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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR 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)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.01 per share NASDAQ-NMS Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 23, 1997, the aggregate market value of the Registrant's voting
stock held by non-affiliates was approximately $1,862,538.
On December 23, 1997, there were 3,163,573 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of the Registrant.
<PAGE>
PART I
ITEM 1. BUSINESS
Evans Systems, Inc. (ESI) is a vertically integrated, growth-oriented company
engaged in:
o Petroleum Marketing;
o Convenience store operations;
o The packaging and marketing of automotive after-market chemical products;
and
o Environmental remediation services.
History
The company began in 1968 with a single gas station in Bay City, Texas,
emphasizing service and careful attention to customers' preferences and needs.
The Company has expanded since then to 176 stations and 33 convenience stores
throughout Southeast Texas and Louisiana.
The Company believes that convenience stores provide a more efficient method of
utilizing personnel and distributing products to the customer. In the late
1980's, management shifted the Company's emphasis from company-owned stores to
independent ownerships operated in conjunction with the Company's growing fuel
distribution operations.
The Company also owns a petroleum terminal and several bulk plants through which
it supplies motor fuel to other wholesalers and retailers. The operations of
these facilities were subsequently strengthened with the addition of fuel
exchange agreements with major petroleum companies. The Company also distributes
lubricants, specialty petroleum products, tires and certain automotive
accessories in Texas and Louisiana.
Since 1980, the Company has provided environmental services for its own
facilities and its customers. The Company maintains the necessary licenses and
facilities to provide environmental services to a variety of customers ranging
from small operations to banks, utilities, major petroleum companies and large
industrial plants. In 1990, ChemWay Systems, Inc. (ChemWay) was incorporated to
package and market aerosol and liquid automotive chemical products.
In mid 1995, the Company began reviewing its operating structure. The results
were approved by the Board of Directors on December 18, 1995, included the
realignment of its Way Segment into two segments, Petroleum Marketing and
Convenience Stores, to provide efficiency and accountability. The Company
believes this realignment will also provide more meaningful reporting of
operating results. In 1997 with the changing petroleum industry being driven by
consolidation and lower margins, the Company put together a five year plan to
sell marginal operations and focus on growth of its retail convenience store
segment. (See Management's Discussion & Analysis)
2
<PAGE>
The company had the following operating results during the past three years.
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER SEPTEMBER SEPTEMBER
30, 1997 30, 1996 30, 1995
----------- ---------- ----------
---(In Thousands)---
PETROLEUM MARKETING[1]
Revenue ........................... $ 98,376 $ 91,374 $ 93,963
Operating Income (Loss) ........... (1,369) 644 252
CONVENIENCE STORES
Revenue 38,300 39,602 39,538
Operating Income (Loss) (1,208) 171 245
CHEMWAY
Revenue ........................... 10,967 25,773 22,853
Operating Income (Loss) ........... (1,831) 2,179 692
EDCO ENVIRONMENTAL
Revenue ........................... 1,320 2,031 1,841
Operating Income (Loss) ........... (399) (456) (271)
TOTAL:
Revenue ........................... $ 148,963 $ 158,780 $ 158,195
Operating Income (Loss) ........... (4,807) 2,538 918
[1] Includes the parent company.
PETROLEUM MARKETING
The following table sets forth the revenues of the Petroleum Marketing segment
(in thousands):
FISCAL YEAR ENDED
SEPTEMBER 30
-------------------------------
1997 1996 1995
------- ------- -------
Refined Petroleum Product Sales ............ $96,714 $89,717 $91,909
Non-Petroleum Product Sales ................ 1,662 1,657 2,054
Total Sales ................................ $98,376 $91,374 $93,963
The Petroleum Marketing segment includes the sale of motor fuels, lubricants,
tires and accessories items to commercial and industrial accounts, and the sale
of motor fuels to the public through the following retail outlets:
o 100 gasoline retail facilities with Company-supplied equipment
consisting of pumps, lights, and canopies and at certain locations
provide tanks, at independently owned and operated convenience stores
(the Company receives 40 percent or 50 percent of the gasoline
margins, depending on who owns the underground equipment.)
o 76 stations and convenience stores to which the Company provides major
oil company brand names, credit cards, and signs, without further
investment, and receives its customary markups on fuel deliveries.
