SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended:
OR
[ X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from: January 1, 2000 to June 30, 2000
Commission File No. 0-21733
THE KINGSLEY COACH, INC.
(Exact name of the Registrant as specified in Charter)
Delaware 87-0369035
(State or other jurisdiction (I.R.S. Employer ID Number)
ofincorporation or organization)
64 Old Route 522, Middleburg, PA 17842
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: 570-837-7114
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.00001 par value per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
State the issuer's revenues for its most recent fiscal year: $ 2,810,632
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant. The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and ask prices
of such stock, as of a specified date within 60 days prior to the date of
filing.
The aggregate market value of the Registrant's common stock, $.00001 par
value, held by non-affiliates as of September 29, 2000 was $2,772,023.
As of October 18, 2000, the number of shares outstanding of the Registrant's
common stock was 8,403,977 shares, $.00001 par value.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
DOCUMENTS INCORPORATED BY REFERENCE: None
FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED
This Report contains certain forward-looking statements regarding Kingsley
Coach, its business and financial prospects. These statements represent
Management's best estimate of what will happen. Nevertheless, there are
numerous risks and uncertainties that could cause our actual results to
differ dramatically from the results suggested in this Report. Among the
more significant risks are:
* The Company does not at this time have sufficient capital to fund
significant growth. Unless additional capital is obtained, the Company
will be unable to produce vehicles in sufficient quantities to meet demand.
* The Company is only now commencing production of a standardized vehicle.
Without experience in marketing and producing a standardized vehicle,
Management can only speculate as to the costs and difficulties it may
encounter.
* The Company has only one product line, which is a luxury motorhome. If
there were an adverse change in the U.S. economy, the demand for luxury
products could fall.
Because these and other risks may cause the Company's actual results to
differ from those anticipated by Management, the reader should not place
undue reliance on any forward-looking statements that appear in this Report.
PART 1
Item 1. Business
The Kingsley Coach
The Kingsley Coach, Inc. (the "Company") is engaged in the business of
manufacturing motorhomes under the tradename "Kingsley Coach." Until July,
2000 all of the motorhomes that we built were custom-designed. The Company
now offers a series of standard models under the tradename "Camelot."
The Kingsley Coach is an R.V. body mounted onto a stretched truck chassis.
We open the back of the cab and weld the living quarters to the open frame,
creating a walk-through vehicle with the safety of uni-body construction.
The direct competitors of the Kingsley Coach are the Type A Motorhomes.
But the construction and features of the Kingsley Coach distinguish it from
any motorhome on the road today:
* The walls, the floor and the roof are double-reinforced.
* Up front is a Class 8 truck engine. We currently put a diesel engine
producing up to 600 horsepower in each Kingsley Coach. It gets 9.3 miles per
gallon, and is rated to haul 85,000 pounds. The average Kingsley Coach weighs
less than 38,000 pounds; so you always have power to spare when you want to
attack a hill.
* The combination of heavy-duty construction and high power engine gives you
a stable, vibration-free, sway-free ride.
* A Kingsley Coach can be serviced at any truck stop, whereas a conventional
motorhome needs a motorhome mechanic.
* The Kingsley Coach looks like a truck, but is as user-friendly as a sedan.
It features automatic transmission, cruise control, a rear-view, back-up
camera, and reserve tanks that hold a full weeks supply of power and water.
The Company has been selling the Kingsley Coach since 1996. Until this summer,
however, all of the vehicles we sold were custom-made, often using the
customer's own used truck. We intend to continue to offer customers the
option of custom-designing their own Kingsley Coach. We expect, however,
that customers will increasingly opt for one of the standard models we now
offer in the Camelot series:
Camelot Excalibur - 40' Model. This coach, offering 300 square feet of living
space fully expanded, is our base model. It includes all of the features noted
above plus a luxury, functionally designed interior, and is designed to
compete effectively with the mid-range 40' RV models.
Camelot SURV - 40' Model. The SURV allows the owner the luxury standards of
the Excalibur, with the added convenience of a rear utility garage. The rear
garage, measuring 17' by 8', offers over 140 square feet of utility space,
with a rear-attached metal (roll-up or ramp) door for easy access. A drop-
down bed is mounted to the wall, for use when you don't need the storage space.
Lift the bed, however, and you have room for your motorcycles, your hot-air
balloon, your snowmobiles - even your horses.
Camelot Merlin - 45' Model. The Merlin offers a full 360 square feet of floor
space. It includes all of the features noted above plus a luxury,
functionally designed interior, and is designed to compete effectively with
the mid-range 45' RV models.
In addition, we currently also offer a Kingsley Coach product directed
exclusively to the long-haul trucking industry. Named "The Sleeper," the
product is an example of our plan to expand our markets without straying from
our core competencies. The Sleeper is a seamless 13-foot add-on to a high-
end sleeper cab that offers the added space of an eight-by-three foot slide
out. For the driver whose freight-haul configurations permit the addition of
5,000 pounds to his chassis, the Sleeper adds home-like comforts to his
existing tractor. We expect the Sleeper to be attractive to trucking
companies that face a nation-wide driver shortage and are searching for ways
to attract good drivers. To date, we have produced three Sleepers on a
custom basis.
Production
The production of a Kingsley Coach is conceptually simple:
* We contract for a truck chassis, made to order;
* We contract for an RV body, made to our specifications;
* We fabricate a heavy-duty lower section for storage and stability;
* We buy some miscellaneous off-the-shelf components (generators, tanks,
inverters, and the like); and
* We bolt and weld it all together.
The RV bodies we use are manufactured to our specifications by Thor America,
Inc. Thor America is one of the largest fabricators of RV bodies in the U.S.
Since September, 1998, the Company's principal offices and production
facilities have been located on the premises of Thor America's facilities in
Middleburg, Pennsylvania.
The Agreement between Thor America and Kingsley Coach gives Thor America the
exclusive right to manufacture RV bodies for Kingsley Coach until September
10, 2001, although Thor America can cancel the Agreement on ninety days notice.
Thor America provides Kingsley Coach an 8,000 square foot manufacturing
facility and a 2,500 square foot office and showroom facility on two acres of
land, all of which is located on Thor America's factory site in Middleburg.
For those premises, Kingsley Coach pays $1.00 per year and its allocated
share of direct expenses.
Kingsley Coach provides Thor America the specifications for each RV body.
