<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ' 240.14a-11(c) or ' 240.14a-12
NESS ENERGY INTERNATIONAL, INC.
(Name of Registrant As Specified in Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.......................................................................
2) Form, Schedule or Registration Statement No.:
.......................................................................
3) Filing Party:
.......................................................................
4) Date Filed:
.............................................................
<PAGE>
NESS ENERGY INTERNATIONAL, INC.
Notice of Annual Meeting of Stockholders
to be held December 1, 2000
Willow Park, Texas
November 9, 2000
PLEASE TAKE NOTICE that the Annual Meeting of the Stockholders of Ness Energy
International, Inc., formerly known as Kit Karson Corporation, will be held on
December 1, 2000 at the Living Way Ministries International Headquarters, 416
East I-20 Service Road (Exit 418), Willow Park, Texas 76087 (Phone:
817-341-1477).
The meeting will convene at 1:30PM Central Standard Time for the following
purposes:
(1) For the election of directors:
(2) To ratify the selection of Weaver and Tidwell L.L.C. as
independent auditor for 2001; and
(3) To authorize the Board of Directors to issue such registered stock
as from time to time may be necessary to carry out the business of the
company; and
(4) To ratify the consulting agreements of Messrs. Fowler and
Kincheloe; and
(5) To ratify the issuance of additional shares the company's stock
pursuant to Form SB-2 which has been filed with the Securities and
Exchange Commission and the tender offer for shares of Hesed Energy
International inc. and Ness of Texas inc made subsequent to the terms
of the SB-2; and
(6) To authorize the board of directors to implement a one to four
(1-4) reverse stock split; and
(7) For the transaction of such other business as may properly come
before this meeting.
The transfer books of the Company will not be closed, but only stockholders of
record at the close of business on October 25, 2000 will be entitled to vote at
the meeting.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE TO ASSURE
YOUR REPRESENTATION AT THE MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE BY GIVING NOTICE TO THE COMPANY OR BY ATTENDING THE MEETING AND
VOTING IN PERSON. YOUR VOTE IS IMPORTANT.
Mary Gene Stephens
Secretary
<PAGE>
PROXY STATEMENT
NESS ENERGY INTERNATIONAL, INC.
4201 East Interstate 20
Willow Park, Texas 76087
(817) 341-1477
The following information is furnished to stockholders of Ness Energy
International, Inc. (the "Company") in connection with the solicitation by the
Board of Directors of the Company of proxies to be used at the Annual Meeting
(the "Meeting") of Stockholders to be held on December 1, 2000 and at any
adjournment thereof. All properly executed proxies will be voted in accordance
with the instructions contained thereon, and if no choice is specified, the
proxies will be voted for the election of all the directors named and in favor
of each proposal set forth in the Notice of Meeting.
Any Ness Energy shareholder has the power to revoke his Proxy before its
exercise at the Annual Meeting or any adjournment thereof by: (1) giving written
notice of revocation to the Secretary of the Company, Mary Gene Stephens, 4201
East Interstate 20, Willow Park, Texas 76087, prior to the Annual meeting; (2)
giving written notice of revocation to the Secretary at the Annual Meeting; or
(3) signing and delivering a Proxy bearing a later date. However, the mere
presence at the Annual Meeting of a shareholder who has executed and delivered a
valid Proxy will not revoke such Proxy.
There are no dissenters' rights of appraisal. Neither the By-laws nor corporate
law of the Company's state of Incorporation call for any dissenters' rights of
appraisal.
This proxy statement will be transmitted to stockholders on or about November
13, 2000.
VOTING
The voting securities of the Company consist of shares of its common stock with
no par value (the "Common Stock"). Holders of record of the Common Stock at the
close of business on October 24, 2000 will be entitled to vote at the Meeting.
Each share of Common Stock entitles its owner to one vote, and cumulative voting
is not allowed. The number of shares outstanding of the Common stock at the
close of business on October 25, 2000 was 56,824,211.
The holders of record of 50.1% of the outstanding shares of the Common Stock
will constitute a quorum for the transaction of business at the Meeting, but if
a quorum should not be present, the Meeting may adjourn from time to time until
a quorum is obtained.
A majority of the shares represented and entitled to vote at the meeting are
required for an affirmative vote. An abstained vote will be counted in
determining a quorum, but will not be counted as a vote either for or against
the issues.
ELECTION OF DIRECTORS
At the Meeting, four directors are to be elected who shall hold office until the
next following Annual Meeting of Shareholders or until their successors are duly
elected and qualified. In the absence of instructions to the contrary, it is the
intention of the persons named in the enclosed form of proxy to vote such proxy
for the election of the nominees named below. If any of the nominees named below
are unable or unwilling to serve as a director (an event which the Company does
not anticipate), the persons designated as proxies will vote for the remaining
nominees and for such other persons as they may select. The nominees for the
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four (4) directorships, three (3) of whom presently serve as directors, are set
out below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Harold "Hayseed" Stephens 62 President, CEO & Director
Richard Nash 57 Director
Mark Basham 39 Director
Robert L. Fowler 72 Executive Vice President
</TABLE>
There are no family relationships between the directors.
HAROLD "HAYSEED" STEPHENS, President, Chief Executive Officer & Director, of
Willow Park, Texas, graduated from Hardin-Simmons University in 1961 with a BS
degree. Mr. Stephens founded Hayseed Stephens Oil, Inc. in 1983 for domestic oil
and gas operations primarily in Texas and Oklahoma. He also founded Hesed Energy
International, Inc. in 1994 for international operations focusing on Israel for
oil and gas concessions. On December 22, 1997 he acquired controlling interest
of the Company, then called Kit Karson Corporation.
Mr. Stephens has more than 35 years of experience in the oil and gas business
and has participated in the drilling of over 150 oil and gas wells. In 1980,
Stephens became an independent non-denominational minister, and in 1981 founded
The Living Way Ministries in Willow Park, Texas. Since 1982, he has made more
than 70 trips to Israel working on his proposal to drill an oil or gas well at
the southwest corner of the Dead Sea.
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
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.
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 is the pastor of 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
has been retired and 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 accompanied Mr. Stephens and three other oilmen to
meet with the Israeli government in 1990. From 1980 to 1994, Dr. Nash was an
Assistant Superintendent of Prairieland Independent School District until he
retired.
ROBERT G. FOWLER, Executive Vice-President, holds a BS in Petroleum Engineering,
1958, from the University of Oklahoma, and attended the Harvard Advanced
Management Program in 1975. He is president and owner of RGF Investments, a
private company with investments in oil and gas, banking, telecommunications,
and environmental technology. He joined Enserch Exploration, Inc. in 1958, one
of the strongest independent oil and gas companies in the nation at the time. He
worked in various capacities until he was made Chairman in January of 1991. In
December 1991 Mr. Fowler left Enserch to form RGF Investments. He is a member of
several professional organizations, including the American Petroleum Institute
and the Society of Petroleum Engineers of AIME.