The Company's business strategy for its Petroleum Marketing segment is (1) to
continue upgrading its profitable facilities, including installation of
automated tank monitoring equipment; (2) to increase sales volume through
increased brand representation and by acquisition; (3) to market in a variety of
local areas; and, (4) to expand in other markets.
CONVENIENCE STORE
The following table sets forth the revenues of the Convenience Store segment (in
thousands):
1997 1996 1995
------- ------- -------
Refined Petroleum Sales .............. $22,525 $22,993 $23,667
Merchandise Sales .................... 15,089 15,996 15,466
Other Income ......................... 686 613 405
------- ------- -------
Total Sales .......................... $38,300 $39,602 $39,538
The Company operates 33 convenience stores with self-serve motor fuels and a
variety of food and non-food merchandise. One company operated full service
station without a convenience store is included in this segment. Other income is
mainly lottery commissions and lease income. Convenience Stores business
strategy is (1) to continue upgrading its facilities to meet modern images; (2)
examine and reduce operating and overhead expenses to improve efficiency and
financial position; (3) to increase sales and profits through the addition of
Taco Bell(R) , Blimpie(R), Pizza Inn's(R) and Hardee's(R) franchises to its
existing locations; (4) to lease or sell to others marginal locations
maintaining fuel profits through contracts tied to leases; (5) to sell marginal
stores; and (6) to provide a clean, friendly, and safe store with the
merchandise customers desire.
CHEMWAY SYSTEMS
ChemWay blends and packages chemicals for the automotive aftermarket in aerosol
and liquid containers, from 4 ounce containers to 55 gallon drums. The plant is
located eight miles south of Bay City, Texas, on the Colorado River, in an
industrial park on a 13 acre site. ChemWay also added a 55,000 square foot
distribution facility in early 1997 to centralize the distribution of its
products. Aerosol packaging constitutes the largest share of production, with
the liquid line growing in proportion to general company growth. The major
aerosol products are refrigerants packaged in 12 ounce high pressure cans and 30
pound disposable cylinders.
The following branded products are currently offered by ChemWay:
<TABLE>
<CAPTION>
AEROSOL LIQUID
------- ------
<S> <C> <C>
R-12 Engine Flush
Carb & Choke Cleaner A/C Purge & Flush
Engine Cleaner and Degreaser Power Steering Fluid
Penetrating Oil Spray Octane Boost
Refrigerant Oil Charge Refrigerant Oil
Brake Parts Cleaner Five Minute Engine Flush
Tar & Bug Remover Carb & Fuel Injector Cleaner
HFC-134A Tire & Wheel Cleaner
Starting Fluid Engine Degreaser & Cleaner
Premium Starting Fluid Super Heavy Duty Brake Fluid
Windshield D-Icer Antifreeze and Summer Coolant
R-22 Two Cycle Engine Oil
Tire Inflator with Cone Gas Treatment
Tire Inflator with Hose Diesel Treatment
134-A Oil Charge Windshield Washer Concentrate
Super Concentrate Carb/Injector Cleaner Vinyl Cleaner and Protector
Motor Oil
A.T.F. Type A
Rain Guard
K-1 Kerosene
Petroleum Solvent - Metal Parts Cleaner
DOT 3 Brake Fluid
DOT 4 Brake Fluid
Lead Substitute
134-A Ester Oil
134-A A/C Flush
Emission Reducer
Fog Guard
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Diesel Conditioner
Gas Line Anti-Freeze
134-A Pag Oils
Fuel System Water Remover
TC-W3 2 Cycle Oil
10w30 Motor Oil
10w40 Motor Oil
Mercron III/ Mercron A.T.F.
