U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 December 31, 1996
Commission file number: 0-10301
KIT KARSON CORPORATION
A WASHINGTON CORPORATION IRS No. 91-1067265
4201 East Interstate 20
Willow Park, Texas 76087
817-341-1477
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, no par value
The registrant (1) has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the
past 90 days. Yes [ ] No [X]
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State the aggregate market value of the voting stock held by non
affiliates of the Registrant as of January 12, 1998.
Common Stock, no par value, 20,674,104 shares, no market value.
On December 31, 1996 the Registrant had 35,809,356 shares of Common Stock
outstanding with no par value. Subsequent to the end of the year the
Registrant had 49,959,356 shares of Common Stock outstanding with no par
value on January 12, 1998.
<PAGE>
Part I
Item 1. Description of Business.
(a) General Development of Business
Kit Karson Corporation (the Company) was incorporated under the laws of
Washington on March 1, 1979. The Company's office is located at 4201 I-20
East Service Road, Willow Park, Texas 76087.
During the period from March 1, 1979 to March 31, 1981, the Company
conducted no substantial business, received no material income and had no
material assets or liabilities. On March 31, 1981 a new management group
took control and moved the office from Spokane, Washington to Wichita,
Kansas. This new management group conducted the Company's operations in
two primary segments; oil and gas and real estate. The Company's
activities from March 31, 1981 through December 31, 1984 were limited due
to the availability of funds, however, the Company did enter into a
purchase agreement for an office building in Wichita, Kansas and several
oil and gas projects plus made a few stock acquisitions during this period
of time. Unfortunately, the investments did not sustain the Company and
the raising of additional working capital became more difficult causing
the Company to become inactive.
The Company has not been involved in any bankruptcy, receivership, or
similar proceeding and underwent no material reclassification, merger, or
consolidation during the dormant years from January 1, 1985 through
September 30, 1997. However, on October 8, 1997 an agreement was made to
revive the Company by issuing 14,150,000 shares of stock to Harold
(Hayseed) Stephens for certain oil and gas properties located in Parker
County, Texas. On December 22, 1997, Mr. Stephens became President of the
Company and the oil and gas interests were approved to be assigned to the
Company for 14,150,000 shares.
(b) Financial Information About Industry Segments
The Company's revenues for the past three years have been solely derived
from one gas well located in Beaver County, Oklahoma in which the Company
owns a 4.6125% working interest. The Company's interest in this well
generated $1,671 in revenues in 1996 and $1,413 in 1995. The Company does
not have any other oil and gas assets as of December 31, 1996. See Items 6
and 7, 'Management's Discussion and Analysis or Plan of Operation' and
'Financial Statements'.
(c) Narrative Description of Business
The Company was seeking working capital during the years 1985 through 1987
to continue it operations; however, the collapse of the oil industry in
1986/87 caused funding to became even more difficult. The lack of working
capital led the Company to become dormant. During the years of being
dormant various opportunities were presented to the management to revive
the Company. Each opportunity was either not favorable to the Company or
was not able to close due to lack of financial commitment or strength by
the various interested parties.
Competition and Markets
The oil and gas industry is highly competitive in all of its phases, with
competition for favorable prospects being particularly intense. The
Company believes that price, geological and geophysical skill, and
familiarity with an area of operations are the primary competitive factors
in the acquisition of desirable leases and suitable prospects for oil and
gas drilling operations. The Company competes with independent operators
and occasionally major oil companies, a number of which have substantially
greater technical and financial resources than the Company.
States and countries and other jurisdictions in which the Company plans to
have operations, regulate the exploration, development, production and
prices on the sale of oil and gas. The Federal Power Commission regulates
the sale of natural gas production sold in interstate commerce and the
U.S. Government regulates the price on oil. Markets for, and value of, oil
and gas discovered are dependent on such factors as regulation, including
well spacing and production allowables, import quotes, competitive fuels,
and proximity of pipelines and price-fixing by governments, all of which
are beyond the control of the Company.
On December 31, 1996, 40 degree oil (good gravity crude) was selling for
approximately $20.43 per barrel, compared to a December 31, 1995 figure of
$16.30 per barrel. Prices also vary according to gravity.
