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, 1998, file # 33-38119-C
KENSINGTON INTERNATIONAL HOLDING CORPORATION
formerly known as
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
- -------------------------------------------------------------------
(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 xNo__
The number of shares outstanding of each class of the registrant's common
stock as of December 31, 1998 was 3,238,750 shares.
The estimated market value on December 31, 1998 of the voting stock held by
non-affiliates of the registrant was $404,844 based upon recent private
transactions at $.125 per share. 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 18
Page 2
DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this document which are not historical facts may be considered
"forward looking statements" within the meaning of Section 21E of the
Securities Act of 1934, as amended, including projected sales and cost
savings. The words "believe", "expect", "anticipate", and similar expressions
identify forward looking statements. Any forward looking statements involves
risks and uncertainties that could cause actual events or results to differ,
perhaps materially, from the events described in the forward looking
statements. The Company undertakes no obligation to publicly update or revise
any forward looking statement. The risks associated with forward looking
statements could be caused by anything that occurs in the future.
Description of Business
KENSINGTON INTERNATIONAL HOLDING CORPORATION, formerly known as 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 300 shareholders.
Kensington owns 100% of one operating company, namely, Ives Design, Inc., a
Minnesota corporation. Kensington also owns 80% or more of four non-operating
corporations, namely, I-Med Software,Inc., Interchange Medical ,Inc. both
Minnesota corporations, and Kensington American Gas Drilling #1, a Minnesota
LLC as well as Bluegrass Management and Operating Company, a Kentucky
Corporation. Additionally, the Company owns a minority limited interest in an
oil and gas partnership. During 1995, the Minnesota Secretary of State
requested that the Company change its name because it was too similar to
another company's name. The name change was approved by Kensingtons'
shareholders during 1996 and the name was changed to "Kensington International
Holding Corporation" during 1997.
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 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, 1998 Ives employed 26 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 continued to utilize the
Company more and more. Through expanded sales efforts the Company has reduced
the sales to its largest customer, and its affiliates, as a percent of total
sales, to 82% in 1998. 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. OIL, GAS, AND ENERGY 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. Subsequent testing by
Tauren Exploration concluded it was not feasible to extract the gas in the
eastern Kentucky fields. In 1998 Kensington sold its' interest in the Tanyard
field, located in western Kentucky. Kensington has written off virtually all
the assets associated with its eastern Kentucky fields as of December 31,
1996. The Company continues to receive insignificant revenues on a regular
schedule from its interests in Texas, Arkansas and Oklahoma oil & gas wells.
It is the Company's intention to slowly remove itself from the oil and gas
industry.
American Gas Corporation changed its name to PowerSource Corp. on May 12, 1998
and became a licensed Energy Service Provider in California and a Wholesale
Electric Power and Energy Transactions Marketer and Public Utility Company
licensed by the Federal Energy Regulatory Commission as reported in the
Company's 10-QSB for the Quarter ending September 31, 1998. New purchasers
were issued new stock and Kensington retains less that ten (10%) percent of
the stock in PowerSource. In addition, PowerSource Corp. is to pay Kensington
$3,000 a month for five years for consulting but it has been unable to do so
and has had to accrue that amount on its financial records.
Regulation of oil and gas
Although the oil and gas industry is extensively regulated by federal,
state and local authorities, 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.
Company Direction:
Ives Design Inc.
It is management's intention to continue to expand Ives through sales
to new customers as well as expanding sales to existing customers.
Acquisitions and mergers are another mode of growth which Ives is exploring,
along with internet E-commerce.
Equity Acquisition Program
Kensington intends to expand into internet E-commerce through Interchange
Medical, Inc. or through a new subsidiary. Kensington is actively looking for
internet opportunities, as is I-Med Software, Inc. Kensington is in
discussions with computer hardware and software resellers to jointly market
computer furniture through Ives Design, Inc. and Interchange Medical, Inc.
