SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-KSB
CURRENT REPORT
Pursuant to Sections 13 of 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 22, 1996
ENVIRONMENTAL PLUS, INCORPORATED
--------------------------------
(Exact name of registrant as specified in its charter)
Texas 0-13041 75-1939021
- -----------------------------------------------------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation Number)
2995 LBJ Freeway, Suite 200, Dallas, Texas 75234
------------------------------------------------
(Address of Principal Executive offices)
Registrant's telephone number, including area code (214) 481-1211.
ITEM 2. Acquisition or Disposition of Assets.
As previously reported in the Company's Quarterly Report
on Form 10-QSB, filed on August 13, 1996, the Company acquired
substantially all the assets of Gulf Coast Cooling Tower
Services, Inc. from the Company's director and Secretary,
George Davis. Mr. Davis abstained from voting as a director
of the Company in the transaction. The value of the assets
according to the agreement between the parties is
approximately $574,000. The acquisition resulted in the
continuation of the business underlying the assets (through
the Company's subsidiary, Gulf Coast Towers, Inc.), which is
the construction and repair of industrial cooling towers
primarily in Texas, Louisiana and Arkansas for electric
utility companies, and related consulting services.
The purchase price for the assets was 574,000 shares of
the Company's subsidiary's preferred stock, par value $1.00
per share, convertible on a one-for-one basis into the
Company's common stock.
The Company hereby files this Current Report on Form
8-KSB to submit the most recent audited financial statements
of Gulf Coast Cooling Tower Service, Inc., for the year ended
December 31, 1995 and proforma financial statements of the
Company for the nine (9) months ended May 31, 1996.
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Audited Balance Sheet of Gulf Coast Cooling Tower
Service, Inc. as of December 31, 1995, and related
statements of income, retained earning and cash flows for
each of the two (2) years then ended.
(b) Unaudited Proforma Condensed Balance Sheet of
Environmental Plus, Inc. p/k/a Kinlaw Energy Partners
Corporation as of May 31, 1996 and the related pro forma
statement of operations for the nine (9) months ended May
31, 1996.
(c) Exhibits
Exhibit No. Document Description
----------- --------------------
2.1 Asset Purchase Agreement, dated as of
June 15, 1996, between Environmental
Plus, Incorporated (formerly known as
Kinlaw Energy Partners Corporation) and
Gulf Coast Cooling Tower Service, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
ENVIRONMENTAL PLUS, INCORPORATED
By: /s/ J.D. Davenport
------------------------------
J.D. Davenport, President
Date: September 22, 1996
EXHIBIT INDEX
-------------
Exhibit No. Document Description
- ----------- --------------------
2.1 Asset Purchase Agreement, dated as of June 15,
1996, between Environmental Plus, Incorporated
(formerly known as Kinlaw Energy Partners
Corporation) and Gulf Coast Cooling Tower
Service, Inc.
INDEX TO FINANCIAL STATEMENTS AND
UNAUDITED PRO FORMA FINANCIAL INFORMATION
-----------------------------------------
Financial Statements: Page
Gulf Coast Cooling Tower Service, Inc.
Independent Auditor's Report F-2
Balance Sheet as of December 31, 1995 F-3
Statement of Income and Retained Earnings
for the Years Ended December 31, 1995 and 1994 F-4
Statement of Cash Flows for the years
ended December 31, 1995 and 1994 F-5
Notes to Financial Statements F-6
Unaudited Pro Forma Financial Statements:
Environmental Plus, Inc. (p/ka/ Kinlaw
Energy Partners Corporation
Letter from Gregory Wayne Guinn,
Certified Public Accountant F-10
Pro Forma Condensed Balance Sheet
as of May 31, 1996 F-11
Pro Forma Condensed Statement of Operations
for Nine Months Ended May 31, 1996 F-12
Notes to Pro Forma Financial Statements F-13
GULF COAST COOLING TOWER SERVICE, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Gulf Coast Cooling Tower Service, Inc.
