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AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON JANUARY 15, 2002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-21956
EVANS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1613155
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (Identification number)
1625 HWY 60 NORTH, BAY CITY, TEXAS 77414
(979) 245-2424
(Address including zip code and telephone number, including area code,
of registrant's principal executive offices)
JERRIEL L. EVANS, SR., PRESIDENT
Mailing Address: P.O. Box 2480, Bay City, Texas 77404-2480 (979) 245-2424
Physical Address: 1625 Hwy 60 North, Bay City, Texas 77414 (979) 245-2424
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Securities registered pursuant to Section 12(b) of the Act: None.
---------------
Securities registered pursuant to Section 12(g) of the Act: None
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 per share NASDAQ-OTCBB Exchange
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 Exchange Act of 1934 during
the preceding 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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On December 31, 2001, the aggregate market value of the Registrant's voting
stock held by non-affiliates was approximately $980,000.
On December 31, 2001, there were 6,759,831 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE: None.
PART I
------
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to successfully
consummate the sale of its operations or to close on its proposed refinancing,
changes in costs of raw materials, labor, and employee benefits, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Annual Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as
representation by the Company or any other person that the objectives and plans
of the Company will be achieved. In assessing forward-looking statements
included herein, readers are urged to carefully read those statements. When
used in the Annual Report on Form 10-K, the words "estimate," "anticipate,"
"expect," "believe," and similar expressions are intended to be forward-looking
statements.
ITEM 1. BUSINESS
Evans Systems Inc. through its subsidiaries, collectively referred to herein as
the "Company" distributes motor fuels and lubricants to branded retail accounts
and commercial industrial users. The Company currently operates 8 convenience
stores selling gasoline, merchandise and fast food to the motoring public, and
provides environmental remediation services in southern Texas.
Operating results for each of the Company's segments follow (in thousands):
Year Ended Year Ended Year Ended
Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 1999
--------------- --------------- ---------------
TEXAS PETROLEUM MARKETING
Revenue from External Customers $27,525 $54,810 $50,164
Operating Loss 266 (593) (1,013)
TEXAS CONVENIENCE STORES
Revenue $12,543 $25,262 $22,873
Operating Loss (457) (751) (16)
EDCO ENVIRONMENTAL
Revenue $ 962 $ 1,461 $ 1,542
Operating Income (Loss) 19 227 177
UNALLOCATED GENERAL AND
ADMINISTRATIVE EXPENSES (1,076) (1,682) (1,854)
TOTAL CONTINUING OPERATIONS
Revenue $41,030 $81,533 $74,579
Operating Loss (1,248) (2,799) (2,706)
LOUISIANA OPERATIONS(1)
Revenue $ 4,717 $13,796 $12,694
Operating Loss (766) (676) (334)
CHEMWAY2
Revenue $ 75
Operating Income (Loss) (317)
(1) Louisiana operations ceased May 17, 2001 and substantially all of the assets
were sold.
(2) ChemWay was sold on December 30, 1998.
Page 2
TEXAS PETROLEUM MARKETING
The following table sets forth the revenues of the Texas Petroleum Marketing
segment (in thousands):
Fiscal Year Ended September 30
2001 2000 1999
------- ------- -------
Refined petroleum product sales $26,900 $54,414 $49,143
Non-petroleum product sales 625 396 1,021
------- ------- -------
Total sales $27,525 $54,810 $50,164
The Texas Petroleum Marketing segment's revenues are primarily derived from the
sale of motor fuels to the public through retail outlets:
. Gasoline retail facilities with Company-supplied equipment consisting of
pumps, lights, canopies and in many cases underground storage tanks, at
independently owned convenience stores. Under the terms of the Company's
agreements with such independent store operators ("Special Purpose
Leases"), the Company receives 40 percent or 50 percent of the gasoline
gross profit, depending upon who owns the underground gasoline
equipment.
. Independently owned gasoline stations and convenience stores ("Open
Dealers") to which the Company provides major oil company brand names,
credit card processing and signs and, without further investment,
receives its customary markup on fuel deliveries.
The Texas Petroleum Marketing segment also supplies lubricants to commercial and
industrial customers.
The Texas Petroleum Marketing segment distributes to its motor fuel customers
both directly from refinery racks, and through the Company's bulk plant
facilities. The Company also has a 110,000 barrel terminal facility, located in
Bay City, Texas, from which it has historically distributed motor fuels to the
southeast Texas market. During the first fiscal quarter of 1998, the Company's
supply agreement with the primary fuel supplier to the Bay City terminal
facility was terminated. The terminal facility has remained closed since then
and has adversely affected the Texas Petroleum Marketing segment's performance
during 1999, 2000, and 2001.
On May 21, 1999, the company closed its bulk storage facility and office in El
Campo, Texas and eliminated 35% of its staff in the Texas Petroleum Marketing
segment. The company also sold its Bay City Tire Store on May 3, 1999. On
June 30, 1999, the Company sold its Fuelman fleet card franchise to a
competitor.
During the first quarter of 2001, the Texas Petroleum Marketing segment closed
on the sale of some of its Citgo, Texaco (Motiva) and Diamond Shamrock dealer
and consignment accounts. Net proceeds from the sale of the Citgo, Texaco and
Diamond Shamrock dealer and consignment accounts approximated $194,000, $642,000
and $450,000, respectively, which were used for working capital and to reduce
the Company's outstanding debt. The Company recorded a net gain on the sales of
approximately $587,000, inclusive of a $159,000 net gain on the sales of the
distribution contracts. The net book value of the assets sold approximated
$699,000, which consisted primarily of fuel dispensing equipment and tanks at
the respective dealer and consignment locations.
During the second quarter of 2001, the Texas Petroleum Marketing segment closed
on the sale of its Phillips 66 dealer and consignment accounts. Net proceeds
from the sale of the Phillips 66 dealer and consignment accounts approximated
$556,000, which was used for working capital and to reduce the Company's
outstanding debt. The Company recorded a net gain on the sale of approximately
$238,000, inclusive of a $75,000 gain on the sale of the distribution contract.
The net book value of the assets sold approximated $318,000, which consisted
primarily of fuel dispensing equipment and tanks.
The Texas Petroleum Marketing segment also closed on the sale of three
independent dealer and consignment accounts during the second quarter of 2001.
Net proceeds from the sale of the independent dealer and consignment accounts
approximated $178,000, which was used for working capital and to reduce the
Company's outstanding debt. The Company recorded a net gain on the sale of
approximately $8,000. The net book value of the assets sold approximated
$170,000, which consisted primarily of fuel dispensing equipment and tanks at
the dealer and consignment locations.
Page 3
TEXAS CONVENIENCE STORES
The following table sets forth the revenues of the Texas Convenience Store
segment (in thousands):
Fiscal Year Ended
September 30
---------------------------
2001 2000 1999
------- ------- -------
Refined petroleum product
sales $ 7,379 $15,361 $12,705
Merchandise sales 4,814 9,543 9,599
Other income 350 358 569
------- ------- -------
Total Sales $12,543 $25,262 $22,873
Number of operating stores
at year-end 8 17 17
At September 30, 2001, the Company operated 8 convenience stores, featuring
self-service motor fuels and a variety of food and non-food merchandise. One
of the Company's convenience stores is co-branded with a nationally recognized
fast food franchise and four have company food service operations. The
Company's stores are located in smaller communities throughout the gulf coast
region of Texas.
The Company closed two underperforming Texas convenience stores during 1999, one
of which was subsequently leased to an independent operator who also agreed to
purchase fuel from the Company as an Open Dealer.
During the second quarter of 2001, the Company closed on the sale of six company
operated stores for total net proceeds of approximately $2,574,000, which were
used for working capital and to reduce the Company's outstanding debt. The
Company recorded a net gain on the sale of approximately $201,000. The net book
value of the assets sold approximated $2,373,000, inclusive of $225,000 in fuel
and retail inventory.
During the third quarter of 2001, the Company closed on the sale of one company
operated store and one store previously leased to others for total proceeds, net
of closing costs, of approximately $1,063,000, which was used for working
capital and to reduce the Company's outstanding debt. The Company recorded a
net gain on the sales of approximately $22,000 during the third quarter of 2001.
The net book value of the assets sold approximated $1,041,000, inclusive of
$76,000 in fuel and retail inventory.
During the fourth quarter of 2001, the Company closed on the sale of one company
operated store for total proceeds, net of closing costs, of approximately
$595,000, which was used for working capital and to reduce the Company's
outstanding debt. The Company recorded a net gain on the sales of approximately
$40,000 during the fourth quarter of 2001. The net book value of the assets
sold approximated $555,000.
EDCO ENVIRONMENTAL
EDCO Environmental provides environmental assessment and remediation services
for the petroleum distribution industry in the southeast Texas market area.
EDCO Environmental currently focuses its efforts on the following activities:
Underground storage tank ("UST") removal UST regulator upgrades
Site assessments for regulatory agencies UST repairs and maintenance
Site clean up reimbursement
EDCO Environmental has provided environmental remediation services to
approximately 100 customers ranging from gasoline stations, convenience stores,
public utilities, banks, major oil companies, large industrial corporations,
various small local enterprises and a variety of governmental institutions and
enterprises. The environmental protection business is primarily the result of
government mandate. In the mid-1980's, the EPA initiated a program for the
management of USTs throughout the U.S.
The EPA now requires stage II vapor recovery improvements at fuel facilities
rather than through on-board canisters in new motor vehicles. The deadline for
compliance with the UST improvement guidelines was December 1998.
A number of states, including Texas, have established remediation funds to
assist owners/operators in the clean up of leaking USTs. In Texas, this was
accomplished through the Groundwater Protection Act ("GPA"), which became
effective on September 1, 1989. The GPA, as amended, provides clean-up funds
for eligible expenses, less applicable deductibles. The fund is continually
financed by a fee assessed on motor fuels sold in the state. Financing programs
secured by assignments of rights to reimbursement by the Texas Natural Resource
Conservation Commission ("TNRCC") can be obtained for leaking petroleum storage
tank sites impacted by releases from
Page 4
USTs. For locations where contamination already exists, the UST owner/operator
must comply with TNRCC clean-up regulations or risk fines of up to $10,000 per
day and disqualification from the benefits and funding of the GPA.
EDCO Environmental reported revenues of $962,000, $1,461,000 and $1,542,000 in
2001, 2000 and 1999, respectively. The TNRCC is continuing to provide
reimbursements for clean up of those contaminated locations which were
registered with the TNRCC on or before December 28, 1998. Cleanup of locations
that became known after December 28, 1998 are generally funded by private
insurance or by the location owner.
DISCONTINUED - LOUISIANA OPERATIONS
On May 17, 2001, the Company closed on the sale of substantially all the assets
and inventory of Evans Oil of Louisiana (EOLA) for total cash, net of closing
costs, of $1,078,000 and discontinued its Louisiana operations. The assets and
inventory sold had a net book value of approximately $723,000 and $268,000,
respectively, on May 17, 2001. The Company recorded a net gain on the sale of
discontinued operations of approximately $87,000. The proceeds of the sale were
used to reduce outstanding debt. The results of operations of EOLA have been
classified as discontinued operations and prior periods have been restated.
EMPLOYEE RELATIONS
The Company employs 84 people, none of whom are represented by any collective
bargaining organizations. The Company has had no work stoppages, slow downs or
strikes.
Management considers its employee relations to be satisfactory.
COMPETITION
All of the Company's business segments operate in a highly competitive
environment. The Company competes on the basis of price, service, and quality.
In addition, each of the respective business systems faces special competitive
factors. In all phases of operations, the Company encounters strong competition
from a number of companies, including some companies with significantly greater
resources than the Company. Many of these larger competitors employ financial
and personnel resources substantially in excess of those which are available to
the Company. The Company's Texas Petroleum Marketing Segment and Texas
Convenience Store Segment also compete with integrated oil companies, which, in
some cases, own or control a majority of their Petroleum Marketing facilities or
convenience store locations. These major oil companies may offer their products
to the Company's competitors on more favorable terms than those available to the
Company from its suppliers. A significant number of companies, including
integrated oil companies and petroleum products distribution companies,
distribute petroleum products through a larger number of facilities than the
Company.
The convenience store industry is a retail service-oriented industry. It is
distinguished from other retail businesses by its emphasis on location and
convenience rather than price, and a commitment to customers who need to
purchase items quickly at extended hours. Convenience stores feature a wide
variety of items including groceries, dairy products, tobacco products,
beverages, and health and beauty aids. Many sell petroleum on a self-service
basis. Stores are generally designed with ample customer parking and quick
checkout procedures to maximize convenience as well as encourage impulse buying
of high margin items.
The convenience store industry is highly competitive, fragmented, and
regionalized. It is characterized by a few large companies and many small
independent companies. Several competitors are substantially larger and have
greater resources than the Company. The Company's primary competitors include
Diamond Shamrock, RaceTrac, Thomas Petroleum, and E-Z Mart. The Company also
competes with other convenience stores, small supermarkets, grocery stores, and
major and independent gasoline distributors who have converted units to
convenience stores.
EDCO Environmental is a full service environmental company. In the past, the
remediation industry was not highly competitive, but increasingly companies are
entering the environmental business. Management of EDCO Environmental
anticipates that the business will become increasingly competitive in the years
ahead.
The remediation industry is characterized by a few large companies, some medium
sized companies such as EDCO Environmental, and many small independent
companies. Some competitors are larger and have greater resources than EDCO
Environmental. EDCO Environmental competes primarily with engineering firms and
private contractors in addition to other environmental remediation companies.
The continued growth in the remediation service is dependent upon market
penetration, customer base, government regulations,
Page 5
funding, and legislative changes. EDCO Environmental's growth in underground
storage tank upgrading depends upon its ability to work efficiently, meet price
competition, and will be adversely affected by restrictions upon reimbursements
by the Texas Natural Resource Conservation Commission (See "Business," "EDCO
Environmental Systems, Inc.").
ITEM 2. PROPERTIES
The Company owns 31 commercial parcels of real estate in Texas. The properties
are comprised of convenience stores, service stations, plants and unimproved
sites suitable for retail development. It also leases another 9 retail locations
and 1 fuel terminal under operating lease agreements with varying terms and
lives.