Upon completion, Thor America transfers the RV body to the Kingsley Coach
portion of the facility. Kingsley Coach pays Thor America according to a
price schedule fixed by Thor America from time to time. Kingsley Coach also
pays an additional $5,000 per body to amortize loans of $275,000 that were
made by Thor America to Kingsley Coach in 1999. Under the terms of the
Agreement, the obligation to pay an additional $5,000 per body will continue
for the term of the Agreement, regardless of when the loan is paid. However,
Kingsley Coach and Thor America are currently negotiating regarding a
revision of this particular covenant.
Sales and Marketing
To date, the Kingsley Coach has been marketed mostly by word of mouth,
supplemented by occasional print ads in trucking and RV magazines and
appearances at truck shows. Without the capital necessary to ramp up
production, an aggressive marketing campaign would have been counter-
productive. Nevertheless, the feedback we received from our appearances
indicated that there is a substantial market available for our product.
In July of this year, we initiated a nationwide marketing campaign by hiring
a Director of National Sales and by retaining Typecase Multimedia, Inc. to
manage our marketing and promotional efforts. Already we are making more
promotional appearances at RV shows and upscale sporting events. These
appearances are targeted to gain Kingsley Coach brand recognition among
financially successful Baby Boomers. When financing becomes available, we
will launch a multimedia campaign to achieve two primary goals: familiarizing
our target market with the concept of the Kingsley Coach and building
awareness of the Kingsley Coach brand. The theme of the campaign will be
"luxury with power."
The Kingsley Coach is sold directly and through a dealer network. To date,
we have appointed exclusive dealers in Texas and eastern Florida, each of
whom is required to sell three units during each 12 month period to retain
its exclusivity. As our production capabilities become sufficient to service
added demand, we will expand our network incrementally until it reaches
nationwide. In the meanwhile, we have contracted with Four State Trucking of
Joplin, Missouri to serve as our national dealer through June, 2001. Our
agreement with Four States required Four States to pay a $300,000 deposit on
the purchase of 50 units (i.e. $6,000 deposit per unit).
No single customer accounted for more than 10% of the Company's sales during
the year ended December 31, 1999 or during the transition period ended June
30, 2000.
Backlog
On October 10, 2000 the Company's backlog was 41 units, representing
$10,045,000 in potential sales. However, unless additional capital financing
is acquired, the Company's production for the next twelve months will be
limited to approximately 30 units. On October 10, 1999 the backlog was 10
units ($2,450,000 in sales).
Competition
The Class A Motorhome segment of the RV industry is dominated by five
manufacturers, who account for over 2/3 of annual domestic sales: Fleetwood,
Winnebago, Coachman, Monaco, and Thor. These competitors have two major
advantages over The Kingsley Coach: name recognition and capital resources.
The Kingsley Coach will attempt to compete with these established companies
primarily on the basis of the unique advantages of a truck chassis: strength,
serviceability, and safety.
Research and Development
Until July of this year, the Company was still developing its products.
Accordingly, research and development over the past 21/2 years has represented
nearly 30% of sales. Research and development expenses totaled $330,000 in
the 2000 transition period, $850,000 in 1999 and $600,000 in 1998.
Employees
The Company currently employs 30 individuals. Eight are employed in
administrative positions, one in sales and marketing, and 21 in production.
None of the Company's employees are members of a union. The Company believes
that its relations with its employees are good.
Item 2. Properties
Our principal office, showroom, and production facilities are located on the
grounds of Thor America, Inc.. Our arrangement with Thor America is described
above. In addition, we have leased a 2,400 square foot body shop in
Middleburg for a rental of $24,000 per year. The lease expires on February 28,
2005, but may be terminated by Kingsley Coach on 90 days notice.
The Company also leases a 10,000 square foot production facility on two acres
of land in Anoka, Minnesota. The lease is on a month-to-month basis, and the
current rental is $1,000 per month. At present, the Anoka facility is used
for engineering and design. However, we are in the process of moving a
portion of our custom fabrication operations to Anoka.
Item 3. Legal Proceedings
The Company recently commences a lawsuit in the United States District Court
for the Middle District of Pennsylvania titled "The Kingsley Coach, Inc. v.
Otis A. Slack, et al." The Company alleges that the defendants were engaged
to be the Company's distributors in Alabama on an exclusive basis, that the
defendants entered into competition with the Company by using the Company's
marketing materials as if they had been prepared by the defendants, and that
the defendants sold three coaches in this fashion. The Company is seeking
injunctive relief and damages for copyright infringement, unfair competition,
breach of contract, breach of fiduciary duty, and misappropriation of trade
secrets.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
The Company's common stock is quoted on the OTC Bulletin Board under the
symbol "KNGS.OB." Set forth below are the high and low bid prices for each
quarter since January, 1999, when Kingsley Coach became publicly held by
merging into a public shell corporation.
Quarter Ended High Bid Low Bid
----------------------------------------------
March 31, 1999 $ 6.00 $ 0.00
June 30, 1999 4.00 1.63
Sept. 30, 1999 1.75 .83
Dec. 31, 1999 1.25 .50
March 31, 2000 7.00 1.433/4
June 30, 2000 2.00 .433/4
(b) Shareholders
On October 10, 2000, there were 484 registered stockholders of record of the
Company's Common Stock. Based upon information from nominee holders, the
Company believes the number of owners of its Common Stock exceeds 800.
(c) Dividends
The Company has never paid or declared any cash dividends on its Common Stock
and does not foresee doing so in the foreseeable future. The Company intends
to retain any future earnings for the operation and expansion of the business.
Any decision as to future payment of dividends will depend on the available
earnings, the capital requirements of the Company, its general financial
condition and other factors deemed pertinent by the Board of Directors.
Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition
In August, 2000 the Company's Board of Directors changed the Company's fiscal
year end from December 31 to June 30. The reasons for the change were (1)
to reflect the conclusion of the Company's development period and (2) to
bring the Company into conformity with its industry, most of whose members
complete their fiscal years in the summer, when the selling cycle for
motorhomes reaches completion.
This transition report is being filed, therefore, to report on the Company's
results for the six month transition period from January 1, 2000 to June 30,
2000.
Results of Operations
Sales of the Kingsley Coach in the first six months of calendar 2000 were
nearly double sales in the first six months of 1999, $1,129,976 compared to
$579,790. This reflects the steady growth in sales that the Company has
experienced over the past two years.
Orders for motorhomes are more likely to be placed in the Spring than in any
other season. Our well-financed competitors, therefore, customarily record
the greater portion of their sales in the first half of the calendar year.
Because we lack sufficient funds to maintain an inventory of finished coaches,
however, Kingsley Coach sales in the first six calendar months usually lag
sales in the latter six calendar months, when we are able to deliver the
coaches ordered in the Spring. For this reason, the $1,129,976 in sales
recorded between January 1, 2000 and June 30, 2000 were only slightly more
than half the sales of $2,230,842 recorded in the six months from July 1,
1999 to December 31, 1999. Sales picked up during the summer of 2000, as
expected, and the Company will report over $1.25 million in sales for the
quarter ended September 30, 2000. When we have achieved a sufficient level
of capital resources, we intend to maintain an inventory of finished products.
