted on the OTC Electronic Bulletin Board of the National Association of
Securities Dealers, Inc. under the symbol of KTKC until July 6, 1999. The symbol
changed to NESS on July 6, 1999 pursuant to changing the name of the Corporation
to Ness Energy International, Inc.
The stock did not trade during 1997. On January 23, 1998 the Company began
trading after being revived and opened at 4 cents bid. The following table sets
forth the range of high and low bid quotations per quarter for 1998 and 1999.
These bid quotations reflect inter-dealer bid prices and not ask prices, without
markdown or commissions, and may not necessarily represent actual transactions.
1998 Period Low Bid High Bid
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First Quarter $0.04 $0.63
Second Quarter $0.17 $0.68
Third Quarter $0.25 $0.52
Four Quarter $0.20 $0.36
1999 Period Low Bid High Bid
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First Quarter $0.19 $0.49
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Second Quarter $0.36 $0.47
Third Quarter $0.42 $4.81
Four Quarter $1.03 $2.00
On April 26, 2000 the stock price was $.875 bid and $.9375 ask.
Approximate Number of Holders of Common Stock
The approximate number of security holders of record of Ness Energy
International, Inc. on April 10, 2000 was 1,435. Additional
stockholders hold stock in street name; the number of holders in street
name is not available to the Company.
Dividend Information
The Company has not declared or paid dividends in the past, and does
not anticipate doing so in the immediate future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources
Prior to October 1997 several attempts were made to keep the Company active.
These attempts included contacting several companies; none were ever completed
due to either financing problems or lack of working capital to make the merger
successful.
On October 8, 1997, the management of the Company of that time entered into an
agreement with Hayseed Stephens where he would take over operations in
conjunction with vending 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 Art Sykes to Hayseed Stephens was on
December 22, 1997. At the time of change of control it was approved by the board
of directors of Kit Karson and Mr. Stephens that Mr. Sykes would receive the
assets described in paragraphs 1 and 2 under Item 2 Description of Property, as
compensation for taking care of the Company during the dormant years and that
Hayseed Stephens would vend in a gas asset for 14,150,000 shares of stock.
Please see Item 2. Properties and "Gas Reserves" for a description of the gas
asset (Greenwood Gas Field) located in Parker County, Texas.
The principle asset on both December 31, 1995 and 1996 was cash being $2,680 and
$1,453 for these respective dates. The Company owned one oil and gas interest in
a gas well in Beaver County, Oklahoma, which was acquired by the Company without
any cost in an agreement where after the investors recaptured their investment,
a 4.6125% working interest would become effective. This interest was still in
effect until it was assigned to Art Sykes being a part of the closing for the
change of control that occurred on December 22, 1997.
Three of the Company's assets were investments in stocks of which only one,
Black Giant Oil Company, is still in existence and is currently listed on the
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Electronic Bulletin Board. The Company owned 87,400 shares of Black Giant Oil
Company and on December 22, 1997 (date of change of control) with a market value
of $2,622 and was assigned to Art Sykes as a part of the change of control. The
other two securities are considered to be worthless.
Liquidity and Capital Resources
During 1999, the Company made private placements totaling $1,401,250 for the
issuance of 1,427,026 restricted shares of its common stock. Also, the Company
acquired a 4% working interest in two oil and gas leases and 2,081 acres of oil
and gas property through the issuance of 346,719 shares of its common stock. The
Company also settled a lawsuit by issuing 2,701,500 shares of its common stock.
The Company acquired a vehicle, received services during 1999, and will receive
future services 30,500, 154,639, and 15,000 shares of its common stock
respectively.
Results of Operations
Comparison of Year Ended December 31, 1998 and December 31, 1999.
Revenues. Operating revenues for fiscal year ended December 31, 1998
were $22,301 with an operating loss of $1,496,720.
Operating revenues for fiscal year ended December 31, 1999 were $21,208 a 5%
decrease from 1998, with an operating loss of $1,885,442. The 5% decrease in
revenues over 1998 is attributed to a slight reduction in gas production.
Costs and Expenses. Costs and expenses for the fiscal year ended
December 31, 1999 increased by $7,851 or 49% to $23,919 as compared to $16,068
for the corresponding period ended December 31, 1998. This was primarily due to
increased lease operating costs and higher equipment depreciation expense.
General and Administrative Costs in 1999 increased by 26% to $1,889,035 as
compared to $1,502,953 in 1998. This increase was primarily due to a $1,229,000
expense included in costs of the Israeli project associated with the contingent
liability for the rig deposit and other expenses incurred for the Israeli
project in the amount of $337,704 in 1999.
Net Income. The Company had a net loss for the fiscal year ended
December 31, 1999 of $1,885,442 compared to net loss of $1,496,720 for fiscal
year ended December 31, 1998, representing <$.04> and <$.03> per share,
respectively. Again, as in cost and expenses, this increase was primarily due to
a $1,229,000 expense included in costs of the Israeli project associated with
the contingent liability for the rig deposit and other expenses incurred for the
Israeli project in the amount of $337,704 in 1999.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This statement standardized the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
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value. The statement generally provides for matching the timing of gain or loss
recognition on the hedging instrument with the recognition of (a) the changes in
fair value of the hedged assets or liabilities that are attributable to the
hedged risk, or (b) the earnings effect of the hedged transaction. The statement
is effective for all fiscal quarters of all fiscal years beginning after June
15, 1999, with earlier application encouraged, and shall be applied
retroactively to financial statements of prior periods. Adoption of SFAS 133 had
no effect on the Company's financial statements.