Foreign Taxes and United States Tax Credits
The Company currently does not have any operations outside of the United
States; however, the new management of 1997, plans to work on
international projects. In the event operations abroad are established,
then the Company will be subject to the imposition of taxes by foreign
governments upon the Company's income derived from the respective foreign
jurisdictions. Such taxes are of various types, with differing tax rates,
and are subject to changes. Generally, the Company's income from a foreign
jurisdiction will be taxed in the same manner as that for other companies
operating in the jurisdiction, but discriminatory taxation by a particular
jurisdiction may occur.
The Company's income is also subject to taxation under the United States
Internal Revenue Code of 1986, as amended (the 'Code'). The Code provides
that a taxpayer may obtain a tax credit for certain taxes paid to a
foreign country or may take a deduction for such taxes. A tax credit is
generally more favorable than a deduction. The tax credit applicable to
particular foreign income generally arises when such income is included in
the Company's taxable income under the provisions of the Code. There are,
however, substantial restrictions and limitations on the amount of the tax
credit that can actually be claimed.
Other Regulations
Oil and gas operations are and will be subject to federal, state and local
laws and regulations and by political developments. The domestic
production and sale of oil and gas are subject to federal regulation by
the Department of Energy and the Federal Energy Regulation Commission.
Rates of production of oil and gas have for many years been subject to
federal and state conservation laws and regulations. In addition, oil and
gas operations are subject to extensive federal and state regulations
concerning exploration, development, production, transportation and
pricing, and to interruption or termination by governmental authorities.
In foreign countries, the Company may be subject to governmental
restrictions on production, pricing and export controls. Furthermore
regulations existing or imposed upon the Company at the time of its
acquisition of properties may change to an unpredictable extent. The
Company will have little or no control over the change of regulations or
imposition of new regulations and restrictions by foreign governments,
expropriation or nationalization by foreign governments or the
imposition of additional foreign taxes and partial foreign ownership
requirements.
Personnel
The business of the Company has been carried on primarily by Arthur Sykes,
President, during the dormant years. The directors, Jereta Sykes and Debra
Vaughan, have devoted such time as has been necessary to carry on the
Company's business. The Company has no bonus, pension, or profit sharing
plans.
Subsequent to the end of the current reporting year (December 31, 1996),
new directors and officers were appointed on December 22, 1997 when change
of control occurred by the new group. The new president is Harold
(Hayseed) Stephens and the Secretary/Treasurer is his wife, Mary Gene
Stephens. The Company also added two new directors, Ivan Webb and Richard
Fessler. For more information on the new officers and directors refer to
Part III Item 9. 'Directors and Executive Officers, Promoters and Control
Persons'.
The day to day operations will be under the direction of Mr. and Mrs.
Stephens. Following the change of control, the Company has two full time
and three part time employees.
Definitions
'Gravity' is a measure of the density of an oil. As defined in the
petroleum industry, a higher gravity corresponds to a lower density.
Gravity of crude oils range from about 12 degrees (heavy oil) to 60
degrees (distillate or gasoline-like oil). Lower gravity oils are
generally worth less, and they may require unconventional technology to
produce.
'Gross production' as used herein is defined as the total production of
oil, gas, or natural gas liquids from a property or group of properties
for any specified period of time.
Initial Potential ('IP') is a test performed before any significant
production from a well is marketed. An oil well potential is an indication
of the maximum rate at which a well can produce. Usually, wells produce at
lower rates than their potentials. Reasons for lower rates can involve
natural decline, government regulations, difficulties with operations or
infrastructure, and reservoir management considerations.
The term 'overriding royalty' (ORRI) as used herein is defined as an
interest carved out of the lessee's leasehold or working interest.
Overriding royalties are payments calculated as a percentage of either
gross production or gross revenue from a concession or lease, free and
clear of production and operations costs, except for production taxes and
marketing expenses.
The term 'royalty' is generally defined as a share of the production
reserved by the grantor of an oil or gas lease or concession. Customarily,
the royalty interest is free of cost or expense incident to exploration,
development, or production, except for production taxes and marketing
expenses.
'Spudded in' means that drilling an oil or gas well has commenced.
The term 'working interest' as used herein means all or a fractional part
of the ownership rights granted by a concession or lease. The working
interest, or a part thereof, pays all costs of operation and is entitled
to the gross production less royalties retained by the grantor or lessor
and less other royalties or non-operating interests created and assigned
from the working interest.
