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, 1996, 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 654, 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
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(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, 1996 was 3,021,450 shares.
The estimated market value on December 31, 1996, 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
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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 three non-operating "shell"
corporations, namely, Bluegrass Management and Operating Company, a Kentucky
corporation, and I-Med Software, Inc. and Interchange Medical, Inc. both
Minnesota corporations.
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, 1996 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.
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Page 1
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, 1996,
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
Tanyard fields generate minimal cash. The Company has also entered into a
written agreement for TAUREN Exploration, Inc. of Dallas, Texas to reopen the
Rosewood field in western Kentucky.
TAUREN was of the opinion that there is more gas under the Rosewood
field and was to invest its own money to make the field operational and pay
the Company 40% of the net proceeds. TAUREN was of the opinion that the
numerous seven inch wide wells could be easily reentered and the existing four
inch pipeline owned by the Company could be used to transport the new gas.
Upon additional testing and analysis late in 1996 TAUREN determined that it
was not economically feasible to reopen the Rosewood field. Therefore
Kensington has written off virtually all the assets associated with the
Rosewood field.
In addition, the Company has started to receive revenues on a regular
schedule from its partnership interests in Texas, Arkansas and Oklahoma oil &
gas wells.
Regulation of oil and gas
As regards American Gas, the oil and gas industry is extensively
regulated by federal, state and local authorities but these regulations should
not impact the company since the company has ceased its direct operations.
Competition within the Oil and Gas industry
Competition in the oil and gas business is intense but this should not
affect the company due to its operational shutdown.
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Page 2
Company Direction:
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 analysis performed by Tauren Exploration it has become evident
that the assets of American Gas have become seriously impaired. The Company
therefore, has substantially reduced the carrying value of such assets and
will seek to dispose of them. A limited value is expected to be received for
these assets.
Bluegrass Management, I-Med Software & Interchange Medical
Management has been attempting to activate these companies in the energy,
medical and communications fields.
New Opportunities
It is also management's intention to continue 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 was concluded with
Metropolitan Health Networks, Inc., a Florida corporation, which has since
gone public and is trading at approximately $5 per share.
The company also has an equity interest in Netgates which owns a portion
of the Ocean Manor Resort in Ft. Lauderdale, Florida. The company also has an
interest in Maxwell Rand Holdings, Netcast Radio Networks, Inc. and in Global
Intermatch, Inc., a communications company.
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.
<PAGE>
Page 3
Item 4: Submission of matters to a vote of Security Holders
A stockholder's meeting was held on January 27, 1996. At the January 27,
1996. At that 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 1996 the stock has been quoted at a low of $.03 to a high of $1.00.
On December 31, 1996 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, 1996 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:
1995 1996
Total Revenue $2,552,682 $2,591,259
Cost of Sales 1,601,568 1,699,218
Gross Profit $951,114 $892,041
Operating Expense 850,742 814,848
Inc (Loss) from Operations $100,372 $ 77,193
Other Income (Expense) (328,569) ( 130,591)
Provision for Income Tax
Extraordinary Item (1,025,916)
Change in method of acctg 26,784
Net Loss $(201,413) $(1,079,314)
<PAGE>
As noted above, the Company produced a net income from Operations of $77k in
1996 as compared to $100k in 1995. The reduction in gross profit is explained
further under the Ives discussion. Overall a 4% reduction in operating
expenses was achieved.
Ives Design Inc.
1996 proved to be a somewhat up and down year for the company. Sales during
the first quarter were strong but slowed considerably during the May through
July time frame. This slow down was due to a change at the company's largest
customer regarding how purchase orders were released. The change caused PO's
to be held which impacted production. Once purchase orders were released,
revenues quickly caught up to plan but higher labor costs in the form of
overtime kept gross margins down.
American Gas Corporation
As was explained earlier, the company took a $1.025M writedown on the assets
of American Gas. This writedown was a direct result of Tauren Explorations
additional testing and analysis on the Rosewood field which concluded it was
not economically feasible to extract the gas reserves in that field. After
conducting the additional work at their expense, Tauren terminated its
relationship with Kensington.