Disclosure Regarding Forward-Looking Statements
This document includes "forward-looking" statements within the meaning of
Section 27A of the Securities Act and the Company desires to take advantage of
the "safe harbor" provisions thereof. Therefore, the Company is including this
statement for the express purpose of availing itself of the protections of such
safe harbor provisions with respect to all of such forward-looking statements.
The forward-looking statements in this document reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ from those anticipated. In this document,
the words "anticipates," "believes," "expects." "intends," future," and similar
expressions identify forward-looking statements. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that may arise after the date hereof. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by this section.
Year 2000 Compliance
The company did not realize any impact for the Y2K bug or any associated issues.
The company does not expect to realize any negative impact in the future.
Item 7. Financial Statements.
The following financial statement information for Ness Energy International,
Inc. begins following the signature page of this form. The index to the
following financial statements is on page F-1.
Report of Independent Certified Public Accountant
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
Supplemental Data
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
Robert Early & Company, P.C. audited the following years of the Company 1995,
1996 and 1997 and Weaver & Tidwell, L.L. P. audited as of and for the years
ended December 31, 1998 and 1999.
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There are no disagreements between the Company and its auditor, Robert Early &
Company P.C. of Abilene, Texas, and there are no disagreements between the
Company and its current auditor Weaver & Tidwell P.C. of Fort Worth regarding
accounting and/or financial disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officers of the Company are as follows:
Name Age Position In office
since
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Harold "Hayseed" Stephens(1) 61 President, CEO & Director 1997
Mary Gene Stephens1 60 Secretary & Treasurer 1997
Mark Bassham 39 Director 2000
Richard Nash 55 Director 1999
Bob Lee 58 Chief Financial Officer 1999
(1)Harold"Hayseed" Stephens and Mary Gene Stephens are husband and wife. There
are no other family relationships between the directors and officers.
Harold "Hayseed" Stephens, President & Director, graduated from Hardin Simmons
University in 1961 with a BS degree. Mr. Stephens founded Hayseed Stephens Oil &
Gas Inc. in 1983 for domestic oil and gas operations primarily in Texas and
Oklahoma. He also founded Ness Energy International for international operations
focusing on Israel for oil and gas concessions. In 1984 - 1985 Stephens
partnered with three Israeli companies in a 50 million dollar drilling
consortium that leased 400,000 acres.
Mary Gene Stephens, Secretary & Treasurer, has been involved in office
administration and day to day bookkeeping and correspondence for Hayseed
Stephens Oil & Gas Inc. and Ness International Energy Inc. for the past 15
years. Mrs. Stephens has also been involved in preparing drilling proposals and
joint interest billing and income distribution.
Richard W. Nash, Director, received his B. S. degree in 1970 from East Texas
State University. He received his Masters of Education degree from East Texas
State University in 1971. In 1980, he received his Doctor of Education degree
from Texas A&M (Commerce, Texas branch). Dr. Nash has pastored Victory Temple
Church in Enloe, Texas since 1988. Victory Temple is associated with The Living
Way Ministries, Willow Park, Texas. During the past five years, Dr. Nash, who is
retired, has assisted Mr. Hayseed Stephens in his ministry in South Africa, as
well as in Israel. He has made one trip to South Africa and four trips to
Israel. The first of which was in 1990 when he accompanied Mr. Stephens and
three other oilmen to meet with the Israeli government. From 1980 to 1994, Dr.
Nash was Assistant Superintendent of Prairiland ISD until he retired.
Mark L. Bassham, Director, is a veteran Texas Peace Officer of eighteen years
and a minister of the gospel. He holds the distinction of being the youngest
12
<PAGE>
<TABLE>
person ever to be elected to the position of County Sheriff, where he served
until 1990, before being commissioned by the Texas Department of Public Safety
as a Special Texas Ranger. Bassham joined the Texas and Southwestern Cattle
Raisers' Association as an Investigator. Assigned to a twelve county District in
Northeast Texas, he investigates all types of agricultural crimes. As Associate
Pastor at Victory Temple Church in Enloe, Texas he heads the Church's cattle
project with Canaan Land Restoration of Israel, Inc. The project will aid the
State of Israel in establishing a beef cattle industry in the Holy Land.
Bob Lee, Chief Financial Officer, received his Bachelor of Science Degree in
Accounting from Northwestern Louisiana State University in 1965. Mr. Lee has
thirty-five years experience in various segments of the oil industry. He began
his career at Tenneco, Inc., later joining Amerada Hess Corporation. He served
as accounting manager and controller for the past eighteen years with Pride
Companies in Abilene, Texas.
Item 10. Executive Compensation.
No compensation was paid during the year ended December 31, 1996. 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 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 annual compensation paid to the officers of Ness
Energy International, Inc. in 1999, all compensation reflected was paid by
Hesed, Inc. an affiliate of the Company.