Abbreviations
BOPD - barrels of oil per day MCFG - thousand cubic feet gas
BOPM - barrels of oil per month MMCFG - million cubic feet gas
BCF - billion cubic feet WI - working interest
D&A - dry and abandoned
Item 2. Description of Property.
The Company only has four assets remaining as of December 31, 1996. Three
of these assets are investments in stocks of which only one, Black Giant
Oil Company, is still in existence and is currently listed on the
Electronic Bulletin Board. The Company owns 87,400 shares of Black Giant
Oil Company and on December 22, 1997 (date of change of control) had a
market value of $2,622. The other two securities are considered to be
worthless.
In addition to the marketable securities held by the Company, the Company
also owns a 4.6125% working interest in a gas well in Beaver County,
Oklahoma. This well, known as the Benjegerdes #I, is operated by Redstone
Oil & Gas Company of Dallas, Texas. 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.
Subsequent Events
Change of control of the Company from Art Sykes to Hayseed Stephens was on
December 22, 1997. At the time of change of control it was mutually agreed
between these two parties that Art Sykes would receive the above mentioned
assets as compensation for taking care of the Company during the dormant
years and that Hayseed Stephens would vend in an oil and gas asset for
14,150,000 shares of stock. The following is a description of the oil and
gas asset (Greenwood Gas Field) located in Parker County, Texas.
The Company owns a 25% working interest (effective January 1, 1998) in the
Greenwood Gas Field located in Parker County, Texas. The Greenwood Gas
Field is a developmental, multipay, Strawn Sand Field, located about 35
miles due west of Fort Worth. This 1,100 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 they were both plugged while still producing, due to low gas
prices in 1972.
The Greenwood Field was reactivated in 1984 to produce the left over gas
from the 2,800 foot sand while gas prices were high. Then it was
discovered that other shallower Strawn Sands also were very commercially
productive. These wells are drilled on 40 to 80 acre spacing and each
producing well in this field averages between 300,000 MCFG to 1BCF, only
drilling to a depth of 3,000 feet. The known productive zones are located
at 2,800 feet, 2,100 feet and 1,850 feet on the leases within the
Greenwood Gas Field. Other potentially productive zones are also known in
the area ranging from 500 feet to 1,600 feet.
There are currently 5 gas wells on the leases in which the Company owns a
25% working interest. Gas revenues from these wells for the Company's
working interest is expected to be $50,000 for 1998 and could exceed
$125,000 depending on the success of reworking certain wells by attempting
to complete in an unproduced sand.
Item 3. Legal Proceedings.
As of January 12, 1998, there were no legal proceedings to which the
Company was a party, and no legal litigation is known to be pending.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matters have been submitted to a vote of security holders during the
dormant period from 1985 through 1996. A shareholder meeting is planned
during the first quarter of 1998 in light of the recent developments that
have caused the Company to be revived with new management and new assets.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
The Company's Common Stock was traded in the over-the-counter market and
is quoted on the OTC Electronic Bulletin Board of the National Association
of Securities Dealers, Inc. under the symbol of KITK. However, the stock
did not trade during the dormant period from 1985 through December 1997.
The Company plans to make application with the NASD during January 1998
for listing.
Approximate Number of Holders of Common Stock
The approximate number of security holders of record of Kit Karson
Corporation on December 22, 1997 was 881. Additional stockholders hold
stock in street name; the number of holders in street name is not
available to the Company.
Dividend Information
The Company has not declared or paid dividends in the past, and does
not anticipate doing so in the immediate future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
General Discussion
The Company was not able to raise working capital after December 31, 1984
in any significant manner to keep the Company in an active status. Several
attempts were made to keep the Company active subsequent to December 31,
1984. The time period also put the Company at a disadvantage as it was
near the end of the oil boom, plus in 1986 the oil bust began which made
it even more difficult for the Company to attract funds to sustain the
Company. When oil prices plunged below $10 per barrel, that made any hope
of raising funds almost impossible for several years following the oil
market crash. Management then began to focus on alternate ideas to regain
interest in the Company by looking for private companies as merger
candidates. Many attempts were made and several companies made various
offers of which none were ever completed due to either financing problems
or lack of working capital to make the merger successful.
On October 8, 1997, the management of the Company entered into an
agreement with Hayseed Stephens where he would take over operations in
conjunction with vending certain oil and gas leases. Included in the
agreement, Mr. Stephens agreed to cause the accounting and filings to
become current with the Securities and Exchange Commission and other
regulatory authorities.