I-Med Software continues to remain inactive. Kensington is looking into a
new internet e-mail technology that would provide a simple solution for
sending graphics and voice messages over the internet using e-mail. Kensington
has registered the domain names "Simpleemail.com", "Simpleesite.com", and
"Simplebuys.com".
Kensington owns 125,000 shares of Maxwell Rand Holdings, Inc. which has
signed a merger agreement with FutureTrak International, Inc. (FTRK, OTC:BB)
in which Kensington would receive 125,000 shares of FutureTrak International,
Inc. FutureTrak intends to use Maxwell Rand's compression technology to
enhance it DIRECTV, internet access, and telephony wireless systems.
Kensington American Gas Drilling #1, LLC is not an operating company.
Bluegrass Management & Operating Company holds 242,714 shares of
PowerSource Corp. but has no other assets or operations.
Kensington owns a little over 14,000 shares of Netgates (NTGS, OTC:BB)
which owns a major interest in the Ocean Manor Hotel in Ft. Lauderdale,
Florida. It is anticipated that a Mexican hotel chain will purchase a majority
interest in Netgates.
Kensington helped found Metropolitan Health Networks (MDPA, NASDAQ) in
early 1996 and has a subscription to receive another 12,500 shares of stock.
Kensington sold approximately 18,000 shares in 1998 of Metropolitan Health
Networks.
Kensington owns approximately 20% of Netcast Radio Networks, Inc.
(727,288 shares) but it is not operating and has no value.
Kensington holds five year warrants to purchase 90,000 shares of
Transplantation Technologies, Inc. (TTI) for ten cents each ($.10). TTI is a
biotechnology company which has technology to treat immunologically based
diseases.
Kensington did sign a Letter of Intent, in October, 1998, with a
Professor of Psychology, Electrical & Computer Engineering and Ophthalmology
for the development of a non-invasive glucose monitor. Kensington has not been
able fund this project and may be forced to cancel the Letter of Intent.
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 in
the past.
Item 2. Description of Property
At present, the Company's principal office is located at 600 S. Highway
169, Suite 654, Interchange Tower, Minneapolis, Minnesota, 55426, occupying
approximately 700 square feet and utilized entirely for executive offices. The
lease was entered into in March 1997. The space is rented under a written
lease which provides for payment of rent at a monthly rate of $1,324 and runs
through March 2000.
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 square foot
storage building.
Item 3: Legal Proceedings
There are no legal proceedings that management is aware of at this time.
Item 4: Submission of matters to a vote of Security Holders
None
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 1998 the stock was quoted at a low of $.03 to a high of $.56. On
December 31, 1998 the stock was quoted at a bid of $.03 with an asking price
of $.25 and a sale price of $.125. 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, 1998 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:
1997 1998
Total Revenue $3,151,241 $3,934,579
Cost of Sales 2,008,436 2,652,620
Gross Profit $1,142,805 $1,281,959
Operating Expense 951,316 975,204
Loss on impairment of Oil
and Gas Investments ( 19,154)
Inc (Loss) from Operations $191,489 $ 287,601
Other Income (Expense) (155,103) ( 86,573)
Provision for Income Tax
Net Income (Loss) $ 40,386 $ 201,028
1998 revenues grew 25% over 1997. This was accomplished through increased
sales to both new and existing customers. Cost of goods sold increased to 67%
of revenue for 1998 as compared to 64% for 1997. This increase was due to
increased material, labor and outsourced costs. By keeping operating costs
close to 1997 levels the Company was able to increase net income to 5.5% of
revenue as compared to 1.3% in 1997. Other income includes the sale of stock
from the equity acquisition program, which was outlined earlier. Interest
costs were reduced through the reduction of long term debt. In 1998 the
remaining long term debt which became due was either paid off or extended for
another three years.
Ives Design Inc.
