SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Filed pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 1995, file # 33-38119-C
THE KENSINGTON COMPANY, INC.
(Exact name of registrant as specified in charter)
Minnesota 41-1619632
(State or other jurisdiction (IRS Employer ID Number)
of organization)
Interchange Tower, Suite 1950, 600 S. Hwy 169, Minneapolis, MN 55426
(address of principal executive offices)
Registrant's telephone number is (612) 546-2075
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
- - -------------------------------------------------------------------------------
(Title of Class)
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 and Exchange Act
of 1934 during the preceding 12 months, and (2) has registrant been subject to
such filing requirements for the past 90 days.
Yes x No__
The number of shares outstanding of each class of the registrant's common stock
as of December 31, 1995 was 2,945,894 shares.
The estimated market value on December 31, 1995, of the voting stock held by
non-affiliates of the registrant was $403,740.31 based upon $.19 per share where
in private transactions shares were sold. Currently there is a public market on
the Bulletin Board on the Minneapolis Local over the Counter Market with a call
sign of "KNSC".
Exhibit Index on the Sequential page 15
DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX
THE KENSINGTON COMPANY, INC.
FORM 10-KSB
YEAR ENDED DECEMBER 31, 1995
INDEX
ITEM PAGE
PART I
1. Description of Business...........................................1
2. Description of Property...........................................4
3. Legal Proceedings.................................................5
4. Submission of matters to vote of shareholders.....................5
PART II
5. Market for Common equity & related stockholder matters............5
6. Management's discussion & analysis of Operations..................6
7. Financial statements .............................................6
8. Changes in and disagreements with Accountants on Accounting
and Financial Disclosure..........................................7
PART III
9. Directors, Executive Officers, Promoters and Control Persons
of the Company....................................................7
10. Executive compensation............................................9
11. Security ownership of certain beneficial owners and
management.......................................................11
12. Certain relationships & related transactions.....................12
13. Descriptions of securities.......................................13
14. Exhibits and reports on Form 8-K.................................14
15. Signatures.......................................................15
Financial Statements...........................................F-1
DESCRIPTION OF BUSINESS
THE KENSINGTON COMPANY, INC. was formed in 1988, initially for the purpose of
developing oil and gas properties in Kentucky. It is a reporting public
corporation quoted on the "pink and white sheets" as well as the bulletin board,
and its call sign is "KNSC". At present the Company has approximately 291
shareholders. Kensington owns 100% of two operating companies, namely, Ives
Design, Inc., a Minnesota corporation, and American Gas Corporation, a Nevada
corporation. Kensington also owns two non-operating "shell" corporations,
namely, Bluegrass Management and Operating Company, a Kentucky corporation, and
National Fixture Installers,Inc., a Minnesota corporation.
The Kensington Company, as stated above, is comprised of:
A. IVES DESIGN, INC.
In April 1992, the Company acquired 100% of IVES DESIGN, INC. ("Ives"), a
manufacturer of store display fixtures. The primary components of such fixtures
are wood and laminate but many fixtures will incorporate acrylic, glass and or
metal. The company provides a broad spectrum of services to its customers
including design, manufacturing, delivery and installation. Fixtures are sold to
a wide variety of customers ranging from retail and grocery stores to private
companies and churches. Several customers are members of the Fortune 1000. Sales
are obtained through direct sales contact as well as referrals. The raw material
used in production is widely available and procured from a number of sources
depending on pricing and vendor stock. As of December 31, 1995 Ives employed 23
full time employees.
SIGNIFICANT MARKETS, CUSTOMERS AND SUPPLIERS
IVES
While the loss of the largest customer would have an adverse effect on
the Company such an event is unlikely since they have recently advised the
Company of their plan to place more substantial orders. The Company presently
has no contractual commitments with any customers but works against purchase
orders for its sales.
The Company believes that the number of potential suppliers of the
materials utilized by Ives in fashioning its products are sufficient that the
loss by Ives of any one or a number of its present suppliers would not have a
material adverse effect on Ives' business.
Ives' products are not seasonal products and are sold throughout the
year.
REGULATION OF THE STORE FIXTURE INDUSTRY
There are federal and state regulations governing the Ives operation to
the extent of Environmental Protection Agency and OSHA rules that apply to
disposal of waste from painting and sealing of product. Ives has a program in
effect for both situations.
COMPETITION WITHIN THE STORE FIXTURE INDUSTRY
Ives does have a number of competitors and bids most of its projects.
Notwithstanding, sales have continued to increase and management believes that
the Company is competitive with respect to both price and quality of its
products.
B. AMERICAN GAS CORPORATION AND OTHER GAS OPERATIONS
In 1992 the Company purchased limited and general partnership
interests in gas wells in Texas, Arkansas and Oklahoma as well as 100% ownership
of American Gas Corporation's gas wells and pipelines in Kentucky.
During 1994 and 1995 most of American Gas' operations were shut down
because the Company could not find good operators. As of December 31, 1995,
American Gas Corporation had no employees and its sole Director and Officer is
the CEO of the Company. Late in 1995 the Company engaged K-Petroleum, Inc. of
Columbus, Ohio to operate its Tanyard gas field in eastern Kentucky. K-Petroleum
operates 350 gas wells in eastern Kentucky and has over a 95% success rate for
the 188 wells that it has drilled in eastern Kentucky. The Company has also
entered into a written agreement for TAUREN Exploration, Inc. of Dallas, Texas
to reopen the Rosewood field in western Kentucky during the summer of 1996.
TAUREN is of the opinion that there is more gas under the Rosewood field and
will invest its own money to make the field operational and pay the Company 40%
of the net proceeds. TAUREN is of the opinion that the numerous seven inch wide
wells can be easily reentered and the existing four inch pipeline owned by the
Company can be used to transport the new gas. TAUREN has drilled 45 productive
wells, with no dry holes and only one non-commercial well since 1994. In
addition, the Company has started to receive revenues on a regular schedule from
its interests in Texas, Arkansas and Oklahoma.
American Gas purchases its supplies and materials from various
suppliers, none of which is considered material. Management believes that the
loss of any one supplier will not have an adverse effect on its operations.
American Gas sells gas year round, but the prices fluctuate because of
weather conditions as determined by the particular season. In general, there is
a higher price for gas in the winter, and lower price in the summer. The demand
for gas, however, remains generally consistent throughout the year.
No material portion of the business of the company is subject
to contracts with the government of the United States of America or
any state.
After a two year search, the Company is of the opinion that the
addition of K-Petroleum and TAUREN will provide the necessary technical
expertise to properly manage the risk associated with oil and gas operations in
order to make them profitable.
REGULATION OF OIL AND GAS
As regards American Gas, the oil and gas industry is extensively
regulated by federal, state and local authorities. Legislation affecting the oil
and gas industry is under constant review for amendment or expansion. Kensington
and American Gas have experienced legal counsel for these situations.
COMPETITION WITHIN THE OIL AND GAS INDUSTRY
Competition in the oil and gas business is intense. The Company faces
competition from both major and independent oil and gas companies, as well as
from numerous individuals and drilling programs. Many of these competitors have
financial, technological, and other resources substantially in excess of those
available to the Company.
There is also extensive competition in the market for natural gas.
Increases in worldwide energy production capability and decreases in energy
consumption as a result of conservation efforts have brought about substantial
surpluses in energy supplies in recent years. This, in turn, has resulted in
substantial competition in markets historically served by domestic natural gas
resources both with alternate sources of energy, such as residual fuel oil, and
among domestic gas suppliers. As a result, there have been reductions in gas
prices, widespread curtailment of gas production and delays in producing and
marketing gas after it is discovered. Changes in government regulations relating
to the production, transportation and marketing of natural gas have also
resulted in significant changes in the historical marketing patterns of the
industry. Generally, these changes have resulted in the abandonment by many
pipelines of long-term contracts for the purchase of natural gas, the
development by gas producers of their own marketing programs to take advantage
of new regulations requiring pipelines to transport gas for regulated fees, and
an increasing tendency to rely on short-term contracts priced at spot market
prices. See "Regulations."