Engine Oil Treatment
Engine Oil Stop Leak
Engine Oil No Smoke
Automatic Transmission Stop Leak
B.F. Dot 5 with Silicone
P.S.F. Stop Leak
P.S.F. for Honda Cars
Manual Clutch Fluid
Gas Tank Treatment with ISD
</TABLE>
ChemWay is also involved in reclamation of refrigerants, which the company
believes will enhance its position relative to regulatory limits on the
production of refrigerants. With the implementation of the high speed fill-line,
ChemWay is now positioned to target high volume contract packaging with
automotive aftermarket products of third parties.
EDCO ENVIRONMENTAL SYSTEMS, INC.
EDCO Environmental currently focuses on the following:
o Underground Storage Tank (UST) Removal
o UST Regulator Upgrades
o Site Assessments for Regulatory Agencies
o UST Repairs and Maintenance
o Site Clean Up Reimbursement
EDCO Environmental has provided environmental remediation services to one
hundred customers ranging from gasoline stations, convenience stores, and other
small local enterprises, to public utilities, banks, major oil companies, large
industrial corporations, and a variety of governmental institutions and
enterprises. Environmental protection work has been largely government mandated.
In the mid 1980s, the Environmental Protection Agency (EPA) initiated a program
for the management of Underground Storage Tanks (UST's) throughout the country.
The EPA has recently required Stage II vapor recovery improvements at fuel
facilities rather than through on-board canisters in new automobiles. This
decision will affect retail gasoline facilities in the cities and surrounding
counties of Houston, Galveston, Dallas/Fort Worth, El Paso and Port
Arthur/Beaumont. The EPA phase-in of UST improvement deadlines is December,
1998.
A number of states have established remediation funds to assist owners/operators
in clean-up activities. In Texas, this was done through the Groundwater
Protection Act approved by the Texas Legislature effective September 1, 1989.
The Act, as amended, provides clean-up funds for eligible expenses, less
applicable deductibles. The fund is continually financed by a fee assessed on
motor fuel sold in the state. Financing programs secured by assignments of
rights to TNRCC reimbursements can be obtained for leaking petroleum storage
tank sites impacted by releases from UST's. For locations where contamination
already exists, the UST owner/operator must comply with TNRCC clean-up
regulations or risk fines up to $10,000 per day and disqualification from the
benefits and funding of the Groundwater Protection Act.
The Texas Natural Resource Conservation Commission is continuing to provide
reimbursements for clean-up of contaminated locations.
<PAGE>
EMPLOYEE RELATIONS
The Company employs 486 people, none of whom are represented by any collective
bargaining organizations. The Company has had no work stoppages, slow downs, or
strikes, and is not engaged in any litigation with regards to employment rights
and practices or other social or civil rights. On July 1, 1997 the Company
implemented an employee directed 401K plan.
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 possess and employ
financial and personnel resources substantially in excess of those which are
available to the Company. The Company's Petroleum Marketing division also
competes with integrated oil companies which, in some cases, own or control a
majority of their Petroleum Marketing facilities. 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 Company, however, is one of the leading independent suppliers of refined
petroleum products within a 250 mile radius surrounding Houston, Texas and
Southwest Louisiana. Being a multi-brand distributor gives the Company a
competitive advantage of flexibility in placing the proper brand for the
location. The Company sells to the smaller retail consumer and to the high
volume industrial customer. The Company sells in excess of 100 million gallons
per year, which places it in the top 1% of all independent marketers of refined
petroleum products in the United States. The Company markets approximately 20%
of its volume to the greater Houston metropolitan area where major oil companies
are the primary existing competitors. On occasion, the major oil companies cut
prices to increase their market position.
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.
The Company also encounters competition in attempting to acquire sites for new
stores and existing groups of convenience stores. The Company's continued growth
in this business depends upon its ability to identify acquisition candidates
that can be obtained and operated profitably and to find suitable locations for
new stores.