So our revenue cycles will then more closely conform to the normal industry
experience.
The effects of the Company's transition from custom vehicles to standardized
designs are not reflected in recent sales figures due to the long lead time
between order and sale. The Company's expenses, however, reflect the
expansion of facilities and personnel that the Company has put in place in
anticipation of sales of its standardized Camelot models. For that reason,
despite the increased sales, the Company's net loss in the 2000 transition
period exceeded the net loss during the first six months of calendar 1999,
$580,569 to $448,287.
The initiation of Camelot sales marks the end of the Company's development
period. It is noteworthy that, during its development period, the Company's
research & development expenses exceeded its accumulated deficit. From 1996
through June 30, 2000, the accumulated deficit incurred by Kingsley Coach was
$1,831,647. That amount is equaled by the research & development expense
incurred in the last 21/2 years alone. The table below shows that R&D in
that period equaled nearly 30% of sales, and exceeded the net loss.
Net Loss Before R&D % of
Revenue Extraordinary Item Expense Revenue
--------------------------------------------------------------------------
2000 (6 mos.) 1,129,976 580,569 330,000 29%
1999 2,810,632 551,518 850,000 30%
1998 2,046,121 585,691 600,000 29%
Our Camelot series is now fully developed. Some on-going development costs
attributable to Camelot can be expected, as we tweak the glitches that usually
develop when assembly line production is initiated. But we do not expect R&D
expense attributable to Camelot to be a significant item on our operating
statement hereafter. We do intend to carry on research and development
activities related to our "second generation products." We expect to limit
these expenses to approximately $300,000 per year, however. Therefore, the
expense item which has been primarily responsible for our losses to date will
be substantially eliminated from future operating statements. This will help
to counterbalance the effects of expansion on our operating results.
Liquidity and Financial Condition
At June 30, 2000 Kingsley Coach had a working capital deficit of $(473,475 ).
While our working capital deficit is not healthy, we do not believe that it
imperils our ability to sustain operations. $344,505 of our current debt is
owed to related parties and $459,475 is owed on a revolving inventory
financing plan. Because of these relationships as well as favorable relation-
ships with our creditors, the Company is able to sustain current operations
comfortably despite the deficit. In fact, Kingsley Coach has had a working
capital deficit throughout the past two years, and has nevertheless sustained
operations. The deficit is a problem for Kingsley Coach, however, as it
denies us the ability to finance significant growth internally.
We are currently seeking additional financing. However, even if that search
is unsuccessful, we expect to work our way back to positive working capital
through our operations alone. Sales since June 30, 2000 have picked up
dramatically, and are producing gross margins that are significantly higher
than those we previously experienced. In addition, we have a record backlog
at this time, and each order is accompanied by a cash downpayment. So,
although a capital infusion is certainly desirable, and will be necessary if
we are to take full advantage of the apparent demand for our product, we are
cautiously confident of our ability to sustain operations from internally
generated cash alone.
Kingsley Coach has only one contracted source of financing. That is the
Agreement for Wholesale Financing that the Company made with Deutsche
Financing Services on November 1, 1999. That Agreement contemplates loans to
an aggregate of $500,000 for the purpose of purchasing inventory and
components from vendors approved by the lender. The loans are secured by the
inventory purchased. Terms of the credit must be negotiated with each
advance. At June 30, 2000, the Company owed $459,475 under that agreement,
on loans bearing interest at 12% to 13.5%.
Until the recent ramp-up in expenses to meet anticipated increases in Camelot
sales, the Company's operations produced positive cash flow. In fiscal 1999
our operations produced $111,992 in cash. However, during the six month
transition period in year 2000, operations generated a cash flow deficit of
$306,641, primarily due to an increase of $445,188 in inventory as well as
expenses attributable to increases in personnel and facilities in anticipation
of Camelot sales. The Company's cash flow will remain negative for the
foreseeable future, as we intend to fund production to meet demand to the
fullest extent that our capital resources permit.
The Company is able to sustain operations for the indefinite future with its
present resources. When cash is short, however, the only feasible method of
sustaining operations is to delay production. This in turn slows growth and
damages our marketing abilities. Accordingly, the Company is engaged in
seeking sources of financing to enable the Company to fund the growth at a
rate determined by market demand.
Item 7. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
Item 8. Financial Statements
The Company's financial statements, together with notes and the Report of
Independent Certified Public Accountants, are set forth immediately following
Item 13 of this Form 10-KSB.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The officers and directors of the Company are:
Director
Name Age Position with the Company Since
--------------------------------------------------------------------------
Ralph Dickenson 60 Chairman of the Board 1998
Terry A. Watkins 49 President (CEO, CFO)
Director 2000
Verdo Lancaster 62 Director 1998
Catherine Rimes 39 Director 1998
James Whitehead 57 Director 1998
Directors hold office until the annual meeting of the Company's stockholders
and the election and qualification of their successors. Officers hold office,
subject to removal at any time by the Board, until the meeting of directors
immediately following the annual meeting of stockholders and until their
successors are appointed and qualified.
Ralph Dickenson founded the Company in 1996, and has served as its Chairman
since that time. Prior to March of this year, Mr. Dickenson also served as
the Company's Chief Executive Officer. Mr. Dickenson is the father of
Catherine Rimes, a member of the Board of Directors.
Terry A. Watkins joined the Company in March, 2000 as Chief Executive and
Chief Financial Officer. During the previous two years, Mr. Watkins had been
self-employed as a consultant in the areas of financial planning and reporting.
During 1997 and 1998, Mr. Watkins was Chief Financial Officer of World Cup
Partners - 1998 L.L.C., which organized and marketed tour packages to the
1998 World Cup in France. In 1998, at the conclusion of the tournament,
World Cup Partners - 1998 L.L.C. filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. From 1992 until 1997, Mr. Watkins was the Chief
Financial Officer of U.S. Transportation Systems, Inc., a public company
engaged in bus and truck transportation. Mr. Watkins is a certified public
accountant.
Verdo Lancaster has been self-employed for the past five years as a gospel
singer. Previously, Mr. Lancaster owned and operated a number of trailer
home distributorships in Louisiana.
Catherine Rimes has been self-employed as a horse rancher since 1998. From
1994 to 1998, Ms. Rimes served as President of Brake Alert, Inc., which was
engaged in the business of manufacturing and marketing parts for transportation
equipment. Ms. Rimes is the daughter of Ralph Dickenson, the Company's
Chairman.