Item 7: Financial Statements
The Consolidated financial statements of the Company are included herein
following the signatures, beginning at page F-1.
Item 8: Changes and Disagreements with Accountants on Accounting
and Financial Disclosures - None
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 49 Director
Mark Haggerty 49 Chief Executive Officer
& Director
Keith Bernhardt 75 Director
Dr. Graeme Wallace 55 Director
Holly Callen Hamilton 48 V. P. & Secretary
Mike Nakonechny 69 Chairman
Jeff Etten 40 Chief Financial Officer
<PAGE>
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. He serves on the Board of Directors of Maxwell Rand Holdings,
Ives Design, Inc., American Gas Corp and Haggerty and Associates, Inc.
Haggerty has been a Director since October 15, 1994. Mr. Haggerty is also a
Commissioner with the Hennepin County Parks.
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
<PAGE>
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 a significant
portion of his salary and benefits continue to accrue.
Mr. Etten receives salary of $50,000 a year for acting as C.F.O. Mr. Etten
also receives vacation and expenses reimbursement. A portion of Mr. Etten's
salary has been accrued.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
As of December 31, 1996 the company had $584k of convertible debentures
outstanding. Of this total, $206k is secured by real estate of Ives Design
Inc.The majority of this debt is due in 1997 and the company is actively
pursuing refinancing options.
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.
<PAGE>
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: Mark Haggerty________________________________
Mark Haggerty, C.E.O.- C.O.O. & Director
Dated: Jan 27, 1998
Mike Nakonechny_______________ Chairman
By: Mike Nakonechny
Dated: Jan 30, 1998
Director Keith Bernhardt is on page 14 and Director Dr. Graeme Wallace is on
page 15 and Director Keith Witter is on page 16.
<PAGE>
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: Mark Haggerty________________________________
Mark Haggerty, C.E.O.- C.O.O. & Director
Keith Bernhardt______________ Director
By: Keith Bernhardt
Dated: Jan 31, 1998
<PAGE>
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: Mark Haggerty________________
Mark Haggerty, C.E.O.- C.O.O. & Director
Graeme Wallace______________ Director
By: Graeme Wallace
Dated: Jan 30_, 1998
Page 15
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: Mark Haggerty_____________________
Mark Haggerty, C.E.O.- C.O.O. & Director
Keith Witter_______________ Director
By: Keith Witter
Dated: Jan 30_, 1998
<PAGE>
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.......................................3
3. Legal Proceedings............................................3
4. Submission of matters to vote of shareholders................4
PART II
5. Market for Common equity & related stockholder matters..... .4
6. Management's discussion & analysis of Operations.............4
7. Financial statements ........................................F-1
8. Changes in and disagreements with Accountants on Accounting
and Financial Disclosure.....................................5
PART III
9. Directors, Executive Officers, Promoters and Control Persons
of the Company...............................................5
10. Executive compensation......................................7
11. Security ownership of certain beneficial owners and
management..................................................8
12. Certain relationships & related transactions................9
13. Descriptions of securities.................................10
14. Exhibits and reports on Form 8-K...........................12
15. Signatures.................................................13
Financial Statements......................................F-1
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 **
