Mezz,
Got anything good on Swanson
Nope. I don't know much about Swanson except that he is the Chairman and CEO of RTIN.
You might know about a deal between NESS and RTIN. Evidently, NESS and RTIN exchanged $1MM of stock in March of 2000. RTIN announced that they intended to distribute the NESS shares to RTIN shareholders in the form of a dividend.
Here are some of my observations and comments on the deal:
1) The deal was done in March of 2000, when Ivan Webb was the CFO of NESS (he signed off on SEC documents at least as late as 22-May-00). As you probably know, Ivan Webb is mentioned in the following SEC litigation release from 18-Oct-2000: sec.gov
The Commission's complaint in this case alleges that Knight and Webb orchestrated a "pump and dump" scheme involving BBAN stock, through false and misleading press releases, SEC filings and postings on the "Raging Bull" Internet message board, which drove up the price of BBAN stock by more than 10,000%.
2) The deal was not disclosed until the 10Q for the 3rd quarter of 2000. It is not mentioned in the 10Q for the 1st quarter (signed by Ivan Webb) freeedgar.com or in the 10Q for the 2nd quarter (signed by Hayseed Stevens) freeedgar.com.
BTW, This 10Q was filed in August, and I noted at the time, that there was a deal that had taken place that required additional disclosure [see Message 14281991, and Message 14281992 ] At the time, I thought that the shares had been issued for cash and that cash was used to buy the shares. In reality, the shares were swapped.
NESS's latest 10Q (period ending 30-Sep-00), was filed about 8 months after the transaction, and is the first NESS filing that gives some details on the deal:
In March 2000, the Company exchanged 780,488 shares of its common stock for 1,000,000 shares of Restaurant Teams International. Each company's stock was valued at $1,000,000 based on quoted closing prices on the date of agreement.
freeedgar.com
BTW, according to Bloomberg (http://quote.bloomberg.com/analytics/bquote.cgi?version=markets99.cfg&view=extmult&ticker=RTIN ) RTIN shares now trade at $0.04, so that 1MM shares shares, for which NESS paid $1MM worth of stock, are now worth $40k.
3) Stanley Swanson has actually been listed as the signatory on several NESS filings, particularly on three of the NT 10-K and NT 10-Q's that NESS has filed since March of 2000. FYI, NESS has has filed six NT 10-K/Q's since Aug, 1999!
14-Nov-00 freeedgar.com
14-Aug-00 freeedgar.com
30-Mar-00 freeedgar.com
Also of interest to note is the following section in the "Forward Looking Statements" section of NESS's 10-Q for 2000Q2:
freeedgar.com
This Quarterly Report on Form 10-QSB includes "forward-looking"
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the Securities Act), and Section 21E of the Securities Exchange Act of
1934, as amended (the Exchange Act), which can be identified by the use of
forward-looking terminology such as, "may", "believe", "expect", "intend",
"anticipate", "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. All statements other than
statements of historical fact included in this Form 10-QSB, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors with
respect to any such forward-looking statements, including certain risks and
uncertainties that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed in this Form
10-QSB, including, without limitation, in conjunction with the forward-looking
statements included in this Form 10-QSB, and in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999. Important factors that could
cause actual results to differ materially from those in the forward-looking
statements herein include, but are not limited to, the newness of the Company,
the need for additional capital and additional financing, the Company's limited
restaurant base, lack of geographic diversification, the risks associated with
expansion, a lack of marketing experience and activities, risks of franchising,
seasonability, the choice of site locations, development and construction
delays, need for additional personnel, increases in operating and food costs and
availability of supplies, significant industry competition, government
regulation, insurance claims and the ability of the Company to meet its stated
business goals. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
Now if you check RTIN's 10KSB (filed late) or any of the three amended 10KSB/A's, for the year ending 31-Dec-99, you will find the statement:
This Annual Report on Form 10-KSB includes forward-looking statements
within the meaning of Section 27A of The Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act), which can be identified by the use of
forward-looking terminology such as may, believe, expect, intend, anticipate,
estimate or continue or the negative thereof or other variations thereon or
comparable terminology. All statements other than statements of historical fact
included in this Form 10-KSB, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such statements,
including certain risks and uncertainties that could cause actual results to
differ materially from the Company's expectations (Cautionary Statements) are
disclosed in this Form 10-KSB. Important factors that could cause actual results
to differ materially from those in the forward-looking statements herein
include, but are not limited to, the newness of the Company, the need for
additional capital and additional financing, the Company's limited restaurant
base, lack of geographic diversification, the risks associated with expansion, a
lack of marketing experience and activities, risks of franchising,
seasonability, the choice of site locations, development and construction
delays, need for additional personnel, increases in operating and food costs and
availability of supplies, significant industry competition, government
regulation, insurance claims and the ability of the Company to meet its stated
business goals. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
freeedgar.com
These two sections from the NESS filing and the RTIN filing are substantially the same. The bolded section, which relates to the risk factors of a restaurant business, are identical on both filings.