The Company's general offices are located on 3 acres of land on Highway 60 in
Bay City Texas in a 13,475 square foot building. Adjacent to the offices are
14,784 square feet of additional warehouse buildings together with bulk storage
equipment, including 14 fuel storage tanks and 20 lube oil and antifreeze tanks.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to litigation, primarily as a result of customer and
vendor claims, in the ordinary conduct of its operations. As of September 30,
2001, the Company had no knowledge of any legal proceedings, which, by
themselves, or in the aggregate, would not be covered by insurance or could be
expected to have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock Information
Traded On the Nasdaq Over The Counter Bulletin Board Quotation System -- The
Company's Common Stock, $.01 par value, is listed on the OTCBB exchange under
the Symbol "EVSI." At September 30, 2001, there were approximately 1,281
shareholders of record. The Company has not paid any cash dividends, and the
Company currently has no plans to adopt a regular cash dividend.
The aggregate market value of the Company's voting stock held by non-affiliates
was approximately $980,000 on September 30, 2001.
Page 6
The high and low price range for the last two years, based on the closing sales
price as reported by NASDAQ\OTCBB, are below:
Dates High Low
- ----- ---- ---
October 1,1999 through December 31,1999 2.43 .50
January 1,2000 through March 31, 2000 9 .75 1.38
April 1,2000 through June 30, 2000 2 .43 .38
July 1, 2000 through September 30, 2000 1.50 .38
October 1, 2000 through December 31, 2000 .53 .20
January 1, 2001 through March 31, 2001 .25 .13
April 1, 2001 through June 30, 2001 .25 .13
July 1, 2001 through September 30, 2001 .18 .11
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data which should be
read in conjunction with the Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included herein. Amounts are in thousands, except per-share data. The Company
has reclassified certain 1997 thru 2000 financial data to conform with the 2001
financial data presentation. Such reclassifications had no effect on net loss as
previously reported.
Year Ended September 30,
----------------------------------------------------
Income Statement Data: 2001 2000 1999 1998 1997
- ---------------------- ------- ------- ------- ------- --------
Revenues $41,030 $81,533 $74,579 $91,236 $123,148
Gross Profit 5,107 8,627 10,137 11,645 12,803
Operating Income (Loss) (1,248) (2,799) (2,706) (3,968) (3,074)
Income (Loss) from Continuing Operations (2,013) (5,297) (7,008) (4,526) (3,026)
Net Income (Loss) (2,746) (6,002) (7,301) (5,453) (4,804)
Basic Income (loss) from continuing
operations per common share(1) (0.33) (1.24) (1.82) (1.45) (0.98)
Basic earnings (loss) per common share(1) (0.45) (1.41) (1.90) (1.75) (1.56)
Basic weighted average number of common
shares outstanding(1) 6,134 4,263 3,846 3,116 3,075
Diluted earnings (loss) from continuing
operations per common share(1) (0.33) (1.24) (1.82) (1.45) (0.98)
Diluted earnings (loss) per common share(1) (0.45) (1.41) (1.90) (1.75) (1.56)
Weighted average number of common and
common equivalent shares outstanding(1) 6,134 4,263 3,846 3,116 3,075
(1) Adjusted for 5% stock dividend paid on January 20, 1997.
Balance Sheet Data: 2001 2000 1999 1998 1997
- ------------------- ------- ------- ------- ------- --------
Current Assets $ 2,966 $ 6,148 $ 6,729 $ 9,914 $ 14,962
Current Liabilities 12,002 19,301 16,452 9,751 17,333
Current Ratio .25:1 .32:1 .41:1 1.02:1 .86:1
Total Assets 11,406 21,321 24,374 32,448 38,218
Long-Term Debt 609 716 1,634 11,151 5,401
Total Stockholders' Equity (1,205) 1,304 6,128 11,546 15,484
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the historical financial
statements and notes thereto appearing elsewhere in this document.
In the fourth quarter of 2000, the Company began implementation of a strategy to
reduce debt by selling certain identified assets. As a part of downsizing the
Company has reduced it's staff from 197 to 84 at September 30, 2001. The
Company plans to continue its Chevron and Exxon branded company operated and
dealer locations. The Company has determined that it is unlikely the Company's
revenues will increase in the foreseeable future in an amount sufficient to
offset its operating expenses without a sufficient working capital infusion. In
order to continue as a going concern, management believes the Company must
obtain a capital infusion of either equity or debt in amounts sufficient to
reduce its current outstanding debts and provide additional working capital to
expand its operations or it must continue to sell its assets. There can be no
assurance that management's plans as described above will be successful.
Page 7
RESULTS OF OPERATIONS
2001 COMPARED WITH 2000
Consolidated revenues from continuing operations decreased $40,503,000 or
approximately 49.6% to $41,030,000 in the year ended September 30, 2001. The
decrease is primarily attributable to the sale of it's Citgo, Texaco, Diamond
Shamrock, and Phillips 66 accounts in the Texas Petroleum Marketing Segment,
nine company operated convenience stores in it's Texas Convenience Store
Segment, and the sale of it's Louisiana Operations Segment (now classified as
Discontinued Operations). Consolidated gross profit from continuing operations
declined $3,520,000 or approximately 40.8 % to $5,107,000 in the year ended
September 30, 2001. Gross profit expressed as a percentage of revenues ("Gross
Margin") increased to approximately 12.4% of sales in 2001 from approximately
10.6% of sales in 2000. The increase in gross margin in 2001 is mainly
attributable to margin increases realized in Texas Petroleum Marketing and Texas
Convenience Store Segment with a lesser decline in Environmental margins. See
segment discussions below.
Consolidated operating expenses declined $5,071,000 or approximately 44.3% in
2001 to $6,355,000. The decrease in operating expenses were mainly attributable
to savings related to personnel reductions of $1,518,000, general and
administrative expense cost cuts of $628,000, depreciation of $450,000, other
expense reductions of $1,432,000 and a $1,043,000 reduction of expenses related
to the gain on sale of assets.
Consolidated operating losses decreased $1,551,000 to $1,248,000 in 2001 as
compared with a loss of $2,799,000 in 2000.
Consolidated loss from continuing operations decreased to $2,013,000 in 2001 as
compared to $5,297,000 in 2000. Loss from continuing operations in 2001
includes 689,000 in interest expense. Loss from continuing operations in 2000
includes an $802,000 valuation allowance on ChemWay net assets transferred
(following the guidance under SAB Topic 5:E) and $1,701,000 in interest expense.
Consolidated net loss decreased $3,256,000 to $2,746,000 in 2001 as compared to
a net loss of $6,002,000 in 2000.
TEXAS PETROLEUM MARKETING SEGMENT
Revenues in the Texas Petroleum Marketing Segment decreased $27,285,000 or
approximately 49.7% to $27,525,000 in 2001, as compared with $54,810,000 in
2000. Sales in gallons declined to 17,698,000 gallons in 2001 from 40,158,000
gallons in 2000, a decline of approximately 55.9%. Average selling price per
gallon increased in 2001 to approximately $1.52 per gallon, as compared with
$1.34 per gallon in 2000. The increase is due to nation wide cost increases in
2001 that pressured higher selling prices per gallon.
Gross Profit in 2001 declined to $2,294,000 from $3,747,000 in 2000, a decline
of $1,453,000 or approximately 38.7%. Gross Margin increased to approximately
8.3% of sales in 2001 from approximately 6.8% of sales in 2000.
Operating expenses in 2001 declined to $2,027,000 from $4,340,000 in 2000, a
decline of $2,313,000 or approximately 53.2%. The reduced expenses resulted from
the company's implementation of programs started in 1999 to reduce staff, a
$158,000 savings, cut overhead, a $957,000 savings, other expense reductions of
$374,000, decreased depreciation expense of $244,000, and increased gain of sale
on assets of $580,000.
Operating gain in 2001 of $266,000 increased from a loss of $593,000 in 2000, a
change of $859,000 or approximately a 144.8% improvement, as a result of the
expense reductions described above.
TEXAS CONVENIENCE STORE SEGMENT
At September 30, 2001, the Company operated 8 convenience stores, featuring
self-service motor fuels and a variety of food and non-food merchandise. One of
the Company's convenience stores is co-branded with a nationally recognized fast
food franchise and four have company food service operations. The Company's
stores are located in smaller communities throughout the gulf coast region of
Texas.
Total sales decreased $12,719,000 or approximately 50.3% in 2001 to $12,543,000
from $25,262,000 in 2000. Fuel sales in 2001 were $7,379,000 as compared with
$15,361,000 in 2000; fuel sales in gallons declined in 2001 to 5,017,000 gallons
as compared with 10,869,000 gallons in 2000. Merchandise sales decreased
$4,729,000 to $4,814,000 as compared with $9,543,000 in 2000. Average selling
price per gallon increased in 2001 to approximately $1.47 per gallon, as
compared with $1.41 per gallon in 2000. The increase is due to nation wide cost
increases in 2001 that pressured higher selling prices per gallon.
Page 8
Gross profit declined to $2,238,000 in 2001 as compared with $4,080,000 in 2000.
Gross Margin in the Texas Convenience Store segment increased in 2001 to
approximately 17.8% as compared with approximately 16.1% in 2000. Merchandise
Gross Margin decreased in 2001, to approximately 24.6% of sales, as compared to
approximately 28.4% of sales in 2000. Fuel Gross Margin increased to
approximately 9.5% during 2001, as compared with approximately 6.6% during 2000.
Operating expenses during 2001 in the Texas Convenience Store segment was
$2,695,000 as compared with $4,830,000 in 2000, a decrease of $2,135,000 or
approximately 44.2%.
The Convenience Store segment incurred an operating loss of $457,000 in 2001, as
compared with a loss of $751,000 in 2000. The decreased loss is attributable to
expense reductions exceeding the decline in gross profit by $293,000 in 2001
compared to 2000.
EDCO ENVIRONMENTAL SEGMENT
EDCO Environmental reported an operating profit of $19,000 in the year ended
September 30, 2001, as compared with $227,000 in 2000. The decrease is
primarily attributable to a $224,000 decrease in gross profit. EDCO
Environmental will continue to focus its attention on environmental remediation
projects that have been pre-approved for reimbursement by the Texas Natural
Resource Conservation Commissions' ("TNRCC") fund, or by private insurers.
Management believes that such opportunities will continue to exist; however
there can be no assurance that they will do so.
UNALLOCATED GENERAL AND ADMINISTRATIVE EXPENSES
Unallocated general and administrative expenses declined $606,000 in 2001, to
$1,076,000 as compared with $1,682,000 in 2000.
DISCONTINUED - LOUISIANA OPERATIONS
The company sold substantially all of the assets of Evans Oil of Louisiana Inc.
on May 17, 2001 and discontinued its Louisiana operations. The results of the
Louisiana operations have been classified as discontinued operations and prior
periods have been restated in the accompanying financial statements.
2000 COMPARED WITH 1999
Consolidated revenues from continuing operations increased $6,954,000 or
approximately 9.3% to $81,533,000 in the year ended September 30, 2000. The
increase, primarily in the Texas Petroleum Marketing segment, is primarily due
to the increased selling price per gallon of fuel in 2000 compared to 1999.
Consolidated gross profit from continuing operations declined $1,510,000 or
approximately 14.9% to $8,627,000 in the year ended September 30, 2000. Gross
profit expressed as a percentage of revenues ("Gross Margin") decreased to
approximately 10.6% of sales in 2000 from approximately 13.6% of sales in 1999.
Gross Margin declined in all segments. The decline in gross profit in 2000 is
mainly due to competitive gasoline pricing on rising fuel cost. See segment
discussions below.
Consolidated operating expenses declined $1,417,000 or approximately 11.0% in
2000 to $11,426,000. The decrease in operating expenses were mainly
attributable to savings related to personnel reductions $1,187,000, general and
administrative expense cost cuts of $406,000, depreciation of $84,000, other
expense reductions of $117,000 and a $377,000 additional expense related to the
loss on sale of assets.
Consolidated operating losses increased $93,000 to $2,799,000 in 2000 as
compared with a loss of $2,706,000 in 1999. The company made significant expense
reductions in 2000; however, the decline in margins nullified the benefits of
expense reductions.
Consolidated loss from continuing operations decreased to $5,297,000 in 2000 as
compared to $7,008,000 in 1999. Loss from continuing operations in 2000
includes an $802,000 valuation allowance on ChemWay net assets transferred
(following the guidance under SAB Topic 5:E) and $1,701,000 in interest expense.
Loss from continuing operations in 1999 includes a $784,000 valuation allowance
on ChemWay net assets transferred (following the guidance under SAB Topic 5:E)
and $1,802,000 in interest expense.
Consolidated net loss decreased $1,299,000 to $6,002,000 in 2000 as compared to
a net loss of $7,301,000 in 1999.
TEXAS PETROLEUM MARKETING SEGMENT
Revenues in the Texas Petroleum Marketing Segment increased $4,646,000 or
approximately 9.3% to $54,810,000 in 2000, as compared with $50,164,000 in 1999.
Sales in gallons declined to 40,158,000 gallons in 2000 from 44,441,000 gallons
in 1999, a
Page 9
decline of approximately 9.6%. Average selling price per gallon increased in
2000 to approximately $1.34 per gallon, as compared with $1.13 per gallon in
1999. The increase is due to nation wide cost increases in 2000 that pressured
higher selling prices per gallon.
Gross Profit in 2000 declined to $3,747,000 from $4,401,000 in 1999, a decline
of $654,000 or approximately 14.9%. Gross Margin decreased to approximately
6.8% of sales in 2000 from approximately 8.8% of sales in 1999.
Operating expenses in 2000 declined to $4,340,000 from $5,414,000 in 1999, a
decline of $1,074,000 or approximately 19.9%. The reduced expenses resulted from
the company's implementation of programs started in 1999 to reduce staff, a
$1,086,000 savings, cut overhead, a $122,000 savings, other expense reductions
of $73,000,decreased depreciation expense of $107,000 and a $314,000 additional
charge related to a reduced gain on sale of assets in 2000 from 1999.
Operating loss in 2000 decreased to $593,000 from $1,013,000 in 1999, a decrease
of $420,000 or approximately a 41.5% improvement, as a result of the expense
reductions described above.