Any stockholder who wishes to recommend a prospective nominee for the
board of directors for consideration by the executive committee may write Mary
Gene Stephens, Secretary, 4201 East I-20 Service Road, Willow Park, Texas 76087.
The board of directors had eight meetings during 2000.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
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AN AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF COMMON STOCK IS NECESSARY FOR THE ELECTION OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE NAMED DIRECTORS TO BE
ELECTED AS DIRECTORS TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OR UNTIL THEIR
SUCCESSOR IS DULY ELECTED AND QUALIFIED.
MANAGEMENT
All of the Company's executive officers serve a term of one year or until their
successors are elected or appointed and qualified. The following table sets
forth certain information with respect to the executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Harold "Hayseed" Stephens* 62 President, CEO & Director
Mary Gene Stephens* 60 Secretary & Treasurer
Bob Lee 59 Chief Financial Officer
Robert Fowler 72 Executive Vice President
Richard L. Kincheloe 64 Vice-President and
Director of International Drilling
</TABLE>
*Harold "Hayseed" Stephens and Mary Gene Stephens are husband and wife. There
are no other family relationships between the directors and officers.
See Election of Directors for biographical information on Harold Stephens and
Robert Fowler.
BOB LEE, Chief Financial Officer, joined Ness as Controller in November, 1999.
He received his Bachelor of Science Degree in Accounting from Northwestern
Louisiana State University in 1965. He began his career as an Accountant at
Tenneco, Inc., Houston, from July, 1965 to August, 1966. From August, 1966
through November, 1971 he served as an Accountant for Charter International Oil
Company, Houston. From December 1971 until December 1976 Mr. Lee was an
Accounting Supervisor for Amerada Hess Corporation at Purvis, Mississippi. He
served as Manager of Accounting Operations for Hess Oil Virgin Islands from
December 1976 until July 1978. He joined Independent Refining Company, Houston,
in August 1978, serving as Controller until August 1981. Mr. Lee served as
Accounting Manager and Controller for the Pride Companies in Abilene, Texas,
from September 1981 until he joined Ness.
MARY GENE STEPHENS, Secretary & Treasurer, has been involved in office
administration and day-to-day bookkeeping and correspondence for Hayseed
Stephens Oil Inc. and Ness International Energy Inc. for the past 15 years. Mrs.
Stephens has also been involved in preparing drilling proposals, Joint Venture
billings, and income distribution.
RICHARD L. KINCHELOE, Vice President and Director of International Drilling,
graduated with a degree in Petroleum Engineering from the University of Oklahoma
in 1958 and began his career with Lone Star Producing Company as a Field
Engineer. He progressed through the ranks, being promoted to Sr. Vice President
of Offshore and International Drilling and production in 1993, a position
created for him to take advantage of his knowledge and experience in this area.
Mr. Kincheloe gained extensive and intensive experience in drilling and oil and
gas production in deep as well as shallow fields, both on-shore and off-shore
throughout this country and throughout the world.
3
<PAGE>
COMPENSATION
The following table shows the annual compensation for the officers of Ness
Energy International, Inc. formerly known as Kit Karson Corporation for 2000:
<TABLE>
<CAPTION>
Name and Principal Position Salary
<S> <C>
Hayseed Stephens, President & CEO $60,000
Bob Lee, Chief Financial Officer $72,000
Mary Gene Stephens, Secretary/Treasurer $18,000
Robert Fowler See "Officer/Consultants"
Richard L. Kincheloe See "Officer/Consultants"
</TABLE>
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. 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 employment contracts are currently outstanding as of this date.
OFFICER/CONSULTANTS
The Company has entered into an agreement with Messrs Robert Fowler and Richard
Kincheloe for services to be rendered in regards to all of the companies' oil
and gas operations and in particular the company projects in Israel as well as
other international sites. Mr. Fowler and Mr. Kincheloe will be responsible for
all exploration, drilling and production on the company leases. As consideration
for their services the Board of Directors has authorized the registrations of
100,000 shares of company stock by way of S-8 registration. Additionally, the
company has agreed that Mr. Kincheloe and Mr. Fowler will receive a one per cent
(1%) overriding royalty interest on production from wells which they discover
and produce for the company including the wells to be drilled in Israel.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
AN AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF COMMON STOCK IS NECESSARY TO RATIFY THE ABOVE CONSULTING CONTRACTS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE RATIFICATION.
PERFORMANCE GRAPH
The Company has been inactive and dormant with no market for its common stock
from 1987 through January 22, 1998. 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 bid stock price on November 8, 2000 was $0.96. The stock
symbol on the Electronic Bulletin Board is NESS.
CERTAIN 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.
4
<PAGE>
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.
Hayseed Stephens, and other 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.
BUSINESS
During the period from March 1, 1979 to March 31, 1981, we 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 operations in two primary segments: oil and gas and real
estate. Activities from March 31, 1981, through December 31, 1984, were limited
due to availability of funds. However, we 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 operations and the solicitation of additional
working capital became more difficult, causing us to become inactive.
Our principal business 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, we
were seeking working capital to continue operations but because of a downturn in
the oil and gas industry in the period from 1986-1987, project funding became
more and more difficult. The lack of working capital caused us to become
dormant. During the years, several opportunities were presented to revive
operations but were perceived by management as not favorable to our interests or
did not close due to the 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 President, Hayseed Stephens, has
principally conducted the Ness's business.
Ness Energy International, Inc. 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 Ness 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 Ness and the oil and gas interests were
assigned to us by the former board of directors for 14,150,000 restricted common
shares.
DESCRIPTION OF THE COMPANY'S PROPERTY
On December 31, 1996 we 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 Ness from Art Sykes to Hayseed Stephens occured on December
22, 1997. At this time it was mutually agreed 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
5
<PAGE>
shares of stock. The following is a description of that oil and gas asset
(Greenwood Gas Field) located in Parker County, Texas.
Ness 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, multi-pay (oil and/or gas in commercial
quantities at more than one formation), 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. It was then discovered, by
Hayseed Stephens Oil, Inc. upon testing, completion, and production, 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.
There are currently 5 gas wells on the leases in which we own a 25% working
interest. Gas sales from these wells for our working interest was $21,208 for
1999. Lease operating expenses, production taxes and compression expenses
totaled $13,533 leaving 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.
In the spring of 1998, Hesed Energy International, Inc. ("Hesed") an affiliate
of the Ness, which at that time was also 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 beginning to
drill (spudding-in) a well within the Hesed License area. That date has since
been extended to December 31, 2000 so additional funding arrangements can be put
in place to allow Ness to acquire 45% of the working interest in the Hesed
License and pay for our 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.