4) There is one more piece that is required for background. Which is the following statement from the previous 10K
Ness of Texas International Inc. was organized on December 31, 1997. The Company
was formed for the purpose of acquiring and developing oil and gas properties
both in the United States and Israel. In January of 1998, the company sold
600,000 shares of stock at a price of $1.00 per share and in so doing relied on
certain exemptions from registration under the Securities Act. This coupled with
the initial issuance of shares to Hayseed Stephens, the President and CEO of the
company, brought the total shares issued and outstanding to 888,000. The Board
of Directors subsequently authorized and issued an additional 2,952,000 shares
to Mr. Stephens and therefore the total number of issued and outstanding shares
is 3,840,000. The total number of authorized shares is 200,000,000. Ness of
Texas International, Inc. made a deposit of $200,000 (US) to Israel for the
purpose of initiating the process of acquiring a lease in the Dead Sea.
Hesed Energy International, Inc. ("Hesed") is also an affiliate of Ness Energy
International, Inc. formerly Kit Karson Corporation. The Company was organized
in October of 1993. On August 15, 1997, Hesed sold 696,000 shares of common
stock for $1.00 per share. On April 30, 1998, Hesed offered certain "units" of
common stock and warrants which, in the aggregate, consisted of 2,168,000 common
shares and 720,000 warrants with each unit consisting of 27,100 shares valued at
$1.85 per share and 9,000 warrants exercisable at $2.50 per share within 18
months. Hesed Energy International, Inc., ("Hesed"), was originally named Ness
Energy International, Inc., but that name was changed to Hesed Energy
International, Inc. by Articles of Amendments, which was filed on August 10,
1999. Those Articles also show that as of August 6, 1999, Hesed had 7,550,794
shares of common stock outstanding and has some 72 shareholders. On February 9,
1999, Hesed announced that it had acquired the "Hesed License" covering 55.3
square miles in an area at the Southwest end of the Dead Sea. It also announced
that the Elohim Perazim well had been staked. The license is subject to a
one-eight (1/8) carried royalty held by the government of Israel, and a one
eighth carried royalty reserved by the original lessee which increases to a 20%
carried interest on pay-out and an option by the original lessee to acquire an
15
<PAGE>
additional one eighth working interest by paying the proportionate share of the
Authorization for Expenditures prior to the commencement of operations. The
financial statements of Hesed indicate an investment in the lease of $65,000 and
a receivable from Kit Karson Corporation (now Ness Energy International, Inc.)
of $729,638.
Ness Energy International, Inc., formerly Kit Karson Corporation, completed a
private placement of 887,226 common shares of stock in June of 1999. The total
purchase price was $399,250. In issuing the stock the company relied on certain
private placement exemptions from registration under the Securities Act. The
offering was made to a total of five accredited investors and the purpose of the
offering was to provide working capital to the company so that it could continue
with its projects in Israel and in the United States. Hayseed Stephens is the
President and Chief Executive Officer of Ness.
The three private offerings described herein, all relied on certain exemptions
from registration as separate offerings. The relationship between Ness of Texas
International, Inc. ("Ness of Texas"), Hesed Energy International, Inc.
("Hesed") and Ness Energy International, Inc. ("Ness") gives rise to a question
as to whether the stock sold by these companies was actually sold as three
separate offerings or whether the three offerings should be combined as one
offering. When offerings are integrated in such a way the combined offering must
meet the requirements of an exemption or all of the securities must be
registered.
If the offerings were to be integrated the exemptions from registration could be
lost since the offering would have been illegally made. The investors in the
offering, then could have a cause for recision of their purchase and recovery of
the purchase price, interest and possibly damages. Additionally, even though it
is proposed that the investors in Ness of Texas and Hesed exchange their stock
for stock in Ness, receive a proper prospectus and registered securities.
Section 12 (a) (1) of the Securities Act of 1933 is a strict liability section.
It provides a remedy of recision when the initial offer was illegal despite the
fact that the securities were properly registered at a later date. There have
been no request or legal action by any investor seeking recision of their
purchase, nevertheless, the possibility of such action gives rise to a
contingent liability that if realized could adversely effect the financial
standing of the company.
So that is the background. Now there are a bunch of things that I would wonder about the deal between NESS and RTIN.
- First of all, how is it to NESS's benefit to do this deal? How does it advance NESS's drilling for oil in Israel? The only real benefit to NESS that I can see is that it increased short-term assets shown on their 2000Q1 and 2000Q2 balance sheets by hundreds of thousands of dollars, which also resulted in improvements to shareholder equity, and working capital. The benefit was short-lived, since RTIN went into the tank, and the shares were only worth $78k by the end of 2000Q3 (and now are worth about $40k).
- I am assuming that the shares that were issued by both parties in this deal have a 1yr restriction on them, so that RTIN shareholders will be getting NESS shares in the form of a dividend sometime in March. Seeing as RTIN has tanked, the RTIN shareholders will likely try to sell their NESS shares as soon as they are available for sale.