In light of these developments, many producers, including the Company,
have accepted prices that are lower than those previously prevailing in order to
sell their production.
COMPANY'S DIRECTION
HOUSING OPPORTUNITIES:
During the second quarter of 1995 the company ceased funding the
research and development of the housing group established in late 1994.
IVES DESIGN INC.
It is management's intention to continue to expand Ives Design through
sales to new customers, expanding sales to existing customers by providing high
levels of service and quality and through acquisitions.
AMERICAN GAS CORPORATION
With the addition of K-Petroleum and TAUREN, it's management's
intention to rework existing wells and drill new wells to increase its oil and
gas revenues. Management will attempt to reduce risk by having the operators
invest their own capital with a net revenue return being paid to the Company. In
some instances the Company may have to invest some of its own capital.
NEW OPPORTUNITIES
It is also management's intention to obtain equity interests in other
corporations in return for the Company's management expertise. Management is of
the opinion that it can obtain a 1% to 10% equity interest in these new
companies with little or no capital investment as it is currently arranging with
Metropolitan Health Networks, Inc., a Florida corporation.
ITEM 2. DESCRIPTION OF PROPERTY
At present, the Company's principal office is located at 600 S. Highway
169, Suite 1950, Interchange Tower, Minneapolis, Minnesota, 55426, occupying
approximately 1000 square feet and utilized entirely for executive offices. The
lease includes the use of two conference rooms, some furniture, and phones. The
lease was entered into on February 15, 1996. The space is rented under a written
lease which provides for payment of rent at a monthly rate of $687 and runs
through September 1998. Management believes that comparable office space is
readily available if the Company were to lose its lease.
As a result of its acquisition of Ives, the Company owns two buildings.
One building has 25,500 square feet, located at 1333 Constance Boulevard, Ham
Lake, Minnesota. Approximately 2,500 square feet are utilized for offices and
23,000 square feet for manufacturing. There is also a 7,200 SF storage building.
ITEM 3: LEGAL PROCEEDINGS
There are no legal proceedings that the management is aware of at this
time.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual shareholders meeting held on October 15, 1994 a new Board
was elected and the shareholders approved increasing the number of employees
options to 750,000. There was no shareholder meeting during 1995 but one was
held on January 27, 1996. At the January 27, 1996 meeting a new Board was
approved, and the number of authorized shares were increased to 40,000,000
common and 10,000,000 unclassified. The Board was also given the authority to
approve acquisitions and mergers. The shareholders also authorized the Board to
change the name of the Company to "Kensington International Holding Corporation"
at some date in the future. 74% of the shareholders attended the January 27,
1996 shareholders meeting either in person or by proxy.
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK- HOLDER
MATTERS.
ITEM 5: MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
During 1995 the stock has been quoted at a low of $.03 to a high of
$1.00. On December 31, 1995 the stock was quoted at a bid of $.125 with an
asking price of $.50. Since the Company is not NASDAQ qualified, these prices
are inter dealer prices and may not reflect actual value or transactions.
(a) Market Information
The Registrant's securities are traded on the Bulletin Board
as "KNSC".
(b) Holders
At December 31, 1995 there were approximately 300 shareholders
of record including people who held stock in "street name".
(c) Dividends
The registrant has not paid dividends on its common stock and
does not expect to in the foreseeable future.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Total Revenue $2,552,682 $1,615,748 $1,379,693
Cost of Sales 1,601,568 1,190,042 1,196,098
---------- ---------- ----------
Gross Profit $ 951,114 $ 425,706 $ 183,595
Operating Expense 850,742 855,800 1,043,090
---------- ---------- ----------
Inc (Loss) from Operations $100,372 $ (430,094) $ (859,495)
Other Income (Expense) (328,569) (55,806) (6,612)
Provision for Income Tax (10,125)
----------
Extraordinary Item 69,990
----------
Change in method of acctg 26,784
----------
Net Loss $ (201,413) $ (485,900) $ (866,107)
</TABLE>
As noted above, the Company produced a net income from Operations of $100k in
1995 as compared to a loss from Operations of ($430k) in 1994. However, due to
an increase in other expenses, an overall net loss of ($217k) was incurred.
Other expenses included interest of $139k in 1995 versus $81k in 1994.
Additionally reserves of $176k were established in 1995. Included in this was
$152k against notes receivable and $24k for settlement of past litigation
action. The net equity of the company was also adversely affected by two
additional events. The first was the repurchase of $85k in stock and the second
was the reduction in number of shares of stock issued for the American Gas
Corporation acquisition. See the attached financial statements and notes for
more information.
IVES DESIGN INC.
1995 was a very good year for the company. Revenues grew from $1,544k in 1994 to
$2,511k in 1995, a 63% increase. Income from Operations grew from $38k in 1994
to $402k in 1995. Net Income increased from $11k in 1994 to $328k in 1995. Sales
and gross margins were improved by the Company's abilities to raise prices in
1995 and still remain competitive. Gross margins were also positively impacted
by focusing on cutting costs. The Company also worked to hold operating expenses
constant or to even reduce them during 1995. As a percent of revenue, operating
expenses were reduced from 22% in 1994 to 21% in 1995. Management feels that the
administrative staff exists to support the 20% increase in sales anticipated for
1996. (See Item 1 on page 1)
AMERICAN GAS CORPORATION
1995 was a transition year for American Gas. Due to operational
problems, the production of natural gas in Kentucky was
significantly curtailed. 1995 revenues totaled $6,539 versus sales
of $17,748 in 1994. (See Item 1 B on page 2)
ITEM 7: FINANCIAL STATEMENTS
The Consolidated financial statements of the Company are included herin
following the signatures, beginning at page F-1.
ITEM 8: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
On March 22, 1994, the Company dismissed Silverman, Olson, Thorvilson &
Kaufmann Ltd as its independent public accountants and engaged Lund Koehler Cox
& Company, PLLP as its new independent public accountants. The reports of
Silverman, Olson, Thorvilson & Kaufmann Ltd on the financial statements
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle. The Company's
Board of Directors participated in and approved the decision to change
independent public accountants. In connection with its audit and through March
22, 1994 there were no disagreements with Silverman, Olson, Thorvilson &
Kaufmann Ltd on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Silverman, Olson, Thorvilson & Kaufmann Ltd
would have caused them to make reference thereto in their report on the
financial statements. Prior to March 22, 1994, the Company had not consulted
Lund Koehler Cox & Company, PLLP on items which (1) were or should have been
subject to SAS 50 or (2) concerned the subject matter of a disagreement or
reportable event with the former independent public accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
MANAGEMENT
The executive officers and Directors of the Company are as follows:
Name Age Position
- - ---- --- --------
Keith A. Witter 48 Director
Mark Haggerty 48 Chief Executive Officer
& Director
Keith Bernhardt 74 Director
Dr. Graeme Wallace 54 Director
Holly Callen Hamilton 47 V. P. & Secretary
Mike Nakonechny 68 Chairman
Jeff Etten 39 Chief Financial Officer
Directors are elected for an indefinite term not to exceed five years, expiring
at the annual shareholders' meeting next held after their election and until
their successors are elected and qualified. Officers are appointed by the Board
of Directors and serve at its discretion.