Change of control of the Company from Art Sykes to Hayseed Stephens was on
December 22, 1997. At the time of change of control it was mutually agreed
between these two parties that Art Sykes would receive the assets
described in paragraphs 1 and 2 under Item 2 Description of Property, as
compensation for taking care of the Company during the dormant years and
that Hayseed Stephens would vend in an oil and gas asset for 14,150,000
shares of stock. Please see Item 2. Properties 'Subsequent Events' for a
description of the oil and gas asset (Greenwood Gas Field) located in
Parker County, Texas.
Assets
The principle asset on both December 31, 1995 and 1996 was cash being
$2,680 and $1,453 for these respective dates. The Company's investments in
oil and gas did not make it through the declining oil market during the
late 1980's. The Company had interests in two Kansas and two Oklahoma
leases which generated $98,136 in oil and gas sales during 1984. The
Company does hold one oil and gas interest in a gas well in Beaver County,
Oklahoma, which was acquired by the Company without any cost in an
agreement where after the investors recaptured their investment, a 4.6125%
working interest would become effective. On December 31, 1995 and 1996
this interest was still in effect. See Revenues of this section and
Description of Properties for further description.
The Company owned an undivided one-half interest in the land and office
building located at 1330 East First Street, Wichita, Kansas. This
building has approximately 22,000 square feet, most of which was leased to
companies related to the management of the Company. On December 31, 1984
the Company had an outstanding balance on its mortgage of $228,250 for its
half. Following the oil market crash the Company was not able to continue
to make its payments and was not able to refinance the property as values
in real estate were also effected by the oil market decline, so the office
building was lost to the financing bank.
Three of the Company's assets are investments in stocks of which only one,
Black Giant Oil Company, is still in existence and is currently listed on
the Electronic Bulletin Board. The Company owns 87,400 shares of Black
Giant Oil Company and on December 22, 1997 (date of change of control) had
a market value of $2,622. The other two securities are considered to be
worthless.
Income and Expenses
The Company's 4.6125% working interest in Benjegerdes #1 produced revenues
for 1995 of $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. No other
income was reported during these two years.
Both the retiring management and the new management are excited about the
prospects of the Company to rebuild the asset and revenue base of the
Company during 1998.
Item 7. Financial Statements.
The following financial statement information for Kit Karson Corporation
is set forth below:
Report of Independent Certified Public Accountant
Balance Sheets
Statement of Operations
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
KIT KARSON CORPORATION
Willow Park, Texas
We have audited the accompanying balance sheets of Kit Karson Corporation
as of December 31, 1996 and 1995 and the related statements of operations,
changes in shareholders' equity, and cash flows for each of the two years
then ended. 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 audit.
We conducted our audit 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 Kit Karson Corporation
as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the two years then ended, in conformity with
generally accepted accounting principles.
Robert Early & Company, P.C.
Abilene, Texas
December 24, 1997
<PAGE>
KIT KARSON CORPORATION
Balance Sheets
December 31, 1996 and 1995
1996 1995
--------- ---------
Assets
Cash $ 1,453 $ 2,680
Accounts receivable 151 126
--------- ---------
Total current assets 1,604 2,806
--------- ---------
TOTAL ASSETS $ 1,604 $ 2,806
========= =========
Liabilities & Stockholders' Equity
Liabilities
Accrued expenses $ 55 $ 42
Income taxes payable - 36
--------- ---------
Total current liabilities 55 78
--------- ---------
Stockholders' Equity
Common stock, no par (50,000,000
shares authorized, 35,809,356
outstanding) 2,630,233 2,630,233
Retained (deficit) (2,628,684) (2,627,505)
--------- ---------
Total Stockholders'
Equity/(Deficiency) 1,549 2,728
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,604 $ 2,806
========= =========
The accompanying notes are an integral part of these financial statements
<PAGE>
KIT KARSON CORPORATION
Statement of Operations
For the years ended December 31, 1996 and 1995
1996 1995
---------- ----------
Oil & gas revenues $ 1,698 $ 1,418
Production taxes 121 99
Lease operating expenses 600 574
Taxes 110 114
General and administrative expenses 2,148 518
---------- ----------
Total operating expenses 2,979 1,305
---------- ----------
Operating Income (1,281) 113