#10.4 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.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kensington International Holding Corporation:
We have audited the accompanying consolidated balance sheets of Kensington
International Holding Corporation and Subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders'
equity (deficit) 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 Kensington
International Holding Corporation and Subsidiaries as of December 31, 1996 and
1995 and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
August 6, 1997
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995
ASSETS
Current assets:
Cash $16,186 $34,232
Accounts receivable 222,385 202,218
Inventories 193,226 136,112
Other current assets 6,538 12,076
Total current assets 438,335 384,638
Other assets:
Investment in oil and gas properties, net 87854 1213768
Investment in unconsolidated oil and gas
partnerships 44,832 47,981
Property and equipment, net 318,780 353,759
Notes receivable - related parties, net 28,125 33,125
Total other assets 479,591 1,648,633
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Checks written in excess of cash in bank $37,428 $0
Line of credit 33435 0
Notes payable - related parties 284296 344,096
Current portion of long-term debt 513,027 99,135
Current portion of obligations under
capital leases 23,340 26,548
Accounts payable 269,574 222,816
Accrued expenses 178,296 194,898
Total current liabilities 1,339,396 887,493
Long-term debt, net of current portion 139,233 625,912
Obligations under capital leases,
net of current portion 31,677 55,017
Minority interests in consolidated oil
and gas partnerships 11,239 13,332
Total liabilities 1,521,545 1,581,754
Stockholders' equity (deficit):
Common stock, no par value, 50,000,000
shares authorized, 3,021,450 and 2,945,894
shares issued and outstanding 3,671,848 3,647,670
Stock subscriptions receivable (297,332) (297,332)
Accumulated deficit (3,978,135) (2,898,821)
Total stockholders' equity (deficit) (603,619) 451,517
$917,926 $2,033,271
See accompanying notes to consolidated financial statements.
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Amount Percent Amount Percent
Revenues $2,591,259 100.0 $2,552,682 100.0
Cost of sales 1,699,218 65.6 1,601,568 62.7
Gross profit 892,041 34.4 951,114 37.3
Operating expenses 814,848 31.4 850,742 33.3
Loss on impairment of oil
and gas properties 1,025,916 39.6 0 0.0
Income (loss) from
operations (948,723) (36.6) 100,372 4.0
Other income (expense) (130,591) (5.0) (328,569) (12.9)
Loss before income taxes
and cumulative effect of
change in accounting
principle (1,079,314) (41.6) (228,197) (8.9)
Provision for income
taxes 0 0.0 0 0.0
Loss before cumulative
effect of change in
accounting principle (1,079,314) (41.6) (228,197) (8.9)
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 0 0.0 26,784 1.0
Net loss $(1,079,314) (41.6) $(201,413) (7.9)
Per share amounts:
Loss before cumulative
effect of change in
accounting principle $(0.36) $(0.08)
Cumulative effect of
change in method of
accounting for oil and
gas partnership interests 0.00 0.01
Net loss $(0.36) $(0.07)
Weighted average number of
shares outstanding 2,983,672 2,970,284
See accompanying notes to consolidated financial statements.
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Stock
Common stock subscriptions Accumulated
Shares Amount receivable deficit Total
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
Issuance of shares
for options
exercised 48,828 15,625 -- -- 15,625
Issuance of shares
for retirement of
liability 23,828 7,625 -- -- 7,625
Issuance of shares
for services and
other 2,900 928 -- -- 928
Net loss -- -- -- (1,079,314)(1,079,314)
Balance -
December 31,
1996 3,021,450 $3,671,848 $(297,332) $(3,978,135) $(603,619)
See accompanying notes to consolidated financial statements.