Keith A. Witter has been a Director of the Company since May 1, 1993. From
January 1992 to April 1993, Mr. Witter served as President and Chief Operating
Officer of the Company. He received a B.A. in business administration and
economics in 1969 from Gustavus Adolphus College, and in 1973 obtained a JD
degree from the University of Minnesota Law School. Since 1984, Mr. Witter has
served as President and owner of Askar Corporation, a securities broker-dealer
with 85 representatives in five states. He also is the President of F.F.P.
Investment Advisors, Inc., a financial planning firm, a position he has held
since 1984. Mr. Witter has been involved in the oil and gas business having
served as President of Kensington Energy Corporation from June 1992 until
December 31, 1992.
Mike Nakonechny lives in Pennsylvania and is an Electrical Engineer. He has been
a Director since October 15, 1994. Mr. Nakonechny is on the Boards of Mentor
Corporation of Minneapolis and Silicon Technology Corporation and his own
company, NAK Associates Corp. He founded and was Chairman of Tranducer Systems,
Inc. a public company in Pennsylvania.
Mark Haggerty became an employee of Kensington on May 1, 1993 and became
C.E.O.-C.O.O on September 9, 1993. Mr. Haggerty is a graduate of the University
of Minnesota Law School and is a practicing attorney. From 1974 to 1985 he
served as a prosecutor in Anoka County, Minnesota. From 1971 to 1985 Mr.
Haggerty was employed as an attorney with the Minneapolis law firm of Smith,
Juster, Feikema, Malmon and Haskvitz and was its youngest shareholder, officer
and director. In 1985 Mr. Haggerty was employed as a Senior Vice President at
Miller and Schroeder Financial, Inc., Minneapolis, where he remained until 1987
when he formed Haggerty & Associates, Inc. During the past eighteen years Mr.
Haggerty has structured and closed more than 150 taxable and non-taxable
financing and marketing programs both in the United States and Europe. Mr.
Haggerty is also a Registered Securities Representative. Mr. Haggerty filed
bankruptcy in January 1989 and was discharged in April 1989. He serves on the
Board of Directors of MicroAid, Ltd., Environmental Air Systems, Inc., MinnCal
Technologies, Inc., Hal-Fics., Bonne Eau S.A., Ltd.,. Haggerty has been a
Director since October 15, 1994.
Keith Bernhardt has served as a Director since September 1992. From 1983 to
present Mr. Bernhardt has been semi-retired but engaged in the sale of machinery
used to change hot-rolled steel into cold-rolled steel for use in the automobile
industry. Mr. Bernhardt was one of the founders of American Gas. Mr. Bernhardt
graduated from Purdue University in 1942 with a degree in mechanical
engineering. He is a certified Retired Professional Engineer, licensed with the
State of Connecticut.
Dr. Graeme Wallace has been a Director of the Company since April 1992.
Commencing in 1985 he was the Co-Founder and Managing Partner of Wallace Bond &
Partners Inc., a Canadian based firm in Toronto offering human resource
consulting services. In April 1993 Dr. Wallace sold his interests in Wallace
Bond & Partners, Inc. and founded Wallace and Partners, Inc, also located in
Toronto. Dr. Wallace earned both his B.A. and M.Sc. degrees from Monash
University, Melbourne, Australia, in 1967 and 1970 respectively. He obtained a
Ph.D. in psychology from McGill University, Montreal, Canada in 1972.
Holly Callen Hamilton is Director of Development for Women's Athletics at the
University of Minnesota. Ms. Callen has been President of Callen & Associates.
Inc. for a number of years.
Jeff Etten is a C.P.A. and a member of the Minnesota Society of Certified Public
Accountants. Mr. Etten was formerly the C.F.O. of Heritage Computer. Mr. Etten
received his BS degree in Accounting from the University of Wisconsin-Eau
Claire.
KEY PERSONNEL
Dennis Krause is the President and a Director of Ives Design, Inc. and is in
charge of production.
ITEM 11: Executive Compensation
(a) Remuneration
Compensation Pursuant to Agreements
In May 1993 the Company entered into an employment agreement with Mark
Haggerty to serve as Senior Vice-President. Mr. Haggerty has been and will
continue to act as corporate counsel. Mr. Haggerty's salary is $65,000 per year
and his law firm, Haggerty & Associates, Inc. is retained at an additional
$12,000 per year. The agreement with Mr. Haggerty allows him to retain a limited
number of clients while employed with the Company since his contract only
requires him to work 80% of his time for the Company. Mr. Haggerty also receives
an automobile allowance; is reimbursed expenses incurred on company business;
receives four weeks paid vacation per year as well as medical insurance and life
insurance through Ives Design, Inc. On September 9, 1993 the Board of Directors
requested that Mr. Haggerty become the C.E.O.- C.O.O of Kensington and the
Chairman and C.E.O. of Ives Design, Inc. Mr. Haggerty has waived a number of his
benefits and salary and only received $20,538 W-2 income for all of 1993;
$39,500 W-2 income for all of 1994 and only received a combined W-2 income from
Kensington and Ives Design of $36,741 for all of 1995. The balance of Mr.
Haggerty's income has been accrued but he has also waived some of his income.
Mr. Etten receives a combined consulting and employee package of $46,000 a year
for acting as C.F.O. Mr. Etten also receives a car allowance, vacation and
expenses reimbursement. A portion of Mr. Etten's salary has been accrued.
Ms. Hamilton received $15,500 in 1995 for acting as Vice President and
Secretary.
The directors receive no pay and only get reimbursed for expenses. All of the
directors have deferred reimbursement of expenses in order to make sure that
production workers are paid first.
COMPENSATION PURSUANT TO PLANS
STOCK OPTIONS
The Company has adopted an incentive stock option plan which authorizes a
maximum of 750,000 shares that may be issued pursuant to the Plan. The Board of
Directors may grant options to key individuals at their discretion. The exercise
price for options issued pursuant to the Plan may not be less than 85% of the
fair market value of the Company's common stock on the date of grant of option.
Any option granted must be exercised within ten years of its grant. The shares
issued upon exercise of the options granted pursuant to the Plan have no
registration rights unless specifically authorized by the Board of Directors. On
May 1, 1993 the Board of Directors authorized issuance of 211,000 options to
purchase a like amount of shares at a price of $2.625 per share, for a period of
three years from the date of issuance, to certain directors, officers,
employees, and former employees of the Company and this grant was extended to
January 1, 1997. On March 17, 1995 the Company's board authorized the issuance
of options at $.32 for a period of five years. The bid on March 17 was $.125 and
the asking price was $.375. The 10,000 options authorized to the employees of
Ives Design, Inc. on May 1, 1993 was withdrawn and the Board on March 17, 1995
authorized 50,000 options to the 20 employees of Ives Design, Inc. at $.32 for
five years bringing the total of authorized options to 251,000. In addition each
director, the CFO and the corporate secretary were authorized to receive 50,000
options each at $.32 for five years provided Mark Haggerty surrendered 75,000 of
his warrants, and each of the other four directors, the CFO and the Secretary
agreed to surrender 50,000 warrants issued on February 14, 1995 which they
agreed to do. This brought the number of authorized options up to 601,000. The
Board authorized the exchange of 29,700 options in return for 29,700 warrants
bringing the total number of authorized options to 630,700 out of 750,000.