1998 was a year of continued growth for the company. Sales grew approximately
25% from 1997 to 1998. With the addition to the sales force, Ives was able to
reduce the percent of sales made to its largest customer and its' affiliates
by an additional 2%. Cost of goods sold were up over 1997 levels due to
increases in material costs, increased labor costs due to a tight labor market
and an increase in the level of outsourcing costs. The Company made a
calculated decision to outsource some manufacturing in order to expand
business even though margins were adversely affected. By controlling overhead,
the Company was able to make up the loss in margin and record higher
profits.
Year 2000
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 51 Director
Mark Haggerty 50 Chief Executive
Officer &
Director
Keith Bernhardt 77 Director
Dr. Graeme Wallace 57 Director
Holly Callen Hamilton 50 V. P. & Secretary
Mike Nakonechny 71 Chairman
Jeff Etten 42 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. He serves on the Board of Directors of Ives Design, Inc., Star
Entertainment, Inc., Island Grill, Inc., and Haggerty and Associates, Inc.
Haggerty has been a Director since October 15, 1994. Mr. Haggerty was elected
a Commissioner of the Hennepin County Parks in 1996.
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 portion of his salary and benefits accrued.
Mr. Etten receives a combined salary from Kensington and Ives of approximately
$53,500 a year for acting as C.F.O. of both companies. Mr. Etten also receives
vacation and expenses reimbursement.
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 March 17, 1995 the Company's board authorized the issuance of
options at $.32 for a period of five years bringing the total of issued
options to 380,872.
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, 1998
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 226,822 7%
7733 Quincy St.
Spring Lake Park,
Minnesota 55432
Keith Bernhardt 176,104 5%
107 Cliffmore Rd
W. Hartford, CT
06107
Bernard M.S. Kegan 177,609 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 669,898 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, a Company Director, 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. 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.
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
As of December 31, 1998 there are 651,950 warrants issued and outstanding
at exercise prices of between $.50 and $3.00.
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.
Convertible Debentures:
As of December 31, 1998 the company had $431k of convertible debentures
outstanding. Of this total, $176k is secured by a second mortgage on real
estate of Ives Design Inc.
Item 14. Exhibits and Reports on Form 8-K
(A) Exhibits. See "Exhibit Index" on the page following the Signatures.
(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: Mark Haggerty_____________________
Mark Haggerty, C.E.O.- C.O.O. & Director
Dated: April 7, 1999
Mike Nakonechny___ Chairman
By: Mike Nakonechny
Dated: 7 April, 1999
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: 4/7, 1999
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
G. Wallace___________Director
By: Graeme Wallace
Dated: April 15, 1999
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: 4-5, 1999
THE KENSINGTON COMPANY, INC.
FORM 10-KSB
YEAR ENDED DECEMBER 31, 1998
INDEX
ITEMPAGE
PART I
1. Description of Business.................................... 1
2. Description of Property.....................................5
3. Legal Proceedings...........................................6
4. Submission of matters to vote of shareholders...............6
PART II
5. Market for Common equity & related stockholder matters..... 6
6. Management's discussion & analysis of Operations............6
7. Financial statements .................................F-1.&.7
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 & 11 Executive compensation..................................9
12. Security ownership of certain beneficial owners and
management............................................... 10
13. Certain relationships & related transactions................11
14. Descriptions of securities..................................12
15. Exhibits and reports on Form 8-K............................13
16. Signatures..................................................14
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.