Name and Principal Position Salary
---------------------------------------------------------------------
Hayseed Stephens, President & CEO $62,500
Mary Gene Stephens, Secretary/Treasurer $18,000
Bob Lee, CFO and Controller $ 7,900
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.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons or firms who are known
by the Company to own beneficially more than 5% of the Company's common stock
and voting shares on March 31, 2000:
Name and address Number of Percent
Title of Class of Beneficial Owner Shares Owned of Class
- -------------- ------------------- ------------ --------
<S> <C> <C> <C>
Common Stock Hayseed Stephens Oil, Inc.1 14,150,000 25.5%
No Par Value 4201 East I-20 Service Rd.
Willow Park, TX 76087
13
<PAGE>
Common Stock Hayseed Stephens(1) 13,253,639(2) 23.9%
No Par Value 4201 East I-20 Service Rd.
Willow Park, TX 76087
Common Stock Cede & Co. 15,624,284 28.1%
55 Water Street, 50th Floor
New York, NY 10041
(1)Hayseed Stephens and his wife are the owners of Hayseed Stephens Oil, Inc.
(2)Hayseed Stephens acquired these shares from a group of large shareholders at
the same time change of control became effective.
Security Ownership of Management
The following table sets forth as of March 31, 2000 information concerning the
beneficial ownership of common stock by all directors and all directors and
officers of the Company as a group based on 55,555,228 shares outstanding.
Name and address Number of Percent
Title of Class of Beneficial Owner Shares Owned of Class
Common Stock Hayseed Stephens(1) 27,403,6392 49.3%
No Par Value 4201 East I-20 Service Rd.
Willow Park, TX 76087
Common Stock Mary Gene Stephens(1) -0- -0-
No Par Value 4201 East I-20 Service Rd.
Willow Park, TX 76087
Common Stock Richard Nash -0- -0-
No Par Value 245 S.E. 33rd St.
Paris, TX 75460
Common Stock Bob Lee 5,000 -0-
No Par Value 4201 East I-20 Service Rd.
Willow Park, TX 76087
Common Stock Mark L. Bassham -0- -0-
No Par Value P.O. Box 456
Cooper, TX 75432
All directors and officers as a group (4 persons) 27,408,639 49.3%
</TABLE>
(1)Harold "Hayseed" Stephens and Mary Gene Stephens are husband and wife. There
are no other family relationships between the directors and officers.
14
<PAGE>
(2)This amount includes the stock owned by Hayseed Stephens Oil Inc. (14,150,000
shares).
Item 12. Certain Relationships and Related Transactions.
In June 1998, the Company entered into a series of agreements with a company
related through common ownership whereby the related party will provide the
majority of the Company's management, general and administrative and facilities.
The agreements were effective January 1, 1998 and provide for monthly payments
of $3,350 through December 31, 1999.
The related party also collects the net oil and gas revenues from the Company's
properties and remits the funds to the Company. At December 31, 1999 and 1998,
the Company was owed $3,655 and $7,347, respectively and are included in
accounts receivable - related party.
Also included in accounts payable - related party are advances and payments made
on behalf of Company by the related party. This related party owns licenses that
provide for the right to drill for oil and gas in the Dead Sea area of Israel.
While the Company does not own the rights in Israel, it is intended that the
Company will benefit from the well to be drilled either through a business
combination or some other arrangement. Discussions have been held on the method
under which the Company will be involved with the project in Israel and all
expenses incurred by the Company related to the Israeli project have been
disclosed as a separate item on the accompanying statement of operations.
Ness of Texas International Inc. was organized on December 31, 1997. The Company
was formed for the purpose of acquiring and developing oil and gas properties
both in the United States and Israel. In January of 1998, the company sold
600,000 shares of stock at a price of $1.00 per share and in so doing relied on
certain exemptions from registration under the Securities Act. This coupled with
the initial issuance of shares to Hayseed Stephens, the President and CEO of the
company, brought the total shares issued and outstanding to 888,000. The Board
of Directors subsequently authorized and issued an additional 2,952,000 shares
to Mr. Stephens and therefore the total number of issued and outstanding shares
is 3,840,000. The total number of authorized shares is 200,000,000. Ness of
Texas International, Inc. made a deposit of $200,000 (US) to Israel for the
purpose of initiating the process of acquiring a lease in the Dead Sea.
Hesed Energy International, Inc. ("Hesed") is also an affiliate of Ness Energy
International, Inc. formerly Kit Karson Corporation. The Company was organized
in October of 1993. On August 15, 1997, Hesed sold 696,000 shares of common
stock for $1.00 per share. On April 30, 1998, Hesed offered certain "units" of
common stock and warrants which, in the aggregate, consisted of 2,168,000 common
shares and 720,000 warrants with each unit consisting of 27,100 shares valued at
$1.85 per share and 9,000 warrants exercisable at $2.50 per share within 18
months. Hesed Energy International, Inc., ("Hesed"), was originally named Ness
Energy International, Inc., but that name was changed to Hesed Energy
International, Inc. by Articles of Amendments, which was filed on August 10,
1999. Those Articles also show that as of August 6, 1999, Hesed had 7,550,794
shares of common stock outstanding and has some 72 shareholders. On February 9,
1999, Hesed announced that it had acquired the "Hesed License" covering 55.3
square miles in an area at the Southwest end of the Dead Sea. It also announced
that the Elohim Perazim well had been staked. The license is subject to a
one-eight (1/8) carried royalty held by the government of Israel, and a one
eighth carried royalty reserved by the original lessee which increases to a 20%
carried interest on pay-out and an option by the original lessee to acquire an
15
<PAGE>
additional one eighth working interest by paying the proportionate share of the
Authorization for Expenditures prior to the commencement of operations. The
financial statements of Hesed indicate an investment in the lease of $65,000 and
a receivable from Kit Karson Corporation (now Ness Energy International, Inc.)
of $729,638.