We have audited the accompanying balance sheet of Gulf Coast
Cooling Tower Service, Inc. (a Texas corporation) as of December
31, 1995, and the related statements of income, retained earnings,
and cash flows for each of the two years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our 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
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Gulf
Coast Cooling Tower Service, Inc. as of December 31, 1995, and the
results of its operations and its cash flows for the two years then
ended in conformity with generally accepted accounting principles.
/s/ Little, Walker & Company
Little, Walker & Company
Certified Public Accountants
Longview, Texas
May 9, 1996
F-2
GULF COAST COOLING TOWER SERVICE, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current Assets
Cash $ 19,950
Accounts receivable - trade 17,487
Accounts receivable - shareholder 134,076
Notes receivable - current maturities 55,924
Deferred income tax benefit 12,929
---------
Total Current Assets 240,366
---------
Property and Equipment
Land and buildings 164,708
Machinery and equipment 581,616
Vehicles 43,724
Office equipment 11,069
---------
Total Property and Equipment 801,117
Less accumulated depreciation 615,074
---------
Net Property and Equipment 186,043
---------
Other Assets
Notes receivable 198,514
---------
Total Assets $ 624,923
$=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,232
Accrued expenses 2,740
Notes payable 120,000
---------
Total Current Liabilities 124,972
Long-Term Liabilities -0-
---------
Total Liabilities 124,972
---------
Stockholders' Equity - Common stock
($10 par value, 10,000 shares authorized;
1,000 shares issued and outstanding) 10,000
Additional paid-in capital 97,188
Retained earnings 392,763
---------
Total Stockholders' Equity 499,951
---------
Total Liabilities and Stockholders' Equity $ 624,923
=========
The accompanying notes are an integral part of these
statements.
F-3
GULF COAST COOLING TOWER SERVICE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
Sales $ 261,267 $ 240,835
Cost of Sales
Materials 68,163 71,364
Labor 51,697 39,031
Consulting and contract services 60,528 25,897
Other costs 28,182 33,484
----------- -----------
Total Cost of Sales 208,570 169,776
----------- -----------
Gross Profit 52,697 71,059
Operating Expenses
Advertising 77 978
Auto and truck 6,986 8,747
Aviation 3,205 5,282
Bad debts 1,612 1,024
Depreciation 5,973 6,550
Equipment rental 4,046 3,229
Insurance 7,727 5,583
Interest 3,277 2,340
Office expense 3,373 1,259
Professional fees 2,587 1,128
Repair and maintenance 12,363 16,365
Safety 600 -0-
Small tools and supplies 2,161 8,202
Taxes and licenses 7,632 8,228
Travel and entertainment 3,783 8,138
Utilities and telephone 8,823 9,159
Other operating expense 208 330
----------- -----------
Total Operating Expenses 74,433 86,542
----------- -----------
Net Income (Loss) From Operations (21,736) (15,483)
----------- -----------
Other Income and (Expense)
Interest income 18,868 14,690
Rent - real estate 4,550 6,500
Gain (loss) on sale of assets (6,613) 760
Litigation settlement (30,000) -0-
Sales tax audit assessment (12,030) -0-
Prior year insurance refund 9,988 8,912
----------- -----------
Total Other Income and (Expense) (15,237) 30,862
----------- -----------
Net Income (Loss) Before Income Taxes (36,973) 15,379
Provision for Income Tax
Expense (Benefit) (5,452) 2,361
----------- -----------
Net Income (Loss) (31,521) 13,018
Retained earnings, beginning 424,284 411,266
Retained earnings, ending $ 392,763 $ 424,284
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
GULF COAST COOLING TOWER SERVICE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
Cash Flows From
Operating Activities:
Net income (loss) (31,521) 13,018
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 19,249 24,123
Deferred income taxes (5,452) 2,361
(Gain) loss on sale of assets 6,613 (760)
(Increase) decrease in:
Accounts receivable - trade (7,840) (1,732)
Inventory 10,828 (666)
Increase (decrease) in:
Accounts payable 181 (1,393)
Accrued expenses 2,552 (1,392)
----------- -----------
Net Cash Flow Provided By (Used In)
Operating Activities (5,390) 33,559
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of assets -0- 96,500
Advances on notes receivable (50,000) -0-
Collection on notes receivable 35,552 23,618
Loans to shareholder -0- (127,500)
Collection of shareholder loans 31,659 -0-
Cash from surrender of life insurance -0- 28,342
Purchase of property and equipment (107,106) (18,500)
----------- -----------
Net Cash Flow Provided By (Used In)
Investing Activities (89,895) 2,460
----------- -----------
Cash Flows From Financing Activities:
Increase (decrease) in operating
line of credit 120,000 -0-
Retirement of debt (14,202) (26,582)
----------- -----------
Net Cash Flows Provided By (Used In)
Financing Activities 105,798 (26,582)
----------- -----------
Increase (Decrease) in Cash
and Cash Equivalents 10,513 9,437
Cash and cash equivalents - beginning 9,437 -0-
----------- -----------
Cash and cash equivalents - ending $ 19,950 $ 9,437
=========== ===========
Other Cash Flow Information
Interest Paid $ 2,186 $ 2,340
Income Taxes Paid $ -0- $ -0-
The accompanying notes are an integral part of these statements.