TEXAS CONVENIENCE STORE SEGMENT
At September 30, 2000, the Company operated 17 convenience stores, featuring
self-service motor fuels and a variety of food and non-food merchandise. Eight
of the Company's convenience stores are co-branded with nationally recognized
fast food franchises or food service operations. The Company's stores are
located in smaller communities throughout the gulf coast region of Texas.
Total sales increased $2,389,000 or approximately 10.4% in 2000 to $25,262,000
from $22,873,000 in 1999. Fuel sales in 2000 were $15,361,000 as compared with
$12,659,000 in 1999; fuel sales in gallons declined in 2000 to 10,869,000
gallons as compared with 12,753,000 gallons in 1999. Merchandise sales decreased
$56,000 to $9,543,000 as compared with $9,599,000 in 1999. Average selling price
per gallon increased in 2000 to approximately $1.41 per gallon, as compared with
$.99 per gallon in 1999. The increase is due to nation wide cost increases in
2000 that pressured higher selling prices per gallon.
Gross profit declined to $4,079,000 in 2000 as compared with $4,768,000 in 1999.
Gross Margin in the Texas Convenience Store segment declined in 2000 to
approximately 16.1% as compared with approximately 20.9% in 1999. Merchandise
Gross Margin decreased in 2000, to approximately 28.4% of sales, as compared to
approximately 32.1% of sales in 1999. Fuel Gross Margin decreased to
approximately 6.6% during 2000, as compared with approximately 8.7% during 1999.
Operating expenses during 2000 in the Texas Convenience Store segment was
$4,830,000 as compared with $4,784,000 in 1999, an increase of $46,000 or
approximately 0.9%.
The Convenience Store segment incurred an operating loss of $751,000 in 2000, as
compared with a loss of $16,000 in 1999. The increased loss is due to declining
margins in fuel and merchandise sales created by a highly competitive market.
EDCO ENVIRONMENTAL SEGMENT
EDCO Environmental reported an operating profit of $227,000 in the year ended
September 30, 2000, as compared with $177,000 in 1999. The increase is
primarily attributable to a $158,000 reduction in operating expenses partially
offset by a reduction in gross profit margins. EDCO Environmental will continue
to focus its attention on environmental remediation projects that have been pre-
approved for reimbursement by the Texas Natural Resource Conservation
Commissions' ("TNRCC") fund, or by private insurers. Management believes that
such opportunities will continue to exist; however there can be no assurance
that they will do so.
UNALLOCATED GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses declined $172,000 in 2000, to $1,682,000 as
compared with $1,854,000 in 1999. Corporate expenses in 2000 included a non-
cash charge of $247,000 to compensation expense, as a result of the application
of Accounting Principles Board Option No. 25, "Accounting for Stock Issued to
Employees," with respect to the vesting of certain incentive stock options that
had previously been awarded to employees. 2000 expenses also include
nonrecurring legal and professional charges of $224,000 arising from the
proposed merger with I-Net Holdings Inc. and the proposed sale of substantially
all of it's fixed assets to TSC Services Inc. and $157,000 in penalties for late
payment of motor fuels taxes.
General and administrative expenses in 1999 included a non-cash charge of
$404,000 to compensation expense, as a result of the
Page 10
application of Accounting Principles Board Option No. 25, "Accounting for Stock
Issued to Employees," with respect to the vesting of certain incentive stock
options, which had previously been awarded to employees. 1999 expenses also
includes a noncash charge of $61,000, representing the market value of the
Company's common stock contributed to the Company's 401-K employee benefit plan,
nonrecurring legal and professional fees of $480,000 arising from the proposed
merger with Duke & Long Distributing Company, and legal and professional fees of
$339,000 arising from a number of matters, including the restatement of the
Company's previously reported financial statements, the negotiation of the
purchase agreement with A-Free-Gift.Com, and the refinancing of the Company's
senior debt.
DISCONTINUED - LOUISIANA OPERATIONS
The company sold substantially all of the assets of Evans Oil of Louisiana Inc.
on May 17, 2001 and discontinued its Louisiana operations. The results of the
Louisiana operations have been classified as discontinued operations and prior
periods have been restated in the accompanying financial statements.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents were $604,000 and $725,000 at September 30, 2001 and
2000, respectively. The Company had a net working capital deficit of $9,000,000,
as compared with a deficit of $13,153,000 at September 30, 2000. The Company has
been operating under a working capital deficit for 3 years. Cash used by
operating activities was $2,217,000 and $671,000 in the years ended September
30, 2001 and 2000, respectively.
In the Fourth Quarter of 2000, The Company began implementation of a strategy to
reduce debt by selling certain identified assets. . As a part of downsizing the
Company has reduced it's staff from 197 to 84 at September 30, 2001. The Company
has determined that it is unlikely the Company's revenues will increase in the
foreseeable future in an amount sufficient to offset its operating expenses
without a sufficient working capital infusion. In order to continue as a going
concern, management believes the Company must obtain a capital infusion of
either equity or debt in amounts sufficient to reduce its current outstanding
debts and provide additional working capital to expand it's operations or it
must continue to sell its assets. Management is currently holding talks with
several potential lending institutions to replace its existing bank debt with
new financing. There can be no assurance that management's plans as described
above will be successful.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations" which establishes
new accounting and reporting standards for business combinations. The FASB also
issued SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets". The Company has
not entered into, and is not expected to enter into, any material business
combinations, as defined by SFAS No. 141. At September 30, 2001, the Company
did not have goodwill or other intangible assets, as defined by SFAS No. 142.
Therefore, management believes there would be no material effect to the
Company's financial statements as a result of implementation of these
statements.
RECENT EVENTS
On December 4, 2000 the company entered into a stipulated judgment against
Affiliated Resources Corp, and ChemWay pertaining to the company's sale of
ChemWay to Affiliated in December 1998. The judgment granted by the 130th
Judicial District Court of Texas was for $6,000,000 arising from Affiliated's
failure to fund the put right at $4.00 per share on the 1,500,000 shares of
Affiliated stock that the company had received as consideration for the 1998
transaction. As stipulated in the judgment, the Company received a deed in lieu
of foreclosure for the ChemWay assets and improvements as sole payment of the
judgment (see Note 3). Management is presently evaluating all strategic
alternatives relating to the recently reclaimed assets
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company included in this annual
report on Form 10-K are listed under Item 14, Exhibits, Financial Statement
Schedules and Reports on Form 8-K.
Page 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has restated previously reported financial results for fiscal year
2000 and 1999 to give effect to the application of Securities and Exchange
Commission (SEC) Staff Accounting Bulletin (SAB) Topic 5:E, Accounting for
Divestiture of a Subsidiary or Other Business Operation, for the sale of ChemWay
to Affiliated Resources Corporation (Note 3). After reviewing the guidance we
realized that the sale of ChemWay, although a divestiture for legal purposes,
was not a divestiture for accounting purposes. The financial statements of the
Company as of September 30, 1999 were originally audited by
PricewaterhouseCoopers LLP. Their report on the 1999 financial statements was
before the restatement and included uncertainty language concerning the
Companies ability to continue as a going concern. PricewaterhouseCoopers LLP has
declined to audit the 1999 restated financial statements after the effects of
the application of SAB Topic 5:E were recorded. To meet the disclosure
requirements and avoid the cost of reauditing the 1999 financial statements the
Company has elected to present the 1999 restated financial statements as
unaudited in the accompanying consolidated financial statements. Since
PricewaterhouseCoopers LLP has declined to reissue their reports the 1998
financial statements, although they have not been revised are also labeled as
unaudited. The Company's decision to engage Stephenson & Trlicek, P. C. to audit
the 2000 financial statements preceded the change in accounting for the sale of
ChemWay and was approved by the Audit Committee and Board of Directors. We have
discussed the restatement of the financial statements with our prior auditors,
Audit Committee and the Board of Directors. The Company's current auditor's have
issued an audit report on the 2000 restated financial statements and 2001
financial statements.
PART III
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the current
directors and executive officers of the Company.
NAME POSITION AGE
Jerriel L. Evans, Sr. Chairman of the Board, President and Chief 62
Executive Officer
Peter J. Losavio, Jr. Vice Chairman of the Board 60
Darlene N. Jones Director, Secretary and Treasurer 43
Charles N. Way Director, and Controller 59
Matt Hessions Director 50
Jerry L. Evans, Jr. Vice President of Corporate Relations and 36
Human Resources
The principal occupation of each director and executive officer for at least the
last five years is set forth below:
JERRIEL L. EVANS, SR. has been a member of the Company's Board of Directors
since August 1968. Mr. Evans founded the Company in 1968. Mr. Evans founded
the Company in 1968 and has served as its Chairman of the Board, President and
Chief Executive Officer since that time. Mr. Evans was born in Flint, Texas, in
1939 and subsequently moved to Woodsboro, Texas, where he graduated from
Woodsboro High School in 1957. Mr. Evans attended San Antonio Community College
where he majored in Business Administration. From 1954 to 1960, Mr. Evans owned
and operated a gasoline service station. From 1960 to 1968, Mr. Evans was
employed by Amoco Oil Company where he held various sales and managerial
positions. In 1985, he was awarded top salesman for the Kansas City Region.
Because the region comprised several states, the honor bestowed upon Mr. Evans
was very prestigious. Additionally, in 1992, Mr. Evans was selected as a
Regional Finalist for the Entrepreneur of the year Award granted annually by
Ernst & Young and Merrill Lynch.
PETER J. LOSAVIO, JR. has been a member of the Company's Board of Directors
since May 1993. Mr. Losavio was born in Baton Rouge, Louisiana in 1949 and
graduated from Baton Rouge High School in 1967. He received his Bachelor of
Science degree in chemistry from Tulane University in 1970, and his Masters
degree in chemistry from Tulane University in 1973. He graduated from Louisiana
State University Law School in Baton Rouge, Louisiana in 1975 and received a
masters of laws in taxation from the University of Florida in 1976. Mr. Losavio
is a Board Certified Tax Attorney. He became a licensed and certified
accountant in Louisiana in 1979. He completed the certified financial planning
program offered by the College for Financial Planning in Denver, Colorado in
1987. From 1980 to present, Mr. Losavio has been an instructor in the College
of Business Administration at Louisiana State University, teaching corporate
tax, partnership taxation, Sub S, estate planning, and tax practices and
procedures. Mr. Losavio has been a co-author and lecturer for various
continuing education programs sponsored by the Society of Louisiana Certified
Public
Page 12
Accountants and National Business Institute. He was a speaker at the 1990
Louisiana Advanced Tax Workshop. From 1990 to present, he has been a member of
the Ad Hoc Advisory Committee to the Commissioner of Securities for the State of
Louisiana. From 1980 to present, he has been as assistant bar examiner. In 1980,
he was Chairman of the Tax Committee for the Society of Louisiana Certified
Public Accountants.
MATT HESSION is a 1976 graduate of Nicholls State in Louisiana and a veteran of
the United States Marine Corp. Mr. Hession has founded (10) ten companies over
his professional career. He was most recently CEO of Key Medical Services of
Baton Rogue, La and is currently on the Board of Directors of Amedisys (AMED).
Matt is also a member of the National Management Turnaround Association. He
presently does turnaround management work as owner of his private consulting
firm.
DARLENE E. JONES has been a member of the Company's Board of Directors since
December 1992. Ms. Jones is also Treasurer and serves as the Administrative
Manager for the Company. She has held these positions since 1993. Ms. Jones
was born in San Antonio, Texas, in 1958, and graduated from Bay City High School
in 1976. She then attended and graduated in 1980 from Southwestern University
where she received a Bachelor of Science degree in Biology/Chemistry.
Subsequently, Ms. Jones complete course work involving computer systems
technology. She joined the Company in 1980.
CHARLES N. WAY has been a member of the Company's Board of Directors since March
1982. Mr. Way also serves as Controller of the Company. He has held these
positions since June 1980 and March 1982, respectively. Mr. Way previously
served as the Company's Chief Financial Officer from June 1980 until June 1997.
Mr. Way joined the Company in June of 1979. He was born in Houston, Texas, in
1942 and graduated from Jessie H. Jones High School in 1961. He received a
B.B.A. degree in Accounting from Texas A&M University in 1966. He was employed
with Texaco, Inc. from 1966 to 1968 where he served as an accountant. From 1968
to 1973, Mr. Way served as an Accounting Division Manager with Tenneco Oil
Company. From 1973 to 1976, he was employed as a Controller with News, Inc. And
Subsidiaries. From 1976 to 1979, Mr. Way owned and operated All-Ways Automotive
& Tire Service in Houston, Texas. Mr. Way resigned as a director on 10/21/01 and
was laid off on November 14, 2001 due to the downturn in business.
JERRY L. EVANS, JR. has been with the Company for the past fifteen years having
started with the Company as a Store Associate in 1983. Mr. Evans graduated from
Bay City High School in 1983 and attended both Wharton County Junior College and
Southwest Texas State, where he focused on Communications and Political Science.
Mr. Evans served as Vice President of Investor Relations from 1993 to 1998 when
he was appointed Vice President of Corporate and Investor Relations and Human
Resources in April 1998. Mr. Evans is active on several organization and
community committees having served as Chairman of the Matagorda County
Republican Party, City Councilman for Bay City, Chairman of the Home Rule
Charter Commission and the Board of Directors of the Texas Petroleum Marketers
and Convenience Store Association. Mr. Evans was laid off on November 14,
2001due to the downturn in business.
There are no family relationships between any directors and executive officers
of the Company except that Jerry L. Evans, Jr. and Darlene E. Jones are Jerriel
L. Evans, Sr. son and daughter, respectively.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended September 30, 2001 ("Fiscal 2001"), the Company's
Board of Directors formally met on six occasions. Each of the directors
attended (or participated by telephone) more than 75% of such meetings of the
Board of Directors and Committees on which he served during Fiscal 2001. The
Board of Directors has no committees other than the Compensation Committee and
the Audit Committee.
The Company's Compensation Committee, which is comprised of Peter J. Lasavio
(Chairman and Matt Hession, reviews and approves the compensation of the
Company's executive officers and administers and interprets the Company's stock
option plans. The Compensation Committee met or took action on one occasion
during Fiscal 2001.
The Company's Audit Committee, which is comprised of Matt Hession (Chairman) and
Peter J. Losavio, recommends the Company's independent auditors, reviews the
scope of their engagement, consults with the auditors, reviews the results of
their examination, acts as liaison between the Board of Directors and the
auditors and reviews various Company policies, including those relating to
accounting and internal controls. The Audit Committee met or took action on two
occasions during Fiscal 2001.