Ness Energy International, Inc., formerly Kit Karson Corporation, completed a
private placement of 887,226 common shares of stock in June of 1999. The total
purchase price was $399,250. In issuing the stock the company relied on certain
private placement exemptions from registration under the Securities Act. The
offering was made to a total of five accredited investors and the purpose of the
offering was to provide working capital to the company so that it could continue
with its projects in Israel and in the United States. Hayseed Stephens is the
President and Chief Executive Officer of Ness.
The three private offerings described herein, all relied on certain exemptions
from registration as separate offerings. The relationship between Ness of Texas
International, Inc. ("Ness of Texas"), Hesed Energy International, Inc.
("Hesed") and Ness Energy International, Inc. ("Ness") gives rise to a question
as to whether the stock sold by these companies was actually sold as three
separate offerings or whether the three offerings should be combined as one
offering. When offerings are integrated in such a way the combined offering must
meet the requirements of an exemption or all of the securities must be
registered.
If the offerings were to be integrated the exemptions from registration could be
lost since the offering would have been illegally made. The investors in the
offering, then could have a cause for recision of their purchase and recovery of
the purchase price, interest and possibly damages. Additionally, even though it
is proposed that the investors in Ness of Texas and Hesed exchange their stock
for stock in Ness, receive a proper prospectus and registered securities.
Section 12 (a) (1) of the Securities Act of 1933 is a strict liability section.
It provides a remedy of recision when the initial offer was illegal despite the
fact that the securities were properly registered at a later date. There have
been no request or legal action by any investor seeking recision of their
purchase, nevertheless, the possibility of such action gives rise to a
contingent liability that if realized could adversely effect the financial
standing of the company.
Item 13. Exhibits and Reports on Form 8-K.
The Company filed an 8-K on April 4, 2000 announcing the resignation of Ivan
Webb as Chief Financial Officer and Director of Ness Energy International, Inc.
16
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
AUDITED FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report - Weaver & Tidwell P.C. F-2
Balance Sheet for the years ended
December 31, 1998 & 1999 F-3
Statements of Operations for the years ended
December 31, 1998 & 1999 F-5
Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998 & 1999 F-6
Statements of Cash Flow for the years ended
December 31, 1998 & 1999 F-7
Notes to Financial Statements F-9
Supplemental Financial Information on Oil and Gas
Exploration, Development and Production Activities F-17
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Ness Energy International, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NESS ENERGY INTERNATIONAL, INC.
Dated: May 8, 2000 /s/ Hayseed Stephens
-----------------------------------
Hayseed Stephens
President & Chief Executive Officer
Dated: May 8, 2000 /s/ Bob Lee
------------------------------------
Bob Lee
Chief Financial Officer & Controller
18
<PAGE>
NESS ENERGY INTERNATIONAL INC.
(Formerly Kit Karson Corporation)
(a development stage company)
FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT.................................................F-2
FINANCIAL STATEMENTS
Balance Sheets...........................................................F-3
Statements of Operations.................................................F-5
Statements of Changes in Stockholders' Equity............................F-6
Statements of Cash Flows.................................................F-7
Notes to Financial Statements............................................F-9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Ness Energy International, Inc. (formerly Kit Karson Corporation)
Willow Park, Texas
We have audited the accompanying balance sheets of Ness Energy International,
Inc. (formerly Kit Karson Corporation) (a development stage company) (the
Company) as of December 31, 1999 and 1998, and the related statements of
operations, changes in stockholders' equity and cash flows for the years then
ended and cumulative amounts since reentering development stage on January 1,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ness Energy International, Inc.