Interest income 66 384
---------- ----------
Net income/(loss) before income taxes (1,215) 497
Income tax (expense)/benefit 36 (36)
---------- ----------
NET INCOME /(LOSS) $ (1,179) $ 461
========== ==========
Net loss per weighted average share $ (0.00) $ 0.00
========== ==========
Weighted average shares outstanding 35,809,356 35,809,356
========== ==========
The accompanying notes are an integral part of these financial statements
<PAGE>
KIT KARSON CORPORATION
Statement of Changes in Stockholders' Equity
For the years ended December 31, 1996 and 1995
Accumulated
Common Stock Earnings
Shares Amount (Deficit)
---------- ----------- -----------
BALANCES, January 1, 1995 35,809,356 $ 2,630,233 $(2,627,966)
Net income - - 461
---------- ----------- -----------
BALANCES, December 31, 1995 35,809,356 2,630,233 (2,627,505)
Net (loss) - - (1,179)
---------- ----------- -----------
BALANCES, December 31, 1996 35,809,356 $ 2,630,233 $(2,628,684)
========== =========== ===========
The accompanying notes are an integral part of these financial statements
<PAGE>
KIT KARSON CORPORATION
Statements of Cash Flows
For the years ended December 31, 1996 and 1995
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income /(loss) $(1,179) $ 461
Adjustments to reconcile net income/(loss) to
net cash provided by operations:
(Increase)/decrease in Accounts receivable (25) (5)
Increase/(decrease) in accrued expenses 13 (18)
Increase/(decrease) in income taxes payable (36) 36
------- -------
NET CASH PROVIDED/(USED)BY OPERATING ACTIVITIES (1,227) 474
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - 1,000
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
None
Increase/(decrease) in cash for period (1,227) 1,474
Cash, Beginning of period 2,680 1,206
------- -------
Cash, End of period $ 1,453 $ 2,680
======= =======
Supplemental Disclosures:
Cash payments for:
Interest $ - $ -
Income taxes - -
The accompanying notes are an integral part of these financial statements
<PAGE>
KIT KARSON CORPORATION
Notes to Financial Statements
December 31, 1996 and 1996
GENERAL:
Kit Karson Corporation (the Company) was a publicly traded entity formerly
involved in the exploration and development of oil and gas reserves.
Although incorporated in Washington in 1979, the Company's offices and
primary businesses have been in Kansas. The Company's main businesses of
energy and real estate were essentially abandoned by late 1985 due to
insufficient operations and capital to support ongoing cash requirements.
There were two attempts during 1986 to exploit the fact that the Company
was publicly traded in startup ventures which did not result in
significant activity or value to the Company. Since 1986, the Company has
either converted its existing assets to cash or seen their value evaporate
with time. The Company's sole source of revenue since 1991 has been a
single small working interest in one lease which has provided
approximately $1,500 per year in revenue. This revenue has been used to
pay the minimal operating costs and taxes associated with retaining a
valid corporate charter. Any remaining funds were paid to the Company's
president as compensation for seeing to the corporate business. There
have been no filings with the SEC since 1985 and the Company's stock is
not currently being traded.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with
generally accepted accounting principles.
Earnings per share -- Earnings per share are computed based on the
weighted average number of shares actually outstanding.
Cash Flows -- The Company considers cash to be its only cash equivalent
for purposes of presenting its Statement of Cash Flows.
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, the 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.
NOTE 2: INVESTMENTS IN MARKETABLE SECURITIES
The Company owns interests in three entities which were publicly traded at
the time of acquisition. These entities, like the Company itself, have
suffered significant setbacks in their operating activities. It is
believed that two of these entities have not retained their state charters
as active entities. The third, Black Giant Oil Company, is still in
existence and listed as tradable on the Electronic Bulletin Board.
However, there has been no trading activity in Black Giant's stock during
the 1994-1996 period. (See the Note 5 regarding a change in control of the
Company.)
No value has been reflected for any of these stock investments since they
are believed to be worthless.
NOTE 3: OIL AND GAS PRODUCING ACTIVITIES
Although the Company was in the oil and gas business with significant oil
and gas interests during its primary period of activity, the remaining
single interest is not significant enough to require the disclosures of
oil and gas activities required by Statement of Financial Accounting
Standards No. 69, "Disclosures about Oil and Gas Producing Activities".