COMPENSATION OF DIRECTORS
During Fiscal 2001, each director, who is not an employee of the Company
receives a monthly retainer fee of $500. Employees of the Company receive no
additional compensation for service as a director. All directors are reimbursed
for their reasonable out-of-pocket expenses incurred in connection with their
duties to the Company.
Page 13
In March 2001, the Company granted members of the Board of Directors options to
acquire an aggregate of 595,000 shares at $0.156 per share.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended September 30,
2001,2000,and 1999, certain summary information concerning annual and long-term
compensation paid by the Company for services in all capacities to the company
of the Chief Executive Officer, and the other most highly compensated executive
officers of the Company at September 30, 2001 who received compensation of at
least $100,000 during the Fiscal 2001 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
----------------------------------------- ---------------------------------------
Name and Other Annual Restricted
Principal Position Compensation Stock All Other
- ------------------ Year Salary($) Bonus($) ($)(1)(2)(3) Awards($) Options(#) Compensation
---- -------- -------- ------------ ---------- ---------- ------------
Jerriel L. Evans, Sr. (2)
Chairman of the Board, 2001 150,000 -0- 208,000 500,000 (2)
President and 2000 140,000 -0- 51,600 -- -0- (2)
Chief Executive Officer 1999 96,250 -0- 54,300 75,000 (2)
I. Although the officers receive certain perquisites, the value of such
perquisites did not exceed for any officer the lesser of $50,000 or 10% of
the officer's salary and bonus.
II. In addition to the compensation for Mr. Evans set forth above, he also
receives lease income for the rental of various properties used by the
Company. See Note 11 to the Consolidated Financial Statements, included
herein. The amounts included in Other Annual Compensation are $48,000,
$51,600, and $54,300 for the years 2001, 2000, and 1999 respectfully
III. Mr. Evans was granted 800,000 shares of the company's common stock on March
22, 2001 in payment of accrued commissions due of $160,000 included as
Other Annual Compensation for 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning Options/SARs
granted during Fiscal 2001 to the Named Officers.
Potential Realizable Value of Assumed
Annual Rates of Stock Price
Shares % of Total Appreciation for Option Term (2)
Underlying Granted to -----------------------------------------------------
Options/SARs Employees Exercise or Base Expiration
Name Granted (#) in Fiscal 2001 ($/Share)(1) Date 5%($) 10%($)
- ---- ------------ -------------- ---------------- ---------- ------ -------
Jerriel L. Evans, Sr. 500,000 63% 0.156 3/22/06 99,550 125,620
I. The exercise price of the options granted is equal to the market value of
the Company's Common Stock on the date of grant.
Potential realizable value of each grant assumes that the market prices of the
underlying security appreciates at annualized rates of 5% and 10% over the term
of the award. Actual gains, if any, on stock option exercises are dependent on
the future performance of common stock. There can be no assurance that the
amounts reflected on this table will be achieved.
Page 14
EMPLOYMENT AGREEMENTS
J. L. Evans, Sr. and the Company entered into an employment agreement, dated
March 22, 2001, for Mr. Evans to serve as President and Chief Executive Officer
of the Company through September 30, 2004. The agreement provides for an annual
base salary of $150,000 per year. The agreement provides that a 500,000 share
stock option be granted to Mr. Evans with vesting of 200,000 occurring on
March 22, 2001, and 300,000 vesting in equal monthly amounts over the three year
term of the employment contract or upon a change of control of the Company.
During the term of his employment with the Company, Mr. Evans is also entitled
to participation in all other benefit plans provided by the Company to its
executives, four weeks paid vacation per year and a $500 per month car
allowance. The agreement also restricts Mr. Evans from competing with the
Company or soliciting customers or other business for any entity other than the
Company during the term of the agreement and from disclosing certain
confidential information with respect to the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the Company's
Common Stock, as of December 31, 2001, by (i) each person who is known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, (ii) each of the Company's directors, (iii) each Named Officer, and (iv)
all current directors and executive officers of the Company as a group.
Amount and
Nature of Percent of
Name and Address (1) Beneficial Ownership (2) Class (3)
- -------------------- ------------------------ -----------
J. L. Evans Systems, Ltd., a Texas Limited Partnership 752,000(4) 11.1%
J. L. Evans, Sr. 2,431,015(5) 16.9%
Maybell H. Evans 775,300(6) 11.5%
Charles N. Way 50,250(7) *
Darlene E. Jones 46,405(8) *
J. L. Evans, Jr. 64,418(9) *
Peter J. Losavio, Jr. 20,000(10) *
8414 Bluebonnet Blvd., Suite 110
Baton Rouge, LA 70810
Matt Hession 17,500(11) *
All executive officers and Directors as a group (6 persons) 2,629,768 38.9%
* less than 1%
1. Unless otherwise indicated, the address of each beneficial owner is c/o
the Company, Post Office Box 2480, Bay City, Texas 77404-2480.
2. Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act ("Rule 13d-3") and unless otherwise indicated,
represents shares of which the beneficial owner has sole voting and
investment power.
3. The percentage of class is calculated in accordance with Rule 13d-3 and
assumes that the beneficial owner has exercised any options or other rights
to subscribe which are execrable within sixty (60) days and that no other
options or rights to subscribe have been exercised by anyone else.
4. The general partner is J.L. Evans Management, Inc. (controlled by J.L.
Evans, Sr. and Maybell H. Evans) and the limited partners are Jerriel L.
Evans, Sr., Maybell H. Evans, and their children, Darlene E. Jones, Jerriel
L. Evans, Jr., and Terry W. Evans.
5. Includes 752,000 shares held by J.L. Evans Systems, Ltd., of which Mr.
Evans claims beneficial ownership. Includes 575,000 shares issuable upon
the exercise of options.
6. Includes 752,000 shares held by J.L. Evans Systems, Ltd., of which Mrs.
Evans claims beneficial ownership.
7. Includes 37,000 shares issuable to Mr. Way upon the exercise of options.
8. Includes 35,000 shares issuable to Mrs. Jones upon the exercise of options.
9. Includes 37,000 shares issuable to Mr. Evans Jr. upon the exercise of
options.
10. Includes 20,000 shares issuable to Mr. Losavio upon the exercise of
options.
11. Includes 17,500 shares issuable to Mr. Hession upon the exercise of
options.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in
Page 15
ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors and greater than ten percent shareholders are required by
the Commission's regulations to furnish the Company with copies of all Section
16(a) forms they file.
The Company believes, based solely on review of copies of such forms furnished
to the Company, or written representations that no Form 5's were required, that
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with during Fiscal 2001
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2001, the Company leased two convenience store locations from Mr. J.L.
Evans, Sr., the largest shareholder of the Company. One ten-year lease
commenced in June 1987 with monthly lease payments of $2,500, which was renewed
for two additional five-year period. One five-year lease commenced in March
1995 with monthly lease payments of $1,800 and allows for two five-year
automatic renewals at the Company's option, which were not exercised by the
Company. However, the Company is making monthly rental payments of $1,500 under
a month to month rental agreement. The amounts paid under these leases were
$48,000, $51,600, and $54,300 for the years ended September 30, 2001, 2000 and
1999, respectively. Future minimum lease commitments as of September 30, 2001
are $22,500.
From time to time, the Company makes advances to individuals who are
shareholders, directors, officers and/or employees. Such advances are usually
unsecured and accrue interest at 9%. There were no advances outstanding at
September 30, 2001 and 2000. The Company has also issued various stock options
to directors, officers and key employees.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
I. The following financial statements, schedules and exhibits are filed as
part of this report:
(1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements on Page F-1.
(3) Exhibits.
See Index to Exhibits on sequential page 25.
II. Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended September 30,
2001.
Page 16
EVANS SYSTEMS, INC.
Index to Consolidated Financial Statements
September 30, 2001, 2000 and 1999
- ---------------------------------
Page No.
--------
Independent Auditor's Report F-2
Consolidated Balance Sheets at September 30, 2001 and 2000 F-3
Consolidated Statements of Operations for the Years Ended
September 30, 2001, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2001, 2000 and 1999 F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Evans Systems, Inc.
We have audited the accompanying consolidated balance sheets of Evans Systems,
Inc. and its subsidiaries at September 30, 2001 and 2000 and the related
consolidated statement of operations, stockholders' equity and comprehensive
income, 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. The financial
statements of Evans Systems, Inc. as of September 30, 1999 are unaudited.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 2001 and 2000 financial statements referred to above present
fairly, in all material respects, the financial position of Evans Systems, Inc.
at September 30, 2001 and 2000 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are described in Note 14. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Stephenson and Trlicek, P. C.
Wharton, Texas
December 28, 2001
F-2
EVANS SYSTEMS, INC.
Consolidated Balance Sheets
September 30, 2001 and 2000
- ---------------------------
2001 2000
--------- --------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 604 $ 725
Trade receivables, net of allowance for doubtful receivables
of $73,000 and $285,000, respectively 937 2,536
Inventory 1,155 2,717
Prepaid expenses and other current assets 270 170
-------- --------
Total current assets 2,966 6,148
Property and equipment, net 8,258 13,409
Net assets transferred under contractual agreement, net of a
valuation allowance of $0 and $1,586,000, respectively - 1,628
Other assets 182 136
-------- --------
Total assets $ 11,406 $ 21,321
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 4,992 $ 7,575
Current portion of long-term debt 4,943 9,910
Current portion of obligations under capital leases 790 744
Accrued interest 1,277 1,072
-------- --------
Total current liabilities 12,002 19,301
Long-term debt, net of current maturities 609 630
Obligations under capital leases, net of current maturities - 86
-------- --------
Total liabilities 12,611 20,017
Stockholders' equity
Common stock, $0.01 par value, 15,000,000 shares authorized,
6,759,831 and 5,542,429 shares issued, respectively 68 55
Additional paid-in capital 17,074 16,850
Accumulated deficit (17,913) (15,167)
Treasury stock, 72,589 shares, at cost (434) (434)
-------- --------
Total stockholders' equity (1,205) 1,304
-------- --------
Total liabilities and stockholders' equity $ 11,406 $ 21,321
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
Evans Systems, Inc.
Consolidated Statements of Operations
Years Ended September 30, 2001, 2000 and 1999
- ---------------------------------------------
2001 2000 1999
--------- -------- --------
(in thousands, except per
share amounts)
(Unaudited)
Revenues:
Motor fuel sales (including consumer excise and state
fuel taxes of $10,354, $22,721 and $20,000, respectively) $34,649 $69,133 $60,572
Other sales and services 6,381 12,400 14,007
------- ------- -------
Total revenues 41,030 81,533 74,579
Cost of sales
Motor fuels 31,665 64,488 55,807
Other sales and services 4,258 8,418 8,635
------- ------- -------
Total cost of sales 35,923 72,906 64,442
------- ------- -------
Gross profit 5,107 8,627 10,137
Operating expenses
Employment expenses 3,317 4,834 6,021
Other operating expenses 1,402 2,833 2,950
Other general and administrative expenses 1,706 2,335 2,741
Depreciation and amortization 936 1,387 1,471
(Gain) loss on sale of assets (1,006) 37 (340)
------- ------- -------
Total operating expenses 6,355 11,426 12,843
------- ------- -------
Operating loss (1,248) (2,799) (2,706)
Other income (expense)
Valuation allowance on net assets transferred (Note 3) - (802) (784)
Interest income 9 16 94
Interest expense (689) (1,701) (1,802)
Other income (expense) (85) (11) (654)
------- ------- -------
Total other income (expense) (765) (2,498) (3,146)
------- ------- -------
Loss from continuing operations before income taxes (2,013) (5,297) (5,852)
Provision (benefit) from income taxes - - 1,156
------- ------- -------
Loss from continuing operations (2,013) (5,297) (7,008)
Discontinued operations
Loss from discontinued operations of Evans Oil of
Louisiana to May 17, 2001 (820) (705) (293)
Gain on disposal of Evans Oil of Louisiana 87 - -
------- ------- -------
Total discontinued operations (733) (705) (293)
------- ------- -------
Net loss $(2,746) $(6,002) $(7,301)
======= ======= =======
Basic and diluted earnings (loss) per common share:
Continuing operations $ (0.33) $ (1.24) $ (1.82)
Discontinued operations (0.12) (0.17) (0.08)
------- ------- -------
Earnings (loss) per common share $ (0.45) $ (1.41) $ (1.90)
======= ======= =======
Basic and diluted weighted average common shares outstanding 6,134 4,263 3,846
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-4
Evans Systems, Inc.