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Cash flows from operating activities:
Net loss $ (1,079,314) $(201,413)
Adjustments to reconcile net loss to
cash flows from operating activities:
Depreciation, depletion and amortization 76,107 73,231
Gain on sale of equipment (4,443) 0
Loss on impairment of oil and gas
properties 1,025,916 0
Reserve for uncollectible notes receivable 0 152,206
Expenses paid by issuance of common stock 928 4,362
Equity in earnings of unconsolidated oil
and gas partnerships (2,187) (4,184)
Minority interests in earnings of
consolidated oil and gas partnerships 1,262 1,036
Cumulative effect of change in method
of accounting for oil and gaspartnership
interests 0 (26,784)
Changes in operating assets and liabilities:
Accounts receivable (20,167) (85,548)
Inventories (57,114) (25,079)
Other current assets 5,538 28,108
Checks written in excess of cash in bank 37,428 0
Accounts payable 47,012 (120,704)
Other current liabilities 55,398 15,623
Cash flows from operating activities 86,364 (189,146)
Cash flows from investing activities:
Distributions from unconsolidated oil
and gas partnerships 5,336 13,467
Distributions from consolidated oil
and gas partnerships 20,145 0
Collections on notes receivable -
related parties 5,000 0
Proceeds from sale of equipment 5,455 0
Purchases of property and equipment (6,771) (23,081)
Cash flows from investing activities 29,165 (9,614)
Cash flows from financing activities:
Net increase in line of credit 33,435 0
Increase (decrease) in notes payable -
related parties (59,800) 11,165
Proceeds from exercise of stock options 15,625 0
Proceeds from long-term debt 0 130,000
Payments on long-term debt (72,787) (54,399)
Payments on obligations under capital leases (26,548) (23,542)
Payments received on stock subscriptions 0 57,137
Distributions to minority interests in oil
and gas consolidated partnerships (23,500) (1,104)
Cash flows from financing activities (133,575) 119,257
Decrease in cash (18,046) (79,503)
Cash, beginning 34,232 113,735
Cash, ending $16,186 $34,232
See accompanying notes to consolidated financial statements.
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business - Kensington International Holding Corporation (Kensington
or the Company), formerly "The Kensington Company, Inc.", 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, 1996, the Company includes three wholly-owned subsidiaries: Ives Design,
Inc. (Ives), American Gas Corporation (American) and National Fixture
Installers, Inc. (National); 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);
and two majority owned corporations: I-Med Software, Inc. (I-Med) and
Interchange Medical, Inc. (Interchange).
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 was inactive through 1996.
In 1997, National was merged with Global Intermatch, Inc. and Kensington sold
its interest.
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.
I-Med and Interchange were both formed in October 1996 and are inactive.
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 considers all accounts receivable to be
fully collectible, accordingly, no allowance for uncollectible accounts has
been established. If accounts become uncollectible, they are charged to
operations when that determination is made.
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.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
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 $41,751 and $38,881 for the years ended December 31,
1996 and 1995.
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 and amortization
expense was $34,356 and $34,350 for the years ended December 31, 1996 and
1995.
During 1996, the Company decided its oil and gas interests in American were
impaired and recorded a loss on impairment of $1,025,916 (see Note 3).
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.
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 (deficit).
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(2) INVENTORIES
Inventories relating to the manufacturing activities of Ives consisted of the
following at December 31:
1996 1995
Raw materials $86,107 $78,614
Work in progress 41,231 12,148
Finished goods 65,888 45,350
Total $193,226 $136,112
(3) INVESTMENT IN OIL AND GAS PROPERTIES
Investment in oil and gas properties, using successful efforts accounting,
consisted of the following at December 31:
1996 1995
Proved properties $95,823 $879,448
Unproved properties. 0 70,012
Pipeline and other equipment 87,340 451,702
183,163 1,401,162
Less: accumulated depreciation,
depletion and amortization (95,309) (187,394)
$87,854 $1,213,768
No costs were incurred in oil and gas property acquisition, exploration and
development activities during 1996 or 1995.
In 1996, the Company decided its investment in oil and gas properties owned by
American and located in Kentucky were impaired. The Company had attempted to
improve the productivity of these properties since acquisition without
success. Attempts to sell the properties have not been successful to date.
The Company believes the properties will never generate a profit without
substantial additional development expenditures. In addition, production costs
will be much higher than previously anticipated. The Company also believes if
a buyer can be found, the proceeds will be minimal.
Based on these facts, the Company has written down its investment in these
properties to $0. The remaining investment in oil and gas properties at
December 31, 1996 consists of properties owned by Kensington 1986 and
Kensington 1987.