There is no capitalized cost associated with this asset because it was
received under an agreement which gave the Company an interest in the
lease after investors had fully received their investment back from
production revenues. At the time the lease had reached "payout", the
Company had either sold, abandoned, or written off its entire oil and gas
assets leaving no basis on the books for this interest.(See the Note 5
regarding a change in control of the Company.)
NOTE 4: INCOME TAXES
The Company's last income tax return was filed for 1984 and it showed
total operating loss carry-forwards at that time of $645,484. It is
believed that the Company generated additional operating loss
carry-forwards as the Company's business wound down in 1985 and 1986.
However, no income tax returns have been filed during the period from 1985
through 1993. Due to planned changes in control discussed in Note 5, it is
believed that the benefits from utilization of any of these carry-forwards
would be extremely limited. Management has decided that the cost of
researching the timing of transaction and preparing income tax returns to
document the loss carry-forwards for the unfiled years would not be a cost
effective use of resources available to the Company. In view of this
decision, these potential loss carry-forwards have been discounted and are
considered to be of no value. The disclosures presented below include the
activities of the Company since 1994.
A reconciliation of income tax expense at statutory tax rates to the
Company's effective tax rates follows:
1996 1995
------- -------
Current income tax expense $ - $ 74
Benefit from loss carry-forward - (38)
Benefit from loss carry-back (36) -
------- -------
Net income tax expense $ (36) $ 36
======= =======
The deferred tax asset is comprised of the following at December 31, 1996
and 1995. The valuation allowance has been established because the
Company's activities did not indicate a "more likely than not" probability
of future utilization at December 31, 1996.
1996 1995
-------- -------
Net operating loss carry-forward $ 147 $ -
Less valuation allowance (147) -
-------- -------
Net deferred tax asset $ - $ -
======== =======
The Company has an unused net operating loss carry-forward of $977 at
December 31, 1996 that may be applied against future taxable income. This
carry-forward expires in 2011.
NOTE 5: SUBSEQUENT EVENTS
During the last quarter of 1997, an agreement was reached between the
Company and Hayseed Stephens transferring operating control of the Company
to him. This agreement was consummated in December 1997. Under this
agreement, Stephens caused a corporation which he owned to transfer its
interest in an oil and gas lease to the Company in exchange for 14,150,000
shares of the Company's unissued common stock. The Company's president
agreed to provide assistance to Stephens in contacting current
stockholders in an effort for Stephens to acquire as many as 15,000,000
previously outstanding shares. Additionally, the Company's president
resigned his position as president and as a director. The board of
directors elected Stephens as the Company's new president and appointed
him as a director to fill the place of the resigning president. The board
also agreed to appoint individuals selected by Stephens to the board.
A portion of the agreement between Stephens, the Company, and the
Company's president called for the Company to transfer the single oil and
gas lease and the worthless investments (including Black Giant) to the
outgoing president in recognition of his efforts in keeping the Company in
existence over the years.
Stephens has agreed to cause the Company to regain full reporting status
with the Securities and Exchange Commission through current filings and to
seek market makers and trading on the Electronic Bulletin Board.
Stephens' future plans are for the Company to raise funds to be used in
oil and gas drilling and development ventures.
NOTE 6: GOING CONCERN
The Company has been relatively inactive during the past ten years due to
a shortage of operating assets and working capital. These factors raise
questions about the Company's ability to continue as a going concern.
However, there is no indication the Company could not continue to operate
at its current minimal level. The agreement with Hayseed Stephens alters
the status quo which the Company has experienced over the last several
years because of the transfer of the single existing revenue source to the
previous president. Stephens' transfer of another producing property would
imply that a minimal operating level can be maintained. However, the
Company's ability to continue after 1997 depends on the effects of the
plans and efforts of Stephens.
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
The previous auditor, A. Leon Prior, of Wichita, Kansas, audited the year
ended December 31, 1984. Subsequently, under the new 1997 management,
Robert Early & Company, P.C. was engaged to audit the 1995 and 1996 years.
There are no disagreements between the Company and its auditor, Robert
Early & Company P.C. of Abilene, Texas, regarding accounting and/or
financial disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
Before Change of Control
The following is a list of the directors and executive officers of the
Company as of December 31, 1996 and until the change of control on
December 22, 1997:
Name Age Position
Arthur Sykes, Jr. 70 President, Chief Executive
Officer and Director
Jereta R. Sykes 72 Secretary/Treasurer and
Director
Debra Vaughan 46 Director
Arthur Sykes, Jr. and Jereta Sykes are husband and wife and Debra Vaughan
is their daughter.
