As filed with the Securities and Exchange Commission on May 15, 1997
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended MARCH 31, 1997
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)
720 Avenue F North, Bay City, Texas 77414 (409) 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 (409) 245-2424
Physical Address: 720 Avenue F North, Bay City, Texas 77414 (409) 245-2424
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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 [_]
Number of shares of common stock of registrant outstanding exclusive of
Treasury:
Shares or shares held by subsidiaries of the registrant at May 13, 1997:
3,090,939
<PAGE>
EVANS SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheet
March 31, 1997 and September 30, 1996 ............................ 3
Condensed Consolidated Statement of Income
Six Months Ended March 31, 1997 and 1996 .......................... 4
Condensed Consolidated Statement of Cash Flows
Six Months Ended March 31, 1997 and 1996 .......................... 5
Notes to the Condensed Consolidated Financial Statements .............. 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 8
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K
A. Exhibits Index .................................................... 14
B. Reports on Form 8-K ............................................... 14
Signature ................................................................ 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, September 30,
1997 1996
------------ ------------
ASSETS (in thousands) (in thousands)
Current Assets:
Cash and cash equivalents ..................... 2,997 $ 2,793
Marketable equity securities .................. 12 1,599
Trade receivables, net of allowance of
doubtful receivable of $50,000 and $50,000 . 4,916 5,160
Inventory ..................................... 8,220 8,182
Prepaid expenses and other current assets ..... 1,367 955
Income taxes receivable ....................... 37 37
Deferred income taxes ......................... 649
------------ ------------
Total current assets ................... 18,198 18,726
------------ ------------
Property, plant and equipment, net ............... 20,905 20,848
------------ ------------
Other assets ..................................... 1,487 1,499
------------ ------------
Total assets ........................... 40,590 $ 41,073
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ......... 6,388 $ 6,051
Accrued excise and other taxes payable ........ 1,825 1,511
Current portion of long-term debt ............. 1,495 2,145
Deferred income taxes ......................... 17
------------ ------------
Total current liabilities .............. 9,708 9,724
Long-term debt ................................... 10,527 10,400
Deferred income taxes ............................ 1,201 1,201
Deferred Revenue ................................. 76
------------ ------------
Total liabilities ...................... 21,512 21,325
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock $0.01 par value, 15,000,000
shares authorized, 3,163,528 and
3,105,590 shares issued .................... 32 31
Additional paid-in capital ....................... 12,297 12,133
Retained earnings ............................. 7,183 8,393
Net unrealized loss on marketable
equity securities .......................... -- (375)
Treasury stock, 72,589 common shares at cost .. (434) (434)
------------ ------------
Total stockholders' equity ............. 19,078 19,748
------------ ------------
Total liabilities and
stockholders' equity ................. $ 40,590 $ 41,073
============ ============
SEE NOTES TO THE CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenue:
Refined product sales ............. 27,161 $ 26,967 $ 58,501 $ 52,110
Other sales and services ....... 7,541 10,464 13,875 24,448
------------ ------------ ------------ ------------
Total revenue ................. 34,702 37,431 72,376 76,558
Cost of sales: .................... 30,106 32,823 63,318 67,317
------------ ------------ ------------ ------------
Gross profit: ..................... 4,596 4,608 9,058 9,241
------------ ------------ ------------ ------------
Operating expenses:
Employment expenses ............. 2,532 2,399 5,073 4,629
Other operating expenses ........ 1,034 1,087 2,121 2,017
General & administrative expenses 889 724 1,811 1,576
Depreciation and amortization .. 496 312 935 606
------------ ------------ ------------ ------------
Total operating expenses ...... 4,951 4,522 9,940 8,828
------------ ------------ ------------ ------------
Operating income .................. (355) 86 (882) 413
Other income/expense
Interest expense ................ (256) (255) (545) (486)
Other income net ................ (66) 234 (430) 182
------------ ------------ ------------ ------------
Income/(Loss) before provision for (677) 65 (1,857) 109
income taxes
Provision for income taxes: ....... 244 (15) 649 (21)
------------ ------------ ------------ ------------