On October 13, 1998 we 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, Ness 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, we had paid $405,000 toward the refurbishment.
Ness has received a notice of default from the seller of the rig. The Company
has rejected this notice since: (1) the terms of the purchase were 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
6
<PAGE>
to be settled by arbitration and no request for arbitration has been requested
by either party. Nevertheless, all deposits on the above contracts have been
charged to operations and are reflected in the expenses related to the Israeli
project.
ACQUISITION OF RELATED ENTITIES
Ness Energy International, Inc. intends to make an offer to purchase the shares
of two privately held "affiliated" companies, Ness of Texas International, Inc.
("Ness of Texas") and Hesed Energy International, Inc. ("Hesed").
NESS OF TEXAS INTERNATIONAL, INC.
Ness of Texas International, Inc. was organized on December 31, 1997. It was
formed for the purpose of acquiring and developing oil and gas properties both
in the United States and Israel. In January of 1998. Ness of Texas sold 640,000
shares of stock at a price of $0.83 per share to 42 investors, 7 of which were
accredited, and in so doing relied on a 4(1) exemption from registration under
the Securities Act. This, coupled with the initial issuance of 100,000 shares on
January 3, 1998 and 20,000 shares on April 6, 1998 (see below) to Hayseed
Stephens, the President and CEO of Ness of Texas, brought the total shares
issued and outstanding to 889,200. The Board of Directors subsequently
authorized and issued additional 2,952,000 shares to Mr. Stephens on April 22,
1998 (see below), thereby increasing the total number of issued and outstanding
shares to 3,841,200. The total number of authorized shares is 200,000,000.
The 100,000 shares referred to above were issued to Mr. Stephens pursuant to the
original organization of Ness of Texas. The 20,000 shares represent a 20% stock
dividend to all shareholders of Ness of Texas. The 2,952,000 shares were voted
by the board to Mr. Stephens in recognition of his 20 plus years of service and
for his work in acquiring the lease in Israel. Mr. Stephens currently owns
3,086,400 shares of Ness of Texas, consisting of the above plus a private
purchase of 14,400 shares from an individual on May 14, 1999.
Ness of Texas International, Inc. made a payment of $200,000 (US) to Hesed for
the purpose of initiating the process of acquiring a lease in the Dead Sea. This
deposit was made in Texas Bank, Weatherford, Texas in the form of a Letter of
Credit to Israel Oil Company to assure that Ness would begin the drilling
process for a well to a depth of 3,000 meters or deeper. After the drilling
process begins, Israeli Oil Company will release $150,000 of the letter of
credit. $50,000 will be retained by Israeli Oil Company as consideration for the
license and all geologic and geophysical data.
Under the terms of the Tender Offer Ness Energy International will offer to the
shareholders of Ness of Texas units consisting of two shares of common stock and
one warrant to purchase an additional share of common stock. The share price
under the terms of the warrant is $2.50 and the warrant is exercisable for a
period of 18 months. There are 3,841,200 common shares of Ness of Texas
outstanding of which Hayseed Stephens owns 3,086,400, or 80.3%. Any shares
received by Mr. Stephens under the terms of the Tender Offer will be restricted
shares as that term is defined under Rule 144.
HESED ENERGY INTERNATIONAL, INC.
Hesed Energy International, Inc. ("Hesed") is also an affiliate of Ness Energy
International, Inc. Hesed was organized in October of 1993. On August 15, 1997,
Hesed sold 318,000 shares of common stock for $0.83 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 we
changed the name to Hesed Energy International, Inc. by Articles of Amendments
filed on August 10, 1999. Those Articles also show that as of August 6, 1999,
Hesed had 8,200,381 shares of common stock outstanding and has some 72
shareholders. At December 31, 1999 there were 8,435,031 shares outstanding.
On October 13, 1998, Hesed signed a contract to acquire the "Hesed License"
covering 55.3 square miles in an area at the Southwest end of the Dead Sea. The
license is subject to a 12.5% royalty interest retained by the Government of
Israel. The Israeli Oil Company (IOC), the original lessee, also retains a 12.5%
working interest after payout.
7
<PAGE>
IOC also has an option to purchase an additional 20% in the Elohim Perazim #1
well prior to the commencement of drilling. The financial statements of Hesed
indicate an investment in the lease of $102,640 and a receivable from Kit Karson
Corporation (now Ness Energy International, Inc.) of $757,004 at June 30, 2000.
Under the terms of the Tender Offer Ness Energy International will offer to the
shareholders of Hesed Energy International inc. Units consisting of two shares
of common stock and one warrant to purchase an additional share of common stock.
The share price under the terms of the warrant is $2.50 and the warrant is
exercisable for a period of 18 months. There are currently 8,435,031 common
shares of Hesed Energy International, Inc. outstanding of which Hayseed Stephens
own 6,200,000, or 73.5%. Any shares received in exchange by Mr. Stephens under
the terms of the Tender Offer will be restricted shares as that term defined
under Rule 144.
Rule 144 provides, in general, that any person (or any persons whose shares are
aggregated) including persons deemed to be affiliates, whose unrestricted
securities have been fully paid for and held for at least one year from the
later of the date of issuance by the Company or acquisition from an affiliate,
may sell such securities in broker's transactions or directly to market makers,
provided that the number of shares sold in any three month period may not exceed
the greater of 1% of the then-outstanding shares of Common Stock or the average
weekly trading volume of the shares of Common Stock in the over-the-counter
market during the four calendar weeks preceding the sale.
Dilution is the reduction in the monetary value or voting power of stock by
increasing the total number of outstanding shares. As of March 31, 2000 the
Company had a net tangible book value per share of $0.0084. Net tangible book
value per share is the total tangible assets of the Company, less all
liabilities divided by the number of shares of common stock outstanding. Without
taking into account any changes in such net tangible book value after March 31,
2000, other than to give effect to the sale by the Company of 37,000,000 shares
of Common stock to be offered by the SB2 registration and 3,881,248 registered
shares to be issued to shareholders of affiliated companies and 9,272,000
restricted shares to be issued to Hayseed Stephens for his shares in the
affiliated companies, the pro forma net tangible book value per share on March
31,2000 would have been $0.3454. This amount represents an immediate increase in
net tangible book value of $0.3370 per share to the current shareholders of the
Company and an immediate dilution in net tangible book value of $0.6546 per
share to new investors purchasing shares. The voting power of the present
shareholders will be reduced in a ratio derived by dividing the number of
current shares by the total shares outstanding after the completion of the
offering and tender offer.