After Change of Control
The directors and executive officers of the Company on December 22, 1997
are as follows:
Name Age Position
Harold 'Hayseed' Stephens* 59 President, Chief Executive
Officer and Director
Mary Gene Stephens* 58 Secretary & Treasurer
Ivan Webb 46 Director
Richard H. Fessler 52 Director
*Harold 'Hayseed' Stephens and Mary Gene Stephens are husband and wife.
There are no other family relationships between the directors and
officers.
Harold 'Hayseed' Stephens, President & Director, graduated from Hardin
Simmons University in 1961 with a BS degree. Mr. Stephens founded Hayseed
Stephens Oil & Gas Inc. in 1983 for domestic oil and gas operations
primarily in Texas and Oklahoma. He also founded Ness Energy International
for international operations focusing on Israel for oil and gas
concessions. In 1984-1985 Stephens partnered with three Israeli companies
in a 50 million dollar drilling consortium that leased 400,000 acres.
Mary Gene Stephens, Secretary & Treasurer, has been involved in office
administration and day to day bookkeeping and correspondence for Hayseed
Stephens Oil & Gas Inc. and Ness International Energy Inc. for the past 15
years. Mrs. Stephens has also been involved in preparing drilling
proposals and Joint Venture billing and income distribution.
Ivan W. Webb, Chief Financial Officer and Director, received his Bachelor
of Business Degree in Business Administration from Tarleton State
University (Texas A&M Branch) in 1978. He was instrumental in the
preparation of four domestic oil and gas public stock offerings. Mr. Webb
has been involved in the negotiations for the acquisition of more than 200
producing oil and gas properties within the United States during his
career. He has international experience through negotiating with
governments for oil and gas concessions in Australia and gold and diamond,
leases in Guyana, South America. He is currently President of Black Giant
Oil Company, a public company also listed on the Electronic Bulletin
Board.
Richard H. Fessler, Director, graduated from Northrop University in 1966
and is President, owner and co-founder (1969) of Hallmark Aero-Tech,
Hallmark Institutes and Hallmark Jet Center. He served as Commissioner
for six years for Accounting Commission of Career Colleges and Technical
Schools of Washington, D.C., and was founding chairman of the Texas
Association of Private Schools (TAPS) Scholarship program which has raised
over $8,000,000 in scholarships for Texas students.
Item 10. Executive Compensation.
No compensation was paid during the years ended December 31, 1995 and
1996. No compensation is to be paid in 1997 other than the assignment of
the working interest in the gas well in Beaver County, Oklahoma and 87,400
shares of Black Giant Oil Company to Arthur Sykes, Jr. for maintaining the
Company during the dormant years. The amount of this compensation is
calculated to be $4,622.
The following table shows the proposed annual compensation to be paid to
the officers of Kit Karson Corporation in 1998 subject to funding and/or
the availability of funds from revenues.
Name and Principal Position Salary
Hayseed Stephens, President
and Chief Executive Officer $60,000
Mary Gene Stephens, Secretary/Treasurer $18,000
All compensation and other arrangements between the Company and its
officers and directors are to be approved by a Compensation Committee of
the Board of Directors, a majority of whom are to have no affiliation or
relationship with the Company other than as directors.
Compensation of Directors: Directors are not compensated for attendance at
meetings of the Board, although certain travel expenses relating to
attending meetings are reimbursed.
No employment contracts are currently outstanding as of this date,
however, it is anticipated that some may be entered into during the year
ended December 31, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons or firms who are
known by the Company to own beneficially more than 5% of the Company's
common stock and voting shares on January 12, 1998:
Name and Address Number of Percent
Title of Class of Beneficial Owner Shares Owned of Class
Common Stock Hayseed Stephens Oil, Inc.* 14,150,000 28.3%
No Par Value 365 Cook Road
Willow Park, Texas 76087
Common Stock Hayseed Stephens* 14,079,752** 28.2%
No Par Value 365 Cook Road
Willow Park, Texas 76087
*Hayseed Stephens and his wife are the owners of Hayseed Stephens Oil,
Inc.
**Hayseed Stephens acquired these shares from a group of large
shareholders at the same time change of control became effective.