Net income ........................ (433) $ 50 (1,208) $ 88
============ ============ ============ ============
Earnings per share ................ $ (0.14) $ 0.02 $ (0.39) $ 0.03
</TABLE>
SEE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31,
-----------------------------
1997 1996
------------ ------------
(in thousands) (in thousands)
Cash flows from operating activities:
Net income .............................. (1,208) $ 88
Non-cash adjustments:
Depreciation and amortization ..... 935 606
Loss on Reclass of Securities .... 375
Changes in:
Current assets ................ 722 (487)
Current liabilities ........... (16) 2,793
Other, net
------------ ------------
Net cash provided by
operating activities ....... 808 3,000
------------ ------------
Cash flows from investing activities:
Capital expenditures .................... (992) (2,030)
Other, net .............................. 20 (199)
------------ ------------
Net cash used by
investing activities ....... (972) (2,229)
------------ ------------
Cash flows from financing activities:
Notes payable, net ...................... 127 (119)
Deferred income ......................... 76 120
Issuance of Common Stock ................ 165
------------ ------------
Net cash provided (used) by
Financing activities ....... 368 1
------------ ------------
Net increase/(decrease) in cash .............. 204 772
Cash and cash equivalents, beginning
of period .................................. 2,793 3,544
------------ ------------
Cash and cash equivalents, end of period ..... 2,997 $ 4,316
============ ============
SEE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and notes required
by generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to the consolidated financial statements
included in Form 10- K of Evans Systems, Inc. (the Company) for the year ended
September 30, 1996. In the opinion of Management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending September 30, 1997.
NOTE B -- ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued FAS 123,
Accounting for Awards of Stock-Based Compensation to Employees. The Statement
encourages the fair value based method of accounting for an employee stock
option; however, the Statement allows entities to continue to measure
compensation costs for plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period. The Company has adopted FAS 123 for fiscal
1997. The Company will continue using the intrinsic value method to value stock
options and believes that the effect of this Statement on future results of
operations will not be material.
In March 1995, Financial Accounting Standards Board issued Statement 121,
"Accounting for the Impairment of Long-Lived Assets To Be Disposed Of", was
issued and is effective for the Company in fiscal year 1997. The adoption of FAS
121 in fiscal 1997 did not have a material impact on the Company's consolidate
financial position or operating results.
In February 1997, FASB issued Statement 128, "Earnings per Share" ('EPS") which
requires a calculation of basic and fully diluted EPS. The statement is
effective for fiscal years ending after December 15, 1997, which is the
Company's 1st Quarter of 1998 with early adoption prohibited and restatement of
prior EPS amounts required. The company does not expect adoption to materially
affect its EPS amounts because of the Company's simple capital structure and the
immaterial effect of common stock equivalents.
NOTE C -- SEASONAL NATURE OF BUSINESS
The refined petroleum products market customarily experiences competitive
margins in the fall and winter followed by increased demand during the spring
and summer when construction, travel, and recreational activities increase.
6
<PAGE>
NOTE D -- INVENTORIES
Inventories consist of the following:
March 31, 1997 March 31, 1996
(IN THOUSANDS) (IN THOUSANDS)
------------ ------------
PETROLEUM MARKETING
Refined Petroleum Products .............. 3,058 2,903
Non-Petroleum Products ................. 607 463
CONVENIENCE STORES
Refined Petroleum Products ............... 681 745
Non-Petroleum Products .................. 1,114 1,010
CHEMWAY
Aerosol Chemical Products ................ 1,847 1,962
Liquid Automotive Products ............... 609 329
EDCO ENVIRONMENTAL
Environmental Remediation Products ...... 304 263
TOTAL INVENTORIES ............................ 8,220 7,675
NOTE E -- EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share for the quarters ended
March 31, 1997 and 1996 were computed using 3,084,501 and 3,057,679 weighted
average common and dilutive common equivalent shares outstanding, respectively.
Earnings per common and common equivalent share for the six months ended March
31, 1997 and 1996 were computed using 3,058,468 and 3,060,745 weighted average
common and dilutive common equivalent shares outstanding, respectively.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The following table reflects the operating results of the Company's business
segments for the Three Months ended March 31, 1997 and 1996.