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, 1998 and
1997, and the related consolidated statements of operations, stockholders'
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, 1998 and
1997, 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 & ARKEMA, LLP
Minneapolis, Minnesota
January 22, 1999
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
ASSETS
Current assets:
Cash $72,220 $10,185
Accounts receivable 563,823 474,780
Inventories 195,843 189,926
Other current assets 22,208 44,634
Total current assets 854,094 719,525
Other assets:
Property and equipment, net 295,659 316,975
Investment in oil and gas
properties, net 67,927 81,451
Investment in unconsolidated oil
and gas partnership 10,000 29,641
Notes receivable - related
parties, net 16,625 22,625
Loan costs, net 32,667 38,383
Total other assets 422,878 489,075
$1,276,972 $1,208,600
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit - bank $35,000 $148,099
Notes payable - related parties 124,715 238,217
Current portion of long-term debt 31,252 71,619
Current portion of capital lease
obligations 16,614 22,835
Accounts payable 283,365 310,982
Accrued expenses 273,889 189,307
Total current liabilities 764,835 981,059
Long-term debt, net of current portion 815,615 722,933
Capital lease obligations, net of
current portion 5,912 22,526
Total liabilities 1,586,362 1,726,518
Stockholders' deficit:
Common stock, no par value,
50,000,000 shares authorized,
3,238,750 and 3,208,750 shares
issued and outstanding 3,596,883 3,589,383
Stock subscriptions receivable (169,552) (169,552)
Accumulated deficit (3,736,721) (3,937,749)
Total stockholders' deficit (309,390) (517,918)
$1,276,972 $1,208,600
See accompanying notes to consolidated financial statements.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997
1998 1997
Amount Percent Amount Percent
Revenues $3,934,579 100.0 $3,151,241 100.0
Cost of sales 2,652,620 67.4 2,008,436 63.7
Gross profit 1,281,959 32.6 1,142,805 36.3
Operating expenses 975,204 24.8 951,316 30.2
Loss on impairment of oil
and gas investment 19,154 0.5 0 0.0
Income from operations 287,601 7.3 191,489 6.1
Other income (expense) (86,573) (2.2) (151,103)
(4.8)
Income before income taxes 201,028 5.1 40,386 1.3
Provision for income taxes 0 0.0 0 0.0
Net income $201,028 5.1 $40,386 1.3
Basic and diluted earnings per
common share $0.06 $0.01
Shares used in computing basic and
diluted earnings per common
share 3,234,084 3,159,640
See accompanying notes to consolidated financial
statements.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997
Stock
Common Stock Subscriptions Accumulated
Shares Amount Receivable Deficit Total
Balance -
December
31, 1996 3,042,750 $3,671,848 $(297,332) $(3,978,135) $(603,619)
Issuance of
common stock,
net of related
costs 171,500 44,125 -- -- 44,125
Issuance of
shares for
services and
other 10,000 700 -- -- 700
Issuance of
shares for
retirement
of debt 7,000 490 -- -- 490
Cancellation of
stock
subscriptions(22,500) (127,780) 127,780 -- 0
Net income -- -- -- 40,386 40,386
Balance -
December
31, 1997 3,208,750 3,589,383 (169,552) (3,937,749) (517,918)
Issuance of
common stock,
net of related
costs 30,000 7,500 -- -- 7,500
Net income -- -- -- 201,028 201,028
Balance -
December
31, 1998 3,238,750 $3,596,883 $(169,552) $(3,736,721) $(309,390)
See accompanying notes to consolidated financial statements.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Cash flows from operating activities:
Net income $201,028 $40,386
Adjustment to reconcile net income to
cash flows from operating activities:
Depreciation, depletion and
amortization 74,325 50,611
Gain on sales of equipment 0 (6,059)
Loss on impairment of gas and oil
investment 19,154 0
Expenses paid by issuance of common
stock 0 700
Equity in (earnings) loss of
unconsolidated oil and gas partnerships 487 (474)
Minority interests in earnings of
consolidated oil and gas partnerships 0 1,340
Changes in operating assets and liabilities:
Accounts receivable (89,043) (252,395)
Inventories (5,917) 3,300
Other current assets 22,426 (38,096)
Checks written in excess of cash
in bank 0 (37,428)
Accounts payable (27,617) 41,408
Accrued expenses 84,582 11,011
Cash flows from operating
activities 279,425 (185,696)
Cash flows from investing activities:
Distributions from unconsolidated oil
and gas partnerships 0 8,653
Distributions from consolidated oil
and gas partnerships 0 21,091
Proceeds from sales of equipment 0 12,484
Purchases of property and equipment (31,769) (25,933)
Collections on notes receivable -
related parties 6,000 5,500
Cash flows from investing
activities (25,769) 21,795