F-5
GULF COAST COOLING TOWER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1 - Operations and Significant Accounting Policies
This summary of significant accounting policies of Gulf Coast
Cooling Tower Service, Inc.(the Company) is presented to assist in
understanding the Company's financial statements. The financial
statements and notes are representations of the Company's
management, who is responsible for their integrity and objectivity.
These accounting policies, with the exception of property and
equipment, conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial
statements.
Business Activities - The Company, located in Overton, Texas, is
engaged in the business of constructing and repairing industrial
cooling towers primarily in Texas and Arkansas. The Company extends
credit to customers primarily in utility, petro-chemical and oil
refining industries.
Effective September 1, 1993, the Company entered into a consulting
agreement with Utility Engineering Corporation (UEC) of Amarillo,
Texas. The agreement provides for a monthly base fee of $1,500 for
a period of forty-eight months. In addition, the contract with UEC
contains a non-competition agreement, restricting the ability of
the Company and its majority shareholder to compete with UEC within
a 250 mile radius of Amarillo, Texas during the term of the
contract. The agreement may be terminated by UEC under a buy out
provision or by the Company upon proper notice.
Company management elected, for 1995 and 1994, not to pursue major
cooling tower construction and repair contracts. Sales for the
respective years included the following components:
1995 1994
----------- -----------
Material sales $ 75,168 $ 92,728
Labor sales 119,216 99,618
Consulting 22,361 19,605
Equipment rental 41,270 28,884
Other operating income 3,252 -0-
----------- -----------
Total $ 261,267 $ 240,835
=========== ===========
Accounts Receivable/Revenue Recognition - Trade accounts receivable
and revenue are recognized as jobs are completed for contracts of
short duration, and the " percentage of completion " method is used
for long term contracts.
Accounts which, in the opinion of management, are doubtful of
collection, are charged against current operations. Trade accounts
written off for 1995 and 1994 totalled $1,612 and $1,024,
respectively.
Inventories - Inventories consist of jobsite materials and supplies
and are valued at cost.
F-6
GULF COAST COOLING TOWER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 1 - Operations and Significant Accounting Policies (Continued)
Property,Plant and Equipment - Property, plant and equipment are
stated at cost. Management has elected to calculate depreciation
using the accelerated cost recovery system (ACRS) and the modified
accelerated cost recovery system (MACRS). These are not acceptable
methods for financial statements under generally accepted
accounting principles.
Generally accepted accounting principles require depreciating cost
over an asset's estimated useful life using an acceptable method.
Due to the age of significant assets, the effect of this departure
from generally accepted accounting principles on financial
position, results of operations, and cash flows is not material.
Expenditures for maintenance and repairs and minor renewals are
charged to operations, whereas, betterments which significantly
extend the useful lives of individual assets are capitalized.
Depreciation expense for the years ended December 31, 1995 and
1994, was $19,249 and $24,123, respectively.
Federal Income Tax - Deferred income tax assets and liabilities are
computed annually for differences between the financial statement
and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to effect taxable income. Income tax expense is the tax
payable or refundable for the period plus or minus the change in
deferred tax assets and liabilities.