VOTES REQUIRED AND RECOMMENDATION OF THE BOARD
AN AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF COMMON STOCK IS NECESSARY IN ORDER TO AUTHORIZE THE BOARD OF DIRECTORS
TO ISSUE SUCH REGISTERED STOCK AS FROM TIME TO TIME MAY BE NECESSARY TO CARRY
OUT THE BUSINESS OF THE COMPANY. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THIS PROPOSAL.
AN AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF COMMON STOCK IS NECESSARY IN ORDER TO AUTHORIZE THE BOARD OF DIRECTORS
TO ISSUE ADDITIONAL STOCK SPECIFICALLY PURSUANT TO FORM SB-2 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE TENDER OFFERS DISCUSSED
ABOVE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of October 25, 2000 information concerning the
beneficial ownership of common stock by all holders of over 5%, by all
directors, and by all directors and officers of the Company as a group based on
56,824,211 shares outstanding.
<TABLE>
<CAPTION>
Name and Address Number of Percent
Title of Class of Beneficial Owner Shares Owned of Class
-------------- ------------------- ------------ --------
<S> <C> <C> <C>
Common Stock Hayseed Stephens* 27,060,007** 47.62%
No Par Value 365 Cook Road
Willow Park, Texas 76087
8
<PAGE>
Common Stock Mary Gene Stephens* -0- -0-
No Par Value 365 Cook Road
Willow Park, Texas 76087
Common Stock Mark L. Bassham -0- -0-
No Par Value P.O. Box 456
Cooper, Tx. 75432
Common Stock Richard Nash -0- -0-
No Par Value 245 33rd Street
Paris, Texas 75460
All directors and officers as a group (5 persons) 27,065,007 47.63%
</TABLE>
*Harold "Hayseed" Stephens and Mary Gene Stephens are husband and wife. There
are no other family relationships between the directors and officers.
**This amount includes 14,062,500 shares owned by Hayseed Stephens Oil Inc. of
which Hayseed Stephens is owner and president.
RATIFICATION OF THE SELECTION OF AUDITORS
The Board of Directors recommends that the shareholders ratify the selection of
Weaver and Tidwell L.L.P. of Fort Worth, Texas, to auditors for the Corporation
for 2001. A representative of the firm is expected to be present at the meeting.
They will have the opportunity to make a statement, if they desire to do so, and
to respond to appropriate questions raised at the meeting.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
THE AFFIRMATIVE VOTES OF THE HOLDERS OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF COMMON STOCK IS NECESSARY FOR THE RATIFICATION OF THE SELECTION OF
ACCOUNTANTS. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
REVERSE STOCK SPLIT
A reverse stock split is a reduction in the number of a corporations shares
which is accomplished by calling in all the outstanding shares and reissuing
fewer shares having greater value. For example, a 1-4 reverse stock split would
give the owner of 400 shares of stock 100 shares in exchange. A reverse split
increases the price per share and is intended to make the stock more attractive
to potential investors and financial institutions by giving each share greater
value. It is proposed that the Board of Directors be granted discretionary
authority to effect up to a 1-4 reverse split for a period of 6 months following
the date of the annual meeting. The total number of shares issued and
outstanding as of the record date of this meeting is 56,824,211. A reverse split
would reduce that number to 14,206,053 shares. Each stockholders' proportionate
ownership would remain the same.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
AN AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF COMMON STOCK IS NECESSARY IN ORDER TO AUTHORIZE THE BOARD OF DIRECTORS
TO EFFECT A REVERSE SPLIT. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THIS PROPOSAL.
9
<PAGE>
FINANCIAL STATEMENTS
Financial statements are included in this Proxy Statement for Ness of Texas,
Inc. and for Hesed Energy International, Inc. as of December 31, 1999 as they
are deemed necessary for the exercise of prudent judgment by the stockholders
with respect to any proposal to be submitted at this Meeting. The SEC Form
10-KSB of the Company for the year ended December 31, 1999, including audited
financial statements; and SEC Form 10-QSB for the six months ended June 30, 2000
are available upon request.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before this
Annual Meeting. However, if other matters should come before the meeting, it is
the intention of each person named in the proxy to vote such proxy in accordance
with his judgment on such matters. The Board of Directors has no standing audit,
nominating, or compensation committee.
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 November 30, 2000. Any stockholder
so interested may do so by submitting such proposal to: Ness Energy
International, Inc., 4201 1-20 East Service Road, Willow Park, Texas 76087.
PROXY SOLICITATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. THE
SOLICITATION WILL BE BY MAIL.
The entire expense of preparing, assembling, printing and mailing the proxy form
and the material used in the solicitation of proxies will be paid by the
Company. The Company will request banks and brokers to solicit their customers
who beneficially own common stock of the Company listed in the names of nominees
and will reimburse said banks and brokers for the reasonable out-of-pocket
expenses of such solicitation. In addition to the use of the mails, solicitation
may be made by the employees of the Company by telephone, telegraph, cable and
personal interview. The Company does not expect to pay any compensation to such
persons, other than their regular compensation, for their services in the
solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Hayseed Stephens
President & Chairman
Willow Park, Texas
November 9, 2000
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED TO DATE,
SIGN AND MAIL THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
10
<PAGE>
NESS OF TEXAS INTERNATIONAL INC.
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-4
Statements of Changes in Stockholders' Equity..........F-5
Statements of Cash Flows...............................F-6
Notes to Financial Statements..........................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Ness of Texas International, Inc.