The development, production, and marketing of chemical products for use with
automotive vehicles is also very competitive. The packaging of chemical products
will be subject to continuing changes in ingredients, product requirements,
government regulations, and legislative changes which could increase research,
production, and competitive burdens in future years.
ChemWay sells automotive after-market products in all fifty states. ChemWay
primarily has four competitors in the combination aerosol and liquid packaging
business. All four competitors are better capitalized and larger. There are
numerous other competitors who can do either aerosol or liquid packaging. The
principal competitive factors are product formulations and performance,
packaging, price, and service.
<PAGE>
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, 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 has extensive real estate interests in Texas and Louisiana. The
Company owns twenty-four (24) convenience stores with gasoline installations in
Texas and Louisiana, and rents or leases another thirty-nine (32) convenience
stores under varying terms.
The Company's general offices are located in a 10,300 square foot, free-standing
building located on a 15-acre tract with 400 feet of frontage along Highway 60
North in Bay City, Texas. EDCO Environmental's facilities include a 19,200
square foot shop, fabrication, and maintenance building adjacent to the
administration building.
Additional office and administrative operations (5,985 square feet) and 7,490
square foot warehouse together with 14,784 square feet of additional warehouse
buildings, are located on 3 acres of land approximately 1/2 mile north of the
general offices on Highway 60. Bulk storage equipment, including 14 fuel storage
tanks and 20 lube oil and antifreeze tanks, are located adjacent to the
warehouses.
ChemWay's offices, together with 29,680 square feet of manufacturing and
warehouse space, are located adjacent to the offices and petroleum terminal of
Way Energy, situated on a 13-acre tract leased from the Port of Bay City for an
annual rental of $1,293. ChemWay also owns a 55,000 square foot finished goods
warehouse in Bay City, Texas. Way Energy has a warehouse, dock, and fuel tanks
with 110,000 barrel storage capacity as well as loading and unloading facilities
on the premises leased from the Port of Bay City. The Company also owns an
unimproved tract of approximately 333 feet of dock frontage located along
navigable waters suitable for future intercoastal and intracoastal shipment of
Company products.
ChemWay has two (2) additional sites. One site has office and warehouse space
(6,650 sq. ft.) situated on 1.3 acres of land with 195 feet of frontage on
Highway 60. The other site is a 55,000 sq. ft. warehouse and office building
located on 3.2 acres in a residential/industrial section of the City of Bay
City.
ITEM 3. LEGAL PROCEEDINGS
During fiscal 1997, the Company was a defendant in the following:
1. No. 44,136; JAMES TODACK AND KATRINA A. CRONE V. EVANS SYSTEMS, INC.,
Probate and County Court, Galveston County, Texas.
This case was filed May 21, 1997 over an alleged breach of contract and
accounting over the purchase of assets by Evans Systems, Inc. from Todack, Crone
and others on July 25, 1995. Currently the Court has taken under advisement our
request for change of venue to Matagorda County, Texas. Upon that decision,
Evans Systems, Inc. will file defenses of lack of consideration, and breach of
contract. No formal monetary demand has been made at this time.
2. No. 97-2924; AIR REFRIGERANTS, L.L.C. V. REFRIGERANT GASES INC.; In
the U.S. District Court, E.E. Louisiana. COMPANY.
This case was filed by Air Refrigerants to collect on its contract with
Refrigerant Gases (RGI) and RGI has counterclaimed against Air Refrigerants for
alleged breach of contract and has threatened to take legal action to attempt to
terminate ChemWay Systems, Inc.'s distribution and marketing agreement with Air
Refrigerants. Although RGI has named ChemWay Systems, Inc. in its counterclaim,
it has chosen not to serve ChemWay Systems, Inc. nor have they asked for legal
or equitable relief against ChemWay Systems, Inc. It is management's decision
that based on the available facts and law, it will vigorously defend any
attempts by RGI in this matter.
