FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: August 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-13041
ENVIRONMENTAL PLUS, INCORPORATED
(formerly Kinlaw Energy Partners Corporation)
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-1939021
- --------------- -------------------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation
or organization)
ROUTE 1, BOX 41, OVERTON, TEXAS 75684
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (903) 834-6965
Securities registered pursuant to
Section 12(b) of the Exchange Act:
None.
Securities registered pursuant to
Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Sections 13 or 15(d) of the Exchange Act, during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $129,770.
The number of shares outstanding of common stock as of December 31,
1996 was 40,371,873. There was no published market value for the
registrant's stock during the last fiscal year.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibits under Part IV are incorporated by reference to
exhibits of the registrant's Form 10 Registration Statement and its
Form 10-K for fiscal years ended August 31, 1988 through 1995 and
Registrant's Forms 10-Q for the first 3 quarters of fiscal 1996.
<PAGE>
ENVIRONMENTAL PLUS, INCORPORATED
FORM 10-KSB
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
PART I
ITEM 1. BUSINESS
Environmental Plus, Inc. (the "Company"), is in the business
of construction and repair of industrial cooling towers, primarily
in Texas, Louisiana and Arkansas, for electric utility companies;
and the marketing of a fire retardant foam as a fire fighting
device for industrial use. These activities are the result of two
significant acquisitions during 1996.
Prior to the acquisition of substantially all of the shares of
the Company by Environmental Plus, Incorporated during the fiscal
year 1996, the Company operated as Kinlaw Energy Partners
Corporation ("KEPC"), a Texas corporation, which was formed in
December 1983. Prior to August 31, 1987, the Company's operation
consisted primarily of investments in oil and gas partnerships and
joint ventures and the acquiring of interests in producing oil and
gas properties located in the continental United States. During
the year ended August 31, 1987, substantially all of KEPC's assets,
including its oil and gas properties, were assigned to certain
shareholders and creditors in satisfaction of that indebtedness.
During the year ended August 31, 1992, the Company began
providing management services to Kinlaw Oil Corporation ("KOC").
All funding requirements of the Company had been made through
advances from either the majority shareholder of the Company or
KOC.
On or about June or July 1995, KOC ceased operations; thereby
eliminating the Company's sole source of revenue. As a result, the
Company terminated the employment of its employees.
In November 1995, the Company's majority shareholder sold its
shares comprising 90.01% of the issued and outstanding common stock
of the Company to Environmental Plus Incorporated, which
subsequently changed its name to GD-JD, Inc. Effective March 12,
1996, Messrs. George Davis and J.D. Davenport, the new majority
shareholders of the Company were elected as Directors of the
Company to fill existing vacancies. In April 1996, Mr. James
Harris, the only remaining KEPC Director resigned. On May 23,
1996, the Board of Directors elected J.D. Davenport as President of
the Company, George Davis as Chairman of the Board of Directors,
Secretary and Treasurer of the Company and Charles I. White as Vice
President as well as a Director of the Company. The Directors were
also authorized to interview certified public accounting firms to
perform all required auditing, tax and audit work for the 1996
fiscal year. Additionally, on May 23, 1996, the Directors voted to
form a subsidiary of the Company under the name of Gulf Coast
Towers, Inc.
On June 1, 1996, the Company acquired 100% of the issued and
outstanding common stock of FireZap, Inc. ("FZI"), a Texas
corporation. The consideration for the stock of FZI included
450,000
<PAGE>
shares of the Company's Series A Convertible Preferred Stock ($1.00
par value). The purchase agreement between the Company and FZI also
provides for certain contingent payments of an additional 450,000
shares of the Company's Series A Convertible Preferred Stock ($1.00
par value) if FZI has net revenues for the 12 months ending June 1,
1997 of $900,000.00 or greater. The acquisition resulted in FZI
becoming a wholly owned subsidiary of the Company. The Company's
Series A Convertible Preferred Stock is convertible on a share for
share basis into common stock. FZI is in the business of marketing
a fire retarding foam as a fire fighting device for industrial use.
FZI, a Texas corporation, was incorporated in January 1996. It was
founded for the purpose of marketing products produced by Fire
Response Systems International, Inc. of Houston, Texas. These
products are known as Aqueous Film Forming Foam ("AFFF") and are
used by fire fighters in cities, forests, agriculture, aviation,
maritime and other fire fighting application. Three basic products
are offered to FZI's customers, two of which are sold under the
name of Fire Away and Fire Choke and are designed to quench or
choke the fire by cutting off the oxygen. The Fire Quench product
market by the Company is produced by the Texas Department of
Corrections and may only be sold to tax supported entities. Like
the other two products, it is biodegradable and noncorrosive. FZI
has the exclusive right to market these products in the United
States.
FZI currently has three major competitors in the market.
However, FZI believes that it has a price advantage as well as
current approval on environmental impact. FZI also believes that
its products meet the current guidelines of the Department of
Defense, the Environmental Protection Agency and the General
Service Administration.
Factory capacity is more than adequate to supply all the
product needed. Each of the producers are able to expand on very
short notice. All prices on the products are F.O.B., but FZI has
favorable rates with various freight lines. Additionally,
significant inventory can be achieved at no cost on Fire Quench
since the Texas Department of Corrections will ship the product on
consignment, with billing occurring when the products are used.
Effective July, 1996, the Company acquired substantially all
of the assets of Gulf Coast Cooling Tower Services, Inc. ("GCCTS")
from the Company's Director and Secretary, George Davis. The value
of the assets acquired by the Company from GCCTS was $599,000 for
which the Company paid 599,000 shares of the Company's Series A
Convertible Preferred Stock. ($1.00 par value) The acquisition
resulted in the continuation of the business underlying the assets
(through the Company's subsidiary Gulf Coast Towers, Inc.), which
is construction repair of industrial cooling towers primarily in
Texas, Louisiana and Arkansas for electric utility companies and
related consulting services.