James Whitehead has for the many years served as co-owner and Manager of
Whitehead Business Trucking Co.
Item 10. Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid by the Company to its Chief Executive Officer for services rendered in
all capacities to the Company during the transition period ended June 30,
2000 and the fiscal years ended December 31, 1999 and 1998. There was no
other executive officers whose total salary and bonus for the fiscal year
ended December 31, 1999 exceeded $100,000.
Long-Term
Compensation Compensation
Year Salary Shares Granted
---------------------------------------------------------------
Terry A. Watkins 2000* $33,000 0
* For the period March 1, 2000 through June 30, 2000 only.
Employment Agreement
The Company has an employment agreement with only one executive, its
President, Terry Watkins. Mr. Watkins' Agreement provides for an annual
salary starting at $100,000, with annual increases equal to the lesser of 5%
or the CPI. Mr. Watkins may elect to take up to half of his salary in shares
of restricted common stock, valued at 1/3 of the market value. The Company has
also agreed to issue 50,000 shares each year to Mr. Watkins in compensation.
Mr. Watkins has agreed that he will not compete with the Company for two
years after termination of his employment. The Agreement terminates on June
30, 2005. Either party may terminate it as of any March 1 preceding that
date.
Management Services Agreement
The Company is party to a Management Services Agreement dated May 7, 1999
with DRK, Inc. DRK is a Minnesota corporation whose office is located in the
Company's offices in Anoka, Minnesota. The owners of DRK are Catherine Rimes,
who is a director of Kingsley Coach, and George Carlson. Ralph Dickenson is
also involved in the operations of DRK.
The Agreement provides that for the term of the Agreement, which expires on
December 31, 2004, DRK will provide to the Company all of its executive
management services, including CEO, COO, Chief Marketing Officer and Chief
Production Officer. In compensation, the Company is required to pay DRK the
greater of (a) DRK's out-of-pocket expenses incurred in providing the
management personnel or (b) ten percent of the Company's sales revenue. In
addition, the Company granted 2,000,000 shares of restricted stock to DRK,
which DRK will retain only if the Company achieves certain revenue and sales
targets during the next five years.
During the six months ended June 30, 2000, DRK provided to the Company the
services of Ralph Dickenson, the Company's Chairman, and five other non-
officer employees. In compensation for those services, the Company incurred
an obligation to DRK in the amount of $138,617.
The Company may terminate the Management Services Agreement at any time, but
must upon termination purchase all shares of the Company's stock owned by
DRK for the greater of $5 million or fair market value. In addition, if the
Company does not achieve the revenue and profit targets set forth in the
Agreement, the Company may terminate the Management Services Agreement by
paying DRK for its Kingsley Coach shares the greater of $3 million or fair
market value.
Stock Grants
During 1999 the Company followed a policy of compensating the members of its
Board of Directors by issuing to them 50,000 shares of the Common Stock each
year. Directors who were also officers of the Company received 100,000 shares
per year. The Board of Directors has terminated that policy. In October of
2000, the Board of Directors issued to each of its members an option to
purchase 75,000 shares of the Company's common stock. The option is
exercisable at an average price of $.95 per share. The market price on the
date of grant was $.56.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of Common Stock as of
October 18, 2000 by any person who, to the knowledge of the Company, owns
beneficially more than 5% of the outstanding shares, by each director of the
Company, and by all executive officers and directors as a group. Shares are
owned of record unless otherwise noted. None of the persons identified below
owns any securities of the Company (including options or warrants) other than
the Common Stock listed below.
Amount and
Nature of
Name and Address Beneficial Percentage
Title of Class of Beneficial Owner(1) Ownership of Class(5)
-------------------------------------------------------------------------
Common Stock Ralph Dickenson 2,630,785(2)(3) 31.0%
Common Stock Terry A. Watkins 260,000(3)(4) 3.1%
Common Stock Verdo Lancaster 1,190,961(3) 14.0%
Common Stock Catherine Rimes 2,678,785(2) (3) 31.6%
Common Stock James Whitehead 138,995(3) 1.6%
Common Stock All officers and
directors as a group
(5 persons) 4,343,741 49.5%
Common Stock DRK, Inc. 2,555,785(2) 30.4%
14010 Sunfish Lake Blvd.
Anoka, MN 55303
______________________________
(1) The address of each shareholder, unless otherwise noted, is c/o The
Kingsley Coach, Inc., 64 Old Route 522, Middleburg, PA 17842
(2) DRK, Inc. is a Minnesota corporation which received 2,000,000 shares
pursuant to a Management Services Agreement with the Company. The
conditions under which the 2,000,000 shares may be cancelled by the
Company are discussed in Item 10 above. Catherine Rimes owns 50% of
the outstanding shares of DRK, and is thus deemed to be a beneficial
owner of DRK's shares. Ralph Dickenson is deemed to be a beneficial
owner of DRK's shares because of his relationship with DRK.
(3) Includes presently-exercisable option to purchase 75,000 shares.
(4) Includes 185,000 shares owned by a corporation that is controlled by Mr.
Watkins.
(5) In determining the percentage of outstanding shares, all presently
exercisable options held by the individual or group are treated as
exercised and added to the numerator and the denominator of the equation.
Item 12. Certain Relationships and Related Transactions
See discussion of the Management Services Agreement in Item 10 of this Report.
From time to time since Kingsley Coach was founded, Verdo Lancaster, a
director of the Company, has loaned funds to Kingsley Coach for working
capital. The loan obligation is represented by a demand note with interest
at 10%. Mr. Lancaster has agreed, however, that until December 15, 2002 he
will require the Company to pay interest only. At June 30, 2000 the principal
due on the loan was $137,846. The Company's obligation to pay on demand
another $200,000 that was loaned by Mr. Lancaster has been assigned by Mr.
Lancaster to an officer of DRK, Inc., and is not subject to Mr. Lancaster's
agreement regarding deferral of payment.
In 1998 Wilbur Rimes, the husband of Catherine Rimes, a director of the
Company, purchased two Kingsley Coaches and then leased them back to the
Company, to be held for resale. The Company gave Mr. Rimes a note in the
principal amount of $502,000 bearing interest at 9% per annum, requiring a
monthly payment of $6,474. The balance due on the note at June 30, 2000 was
$428,654.