With the exchange of options for warrants detailed above the reduction in
warrants was 304,700. The authorization of options and reduction in warrants
were stated in the S-8 filed in October 1995 and again in the PROXY STATEMENT
mailed to all of the shareholders by the Transfer Agent on December 20, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of December 31, 1995
regarding ownership of the Company's common stock by (i) the only persons known
by the Company to own beneficially more than five percent (5%) thereof; (ii) the
directors individually, and (iii) all officers and directors as a group. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
NAME Shares Percentage
---- ------ ----------
Dennis Krause 226,722 7%
7733 Quincy St.
Spring Lake Park,
Minnesota 55432
Keith Bernhardt 161,104 5%
107 Cliffmore Rd
W. Hartford, CT
06107
Bernard M.S. Kegan 170,525 6%
1805 Eagle Ridge Dr.
#10 West Court
Mendota Heights,
Minnesota 55118
G. Wallace 162,500 5%
151 Yonge St.
Toronto, Canada
All Officers, key 650,420 21%
persons & directors as a
Group, eight persons (1) (2)
(1) Includes shares issued to the Joan Witter Trust and the Witter Family Trust
wherein Keith A. Witter, the Company's Chairman, surrendered his control and
right to vote.
(2) Does not include Bernard M.S. Kegan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
In connection with the Company's 1992 acquisition of American Gas, the
Company assumed certain obligations of American Gas. Among these obligations was
the issuance of the Company's securities (as described more fully below) to
creditors and investors who participated in a series of oil and gas drilling
partnerships promoted by Liberty National Corporation ("Liberty"), a defunct
corporation whose assets American Gas acquired in a sale approved by the
Superior Court of the State of California, Orange County. In consideration for
the purchase of such assets, the Company agreed to issue to the approximately
634 Liberty creditors/investors 200,000 shares of common stock (the "Liberty
Shares") and 800,000 warrants (the "Class A Liberty Warrants"). Each Class A
Liberty Warrant is exercisable for six months from issuance to purchase one
share of common stock at $2.50 per share and one Class C Liberty Warrant which
is exercisable at $7.00 per share. These conditions were changed by Court Order
of May 3, 1994 where the 634 Liberty National investors are to receive 125,000
shares and 1,000,000 Class A Liberty Warrants as described herein. These Class A
Liberty Warrants are subject to redemption at the sole option of the Company at
any time commencing three months after their issuance, at a redemption price of
$.001 per Class A Liberty Warrant. The Company shall give thirty days' written
notice to all holders of the Liberty Warrants of such redemption, during which
time the holder shall have the right to exercise such Warrant. Upon notice of
redemption to the warrant holders and the warrant holders failure to exercise
their right of conversion, the Company shall, upon surrender and delivery of the
warrant certificates to the Company or its transfer agent, pay the warrant
holder a sum equal to the $.001 redemption price per warrant times the number of
warrants surrendered. At the date of drafting this 10-KSB, no Liberty Warrants
have been either issued or exercised. In connection with the conversion of
certain debts and obligations, the Company issued Class B Investor Warrants to
purchase an aggregate of 538,933 shares of common stock. These Class B Investor
Warrants are exercisable at any time through January 1, 1997 (extended by Board
action from November 1995). Approximately 7% (39,424 warrants) were issued for
services rendered: and 93% ( 499,509 warrants) were issued in connection with
the private placement of the Company's securities. As of the date of this 10-
KSB, no Class B Investor Warrants have been exercised.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has authorized 50,000,000 shares of stock, no par value.
40,000,000 shares have been designated as common stock and 10,000,000 as
unclassified. Each holder of common stock has one vote per share on all matters
voted upon by the shareholders. Such voting rights are non-cumulative so that
the shareholders holding more than 50% of the outstanding shares of common stock
are able to elect all members of the Board of Directors. There are pre-emptive
rights or other rights of subscription. Each share of common stock is entitled
to participate equally in dividends if and when declared by the Board of
Directors of the Company out of the funds legally available and is entitled to
participate equally in the distribution of assets in the event of liquidation.
All shares, when issued and fully paid, are non-assessable and are not subject
to redemption or conversion and have no conversion rights.
The value of a share has been arbitrarily determined. The offering
price bears no relationship to assets, earnings, book value or any other
commonly used criteria for valuation.
WARRANTS
During the years ended December 31, 1992 and the period ended June 30,
1993, the Company authorized the issuance of warrants (the "Class B Investor
Warrants") to purchase an aggregate of 538,933 shares of common stock to certain
investors in consideration for the conversion of debt and obligations, for
services rendered and in private transactions. The Class B Investor Warrants
were issued, subject to the terms and conditions of certain Warrant Agreements.
The following description of the Class B Investor Warrants is not complete and
is qualified in all respects by the Warrant Agreement which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Each Class B Investor Warrant entitles the holder thereof to purchase
one share of common stock at any time on or before January 1, 1997 for $3.00.
Each Class B Investor Warrant contains anti-dilution provisions upon certain
events, and is not subject to redemption. All Class B Investor Warrants not
exercised will expire at 5:00 P.M. Mid-West time on January 1, 1997. Holders of
Class B Investor Warrants will not, as such, have any of the rights of
shareholders of the Company.
On September 11, 1992, the Company authorized the issuance of an
aggregate of 800,000 warrants to the creditors/investors of Liberty (the "Class
A Liberty Warrants"). The Class A Liberty Warrants were issued in connection
with the sale of certain of Liberty's assets to the Company through and by
virtue of the Company's acquisition of American Gas. These Liberty Warrants are
issued subject to the terms and conditions of certain Warrant Agreements. The
foregoing description of the Liberty Warrants is not complete and is qualified
in all respects by the Liberty Warrant Agreement which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
Each Class A Liberty Warrant entitles the holder thereof to purchase
one share of the Company's common stock and one Class C Liberty Warrant at any
time on or before six months from the date this Registration Statement is
declared effective, for $2.50. Each Liberty Warrant contains anti-dilution
provisions. At any time commencing three months from their issuance upon 30
days' written notice, the Company may redeem all, but not less than all,
unexercised Class A Liberty Warrants for $.001 per warrant. Holders of Class A
Liberty Warrants will not, as such, have any of the rights of shareholders of
the Company. These Class A warrants were increased by California Court Order on
May 3, 1994 from 800,000 to 1,000,000. All of the other terms and conditions
remain the same.
The Class C Liberty Warrants are issuable upon conversion of the Class
A Liberty Warrants, and entitle the holder thereof to purchase one share of the
Company's common stock for $7.00 per share, at any time on or before three years
from issuance thereof. The Class C Liberty Warrants contain anti-dilution
provisions, are not subject to redemption by the company. and do not, as such,
confer upon the holder thereof any of the rights of shareholders of the company.
Pursuant to the terms of the Class B Investor Warrant Agreement, the
Class A Liberty Warrant Agreement, and the Class C Liberty Warrant Agreement
(collectively, the "Warrants"), the Company is obligated to undertake, on a good
faith basis, to register under the Act and the applicable state securities acts,
the shares of common stock underlying the Warrants and to keep such Warrants, at
the Company's expense. In certain cases, the sale of securities by the Company
upon the exercise of the Warrants could violate the securities laws of the
United States, certain states, or other jurisdictions. The Company will not be
required to honor the exercise of any of the Warrants if, in the opinion of
counsel to the Company, the sale of securities upon such exercise would be
unlawful.
CONVERTIBLE DEBENTURES:
During 1995, $130,000 of unsecured 3 year converible debentures were issued. As
of December 31, 1995 the company had $614k of convertible debentures
outstanding. Of this total, $218k is secured by real estate of Ives Design Inc.
During the 4th quarter of 1996, $27k worth of debentures are due. Of the
remaining amount, $461k is due in 1997 and $126k is due in 1998.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits. See "Exhibit Index" on the page
following the Financial Statements.
(B) Reports on Form 8-K None.
SIGNATURES
Pursuant to the requirements od Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned officers and/or Directors, there unto
duly authorized.
THE KENSINGTON COMPANY, INC.