Gulf Coast Towers, Inc., a wholly owned subsidiary of the
Company ("GCT"), which operates the business of GCCTS and is
located in Overton, Texas. It is in the business of constructing
and repairing industrial cooling towers primarily in Texas and
Arkansas. Its customers are generally in utility, petro chemical
and oil refining industries.
The Company has six (6) full time employees.
<PAGE>
ITEM 2. PROPERTIES
The principal office of the Company is in Overton, Texas. FZI
currently has established a temporary office at 3445 Highland Road
in Dallas, Texas and is currently being provided warehouse space at
no cost. The Company obtained property at 701 Industrial Blvd in
Borger, Texas which consists of 3.98 acres with a warehouse and
three (3) offices, and a warehouse and offices at 2227 Lake Road in
La Marque, Texas when it purchased the assets of GCCTS. The
current facilities are suitable and adequate to meet the Company's
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 23, 1996, at a duly convened special meeting of the
Shareholders of the Company, the shareholders voted to amend the
Company's Articles of Incorporation to 1) change the name of the
Company, and 2) to authorize the issuance of Series A Convertible
Preferred Stock, $1.00 par value to be issued at such times and in
such amounts and containing such rights, preferences and
designations as the Board of Directors may determine from time to
time.
Additionally, at the special meeting of Shareholders held on
May 23, 1996, the Shareholders elected Mr. J.D. Davenport, Mr.
George Davis and Mr. Charles I. White to serve as directors of the
Company.
With respect to the Shareholders vote regarding the change of
the name of the Company to Environmental Plus, Inc. of the
37,775,108 shares entitled to vote at the meeting, 34,569,246
shares voted for the proposal, 0 shares voted against, and
3,205,862 were withheld.
With respect to the proposal to authorize the issuance of
Series A Convertible Preferred Shares, of the 37,775,108 shares
entitled to vote at the meeting, 34,569,246 shares voted for the
proposal, 0 against, and 3,205,862 were withheld.
For each of the Directors nominated and elected at the
meeting, of the 37,775,108 shares entitled to vote, 34,569,246
shares voted for the nominees, 0 against and 3,205,862 were
withheld.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company has traded from time to time
on the over-the-counter market. Due to the infrequency of trades
during the past two years, the Company does not believe that there
is an established public trading market for its common stock.
<PAGE>
As of August 31, 1996, there were 1489 holders of record of
the Company's common stock. There have been no dividends paid or
declared since the inception of the Company, and the Company's
present financial condition does not permit the payment of
dividends. The Company cannot predict when, if at all, it will
commence payment of dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Results of Operations.
- ---------------------
Overview
The Company's results of operations for fiscal 1996 were
significantly affected by the Company's acquisition of 100% of the
issued and outstanding shares of common stock of FZI and the
acquisition of substantially all of the assets of GCCTS. Virtually
all of the Company's revenues for fiscal 1996 were derived from
operations resulting from those two acquisitions. Virtually all of
the Company's revenues for fiscal 1995 resulted from a management
agreements between the Company and KOC, which ended when KOC ceased
operations in July 1995.
GCT, a wholly owned subsidiary of the Company, utilizing the
assets acquired from GCCTS, undertakes the Company's business of
construction and repair of industrial cooling towers, primarily in
Texas, Louisiana and Arkansas. GCT has entered into a maintenance
contract with a Texas public utility company through December 31,
1997. The Company anticipates that this contract should provide
sufficient revenue during the period through December 31, 1997 to
service all debt and pay all expenses of GCT's business. GCT is
engaged in active bidding for similar contracts with other utility
and petro chemical companies.
The Company, through GCT has established a sales office in the
Dallas metroplex area. While the Company believes it is premature
to determine any trends in GCT's business, it believes that GCT has
the opportunity to secure a niche in the "commercial cooling tower
market".
The Company does not believe that it will have to make any
material commitments for capital expenditures during the next
twelve months with respect to GCT's business as it the Company
anticipates that income from operations will be a sufficient source
of funds to meet all capital needs.
GCT's need for employees fluctuates with its contractual
commitments to provide work and services. As a result, other than
its executive officers who will receive no compensation until
warranted by income, GCT has no full time employees. Any employees
hired will be compensated on a job-by-job basis or in the form of
commissions for sales.
FZI, acquired by the Company in June 1996, experienced very
little activity for the remainder of fiscal year 1996. Since FZI
operations contributed to the Company's revenues for only the last
two months of fiscal 1996, any impact on the Company's overall
revenue was insignificant. The Company believes that FZI's
revenues for the next twelve months will be sufficient to meet all
capital needs, including those necessary to continue FZI's research
and development activities regarding specialized
<PAGE>
fire fighting products. FZI anticipates adding approximately six
commissioned sales personnel during the next twelve months, and
aside from its executive officers who receive no fixed
compensation, FZI has no full time employees.
The Company had no material commitments for capital
expenditures as of the end of fiscal 1996 and anticipates that it
will have no material commitments for capital expenditures during
fiscal 1997 which cannot be met with revenues generated from
operations.
Results of Operations for the years ended
August 31, 1995 and 1996.
- -----------------------------------------
Revenues
Revenue from sales and other sources in fiscal 1996 were
$112,937 and $16,833 respectively compared to -0- in fiscal 1995.
The Company received no revenue from management fees in fiscal 1996
compared to $142,110 in fiscal 1995. The sales revenue in fiscal
1996 reflected the Company's acquisition of FZI and the assets of
GCCTS. The lack of management fee income in fiscal 1996 reflected
the discontinuation of the Company's agreement with KOC in late
fiscal 1995.
Costs and Expenses.
Costs of sales in fiscal 1996 were $93,640 compare to -0- in
fiscal 1995. Cost of sales in fiscal 1996 reflected the change in
the Company's business from a management service entity to a
product orientated entity.