Consolidated Statements of Cash Flows
Years Ended September 30, 2001, 2000 and 1999
- ---------------------------------------------
2001 2000 1999
--------- ---------- ----------
(in thousands)
(Unaudited)
Cash flows from operating activities
Net loss $(2,746) $(6,002) $(7,301)
Adjustments:
Depreciation and amortization 936 1,513 1,589
Stock option compensation expense - 247 404
Valuation allowance on net assets transferred (Note 3) - 802 784
Loss (gain) on sale of assets (1,006) 37 (381)
Loss on sale of Evans Oil of Louisiana fixed assets
to May 17, 2001 49 - -
Gain on disposal of discontinued operations (87) - -
Deferred income taxes - - 1,203
Loss on settlement of financial advisor claim - - 610
Changes in assets and liabilities:
Receivables 1,599 (125) 340
Inventory 1,562 267 730
Prepaid expenses and other (146) 425 883
Accounts payable and accrued expenses (2,378) 2,165 393
Income taxes receivable/payable - - 128
------- ------- -------
Net cash used by operating activities (2,217) (671) (618)
Cash flows from investing activities:
Capital expenditures (125) (467) (641)
Proceeds from sale of property and equipment 7,519 404 1,606
------- ------- -------
Net cash provided (used) by investing activities 7,394 (63) 965
Cash flows from financing activities
New borrowings 536 1,000 322
Reduction of long-term debt (6,031) (1,069) (1,607)
Reduction of capital lease obligations (40) (39) (86)
Net proceeds from stock issuance 237 575 1,185
------- ------- -------
Net cash provided (used) by financing activities (5,298) 467 (186)
------- ------- -------
Net increase (decrease) in cash and cash equivalents (121) (267) 161
Cash and cash equivalents, beginning of year 725 992 831
------- ------- -------
Cash and cash equivalents, end of year $ 604 $ 725 $ 992
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 484 $ 1,341 $ 1,320
======= ======= =======
Cash paid for taxes $ - $ - $ 47
======= ======= =======
Supplemental disclosure of noncash transactions:
Reclassification of ChemWay assets received $ 2,135 $ - $ -
======= ======= =======
Reclassification of debt assumed on assets received $ 507 $ - $ -
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-5
Evans Systems, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 2001, 2000 and 1999
- ---------------------------------------------
Common stock Additional Retained
------------------ paid-in earnings Treasury
Shares Amount capital (deficit) stock Total
--------- ------- ---------- --------- --------- ---------
(in thousands, except common share amounts)
Balance - September 30, 1998 (unaudited) 3,268,298 $33 $13,811 $ (1,864) $ (434) $11,546
Stock options exercised 383,818 4 711 715
Warrants exercised 62,715 1 187 188
Issuance of common stock 350,000 3 729 732
Compensation expense recognized in
connection with options granted 248 248
Net loss for 1999 (7,301) (7,301)
--------- --- ------- -------- ------- -------
Balance - September 30, 1999 (unaudited) 4,064,831 41 15,686 (9,165) (434) 6,128
Stock options exercised
Warrants exercised
Issuance of common stock 1,437,500 14 561 575
Expiration of redeemable
common stock 40,000 - 160 160
Compensation expense recognized in
connection with options granted 443 443
Net loss for 2000 (6,002) (6,002)
--------- --- ------- -------- ------- -------
Balance - September 30, 2000 5,542,331 55 16,850 (15,167) (434) 1,304
Stock options exercised
Warrants exercised
Issuance of common stock 1,217,500 13 224 237
Compensation expense recognized in
connection with options granted - -
Net loss for 2001 (2,746) (2,746)
--------- --- ------- -------- ------- -------
Balance - September 30, 2001 6,759,831 $68 $17,074 $(17,913) $ (434) $(1,205)
========= === ======= ======== ======= =======
The accompanying notes are an integral part of these financial statements.
F-6
Evans Systems, Inc.
Notes to Consolidated Financial Statements
September 30, 2001, 2000 and 1999
- ---------------------------------
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS
Evans Systems, Inc. and its subsidiaries (the Company) are engaged in
petroleum marketing, convenience store operations and environmental
remediation services. The Company operates primarily along the Gulf Coast
Regions of Texas and Louisiana.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Evans Systems,
Inc. and its subsidiaries. All significant intercompany transactions have
been eliminated.
BASIS OF ACCOUNTING
The Company's policy is to prepare its financial statements on the accrual
basis of accounting in accordance with generally accepted accounting
principles. Revenues from motor fuel sales to open dealer accounts are
recognized when delivered. Revenues from motor fuel sales and retail sales at
convenience stores are recognized when sold at the store. Environmental
segment revenues are recognized on the percentage of completion method. There
was no material work in process at September 30, 2001, 2000 and 1999.
Expenses are recognized in the period in which they are incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. Cash and cash equivalents are stated at cost which approximates
fair market value.
INVENTORIES
Substantially all inventories are products held for sale. Inventories of oil
and grease, automotive products and accessories, chemical products and
convenience store products utilize the first-in, first-out (FIFO) method of
accounting and are stated at the lower of cost or market. Gas and diesel
fuels inventory is valued using the last-in, first-out (LIFO) method which
resulted in inventory being $68,000 and $368,000 less at September 30, 2001
and 2000 than replacement cost.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated utilizing the
straight-line method of computing depreciation over their estimated useful
lives. The cost of assets retired and the related accumulated depreciation
are removed from the accounts and any gain or loss is included in the results
of operations when incurred. Repairs and maintenance are charged to expense
as incurred. Expenditures for major additions and replacements that extend
the lives of assets are capitalized and depreciated over their remaining
estimated useful lives. The Company depreciates assets over the following
estimated useful lives:
Buildings 15-41 years
Leasehold improvements Life of lease, up to 31 years
Equipment 5 -15 years
Transportation equipment 5 -10 years
Office equipment 3 - 7 years
F-7
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses the realizability of its long-lived assets
and evaluates such assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than the carrying
amount.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related interpretations in
accounting for its plans.
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return.
The Company recognizes income tax expense based on the liability method of
accounting for income taxes. Deferred tax assets and liabilities are
recognized for the income tax effect of temporary differences between the tax
basis of assets and liabilities and their carrying values for financial
reporting purposes. Deferred tax expense or benefit is the result of changes
in deferred tax assets and liabilities during the period. The Company has
recorded a valuation allowance, which reflects the estimated amount of
deferred tax assets that more likely than not will be realized.
EARNINGS (LOSS) PER SHARE
The Company reports both basic earnings per share, which is based on the
weighted average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted average number of common shares as well
as all potentially dilutive common shares outstanding. Stock options and
warrants are the only potentially dilutive shares the Company has outstanding
for the periods presented. Stock options and warrants were not included in
the computation of diluted loss per share for 2001, 2000 and 1999 since they
would have resulted in a antidilutive effect on loss from continuing
operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash, trade
receivables, marketable securities, accounts payable, accrued expenses,
revolving credit facilities and notes payable. The carrying values of cash,
trade receivables, accounts payable, accrued expenses and notes payable
approximate current fair value. Revolving credit facilities are at variable
market rates.
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 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.
Management believes that the estimates are reasonable.
CONCENTRATION OF CREDIT RISK
The Company performs periodic evaluations of the relative credit standing of
the financial institutions and investment funds that are considered in the
Company's investment strategy. A majority of the Company's trade receivables
are from retail gasoline stations and convenience stores. Management believes
that its credit and collection policies mitigate the potential effect of a
concentration of credit risk in its accounts receivable.
F-8
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations" which establishes
new accounting and reporting standards for business combinations. The FASB
also issued SFAS No. 142, "Goodwill and Other Intangible Assets", which
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". The
Company has not entered into, and is not expected to enter into, any material
business combinations, as defined by SFAS No. 141. At September 30, 2001, the
Company did not have goodwill or other intangible assets, as defined by SFAS
No. 142. Therefore, management believes there would be no material effect to
the Company's financial statements as a result of implementation of these
statements.
RECLASSIFICATIONS AND FINANCIAL STATEMENTS PRESENTED
Certain reclassifications have been made to the 1999 and 2000 financial
statements to conform to the 2001 financial statement presentation. Such
reclassifications had no effect on net loss as previously reported.
Disclosures herein relating to the 1999 financial statements are unaudited.
2. AGREEMENT TO SELL OPERATIONS AND PLAN OF MERGER
The Company agreed in December 1999 to sell its Texas petroleum marketing and
convenience store operations to TSC Services, Inc. (TSC) for cash of $12.7
million for substantially all the assets of the Texas petroleum marketing and
Texas convenience store segments, plus the assumption of capital lease
obligations and the cost of inventory on hand at the closing date, also to be
received in cash. On August 17, 2000, the Company terminated the agreement
pursuant to TSC's failure to obtain adequate financing in order to close the
sale, as defined by the purchase agreement. In August 2000, the Company
received the TSC escrow deposit of $203,865, which was recorded as other
income (expense) in the accompanying consolidated statements of operations.
On January 23, 2000, the Company executed Agreement and Plan of Merger, which
was amended on March 1, 2000 (as amended the Merger Agreement), with I-Net
Holdings, Inc. (I-Net), a Delaware Corporation, pursuant to which a wholly
owned subsidiary of the Company would have been merged with and into I-Net.
The principal shareholder of I-Net was a former officer of the Company. The
Company and I-Net mutually agreed to terminate the Merger Agreement on May 19,
2000 due to I-Net's inability to timely raise sufficient capital and the
Company's need to focus on closing the TSC transaction. Further, both I-Net
and the Company mutually agreed to release each other from any and all claims
arising under the Merger Agreement. The Company has agreed to pay $50,000 to
I-Net as partial reimbursement of the expenses incurred in conjunction with
the Merger Agreement upon consummation of the TSC transaction or a similar
sale of substantially all of the Company's assets.
3. DISCONTINUED OPERATION AND NET ASSETS TRANSFERRED UNDER CONTRACTUAL
AGREEMENT
In February 1998, the Company suspended the production activities of its
ChemWay operation, which was engaged in the packaging and marketing of
automotive after-market chemical products. In March 1998, the Company made
the decision to sell ChemWay and recorded an estimated loss of $705,000 (net
of applicable income tax benefit of $395,000), which included a provision for
losses of $200,000 during the phase-out period.
On December 30, 1998, the Company completed the sale of ChemWay to Affiliated
Resources Corporation (Affiliated), an unrelated party with respect to the
Company; however, the Chairman and CEO of Affiliated and one of his legal
advisors were shareholders of the Company, having purchased 350,000 common
shares of the Company for $0.75 per share in a private placement transaction
on October 27, 1998 (Note 9). At the time of the sale, management believed
that the sale to Affiliated
F-9
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
had strategic merit in that Affiliated represented to the Company that it was
prepared to contribute sufficient cash into ChemWay to satisfy ChemWay's trade
creditors and to resume production. In retaining an ownership interest in
Affiliated, management believed that the Company would share in any future
earnings of ChemWay should ChemWay return to profitability. However, there
can be no assurance that ChemWay will return to profitability or that the
market value of Affiliated common stock will increase in the future.
Affiliated was a shell company at the time of this transaction, and had no
operations or experience in packaging and marketing automotive chemical
products. At December 31, 1999, Affiliated reported, in its Annual Report on
Form 10-KSB, an accumulated deficit of $10,031,466 and a negative working
capital balance of $1,769,064. Affiliated reported revenues from operations
of $519,374 and a loss from operations of $2,524,088 during 1999. In its
September 30, 2000 quarterly report on Form 10-QSB, Affiliated
reported a loss from operations of $4,475,670, a net loss of $11,675,314, a
negative working capital balance of $1,502,593 and an accumulated deficit of
$20,355,020. Affiliated common stock is quoted on the Nasdaq Over-the-Counter
Bulletin Board.
The Company received 1.5 million shares of common stock of Affiliated,
representing approximately 9% of the outstanding Affiliated common stock at
December 31, 1998, in exchange for all the outstanding common stock of
ChemWay. As a result of the sale, the estimated loss on disposal and the
related provision for losses during the phase-out period recorded in the
second and third quarters of 1998 were reversed during the fourth quarter of
1998. As a provision of the Purchase Agreement, the Company maintained the
right to Put the 1.5 million shares at $4 per share if Affiliated did not pay
off certain ChemWay indebtedness, or obtain the Company's release from its
guarantee of that indebtedness, secure financing in the amount of $1,500,000
and perform its other obligations under the Purchase Agreement. Due to
Affiliated's inability to comply with all the conditions set forth in the
Purchase Agreement and their further inability to achieve viability or
sufficient independent financing, the Company's most substantive right was its
security interest in the ChemWay assets and all accretions. Further, under
the terms of the Purchase Agreement, the Company became entitled to receive an
additional one million shares of common stock of Affiliated on December 30,
1999 since the average closing price of Affiliated common stock fell below an
agreed-upon price. In December 1999, the Company received the additional one
million shares.
Following the guidance provided by the Securities and Exchange Commission
Staff Accounting Bulletin (SAB) Topic 5:E, the Company has determined that
although a legal transfer of business ownership of ChemWay to Affiliated has
occurred, guidance under SAB Topic 5:E reflects that a divestiture for
accounting purposes should not be recognized. Under SAB Topic 5:E, the
existence of the put agreement precluded sale accounting due to the contingent
nature of the consideration received, as the value of the Affiliated common
shares received was essentially secured with the ChemWay assets. Had the put
agreement been relinquished, sale accounting would have applied to this
transaction. If the put was exercised by the Company and Affiliated was unable
to satisfy its obligations under the put, the assets would likely be
relinquished to the Company. Accordingly, the assets and liabilities of
ChemWay have been segregated in the consolidated balance sheet as "Net assets
transferred under contractual agreement". Under SAB Topic 5:E, accounting for
this transaction is similar to the equity method of accounting prescribed
under APB No. 18, in that the net assets of ChemWay are accounted for as a
single line item and impairment is recognized based on the results of its
operations. Under SAB Topic 5:E, any operating losses of ChemWay would be the
best available evidence of a change in valuation of the business.
Accordingly, the Company has recorded a valuation allowance during 2000 and
1999 based on management's analysis of internal reports of ChemWay's operating
performance by Affiliated during those respective years. During 2000 and
1999, the Company recorded $802,000 and $784,000, respectively, as a valuation
allowance on the net assets transferred under contractual agreement. Further,
although the Company was legally
F-10
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
released from all the liabilities of ChemWay totaling $1,997,000, SAB Topic
5:E does not allow the Company to reflect such debt release or any gain
recognition in the financial statements as the risks of ownership under SAB
Topic 5:E are not transferred unless the Put agreement was relinquished.
In addition, the 1.5 million shares of Affiliated common stock and the
additional 1 million shares received in December 1999 are not reflected on the
Company's financial statements as they are effectively collateral held for
payment under SAB Topic 5:E. Accordingly, the Company has not reflected the
investment in or changes in market value of the Affiliated common stock. The
closing price of Affiliated common stock was $0.406, $0.266, $0.265 and $6.00
at September 30, 2000, December 30, 1999, September 30, 1999 and December 31,
1998, respectively.
On December 4, 2000, the Company entered into a stipulated judgment against
Affiliated Resources Corp. (Affiliated) and ChemWay pertaining to the
Company's sale of ChemWay to Affiliated in December 1998. The judgment
granted by the 130th Judicial District Court of Texas was for $6,000,000,
arising from Affiliated's failure to fund the put right at $4.00 per share of
the 1,500,000 shares of Affiliated common stock the Company had received as
consideration for the sale. As stipulated in the judgment, the Company
received a deed in lieu of foreclosure for certain ChemWay assets as sole
payment for the $6,000,000 judgment. Management is presently evaluating all
strategic alternatives relating to the assets received by deed in lieu of
foreclosure.