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
------------ ------------
(in Thousands) (in Thousands)
------------ ------------
PETROLEUM MARKETING(1)
Revenue .............................. $ 22,103 $ 21,604
Operating (Loss) ..................... (169) (110)
CONVENIENCE STORES
Revenue .............................. 9,496 9,789
Operating Income(Loss) ............... (174) 94
CHEMWAY
Revenue .............................. 2,908 5,305
Operating Income ..................... 20 167
EDCO ENVIRONMENTAL
Revenue .............................. 195 733
Operating (Loss) .................... (32) (65)
TOTAL
Revenue .............................. $ 34,702 $ 37,431
Operating Income(Loss) ............... (355) 86
(1) Includes the Parent Company
The Company's net income (loss) for the Three Months ended March 31, 1997 and
1996 respectively were ($433,000) and $50,000. Management attributes the net
income decrease of $483,000 in 1997 over 1996 mainly to a $300,000 decrease in
non-operating income and higher operating expenses of $429,000, reduced by a
$244,000 decrease in income taxes. ESI's revenues for the Three Months ended
March 31, 1997, were $34,702,000 compared to $37,431,000 for the comparable
period ending March 31, 1996. The $2,729,000 (7.3%) three-month decrease in this
year's revenues was attributable to decreases in Convenience Stores $293,000;
ChemWay $2,397,000; EDCO Environmental $538,000; and an increase in Petroleum
Marketing of $499,000. (Refer to the following sections for further details).
ESI's gross profits for the Three Months ended March 31, 1997 were $4,596,000
(13.2%) compared to $4,608,000 (12.3 %) for the comparable Three Months ended
March 31, 1996. Operating expenses increased to $4,951,000 in 1997 compared to
$4,522,000 in 1996. Operating expenses increased $429,000 in 1997. Management
attributes the increase in operating expenses to employment expenses $133,000;
depreciation $184,000; general administrative expenses $165,000; repairs to
buildings and fuel dispensing equipment of $7,000 and a decrease in
transportation of ($60,000).
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
PETROLEUM MARKETING
The Petroleum Marketing segment sales were $22,103,000 in 1997 compared to
$21,604,000 in 1996, a $499,000 (2.3%) increase. Fuel sales gallonage decreased
to 19,425,000 gallons compared to 20,818,000 in 1996, a 1,393,000 (6.7%)
decrease. The increase in revenues was mainly attributable to higher average
selling prices per gallon on fuel of $1.07 in 1997 compared to $.97 in 1996 on
fewer gallon sales. The decrease in gallonage was in commercial, industrial and
retail sales due mainly to rain well in excess of seasonal norms throughout the
quarter which delayed farm planting, commercial projects and travel. Gross
profits for 1997 and 1996 were $1,793,000 and $1,926,000 respectively. Gross
profit margins decreased to 8.1 percent compared to 8.9 percent in 1996. The
decrease in gross profit margins was attributable to higher average selling
prices on motor fuels while the actual profit remained constant at $.068 per
gallon. Operating expenses decreased $73,000 in 1997. Operating expenses were
8.8 percent of revenues in 1997, and 9.4 percent in 1996. Management attributes
the decrease to employment expenses ($69,000); transportation ($52,000); repairs
to buildings and fuel dispensing equipment $(55,000); general and administrative
expenses ($17,000); and an increase in depreciation of $120,000. ESI, the parent
company, is included in the Petroleum Marketing results. Operating (loss)
increased to ($169,000) compared to $110,000 in 1996.
CONVENIENCE STORES
The Convenience Store segment sales were $9,496,000 in 1997 compared to
$9,789,000 in 1996; a $293,000 (3.0%) decrease. Fuel sales decreased to
$5,497,000 in 1997 compared to $5,786,000. Fuel sales gallonage decreased to
4,397,000 gallons compared to 5,125,000 in 1996; a 728,000 (14.2%) decrease.