Other Operating Expenses.
During 1996, the officers of the Company determined that they
would not take a salary until cash flow from operations permitted
them to pay each of the three (3) officers $50,000. Therefore, no
salaries were paid in fiscal 1996. The SEC staff has determined
that the historical statement of operations should reflect all
costs of doing business. Accordingly, officers' salaries for 1996
were imputed based on the actual number of months of operation
during 1996. This expense is reflected in the 1996 statements of
operations and also as an increase to paid-in capital. As
discussed above, salaries and benefits for fiscal 1996 were imputed
at $37,500 compared to $163,124 in fiscal 1995. This change again
reflected a change in the Company's business and the relativity
short period of time during which the Company operated after the
acquisitions of FZI and the assets of GCCTS until the end of fiscal
1996.
New Accounting Standards.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation".
SFAS No. 123 establishes a new, fair value-based method of
measuring stock-based compensation, but does not require an entity
to adopt the new method for preparing its basic financial
statements. For entities not adopting the new method for preparing
basic financial statements, SFAS No. 123 requires disclosures in
the footnotes of pro forma net earnings and earnings per share
information as if the fair value-based method had been adopted.
Adoption of SFAS No. 123 is required no later than the Company's
fiscal year ending August 31, 1997.
<PAGE>
The disclosure requirements of SFAS No. 123 are effective for
financial statements for financial years beginning after December
15, 1995. The Company will comply with the disclosure requirements
of SFAS No. 123 in its financial statements for its fiscal year
ending August 31, 1997.
Subsequent Event.
- -----------------
Effective October 1, 1996, the Company entered into an
agreement to acquire all of the common shares of CT Lewis
Industries ("CTL"), a Texas Corporation. CTL is engaged in the
business of fabrication of heavy metal, industrial equipment
processes, brakes, lathes, drill pieces, vessels and other metal
products and equipment. The transaction, the purchase price of
which was 300,000 shares of the Company's Series A convertible
preferred stock, was contingent and conditioned upon CTL providing
the Company with audited financial statements by January 1, 1997.
CTL did not provide the requested audited financial statements and
the Company effective January 2, 1997 declared the agreement in
material default and terminated same.
Deferred Tax Assets.
- --------------------
At August 31, 1996 and 1995, the Company had deferred assets
totaling $28,284 and $38,684 respectively. The deferred tax assets
are the result of net operating losses and have been fully reserved
by valuation allowances because it is more likely than not that the
deferred tax assets will not be realized based on the weight of
available evidence.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
- -----------------------------------------------------------------
Forward-looking statements in this report, including without
limitation, statements relating to the adequacy of the Company's
resources, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are
cautioned that such forward-looking statement involve risks and
uncertainties, including without limitation; potential quarterly
fluctuation in sales; risks associated with acquisitions and
expansion, and other risks and uncertainties indicated from time to
time in the Company's filings with the Securities and Exchange
Commission.
ITEM 7. FINANCIAL STATEMENTS.
Index to Financial Statements............................................F-1
Report of Independent Certified Public Accountants (BDO Seidman, LLP)....F-2
Independent Auditor's Report (Hutton, Patterson & Company)...............F-3
Consolidated balance sheets at August 1996 and 1995......................F-4
Consolidated statements of operations for the years
ended at August 31, 1996 and 1995......................................F-5
Consolidated statements of changes in stockholders'
equity <deficit> for the years ended August 31,
1996 and 1995..........................................................F-6
Consolidated statements of cash flows for the years
ended August 31, 1996 and 1995.........................................F-7
Summary of accounting policies...........................................F-8
Notes to consolidated financial statements
for the years ended August 31, 1996 and 1995...........................F-13
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS.
In June 1989 and for subsequent years, the Company appointed
Hutton, Patterson & Company, certified public accountants, as
independent accountants.
On July 22, 1996, at the recommendation of the Board of
Directors and by their consent without a meeting, the Company
replaced Hutton, Patterson & Company as the Company's independent
accountants and appointed BDO Seidman, L.L.P. as the new
independent auditors for the Company on a consolidated basis.
While the statements audited by Hutton, Patterson & Company for
fiscal 1995 had a "going concern opinion" there were no
disagreements between the Company and its accountants on any matter
of principals or practices on accounting, financial disclosure
matters, or auditing procedure during fiscal years 1995 and 1996.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.
Name Positions Held
---- --------------
J.D. Davenport President and Director
George Davis Secretary, Treasurer and
Chairman of the Board of Directors
Charles I. White Vice President and Director
Mr. Davenport acted as Chief Executive Officer of Ness
Environmental, Inc. from October 1993 until December 1995. Prior
to this time, Mr. Davenport was Chief Executive Officer of Frontier
Environmental, Inc. from November 1991 until October 1993.
Mr. Davis is and has been President and Chief Executive
Officer of Gulf Coast Cooling Tower Service, Inc. since May 1976.
Mr. White operates an arabian horse breeding and training farm
and has since 1990.
None of the officers or directors of the Company had
directorships of any other reporting companies.
None of the officers or directors are involved in any legal
proceedings.
Under the Company's Bylaws which became effective as of August
31, 1987, each Director serves until the next succeeding annual
meeting and until his successor is elected and qualified or until
his death, resignation or removal. Annual meetings of shareholders
and directors are held at such time and place as the Board of
Directors may from time to time determine. These Directors were
elected on May 23, 1996.
ITEM 10. EXECUTIVE COMPENSATION.
During 1996, the officers of the Company determined that they
would not take a salary until cash flow from operations permitted
them to pay each of the three (3) officers $50,000. Therefore, no
salaries were paid in fiscal 1996. The SEC staff has determined
that the historical statement of operations should reflect all
costs of doing business. Accordingly, officers' salaries for 1996
were imputed based on the actual number of months of operation
during 1996. This expense is reflected in
<PAGE>
the 1996 statements of operations and also as an increase to paid-
in capital. As discussed above, salaries and benefits for fiscal
1996 were imputed at $37,500 compared to $163,124 in fiscal 1995.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information with
respect to each person known by the Company to be a director or
officer of the Company, who beneficially owns five percent or more
of the Company's Common Stock, and all directors and officers as a
group.