Item 13. Exhibit List and Reports on Form 8-K
(a) Financial Statements
Independent Auditors Report
Balance Sheet - June 30, 2000
Statement of Operations for the six and twelve month periods
ended June 30, 2000 and December 31, 1999
Statement of Stockholders Deficit for the six and twelve month periods
ended June 30, 2000 and December 31, 1999
Statement of Cash Flows for the six and twelve month periods
ended June 30, 2000 and December 31, 1999
Notes to Financial Statements
(b) Exhibit List
3-a Certificate of Incorporation, as amended - filed as an exhibit to the
Company's Registration Statement on Form 10-SB (000-21733) and
incorporated herein by reference.
3-b By-laws - filed as an exhibit to the Company's Registration Statement
on Form 10-SB (000-21733) and incorporated herein by reference.
10-a Management Services Agreement dated May 7, 1999 with DRK, Inc. - filed
as an exhibit to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1999 and incorporated herein by reference.
21 Subsidiaries - none
27 Financial Data Schedule
(c) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the six months
ended June 30, 2000.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The Kingsley Coach, Inc.
By: /s/ Terry A. Watkins
---------------------------
Terry A. Watkins, President
In accordance with the Exchange Act, this Report has been signed below on
October 19, 2000 by the following persons, on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Terry A. Watkins
---------------------------
Terry A. Watkins, Director,
Chief Executive Officer,
Chief Accounting Officer
/s/Ralph Dickenson
-------------------------
Ralph Dickenson, Director
/s/ Catherine Rimes
-------------------------
Catherine Rimes, Director
_________________________
Verdo Lancaster, Director
_________________________
James Whitehead, Director
The Kingsley Coach, Inc.
TABLE OF CONTENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . 1
Balance Sheet - June 30, 2000 . . . . . . . . . . . . . . . . 2-3
Statements of Operations for the six and twelve month
periods ended June 30, 2000 and December 31, 1999. . . . . . . 4
Statements of Stockholders' Deficit for the six and twelve month
periods ended June 30, 2000 and December 31, 1999 . . . . . . 5
Statements of Cash Flows for the six and twelve month
periods ended June 30, 2000 and December 31, 1999 . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . 7-14
Independent Auditors' Report
The Board of Directors and Shareholders
The Kingsley Coach, Inc.
We have audited the accompanying balance sheet of The Kingsley Coach, Inc.,
as of June 30, 2000, and the related statements of operations, stockholders'
deficit, and cash flows for the six and twelve month periods ended June 30,
2000 and 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 audits 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 The Kingsley Coach, Inc. as
of June 30, 2000, and the results of operations and cash flows for the six and
twelve month periods ended June 30, 2000 and December 31, 1999, in conformity
with generally accepted accounting principles.
Mantyla McReynolds
Salt Lake City, Utah
August 22, 2000
The Kingsley Coach, Inc.
Balance Sheet
June 30, 2000
ASSETS
Current Assets:
Cash $ 105,540
Accounts receivable (net of
allowance of $11,655) 84,587
Inventory - Note 11 1,180,547
---------
Total Current Assets 1,370,674
Property & Equipment, net - Note 8 193,503
Other Assets:
Prepaid expense - Note 14 450,744
Deposits 3,650
---------
Total Other Assets 454,394
TOTAL ASSET $ 2,018,571
=========
See accompanying notes to financial statements
The Kingsley Coach, Inc.
Balance Sheet [continued]
June 30, 2000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 103,032
Accrued liabilities 38,511
Payroll taxes payable 49,492
Customer deposits - Note 5 545,000
Note payable - manufacturer - Note 9 94,505
Note payable - inventory - Note 16 459,475
Note payable - related parties - Note 17 250,000
Unearned revenue - Note 15 250,000
Current portion long-term debt - Note 10 54,134
---------
Total Current Liabilities 1,844,149
Long-Term Liabilities:
Notes payable - Note 10 521,201
Note payable -shareholder - Note 4 137,846
Less current portion long-term debt (54,134)
---------
Total Long-Term Liabilities 604,913
---------
Total Liabilities 2,449,062
Stockholders' Deficit - Note 7
Preferred stock, $.0001 par value;
authorized 5,000,000 shares; issued and
outstanding -0- shares -
Common stock, $.00001 par value;
authorized 30,000,000 shares; issued
and outstanding 8,403,977 84
Additional paid-in capital 1,401,072
Accumulated Deficit (1,831,647)
---------
Total Stockholders' Deficit (430,491)
---------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 2,018,571
=========
See accompanying notes to financial statements
The Kingsley Coach, Inc.
Statements of Operations
For the six month and twelve month periods ended
June 30, 2000 and December 31, 1999
2000 1999
Revenues:
Sales $ 1,129,976 $ 2,810,632
Cost of Sales (705,683) (1,919,851)
--------- ---------
Gross Margin 424,293 890,781
General and administrative
expenses 944,935 1,315,383
-------- ---------
Net Loss from Operations (520,642) (424,602)
Other Income/(Expense):
Rental income - -
Interest expense (59,927) (104,190)
Loss on disposal of assets - (22,726)
-------- --------
Total Other Income/(Expense) (59,927) (126,916)
-------- --------
Net Loss Before Taxes (580,569) (551,518)
Income taxes - -
Extraordinary income - Note 13 - 550,000
-------- --------
Net Loss $ (580,569) $ (1,518)
======== ========
Loss Per Share $ (.07) $ (.01)
======== ========
Weighted Average Shares
Outstanding 8,174,043 6,475,422
========= =========
See accompanying notes to financial statements.
The Kingsley Coach, Inc.
Statements of Stockholders' Deficit
For the six month and twelve month periods ended
June 30, 2000 and December 31, 1999
Addt'l Total
Shares Common Paid-in Accumulated Stockholders'
Issued Stock Capital Deficit Deficit
-----------------------------------------------------------------------------
Balance, December 31,
1998 10,100,010 101 191,878 (1,249,560) (1,057,581)
Issued stock for
services 1,301,000 14 195,138 195,152
Issued stock for
property 1,000,000 10 149,990 150,000
Issued stock for
management services
contract 2,000,000 20 378,080 378,100
Issued stock for
services 100,000 1 68,699 68,700
Reverse split 1 for
2 shares (7,250,483) (73) 73 -
Net Loss for the
Year Ended December
31, 1999 (1,518) (1,518)
---------------------------------------------------------------------------
Balance, December
31, 1999 7,250,527 $ 73 $ 983,858 $ (1,251,078) $ (267,147)
Issued stock for
liabilities 955,000 9 317,991 318,000
Issued stock for
services 198,450 2 99,223 99,225
Net Loss for the six
months ended June
30, 2000 (580,569) (580,569)
---------------------------------------------------------------------------
Balance, June 30,
2000 8,403,977 $ 84 $1,401,072 $ (1,831,647) $ (430,491)
=====================================================
See accompanying notes to financial statements.