- Question: why did it take NESS so long to disclose the details of this deal? They were not disclosed until the 10Q for the period 3rd quarter, even though the deal was done in the first quarter. If this RTIN deal was part of some new direction that NESS was taking or had some great benefit to the company, surely NESS would have been happy to reveal the information to its shareholders rather than reporting it two quarters after the fact. The SB-2 doesn't even describe it at all, yet the SB-2 was filed at least four months after the deal took place!
Point: really the only way that a company can truly benefit from the issue of shares is if they get cash. I think that issuing shares for restricted paper in another speculative OTC:BB company is very peculiar.
Question: what would NESS's financial situation at the end of 31-Mar-00 be if they hadn't done this deal with RTIN? First of all, here is some balance sheet information as presented in the SB-2.
FIRST QTR.
FISCAL YEARS ENDED DECEMBER 31 ENDED 3/31
------------------------------------------------- ----------
1996(1) 1997 1998 1999 2000
---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital............................. $ -- $(1,491,112) $ (438,117) $ 272,016
Total Assets................................ -- -- 27,044 1,831,384 2,426,190
Long-term debt.............................. -- -- -- -- --
Shareholders' equity........................ -- -- (1,468,420) (250,425) 459,817
freeedgar.com
Looks pretty good - everything is trending up (except for debt of course, which is $0). According to my calculations, which are shown at the end of this post, the numbers would have been as follows if the stock swap hadn't happened:
31-Mar-00 31-Mar-00
SB-2 Without Swap
---------- ------------
Working Capital : $ 272,016 $ -602,984
Total Assets : $2,426,190 $1,551,190
Shareholder's Equity: $ 459,817 $ -415,183
My opinion is that the reason that NESS got into the deal is to strengthen their balance sheet in anticipation of issuing more shares.
I think that smart investors have the following point of view: Negative Equity should say "WARNING THE PREVIOUS INVESTORS' CASH HAS BEEN ALL USED UP", and that Negative Working Capital should say "WARNING MUCH OF THE NEW MONEY THAT YOU ARE PUTTING INTO THIS COMPANY WILL BE USED IMMEDIATELY TO TO COVER PAST DEBTS", or in NESS's case "WARNING MUCH OF THE NEW MONEY THAT YOU ARE PUTTING INTO THIS COMPANY WILL BE USED IMMEDIATELY TO TO COVER PAST DEBTS DUE TO RELATED PARTIES".
Now you were asking about Swanson. We saw above that Swanson has signed off on some of NESS's filings to the SEC. If this is not a mistake, then here's a question: Do you think that NESS management would allow someone that they did not know fairly well to sign off on NESS's SEC submissions? Normally a senior person at the company such as Ivan Webb or Hayseed himself have signed the SEC filings.
Does the RTIN-NESS deal benifit Swanson in any way? Well, RTIN (Swanson is Chairman and CEO remember) has indicated that it intends to pay out the NESS shares as dividends. So Swanson personally as an RTIN shareholder will get NESS shares.
I hope that I've answered your question.
Regards,
John Sladek
Balance Sheet Adjustments. Column 1 is as reported in the SB-2. Column 2 shows the adjustments to reverse the stock swap. Column 3 show the balance sheet as it would appear if the stock swap did not occur.
31-Mar-00 31-Mar-00
Per 10Q Reverse Swap
CURRENT ASSETS
Cash 134,389 - 134,389
Investments - available for sale 875,000 (875,000) -
--------- ---------
Total current assets 1,009,389 134,389
PROPERTY AND EQUIPMENT
Oil and gas properties, unproved 114,386 114,386
Oil and gas properties, proved 28,300 28,300
Less accumulated depreciation an 12,236 12,236
--------- ---------
Total oil and gas properties 130,450 130,450
OTHER ASSETS
Fixed assets, net of accumulated
$5,083 at March 31, 2000 and 53,017 53,017
Deposits on equipment 1,229,000 1,229,000
Prepaid Expenses 4,334 4,334
----------- -----------
1,286,351 1,286,351
----------- -----------
TOTAL ASSETS 2,426,190 (875,000) 1,551,190
=========== ===========
LIABILITIES AND STOKHOLDER EQUITY
LIABILITIES
Accounts payable and accrued exp 25,358 - 25,358
Accounts payable - related party 712,015 - 712,015
-----------
Total current liabilities 737,373 - 737,373
ACCRUED CONTINGENCY 1,229,000 - 1,229,000
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par; 200,000,000 authorized
54,634,740 shares issued and outstanding 7,121,344 (1,000,000) 6,121,344
Retained deficit prior to reententering
development stage - January (2,630,233) - (2,630,233)
Deficit accumulated since reententering
development stage - January (3,626,698) - (3,626,698)
Deferred consulting (279,596) - (279,596)
Accumulated other comprehensive (125,000) 125,000 -
----------- ----------- -----------
Total stockholders' equity 459,817 (875,000) (415,183)
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) 2,426,190 1,551,190
=========== ===========
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