Cash flows from financing activities:
Net increase (decrease) in line of
credit - bank (113,099) 114,664
Decrease in notes payable - related
parties (32,404) (45,589)
Proceeds from long-term debt 15,484 365,000
Payments on long-term debt (44,267) (39,986)
Payments on obligations under capital
leases (22,835) (222,708)
Payments of loan costs (2,000) (32,606)
Proceeds from issuance of common stock,
net of related costs 7,500 44,125
Distributions to minority interests
in oil and gas partnerships 0 (25,000)
Cash flows from financing
activities (191,621) 157,900
Increase (decrease) in cash 62,035 (6,001)
Cash, beginning of year 10,185 16,186
Cash, end of year $72,220 $10,185
See accompanying notes to consolidated financial
statements.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business - Kensington International Holding Corporation (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. At December 31, 1998, the Company has three wholly-owned
subsidiaries: Ives Design, Inc. (Ives), Bluegrass Management and Operating
Company (Bluegrass) and Kensington American Gas Drilling #1, LLC (Drilling
#1); 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 unsecured credit to customers in the normal course of business.
Customers are located throughout the Midwest region of the United States.
Bluegrass was formally the wholly-owned subsidiary of American Gas Corporation
(American). During 1998, American was sold and the ownership of Bluegrass was
transferred to the Company. Bluegrass is currently inactive.
Drilling #1 was formed in 1997 and is inactive.
I-Med and Interchange were both formed in October 1996 and are inactive.
Through 1997, the Company owned a majority interest in two limited
partnerships, Kensington 1986 and Kensington 1987. On December 31, 1997, the
Company exchanged its minority interests in several unconsolidated limited
partnerships for a 100% interest in both partnerships (see note 5).
Principles of consolidation - The consolidated financial statements include
the accounts of Kensington, Ives American, Kensington 1986 and Kensington
1987. All significant intercompany transactions and accounts 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.
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 $53,085 and $42,604 for the years ended December 31,
1998 and 1997.
Loan costs - Loan costs are amortized over the term of the loan on a
straight-line basis. Accumulated amortization was $7,296 and $1,603 at
December 31, 1998 and 1997.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
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 effort 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 $13,524 and $4,440 for the years ended December 31,
1998 and 1997.
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.
Advertising costs - Advertising costs are charged to expense as incurred.
Advertising expense for the years ended December 31, 1998 and 1997 was $148
and $2,638.
Earnings per common share - The Company adopted Statement of Financial
Accounting Standards (FASB) No. 128 "Earnings Per Share" (Statement 128).
Statement 128 requires disclosures of basic earnings per share (EPS) and
diluted EPS. Basic EPS is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
EPS is computed by dividing net income by the weighted average common shares
outstanding and dilutive common equivalent shares assumed to be outstanding
during each period. Dilutive common stock equivalents have not been included
in the computations of diluted EPS because their inclusion would be
antidilutive. Antidilutive common equivalent shares issuable based on future
exercise of stock options and warrants could potentially dilute EPS in future
years.
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.
Fair value of financial instruments - The carrying amounts for all financial
instruments approximates fair value. The carrying amounts for cash, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of the short maturity of these instruments. The fair value of debt
and capital leases approximates the current rates at which the Company could
borrow funds with similar remaining maturities.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
New accounting pronouncements - In June 1997, the FASB issued Statement No.
130 "Reporting Comprehensive Income" (Statement 130). Statement 130
establishes new rules for the reporting and display of comprehensive income
and its components in the financial statements. The Company currently does
not have any other comprehensive income, and therefore, will measure the
impact of this statement, as it becomes necessary.