(formerly Kit Karson Corporation) (a development stage company) at December 31,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended and cumulative amounts since reentering development stage on
January 1, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in its development stage and has
insignificant operating revenue. In addition, the Company has limited capital
resources and has initiated a new phase of activity, all of which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
March 23, 2000, except as to Note 5 for which
the date is May 11, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 414,692 $ 4,352
------------------ -----------------
Total current assets 414,692 4,352
OIL AND GAS PROPERTIES
Oil and gas properties, unproved 114,386 -
Oil and gas properties, proved 28,300 28,300
------------------ -----------------
142,686 28,300
Less accumulated depreciation and depletion 10,911 5,608
------------------ -----------------
Total oil and gas properties 131,775 22,692
OTHER ASSETS
Automotive equipment, net of
accumulated depreciation of $5,083 55,917 -
Deposits on equipment 1,229,000 -
------------------ -----------------
1,284,917 -
------------------ -----------------
TOTAL ASSETS $ 1,831,384 $ 27,044
================== =================
</TABLE>
The Notes to FinancialStatements are
an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
------------------- -------------------
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Accounts payable and accrued expenses $ 123,171 $1,392,900
Accounts payable - related party 729,638 102,564
------------------- -------------------
Total current liabilities 852,809 1,495,464
ACCRUED CONTINGENCY 1,229,000 -
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.10 par value
10,000,000 shares authorized, none issued - -
Common stock, no par value,
200,000,000 shares authorized,
shares issued and outstanding
1999 54,634,740; 1998 49,959,356 5,790,720 2,658,533
Retained deficit prior to reentering
development stage January 1, 1998 ( 2,630,233) ( 2,630,233)
Deficit accumulated since reentering
development stage January 1, 1998 ( 3,382,162) ( 1,496,720)
Deferred consulting ( 28,750) -
------------------- -------------------
Total stockholders' equity (deficit) ( 250,425) ( 1,468,420)
------------------- -------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $1,831,384 $ 27,044
=================== ===================
</TABLE>
The Notes to FinancialStatements are
an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Cumulative
Amounts
Since
Reentering
Development
Stage
January 1,
1999 1998 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES
Oil and gas revenues $ 21,208 $ 22,301 $ 43,509
EXPENSES
Lease operating expenses 8,177 5,585 13,762
Production taxes 1,584 1,594 3,178
Compression expenses 3,772 3,281 7,053
Depreciation, depletion and amortization 10,386 5,608 15,994
Litigation settlement - 1,392,900 1,392,900
General and administrative expenses 322,331 110,053 432,384
Expenses related to Israeli project 1,566,704 - 1,566,704
------------------ ------------------ ------------------
Total operating expenses 1,912,954 1,519,021 3,431,975
------------------ ------------------ ------------------
Operating loss ( 1,891,746) ( 1,496,720) ( 3,388,466)
OTHER INCOME
Interest income 6,304 - 6,304
------------------ ------------------ ------------------
Loss before income taxes ( 1,885,442) ( 1,496,720) ( 3,382,162)
INCOME TAXES - - -
------------------ ------------------ ------------------
NET LOSS ($ 1,885,442) ($ 1,496,720) ($ 3,382,162)
================== ================== ==================
Net loss per weighted average share ($ 0.04) ($ 0.03) ($ 0.07)
================== ================== ==================
Weighted average shares outstanding 52,916,747 49,959,356 50,967,453
================== ================== ==================
</TABLE>
The Notes to FinancialStatements are
an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Accumulated Accumulated
Deficit Deficit
Prior to Since
Reentering Reentering
Development Development
Stage Stage
Common Stock January 1, January 1, Deferred
-----------------------------------
Shares Amount 1998 1998 Consulting
----------------- ---------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1997 35,809,356 $ 2,630,233 ($ 2,628,684) $ - $ -
Net loss - - ( 1,549) - -
----------------- ---------------- ------------------ ----------------- ----------------
BALANCE,
December 31, 1997 35,809,356 2,630,233 ( 2,630,233) - -
Issuance of common
stock for oil and
gas property 14,150,000 28,300 - - -
Net loss - - - ( 1,496,720) -
----------------- ---------------- ------------------ ----------------- ----------------
BALANCE,
December 31, 1998 49,959,356 2,658,533 ( 2,630,233) ( 1,496,720) -
Issuance of common
common stock for:
Future services 15,000 30,000 - - ( 30,000)
Cash 1,427,026 1,401,250 - - -
Settlement of
lawsuit 2,701,500 1,392,900 - - -
Oil and gas
property 346,719 114,386 - - -
Equipment 30,500 61,000 - - -
Services 154,639 132,651 - - -
Recognition of
services performed
for common stock - - - - 1,250
Net loss - - - ( 1,885,442) -
----------------- ---------------- ------------------ ----------------- ----------------
BALANCE,
December 31, 1999 54,634,740 $ 5,790,720 ($ 2,630,233) ($ 3,382,162) ($ 28,750)
================= ================ ================== ================= ================
</TABLE>
The Notes to FinancialStatements are
an integral part of these statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Cumulative
Amounts
Since
Reentering
Development
Stage
January 1,
1999 1998 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($ 1,885,442) ($ 1,496,720) ($ 3,382,162)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation, depletion, and amortization 10,386 5,608 15,994
Recognition of services performed for stock 1,250 - 1,250
Stock issued for services 132,651 - 132,651
Change in operating assets and liabilities:
Accrued expenses 1,352,171 1,392,900 2,745,071
Accounts payable - related party 627,074 102,564 729,638
------------------ ------------------ ------------------
Net cash provided by operating activities 238,090 4,352 242,442
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for deposits on equipment ( 1,229,000) - ( 1,229,000)
------------------ ------------------ ------------------
Net cash used in investing activities ( 1,229,000) - ( 1,229,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from sale of common stock 1,401,250 - 1,401,250
------------------ ------------------ ------------------
Net cash provided by financing activities 1,401,250 - 1,401,250
Net increase in cash 410,340 4,352 414,692
CASH, beginning of period 4,352 - -
------------------ ------------------ ------------------
CASH, end of period $ 414,692 $ 4,352 $ 414,692
================== ================== ==================
</TABLE>
The Notes to FinancialStatements are
an integral part of these statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------------ ------------------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of oil and gas property
for 14,150,000 shares of common stock $ - $ 28,300
================== ==================
Acquisition of unproved oil and gas property
for 346,719 shares of common stock $ 114,386 $ -
================== ==================
Acquisition of other fixed assets
for 30,500 shares of common stock $ 61,000 $ -
================== ==================
Settlement of lawsuits through issuance of
2,701,500 shares of common stock $ 1,392,900 $ -
================== ==================
Issuance of 15,000 shares of common stock
for consulting services to be performed $ 30,000 $ -
================== ==================
Issuance of 154,639 shares of common stock for
services performed on behalf of the Company $ 132,651 $ -
================== ==================
</TABLE>
The Notes to FinancialStatements are
an integral part of these statements.