The Kingsley Coach, Inc.
Statements of Cash Flows
For the six month and twelve month periods ended
June 30, 2000 and December 31, 1999
2000 1999
Cash Flows Provided by/(Used for)
Operating Activities
Net Loss $ (580,569) $ (1,518)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,482 72,835
Bad debt expense 11,655 5,500
Loss on disposal of assets - 22,726
Gain on legal settlement - (550,000)
Issued stock for services 99,225 173,050
Decrease (increase) in prepaid
expenses 140,146 (164,000)
Decrease (increase) in accounts
receivable (68,110) (10,673)
Decrease in other receivable 550,000 -
Decrease (increase) in inventory (445,188) 64,814
Increase (decrease)in payroll
liabilities (3,958) 8,854
Increase (decrease)in accounts
payable (76,172) 33,867
Increase in deferred revenue 250,000 -
Increase in accrued liabilities (6,518) 264,771
Increase (decrease)in customer
deposits (187,634) 191,766
-------- --------
Net Cash Provided by/(used for)
Operating Activities (306,641) 111,992
Cash Flows Provided by/(Used for)
Investing Activities
Acquisition of property and
equipment (3,740) (5,113)
-------- --------
Net Cash Used for Investing Activities (3,740) (5,113)
Cash Flows Provided by/(Used for)
Financing Activities
Principal increase in notes payable 802,022 75,000
Principal payments/reductions (463,830) (171,874)
-------- --------
Net Cash Provided by Financing
Activities 338,192 (96,874)
-------- --------
Net Increase/(Decrease) in Cash 27,811 10,005
Beginning Cash Balance 77,729 67,724
-------- --------
Ending Cash Balance $ 105,540 $ 77,729
======== ========
Supplemental Disclosures
Interest paid $ 59,927 $ 104,190
Income taxes paid - -
Stock issued for assets - 576,890
Stock issued for liabilities 318,000 -
See accompanying notes to financial statements.
The Kingsley Coach, Inc.
Notes to Financial Statements
June 30, 2000
Note 1. Organization and Summary of Significant Accounting Policies
(a) Organization
The Kingsley Coach, Inc., ("Company") incorporated under the laws of
the State of Utah in 1980 as Micro-Hydro Power, Inc. [MHP]. MHP changed its
domicile from the State of Utah to the State of Delaware by merging with and
into its wholly-owned subsidiary, Micro-Hydro Power, Inc., a Delaware
corporation in December of 1997. MHP was essentially dormant for ten years
until an Agreement and Plan of Reorganization was executed on December 18,
1998, between MHP and The Kingsley Coach, LLC, a Louisiana limited liability
company [Kingsley]. The result was the acquisition of the assets and
liabilities of Kingsley, also known as a reverse acquisition, accounted for
herein on the purchase basis. Kingsley is a manufacturer of customized luxury
recreational and commercial vehicles known as The Kingsley Coach. With the
acquisition of Kingsley, MHP changed its name to The Kingsley Coach, Inc. The
Company has changed from a calendar year to a fiscal year ended June 30. This
change is made to more closely match reporting in the industry.
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. The following
summarizes the more significant of such policies:
(b) Income Taxes
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109 [the Statement], "Accounting for Income Taxes."
The Statement requires an asset and liability approach for financial
accounting and reporting for income taxes, and the recognition of deferred
tax assets and liabilities for the temporary differences between the financial
reporting basis and tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled.
(c) Net Loss Per Common Share
Net loss per common share is based on the weighted-average number of
shares outstanding. In accordance with Financial Accounting Standards No.
128, "Earnings Per Share," basic loss per common share is computed using the
weighted average number of common shares outstanding. Diluted earnings per
share is computed using weighted average number of common shares plus dilutive
common share equivalents outstanding during the period using the treasury stock
method. There are no common stock equivalents (common stock warrants) to be
included in the computation of loss per share for the periods presented.
(d) Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers
cash on deposit in banks to be cash. The Company has $105,540 cash at June
30, 2000.
(e) Use of Estimates in Preparation of Financial Statements
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.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided using the straight-line and modified accelerated cost recovery
(income tax) basis over the useful lives of the related assets. Expenditures
for maintenance and repairs are charged to expense as incurred.
(g) Inventory
Inventory consists of parts, work-in-process, and finished units.
Inventory is valued at the lower of cost or market using the first-in first-
out (FIFO) costing method.
Note 2. LIQUIDITY
The Company has accumulated losses through June 30, 2000 amounting to
$1,831,647, and has a net working capital deficiency of $473,475 at June 30,
2000. However, in Management's opinion, the Company expended substantial
amounts for non-recurring development costs through June 2000 in the
refinement of its product and production methods. The Company does not
believe that similar costs will be necessary in the future. Further, the
Company believes standard product design and methods will permit increased
productivity in future years. Additionally, the Company entered a purchase
agreement (see Note 15) which represents a commitment for 50 additional units
to be produced in the next 18 months.
To meet working capital needs, the Company has established a $500,000
line of credit to be used in production. The Company has issued shares of
common stock for services of a professional firm which will assist in
developing and marketing its product. Management plans also include
additional issuances of shares of common stock for production capital;
however, they do not believe such issuance will become necessary for the
Company to continue operations or to meet its current obligations.
Note 3. INCOME TAXES
The Company adopted Statement No. 109 as of April 1, 1993. Prior years'
financial statements have not been restated to apply the provisions of
Statement No. 109. No provision has been made in the financial statements for
income taxes because the Company has accumulated substantial losses from
operations.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset at June 30, 2000 have no impact on the
financial position of the Company. A valuation allowance is provided when it
is more likely than not that some portion of the deferred tax asset will not
be realized. Because of the lack of taxable earnings history, the Company has
established a valuation allowance for all future deductible temporary
differences.
Deferred tax assets Balance Tax Rate
-----------------------------------------------------------------
Loss carryforward (expires
through 2020) $ 948,939 $ 322,639 34%
Valuation allowance (322,639)
--------
Deferred tax asset $ -
========
The valuation allowance has increased $196,877 from $125,762 in the prior
year.
Note 4. RELATED PARTY TRANSACTIONS/STOCKHOLDER LOANS
To pay for the original development and formation of The Kingsley Coach,
LLC, and to fund ongoing operating expenses, a shareholder/officer advanced
funds to the Company as evidenced by executed notes. During the six months
ended June 30, 2000, the Company paid the shareholder approximately $200,000.
Another shareholder has been assigned (see Note 17) an additional $200,000 of
this liability thus reducing the balance due to this shareholder to $137,846.