<TABLE>
<CAPTION>
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership(1) of Class
- ----------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock J.D. Davenport 11,652,500 30%
607 South Garland
Overton, Texas 75684
Common Stock George Davis 12,925,000 33.3%
Route 1, Box 41
Overton, Texas 75684
Common Stock Charles I. White 3,774,000 9.7%
P.O. Box 749
Bentonville, AR 72712
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(1) The beneficial owner listed has the sole power to vote
and dispose of the shares owned of record by it.
</TABLE>
The Company does not know of any arrangement or pledge of its
securities by persons now considered in control of the Company that
might result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective July 1996, the Company acquired substantially all of
the assets of Gulf Coast Cooling Tower Service, 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 $599,000. 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 599,000 shares of the Company's Series A Convertible
Preferred Stock, par value of $1.00 which is convertible on a one-
for-one basis into the Company's common stock.
<PAGE>
During fiscal 1996 the Company contracted with an affiliate by
common control, to perform certain services on the cooling tower
sales. Costs to the Company and cash disbursements to the
affiliate totaled $64,070.
At the end of fiscal 1996, the Company had certain notes
payable to related parties ($12,000 to GCCTS and $1,000 to a
shareholder). During the year, GD-JD, Inc., an affiliate by common
control, loaned the Company $4,000 and made payments on behalf of
the Company for $11,391. The net amount due to GD-JD, Inc. as of
August 31, 1996 was forgiven and added to additional paid in
capital.
The Company had a payable to shareholder of $24,786 at August
31, 1994. The shareholder forgave the repayment of this amount
during the year ended August 31, 1995. The Company also had a
payable to Kinlaw Oil Corporation ("KOC") of $206,560 at August 31,
1994. During the year ended August 31, 1995, KOC advanced
additional funds of $14,000 to the Company and paid $12,435 to
various vendors on behalf of the Company. The Company repaid
$21,000 and transferred its property and equipment to KOC. The
remaining balance of $206,883 was forgiven by KOC. During fiscal
1996, KOC advanced $4,602 to the Company for the payment of payroll
taxes. This amount was also forgiven.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The financial statements and schedule listed in the
accompanying index to financial statements are filed as part
of this annual report.
2. Exhibits.
No. Exhibit
--- -------
2.1 Agreement dated March 19, 1984 between Robert
L. From, Electronic Diagnostic, Inc. and Has
Oil & Gas, Inc.
2.2 Certificate of Merger dated August 31, 1984
issued by the Secretary of State of Texas in
connection with the merger of Electronic
Diagnostic, Inc., a New York corporation, into
HAS Acquisition Company, a Texas corporation,
which includes a Certificate of Merger as
filed with the Secretary of State of New York
pursuant to Section 907 of the New York
Business Corporation Law and Merger Agreement,
and Plan of Reorganization dated July 30, 1984
between Electronic Diagnostic, Inc. and HAS
Acquisition Company.
<PAGE>
2.3 Certificate of Merger dated August 31, 1984
issued by the Secretary of State of the State
of Texas in connection with the merger of HAS
Oil & Gas, Inc., a Texas corporation, into HAS
Acquisition Company, a Texas corporation,
which includes the Agreement and Plan of
Merger between HAS Acquisition Company and HAS
Oil & Gas, Inc. dated July 30, 1984.
3.1 Articles of Incorporation of HAS Acquisition
Company ("Registrant") as filed on December 7,
1983 with the Secretary of State of Texas.
3.2 Amendment to the Registrant's Articles of
Incorporation as filed with the Secretary of
the State of Texas on September 25, 1984
changing the name of the Registrant from HAS
Acquisition Company to HAS Oil & Gas, Inc.
3.3 Amendment to the Registrant's Articles of
Incorporation as filed with the Secretary of
State of the State of Texas changing the name
of the Registrant from HAS Oil & Gas, Inc. to
Kinlaw Energy Partners Corporation.
3.3 Amendment to the Registrant's Articles of
Incorporation as filed with the Secretary of
State of Texas changing the name from
Registrant from Kinlaw Energy Partners
Corporation to Environmental Plus, Inc.
3.3 Bylaws of Registrant.
4.1 Form of Common Stock Certificate of
Registrant.
b) Reports on Form 8-K
Reports on Form 8-K were filed as follows:
Date of Report Date Filed Items
------------- ---------- -----
June 24, 1986 July 14, 1986 5, 7
August 20, 1986 September 4, 1986 2, 7
November 20, 1986 December 23, 1986 5
April 9, 1987 October 29, 1987 1, 2, 4, 5,
6, 7
September 9, 1991 September 20, 1991 1
July 22, 1996 August 1, 1996 4, 5, 7
July 22, 1996 October 4, 1996 2, 7
October 15, 1996 October 31, 1996 2,7
c) Exhibits
Exhibits required by Item 601 of Regulation S-B are
incorporated by reference.
d) Additional Financial Statements.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENVIRONMENTAL PLUS, INC.
By: /s/ J.D. Davenport
-------------------------
J.D. Davenport, President February 26, 1997.
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf
of the Registrant and in the capacity and on the date indicated:
/s/ J.D. Davenport
- ------------------------
J.D. Davenport, President February 26, 1997.