F-8
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, ORGANIZATION
AND BASIS OF PRESENTATION
Ness Energy International, Inc. (formerly Kit Karson Corporation) (the
Company), a Washington corporation, has been involved in the
exploration and development of oil and gas reserves. The Company's main
businesses of energy and real estate were essentially abandoned by late
1985 due to insufficient operations and capital to support ongoing cash
requirements. Between 1985 and 1996 there were no filings with the SEC.
An agreement was reached in late 1997 for a change in management
control of the Company (Note 9) and the required filings were filed to
allow the stock to resume trading. Effective July 6, 1999, the Company
changed its name to Ness Energy International, Inc.
The Company is reentering the exploration and development of oil and
gas reserves under the new management. However, due to the exhaustion
of all assets prior to the change in management, the Company is deemed
to have reentered the development stage as of January 1, 1998.
The financial statements have been prepared on a going concern basis,
which contemplates realization of assets and liquidation of liabilities
in the ordinary course of business. Since the Company is in the
development stage, it has limited capital resources, insignificant
revenue and a loss from operations. The appropriateness of using the
going concern basis is dependent upon the Company's ability to obtain
additional financing or equity capital and, ultimately, to achieve
profitable operations. The uncertainty of these conditions raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Management plans to raise capital through the private placement of
company stock and, eventually, through public offerings. Management
intends to use the proceeds from any equity sales to further develop
oil and gas reserves in the United States and in selected foreign
countries. The Company believes that these actions will enable the
Company to carry out its business plan and ultimately to achieve
profitable operations.
F-9
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Property and Equipment
The Company uses the full cost method of accounting for its' oil and
gas producing activities, which are located in North Central Texas.
Accordingly, all costs associated with acquisition, exploration and
development of oil and gas reserves, including directly related
overhead costs, are capitalized.
All capitalized costs of oil and gas properties, including the
estimated future costs to develop proved reserves, are amortized on the
unit-of-production method using estimates of proved reserves.
Investments in unproved properties and major development projects are
not amortized until proved reserves associated with the projects can be
determined or until impairment occurs. If the results of an assessment
indicate that the properties are impaired, the amount of the impairment
is added to the capitalized costs to be amortized.
In addition, the capitalized costs are subject to a "ceiling test,"
which basically limits such costs to the aggregate of the "estimated
present value," discounted at a 10 percent interest rate of future net
revenues from proved reserves, based on current economic and operating
conditions, plus the lower of cost or fair market value of unproved
properties.
Sales of proved and unproved properties are accounted for as
adjustments of capitalized costs with no gain or loss recognized,
unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves of oil and gas, in which
case the gain or loss is recognized in income.
Abandonments of properties are accounted for as adjustments of
capitalized costs with no loss recognized.
Prior to 1998, it was determined that the remaining single oil and gas
interest was not significant enough to require the disclosures of oil
and gas activities required by SFAS No. 69, "Disclosures about Oil and
Gas Producing Activities". This lease was transferred to the Company's
former president as part of the agreement regarding change in control
of the Company.
Other Fixed Assets
Other fixed assets include an automobile being depreciated over a life
of 5 years on the straight-line basis.
F-10
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Accounts Receivable
The Company has not provided an allowance for doubtful accounts. The
Company's receivables are from related parties and have been netted
against the accounts payable - related party (see Note 4). All
receivables considered doubtful have been charged to current operations
and it is management's opinion that no additional material amounts are
doubtful of collection.
Income Taxes
Deferred taxes are recognized for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are
expected to affect taxable income.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Loss Per Common Share
The loss per common share has been computed by dividing the net loss by
the weighted average number of shares of common stock outstanding
throughout the year. The Company has no potential common stock.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Depletion was calculated based on engineers' estimates of reserves and
the unproved property was evaluated based on the future potential. It
is reasonably possible that these estimates may change materially in
the near term.
F-11
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Financial Instruments
Financial instruments consist principally of cash, accounts receivable
- related parties, accounts payable and accounts payable - related
party. Recorded values approximate fair values due to the short
maturities of these instruments.
Concentrations of Credit Risk
The Company regularly maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash.
Reclassification
Certain reclassifications have been made to the 1998 financial
statements to conform with the 1999 financial statement presentation.
Such reclassifications had no effect on income.
NOTE 3. INVESTMENTS IN MARKETABLE SECURITIES
The Company owned interests in three entities, which were publicly traded
at the time of acquisition. As part of the agreement regarding the change
in control of the Company, these interests were transferred to the
Company's former president (Note 10).
NOTE 4. RELATED PARTY TRANSACTIONS
In June 1998, the Company entered into a series of agreements with a
company related through common ownership whereby the related party will
provide the majority of the Company's management, general and
administrative services and facilities. The agreements were effective
January 1, 1998 and provide for monthly payments of $3,350 through December
31, 1999.
F-12
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 4. RELATED PARTY TRANSACTIONS - continued
The related party also collects the net oil and gas revenues from the
Company's properties and remits the funds to the Company. At December 31,
1999 and 1998, the Company was owed $3,655 and $7,347, respectively and are
included in accounts payable - related party.
