Questions from first interview which aired in late December:
The reporter states: Steven's company has just plunked down $12MM to buy one of the biggest drilling rigs in the world, currently being refitted in England.
When she said "Steven's Company" was she talking about NESS? If so, where did the the $12MM figure from?
NESS's 10K filing for FY1999 shows the cost of purchase being $2.45MM, and the refurbishing cost as being $2.20MM for a total of $4.65MM. In terms of the cash actually paid out by NESS, the filing states that they have paid:
$240k in October
$500k in November
Two additional payments of $42k
$405k advance on the refurbishment contract.
The total of these payments is $1.229MM which is the amount shown as "deposits on equipment" in on NESS's balance sheet and $1.229MM cash flow out of the company is shown on the cash flow statement statement in the 10K for 1999.
$1.229MM is quite different from $12MM - I wonder why the reporter got the amount wrong?
From NESS's own 10K filing, it is apparent that, as of 31-Dec-1999, they do not consider themselves to be the owner of that rig. The company states that Management is currently negotiating the completion of the contract and believes that the purchase will be completed.
In terms of the refurbishment, they state 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. If NESS had the remaining funds in escrow, they would be shown as an asset on the balance sheet as "restricted funds" or "deposits on equipment held in escrow" or something like that. But there are no such escrow funds identified on the balance sheet or in any of the notes in the 10K. According to NESS, the escrow funds are a requirement for purchase, and I think that the absence of them indicates that NESS has not been able to meet the terms of purchase.
I think that the reporter used the wrong word when on 21-Dec-1999 she used the word "buy", since this word describes a situation where a deal to transfer the assets from the owner to NESS is in place, rather than just being in the works. The actual situation was(in December 1999) was that NESS was negotiating to purchase and refurbish the rig.
The use of "buy" indicates that the reporter thought that NESS had already purchased the rig. Why did she think this?
The complete details of the transaction as described in the 10K as follows:
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.
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 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.
Regards,
John Sladek |