<PAGE>
Report of Independent Certified Public Accountants (BDO Seidman, LLP)....F-2
Independent Auditor's Report (Hutton, Patterson & Company)...............F-3
Consolidated balance sheets at August 31, 1996 and 1995..................F-4
Consolidated statements of operations for the years
ended at August 31, 1996 and 1995......................................F-5
Consolidated statements of changes in stockholders'
equity <deficit> for the years ended August 31,
1996 and 1995..........................................................F-6
Consolidated statements of cash flows for the years
ended August 31, 1996 and 1995.........................................F-7
Summary of accounting policies...........................................F-8
Notes to consolidated financial statements
for the years ended August 31, 1996 and 1995...........................F-13
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Environmental Plus, Inc. (F/K/A Kinlaw Energy Partners) and
Subsidiaries
We have audited the accompanying consolidated balance sheet of
Environmental Plus, Inc., (F/K/A Kinlaw Energy Partners
Corporation) and Subsidiaries, (the "Company") as of August 31,
1996 and the related consolidated statements of operations, cash
flows and stockholders' equity (deficit) for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As more fully described in Note 5, the Company engaged in
significant transactions with an affiliated company.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of August 31, 1996, and the results of
their operations and their cash flows for the year ended in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
December 20, 1996, except for Note 11
which is as of January 1997
Dallas, Texas
F-2
<PAGE>
HUTTON, PATTERSON & COMPANY
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS'S REPORT
- -----------------------------------------------------------------
To the Board of Directors and Stockholders
Kinlaw Energy Partners Corporation
We have audited the balance sheets of Kinlaw Energy Partners
Corporation as of August 31, 1995, 1994 and 1993, and the related
statements of operations and retained deficit and cash flows for
the 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 audits 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 Kinlaw
Energy Partners Corporation as of August 31, 1995, 1994 and 1993,
and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting
principles.
As more fully described in NOTE E, the Company engaged in
significant transactions with an affiliated company.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company had
a retained deficit of $595,929 at August 31, 1995. This condition
and others discussed in NOTE H raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Hutton, Patterson & Company
March 4, 1996
Dallas, Texas
F-3
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Consolidated Balance Sheets
==============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
August 31, 1996 1995
- ---------------------------------------------------------------------------------
ASSETS
Current
Cash $ 10,561 $ 421
Accounts receivable - trade 47,250 -
Note receivable (Note 2) 201,369 -
Inventory (Note 1) 43,256 -
Other 16,833 -
- ---------------------------------------------------------------------------------
Total current assets 319,269 421
- ---------------------------------------------------------------------------------
NOTE RECEIVABLE (NOTE 2) 76,000 -
- ---------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - NET (NOTE 3) 144,586 -
- ---------------------------------------------------------------------------------
OTHER
Goodwill and organization costs - net 57,168 -
- ---------------------------------------------------------------------------------
$ 597,023 $ 421
=================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,771 $ 10,336
Accrued expenses - 5,023
Line of credit (Note 4) 33,000 -
Notes payable - related parties (Note 4) 18,000 -
- ---------------------------------------------------------------------------------
Total current liabilities 82,771 15,359
- ---------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
- ---------------------------------------------------------------------------------
Stockholders' equity
Preferred stock,(100,000,000 authorized;
$1.00 par, 1,024,000 shares and
-outstanding, respectively) (Note 7) 466,600 -
Common stock, (100,000,000 shares
authorized, $.001 par, 40,329,136
and 37,735,285, shares issued and
outstanding, respectively) 40,328 37,735
Paid-in capital 610,224 543,256
Accumulated deficit (602,900) (595,929)
- ---------------------------------------------------------------------------------
514,252 (14,938)
- ---------------------------------------------------------------------------------
$ 597,023 $ 421
=================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>
F-4
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Consolidated Statements of Operations
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Years ended August 31, 1996 1995
- ---------------------------------------------------------------------------------
REVENUE:
Sales $ 112,937 $ -
Management fees - 142,110
Other 16,833 -
- ---------------------------------------------------------------------------------
Total 129,770 142,110
- ---------------------------------------------------------------------------------
COST OF SALES 93,640 -
- ---------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE:
Depreciation and Amortization 8,785 2,206
Professional fees 13,126 -
Salaries and benefits (Note 5) 37,500 163,124
Interest and bank charges 1,705 -
Utilities 1,094 -
Supplies 3,002 -
Other 1,344 14,672
- ---------------------------------------------------------------------------------
NET LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (30,426) (37,892)
- ---------------------------------------------------------------------------------
INCOME TAXES (NOTE 6) - -
- ---------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM (30,426) (37,892)
- ---------------------------------------------------------------------------------
EXTRAORDINARY ITEM - FORGIVENESS OF DEBT 23,455 231,669
- ---------------------------------------------------------------------------------
NET (LOSS) INCOME (6,971) 193,777
- ---------------------------------------------------------------------------------
PER SHARE DATA:
Net income (loss) per share $ - $ .01
Weighted Average shares outstanding 38,376,609 37,735,285
=================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>
F-5
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended August 31, 1995 and 1996
=================================================================
<TABLE>
<CAPTION>
Preferred Stock Common Stock
$1.00 Par Value $.001 Par Value
--------------- --------------- Additional Total
Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1994 - $ - 37,735,285 $ 37,735 $ 543,256 $(789,706) $ (208,715)
Net loss for the year - - - - - 193,777 193,777
- --------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1995 - - 37,735,285 37,735 543,256 (595,929) (14,938)
Acquisition of Gulf
Coast assets 574,184 465,600 - - - - 465,600
Acquisition of Fire
Zap shares 450,000 1,000 - - - - 1,000
Common shares issued
for services - - 1,573,443 1,573 9,992 - 11,565
Sale of common shares
to officer - - 1,020,408 1,020 6,480 - 7,500
Imputed officers' salary
(Note 5) - - - - 37,500 - 37,500
Expenses paid by
shareholders - - - - 12,996 - 12,996
Net loss for the year - - - - - (6,971) (6,971)
- ---------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1996 1,024,184 466,600 40,329,136 $ 40,328 $ 610,224 $(602,900) $ 514,252
=====================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
=================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Years ended August 31, 1996 1995
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from operations $ (30,426) $ (37,892)
Adjustments to reconcile income (loss) from
operations to cash provided by (used in)
operating activities:
Depreciation and amortization 8,785 2,206
Imputed officers' salaries 37,500 -
Change in assets and liabilities:
Increase in accounts receivable - trade (22,250) -
Increase in inventory (7,300) -
Increase in other assets (20,582) -
(Decrease) increase in accounts payable 21,436 (3,638)
Increase in accounts payable to affiliate - 6,167
(Decrease) in accrued liabilities (5,023) (3,310)
- ----------------------------------------------------------------------------------------
Net cash flows used in operating activities (17,860) (36,467)
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - affiliate 13,000 -
Proceeds from line of credit and notes payable 7,500 -
Sale of common shares 7,500 -
- ----------------------------------------------------------------------------------------
Net cash provided by financing activities 28,000 -
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash 10,140 (36,467)
Cash, beginning of year 421 36,888
- ----------------------------------------------------------------------------------------
Cash, ending of year $ 10,561 $ 421
========================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>
F-7
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Summary of Accounting Policies
=================================================================
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Environmental Plus, Incorporated (F/K/A Kinlaw
Energy Partners Corporation) and its wholly-owned subsidiaries
Fire Zap, Inc. and Gulf Coast Towers, Inc. from the date of
their respective acquisitions, as discussed below. All
material intercompany transactions and balances have been
eliminated in consolidation.