In June 1998, the FASB issued Statement No. 131 "Disclosures about Segments of
an Enterprise and Related Information" (Statement 131). Statement 131
establishes new rules for the reporting and display of significant operating
segments. The Company has adopted the required reporting for all significant
segments of their business.
In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (Statement 133). Statement 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company is currently not involved in derivative
instruments or hedging activities, and therefore, will measure the impact of
this statement, as it becomes necessary.
Reclassifications - Certain accounts in the prior year consolidated financial
statements have been reclassified for comparative purposes to conform to the
presentation in the current year consolidated financial statements. These
reclassifications had no effect on net income or stockholders' deficit.
(2) INVENTORIES
Inventories consisted of the following at December 31:
1998 1997
Raw materials $ 113,343 $ 85,156
Work in process 7,531 26,733
Finished goods 74,969 78,037
Total $ 195,843 $ 189,926
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
1998 1997
Land $ 19,500 $ 19,500
Buildings 268,699 268,699
Equipment 326,668 294,899
Less: accumulated depreciation (319,208) (266,123)
$ 295,659 $ 316,975
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
(4) INVESTMENT IN OIL AND GAS PROPERTIES
Investment in oil and gas properties, using successful efforts accounting,
consisted of the following at
December 31:
1998 1997
Proved properties $ 111,613 $ 111,613
Pipeline and equipment 87,344 87,344
198,957 198,957
Less: accumulated depreciation,
depletion and amortization (131,030) (117,506)
$ 67,927 $ 81,451
No costs were incurred in oil and gas property acquisition, exploration and
development activities during 1998 or 1997.
(5) INVESTMENT IN UNCONCOLIDATED OIL AND GAS PARTNERSHIP
Through 1997, the Company had general and limited partner interests in four
unconsolidated oil and gas limited partnerships. The Company's interests
ranged from 10.8% to 46.6%. The Company accounted 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. On December 31, 1997, the Company traded its interest in two of
the partnerships for 100% interest in two consolidated partnerships,
Kensington 1986 and Kensington 1987. Another of the partnerships ceased
business on December 31, 1997, for which no loss was incurred. The Company
continues to maintain their 46.6% limited partner interest in one
partnership. After reviewing the expected future cash flows of this
investment, the Company determined that this investment was partially impaired
and reduced the investment to $10,000 in 1998 and recorded a loss on
impairment of $19,154.
(6) NOTES RECEIVABLE - RELATED PARTIES
Notes receivable - related parties consisted of the following at December 31:
1998 1997
B & K Oil Company, Inc., interest
at 8%, unsecured, due on demand,
currently receiving $500 per month. $ 26,625 $ 32,625
B & D Commercial Ventures, written
off in 1998. 0 30,000
Less: reserve for uncollectible
notes receivable (10,000) (40,000)
$ 16,625 $ 22,625
B & K Oil Company, Inc. (B & K) is owned by three individuals, two of which
are Kensington stockholders.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
(7) LINE OF CREDIT - BANK
The Company has a $200,000 line of credit with Riverside Bank. The line bears
interest at 1.5% over the bank's reference rate (9.25% at December 31, 1998),
matures October 1999, and is secured by all of the Company's assets and
guaranteed by two of its directors/stockholders. Outstanding borrowings were
$35,000 and $148,099 at December 31, 1998 and 1997.
(8) NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following at December 31:
1998 1997
Note payable to stockholder, interest
at 12%, due on demand, unsecured. $ 16,500 $ 16,500
Note payable to stockholder, interest
at 8%, due February 1994, unsecured. 3,750 4,500
Note payable to stockholder, interest
at 9%, due December 1993, unsecured. 39,800 39,800
Note payable to stockholder, monthly
installments of $1,800 including
interest at 8%, due January 1998,
secured by stock. 7,953 33,938
Note payable to stockholder, interest at
10%, due May 1996, secured by Company's
assets, currently paying $1,500 a month.