Willow Park, Texas
We have audited the accompanying balance sheets of Ness of Texas International,
Inc. (the Company) as of December 31, 1999 and 1998, and the related statements
of operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1999, and for the period from inception (January 2, 1998) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 of Texas International,
Inc. at December 31, 1999 and 1998, and the results of its operations and its
cash flows for the year ended December 31, 1999 and for the period from
inception (January 2, 1998) to December 31, 1998, in conformity with generally
accepted accounting principles.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
September 13, 2000
3511
F-2
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,319 $ 1,768
-------- --------
Total current assets 1,319 1,768
ACCOUNTS RECEIVABLE - RELATED PARTY 617,941 617,941
-------- --------
TOTAL ASSETS $619,260 $619,709
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses $ 3,092 $ -
-------- --------
Total current liabilities 3,092 -
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
shares authorized 1999 200,000,000;
1998 1,000,000; shares issued and outstanding
1999 3,841,200; 1998 889,200 38,412 8,892
Additional paid in capital 572,493 602,013
Retained earnings 5,263 8,804
-------- --------
Total stockholders' equity 616,168 619,709
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $619,260 $619,709
======== ========
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-3
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999, AND THE
PERIOD FROM INCEPTION (JANUARY 2, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
EXPENSES
Bank service charge $ 84 $ 84
Licenses and permits 160 -
Professional fees 55 -
Taxes 3,092 -
Other 168 27
---------- --------
Total expenses 3,559 111
---------- --------
Operating loss (3,559) (111)
OTHER INCOME
Dividend income 18 8,915
---------- --------
Income (loss) before income taxes (3,541) 8,804
INCOME TAXES - -
---------- --------
NET INCOME (LOSS) ($ 3,541) $ 8,804
========== ========
Net income (loss) per share ($ 0.00) $ 0.01
========== ========
Weighted average shares outstanding 2,959,644 884,100
========== ========
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-4
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999, AND THE
PERIOD FROM INCEPTION (JANUARY 2, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------- Paid in Retained
Shares Amount Capital Earnings
---------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
BALANCE, at inception
January 2, 1998 - - - -
Issuance of common
stock for cash 889,200 8,892 631,108 -
Issue costs - - (29,095) -
Net income - - - 8,804
BALANCE,
December 31, 1998 889,200 8,892 602,013 8,804
Issuance of common
common stock to
majority shareholder 2,952,000 29,520 (29,520) -
Net loss - - - (3,541)
BALANCE,
December 31, 1999 3,841,200 $ 38,412 $ 572,493 $ 5,263
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-5
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE
PERIOD FROM INCEPTION (JANUARY 2, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($ 3,541) $ 8,804
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Change in operating assets and liabilities:
Accrued expenses 3,092 -
-------- ---------
Net cash provided by
(used in) operating activities (449) 8,804
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to related party - (617,941)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from sale of common stock - 640,000
Issue costs - (29,095)
-------- ---------
Net cash provided by financing activities - 610,905
Net (decrease) increase in cash (449) 1,768
CASH, beginning of period 1,768 -
-------- ---------
CASH, end of period $ 1,319 $ 1,768
======== =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
In 1999, the Company issued 2,952,000 shares of common stock to its
majority shareholder for no additional consideration to reflect the
original intent of the incorporator.
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-6
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, ORGANIZATION
AND BASIS OF PRESENTATION
Ness of Texas International, Inc. (the Company), a Texas corporation,
was formed January 2, 1998, to engage in oil and gas exploration and
production in Israel, the United States and any other country. To date,
the Company's operations have been limited to the raising of capital
through the sale of common stock and the advancing of funds to a
related party to facilitate oil and gas development in Israel and the
United States.
The Company does not have any current operations and management's
future plans are to merge the Company with companies related through
common ownership in order to combine the resources of the individual
companies to facilitate the development of oil production in Israel.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
BASIC EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share has been computed by dividing
the net income (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
F-7
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES - CONTINUED
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.
FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash and accounts
receivable-related parties. The accounts receivable-related party is
due on demand but will be eliminated in the Company's proposed merger
(Note 1) with the related party. Accordingly, fair value approximates
the carrying value.
CONCENTRATIONS OF CREDIT RISK
The Company has maintained 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.
COMMON CONTROL
The Company is a member of a group of companies under common control.
The companies are involved in the development of oil and gas reserves
with an emphasis on Israel. The companies are managed by common
management which has the ability to influence the results of operations
of each company through allocation of expenses.
NOTE 3. RELATED PARTY TRANSACTIONS
During 1998, the Company advanced $617,941 to a company related through
common ownership to facilitate the development of oil production in Israel.
This non-interest bearing receivable is the Company's only significant
asset. The Company intends to realize the benefits of the receivable
through a merger with the entity to which the amount was advanced (Note 1).
The related party is under common control. If there is no merger, the
Company cannot operate without additional financing.
F-8
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4. INCOME TAXES
The Company's income tax returns for 1998 and 1999 have not been filed by
the date due, however, no tax is due as the Company has generated losses
for tax purposes for both years.
A reconciliation of statutory tax rates to the Company's effective tax
rates follows:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Tax (benefit) at statutory rates (34%) 34%
Effect of tax brackets 19 (19)
Losses not providing benefits 15 - 0 -
Other (permanent differences
deductible for tax purposes) - 0 - (15)
---------- -----------
Effective rate - 0 -% - 0 -%
========== ===========
</TABLE>
The deferred tax assets are comprised primarily of the Company's net
operating loss carryforward and the cash to accrual adjustment as the
Company files its tax returns on the cash basis:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Cash to accrual adjustment $ 464 $ -
Net operating loss carryforward 4,049 3,980
Less valuation allowance (4,513) (3,980)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
The Company's net operating loss carryforwards may be applied against
future taxable income. The net operating loss carryforwards expire as
follows:
<TABLE>
<CAPTION>
YEAR EXPIRING
-------------
<S> <C>
2018 $ 26,532
2019 461
----------
$ 26,993
==========
</TABLE>
The net changes in the valuation allowance during 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Balance at beginning of year ($3,980) ($-)
Balance at end of year (4,513) (3,980)
------------ -----------
Net change ($ 533) ($3,980)
============ ===========
</TABLE>
F-9
<PAGE>
NESS OF TEXAS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5. STOCKHOLDERS' EQUITY
The Company's original articles of incorporation authorized 1,000,000
shares of $.01 par value common stock. On April 9, 1999, the Company's
Certificate of Incorporation was amended to increase the number of shares
of the Company's Common Stock authorized for issuance to 200,000,000
shares.
In connection with increasing the authorized common shares, the Company's
majority shareholder was issued 2,952,000 shares of common stock for no
additional consideration to reflect the original intention of the
incorporator. The par value of these shares was recorded as a reduction of
paid-in capital. Due to the dormant nature of the Company, there was no
compensation amount recorded.
F-10
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
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
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Hesed Energy International, Inc. (formerly Ness Energy International, Inc.)
Willow Park, Texas
We have audited the accompanying balance sheets of Hesed Energy International,
Inc. (formerly Ness Energy International, Inc.) (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 for the period from inception (October 29, 1993) to December 31, 1999.
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 Hesed Energy International,
Inc. (the Company) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended and for the period from
inception (October 29, 1993) through December 31, 1999 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 a loss from operations since inception, 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
October 27, 2000
3514
F-2
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(Formerly Ness Energy International, Inc.)
(a development stage company)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 190,864 $ 237,307
Oil and gas production receivable 1,793 4,869
Accounts receivable - related party 737,224 113,600
Notes receivable - related party - 70,714
----------- -----------
Total current assets 929,881 426,490
OIL AND GAS PROPERTIES, full cost method
Unproved 209,966 161,033
Proved 382,318 328,275
----------- -----------
592,284 489,308
Less accumulated depreciation and depletion 39,324 14,597
----------- -----------
Total oil and gas properties 552,960 474,711
OTHER FIXED ASSETS, net 314,710 290,048
OTHER ASSETS
Long term note receivable - related party 56,901 54,186
----------- -----------
TOTAL ASSETS $ 1,854,452 $ 1,245,435
=========== ===========
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-3
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(Formerly Ness Energy International, Inc.)