By: /s/ Mark Haggerty
----------------------------------
Mark Haggerty, C.E.O.- C.O.O. & Director
Dated: May 11, 1996
/s/ Mike Nakonechny Chairman
- - -------------------
By: Mike Nakonechny
Dated: May 11, 1996
Director Keith Bernhardt is on page 17 and Director Dr. Graeme Wallace is on
page 18 and Director Keith Witter is on page 19.
SIGNATURES
Pursuant to the requirements od Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned officers and/or Directors, there unto
duly authorized.
THE KENSINGTON COMPANY, INC.
By: /s/ Mark Haggerty
----------------------------------
Mark Haggerty, C.E.O.- C.O.O. & Director
Keith Bernhardt Director
- - -------------------
By: Keith Bernhardt
Dated: May 11, 1996
SIGNATURES
Pursuant to the requirements od Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned officers and/or Directors, there unto
duly authorized.
THE KENSINGTON COMPANY, INC.
By: By: /s/ Mark Haggerty
----------------------------------
Mark Haggerty, C.E.O.- C.O.O. & Director
/s/ Graeme Wallace Director
By: Graeme Wallace
Dated: May 11, 1996
SIGNATURES
Pursuant to the requirements od Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned officers and/or Directors, there unto
duly authorized.
THE KENSINGTON COMPANY, INC.
By: /s/ Mark Haggerty
Mark Haggerty, C.E.O.- C.O.O. & Director
/s/ Keith Witter Director
By: Keith Witter
Dated: May 11, 1996
EXHIBIT INDEX
EXHIBIT DESCRIPTION
#
#3 Certificate of Incorporation *
#3.3 By-Laws of Company *
#10 Promissory notes payable ***
#10.1 Acquisition of Ives & American Gas **
#10.3 Lease with Baxter Advertising F__
#10.4 Employment agreements ***
#21.1 Form of Common Stock ***
#21.2 Form of Warrants & Debentures ***
* Filed as exhibits to Company's registration
33-38119-C to the SEC
** Filed as part of Form 8-K to SEC on 2-12-93
*** Filed as an exhibit to Form 10-K filed on
June 1993.
All 10-Qs, 8-ks and amendments, S-8s and 10-Ks and 10- KSBs
filed since 1989 are incorporated herein by reference.
LUND KOEHLER COX & COMPANY, PLLP
THE KENSINGTON COMPANY, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
LUND KOEHLER COX & COMPANY, PLLP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants 2
Consolidated Financial Statements:
Balance Sheets 3
Statements of Operations 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
LUND KOEHLER COX & COMPANY, PLLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Kensington Company, Inc.:
We have audited the accompanying consolidated balance sheets of The Kensington
Company, Inc. and Subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Kensington
Company, Inc. and Subsidiaries as of December 31, 1995 and 1994 and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Lund Koehler Cox & Company, PLLP
Minneapolis, Minnesota
April 9, 1996
<TABLE>
<CAPTION>
THE KENSINGTON COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 34,232 $ 113,735
Accounts receivable 202,218 116,670
Inventories 136,112 111,033
Other current assets 12,076 23,265
----------- -----------
Total current assets 384,638 364,703
----------- -----------
OTHER ASSETS:
Investment in oil and gas properties, net 1,206,278 1,290,278
Investment in unconsolidated oil and gas partnerships 47,981 139,000
Property and equipment, net 361,249 372,399
Notes receivable - related parties, net 33,125 185,331
----------- -----------
Total other assets 1,648,633 1,987,008
----------- -----------
$ 2,033,271 $ 2,351,711
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - related parties $ 344,096 $ 264,891
Current portion of long-term debt 99,135 70,041
Current portion of obligations under capital leases 26,548 23,542
Accounts payable 222,816 343,521
Accrued payroll and payroll taxes 75,821 87,004
Accrued interest 29,397 23,620
Accrued expenses 89,680 75,251
----------- -----------
Total current liabilities 887,493 887,870
LONG-TERM DEBT, NET OF CURRENT PORTION 625,912 571,145
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT PORTION 55,017 81,565
MINORITY INTERESTS IN CONSOLIDATED OIL AND GAS PARTNERSHIPS 13,332 0
----------- -----------
Total liabilities 1,581,754 1,540,580
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 50,000,000 shares authorized,
2,945,894 and 3,083,120 shares issued and outstanding 3,647,670 3,863,008
Stock subscriptions receivable (297,332) (354,469)
Accumulated deficit (2,898,821) (2,697,408)
----------- -----------
451,517 811,131
----------- -----------
$ 2,033,271 $ 2,351,711
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
THE KENSINGTON COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------------------------ ------------------------------
Amount Percent Amount Percent
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 2,552,682 100.0 $ 1,615,748 100.0
COST OF SALES 1,601,568 62.7 1,190,042 73.6
----------- ------------- ----------- -------------
GROSS PROFIT 951,114 37.3 425,706 26.4
OPERATING EXPENSES 850,742 33.3 855,800 53.0
----------- ------------- ----------- -------------
INCOME (LOSS) FROM OPERATIONS 100,372 4.0 (430,094) (26.6)
OTHER INCOME (EXPENSE) (328,569) (12.9) (55,806) (3.5)
----------- ------------- ----------- -------------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (228,197) (8.9) (485,900) (30.1)
PROVISION FOR INCOME TAXES 0 0.0 0 0.0
----------- ------------- ----------- -------------
LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (228,197) (8.9) (485,900) (30.1)
EXTRAORDINARY ITEM:
Extinguishment of debt, net of income taxes of $0 0 0.0 69,990 4.3
CUMULATIVE EFFECT ON PRIOR YEARS (TO DECEMBER
31, 1994) OF CHANGE IN METHOD OF ACCOUNTING
FOR OIL AND GAS PARTNERSHIP INTERESTS, NET OF
INCOME TAXES OF $0 26,784 1.0 0 0.0
----------- ------------- ----------- -------------
NET LOSS $ (201,413) (7.9) $ (415,910) (25.8)
=========== ============= =========== =============
PER SHARE AMOUNTS:
Loss before extraordinary item and cumulative
effect of change in accounting principle $ (0.08) $ (0.16)
Extraordinary item 0.00 0.03
Cumulative effect of change in method of
accounting for oil and gas partnership interests 0.01 0.00
----------- -----------
Net loss $ (0.07) $ (0.13)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING $ 2,970,284 $ 3,083,120
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
THE KENSINGTON COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Common stock Stock
----------------------------- subscriptions Accumulated
Shares Amount receivable deficit Total
----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1993 3,083,120 $ 3,975,508 $ (492,031) $(2,281,498) $ 1,201,979
Reduction of stock subscription
receivable -- (112,500) 112,500 -- 0
Payments received on stock
subscriptions -- -- 33,334 -- 33,334
Accrued interest on stock
subscriptions receivable -- -- (8,272) -- (8,272)
Net loss -- -- -- (415,910) (415,910)
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1994 3,083,120 3,863,008 (354,469) (2,697,408) 811,131
Payments received on stock
subscriptions -- -- 57,137 -- 57,137
Reduction in shares issued related to
American Gas acquisition (75,000) (150,000) -- -- (150,000)
Repurchase of shares (85,000) (85,000) -- -- (85,000)
Issuance of shares for retirement of debt 8,700 8,700 -- -- 8,700
Issuance of shares for retirement of
liability 3,300 6,600 -- -- 6,600
Issuance of shares for services and other 10,774 4,362 -- -- 4,362
Net loss -- -- -- (201,413) (201,413)
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1995 2,945,894 $ 3,647,670 $ (297,332) $(2,898,821) $ 451,517
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
THE KENSINGTON COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(201,413) $(415,910)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation, depletion and amortization 73,231 57,406
Allowance for uncollectible notes receivable 152,206 0
Expenses paid by issuance of common stock 4,362 0
Equity in earnings of unconsolidated oil and gas partnerships (4,184) 0
Minority interests in earnings of consolidated oil and gas partnerships 1,036 0
Change in method of accounting for oil and gas partnership interests (26,784) 0
Expenses paid by issuance of debt 0 35,017
Accrued interest income on stock subscriptions 0 (8,272)
Extinguishment of debt 0 (69,990)