Merchandise sales decreased to $3,680,000 in 1997 compared to $3,823,000 and
other income increased to $319,000 compared to $180,000. Management attributes
the decrease in sales to fuel $(289,000); merchandise sales ($143,000), and an
increase in other income of $139,000. The decrease in sales was due mainly to
rain well in excess of seasonal norms throughout the quarter which reduced
customer trafic. Gross profit for 1997 and 1996 was $2,022,000 and $1,869,000
respectively. Gross profit margins increased to 21.2% in 1997 compared to 19.1%
in 1996. Operating expenses increased $420,000 in 1997 compared to 1996. The
$420,000 increase was mainly attributable to employment expenses of $208,000;
facility and equipment maintenance $38,000, general and administrative $137,000
mainly centered in computer cost, insurance and taxes; depreciation $42,000; and
a decrease of ($5,000) in transportation expenses. Operating income (loss) for
the quarter ended March 31, 1997 and 1996 respectively was ($174,000) and
$94,000.
CHEMWAY
ChemWay sales were $2,908,000 in 1997 compared to $5,305,000 in 1996. The
$2,397,000 (45.2%) decrease in revenue was mainly attributable to a decline in
automotive aftermarket refrigerant sales. Gross profit for three months were
$623,000 and $630,000, respectively. Gross profit margins increased to 21.4
percent compared to 11.9 percent in 1996. The increase in margins was
attributable to a change in product mix centered in liquid line products and non
refrigerant aerosol products which have higher margins than refrigerant
products. Operating expenses increased $140,000 in 1997 compared to 1996. The
$140,000 increase was mainly attributable to employment expenses of $40,000;
transportation $11,000; facility and equipment maintenance $26,000; general and
administrative $44,000; and depreciation $19,000. Operating income for the
quarter ended March 31, 1997 and 1996 respectively was $20,000 and $167,000.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
EDCO ENVIRONMENTAL
EDCO Environmental sales were $195,000 compared to $733,000 in 1996; a $538,000
(73.4%) decrease. Gross profits for 1997 and 1996 were $162,000 and $181,000
respectively. Gross profit margins increased to 81.4 percent compared to 24.7
percent in 1996. Management attributes the increase in margins mainly to a
change in its business plan began in August 1996 to concentrate solely on
environmental remediation which produces high margins and discontinue additional
equipment sales and construction projects which were characterized by low
margins due to intense competition. Operating expenses decreased $57,000 in 1997
compared to 1996. Decreases in operating expenses were mainly attributable to
employment ($44,000); transportation ($14,000); equipment maintenance ($1,000);
and an increase in depreciation of $2,000. Operating (loss) was ($32,000)
compared to ($65,000) in 1996.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
The following table reflects the operating results of the Company's business
segments for the six months ended March 31, 1997 and 1996.
Six Months Six Months
Ended Ended
MARCH 31, 1997 MARCH 31, 1996
------------ ------------
PETROLEUM MARKETING(1)
Revenue .............................. 48,082 $ 41,977
Operating (Loss) ..................... (195) (88)
CONVENIENCE STORES
Revenue .............................. 19,082 18,788
Operating Income ..................... (264) 101
CHEMWAY
Revenue .............................. 4,518 14,456
Operating Income(Loss) .............. (482) 577
EDCO ENVIRONMENTAL
Revenue .............................. 694 1,337
Operating Income (Loss) .............. 59 (177)
TOTAL
Revenue .............................. $ 72,376 $ 76,558
Operating Income(Loss) ............... (882) 413
(1) Includes the Parent Company
The Company's net income (loss) for the six months ended March 31, 1997 and 1996
was ($1,208,000) and $88,000. The six month's ended March 31, 1997, includes a
non-recurring, non-operating loss of $219,000 (net of tax effect) related to the
reclassification of securities available for sale, a bond fund the Company has
held since 1993 to trading securities. In addition, the Company recorded a
non-operating loss of $70,000 (net of tax effect) related to the decision by the
Board of Directors to liquidate its trading portfolio. Without these
non-recurring items net income (loss) for the six months ended March 31, 1997
and 1996 would have been ($919,000) and $88,000.