Cash and Cash Equivalents - Cash and cash equivalents include cash
on hand and on deposit and highly liquid debt investments with
maturities generally of three months or less.
Note 2 - Related Party Transactions
George R. Davis is the majority shareholder of the Company. Loans
are made from the Company to Davis and from Davis to the Company as
needs arise.
During 1995 the Company purchased, from Davis, a building and land
located in Borger, Texas for $82,500 and equipment at a cost of
$19,500.
The following net transactions and balances are included in the
accompanying financial statements:
1995 1994
----------- -----------
Loans to shareholder $ -0- $ 127,500
Retirement of shareholder debt 31,659 -0-
Accounts receivable - shareholder 134,076 N/A
F-7
GULF COAST COOLING TOWER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 3 - Notes Receivable
Notes receivable at December 31, 1995 consisted of the following:
Balance Due in One
12-31-95 Year
---------- ----------
Tri State Construction,
Unsecured, interest at prime
plus 1%, due on demand.
The Company does not
expect to make demand in 1996. $ 76,010 $ -0-
Brett and Dana Newton,
Secured by real estate,
due in monthly installments of
$587.37 including interest
at 9% through December 15, 2019. 69,258 861
Clyde Davis,
Real estate contract for deed,
due in monthly installments of
$430.04 including interest at 8%
through September 1, 2008. 41,168 1,937
Environmental Plus, Inc.,
Unsecured, interest at 10.5%,
due December 28, 1996. 50,000 50,000
Paul W. Lucas,
Secured by real estate, final
installment due January 2, 1996. 27 27
James R. Black,
Secured by real estate, due in
monthly installments of $409.18
including interest at 11% through
July 15, 2000. 17,975 3,099
---------- ----------
Total $ 254,438 $ 55,924
========== ==========
In the opinion of management, no impaired notes receivable existed
at December 31, 1995.
Note 4 - Notes Payable
The Company is obligated on notes payable as of December 31, 1995,
in the amounts and under terms as follows;
Balance Current
Creditor/Description 12-31-95 Maturity
- -------------------- -------- --------
First State Bank, Overton, Texas
Secured by deed of trust, interest
due quarterly at TCB prime plus 3/4%,
due August 16, 1996. $ 120,000 $ 120,000
--------- ---------
F-8
GULF COAST COOLING TOWER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Note 5 - Provision for Income Taxes
The provision for income tax expense (benefit) for the years ended
December 31, 1995 and 1994 consists of the following components:
1995 1994
------------ ------------
Current $ (4,809) $ -0-
Deferred income tax (benefit) (643) 2,361
------------ ------------
Provision for Income Taxes $ (5,452) $ 2,361
============ ============
Income Tax Reconciliation:
Federal income tax on current
operations at current rates $ (5,546) $ 2,307
Effect of temporary differences 643 (2,250)
Effect of permanent differences 94 54
General business credits utilized -0- (111)
------------ ------------
Current income tax (benefit) $ (4,809) $ -0-
============ ============
The net deferred tax assets (liabilities) in the accompanying
balance sheet include the following components:
1995 1994
------------ ------------
Deferred tax assets arising from:
Net operating loss $ 4,809 $ -0-
General business tax credits 9,727 9,727
Deferred tax liabilities arising from:
Depreciation (IRC Section 179) (1,607) (2,250)
------------ ------------
Net deferred tax asset $ 12,929 $ 7,477
=========== ============
The Company has a tax net operating loss of $32,058 available for
carryforward to offset future taxable income through 2010. In
addition, the Company has unused general business tax credits
available for carryforward to offset future tax liabilities which
will expire as follows: 1996 - $222, 1998 - $568, 1999 - $3,515,
2000 - $72, 2001 - $5,350.
Note 6 - Litigation
During 1995, the Company settled litigation relating to a dispute
over prior year worker's compensation insurance premiums. The claim
was settled upon the Company's payment of $30,000. This amount is
presented in the income statement under other income and expense.