In connection with this transaction and to protect the assets received, the
Company assumed the outstanding debt of $506,860 on a warehouse building
received under the Stipulated Judgment and Deed in Lieu of Foreclosure. The
note bears interest at 14.9% for 15 years and calls for monthly principal and
interest payments of $7,103. The note is secured by the warehouse building.
In accordance with SAB Topic 5:E, the ChemWay assets returned on December 4,
2000 are reflected as a reclassification of net assets transferred under
contractual agreements of $1,628,000 ($2,134,860 in net property and equipment
less $506,860 in notes payable) to their respective financial statement
captions. Accordingly, the $506,860 note payable assumed by the Company was
reclassified as long-term debt payable and the remaining net asset value of
$2,134,860 was reclassified to property and equipment. No gain or loss was
recognized on the exchange of certain ChemWay assets for the Affiliated common
stock held by the Company. No other liabilities of ChemWay or Affiliated were
assumed or are the responsibility of the Company.
The following summarizes the net assets transferred and valuation allowance
charges (in thousands):
2001 2000 1999
--------- ------------ ---------
(UNAUDITED)
Assets transferred under contractual agreements $ - $ 5,211 $ 5,211
Liabilities transferred under contractual
agreements - (1,997) (1,997)
-------- ------- --------
Net assets transferred under contractual
agreements - 3,214 3,214
Valuation allowance on net assets transferred - (1,586) (784)
-------- ------- --------
Net assets transferred, net of valuation
allowance $ - $ 1,628 $ 2,430
======== ======== =======
Valuation allowance on net assets transferred
Balance - beginning of year $ - $ 784 $ -
Charge to valuation allowance - 802 784
-------- ------- -------
Balance - end of year $ - $ 1,586 $ 784
======== ======= =======
F-11
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
4. DISCONTINUED OPERATIONS OF EVANS OIL OF LOUISIANA
On May 17, 2001, the Company closed on the sale of substantially all the
assets and inventory of Evans Oil of Louisiana (EOLA) for total cash, net of
closing costs, of $1,152,000 and discontinued its Louisiana operations. The
assets and inventory sold had a net book value of approximately $806,000 and
$259,000, respectively, on May 17, 2001. The Company recorded a net gain on
the sale of discontinued operations of approximately $87,000. The proceeds of
the sale were used to reduce outstanding debt. The results of operations of
EOLA have been classified as discontinued operations and prior periods have
been restated. The Company has not allocated interest expense or general
corporate overhead to discontinued operations. The otherwise tax liability
from this transaction is offset by net operating loss carryforwards of the
Company generated from previous years losses. Accordingly, no provision has
been recorded. Summary operating results for the year ended September 30,
2001, 2000 and 1999 are as follows (in thousands):
2001* 2000 1999
--------- ---------- ---------
(UNAUDITED)
Revenues $ 4,717 $ 13,796 $12,694
======= ======== =======
Income (loss) from operations $ (820) $ (705) $ 431
======= ======== =======
Gain on sale of discontinued operations $ 87 $ - $ -
======= ======== =======
* Through May 17, 2001
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30
(in thousands):
2001 2000
------- --------
Land $ 1,857 $ 2,648
Buildings 3,792 6,003
Leasehold improvements 42 756
Equipment 8,103 13,362
Transportation equipment 1,131 1,458
Office equipment 2,465 2,475
------- --------
17,390 26,702
Less - accumulated depreciation (9,132) (13,293)
------- --------
Property and equipment, net $ 8,258 $ 13,409
======= ========
During the first quarter of 2001, the Company closed on the sale of some of
its Citgo, Texaco (Motiva) and Diamond Shamrock dealer and consignment
accounts. Net proceeds from the sale of the Citgo, Texaco and Diamond
Shamrock dealer and consignment accounts approximated $194,000, $642,000 and
$450,000, respectively, which were used for working capital and to reduce the
Company's outstanding debt. The Company recorded a net gain on the sales of
approximately $587,000, inclusive of a $159,000 net gain on the sales of the
distribution contracts. The net book value of the assets sold approximated
$699,000, which consisted primarily of store equipment and fuel dispensing
equipment and tanks at the respective dealer and consignment locations.
F-12
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
During February 2001, the Company closed on the sale of its Phillips 66 dealer
and consignment accounts. Net proceeds from the sale of the Phillips 66
dealer and consignment accounts approximated $556,000, which was used for
working capital and to reduce the Company's outstanding debt. The Company
recorded a net gain on the sale of approximately $238,000, inclusive of a
$75,000 gain on the sale of the distribution contract. The net book value of
the assets sold approximated $318,000, which consisted primarily of store
equipment and fuel dispensing equipment and tanks at the dealer and
consignment locations.
During the second quarter of 2001, the Company closed on the sale of three
independent dealer and consignment accounts. Net proceeds from the sale of
the independent dealer and consignment accounts approximated $178,000, which
was used for working capital and to reduce the Company's outstanding debt.
The Company recorded a net gain on the sale of approximately $8,000. The net
book value of the assets sold approximated $170,000, which consisted primarily
of store equipment and fuel dispensing equipment and tanks at the dealer and
consignment locations.
During the second quarter of 2001, the Company also closed on the sale of six
company operated stores for total net proceeds of approximately $2,574,000,
which were used for working capital and to reduce the Company's outstanding
debt. The Company recorded a net gain on the sale of approximately $201,000.
The net book value of the assets sold approximated $2,373,000, inclusive of
$225,000 in fuel and retail inventory.
During the third quarter of 2001, the Company closed on the sale of one
company operated store and one store previously leased to others for total
proceeds, net of closing costs, of approximately $1,063,000, which was used
for working capital and to reduce the Company's outstanding debt. The Company
recorded a net gain on the sales of approximately $22,000 during the third
quarter of 2001. The net book value of the assets sold approximated
$1,041,000, inclusive of $76,000 in inventory.
During the fourth quarter of 2001, the Company closed on the sale of one
company operated store for total proceeds, net of closing costs, of
approximately $595,000 which was used for working capital and to reduce the
Company's outstanding debt. The Company recorded a net gain on the sales of
approximately $40,000 during the fourth quarter of 2001. The net book value
of the assets sold approximated $555,000.
The following summarizes the Company's sales of assets during the year ended
September 30, 2001 (in thousands):
Net proceeds:
Citgo, Texaco and Diamond Shamrock accounts $1,286
Phillip 66 accounts 556
Other independent dealer accounts 178
Sale of company operated stores and equipment 4,232
Other 115
------
Total net proceeds 6,367
Net book value of assets sold:
Citgo, Texaco and Diamond Shamrock accounts 699
Phillip 66 accounts 318
Other independent dealer accounts 170
Sale of company operated stores and equipment 3,969
Other 205
------
Total net book value of assets sold 5,361
------
Net gain on sale of assets $1,006
======
F-13
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
During fiscal 2000, the Company sold various store and transportation
equipment for total proceeds of $404,000. The store and transportation
equipment sold had an aggregate net book value of $441,000 and the Company
recorded a $37,000 loss on the sale of fixed assets for the year ended
September 30, 2000.
6. LONG-TERM DEBT
Long-term debt is summarized as follows at September 30 (in thousands):
2001 2000
------ -------
Notes payable to a bank, at prime plus 2%, payable on
January 31, 2001, secured by property and equipment,
receivables, inventory and common stock of subsidiaries. $4,747 $ 9,153
Notes payable to a bank, at prime to 12%, payable to 2004,
secured by property and equipment, improvements,
receivables, inventory and common stock of subsidiaries. 95 591
Notes payable to a bank, at 14.9%, payable to 2014,
secured by a warehouse building 501 -
Notes payable to a financial institution, 8% to 11%, payable
to 2005, secured by property, equipment, improvements,
inventory, accounts receivable and 20,000 treasury shares - 320
Notes payable to a financial institution, 9.26% to 10.75%,
payable to 2005, secured by property and equipment - 199
Other 209 277
------ -------
Total long-term debt 5,552 10,540
Less - current maturities 4,943 9,910
------ -------
Total long-term debt, net of current maturities $ 609 $ 630
====== =======
As of September 30, 2001, principal maturities of long-term debt, after
consideration of the defaults described below, are as follows (in thousands):
YEAR ENDING SEPTEMBER 30,
- -------------------------
2002 $4,943
2003 82
2004 33
2005 34
2006 38
Thereafter 422
------
Total $5,552
======
On March 31, 1999, the Company amended its credit agreement with its primary
lender (the Refinancing), pursuant to which the bank (i) waived all previous
and continuing covenant defaults; (ii) extended the maturity of its loan
balance to January 31, 2001; and (iii) assumed the amounts outstanding under
the other bank lender's loans under their current terms and conditions. Under
the
F-14
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
terms of the Refinancing, such bank lender received a first-lien position on
substantially all the assets of the Company. The refinancing contains certain
financial covenant obligations, including minimum net worth, minimum earnings
before interest, taxes and depreciation, working capital ratio and fixed
charge coverage ratio. Further, the Company is prohibited by its bank
agreement from payment of any cash dividends and from obtaining additional
debt without the bank's consent.
As the loan was not repaid prior to June 30, 1999, the Company became subject
to a fee of $250,000. The Company also incurred additional fees of $250,000
on August 31, 1999 and December 31, 1999, as the loan obligations were not
repaid by those respective dates. The loan fees aggregating $750,000 and
$500,000 at September 30, 2000 and 1999, respectively, are included in accrued
interest on the accompanying consolidated balance sheets. Accordingly,
interest expense includes $250,000 and $500,000, reflecting the fiscal year
2000 and 1999 fees incurred, respectively.
On January 26, 2000, the Company closed on an additional $1,000,000 credit
facility with its primary bank lender. The new credit facility is secured by
the Company's general offices, three acres of land and a 7,490 square foot
warehouse together with 14,784 square feet of additional warehouse buildings.
The credit facility is further secured by a pledge of the Company's rights and
interests in funds held by an escrow agent, which would be due to the Company
as a result of a breach by TSC of its obligations under the purchase
agreement. Proceeds of the new credit facility were used for working capital
and to fund expenses necessary to obtain new financing. Interest on the
credit facility will accrue at an annual rate of 2% above the bank's
established prime lending rate, payable monthly. The note became payable on
May 1, 2000; however, the bank extended the maturity of its loan balance to
January 31, 2001.
In December 2000, the Company and its primary lender reached a workout
agreement (the Workout Agreement) whereby the total debt due to this bank at
December 31, 2000 of approximately $8,970,700 plus accrued interest and
penalties of $1,113,600 would be restructured to terms that call for the
payment of $7.5 million on or before June 15, 2001 in full satisfaction of all
amounts due to this bank. Under the terms of the Workout Agreement, sales of
Company assets, including the sales of Evans Oil of Louisiana, certain Texas
C-stores and sales of certain Texas Petroleum Marketing Supply contracts, will
be used to pay the $7.5 million. The Workout Agreement further states that
should the June 15, 2001 deadline not be met, $8.5 million will be due on or
before August 15, 2001. The Workout Agreement also provides that should the
August 15, 2001 deadline not be met, all the outstanding principal, accrued
interest and penalties due to this lender will become due.
On May 16, 2001, the Company accepted a commitment from Advisco Capital Corp.
(ACC) to make available to the Company an $8.8 million secured term loan and
secured revolving credit facility (the Financing). The Financing would bear
an interest rate of 1.25%, payable monthly for a term of two years, with an
option to renew for an additional 1 year. Funding of the loan was subject to
the completion and satisfaction, to ACC's approval, of certain requirements
and covenants of the Financing. Those requirements and covenants included,
but were not limited to, the submission of a Business Plan by the Company,
evidence of compliance with all government agencies having jurisdiction, and
submission of a workout plan with the Company's unsecured creditors, requiring
such unsecured creditors to agree to have their claims paid in accordance with
terms and conditions satisfactory to ACC and forbear from taking any action
against the Company provided their obligations are paid as agreed. In
September 2001, the Financing agreement was mutually terminated by the Company
and ACC due to the inability of the Company and ACC to close the loan prior to
the August 15, 2001 workout agreement deadline with the Company's primary
lender.
F-15
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
As the Company was unable to comply with the conditions of the Workout
Agreement subsequent to August 15, 2001, and as the bank has not extended the
Workout Agreement past August 15, 2001, all of the outstanding debt due to
this bank approximating $4,747,000 has been classified as current at September
30, 2001. The Company also has accrued interest and penalties of $1,027,000
as of September 30, 2001 due to this bank. The Company is currently holding
talks with the bank regarding the outstanding principal, interest and
penalties; however, no formal agreements or additional workout terms have been
agreed upon and there can be no assurance that such agreements will be
realized or successful.
At September 30, 2000, the Company was in default with two notes payable to a
financial institution, and accordingly, all debt due to this financial
institution aggregating $320,000 has been classified as current at September
30, 2000. As of September 30, 2001, both of these notes payable were repaid
in full from proceeds on the sale of the Company's former corporate office
building and other asset sales.
Management is currently holding talks with several potential lending
institutions to replace its existing bank debt with new financing. However,
there can be no assurance that such agreements or new financing will be
realized or successful.
7. CAPITAL LEASES
The Company leases it's information systems and trucks under capital lease
obligations due to two financial institutions expiring through 2002.
Amortization of assets under capital leases is over the life of the lease and
is included in depreciation and amortization expense. The cost of the
information systems and trucks acquired under capital leases was $1,436,000.
Accumulated amortization was $1,312,000 and $1,098,000 at September 30, 2001
and 2000, respectively.
Future minimum lease payments under capital lease obligations as of September
30, 2001 are as follows (in thousands):
YEAR ENDING SEPTEMBER 30,
2002 $881
Thereafter -
----
Total minimum lease payments 881
Less: Amount representing interest (91)
----
Present value of minimum lease payments $790
----
The Company currently is in default with its capital lease obligations due to
a financial institution for the information systems assets. Accordingly, the
capital lease obligation of approximately $704,000 at September 30, 2001 has
been classified as current portion of obligations under capital leases on the
accompanying consolidated balance sheet at September 30, 2001.