Environmental Plus, Inc. and its subsidiaries (the Company) is
primarily in the business of construction and repair of
industrial cooling towers, primarily in Texas, Louisiana and
Arkansas for electric utility companies; and marketing of fire
retarding foam for industrial use. These activities are the
result of two significant acquisitions during 1996, as
discussed below.
Prior to the acquisition of substantially all of the shares of
the Company by Environmental Plus, Inc. during fiscal 1996 the
Company operated as Kinlaw Energy Partners Corporation, (KEP),
a Texas Corporation. Prior to August 31, 1987, the Company's
operations consisted primarily of investments in oil and gas
partnerships and joint ventures and acquired interests in
producing oil and gas properties located in the continental
United States. During the year ended August 31, 1987,
substantially all of KEP's assets, including its oil and gas
properties, were assigned to certain stockholders and
creditors in satisfaction of outstanding indebtedness.
During the year ended August 31, 1992, the Company began
providing management services to an affiliated company, Kinlaw
Oil Corporation (KOC). All funding requirements of the
Company had been made through advances from the shareholder
and advances from KOC (Note 5).
In October 1995, all directors of KEP resigned.
In June 1995, KOC ceased operations; thereby eliminating the
Company's sole source of revenue. All employees were
terminated as a result.
F-8
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Summary of Accounting Policies
=================================================================
ACQUISITIONS OF BUSINESS
On June 1, 1996, the Company purchased 100 percent of the
stock of Fire Zap, Inc. (FZI). The consideration for the
stock of FZI included 450,000 shares of the Company's Series
A Convertible Preferred Stock. The purchase agreement also
provides for certain contingent payment of an additional
450,000 preferred shares of the Company if the net revenues
for the twelve months ending June 1, 1997, of FZI products and
services exceeds $900,000. FZI is in the business of
marketing a fire retarding foam as a fire fighting device for
industrial use. The acquisition of FZI was accounted for as
a purchase. Accordingly, the purchase price was allocated to
the net assets acquired based upon their fair market values.
On June 15, 1996, the Company purchased substantially all of
the assets of Gulf Coast Cooling Tower Service, Inc. (GCCTS)
from the Company's director and secretary. The acquisition
resulted in the continuation of the business underlying the
assets through the Company's wholly-owned subsidiary Gulf
Coast Towers, Inc. (GCT). The consideration for the assets of
GCCTS included 574,184 shares of the Company's Series A
Convertible Preferred Stock. The acquisition was between
entities under common control and accordingly the purchase of
assets was recorded at historical value by the Company in a
manner similar to a pooling of interest.
The accompanying consolidated statements of operations reflect
the operating results of FZI and GCCTS since the effective
date of the acquisitions. The following pro forma unaudited
consolidated operating results of the Company is presented as
though the acquisitions occurred as of September 1, 1994.
However FZI results are included only for the period from
inception of FZI (January 22, 1996) to August 31, 1996.
1996 1995
- ----------------------------------------------------------
Net sales $ 429,000 $ 403,500
Net income (loss) (3,500) 162,000
Earning (loss) per share $ - $ -
F-9
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Summary of Accounting Policies
=================================================================
The pro forma results have been prepared for comparative
purposes only and include certain adjustments. They do not
purport to be indicative of the consolidated results of
operations which actually would have resulted had the
combination been in effect on September 1, 1994, or of the
future results of operations of the consolidated entities.
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 disclose of contingent
assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-
out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed using accelerated and straight-line methods over the
estimated useful lives of the assets. Leasehold improvements
are amortized over the estimated useful lives of the
improvements or the length of the lease, including anticipated
renewal periods, whichever is shorter.
ORGANIZATION COSTS AND GOODWILL
Organizational costs are costs directly associated with the
FZI business acquisition and the direct costs of acquiring the
KEP shares. The goodwill represents the net cost in excess of
net assets acquired in the FZI acquisition. These costs are
being amortized over a five year period on a straight-line
basis.
The Company evaluates the recoverability and remaining life of
its goodwill and determines whether the goodwill should be
completely or partially written-off or the amortization period
accelerated. The Company will recognize an impairment of
goodwill if undiscounted estimated future operating cash flows
of the acquired business are determined to be less than the
carrying amount of the goodwill. If the Company determines
that the goodwill has been impaired, the measurement of the
impairment will be equal to the excess of the carrying amount
of the goodwill over the amount of the undiscounted estimated
future operating cash flows. If an
F-10
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Summary of Accounting Policies
=================================================================
impairment of goodwill were to occur, the Company would
reflect the impairment through a reduction in the carrying
value of goodwill.