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(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:
1996 1995
Land $19,500 $19,500
Buildings 268,699 268,699
Equipment 173,209 166,437
Less: accumulated depreciation (196,435) (179,026)
264,973 275,610
Equipment under capital leases,
net of accumulated amortization
of $67,905 and $43,563 53,807 78,149
$318,780 $353,759
(6) NOTES RECEIVABLE - RELATED PARTIES
Notes receivable - related parties consisted of the following at December 31:
1996 1995
B & K Oil Company, Inc.,
interest at 8%, unsecured, due
on demand, two of three owners
are Kensington stockholders. $38,125 $43,125
B & D Commercial Ventures,
interest at 8%,unsecured, due
on demand, owners are Kensington
stockholders. 30,000 30,000
Stockholders/former officers,
interest at 5%, unsecured, due
on demand. 112,206 112,206
Less: reserve for uncollectible
notes receivable (152,206) (152,206)
$28,125 $33,125
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(7) LINE OF CREDIT
The Company has a $150,000 line of credit with Itasca Business Credit. The
line bears interest at prime plus 10% (minimum of $1,000 per month), is due on
demand, and is secured by accounts receivable. Outstanding borrowings were
$33,435 and $0 at December 31, 1996 and 1995.
(8) NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following at December 31:
1996 1995
Notes payable to a trust
controlled byformer 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. $93,812 $98,716
Notes payable to shareholders,
interest at 12%, due on demand, unsecured. 16,500 26,500
Note payable to shareholder, interest at 8%,
due on demand, unsecured. 5,740 29,740
Note payable to former officer/current
shareholder, monthly installments of $332
including interest at 12%, unsecured. 5,224 8,376
Note payable to shareholder, interest at 12%,
due February 1997, unsecured. 9,201 10,000
Note payable to shareholder, interest at 8%,
due February 1994, unsecured. 4,500 4,500
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
8%, due January 1998, secured by stock. 52,807 69,752
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 until note is paid. 37,500 37,500
Various notes payable to shareholders,
unsecured. 19,212 19,212
$284,296 $344,096
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(9) LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
1996 1995
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 through June 1998, $206,138
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 until maturity. Unsecured
debenture holders have option to convert
principal to common shares of Company stock
at $1.50 per share until maturity. $584,240 $614,321
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. 42,342 61,222
Monthly installments of $1,212 including
Interest at 1.5% over bank's reference rate,
Due August 1997, secured by all corporate
assets. 11,401 24,107
Monthly installments of $553 including
interest at 1.5% over bank's reference rate,
due August 1998, secured by all corporate
assets. 10,093 15,397
Monthly installments of $370 including
interest at 10.5%, due December 1997, secured
by stock and the personal guaranty of a
stockholder/director. 4,184 10,000
652,260 725,047
Less: current portion (513,027) (99,135)
$139,233 $625,912
Future maturities of long-term debt are $513,027 and $139,233 for the years
ending December 31, 1997 and 1998.
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(10) OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital lease agreements expiring
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:
1997 $28,483
1998 23,134
1999 11,567
Total 63,184
Less: amount representing interest (8,167)
Present value of future minimum lease payments 55,017
Less: current portion (23,340)
Obligations under capital leases, net of
current portion $31,677
(11) 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.
In July 1997, the Board of Directors voted to treat as satisfied a $75,000
stock subscription receivable due to the fact this stockholder had paid
principal and interest in amounts similar to that of the other stockholders
who were issued stock at the same time.
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
Stock warrants - Outstanding stock warrants consisted of the following:
Shares Per share
price
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
Granted 0 .00
Canceled 0 .00
Outstanding, December 31, 1996 1,265,883 $.50 - $3.00
Of the above warrants, 152,625 with a per share price of $3.00 have expired
and are subject to cancellation by the Company upon thirty day's written
notice. All of the above warrants are fully vested.
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, 1996,
the Company had options outstanding to purchase 581,872 shares of common
stock, consisting of 201,000 options exercisable at $2.62 per share through
June 1998 and 380,872 options exercisable at $.32 per share through March
2000.