Changes in operating assets and liabilities:
Accounts receivable (85,548) 50,556
Inventories (25,079) (59,628)
Other current assets 28,108 (21,315)
Other assets 0 3,234
Accounts payable (120,704) 20,713
Other current liabilities 15,623 20,293
--------- ---------
Cash flows from operating activities (189,146) (387,896)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes receivable - related parties 0 2,840
Distributions from unconsolidated oil and gas partnerships 13,467 0
Purchase of property and equipment (23,081) (2,955)
--------- ---------
Cash flows from investing activities (9,614) (115)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable - related parties 11,165 (1,338)
Proceeds from long-term debt 130,000 487,500
Payments on long-term debt (54,399) (103,978)
Payments on obligations under capital leases (23,542) (12,514)
Payments received on stock subscriptions 57,137 33,334
Distributions to minority interests in oil and gas consolidated partnerships (1,104) 0
--------- ---------
Cash flows from financing activities 119,257 403,004
--------- ---------
INCREASE (DECREASE) IN CASH (79,503) 14,993
CASH, BEGINNING 113,735 98,742
--------- ---------
CASH, ENDING $ 34,232 $ 113,735
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
THE KENSINGTON COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Kensington Company, Inc. (Kensington or the Company)
was incorporated August 22, 1988, for the purpose of direct development of oil
and gas properties in Kentucky. In 1992, the Company's focus shifted from
development of oil and gas properties to becoming a diversified company. As of
December 31, 1995, the Company includes three wholly-owned subsidiaries: Ives
Design, Inc. (Ives), American Gas Corporation (American) and National Fixture
Installers, Inc. (National) and two majority owned oil and gas limited
partnerships: Kensington Energy 1986 Oil and Gas Limited Partnership (Kensington
1986) and Kensington 1987 Limited Partnership (Kensington 1987).
Ives was acquired in April 1992. Ives manufactures non-refrigerated, customized
display fixtures, primarily for the supermarket industry, and extends credit to
customers in the normal course of business. Customers are located throughout the
Midwest region of the United States.
American was acquired in September 1992. American and its wholly-owned
subsidiary, Bluegrass Management and Operating Company, are involved in the
development of natural gas properties and pipelines in the Appalachian region of
the eastern United States.
National was incorporated on January 7, 1994 and is inactive.
Kensington 1986 was formed in 1986 and operates oil and gas wells in the
southwestern United States. In 1992, Kensington acquired an 83% limited partner
interest.
Kensington 1987 was formed in 1988 and operates oil and gas wells in the
southwestern United States. In 1992, Kensington acquired a 91.5% limited partner
interest.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Kensington, Ives, American, Kensington 1986 and Kensington 1987. All
significant intercompany transactions have been eliminated in consolidation.
ACCOUNTS RECEIVABLE - The Company uses the direct write-off method which removes
uncollectible accounts receivable when they are specifically identified due to
the infrequency and insignificance of uncollectible accounts. This method
approximates the allowance method.
INVENTORIES - Inventories consist primarily of display fixtures and related raw
materials and are valued at the lower of cost (first-in, first-out), or market.
DEPRECIATION - Property and equipment are recorded at cost and are being
depreciated over their estimated useful lives using the straight-line method.
Depreciation expense was $43,358 and $31,507 for the years ended December 31,
1995 and 1994.
INVESTMENT IN OIL AND GAS PROPERTIES - Investment in oil and gas properties is
recorded at cost and consists of acquisition costs of the natural gas reserves,
oil and gas leases and the related rights-of-way, wells, pipeline and related
equipment. The Company follows the successful efforts method of accounting for
oil and gas properties. Accordingly, intangible development and well completion
costs of oil and gas properties are amortized over the estimated economic life
of the wells when the related reserves are proven. Costs of drilling a well
which do not result in proved reserves, net of any salvage value, are charged to
expense when it is determined that the drilling has been nonproductive.
Geological and geophysical costs and costs of carrying and retaining undeveloped
properties are charged to expense when incurred.
Unproved oil and gas properties are periodically assessed for impairment value,
and any loss is recognized at the time of impairment by providing an impairment
allowance. Capitalized costs of producing oil and gas properties after
considering estimated dismantlement, abandonment costs and estimated salvage
values are depreciated and depleted by the unit-of-production method. Pipeline
and other equipment are being depreciated over their estimated useful lives
using the straight-line method. Depreciation, depletion, amortization and
impairment expense was $29,823 and $25,779 for the years ended December 31, 1995
and 1994.
REVENUE RECOGNITION - The Company recognizes revenue from sales at the time that
ownership transfers to the customer, principally at shipment of the product, and
upon completion of the earnings process for oil and gas activities.
NET LOSS PER SHARE - Net loss per share is based on the weighted average number
of common shares outstanding during the period. Options and warrants for the
purchase of common shares are not included in the per share calculations as the
effect would be antidilutive.
RECENTLY ISSUED ACCOUNTING STANDARD - During 1995, the Company adopted the
provisions of Financial Accounting Standards Board (FASB) Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS No. 121), which establishes accounting standards for the
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill either to be held or disposed of. The
adoption of SFAS No. 121 had no impact on the Company's financial position or
results of operations.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain accounts in the prior year consolidated financial
statements have been reclassified for comparative purposes to conform with the
presentation in the current year consolidated financial statements. These
reclassifications had no effect on net loss or stockholders' equity.
(2) INVENTORIES
Inventories relating to the manufacturing activities of Ives consisted of the
following at December 31:
1995 1994
-------------- ---------------
Raw materials $ 78,614 $ 39,385
Work in progress 12,148 49,466
Finished goods 45,350 22,182
-------------- ---------------
Total $ 136,112 $ 111,033
============== ===============
(3) INVESTMENT IN OIL AND GAS PROPERTIES
Investment in oil and gas properties, using successful efforts accounting,
consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------------- ---------------
<S> <C> <C>
Proved properties $ 879,448 $ 933,625
Unproved properties 70,012 70,012
Pipeline and other equipment 357,563 357,563
---------------- ---------------
1,307,023 1,361,200
Less: accumulated depreciation, depletion,
amortization and impairment (100,745) (70,922)
---------------- ---------------
$ 1,206,278 $ 1,290,278
================ ===============
</TABLE>
(4) INVESTMENT IN UNCONSOLIDATED OIL AND GAS PARTNERSHIPS
The Company has general and limited partner interests in four unconsolidated oil
and gas limited partnerships. The Company's interests range from 10.8% to 46.6%.
The Company is accounting for these interests using the equity method. The
equity method accounts for the Company's investment at cost, adjusted for the
Company's proportionate share of undistributed earnings or losses. Prior to
January 1, 1995, the Company had accounted for these investments using the cost
method whereby the interests were carried at cost and distributions were
recorded as income when received. The effect of the change in the method of
accounting for these partnerships was not material and is reflected in the
statement of operations.