TAXES ON INCOME
The Company accounts for income taxes under the asset and
liability method pursuant to Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes".
Under SFAS 109, deferred income taxes are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that
includes the enactment date.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash
equivalents.
PER SHARE INFORMATION
Per share information is based on the weighted average number
of common and dilutive common equivalent shares outstanding.
Common stock equivalents in the form of stock options and
warrants are also considered in the computation, if dilutive.
NEW ACCOUNTING STANDARDS
Effective September 1, 1994, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". The new standard
establishes new guidelines regarding when impairment losses on
long-lived assets, which include property and equipment,
certain identifiable intangible assets and goodwill, should be
recognized and how impairment losses should be measured. The
Company expects no effect from the adoption of this new
accounting standard.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 establishes a new, fair value-
based method of measuring stock-based
F-11
<PAGE>
compensation, but does not require an entity to adopt the new
method for preparing its basic financial statements. For
entities not adopting the new method for preparing basic
financial statements, SFAS No. 123 requires disclosures in the
footnotes of pro forma net earnings and earnings per share
information as if the fair value-based method had been
adopted. Adoption of SFAS No. 123 is required no later that
the Company's fiscal year ending August 31, 1997. The
disclosure requirements of SFAS No. 123 are effective for
financial statements for financial years beginning after
December 15, 1995. The Company will comply with the
disclosure requirements of SFAS No. 123 in its financial
statements for its fiscal year ending August 31, 1997.
F-12
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=================================================================
1. INVENTORIES
Inventories at August 31, 1996 consist primarily of parts for
construction of cooling towers and trailers totaling $43,256.
2. NOTES RECEIVABLE
Notes receivable at August 31, 1996 are unsecured and consist
of the following:
12.5% note due from Lewis Industries, principal
and interest payable on or before July 31, 1997
(see Note 11). . . . . . . . . . . . . . . . . . . . .$201,369
Prime plus 1% note due from Tri-State, principal and
interest payable on or before July 31, 2000 . . . . . ..76,000
3. PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1996 consist of the
following:
Land $ 21,500
Building and improvements 75,633
Machinery and equipment 25,323
Transportation equipment 29,819
-----------------------------------------------------
152,275
Accumulated depreciation (7,689)
-----------------------------------------------------
$ 144,586
=====================================================
4. LINE OF CREDIT AND NOTES PAYABLE TO RELATED PARTIES
At August 31, 1996, the Company had net borrowings of $33,000
under a revolving line of credit with a bank. The maximum
borrowings under the line of credit is $37,000 and the
agreement terminates as of February 1997. The line of credit
is secured by substantially all assets of FZI and accrues
interest at prime rate plus 3 percent.
Notes payable to related parties consist of the following at
August 31, 1996:
12% unsecured demanding note payable to officer $ 5,000
10.5% unsecured note payable to GCCTS,
due July 31, 1997 12,000
10.5% unsecured note payable to shareholder,
due July 31, 1997 1,000
------------------------------------------------------------
$ 18,000
============================================================
F-13
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=================================================================
5. TRANSACTIONS WITH RELATED PARTIES
During the year the Company contracted with an affiliate by
common control, to perform certain services on the cooling
tower related sales. Costs to the Company and cash
disbursements to the affiliate totaled $64,070.
At year end the Company had certain notes payable to related
parties as discussed in Note 4. During the year GD-JD, Inc.,
an affiliate by common control, loaned the Company $4,000 and
make payments on behalf of the Company for $11,391. The net
amount due GD-JD, Inc. at August 31, 1996 was forgiven and
added to additional paid-in capital.
During fiscal 1996, certain expenses totaling $23,445 were
paid on behalf of the Company by non-shareholders. These
payments are recorded as forgiveness of debt.
During 1996, the officers of the Company determined that they
would not take a salary until cash flow from operations
permitted them to pay each of three officers $50,000.
Therefore, no salaries were paid in fiscal 1996. The SEC
staff has determined that the historical statement of
operations should reflect all costs of doing business (SAB
79). Accordingly, officers' salaries for 1996 were imputed
based on the actual number of months of operation during 1996.
This expense is reflected in the 1996 statement of operations
and also as an increase to paid-in capital.
The Company collected management fees totaling $142,110 from
KOC for the year ended August 31, 1995. Additionally, KOC
provided office space to the Company at no charge, through
June 1995.
The Company had a payable to a shareholder of $24,786 at
August 31, 1994. The shareholder forgave the repayment of
this amount during the year ended August 31, 1995. The
Company also had a payable to KOC of $206,560 at August 31,
1994. During the year ended August 31, 1995, KOC advanced
additional funds of $14,000 to the Company and paid $12,435 to
various vendors on behalf of the Company. The Company repaid
$21,000 and transferred its property and equipment to KOC.
The remaining balance of $206,883 was forgiven by KOC. During
fiscal 1996 KOC advanced $4,602 to the Company for the payment
of payroll taxes. This amount was also forgiven.
F-14
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=================================================================
6. INCOME TAXES
During the years ended August 31, 1996 and 1995, the Company
utilized net operating loss carryforwards of $30,529 and
$193,777, respectively, to offset taxable income. Therefore,
there is no provision for federal income tax for the years
then ended. This resulted in a reduction of the recorded
deferred tax asset at August 31, 1996 and 1995 of $10,400 and
$48,029, respectively. The related valuation allowance was
reduced accordingly. Management established the valuation
allowance since it is more likely than not that the deferred
tax assets will not be realized based on the weight of
available evidence.
In accordance with the Internal Revenue Code, the availability
to carry forward net operating losses incurred prior to 1987
are limited due to a significant change in ownership during
that year. If not utilized, these net operating losses will
begin to expire in 2006. The remaining net operating losses
for tax purposes, are approximately $100,832. However, during
fiscal 1996 there was another significant change in ownership
which will further limit the availability of those net
operating losses (Note 10). The extent of the limitation has
not been determined. The Company has investment tax credits
available to be carried forward to offset income tax in the
amount of $3,364 which expire in 1997 through 2001.