Note 7 - Leasing Activities
The Company is currently under contract to lease equipment to a
customer for monthly rentals of $3,000 for a period of thirty-six
months beginning October 1, 1994. Due to terms of cancellation and
purchase provisions, this lease is accounted for as an operating
type lease and income is recognized as monthly rentals are billed.
The equipment is fully depreciated and has an original cost of
$105,000.
F-9
Environmental Plus, Inc.
p/k/a Kinlaw Energy Partners Corporation
Pro Forma Financial Statements
May 31, 1996
Gregory Wayne Ginn, P.C.
Certified Public Accountants
Environmental Plus, Inc.
p/k/a Kinlaw Energy Partners Corporation
To the Board of Directors:
We have compiled the accompanying pro forma condensed balance sheet
of Environmental Plus, Inc. p/k/a Kinlaw Energy Partners
Corporation as of May 31, 1996 and the related pro forma statement
of operations for the nine months ended May 31, 1996, in accordance
with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management.
We have not audited or reviewed the accompanying financial
statements, and accordingly, do not express an opinion or any other
form of assurance to them.
The pro forma information is presented for informational purposes
only and is not necessarily indicative of the operating results
that would have occurred had the described acquisition been
consummated as of the report dates, nor are they necessarily
indicative of future operating results.
May 31, 1996
F-10
Environmental Plus, Inc.
p/k/a Kinlaw Energy Partners Corporation
Pro Forma Condensed Balance Sheet
May 31, 1996
ASSETS
Pro Forma
Historical Adjustment Pro Forma
------------ ------------
May 31, 1996 (Note 1) May 31, 1996
------------ ----------- ------------
Current assets $ - $ 325,000 $ 325,080
Property and equipment,
net of accumulated
depreciation - 248,670 248,670
Other assets - 250 250
------------ ----------- ------------
$ - $ 574,000 $ 574,000
============ =========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities $ 6,835 $ - $ 6,835
Stockholder's equity
(deficit): (6,835) 574,000 567,165
------------ ----------- ------------
$ - $ 574,000 $ 574,000
============ =========== ============
F-11
Environmental Plus, Inc.
p/k/a Kinlaw Energy Partners Corporation
Pro Forma Condensed Statement of Operations
Nine Months Ended May 31, 1996
Historical Pro Forma Pro Forma
------------ ------------
Nine months ended Adjustment Nine months ended
May 31, 1996 (Note 1) May 31, 1996
------------ ----------- ------------
Sales $ - $ 253,191 $ 253,191
Cost of sales - 194,847 194,847
------------ ----------- ------------
Gross profit - 58,344 58,344
Operating expenses 4,000 98,225 102,225
------------ ----------- ------------
Income (loss)
from continuing
operation (4,000) (39,881) (43,881)
Other income 4,603 14,910 19,513
------------ ----------- ------------
Income (loss)
before federal
income tax 603 (24,971) (24,368)
Provision for federal
income taxes - - -
Net income
(loss) $ 603 $ (24,971) $ (24,368)
============ =========== ============
Income (loss)
per share $ - $ - $ -
============ =========== ============
Weighted average
common shares
outstanding
(Note 2) ########### 574,000 ###########
============ =========== ============
F-12
Environmental Plus, Inc.
p/k/a Kinlaw Energy Partners Corporation
Notes to Pro Forma Financial Statements
May 31, 1996
Note 1
- ------
These financial statements are intended to present the pro forma
results of the acquisition of certain operating assets of Gulf
Coast Cooling Tower Service, Inc. by Environmental Plus, Inc. The
pro forma information combines the assets, liabilities, equity and
results of continuing operations of the Corporation and the company
whose assets were acquired as if the acquisition had occurred at
the beginning of the nine month period ended May 31, 1996. This
pro forma summary does not necessarily reflect the results of
operations as they would have been if the Corporation and the named
company constituted a single entity during such period and is not
necessarily indicative of results which may be obtained in the
future.
Note 2
- ------
The preferred stock issue resulting from the asset acquisition
includes a convertible feature which allows the holder, at his
option, to convert each preferred share into one share of common
stock. Therefore these preferred shares have been included in
determining all pro forma per share results.
F-13