Security Ownership of Management (Before Change of Control)
The following table sets forth as of December 31, 1996 information
concerning the beneficial ownership of common stock by all directors and
all directors and officers of the Company as a group based on 35,809,356
shares outstanding.
Name and Address Number of Percent
Title of Class of Beneficial Owner Shares Owned of Class
Common Stock Arthur Sykes, Jr. 374,000 1.0%
No Par Value 546 South 151 St. W.
Wichita, KS 67052
Common Stock Jereta Sykes 1,000,000 2.8%
No Par Value 546 South 151 St. W.
Wichita, KS 67052
Common Stock Debra Vaughan 4,445,668 12.4%
No Par Value 1601 Marie Terrace
Arlington, TX 76010
All directors and officers as a group (3 persons) 5,819,668 16.3%
Security Ownership of Management (After Change of Control)
The following table sets forth as of January 12, 1998 information
concerning the beneficial ownership of common stock by all directors and
all directors and officers of the Company as a group based on 49,959,356
shares outstanding.
Name and Address Number of Percent
Title of Class of Beneficial Owner Shares Owned of Class
Common Stock Hayseed Stephens* 28,229,752** 56.5%
No Par Value 365 Cook Road
Willow Park, Texas 76087
Common Stock Mary Gene Stephens* -0- -0-
No Par Value 365 Cook Road
Willow Park, Texas 76087
Common Stock Ivan Webb -0- -0-
No Par Value 901 West 6th Street
Cisco, Texas 76437
Common Stock Richard Fessler -0- -0-
No Par Value One Priors Way
San Antonio, TX 78257
All directors and officers as
a group (4 persons) 28,229,752 56.5%
*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 the stock owned by Hayseed Stephens Oil Inc. which
is 14,150,000 shares.
Item 12. Certain Relationships and Related Transactions.
No transactions occurred during the years ended December 31, 1995 and 1996
between the Officers and Directors and the Company.
The change of control between Arthur Sykes, Jr. and Hayseed Stephens
provided for Arthur Sykes, Jr. to receive the assets of the Company for
compensation for his efforts in keeping the Company in existence during
the dormant years. Total value of these assets is estimated to be $4,622
for the oil and gas interest in the gas well in Beaver County, Oklahoma
and the various stocks. See Item 2 Description of Property and Financial
Statements - Note 5.
Hayseed Stephens through his company, Hayseed Stephens Oil Inc. acquired
14,150,000 shares of the Company's common stock for a 25% working interest
in the Greenwood Gas Field located in Parker County, Texas. See Item 2
Description of Property under the heading Subsequent Events for further
information on this property.
Several of the 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.
Item 13. Exhibits and Reports on Form 8-K.
No reports were filed on Form 8K during the past two years ended December
31,1996 and 1995; however, on January 12, 1998 a Form 8K was filed
reporting the change of control of ownership of the Company, change of
directors and officers and change of the Company's auditor.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Kit Karson Corporation has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
KIT KARSON CORPORATION
/s/Hayseed Stephens
By: Hayseed Stephens
President & Chief Executive Officer
/s/Ivan Webb
Ivan Webb
Principal Accounting Officer &
Principal Financial Officer
Date: January 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summary financial information which has been
extracted from the consolidated financial statements of Kit Karson Corporation
for the annual financial statements filed on Form 10-KSB for the periods
indicated. These summary schedules are qualified in their entirety by
reference to such financial statements and the notes thereto.
</LEGEND>
<CIK> 0000353634
<NAME> Kit Karson Corporation
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 2680 1453
<SECURITIES> 0 0
<RECEIVABLES> 126 151
<ALLOWANCES> 0 0
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<CURRENT-ASSETS> 2806 1604
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<DEPRECIATION> 0 0
<TOTAL-ASSETS> 2806 1604
<CURRENT-LIABILITIES> 78 55
<BONDS> 0 0
0 00
0 0
<COMMON> 2630233 2630233
<OTHER-SE> (2627505) (2628684)
<TOTAL-LIABILITY-AND-EQUITY> 2806 1604
<SALES> 1418 1698
<TOTAL-REVENUES> 1418 1698
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1305 2979
<LOSS-PROVISION> 113 (1281)
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<INCOME-PRETAX> 497 (1215)
<INCOME-TAX> (36) 36
<INCOME-CONTINUING> 461 (1179)
<DISCONTINUED> 0 0
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