(a development stage company)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES
Accounts payable and accrued expenses $ 275,202 $ 264,649
Accounts payable - related party 617,941 617,941
Current portion long-term debt 4,829 18,320
----------- -----------
Total current liabilities 897,972 900,910
LONG-TERM DEBT 119,983 141,250
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
1999 200,000,000 shares authorized,
1998 1,000,000 shares authorized,
shares issued and outstanding
1999 8,435,031; 1998 818,000 84,350 8,180
Additional paid in capital 13,771,801 255,220
Deficit accumulated during development stage (13,019,654) (12,709,476)
Common stock subscribed 1998 7,382,381 shares - 12,649,351
----------- -----------
Total stockholders' equity 836,497 203,275
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,854,452 $ 1,245,435
=========== ===========
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-4
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(Formerly Ness Energy International, Inc.)
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from
Inception
(October 29,
Year Ended Year Ended 1993) to
December 31, December 31, December 31,
1999 1998 1999
------------ --------------- ----------------
<S> <C> <C> <C>
REVENUES
Oil and gas revenues $ 42,746 $ 27,624 $ 78,829
EXPENSES
Production expenses 26,478 31,690 68,061
Depreciation, depletion and amortization 39,576 25,002 68,435
General and administrative expenses 340,046 12,111,964 13,085,541
--------- ------------ ------------
Total operating expenses 406,100 12,168,656 13,222,037
--------- ------------ ------------
Operating loss (363,354) (12,141,032) (13,143,208)
OTHER INCOME
Interest income 23,757 18,856 54,403
Interest expense (13,731) (10,952) (29,495)
Management fees 36,000 36,000 72,000
Rent income 4,200 4,200 8,400
Other 2,950 13,405 18,246
--------- ------------ ------------
Loss before income taxes (310,178) (12,079,523) (13,019,654)
INCOME TAXES - - -
--------- ------------ ------------
NET LOSS ($310,178) ($12,079,523) ($13,019,654)
========= ============ ============
Net loss per weighted average share ($0.05) ($14.77) ($8.21)
========= ============ ============
Weighted average shares outstanding 6,744,482 818,000 1,585,198
========= ============ ============
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-5
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(Formerly Ness Energy International, Inc.)
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
CUMULATIVE FROM INCEPTION (OCTOBER 29, 1993) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Common
------------------------- Paid in Development Stock
Shares Amount Capital Stage Subscribed
----------- ----------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCE,
Inception - $ - $ - $ - $ -
Issuance of common
stock for cash 818,000 8,180 255,220 - -
Cash received for
common stock
subscribed - - - - 536,200
Net loss - - - (629,953) -
--------- -------- ----------- ------------- -----------
BALANCE,
December 31, 1997 818,000 8,180 255,220 (629,953) 536,200
Cash received for
common stock
subscribed - - - - 390,616
Services received for
common stock
subscribed - - - - 11,722,535
Net loss - - - (12,079,523) -
--------- -------- ----------- ------------- -----------
BALANCE,
December 31, 1998 818,000 8,180 255,220 (12,709,476) 12,649,351
Issuance of common
stock for cash 234,650 2,346 941,054 -
Issuance of common
stock subscribed 7,382,381 73,824 12,575,527 - (12,649,351)
Net loss - - - (310,178) -
--------- -------- ----------- ------------- -----------
BALANCE,
December 31, 1999 8,435,031 $ 84,350 $13,771,801 ($ 13,019,654) $ -
========= ======== =========== ============= ===========
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-6
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(Formerly Ness Energy International, Inc.)
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
Inception
(October 29,
Year Ended Year Ended 1993) to
December 31, December 31, December 31,
1999 1998 1999
-------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($ 310,178) ($ 12,079,523) ($ 13,019,654)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation, depletion, and amortization 39,576 25,002 68,435
Other noncash expenses 8,116 8,116 16,232
Salary applied to note receivable -
related party - 2,883 2,883
Interest added to note receivable -
related party (2,715) (7,926) (10,877)
Recognition of services performed for stock - 11,722,535 11,722,535
Change in operating assets and liabilities:
Accounts receivable - related party (623,624) (113,600) (737,224)
Oil and gas production receivable 3,076 (77) (1,793)
Accounts payable and accrued expenses 10,554 (8,052) 276,296
---------- ------------- -------------
Net cash used in operating activities (875,195) (450,642) (1,683,167)
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to related party - (39,250) (70,714)
Payments from related party 70,714 - 70,714
Capital expenditures (150,604) (529,712) (813,420)
---------- ------------- -------------
Net cash used in investing activities (79,890) (568,962) (813,420)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (34,758) (12,410) (64,106)
Advances from related party - 617,941 617,941
Cash received on common stock subscribed - 390,616 926,816
Cash received from sale of common stock 943,400 - 1,206,800
---------- ------------- -------------
Net cash provided by financing activities 908,642 996,147 2,687,451
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-7
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(Formerly Ness Energy International, Inc.)
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
Inception
(October 29,
Year Ended Year Ended 1993) to
December 31, December 31, December 31,
1999 1998 1999
-------------- ---------------- ---------------
<S> <C> <C> <C>
Net change in cash (46,443) (23,457) 190,864
CASH, beginning of period 237,307 260,764 -
---------- ------------- -------------
CASH, end of period $ 190,864 $ 237,307 $ 190,864
========== ============= =============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 13,829 $ 10,335 $ 28,976
========== ============= =============
Income taxes paid $ - $ - $ 341
========== ============= =============
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Property sold to related party for receivable $ - $ 50,000 $ 50,000
========== ============= =============
Assets acquired with debt $ - $ 131,250 $ 188,918
========== ============= =============
Services received for common stock subscribed $ - $ 11,722,535 $ 11,722,535
========== ============= =============
</TABLE>
The Notes to Financial Statement are
an integral part of these statements.
F-8
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, ORGANIZATION
AND BASIS OF PRESENTATION
Hesed Energy International, Inc. (formerly Ness Energy International,
Inc.) (the Company), was incorporated in the State of Texas on October
29, 1993 to operate in oil and gas exploration and development.
Operations to date have consisted of the initial formation and
capitalization of the Company and the acquisition of oil and gas
leases in the United States and Israel. Effective August 6, 1999, the
Company changed its name to Hesed Energy International, Inc.
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 since inception. 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 merge the Company with Ness of Texas International,
Inc. and Ness Energy International, Inc., both related through common
ownership. The merged company will raise capital through the private
placement of company stock and 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.