Note holder has option to convert to
common shares of Company stock at a
conversion price of $.32 per share until
note is paid. 37,500 37,500
Various notes payable to stockholders,
unsecured 19,212 19,212
Notes payable to a trust controlled
by former officer/current stockholder,
unsecured, assigned to a stockholder and
converted to long-term debt (see Note 9). 0 86,767
$124,715 $238,217
(9) LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
1998 1997
Debentures payable to stockholders
and non-stockholders - monthly
installments of interest at 12%, due
three years from issue date through
February 2001, $176,000 secured by
Ives' real estate, remainder unsecured.
Debenture holders have option to convert
principal to common shares of Company
stock at $1.00 per share until maturity. $395,678 $430,944
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
1998 1997
Note payable - Equity Lending, Inc. -
monthly installments of $3,654
including interest at 10.5%, secured
by real estate, due August 2007. $357,664 $363,608
Note payable to stockholder - monthly
installments of $1,700 including
interest at 12%, unsecured, due
May 2004. 80,348 0
Note payable - Riverside Bank - monthly
installments of $493 including interest
at 9%, secured by a vehicle,
due June 2001. 13,177 0
Total long-term debt 846,867 794,552
Less: current portion (31,252) (71,619)
Long-term debt, net $815,615 $722,933
Future maturities of long-term debt are as follows for the years ending
December 31:
1999 $ 31,252
2000 338,565
2001 99,997
2002 25,280
2003 28,168
Thereafter 323,605
Total $ 846,867
(10) CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital lease agreements expiring
through August 2000. Interest is provided for at interest rates ranging from
11.5% to 17.1%. These obligations are secured by the equipment under lease.
Total cost of the leased equipment is $90,862 and the accumulated amortization
on this equipment was $70,819 and $49,587 at December 31, 1998 and 1997.
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:
1999 $ 18,367
2000 6,231
Total 24,598
Less: amount representing interest (2,072)
Present value of future minimum lease
payments 22,526
Less: current portion (16,614)
Obligation under capital leases, net
of current portion $5,912
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
(11) STOCKHOLDERS' DEFICIT
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 matured 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 July 1997, the Board of Directors voted to treat as satisfied a $75,000
stock subscription receivable because this stockholder had paid principal and
interest in amounts similar to that of the other stockholders who were issued
stock at the same time.
During October 1997, the Company cancelled 22,500 shares of common stock and
the related $52,780 stock subscription agreement pursuant to an agreement with
the stockholder to retire a note payable to the stockholder.
Stock warrants - Outstanding and fully vested stock warrants consisted of the
following:
Shares Per Share
Price
Outstanding - December 31, 1996 1,265,883 $.50 - $3.00
Granted 0 .00
Canceled 0 .00
Outstanding - December 31, 1997 1,265,883 $.50 - $3.00
Granted 0 .00
Canceled and expired (613,933) $1.00 - $3.00
Outstanding - December 31, 1998 651,950 $.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, 1998,
the Company had options outstanding to purchase 380,872 shares of common
stock, 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 income and EPS would not have
changed.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
Information regarding the Company's stock options is summarized below:
1998 1997
Shares Weighted Shares Weighted
Average Average
Exercise Price Exercise Price
Options outstanding,
beginning of year
581,872 $1.11 581,872 $1.11
Granted 0 .00 0 .00
Canceled (201,000) 2.62 0 .00
Exercised 0 .00 0 .00
Options outstanding,
end of year
380,872 $.32 581,872 $1.11
Options exercisable,
end of year
380,872 $.32 581,872 $1.11
Weighted average
fair value of
options granted $.00 $.00
Options outstanding at December 31, 1998 have an exercise price of $.32 and a
weighted average remaining contractual life of 1.21 years.