F-16
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
8. INCOME TAXES
Income taxes are attributable to the following (in thousands):
YEAR ENDED SEPTEMBER 30,
-----------------------------------
2001 2000 1999
-------- ---------- -----------
(UNAUDITED)
Current:
Federal $ - $ - $ (79)
State - - 32
-------- ---------- ------
- - (47)
-------- ---------- ------
Deferred
Federal - - 1,056
State - - 147
-------- ---------- ------
- - 1,203
-------- ---------- ------
Total $ - $ - 1,156
======== ========== ======
The difference between the tax effect of net income (loss applied at the
statutory federal income tax rates is as follows (in tho
YEAR ENDED SEPTEMBER 30,
---------------------------------
2001 2000 1999
-------- --------- --------
(UNAUDITED)
Pre-tax financial net loss $ (934) $ (2,041) $ (2,089)
Permanent items 16 85 -
------- -------- --------
Adjusted pre-tax financial net loss (918) (1,956) (2,089)
Timing items
Difference in book and tax depreciation 129 129 1,805
Difference in book and tax gain on sale of operating assets 938 87 -
------- -------- --------
Net difference in depreciable assets 1,067 216 1,805
Taxable gain on exchange sale of ChemWay - 341 1,404
Difference in book and tax bad debt expense (71) (1) -
Difference in other book and tax items, net (12) 22 36
------- -------- --------
Total timing items 984 578 3,245
------- -------- --------
Taxable income before carryforward of net operating losses 66 (1,378) 1,156
Utilization of net operating losses from prior years (66) 1,378 -
------- -------- --------
Taxable income $ - $ - $ 1,156
======= ======== ========
F-17
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
The provision for (benefit from) income taxes consists of the following (in
thousands):
YEAR ENDED SEPTEMBER 30,
--------------------------
2001 2000 1999
------ ------ ----------
(Unaudited)
Continuing operations $ - $ - $ ( 47)
Discontinued operations - - 1,203
----- ----- ------
Total $ - $ - $1,156
===== ===== ======
Deferred tax assets (liabilities) are comprised of the following (in
thousands) at September 30:
2001 2000
------- ----------
Net deferred assets and liabilities
Tax effect of differences in underlying carrying value of
net assets for book and tax purposes $(756) $(1,823)
Bad debt allowance 26 97
Deferred compensation and other liabilities 10 22
----- -------
Total net deferred tax assets (liabilities) (720) (1,704)
Valuation allowance from prior years net operating and
capital losses 720 1,704
----- -------
Net deferred tax assets (liabilities) $ - $ -
===== =======
At September 30, 2001, the Company had regular tax net operating loss
carryforwards from continuing operations of $16.4 million available for
federal income tax purposes that expire through 2021 and capital loss
carryforwards of $7.7 million. Changes in the Company's ownership, as defined
under Section 382 of the Internal Revenue Code, could result in certain
limitations on the annual amount of net operating losses that may be utilized.
9. OPERATING LEASES
The Company leases seven convenience store locations and one other facility
under operating lease agreements with varying lives and terms. One of these
leases is with a related party (Note 11).
At September 30, 2001, the scheduled future minimum lease payments required
under the terms of the operating leases in effect are (in thousands):
YEAR ENDED SEPTEMBER 30,
------------------------
2002 $121
2003 82
2004 60
2005 20
2006 18
Thereafter 5
----
Total $306
====
F-18
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
The Company also rents two stores on a month-to-month basis from unrelated
parties. Rents paid for these stores totaled $34,000 as of September 30,
2001. The Company also rented one store on a month-to-month basis from a
related party (Note 11).
The Company has 5 subleases. Minimum rentals to be received in the future
under these noncancelable subleases totaled $176,600 as of September 30, 2001.
10. COMMON STOCK
In August 1992, the Company issued warrants to purchase shares of the
Company's common stock at an exercise price of $2.86 per share. In June 1997,
the Company extended the expiration date of the remaining warrants to August
1, 2002 and recorded compensation expense of $38,000. In 2000 and 1999, -0-
and 62,813, respectively, of such warrants were exercised. At September 30,
2000, there were no warrants outstanding to purchase shares.
In December 1994, the Company adopted the ESI Stock Benefit Plan. Up to
420,000 shares of the Company's common stock may be purchased or granted under
the plan, and provision has been made for automatic increases in such amount
of shares in the event the number of common shares issued by the Company
increases to specified levels. An option granted under the plan by the Board
of Directors to a key employee may be an incentive stock option or a
nonqualified option and may be accompanied by stock appreciation rights or
limited rights. Incentive stock options must be granted at an exercise price
of not less than 100% of the then fair market value of the stock.
Nonqualified stock options must be granted at an exercise price of not less
than 90% of the then fair market value of the stock. All options shall expire
upon termination of employment or within five or ten years of the date of
grant. Nonemployee directors shall be automatically granted nonqualified
options to purchase 2,500 shares of common stock annually. Vesting is to be
determined by the Board of Directors.
In May and December 1997, the Company granted certain employees options to
purchase an aggregate of 330,600 shares of common stock at exercise prices
ranging from $1.31 to $4.00. The options vested upon the Company's common
stock reaching a market value of $6.50 per share for five consecutive days as
specified in the agreements. The grants would be canceled if such provisions
were not met. The provisions were met in November 1998. The Company recorded
compensation expense of $1.1 million and $229,000 for continuing and
discontinued operations, respectively, in the fourth quarter of 1998 for the
difference in the exercise prices of the options and the market price of the
Company's stock at September 30, 1998. Additional compensation expense of
$208,000 and $40,000 for continuing and discontinued operations, respectively,
was recorded in the first quarter of 1999 for the difference in the market
price of the Company's stock at September 30, 1998 and $6.50 per share.
On June 1, 1998, the Company agreed to issue 350,000 common shares for total
consideration of $262,500 in a private placement to accredited investors (Note
3). Such shares were issued on October 27, 1998. On January 4, 1999, the
Company issued 40,000 common shares valued at $15.25 per share to an
investment advisor for investment advisory services rendered. The investment
advisor has the right to sell the shares back to the Company at $4 per share
until ninety days following the registration of the shares. During fiscal
2000, the redemption provision on those shares expired. Accordingly, the
Company recorded the reclassification of those shares into stockholder's
equity as "Expiration of redeemable common stock" on the accompanying
statement of stockholder's equity.
In December 1998, the Company granted certain members of the Board of
Directors options to acquire an aggregate of 7,500 shares at $11.63 per share,
of which 5,000 options expired during 2001.
F-19
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
In December 1998, the Board of Directors agreed to grant a five-year option to
acquire 75,000 shares at $11.63 per share to the chief executive officer,
vesting over three years.
In May 1999, the Company granted certain employees options to receive an
aggregate of 24,000 shares of common stock, of which 12,900 have subsequently
expired. The shares vest one year from the date of grant and may be exercised
180 days thereafter. The closing price of the Company's common stock was
$30.56 per share and $196,000 was recorded as compensation expense in fiscal
1999. Additional compensation expense of $247,000 was recorded during 2000.
In December 1999, the Company granted certain members of the Board of
Directors options to acquire an aggregate of 7,500 shares at $0.81 per share
of which 5,000 options expired in 2001.
In January 2000, the Board of Directors agreed to issue five-year options to
various officers and key employees of the Company aggregating 45,000 shares of
common stock at $3.31 per share, of which 3,000 have subsequently expired and
36,000 shares are vested. All options granted in 2000 are nonqualifying
options and are not covered by the current stock option plan.
On June 6, 2000, the Company executed an offering memorandum with Comsight
Holdings, Inc. (Comsight) whereby Comsight agreed to act as a placement agent
for accredited investors to purchase a minimum of 1,250,000 and a maximum of
3,750,000 shares of the Company's common stock in a private placement to
accredited investors at $0.40 per share. The Company also retained Comsight
as its financial advisor for a period of two years. On August 17, 2000, the
Company issued 1,437,500 shares of common stock for total consideration of
$575,000.
In March 2001, the Company granted certain members of the Board of Directors
options to acquire an aggregate of 5,000 shares at $0.156 per share.
In March 2001, the Board of Directors agreed to issue ten-year options to
various officers and key employees of the Company aggregating 285,000 shares
of common stock at $0.156 per share, with all shares vesting immediately. All
options granted in 2001 are nonqualifying options and are not covered by a
current stock option plan.
On March 22, 2001, the Board of Directors of the Company granted the Chief
Executive Officer (CEO) and Chairman of the Board 1,117,500 shares of the
Company's common stock in line with the terms of an Employment Agreement dated
October 1, 1998. Of the 1,117,500 shares granted, 800,000 shares were granted
as payment of accrued commissions due the CEO of approximately $160,000. The
remaining 317,500 shares were granted as payment of accrued deferred salaries
due the CEO of approximately $63,500. All shares were granted at an effective
price per share of $.20. The Company recorded additional paid-in capital of
$211,000. The closing price of the Company's stock on March 22, 2001 was
$.156 per share.
On March 22, 2001, the Board of Directors of the Company approved a new
employment agreement for the CEO and Chairman of the Board. As stipulated in
the employment agreement, the Board of Directors granted a 5 year stock option
to the CEO for 500,000 shares of common stock, with 200,000 shares vesting
immediately at the market value of the stock ($.156 per share at March 22,
2001) and the remaining 300,000 shares vested in equal monthly amounts of the
Company's common stock over the three year term of the employment agreement.
The options granted are nonqualifying options and are not covered by the
current stock option plan.
On September 17, 2001, the Company issued Strategic Group, a financial advisor
group, 100,000 shares of the Company's common stock at the then market price
as payment in full for financial
F-20
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
services rendered to the Company. The price of the Company's common stock was
$.14 per share on September 17, 2001. Accordingly, the Company recorded
professional fees of $14,000 in connection with the common stock issuance.
A summary of the option activity under the various plans follows:
WEIGHTED-
NUMBER OF AVERAGE
SHARES OPTION PRICE
---------- ------------
Outstanding at September 30, 1998 (Unaudited) 438,857
Granted in 1999 31,500 $1.85
Exercised in 1999 (383,818) 1.77
Expired in 1999 (7,539) 0.03
--------
Outstanding at September 30, 1999 (Unaudited) 79,000
Granted in 2000 127,500 $8.05
Expired in 2000 (2,000) -
--------
Outstanding at September 30, 2000 204,500
Granted in 2001 790,000 $0.16
Expired in 2001 (23,900) 2.46
--------
Outstanding at September 30, 2001 970,600
========
Although 970,600 options are outstanding at September 30, 2001, only 13,600
underlying common shares are registered under a plan. A summary of options
outstanding and options exercisable at September 30, 2001 is as follows:
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OPTIONS EXERCISE REMAINING AVERAGE OPTIONS AVERAGE
OUTSTANDING PRICE CONTRACTUAL LIFE OPTION PRICE EXERCISABLE OPTION PRICE
----------- --------- ---------------- ------------ ----------- ------------
11,100 $ - 7.66 years $ - 12,700 $ -
790,000 0.16 8.76 years 0.16 790,000 0.16
94,500 0.81-3.31 1.74 years 3.24 77,000 3.28
75,000 11.63 2.08 years 11.63 30,000 11.63
------- ---------- ---------- ------ ------- ------
970,600 $ 1.34 6.31 years $ 1.34 134,700 $ 1.41
======= ========== ========== ====== ======= ======
F-21
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
The weighted average fair value at date of grant for options granted during
2001, 2000 and 1999 are as follows:
2001 2000 1999
----- ----- ------
Exercise price equals market price $0.16 $8.05 $ 7.59
Exercise price exceeds market price - - -
Exercise price is less than market price - - 30.55
The Company applied APB 25 and related interpretations in accounting for its
plans. The following unaudited pro forma data is calculated as if
compensation cost for the Company's stock option plans were determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (in thousands):
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000
--------- ----------
Net loss:
As reported $(2,746) $(6,002)
Pro forma (2,770) (6,031)
Basic and diluted loss per share
As reported $ (0.45) $ (1.41)
Pro forma (0.45) (1.41)
The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following assumptions for 2001: no dividend
yield, volatility of 91%, risk-free interest rate of 4.5% to 4.7% and an
expected life of 4 to 7 years. For 2000, the following assumptions were used:
no dividend yield, volatility of 92%, risk-free interest rate of 4.5% to 4.8%
and an expected life of 4 to 6 years.
11. RELATED PARTY TRANSACTIONS
During 2001, the Company leased two convenience store locations from Mr. J.L.
Evans, the largest shareholder of the Company. One ten-year lease commenced
in June 1987 with monthly payments of $2,500, which was renewed for two
additional five-year periods. One five-year lease commenced in March 1995
with monthly lease payments of $1,800 and allows for two five-year automatic
renewals at the Company's option, which were not exercised by the Company.
However, the Company is making monthly rental payments of $1,500 under a
month-to-monthly rental agreement. The amounts paid under these leases were
$48,000, $51,600 and $54,300 for the years ended September 30, 2001, 2000 and
1999, respectively. Future minimum lease commitments as of September 30, 2001
are $22,500.
From time to time the Company makes advances to individuals who are
shareholders, directors, officers and/or employees. Such advances are usually
unsecured and accrue interest at 9%. There were no advances outstanding at
September 30, 2001 and 2000. The Company has also issued various stock
options to directors, officers and key employees (see Note 10).
F-22
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
12. CONTINGENT LIABILITIES
The Company is subject to litigation, primarily as a result of customer
claims, in the ordinary conduct of its operations. As of September 30, 2001,
the Company had no knowledge of any legal proceedings, which, by themselves,
or in the aggregate, would not be covered by insurance or could be expected to
have a material adverse effect on the Company.
13. EMPLOYEE BENEFIT PLANS
The Company established the ESI Employee Retirement Plan, a defined
contribution benefit plan, effective July 1, 1997. Employees are eligible for
participation in the plan upon attaining the age of 21 and completion of 1
year of service and 1,000 hours or more of service. The Company contributes
an amount equal to 50% of employee voluntary contributions up to a maximum of
5% of the employee's compensation. Such contributions may be made in the
common stock of the Company. No company matching contributions were made
during the year ended September 30, 2001. The Company recorded contributions
of $28,000 and $61,000 during fiscal 2000 and 1999, respectively.
14. RESULTS OF OPERATIONS, LIQUIDITY AND MANAGEMENT'S PLANS
During the three years in the period ended September 30, 2001, the Company has
recorded operating losses from continuing operations aggregating $14.3 million
and net losses aggregating $16.0 million. At September 30, 2001, the Company
has a working capital deficit of $9.0 million and a stockholders' deficit of
$1,205,000. In addition, the Company is in default on various loans with
certain lenders (Note 6).