Also included in accounts payable - related party are advances and payments
made on behalf of the Company by the related party. This related party owns
licenses that provide for the right to drill for oil and gas in the Dead
Sea area of Israel. While the Company does not own the rights in Israel, it
is intended that the Company will benefit from the well to be drilled
either through a business combination or some other arrangement.
Discussions have been held on the method under which the Company will be
involved with the project in Israel and all expenses incurred by the
Company related to the Israeli project have been disclosed as a separate
item on the accompanying statement of operations.
NOTE 5. DEPOSITS ON EQUIPMENT
On October 14, 1999, the Company entered into a contract to purchase a
drilling rig to be used in the drilling project in Israel. The contract
called for a total purchase price of $2,450,000 with payments of $500,000
to be made on each of November 18, 1999 and December 3, 1999, and the
balance due January 15, 2000. Title of the rig is to pass upon completion
of the contract. Payments of $240,000 and $500,000 were made in October and
November, respectively, but the balance due has not been paid. In addition,
two $42,000 payments were made to extend the time available to enter into
the purchase contract.
In addition, the Company entered into a contract on September 23, 1999,
that provided for the refurbishment and mobilization of the above rig for
$2,200,000. The funds were to be put into escrow upon the purchase of the
rig. Escrow is to be distributed as work is completed on the refurbishment
and mobilization. As of December 31, 1999, the Company had paid $405,000
toward the refurbishment.
Management is currently negotiating the completion of the contract and
believes that the purchase will be completed. Accordingly, the amounts paid
on the contract have been included as deposits on equipment in the
accompanying financial statements. The Company has received a notice of
default from the seller of the rig.
F-13
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
The Company has rejected this notice since: (1) the terms of the purchase
were
F-14
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5. DEPOSITS ON EQUIPMENT - continued
changed by the parties at the time of the initial payment under the rig
purchase agreement; (2) there is no provision for default in the agreement;
and (3) any disputes arising under the contract are to be settled by
arbitration and no request for arbitration has been requested by either
party. Nevertheless, in addition to including the deposits on the financial
statements, the Company has reflected an accrued contingency in the
accompanying financial statements due to the uncertainty surrounding the
purchase of the rig. The corresponding expense is reflected in the expenses
related to the Israeli project.
NOTE 6. INCOME TAXES
Prior to 1998, the Company's last income tax return was filed for 1984 and
it showed total operating loss carryforwards at that time of $645,484. It
is believed that the Company generated additional operating loss
carryforwards as the Company's business wound down in 1985 and 1986.
However, no income tax returns have been filed during the period from 1985
through 1993. Due to the changes in control discussed in Note 9, it is
believed that the benefits from utilization of any of these carryforwards
would be extremely limited. Management has decided that the cost of
researching the timing of transaction and preparing income tax returns to
document the loss carryforwards for the unfiled years would not be a cost
effective use of resources available to the Company. In view of this
decision, these potential loss carryforwards have been discounted and are
considered to be of no value. The disclosures presented below include the
activities of the Company since 1994.
A reconciliation of statutory tax rates to the Company's effective tax
rates follows:
1999 1998
----------- -----------
Benefit at statutory rates ( 34%) ( 34%)
Losses not providing benefits 34 34
----------- -----------
Effective rate -0-% -0-%
=========== ===========
F-15
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES - continued
The deferred tax assets are comprised primarily of the Company's net
operating loss carryforwards and litigation settlement:
1999 1998
------------ ------------
<S> <C> <C>
Litigation settlement $ - $ 473,586
Contingency 417,860 -
Other 19,762 -
Net operating loss carryforward 713,044 36,158
Less valuation allowance ( 1,150,666) ( 509,744)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
The Company's net operating loss carryforwards may be applied against
future taxable income. The net operating loss carryforwards expire as
follows:
Year Expiring
-------------
2011 $ 977
2012 1,549
2018 103,820
2019 1,990,843
-----------
$ 2,097,189
===========
The net changes in the valuation allowance during 1999 and 1998 are as
follows:
1999 1998
------------ -------------
Balance at beginning of year ($ 509,744) ($ 379)
Balance at end of year ( 1,150,666) ( 509,744)
------------ -------------
Net change ($ 640,922) ($ 509,365)
============ =============
</TABLE>
F-16
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7. STOCKHOLDERS' EQUITY
On March 6, 1998, the Company's Certificate of Incorporation was amended to
authorize the issuance of 10,000,000 shares of preferred stock and to
increase the number of shares of the Company's Common Stock authorized for
issuance by 150,000,000 shares to a total of 200,000,000.
NOTE 8. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company was party to one lawsuit filed by
shareholders who claimed that they were due shares from transactions that
they had conducted with the Company in the past. Plaintiffs seek the
issuance of 500,000 common shares, compensatory damages in excess of
$1,000,000, punitive damages and interest. Management intends to actively
assert its legal defenses and believes Plaintiffs are not entitled to any
remedy from the Company.
NOTE 9. MAJOR CUSTOMERS
The Company sells gas and natural gas liquids to one purchaser. However,
management believes the competitive nature of the field and available
marketing alternatives do not make the Company dependent on any single
purchaser.