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. Accordingly, all costs associated with
acquisition, exploration and development of oil and gas reserves,
including directly related overhead costs, are capitalized. The
Company's proved properties are located in North Central Texas while
the unproved properties are located in Israel and North Central Texas.
F-9
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
OIL AND GAS PROPERTY AND EQUIPMENT - CONTINUED
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. At December 31, 1999 and 1998 the Company's capitalized
costs for proved properties exceeded the cost center ceiling. The
excess of capitalized costs over the ceiling was not charged against
earnings due to the subsequent significant increase in gas prices in
the spring and summer of 2000.
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.
OTHER FIXED ASSETS
Other fixed assets are stated at cost. Depreciation is provided for
using the straight-line basis. Estimated useful lives of major
categories of other fixed assets are as follows:
Buildings and improvements 25 years
Furniture and equipment 3-10 years
Autos 5 years
F-10
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
OTHER FIXED ASSETS - CONTINUED
Maintenance, repairs, renewals and betterments which do not enhance the
value or increase the basic productive capacity of assets are charged
to expense as incurred.
ACCOUNTS RECEIVABLE
The Company has not provided an allowance for doubtful accounts. The
Company's receivables - related parties are from Ness Energy
International, Inc. while the accounts payable - related party is from
Ness of Texas International, Inc. 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. Potential common stock has not been included in
the calculation of loss per share as it would be anti-dilutive.
F-11
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
Impairment of unproved properties is based on the properties known
characteristics and potential development. It is reasonably possible
that these estimates may change materially in the near term.
ADVERTISING
The company records advertising costs as a charge to operations as
incurred. Advertising costs for the years ended December 31, 1999 and
1998 are $502 and $25,696, respectively.
FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash, accounts receivable
- related parties, notes payable related party, accounts payable and
accounts payable related party. Recorded values approximate fair values
on all except the notes payable - related party due to the short
maturities of these instruments. Recorded value for the notes payable -
related party approximates fair value as the rates are comparable to
the rates available to the Company by third parties.
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.
F-12
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
COMMON CONTROL
The Company is a member of a group of companies under common control.
The companies are involved in the development of oil and gas reserves
with an emphasis on Israel. The companies are managed by common
management which has the ability to influence the results of operations
of each company through allocation of expenses.
NOTE 3. NOTES RECEIVABLE - RELATED PARTY
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Unsecured notes receivable from
majority shareholder bearing interest at 6%
due on or before December 22, 1999 $ - $ 70,714
Unsecured note receivable from
majority shareholder bearing interest at 8%
with no stated maturity date 56,901 54,186
Included in the balances above is accrued interest of $6,901 and $8,112 at
December 31, 1999 and 1998, respectively.
</TABLE>
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 pay
for the use 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. These
amounts are included in other income as management fees and rent income.
A 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 $1,793 and $4,869, respectively, which
are recorded as oil and gas production receivable.
F-13
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 4. RELATED PARTY TRANSACTIONS - CONTINUED
In January 1998, the Company sold oil and gas property with an effective
date of December 15, 1997 to a company related through common ownership.
There was no gain or loss on the sale as the sales price was at cost.
NOTE 5. OTHER FIXED ASSETS
Other fixed assets are comprised of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land $105,000 $105,000
Buildings and improvements 193,409 172,374
Furniture and equipment 23,528 5,052
Autos 21,884 21,884
---------- ----------
343,821 304,310
Less accumulated depreciation 29,111 14,262
---------- ----------
$314,710 $290,048
========== ==========
</TABLE>
NOTE 6. LONG TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Note payable to an individual,
retired in 1999 - $ 30,365
Note payable to a bank in monthly
installments of $1,371 including
interest at 9.5%, due May 2013. Secured
by land and building. 124,812 129,205
---------- ----------
124,812 159,570
Less current maturities 4,829 18,320
---------- ----------
$119,983 $141,250
========== ==========
</TABLE>
F-14
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 6. LONG TERM DEBT - CONTINUED
Maturities of long-term debt for the respective years ending December 31
are expected to be as follows:
<TABLE>
<S> <C>
2000 $ 4,829
2001 5,308
2002 5,835
2003 6,414
2004 7,051
Thereafter 95,375
----------
$124,812
==========
</TABLE>
NOTE 7. INCOME TAXES
A reconciliation of statutory tax rates to the Company's effective tax
rates follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Benefit at statutory rates (34%) (34%)
Losses not providing benefits 34 34
----------- -----------
Effective rate - 0 -% - 0 -%
=========== ===========
</TABLE>
The deferred tax assets are comprised primarily of the Company's net
operating loss carryforwards and litigation settlement:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforward $ 321,184 $ 215,193
Other 328 (201)
Less valuation allowance (321,512) (214,992)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
The Company's net operating loss carryforwards of approximately $950,000
may be applied against future taxable income and will ultimately expire in
2019.
F-15
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES - CONTINUED
The net changes in the valuation allowance during 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Balance at beginning of year ($214,992) ($ 94,019)
Balance at end of year (321,512) (214,992)
-------------- --------------
Net change ($106,520) ($120,973)
============== ==============
</TABLE>
NOTE 8. STOCKHOLDERS' EQUITY
On February 2, 1999, the Company's Certificate of Incorporation was amended
to increase the authorized Common stock to 200,000,000 shares.
The Company obtained cash and services for shares of common stock pending
the increase in authorized shares. These shares are reflected as common
stock subscribed in the accompanying financial statements. All shares were
issued during 1999.
Information regarding the Company's stock issuances from inception (October
29, 1993) to December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Value
Date Number of Per
Issued Shares Share Consideration Received Basis for Valuation
---------- ------------ --------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
10/29/93 500,000 $0.002 Cash
04/01/97 78,000 0.80 Cash
09/01/97 240,000 0.83 Cash
03/15/99 634,850 0.85 Cash
03/15/99 131,040 0.85 Cash
03/15/99 154,391 1.84 Cash
03/15/99 6,235,000 1.84 Compensation services Agreement in October 1998
when issuance was
approved by board
03/15/99 200,000 1.84 Legal and geological Agreement in October 1998
services in Israel when issuance was
approved by board
03/15/99 27,100 1.84 Legal Services Agreement in October 1998
when issuance was
approved by board
10/08/99 234,650 4.00 Cash
</TABLE>
F-16
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 8. STOCKHOLDERS' EQUITY - CONTINUED
In connection with the sale of 181,491 shares of common stock on March 15,
1999, noted above, each shareholder received warrants to purchase 60,332
shares of the Company's common stock at $2.50. At December 31, 1999, the
Company had warrants outstanding to purchase 60,332 additional common
shares with an expiration date of September 15, 2000. No warrants were
exercised.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company has a letter of credit to secure performance of the agreement
with Israel Oil Company regarding the Hesed lease in Israel. The letter of
credit had an available balance of $200,000 and $150,000 at December 31,
1999 and 1998, respectively. In March 1999, $50,000 was drawn on the letter
of credit and the additional $150,000 was drawn in September 2000. The
letter of credit is secured by certificates of deposit of $163,494 and
$205,244 at December 31, 1999 and 1998, respectively. The certificates of
deposit are included in cash in the accompanying financial statements.