The Company applies APB Opinion 25 "Accounting for Stock Issued to Employees"
and related Interpretations in accounting for its stock options. Accordingly,
no compensation cost has been recognized for its stock options. Had
compensation cost for the Company's stock options been determined based on the
fair value at the grant dates consistent with the method of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" (Statement 123), the Company's net loss would have been
increased to the proforma amounts indicated below:
1996 1995
Net loss:
As reported $1,079,314 $201,413
Pro forma $1,079,314 $211,941
Loss per share:
As reported $ (.36) $ (.07)
Pro forma
$ (.36) $ (.07)
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
Information regarding the Company's stock options is summarized below:
1996 1995
Shares Weighted Shares Weighted
Average Average
Exercise Exercise
Price Price
Options outstanding,
beginning of year 630,700 $1.05 211,000 $2.62
Granted 0 .00 429,700 .32
Canceled 0 .00 (10,000) 2.62
Exercised (48,828) .32 0 .00
Options outstanding,
end of year 581,872 $1.11 630,700 $1.05
Options exercisable,
end of year 581,872 $1.11 630,700 $1.05
Weighted average fair
value of options
granted $.00 $.02
Options outstanding at December 31, 1996 have an exercise price ranging
between $.32 and $2.62 and a weighted average remaining contractual life of
2.63 years.
In determining the compensation cost of the options granted during 1996 and
1995, as specified by Statement 123, the fair value of each option grant has
been estimated on the date of grant using the Black-Scholes option pricing
model and the weighted average assumptions used in these calculations are
summarized below:
1996 1995
Risk free interest rate 7% 7%
Expected life of options granted 5% years 5 years
Expected volatility of options
granted 0.0% 0.0%
Expected dividend yield 0.0% 0.0%
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KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
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 to a court appointed trustee for the benefit of the shareholders
of Liberty National Corporation. The court also required the Company to issue
1,000,000 warrants at an exercise price of $2.50 per share. The warrants are
valid for six months from the date of issue, which is yet to be determined,
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. The Company's
original obligation was to issue 200,000 shares of common stock and 800,000
warrants.
(12) CONTINGENCIES AND COMMITMENTS
Operating leases - In March 1997, the Company signed an agreement to lease its
corporate office space under a lease which expires March 2000. Base rent is
$1,294, $1,324 and $1,353 per month for the first, second and third years of
the lease. Rent expense for the years ended December 31, 1996 and 1995 was
$8,820 and $13,753.
Future minimum rental payments are as follows for the years ending December
31:
1997 $13,707
1998 15,798
1999 16,149
2000 4,059
$49,713
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 $28,261 (including $25,481 remitted
directly from partnerships) and $4,355 under the agreement for 1996 and 1995.
As of December 31, 1996, the Company has estimated no future cash shortfalls.
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 86%
and 82% of total product sales for the years ended December 31, 1996 and 1995.
Accounts receivable from this customer represented 78% and 31% of total
accounts receivable at December 31, 1996 and 1995.
<PAGE>
<PAGE>
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(13) INCOME TAXES
The Company has incurred cumulative net operating losses for both financial
reporting and income tax purposes. As of December 31, 1996, the Company had
net operating loss carryforwards of approximately $2,600,000, 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.