NOTE 10. CHANGE IN CONTROL
During the last quarter of 1997, an agreement was reached and consummated
between the Company and Hayseed Stephens, which effectively transferred
operating control of the Company to him. All remaining assets of the
Company were transferred to its former president.
The Company filed the require documents with the Securities and Exchange
Commission to allow its stock to resume trading on the NASD Bulletin Board
in February 1998.
F-17
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS
EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES
(unaudited)
This section provides information required by Statement of Financial Accounting
Standards No. 69, Disclosures About Oil and Gas Producing Activities.
The SEC defines proved oil and gas reserves as those estimated quantities of
crude oil, natural gas, and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Proved
oil and gas reserves are reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods.
Estimates of petroleum reserves have been made by independent engineers. The
valuation of proved reserves may be revised in the future on the basis of new
information as it becomes available. Estimates of proved reserves are inherently
imprecise.
Estimated quantities of proved oil and gas reserves of the Company (all of which
are located in the United States) are as follows:
Petroleum Natural
Liquids Gas
(Bbls) (Mcf)
--------- ---------
<S> <C> <C>
December 31, 1999 - proved developed reserves - 100,984
December 31, 1999 - proved reserves - 242,250
December 31, 1998 - proved developed reserves - 110,834
December 31, 1998 - proved reserves - 252,100
The Company did not have any proved reserves prior to 1998.
Petroleum Natural
Liquids Gas
(Bbls) (Mcf)
--------- ---------
Reserves at December 31, 1997 - -
Purchases of Reserves-in-Place - 264,481
Production - ( 12,381)
--------- ---------
Reserves at December 31, 1998 - 252,100
Production - ( 11,653)
Revision of estimates - 1,803
--------- ---------
Reserves at December 31, 1999 - 242,250
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS
EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES
(unaudited)
The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves for the years ended
December 31 is as follows:
1999 1998
---------- ----------
<S> <C> <C>
Future cash inflows $ 432,805 $ 403,363
Future development and production costs ( 270,016) ( 283,549)
Future income tax expense - -
---------- ----------
Future net cash flows 162,789 119,814
10% annual discount 57,334 49,258
---------- ----------
Standardized measure of discounted future cash flows $ 105,455 $ 70,556
========== ==========
Primary changes in standardized measure of discounted future net cash flow for
the years ended December 31 are as follows:
1999 1998
---------- ----------
Change in sales price and production costs $ 35,518 $ -
Purchases of reserves in place - 82,397
Sales of oil and gas, net of production costs ( 7,675) ( 11,841)
Accretion of discount 7,056 -
---------- ----------
$ 34,899 $ 70,556
========== ==========
</TABLE>
Estimated future cash inflows are computed by applying year end prices of oil
and gas to year end quantities of proved developed reserves. Estimated future
development and production costs are determined by estimating the expenditures
to be incurred in developing and producing the proved oil and gas reserves in
future years, based on year end costs and assuming continuation of existing
economic conditions.
These estimates are furnished and calculated in accordance with requirements of
the Financial Accounting Standards Board and the SEC. Because of unpredictable
variances in expenses and capital forecasts, crude oil and natural gas price
changes, and the fact that the bases for such estimates vary significantly,
management believes the usefulness of these projections is limited. Estimates of
future net cash flows do not necessarily represent management's assessment of
future profitability or future cash flow to the Company.
F-19
<PAGE>
<TABLE>
<CAPTION>
NESS ENERGY INTERNATIONAL, INC.
(Formerly Kit Karson Corporation)
(a development stage company)
SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS
EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES
(unaudited)
The aggregate amounts of capitalized costs relating to oil and gas producing
activities and the related accumulated depletion and depreciation as of December
31, are as follows:
1999 1998
----------- -----------
<S> <C> <C>
Proved properties $ 28,300 $ 28,300
Accumulated depletion and depreciation ( 10,911) ( 5,608)
Net capitalized costs $ 17,389 $ 22,692
=========== ===========
The costs, both capitalized and expensed, incurred in oil and gas producing
activities during the years ended December 31 are as follows:
1999 1998
----------- -----------
Property acquisition costs $ - $ 28,300
Exploration and development costs - -
Total $ - $ 28,300
=========== ===========
Results of oil and gas operations in the aggregate for the years ended December
31 are as follows:
1999 1998
----------- -----------
Revenues $ 21,208 $ 22,301
Compression expense ( 3,772) ( 3,281)
Production costs ( 9,761) ( 7,179)
Exploration expense - -
Depreciation and depletion ( 5,303) ( 5,608)
Income taxes - -
Net oil and gas income $ 2,372 $ 6,233
=========== ===========
</TABLE>
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000353634
<NAME> NESS ENERGY INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> DEC-31-2000
<EXCHANGE-RATE> 1
<CASH> 414,692
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 414,692
<PP&E> 203,686
<DEPRECIATION> (15,994)
<TOTAL-ASSETS> 1,831,384
<CURRENT-LIABILITIES> 852,809
<BONDS> 0
0
0
<COMMON> 5,790,720
<OTHER-SE> (6,041,145)
<TOTAL-LIABILITY-AND-EQUITY> 1,831,384
<SALES> 21,208
<TOTAL-REVENUES> 27,512
<CGS> 9,761
<TOTAL-COSTS> 1,903,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,885,442)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,885,442)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