The terms of the obligation require interest only payments at 10%, with the
principal balance due 12/15/02.
Note 5. CUSTOMER DEPOSITS
When a customer signs a contract to have the Company manufacture a
Kingsley Coach ("Coach"), a deposit or down payment is required of the
customer. The amount of deposit varies based on the terms of the contract.
The Company treats these deposits as unearned revenue until the Coach is
delivered to the customer. At June 30, 2000, deposits had been collected on
13 Coaches in various stages of completion.
Note 6. PREFERRED STOCK
The Certificate of Incorporation of Micro-Hydro Power, Inc., a Delaware
corporation, authorizes the issuance of 5,000,000 shares of $.0001 par value
preferred stock. The Board of Directors may issue the shares in series and
may designate the powers, preferences and rights of such shares by resolution,
without the vote of stockholders. No shares are issued and outstanding as of
June 30, 2000.
Note 7. PLAN OF REORGANIZATION/ISSUANCE OF STOCK
As referenced in Note 1 the Agreement and Plan of Reorganization set
forth that Micro-Hydro Power would issue 7,000,000 shares to equity interest
holders of Kingsley. At the time of said issuance, Micro-Hydro Power had
300,010 shares outstanding and issued additional shares as follows: (1) 300,000
pre-split shares of common stock to individuals including directors and
executive officers who have provided non-capital raising services to the
Company, pursuant to Form S-8 filed on or about December 18, 1998 with the
Securities and Exchange Commission; (2) 100,000 "restricted securities" for
other services rendered; and (3), 2,400,000 "restricted securities"
(approximately 80% of which to be held in escrow subject to funding of the
reorganized Company through the sale of an additional 2,000,000 pre-split
shares of "restricted securities" in consideration of $2,000,000).
In January, 1999, the Company resolved to compensate its directors and
officers, on an annual basis, by issuing 50,000 "restricted" common shares.
These shares would be restricted for one year. In February, 1999, 600,000
pre-split shares were issued to said officers and directors for services in
1999 and 2000, valued at $0.15 per share for a total of $90,000.
Approximately $22,500 has been charged to the six month period ending June 30,
2000, and $22,500 has been deferred to be charged against June 30, 2001
earnings.
Also in January, 1999, the board authorized and directed the Company to
issue 75,000 pre-split shares of "restricted " common stock to a related party
as compensation for services promoting public awareness of the Company. The
value of this service has been recorded at $0.15 per share or $11,250.
In February, 1999, the Company issued 626,000 "restricted" pre-split
common shares to certain employees and affiliates of the Company for services
rendered. These shares were valued at $.15 per share, or $93,900.
On September 17, 1999, the Company issued 100,000 tradable, pre-split
common shares to a consultant as compensation for future services to be
rendered beyond involvement in capital raising or secondary offering
activities, valued at $.687 per share or $68,700. Approximately $22,900 has
been deferred to be charged against June 30, 2001 earnings.
In November, 1999, the Company effected a reverse split of all
outstanding common shares on a 1 for 2 (1:2) basis while retaining the stated
par value of $.00001 and authorized shares; all fractional shares being rounded
up to the nearest whole share with appropriate adjustments being made in the
additional paid-in capital and stated capital accounts of Company.
On December 13, 1999, the Company resolved to compensate six
professionals with common stock in lieu of cash. As of December 31, 1999, a
liability was accrued for $318,000 as the amount of which the value would not
exceed. Approximately half of the services were provided in 1999 and the
balance was to be provided in 2000. On January 6, 2000, the Company filed a
Form S-8 statement under the Securities Act of 1933 to register 955,000 shares
of common stock which were issued in satisfaction of this liability. The
Company has deferred $79,500 to be charged to 2001 expenses.
In March, 2000, the Company issued 198,450 shares of common stock to
approximately 75 individuals for various services. The shares are restricted
and have been valued at $.50 per share, or $99,225.
Note 8. PROPERTY AND EQUIPMENT
The major classes of assets as of the balance sheet date are as follows:
Accumulated
Asset Class Cost Depreciation Net Book Method/Life
---------------------------------------------------------------------------
Furniture $ 1,329 $ (632) $ 697 MACRS/7
Electronic Equipment 4,840 (2,981) 1,859 MACRS/5
Tools 98,033 (58,663) 39,370 MACRS/5
Leasehold Improvements 2,357 (30) 2,327 SL/39
Intangible property 150,000 (750) 149,250 Per unit
prod
----------------------------------
Total $256,559 $(63,056) $193,503
==================================
Depreciation expense was $10,482, for the six months ended June 30, 2000, and
$30,824 for 1999.
In May of 1999, the Company acquired intellectual property from a related
party (DRK, Inc., or "DRK"), which shares common ownership with the Company,
representing 100%of the rights to an extended sleeper cab with slide-outs,
unique in the trucking industry. The rights to the intellectual property were
purchased for 1,000,000 pre-split shares of restricted common stock. The asset
was valued at $0.15 per share for a total of $150,000. This cost is being
amortized at $250 per unit over an estimated 600 units to be produced in the
next eight to ten years. No units were produced in 1999. Three units were
produced in the first six months of 2000.
Note 9. PLANT LEASE/NOTE PAYABLE
In January, 1999, the Company relocated its production facility to
Middleburg, Pennsylvania, to a plant that is shared by a subcontractor who
participates in the production of Kingsley Coaches. The Company entered into
an agreement for a period of three years with annual rent charges of $1 plus
a prorated share of common expenses such as taxes and insurance. Prior to
relocation, the Company leased a facility in Houston, Texas, on a month-to-
month basis. The Company is leasing additional office/operating space, in
Middleburg, on a month-to-month basis for approximately $3,357 per month.
Total rent paid for the periods ended June 30, 2000 and 1999 were $23,701 and
$43,144.
In connection with the plant lease, the Company accepted a loan for
$200,000 from the subcontractor and granted it exclusive recreational vehicle
manufacturing rights for the agreement period (effective September 10, 1998
for three years). Repayment of the loan is based on a $5,000 per body charge
to be billed as units are built for Kingsley. In 1999, an additional $75,000
was loaned to the Company. The loan balance has been reduced to $94,505 as
of June 30, 2000 due to production activity. In the event that the loan is
not repaid through the per-body charge, it is payable on demand. The loan is
non-interest bearing.
Note 10. NOTES PAYABLE
A relative of an officer of the Company has purchased several Kingsley
Coaches. In 1998, he sold two back to the Company in exchange for a note.