In December 1999, the Company received notification from Nasdaq stock exchange
that the Company was not in compliance with two requirements for continued
listing on the Nasdaq NMS: the Company did not hold an annual stockholders
meeting in 1998 and the market value of the public float in the Company's
common stock did not meet or exceed a minimum level of $5 million. The
Company was subsequently delisted by Nasdaq on February 17, 2000. The
Company's common stock is now traded on the over-the-counter bulletin board
system maintained by Nasdaq. The Company's ability to raise additional equity
capital in the future could be adversely affected with the Company's common
stock no longer listed on a national exchange.
During the fourth quarter of 2000, the Company implemented a strategy to
reduce outstanding debt by the selling of certain identified assets aligned
along brand representation in an effort to concentrate on fewer brands, which
management believes have the most profit potential. As a phase of this
strategy, management implemented a 22% staff reduction in early October 2000.
Management plans to continue its Chevron and Exxon branded company operated
stores and dealer locations.
Management is currently holding talks with several potential lending
institutions to replace its existing bank debt with new financing.
The Company has determined, based upon review of the Company's historical
operating performance, that it is unlikely that the Company's revenues will
increase in the foreseeable future in an amount sufficient to offset its
operating expenses without continued downsizing and a capital infusion. In
order to continue as a going concern, management believes the Company must
continue to sell its assets and obtain a capital infusion of either equity or
debt in amounts sufficient to reduce its current outstanding debts and provide
additional working capital. There can be no assurance that management's plans
as described above will be successful.
F-23
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
15. SEGMENT REPORTING
During the year ended September 30, 1999, the Company adopted SFAS 131,
"Disclosure About Segments of an Enterprise and Related Information". Prior
years' segment information has been restated to conform to the current-year
presentation. The Company has four reportable segments: Texas Petroleum
marketing, Texas convenience stores, Louisiana petroleum marketing and
convenience store operations, and environmental remediation services. The
Texas petroleum marketing segment sell motor fuels to the public through
retail outlets in southeast Texas and supplies the Company's Texas convenience
stores with motor fuels. The Texas convenience stores feature self-service
motor fuels and a variety of food and nonfood merchandise in southeast Texas.
The Louisiana operations sell motor fuels to the public through retail outlets
and through convenience stores that feature self-service motor fuels and a
variety of food and nonfood merchandise in Louisiana. As described in Note 4,
the Company discontinued its Louisiana Operations and has reflected such
operations as discontinued operations. Prior periods have been restated. The
environmental remediation services segments serves the petroleum industry in
the southeast Texas market area.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating income (loss). Intersegment sales and transfers are
accounted for as if such sales or transfers were to third parties; that is, at
current market prices.
The rest of this page is intentionally left blank.
F-24
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
Information concerning the Company's business activities is summarized as
follows (in thousands):
TEXAS TEXAS ENVIRONMENTAL OTHER
PETROLEUM CONVENIENCE REMEDIATION RECONCILING CONSOLIDATED
YEAR ENDED MARKETING STORES SERVICES ITEMS (1) TOTAL
- ---------- ----------- ------------ ------------- ----------- ------------
September 30, 2001:
Revenues from external
customer
Motor fuel sales $27,270 $ 7,379 $ - $ - $34,649
Convenience store sales - 4,814 - - 4,814
Other 255 350 962 - 1,567
Intersegment revenues 6,456 - - (6,456) -
------- ------- ------ -------- -------
Total revenues $33,981 $12,543 $ 962 $ (6,456) $41,030
======= ======= ====== ======== =======
Depreciation and amortization 746 165 19 6 936
Operating income (loss) 266 (457) 19 (1,076) (1,248)
Segment assets 8,255 2,449 629 73 11,406
Expenditures for property
and equipment 96 17 - 12 125
September 30, 2000:
Revenues from external
customer
Motor fuel sales $53,772 $15,361 $ - $ - $69,133
Convenience store sales - 9,543 - - 9,543
Other 1,038 358 1,461 - 2,857
Intersegment revenues 17,309 - - (17,309) -
------- ------- ------ -------- -------
Total revenues $72,119 $25,262 $1,461 $(17,309) $81,533
======= ======= ====== ======== =======
Depreciation and amortization 990 328 51 18 1,387
Operating income (loss) (593) (751) 227 (1,682) (2,799)
Segment assets 12,017 6,043 1,189 2,072 21,321
Expenditures for property
and equipment 402 46 6 13 467
September 30, 1999: (Unaudited)
Revenues from external
customer
Motor fuel sales $47,913 $12,659 $ - $ - $60,572
Convenience store sales - 9,599 - - 9,599
Other 2,251 615 1,542 - 4,408
Intersegment revenues 14,239 - - (14,239) -
------- ------- ------ ------- -------
Total revenues $64,403 $22,873 $1,542 $(14,239) $74,579
======= ======= ====== ======== =======
Depreciation and amortization 1,097 286 58 30 1,471
Operating income (loss) (1,013) (16) 177 (1,854) (2,706)
Segment assets 13,730 6,360 1,284 3,000 24,374
Expenditures for property
and equipment 354 81 - 206 641
(1) Consists primarily of corporate overhead expenses and unallocated corporate
assets. Corporate assets include discontinued operations, income tax assets
and corporate property and equipment.
F-25
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
A reconciliation of the Company's segment operating information to
consolidated loss from continuing operations before income taxes is as follows
(in thousands):
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
2001 2000 1999
--------- ---------- -----------
(UNAUDITED)
Total operating loss for reportable segments $ (305) $(1,117) $ (852)
Valuation allowance on net assets transferred - (802) (784)
Interest income 9 16 94
Interest expense (689) (1,701) (1,802)
Unallocated corporate expenses (943) (1,682) (1,854)
Other, net (85) (11) (654)
------- ------- -------
Total consolidated loss from continuing
operations before income taxes $(2,013) $(5,297) $(5,852)
======= ======= =======
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly financial data is summarized as follows (in thousands,
except for per share amounts):
September 30, 2001
Q1 Q2 Q3 Q4
------- ------ ------- -------
Revenue $14,031 $9,484 $ 9,403 $ 8,112
Gross profit 1,811 1,370 1,071 855
Operating income (loss) 333 (533) (325) (723)
Valuation allowance on net assets
transferred - - - -
Income (loss) from continuing operations (77) (551) (405) (980)
Loss from discontinued operations (309) (240) (110) (74)
Net income (loss) (386) (791) (515) (1,054)
Basic and diluted loss per common share:
Income (loss) per common share:
Continuing operations $ (0.01) $(0.08) $ (0.06) $ (0.16)
Discontinued operations (0.06) (0.04) (0.02) (0.01)
------- ------ ------- -------
Total $ (0.07) $(0.12) $ (0.08) $ (0.17)
======= ====== ======= =======
F-26
Evans Systems, Inc.
Notes to Consolidated Financial Statements--(Continued)
September 30, 2001, 2000 and 1999
- ---------------------------------
September 30, 2000
Q1 Q2 Q3 Q4
------- ------ ------- -------
Revenue $18,852 $19,753 $21,083 $21,845
Gross profit 2,246 2,141 1,951 2,289
Operating income (loss) (434) (1,016) (677) (672)
Valuation allowance on net assets transferred (286) (239) (130) (147)
Income (loss) from continuing operations (1,267) (1,607) (1,171) (1,252)
Loss from discontinued operations (233) (66) (173) (233)
Net income (loss) (1,500) (1,673) (1,344) (1,485)
Basic and diluted loss per common share:
Income (loss) per common share:
Continuing operations $ (0.31) $ (0.40) $ (0.29) $ (0.29)
Discontinued operations (0.06) (0.01) (0.04) (0.06)
------- ------- ------- -------
Total $ (0.37) $ (0.41) $ (0.33) $ (0.35)
======= ======= ======= =======
F-27
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.
EVANS SYSTEMS, INC.
/s/ J.L. Evans, Sr.
---------------------------------
Jerriel L. Evans, Sr.
Chairman of the Board and Chief
Executive Officer
January 14, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date(s) indicated:
/s/ J.L. Evans, Sr. /s/ Peter J. Losavio, Jr.
- ----------------------------- ---------------------------
Jerriel L. Evans, Sr., Peter J. Losavio, Jr.,
January 14, 2002 January 14, 2002
Chairman of the Board and Director
Chief Executive Officer
/s/ Darlene E. Jones /s/ Matt Hessions
- ----------------------------- ---------------------------
Darlene E. Jones, Matt Hessions,
January 14, 2002 January 14, 2002
Secretary, Treasurer and Director
Director
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ----------------------- ---------------
3.1 Articles of Incorporation of the Company filed with
the Texas Secretary of State on October 22, 1968(1).
Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
3.2 Certificate of Amendment to Articles of Incorporation of
Evans Systems, Inc., filed with the Texas Secretary of
State on September 21, 19921. Filed with May 11, 1993
filing of Form S-1 Registration #33-62684.
3.3 Certificate Amendment of Articles of Incorporation of
Evans Systems, Inc., filed with the Texas Secretary of
State on April 9, 1993. Filed with May 11, 1993 filing
of Form S-1 Registration #33-62684.
3.4 By-Laws of the Company. Filed with May 11, 1993 filing
of Form S-1 Registration #33-62684.
10.1 Phillips "66" Marketing Agreement dated October 21, 1986.
Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
10.2 Amoco Lubricants Distributor Agreement dated June 21,
1990 and Schedule dated January 2, 1992. Filed with
May 11, 1993 filing of Form S-1 Registration #33-62684.
10.3 Diamond Shamrock Storage Lease dated July 12, 1985.
Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
10.4 Star Enterprise "Texaco" Marketing Agreement effective
July 1, 1993. Filed with May 11, 1993 filing of Form S-1
Registration #33-62684.
10.5 Shell Lubricants Reseller Agreement effective January 1,
1992. Filed with May 11, 1993 filing of Form S-1
Registration #33-62684.
10.6 Texaco Lubricants agreement effective July 1, 1990.
Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
10.7 Conoco Jobber Franchise Agreement effective April 1,
1990. Filed with May 11, 1993 filing of Form S-1
Registration #33-62684.
10.8 Mobil Marine Distributor Agreement effective June 3, 1992.
Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
10.9 Form of Series B Warrants to Purchase Common Stock of
Registrant. Filed with May 11, 1993 filing of Form S-1
Registration #33-62684.
10.10 Coastal Refinery & Marketing, Inc. Facilities Access
Agreement, effective September 5, 1989. Filed with May 11,
1993 filing of Form S-1 Registration #33-62684.
10.11 FINA Lubricants Marketing Agreement dated February 1, 1989.
Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
10.12 Texaco Terminating Agreement dated April 30, 1986. Filed
with May 11, 1993 filing of Form S-1 Registration
#33-62684.
10.13 Citgo Petroleum Distributor Franchise Agreement effective
August 1, 1992. Filed with May 11, 1993 filing of Form
S-1 Registration #33-62684.
10.14 Incentive Stock Option Plan. Filed with May 11, 1993
filing of Form S-1 Registration #33-62684.
10.15 Form of Incentive Stock Option Agreement. Filed with
May 11, 1993 filing of Form S-1 Registration #33-62684.
10.16 Summary Plan Description of E.S.O.P. Filed with May 11,
1993 filing of Form S-1 Registration #33-62684.
10.17 Employment Contract with Bill R. Kincer, incorporated by
reference from Exhibit 10.28 to the Company's Annual
Report on Form 10-K for the year ended September 30,
1994.
10.18 Pruett Petroleum, Inc. and Koonce Petroleum Company, Inc.
agreement dated October 4, 1994, incorporated by
reference from Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1994.
10.19 Employment Agreement with Richard A. Goeggel, effective
June 16, 1998, incorporated by reference from Exhibit
10.19 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998.
10.20 Omitted.
10.21 Employment Agreement with J.L. Evans, Sr., effective
April 6, 1998, incorporated by reference from Exhibit
10.21 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998.
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ----------------------- ---------------
10.22 Stock Purchase Agreement dated as of October 30, 1998 by
and among the Company, Synaptix Systems Corporation, a
Colorado corporation, d.b.a. Affiliated Resources
Corporation, and Way Energy, Inc., a Delaware
corporation, incorporated by reference from Exhibit 10.22
to the Company's Annual Report on Form 10-K for the year
ended September 30, 1998.
10.23 Amendment No. 1 to Stock Purchase Agreement, dated
December 39, 1998 by and among the Company, Synaptix
Systems Corporation, a Colorado corporation, d.b.a.
Affiliated Resources Corporation, and Way Energy, Inc.,
a Delaware corporation, incorporated by reference from
Exhibit 10.23 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1998.
10.24 Loan Agreement between the Company and Texas Commerce Bank
National Association, dated as of August 30, 1996,
incorporated by reference from Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the three
months ended March 31, 1999.
10.25 Amendment to Loan Agreement dated August 4, 1997,
incorporated by reference from Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the three
months ended March 31, 1999.
10.26 Amendment to Loan Agreement dated December 24, 1997,
incorporated by reference from Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the three
months ended March 31, 1999.
10.27 Amendment to Loan Agreement dated April 23, 1998,
incorporated by reference from Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the three
months ended March 31, 1999.
10.28 Amendment to Loan Agreement dated March 31, 1999,
incorporated by reference from Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the three
months ended March 31, 1999.
10.29 Asset Purchase Agreement dated December 3, 1999, by and
between TSC Services, Inc., Evans Systems, Inc., Diamond
Mini Mart, Inc., Evans Oil Co., EDCO, Inc., and Way
Energy Systems, Inc. incorporated by reference from
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated December 9, 1999.
10.30 Amendment to Loan Agreement dated June 30, 1999
10.31 Amendment to Loan Agreement dated August 31, 1999
10.32 Amendment to Loan Agreement dated November 30, 1999
10.33 Stipulated Judgment dated December 1, 2000 in the
District Court of Matagorda, Texas, 130th Judicial
District
10.34 Deed in Lieu of Foreclosure dated September 26, 2000 by
and between ChemWay, Inc., Way Energy, Inc. and Evans
Systems, Inc.
*21.0 Subsidiaries of Registrant
*23.0 Consent to the incorporation by reference in the
Company's Registration Statements on Forms S-8 of the
report of Stephenson & Trlicek, P. C. included herein.
*Filed herewith.