NOTE 10. 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 11. SUPPLEMENTARY FINANCIAL INFORMATION FOR
OIL AND GAS PRODUCING 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.
F-17
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED) - CONTINUED
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:
<TABLE>
<CAPTION>
Petroleum Natural
Liquids Gas
(Bbls) (Mcf)
----------- ------------
<S> <C> <C>
December 31, 1999 - proved developed reserves - 195,141
December 31, 1999 - proved reserves - 459,151
December 31, 1998 - proved developed reserves - 214,863
December 31, 1998 - proved reserves - 478,873
</TABLE>
The Company did not have any significant proved reserves prior to 1997.
<TABLE>
<CAPTION>
Petroleum Natural
Liquids Gas
(Bbls) (Mcf)
----------- ------------
<S> <C> <C>
Reserves at December 31, 1997 - -
Purchases of Reserves-in-Place - 493,693
Production - (14,820)
----------- --------
Reserves at December 31, 1998 - 478,873
Production - (22,662)
Revision of estimates - 2,940
----------- --------
Reserves at December 31, 1999 - 459,151
=========== ========
</TABLE>
F-18
<PAGE>
HESED ENERGY INTERNATIONAL, INC.
(FORMERLY NESS ENERGY INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED) - CONTINUED
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:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Future cash inflows $560,725 $ 776,558
Future development and production costs (349,822) (545,891)
Future income tax expense - -
-------- ---------
Future net cash flows 210,903 230,667
10% annual discount 93,442 94,888
-------- ---------
Standardized measure of
discounted future cash flows $117,461 $ 135,779
======== =========
</TABLE>
Primary changes in standardized measure of discounted future net cash flow
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Change in sales price and production costs ($15,628) $ -
Purchases of reserves in place - 144,547
Sales of oil and gas, net of production costs (16,268) (8,768)
Accretion of discount 13,578 -
-------- ---------
($18,318) $ 135,779
========= =========
</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>
NOTE 11. SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED) - CONTINUED
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:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Proved properties $ 382,318 $ 328,275
Accumulated depletion and depreciation (39,324) (14,597)
--------- ---------
Net capitalized costs $ 342,994 $ 313,678
========= =========
</TABLE>
The costs, both capitalized and expensed, incurred in oil and gas producing
activities during the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Property acquisition costs $ - $ 104,977
Exploration and development costs 54,043 223,298
-------- ---------
Total $ 54,043 $ 328,275
======== =========
</TABLE>
Results of oil and gas operations in the aggregate for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Revenues $ 42,746 $ 27,624
Compression expense (7,380) (4,008)
Production costs (19,098) (27,682)
Exploration expense - -
Depreciation and depletion (24,727) (14,597)
Income taxes - -
--------- ---------
Net oil and gas income (loss) ($ 8,459) ($ 18,663)
========= =========
</TABLE>
F-20
<PAGE>
PROXY
NESS ENERGY INTERNATIONAL INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Ness Energy International Inc (formerly Kit
Karson Corporation), a Washington Corporation (the "Company"), hereby appoints
Bob Lee and Mary Gene Stephens, or either one of them, attorneys, agents and
proxies of the undersigned with full power of substitution to each of them, to
vote all the shares of Common Stock, no par value, of the Company which are
entitled to one vote per share and which the undersigned may be entitled to vote
at the Annual Meeting of Stockholders of the Company to be held at the Living
Way Ministries International Headquarters, 416 East I-20 Service Road (Exit
418), Willow Park, Texas 76087 (Phone 817-341-1477) at 1:30 pm Central Standard
Time on the 1st Day of December 2000 and at any adjournment(s) or
Postponements(s) of such meeting, with all powers which the undersigned would
possess if personally present:
(1) For the election of directors
(2) To ratify the selection of Weaver and Tidwell L.L.C. as independent
auditor for 2001.
(3) To authorize the Board of Directors to issue such registered stock as
from time to time may be necessary to carry out the business of the
Company
(4) To ratify the consulting agreements of Messrs. Fowler and Kincheloe
(5) To ratify the issuance of additional shares of the Company's stock
pursuant to Form SB-2 filed with the Securities and Exchange
Commission and the tender offer for shares of Hesed Energy
International, Inc. and Ness of Texas, Inc. made in accordance with
the terms of the SB-2
(6) To authorize the Board of Directors to implement a one to four (1-4)
reverse stock split
(7) For the transaction of such other business as may properly come before
this meeting
If no directions are given, the individuals designated above will vote FOR each
of the above proposals and, at their discretion, on any other matter that may
come before the meeting. The undersigned acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement of the Company.
1. To elect the following four (4) directors to serve for the ensuing
year and until their successors are elected:
Harold Hayseed Stephens Yes___ No____ Abstain _____
Mark L. Bassham Yes___ No____ Abstain _____
Richard W. Nash Yes___ No____ Abstain _____
Robert G. Fowler Yes___ No____ Abstain _____
2. To ratify the selection of Weaver and Tidwell as independent auditor
for 2001 Yes___ No___ Abstain___
3. To authorize the Board of Directors to issue such registered stock as
from time to time may be necessary to carry out the business of the
Company Yes___ No___ Abstain___
4. To ratify the consulting agreements of Messrs. Fowler and Kincheloe
Yes___ No___ Abstain___
5. To ratify the issuance of additional shares of the Company's stock
pursuant to Form SB-2 filed with the Securities and Exchange
Commission and the tender offer for shares of Hesed Energy
International, Inc. and Ness of Texas, Inc. made in accordance with
the terms of the SB-2 Yes___ No___ Abstain ___
6. To authorize the Board of Directors to implement a one to four (1-4)
reverse stock split Yes___ No___ Abstain___
7. For the transaction of such other business as may properly come before
this meeting Yes___ No___ Abstain___
Please complete, date and sign this proxy. After completion and executions,
mail this proxy to the Company in the enclosed envelope. All proxies are
important so please complete each proxy sent to you and return the proxy in
the envelope provided.
Date:
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(Signature)
Date:
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(Signature if joint stockholder)
Please sign exactly as your name appears in this communication. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation please sign in full corporate name by President, or
other authorized office. If a partnership, please sign in partnership name
by authorized person.