In determining the compensation cost of the options granted during 1998 and
1997, 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:
1998 1997
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%
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.
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
(12) COMMITMENTS AND CONTINGENCIES
Operating lease - The Company leases its corporate office space under a lease
expiring in March 2000. Base rent ranges from $1,324 to $1,353 per month for
the remaining term of the lease. Rent expense for the years ended December
31, 1998 and 1997 was $16,559 and $13,363.
Future minimum rental payments are $16,149 and $4,059 for the years ending
December 31, 1999 and 2000.
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 $29,543 (including $28,088 remitted
directly from partnerships during 1997) under the agreement for 1997. During
1997, the Company completed paying the $125,000 and pursuant to their
agreement transferred ownership of the wells to the plaintiffs.
Major customer - The Company had sales to a single customer and its affiliates
representing approximately 82% and 84% of total product sales for the years
ended December 31, 1998 and 1997. Accounts receivable from this customer and
its affiliates represented approximately 70% and 90% of total accounts
receivable at December 31, 1998 and 1997.
(13) INCOME TAXES
The Company has incurred cumulative net operating losses for both financial
reporting and income tax purposes. As of December 31, 1998, the Company had
net operating loss carryforwards of approximately $2,890,000, 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.
1998 1997
Net operating loss carryforwards $1,150,000 $1,010,000
Less: valuation allowance (1,150,000) (1,010,000)
Net deferred taxes $0 $0
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
(14) OTHER INCOME (EXPENSE)
Total other income (expense) for the years ended December 31, 1998 and 1997
are as follows:
1998 1997
Interest income $0 $278
Interest expense (102,285) (109,264)
Interest expense - related parties (15,052) (17,508)
Litigation settlement (525) (29,543)
Equity in earnings (loss) of
unconsolidated oil and gas partnerships (487) 474
Minority interests in earnings of
consolidated oil and gas partnerships 0 (1,340)
Gain on sale of equipment 0 800
Other income 31,776 5,000
Total other income (expense) $(86,573) $(151,103)
(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:
1998 1997
Revenues from unaffiliated customers:
Manufacturing $3,906,590 $3,115,944
Oil and gas 27,989 35,297
Consolidated $3,934,579 $3,151,241
Operating profit (loss):
Manufacturing $419,079 $384,389
Oil and gas 544 7,124
General corporate (132,022) (200,024)
Consolidated $287,601 $191,489
Identifiable assets:
Manufacturing $1,180,918 $1,071,421
Oil and gas 82,714 88,534
General corporate 13,340 48,645
Consolidated $1,276,972 $1,208,600
KENSINGTON INTERNATIONAL HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DECEMBER 31, 1998 AND 1997
1998 1997
Depreciation, depletion and amortization:
Manufacturing $59,710 $42,527
Oil and gas 13,524 6,404
General corporate 1,091 1,680
Consolidated $74,325 $50,611
Capital expenditures:
Manufacturing 31,769 23,750
Oil and gas 0 0
General corporate 0 2,183
Consolidated $31,769 $25,933
(16) SUPPLEMENTAL CASH FLOWS INFORMATION
1998 1997
Cash paid for interest $106,454 $122,340
Noncash investing and financing activities:
Common stock issued to retire debt $0 $490
Common stock issued in exchange for
services and other $0 $700
Equipment acquired under capital leases $0 $22,950
(17) SUPPLEMENTARY OIL AND GAS INFORMATION
Results of operations for oil and gas producing activities were as follows for
the years ended December 31:
1998 1997
Oil and gas sales $27,989 $35,297
Well depreciation and depletion (13,524) (7,476)
Production and operating costs (22,488) (20,697)
Operating income (loss) from oil
and gas producing activities
(excluding corporate overhead and
interest costs) $(8,023) $7,124
Reserve information (unaudited) - While 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. As a result, accurate and meaningful reserve
quantities are unknown. All of the Company's reserves are located in the
United States.
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