The Company's operating revenues for the six months ended March 31, 1997, were
$72,376,000 compared to $76,558,000 for the comparable period ending March 31,
1996. The $4,182,000 six month decrease in this year's revenues was attributable
to ChemWay $9,938,000; and EDCO Environmental $643,000, and an increase in
Petroleum Marketing of $6,105,000; Convenience Stores $294,000. The Company's
gross profit for the six months ended March 31, 1997 was $9,058,000 (12.5%)
compared to $9,241,000 (12.1%) for the comparable six months ended March 31,
1997. Operating expenses were $9,940,000 and $8,828,000 for the six months ended
March 31, 1997 and 1996, a $1,112,000 increase. The increase was attributable to
ChemWay where expenses increased $364,000, Petroleum Marketing of $160,000;
Convenience Stores $620,000 and a decrease in Edco Environmental of ($32,000).
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS- CONTINUED
PETROLEUM MARKETING
The Petroleum Marketing segment sales were $48,082,000 for the six months ended
March 31, 1997 compared to $41,977,000 in 1996, a $6,105,000 (14.5%) increase.
Fuel sales gallonage increased to 42,309,000 gallons compared to 41,672,000 in
1996; a 637,000 gallon increase. Gross profits for the six month period ended
March 31, 1997 and 1996 respectively were $3,907,000 and $3,855,000. Gross
profit margins decreased to 8.1 percent compared to 9.2 percent in 1996.
Management attributes the decrease in margins to higher average selling prices
per gallon of fuel of $1.08 in 1997 compared to $.94 in 1996 while the cents per
gallon profit was $.071 and $.068, respectively. This and lower margins on other
petroleum products contributed to a 1.1 percent decline in gross profit margins.
Operating expenses increased to $4,103,000 compared to $3,943,000 in 1997.
Operating expenses were 8.5 percent of revenues in 1997 and 9.4 percent in 1996.
Management attributes the $160,000 increase to employment expenses $42,000;
transportation $59,000; depreciation $195,000 and decreases in repairs to
buildings and fuel dispensing equipment of $(69,000); and general administrative
expenses of ($67,000). ESI, the parent company, is included in the Petroleum
Marketing results. Operating loss increased to ($196,000) for the six month
period ended March 31, 1997 compared to ($88,000) for the comparable six month
period in 1996.
CONVENIENCE STORES
The Convenience Store segment sales were $19,082,000 for the six month period
ended March 31, 1997 compared to $18,788,000 for the comparable six month period
in 1996. Fuel sales increased to $11,295,000 for 1997 compared to $10,915,000
for 1996, a $380,000 increase. Fuel sales gallonage increased to 9,893,000 for
the six month period ended March 31, 1997 compared to 9,762,000 for the
comparable six month period in 1996. Merchandise sales decreased to $7,198,000
compared to $7,535,000 and other income increased to $589,000 compared to
$338,000 for the comparable six month period in 1996. Management attributes the
$294,000 increase to Fuel Sales $380,000; Other Income $251,000 and a decrease
in merchandise sales of $337,000. Gross profit for the six month period ended
March 31, 1997 and 1996 was $3,930,000 and $3,673,000 respectively. Management
attributes the $257,000 increase mainly to other income of $251,000 and a
($6,000) decrease in merchandise gross profits created by competitive pricing.
Gross profit margins increased to 20.4 percent for the six month period ended
March 31, 1997 compared to 19.5 percent for 1996. Gross profit margins on fuel
sales increased to 10.2 percent compared to 10.0 percent; merchandise margins
increased to 30.3 percent compared to 29.8 percent for 1996. Operating expenses
increased to $4,195,000 for the six month period ended March 31, 1997 compared
to $3,572,000 for the comparable six month period in 1996. Operating
income(loss) decreased to ($265,000) for 1997 compared to $101,000 in 1996.
Management attributes the decrease to increased expenses of $623,000 which
offset margin improvements of $257,000.
CHEMWAY
ChemWay sales were $4,518,000 for the six months ended March 31, 1997 compared
to $14,456,000 for the comparable six month period ended March 31, 1996; a
$9,938,000 (68.7%) decrease. The decline was caused by the aerosol production
line being out of service from November through January for complete
refurbishing and a decrease in automotive aftermarket refrigerant sales.