The note, dated May 1, 1998, bears interest at 9% and has a monthly payment of
$6,474. The original amount of the note was $502,000. The Company repaid
approximately $36,214 during 1999 and $18,995 during the six months ended June
30, 2000. The balance due as of June 30, 2000, is $428,654. The two Kingsley
Coaches are still owned by the Company as of June 30, 2000. The two Kingsleys
are being used as a demonstrator models and are available for sale.
The Company has a note payable to a finance company related to the
purchase of inventory. The terms require monthly payments of $2,164, for 60
months, through June 2005. The effective interest rate on this note is
approximately 14.5%. The total due as of June 30, 2000, is $92,547.
Scheduled maturities on these two notes are as follows:
Year Ending June 30: Amount
2001 $ 54,134
2002 60,030
2003 66,624
2004 73,977
2005 and thereafter 266,436
-------
$ 521,201
=======
Note 11. INVENTORY
As of June 30, 2000, inventory consists of parts, work-in-process, and
finished units. Most parts are purchased and charged to the job. However,
other items are purchased in bulk and can be used on all Kingsleys. As of
June 30, 2000, cost approximates market value and no adjustment has been
recorded. Work-in-process inventory consists of several Kingsley Coaches at
various stages of production. Total inventory as of June 30, 2000 is as
follows:
Parts inventory $ 57,319
Work-in-process 621,228
Finished Units/Demos 502,000
---------
$1,180,547
=========
Note 12. LEGAL CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management and legal
counsel, the ultimate disposition of these matters will not have a material
adverse effect on the Company's financial position.
On March 1, 1999, a lawsuit was filed against the Company in the Supreme
Court of Maricopa County, Arizona, alleging that an individual, on behalf of
Kingsley, contracted with a consultant to provide certain "management services"
in exchange for 15,000 shares of free trading Kingsley common stock. The
plaintiff further alleges that Kingsley failed to pay the 15,000 shares of
stock, and is seeking approximately $52,000 in damages, plus attorney fees.
The Company maintains that the individual had no authority to execute on its
behalf and further that "management services" were not provided.
Note 13. LEGAL SETTLEMENT/SUBSEQUENT EVENT
On August 16, 1999, the Company was served with a lawsuit alleging that
consultants (Plaintiffs) located investors and investment opportunities for
the Company, but that the Company did not cooperate in finalizing these
investments, and as a result, the Plaintiffs were injured and could not receive
common stock of the Company being held in escrow for their benefit (see Note
7). The Company counterclaimed against the Plaintiff, and subsequently reached
a settlement of all related claims and causes. The terms of the settlement
provided that The Kingsley Coach, Inc., would receive $550,000, payable from
the proceeds of the sale of stock which had been placed in escrow in the
previous agreement. 550,000 post-split shares of Kingsley stock were placed
with an escrow agent designated by the Company. Plaintiffs were to execute
an irrevocable stock power allowing said escrow agent to sell the stock as
directed by Plaintiffs, provided that any sale should be at a price not less
than $1.00 per share; the first $1.00 per share of sales proceeds to be
remitted to the Company and any excess over $1.00 to be remitted to Plaintiffs.
The Company was to be responsible for payment of escrow fees and costs. Any
unsold shares in escrow, after 90 days from the settlement date, should revert
to The Kingsley Coach, Inc. In February and March, 2000, the Company collected
$503,750 from the sale of these shares. On February 29, 2000, 50,000 shares
were transferred to a securities company for services. The Company considers
the settlement receivable satisfied for the full $550,000.
Since June 30, 2000, the Company has filed a complaint against another
manufacturer, alleging that the defendants are unfairly competing with The
Kingsley Coach. The outcome of this action is uncertain and pending
investigation.
Note 14. PREPAID EXPENSES/MANAGEMENT SERVICES CONTRACT
Prepaid expenses as of June 30, 2000, consist of the following:
Prepaid outside professional fees - Notes 7 $ 102,400
Management services retainer (see below) 305,844
Prepaid officer and director fees - Note 7 22,500
Other expenses 20,000
-------
Total $ 450,744
=======
In May of 1999, the Company entered into a management services agreement
with DRK, which is a group of individuals who have been directly involved in
the research, development, design, engineering, sales and manufacture of
Kingsley Coaches since inception. The six-year contract (which is based on
five years of production) provides for management and production services with
performance-based incentives, including monthly fixed base payments equal to
actual cost, and incentive-based payments calculated quarterly. The Company
issued 2,000,000 pre-split shares of restricted common stock for partial
payment of this agreement. This agreement is significant and could effect a
change in control of The Kingsley Coach, Inc. Performance-based incentives
were waived for 1999 and through June 30, 2000. The value of the issued
shares was calculated at a discounted price of approximately $0.19 per share
or $378,102.
The management agreement allows for half of the 2,000,000 (or 1,000,000)
pre-split common shares to revert back to the treasury of the Company if
performance goals are not met over the five year period beginning January 1,
2000. To allocate the cost of the management service over the contract
period, the Company will amortize the expense on a straight line basis at
approximately $5,251 per month. The Company amortized $30,246 and $42,011
during the six and twelve month periods ending June 30, 2000 and December 31,
1999, respectively.
Note 15. PURCHASE AGREEMENT
On December 28, 1999, the Company signed a purchase agreement with a
trucking company which essentially provides that for a deposit of $300,000,
($6,000 for 50 units) the Company will reserve the next order slots for
production of Kinglsey Coaches over the next eighteen (18) months. The
$300,000 was collected in January of 2000. The agreement is renewable by
mutual consent. The Company prepaid commissions of $50,000 related to this
contract which makes the net unearned amount balance $250,000.
Note 16. LINE OF CREDIT
The Company entered into an Agreement for Wholesale Financing on
November 1, 1999, with a financial services corporation. The terms allow the
Company up to $500,000 of credit, to purchase inventory from approved vendors
and "for other purposes." Advances are secured by the inventory and/or
components financed. Further, an individual, who is also a shareholder of
the Company, has signed a personal guaranty to the Agreement. Terms for
credit are not set forth in the Agreement but are determined with each
advance and depend, in part, on availability of vendor discounts, payment
terms or other incentives, prevailing economic conditions or other such factors
which may vary from time to time. The balance due on the Agreement as of
June 30, 2000 was $459,475 with interest rates of 12% to 13.5% and payable
upon the sale of each unit.
Note 17. NOTE PAYABLE/RELATED PARTIES
The Company has recorded advances from related entities which were used
to fund operations during the six months ended June 30, 2000 and in prior
years. These advances are summarized in the following manner:
Related Party Amount advanced
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Shareholder advance, 6% interest, due
July and August 2000. $ 50,000
Shareholder advance assumed, non-
interest, due on demand $200,000
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$250,000
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