1996 1995
Net operating loss carryforwards $1,030,000 $1,020,000
Valuation allowance (1,030,000) (1,020,000)
Net deferred taxes $0 $0
(14) OTHER INCOME (EXPENSE)
Other income (expense) consisted of the following for the years ended December
31:
1996 1995
Interest income $311 $437
Interest income - related parties 0 2,307
Interest expense (106,360) (101,751)
Interest expense - related parties (25,002) (36,899)
Litigation settlement (4,907) (43,605)
Reserve for uncollectible notes receivable 0 (152,206)
Equity in earnings of unconsolidated oil and
gas partnerships 2,187 4,184
Minority interests in earnings of consolidated
oil and gas partnerships (1,262) (1,036)
Gain on sale of equipment 4,443 0
Total other income (expense) $(130,590) $(328,569)
<PAGE>
<PAGE>
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(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:
1996 1995
Revenues from unaffiliated customers:
Manufacturing $2,542,628 $2,510,763
Oil and gas 48,631 41,919
Consolidated $2,591,259 $2,552,682
Operating profit (loss):
Manufacturing $283,488 $402,116
Oil and gas (1,046,528) (22,329)
General corporate (185,683) (279,415)
Consolidated $(948,723) $100,372
Identifiable assets:
Manufacturing $761,038 $723,933
Oil and gas 107,065 1,246,650
General corporate 49,823 62,688
Consolidated $917,926 $2,033,271
Depreciation, depletion and amortization:
Manufacturing $40,257 $37,684
Oil and gas 34,356 34,350
General corporate 1,494 1,197
Consolidated $76,107 $73,231
Capital expenditures:
Manufacturing $5,087 $23,081
General corporate 1,684 0
Consolidated $6,771 $23,081
<PAGE>
<PAGE>
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
(16) SUPPLEMENTAL CASH FLOWS INFORMATION
1996 1995
Cash paid for interest $127,496 $129,873
Noncash investing and financing
activities:
Long-term debt issued to repurchase
common stock $0 $85,000
Common stock issued to retire
long-term debt $0 $8,700
Common stock issued to retire
a liability $7,625 $6,600
Common stock issued in exchange
for services and other $928 $4,362
(17) SUPPLEMENTARY OIL AND GAS INFORMATION
Results of operations for oil and gas producing activities were as follows for
the years ended December 31:
1996 1995
Oil and gas sales $48,631 $41,919
Well depreciation and depletion (34,356) (34,350)
Production and operating costs (34,887) (29,898)
Loss on impairment (1,025,916) 0
Operating losses from oil and gas
producing activities (excluding
corporate overhead and interest costs) $(1,046,528) $(22,329)
Reserve information - The following estimates of proved developed and
undeveloped reserves 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.
<PAGE>
<PAGE>
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1996 AND 1995
As discussed in Note 3, the Company has written down to $0 its investment in
oil and gas properties owned by American and located in Kentucky. While
substantial reserves still exist, higher than anticipated production costs and
substantial additional development expenditures necessary make it highly
unlikely these properties will provide future positive net cash flows.
Reserve quantity information was as follows at December 31 (unaudited):
Gas (mcf)
1996 1995
Proved developed and undeveloped
reserves:
Beginning of period 4,818,000 4,826,000
Production (10,000) (8,000)
End of period 4,808,000 4,818,000
Proved developed reserves:
Beginning of period 2,517,000 2,525,000
Production (10,000) (8,000)
End of period 2,507,000 2,517,000
(18) SUBSEQUENT EVENTS (UNAUDITED)
In August 1997, the Company received a $365,000 loan. The loan is payable in
monthly installments of $3,654 including interest at 10.5%, is due August
2007, and is secured by Ives' real estate. Proceeds from the loan were used
to pay off existing debt.
In October 1997, the Company received a $200,000 line of credit from a bank.
The line of credit bears interest at 2.0% over the bank's reference rate,
matures October 1998, and is secured by accounts receivable and guaranteed by
two directors/stockholders. The Company paid off its existing line of credit.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,186
<SECURITIES> 0
<RECEIVABLES> 222,385
<ALLOWANCES> 0
<INVENTORY> 193,226
<CURRENT-ASSETS> 438,335
<PP&E> 318,780
<DEPRECIATION> 76,107
<TOTAL-ASSETS> 917,926
<CURRENT-LIABILITIES> 1,339,396
<BONDS> 0
0
0
<COMMON> 3,671,848
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 917,926
<SALES> 2,591,259
<TOTAL-REVENUES> 2,591,259
<CGS> 1,699,218
<TOTAL-COSTS> 1,699,218
<OTHER-EXPENSES> 814,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (948,723)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,079,314)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
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