(5) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Land $ 19,500 $ 19,500
Building 268,699 268,699
Equipment 260,576 150,151
------------- -------------
548,775 438,350
Less: accumulated depreciation (265,675) (168,442)
------------- -------------
283,100 269,908
Equipment under capital leases, net of accumulated
amortization of $43,563 and $19,221
78,149 102,491
------------- -------------
$ 361,249 $ 372,399
============= =============
</TABLE>
(6) NOTES RECEIVABLE - RELATED PARTIES
Notes receivable - related parties consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
B & K Oil Company, Inc., interest at 8%, unsecured,
due on demand. $ 43,125 $ 43,125
B & D Commercial Ventures, interest at 8%, unsecured,
due on demand. 30,000 30,000
Shareholders/former officers, interest at 5%,
unsecured, due on demand. 112,206 112,206
Less: allowance for uncollectible notes (152,206) 0
------------- ------------
$ 33,125 $ 185,331
============= ============
</TABLE>
B & K Oil Company, Inc. (B & K) is owned by three individuals, two of which are
shareholders of Kensington. These two shareholders are also the owners of B & D
Commercial Ventures.
(7) NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Notes payable to a trust controlled by
former officer/current shareholder, interest
at 12%, unsecured. Note holder has option
to convert to common shares of Company
stock at any time before September 1, 1997
at a conversion price of $1.00 per share. $ 98,716 $ 102,006
Notes payable to shareholders, interest at
12%, due on demand, unsecured. 26,500 26,500
Note payable to shareholder, interest at
8%, due on demand, secured by note
receivable from B & K. 29,740 37,500
Note payable to former officer/current
shareholder, monthly installments of $332
including interest at 12%, unsecured. 8,376 16,173
Note payable to shareholder, interest at
12%, due February 1996, unsecured. 10,000 10,000
Note payable to shareholder, interest at
8%, due February 1994, secured by stock. 4,500 5,000
Note payable to shareholder, interest at
9%, due December 1993, unsecured. 39,800 39,800
Note payable to shareholder, monthly
installments of $1,800 including interest at
10%, due January 1998, secured by stock. 69,752 0
Note payable to shareholder, interest at
10%, due May 1996, secured by
Company's assets. Note holder has option
to convert to common shares of Company
stock at a conversion price of $0.32 per
share. 37,500 0
Various notes payable to shareholders,
unsecured. 19,212 19,212
Note payable to a corporation controlled by
former officer/current shareholder, interest
at 12%, due on demand, unsecured. 0 8,700
---------- ------------
$ 344,096 $ 264,891
========== ============
</TABLE>
(8) LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------- --------------
<S> <C> <C>
Debentures payable to shareholders and
non-shareholders - monthly installments of
$66 per $5,000 debenture including interest
at 12%, due three years from issue date,
$217,851 secured by Ives' real estate,
remainder unsecured. Secured debenture
holders have option to convert principal to
common shares of Company stock at
$2.625 per share. Unsecured debenture
holders have option to convert principal to
common shares of Company stock at $1.50
per share. $ 614,321 $ 511,164
Notes payable to bank -
monthly installments of $2,009 including
interest at 1.5% over bank's reference
rate, due August 1998, secured by all
corporate assets. 61,222 77,971
monthly installments of $1,212 including
interest at 1.5% over bank's reference
rate, due August 1997, secured by all
corporate assets. 24,107 35,472
monthly installments of $553 including
interest at 1.5% over bank's reference
rate, due August 1998, secured by all
corporate assets. 15,397 0
monthly installments of $370 including
interest at 10.5%, due December 1997,
secured by stock and the personal guaranty
of a stockholder/director. 10,000 15,000
Note payable to bank - monthly
installments of $683 including interest at
bank's reference rate, due March 1995,
secured by compressor, paid off in 1995. 0 1,579
------------- --------------
725,047 641,186
Less: current maturities (99,135) (70,041)
------------- --------------
$ 625,912 $ 571,145
============= ==============
</TABLE>
Future maturities of long-term debt are as follows for the years ending December
31:
Amount
--------------
1996 $ 99,135
1997 487,180
1998 138,732
---- --------------
Total $ 725,047
==============
(9) OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital lease agreements that expire
through 1999. Interest is provided for at interest rates ranging from
approximately 11.5% to 15.75%. These obligations are secured by the equipment
under lease.
Future minimum lease payments required under the capital leases together with
the present value of the future minimum lease payments are as follows for the
years ending December 31:
Amount
-----------
1996 $ 34,824
1997 28,483
1998 23,134
1999 11,567
---- -----------
Total 98,008
Less: amount representing interest 16,443
-----------
Present value of future minimum lease payments 81,565
Less: current portion 26,548
-----------
Obligations under capital leases, net of current portion $ 55,017
===========
(10) STOCKHOLDERS' EQUITY
STOCK SUBSCRIPTIONS - During 1992, the Company issued 597,500 shares of common
stock at per share prices ranging from approximately $.40 to $2.00 in exchange
for subscriptions receivable aggregating $455,001. The subscriptions accrue
interest at 8% and mature at various dates from February 1995 to July 1995 and
are secured by the underlying common stock. The subscriptions and accrued
interest are recorded as stock subscriptions receivable. In September 1994, the
Board of Directors reduced one of the subscriptions receivable from $225,000 to
$112,500, effective January 1, 1994.
STOCK WARRANTS - Outstanding stock warrants consisted of the following:
Per share
Shares price
--------------- -------------
Outstanding, December 31, 1993 538,933 $3.00
Granted 640,000 $.50 - $1.00
--------------- ------------
Outstanding, December 31, 1994 1,178,933 $.50 - $3.00
Granted 211,950 $.63 - $3.00
Canceled (125,000) $.50
--------------- ------------
Outstanding, December 31, 1995 1,265,883 $.50 - $3.00
=============== ============
STOCK OPTION PLAN - The Company has a stock option plan which authorizes a
maximum of 750,000 shares of common stock for issuance under the Plan. The Board
of Directors may grant options at their discretion, provided the purchase price
of the option shares are not less than 85% of the fair market value of the
common stock on the date of the grant. As of December 31, 1995, the Company had
options outstanding to purchase 630,700 shares of common stock, consisting of
201,000 options exercisable at $2.62 per share through June 1998 and 429,700
options exercisable at $.32 per share through March 2000.
MODIFICATION OF AMERICAN GAS CORPORATION ACQUISITION - In 1995, the Company
finalized payment for its acquisition of American by issuing 125,000 shares of
common stock and 1,000,000 warrants with an exercise price of $2.50 per share.
The Company's original obligation was to issue 200,000 shares of common stock
and 800,000 warrants. The warrants are valid for six months from the date of
issue, and are callable by the Company after three months. The Company is
required to issue new warrants to those who exercise the $2.50 warrants. These
new warrants will have an exercise price of $7.00 per share for a period of
three years. The new warrants are not callable by the Company.
(11) CONTINGENCIES AND COMMITMENTS
OPERATING LEASES - In February 1996, the Company signed an agreement to lease
its corporate office space for $687 per month through August 1998. Rent expense
for the years ended December 31, 1995 and 1994 was $13,753 and $18,574.
Future minimum rental payments are as follows for the years ending December 31:
1996 $ 8,370
1997 8,244
1998 5,496
---- ----------
Total $ 22,110
==========
SETTLEMENT OF LAWSUITS - Pursuant to a settlement agreement, in 1993 the Company
transferred its rights and interests in the Gladys Harrell No. 1-14 Well
(Gladys) to the plaintiffs and guaranteed that the plaintiff's interest in the
Gladys will generate $12,500 of cash flow per year through November 2002 or
until in aggregate $125,000 has been received. In addition to the Gladys cash
flows, the Company paid $4,355 and $8,695 under the agreement for 1995 and 1994.
As of December 31, 1995, the Company has a liability of $24,250 recorded which
represents the estimated future cash shortfall.