The net deferred tax asset in the accompanying balance sheets
includes the following at August 31,:
1996 1995
------------------------------------------------------------
Deferred tax asset $ 28,284 $ 38,684
Less valuation allowance 28,284 38,684
------------------------------------------------------------
- -
------------------------------------------------------------
Deferred tax liability - -
------------------------------------------------------------
Net deferred tax asset $ - $ -
============================================================
F-15
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=================================================================
The valuation allowance activity for the years ended August
31, consists of the following:
1996 1995
------------------------------------------------------------
Balance, beginning of year $ 38,684 $ 86,713
Utilization of net operating
losses (10,400) (48,029)
-------------------------------------------------------------
Balance, end of year $ 28,284 $ 38,684
=============================================================
7. PREFERRED STOCK
The Series A preferred stock was issued in conjunction with
the FZI and GCCTS acquisitions. The terms of each share of
the Series A Convertible Preferred Stock will, at the option
of the shareholders, be convertible into one share of the
Company's common stock. The Company may upon written thirty
day notice delivered to the shareholders prior to the time of
any conversion of such stock into the Company's common stock,
repurchase such preferred stock for cash equal to two times
the par value of such Preferred Stock. Shareholders are able
to convert the Preferred Stock into shares of common stock of
the Company at any time after the date of issue. In the event
the Company delivers written notice to the shareholders of its
intent to repurchase the Preferred Stock, shareholders will
have twenty days to deliver written notice to buyer of their
intent to convert the Preferred Stock into buyer's common
stock.
8. COMMITMENTS AND CONTINGENCIES
The Company entered into a Financial Advisory Agreement with
Barron Chase Securities. As part of the agreement the Company
issued 1,500,000 shares of its common stock. The agreement
outlines the duties of the financial advisor and the fees for
the related services.
Fire Zap, Inc. entered into a management agreement with
certain of its officers in February 1996, which stipulates
salary and bonus requirements. The term of the agreement is
twenty years.
The Company is generally self-insured for losses and
liabilities related primarily to workers' compensation, health
and welfare claims, physical damage to property, business
interruption resulting from certain events, and comprehensive
general, product and vehicle liability.
F-16
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=================================================================
9. RETIREMENT PLAN
Effective August 1, 1994, the Company was provided with a
401(k) Retirement Savings Plan (the Plan) through KOC, that
covered substantially all of its employees. Under the
provisions of the Plan, employees were limited in
contributions to 20 percent of their gross wages. The Company
contributed $.25 for each dollar of the first $1,000
contributed by employees. Total employer contributions for
the year ended August 31, 1995, were $250. The Company had
the option to make discretionary contributions to the Plan,
but elected not to do so for the year ended August 31, 1995.
Pursuant to the change in ownership as discussed at Note 10,
the employees are no longer covered under this Plan.
10. CHANGE IN OWNERSHIP
In September 1991, ownership of the common stock shares held
by Joe D. Kinlaw was transferred to the Kinlaw Family Trust.
This trust is an irrevocable trust for the benefit of Mr.
Kinlaw's minor children. Through October 1995, the Trust was
controlled by trustees unaffiliated with Mr. Kinlaw. In
October 1995, the above mentioned trustees resigned and Jim
Harris was appointed trustee of the Trust.
Subsequent to August 31, 1995, 34,000,000 shares of the
Company's common stock, which were held by the Kinlaw Family
Trust, were sold to Environmental Plus, Inc.
11. SUBSEQUENT EVENT
Effective October 1, 1996, the Company acquired all of the
common shares of C.T. Lewis Industries (CTL), a Texas
corporation. CTL is engaged in the business of fabrication of
heavy metal, industrial equipment processes, brakes, lathes,
drill presses, vessels and other metal products and equipment.
The transaction, the purchase price of which was 300,000
shares of the Company's Series A convertible preferred stock,
was contingent and conditioned upon CTL providing the Company
with audited financial statements by January 1, 1997. CTL did
not provide the requested audited financial statements and the
Company effective January 2, 1997 declared the agreement in
material default and terminated same.
F-17
<PAGE>
ENVIRONMENTAL PLUS, INC.
(F/K/A KINLAW ENERGY PARTNERS CORPORATION)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
=================================================================
12. SUPPLEMENTAL CASH FLOW INFORMATION
During the fiscal 1996 and 1995 no cash was paid for interest
or income taxes.
As described in Note 5, the Company recognized forgiveness of
debt income in 1996 and 1995 in the amount of $23,455 and
$231,669, respectively.
As described in the Accounting Policies, the Company issued
574,184 preferred shares and 450,000 common shares in the
acquisitions of Gulf Coast Towers, Inc. and Fire Zap, Inc.,
respectively.
During 1996 the Company issued 1,573,443 common shares for
services provided. Also in 1996, additional paid-in capital
was credited for the payment of certain accruals totaling
$12,996 by shareholders.
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 10,561
<SECURITIES> 0
<RECEIVABLES> 248,619
<ALLOWANCES> 0
<INVENTORY> 43,256
<CURRENT-ASSETS> 319,269
<PP&E> 152,275
<DEPRECIATION> 7,689
<TOTAL-ASSETS> 597,023
<CURRENT-LIABILITIES> 82,771
<BONDS> 0
0
466,600
<COMMON> 40,328
<OTHER-SE> 7,324
<TOTAL-LIABILITY-AND-EQUITY> 597,023
<SALES> 112,937
<TOTAL-REVENUES> 129,770
<CGS> 93,640
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 64,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,705
<INCOME-PRETAX> (30,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 23,455
<CHANGES> 0
<NET-INCOME> (6,971)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