Gross profit for 1997 and 1996 was $734,000 and $1,429,000 respectively. Gross
profit margins increase to 16.2 percent compared to 9.9 percent in 1996.
Operating expenses increased $364,000 in 1997 compared to 1996. Increases in
operating expenses were mainly centered in employment expense $156,000;
transportation $45,000; facility and equipment maintenance $9,000; depreciation
$31,000; and general and administrative expenses of $123,000, mainly
attributable to insurance, taxes and computer systems. Operating income (loss)
was ($484,000) compared to $577,000 in 1996.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS- CONTINUED
EDCO ENVIRONMENTAL
EDCO Environmental sales were $694,000 for the six month period ended March 31,
1997 compared to $1,337,000 for the comparable six month period in 1996; a
$643,000 (48.1%) decrease. Gross profit for 1997 and 1996 was $488,000 and
$284,000, respectively. Gross profit margins increased to 70.3 percent compared
to 21.2 percent in 1996. Management attributes the increase in margins mainly to
change in its business plan began in August 1996 to concentrate solely on
environmental remediation which produces high margins and discontinue additional
equipment sales and construction projects which were characterized by low
margins due to intense competition. Operating expenses decreased $32,000 in 1997
compared to 1996. Decreases in operating expenses were mainly attributable to
employment ($73,000); transportation ($20,000) and increases in facility and
equipment maintenance $6,000; general and administrative $38,000 and
depreciation of $17,000. Operating income (loss) was $59,000 compared to
($177,000) in 1996.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and marketable securities were $3,009,000 compared to
$4,392,000 for September 30, 1996. Working capital was $8,490,000 as of March
31, 1997, a decrease from $9,002,000 as of September 30, 1996. The decrease in
working capital was largely attributable to a $1,467,000 decrease in our
marketable securities and a $650,000 reduction in the current portion of long
term debt.
Cash provided from operations was $808,000 as of March 31, 1997 compared to
$3,000,000 for the same period ending March 31, 1996.
ESI's current ratio, the ratio of current assets to current liability, was 1.87
as of March 31, 1997 and 1.93 as of September 30, 1996.
ESI utilized proceeds from its $7,200,000 line of credit up to a maximum of
$5,260,000 in 1997 to fund operations. As of March 31, 1997, ESI had $1,940,000
available in unused lines of credit. The Company's credit facilities of
$6,900,000 with one financial institution will expire in August 1999 and a
300,000 line of credit with another financial institution expires in March 1998.
The Company anticipates that existing sources of liquidity and cash flow from
operations will be sufficient to satisfy continued operations; however,
additional sources of capital may be required to finance acquisitions.
13
<PAGE>
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS INDEX
Exhibits Sequential Page Number
-------- ----------------------
10.1 None
B. REPORTS ON FORM 8-K
No report on Form 8-K has been filed during the quarter for which this report is
filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EVANS SYSTEMS, INC.
(REGISTRANT)
Date: May 15, 1997 By: /s/ CHARLES N. WAY
Charles N. Way
Vice President and Chief Financial Officer
And authorized to sign on behalf of the Registrant
By: /s/DENIS J. WALDRON
Denis J. Waldron
Corporate Controller
And authorized to sign on behalf of the Registrant
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTIANS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET, STATEMENT OF INCOME AND STATEMENT OF CASH FLOWS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,997
<SECURITIES> 12
<RECEIVABLES> 4,966
<ALLOWANCES> 50
<INVENTORY> 8,220
<CURRENT-ASSETS> 18,198
<PP&E> 33,564
<DEPRECIATION> 12,659
<TOTAL-ASSETS> 40,590
<CURRENT-LIABILITIES> 9,708
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 19,046
<TOTAL-LIABILITY-AND-EQUITY> 40,590
<SALES> 72,376
<TOTAL-REVENUES> 72,376
<CGS> 63,318
<TOTAL-COSTS> 73,256
<OTHER-EXPENSES> 430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 545
<INCOME-PRETAX> (1,857)
<INCOME-TAX> (649)
<INCOME-CONTINUING> (1,208)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,208)
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.00
</TABLE>