In February 1995, the Company paid $15,000 to settle a lawsuit with a former
officer and director.
SIGNIFICANT CUSTOMER - Ives had sales to a single customer representing 84% and
79% of total product sales for the years ended December 31, 1995 and 1994.
(12) INCOME TAXES
The Company has incurred cumulative net operating losses for both financial
reporting and income tax purposes. As of December 31, 1995, the Company had net
operating loss carryforwards of approximately $2,550,000, which, if not used,
will begin to expire in 2003. Future changes in the ownership of the Company may
place limitations on the use of these net operating loss carryforwards. The
Company has recorded a full valuation allowance against the net deferred tax
asset due to the uncertainty of realizing the related benefits.
<TABLE>
<CAPTION>
1995 1994
--------------- --------------
<S> <C> <C>
Net operating loss carryforwards $ 1,020,000 $ 1,000,000
Valuation allowance (1,020,000) (1,000,000)
--------------- --------------
Net deferred taxes $ 0 $ 0
=============== ==============
</TABLE>
(13) OTHER INCOME (EXPENSE)
Other income (expense) consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------------- --------------
<S> <C> <C>
Interest income $ 437 $ 0
Interest income - related parties 2,307 27,257
Interest expense (101,751) (61,226)
Interest expense - related parties (36,899) (19,558)
Litigation settlement (43,605) (8,695)
Allowance for uncollectible notes
receivable (152,206) 0
Equity in earnings of unconsolidated oil and gas
partnerships 4,184 0
Minority interests in earnings of oil and gas
consolidated partnerships (1,036) 0
Miscellaneous income 0 6,416
--------------- --------------
Total other income (expense) $ (328,569) $ (55,806)
=============== ==============
</TABLE>
(14) SUPPLEMENTAL CASH FLOWS INFORMATION
1995 1994
------------- -----------
Cash paid for interest $ 129,873 $ 94,754
============= ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
1995
-----------------
<S> <C>
Long-term debt issued to repurchase common stock $ 85,000
Common stock issued to retire long-term debt $ 8,700
Common stock issued to retire a liability $ 6,600
Common stock issued in exchange for services and other $ 4,362
1994
----------------
Acquired equipment by entering into capital lease obligations $ 96,212
Reduced stock subscriptions by reducing common stock $ 112,500
</TABLE>
(15) SEGMENT REPORTING
The Company operates in two industry segments: manufacturing and oil and gas.
Manufacturing consists of the fabrication, marketing, and distribution of
non-refrigerated, customized display fixtures. Oil and gas consists of the
production of natural gas and oil interests in the United States. A summary of
the operations by segment is as follows:
<TABLE>
<CAPTION>
1995 1994
------------------ ----------------
<S> <C> <C>
Revenues from unaffiliated customers:
Manufacturing $ 2,510,763 $ 1,543,915
Oil and gas 41,919 71,833
----------------- ----------------
Consolidated $ 2,552,682 $ 1,615,748
================= ================
Operating profit (loss):
Manufacturing $ 402,116 $ 38,083
Oil and gas (22,329) (14,719)
General corporate (279,415) (453,458)
----------------- ----------------
Consolidated $ 100,372 $ (430,094)
================= ================
Identifiable assets:
Manufacturing $ 723,933 $ 702,270
Oil and gas 1,246,650 1,304,003
General corporate 62,688 345,438
----------------- ----------------
Consolidated $ 2,033,271 $ 2,351,711
================= ================
Depreciation, depletion and amortization:
Manufacturing $ 37,683 $ 24,656
Oil and gas 34,351 31,649
General corporate 1,197 1,101
----------------- ----------------
Consolidated $ 73,231 $ 57,406
================= ================
Capital expenditures:
Manufacturing $ 23,081 $ 96,212
General corporate 0 2,955
----------------- ----------------
Consolidated $ 23,081 $ 99,167
================= ================
</TABLE>
(16) SUPPLEMENTARY OIL AND GAS INFORMATION
Results of operations for oil and gas producing activities were as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Oil and gas sales $ 41,919 $ 17,748
Well depreciation and depletion (29,823) (25,779)
Production costs 0 (382)
----------- -----------
Results of operations of oil and gas
producing activities (excluding corporate overhead
and financing costs) $ 12,096 $ (8,413)
=========== ===========
</TABLE>
RESERVE INFORMATION - The following estimates of proved developed and
undeveloped reserves and related standardized measure of discounted future net
cash flows are estimates only, and do not purport to reflect realizable values
or fair market values of the Company's reserves. The Company emphasizes that
reserve estimates are inherently imprecise and that the estimates of new
discoveries are more imprecise than those of producing oil and gas properties.
Accordingly, these estimates are expected to change as future information
becomes available. All of the Company's reserves are located in the United
States.
Proved reserves are estimated reserves of natural gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered through
existing wells, equipment and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices to the estimated future production of proved gas
reserves, less estimated future expenditures to be incurred in developing and
producing the proved reserves, less estimated future income tax expenses to be
incurred on pre-tax net cash flows less tax basis of the properties and
available credits and assuming continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of ten percent
a year to reflect the estimated timing of future cash flows.
Reserve quantity information was as follows at December 31 (UNAUDITED):
<TABLE>
<CAPTION>
Gas (mcf)
-----------------------------
1995 1994
------------ ----------
<S> <C> <C>
Proved developed and undeveloped reserves:
Beginning of period 4,826,000 4,837,000
Production (8,000) (11,000)
--------- ---------
End of period 4,818,000 4,826,000
========= =========
Proved developed reserves:
Beginning of period 2,525,000 2,536,000
Production (8,000) (11,000)
--------- ---------
End of period 2,517,000 2,525,000
========= =========
</TABLE>
Standardized measure of discounted future net cash flows relating to proved oil
and gas reserves was as follows at December 31 (UNAUDITED):
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
<S> <C> <C>
Future cash inflows $ 6,800,000 $ 6,800,000
Future production and development costs (1,500,000) (1,500,000)
Future income tax expenses (1,200,000) (1,200,000)
-------------- ---------------
Future net cash flows 4,100,000 4,100,000
10% annual discount for estimated timing
of cash flows
(2,000,000) (2,000,000)
-------------- ---------------
Standardized measure of discounted future
net cash flows $ 2,100,000 $ 2,100,000
============== ===============
</TABLE>
Capitalized costs relating to oil and gas producing activities were as follows
at December 31:
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
<S> <C> <C>
Proved properties $ 879,448 $ 933,625
Unproved properties 70,012 70,012
-------------- --------------
949,460 1,003,637
Less: accumulated depreciation, depletion and
amortization (10,441) (9,652)
-------------- --------------
$ 939,019 $ 995,644
============== ==============
</TABLE>
No costs were incurred in oil and gas property acquisition, exploration and
development activities during 1995 or 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1995
<CASH> 34,232
<SECURITIES> 0
<RECEIVABLES> 202,218
<ALLOWANCES> 0
<INVENTORY> 136,112
<CURRENT-ASSETS> 384,638
<PP&E> 626,924
<DEPRECIATION> 265,675
<TOTAL-ASSETS> 2,033,271
<CURRENT-LIABILITIES> 887,493
<BONDS> 680,929
0
0
<COMMON> 3,647,670
<OTHER-SE> (3,196,153)
<TOTAL-LIABILITY-AND-EQUITY> 2,033,271
<SALES> 2,552,682
<TOTAL-REVENUES> 2,552,682
<CGS> 1,601,568
<TOTAL-COSTS> 2,452,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 152,206
<INTEREST-EXPENSE> 138,650
<INCOME-PRETAX> (228,197)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 26,784
<NET-INCOME> (201,413)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