3. No. 95-6-11, 567; COUNTY OF VICTORIA, ET. AL. VS. DIAMOND MINI-MART,
INC., A TEXAS CORPORATION D/B/A KINCER FOOD STORE #8; in the 135th
Judicial District Court of Victoria County, Texas.
This is an IN REM action filed in June, 1995. Plaintiff alleges that
taxes are due on personal property for the years 1992 and 1993. Defendant
obtained said property in August 1994 and is relying upon the Seller's attorney
opinion statement and bills of sale which recite Defendant received said
personality free of all liens including tax liens. Management is contesting the
amount alleged ($9,338.25) and has demanded that Seller and/or its attorney pay
any past due taxes. Currently, the trial setting has been dropped and
negotiations continue with both the taxing authority and the Seller/Seller's
attorney.
4. COUNTY OF VICTORIA, ET. AL. VS. EVANS SYSTEMS, INC., A TEXAS
CORPORATION D/B/A KINCER OIL COMPANY; in the 24th Judicial District
Court of Victoria County.
This is an IN REM action filed in June, 1995. Plaintiff alleges taxes
are due on personal property for the years 1992 and 1993. Defendant received
said personality free of all liens including tax liens. Management is contesting
the amount alleged ($13,943.53) and has demanded that Seller and/or Seller's
attorney pay any past due taxes. Currently, the trial setting has been dropped
and negotiations continue with both the taxing authority and the Seller/Seller's
attorney.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
STOCK INFORMATION
Traded On the National Market System -- NASDAQ Symbol "EVSI." Common Stock, $.01
par value 3,163,573 shares outstanding at the close of business on December 24,
1997. Number of stockholders: approximately 1,350. The Company has not paid any
cash dividends, and the Company currently has no plans to adopt a regular cash
dividend.
On January 20, 1997, the Company paid a 5% stock dividend to shareholders of
record on December 31, 1996. In lieu of the issuance of fractional shares,
$148.31 of cash was paid.
The high and low price range for the last two years, which has not been adjusted
for the stock dividend noted above, is listed below:
DATES HIGH LOW
- --------------------------------------------------------------------------------
October 1, 1995 through December 31, 1995 .............. 6 3/16 3 1/2
January 1, 1996 through March 31, 1996 ................. 5 5/8 3 3/16
April 1, 1996 through June 30, 1996 .................... 6 3/4 4 5/8
July 1, 1996 through September 30, 1996 ................ 6 7/8 4 5/8
October 1, 1996 through December 31, 1996 .............. 6 0/0 4 1/32
January 1, 1997 through March 31, 1997 ................. 5 3/4 3 7/8
April 1, 1997 through June 30, 1997 .................... 4 1/4 3 1/8
July 1, 1997 through September 30, 1997 ................ 3 3/4 2 3/8
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.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------------------
INCOME STATEMENT DATA: 1997 1996 1995 1994 1993
- ---------------------- ---- ---- ---- ---- ----
----- Dollars in thousands, except per share data -----
<S> <C> <C> <C> <C> <C>
Revenues .............................. $ 148,963 $158,780 $158,195 $109,866 $105,338
Gross Profit .......................... 16,522 21,685 19,282 14,302 13,927
Operating Income (Loss) ............... (4,807) 2,538 918 1,107 2,291
Net Income (Loss) ..................... (4,339) 1,119 335 740 1,308
Earnings (Loss) per share(1) .......... (1.41) .36 .11 .23 .67
Weighted average number of common and
common equivalent shares outstanding(1) 3,075 3,067 3,088 3,152 1,958
</TABLE>
(1) Adjusted for 5% stock dividend as discussed in Item 5.
<PAGE>
SEPTEMBER 30
----------------------------------------
BALANCE SHEET DATA: 1997 1996 1995 1994 1993
- ------------------- ---- ---- ---- ---- ----
---Dollars in thousands---
Current Assets ........... $14,962 $18,726 $21,566 $18,250 $22,294
Current Liabilities ...... 16,654 9,724 16,698 11,938 10,300
Current Ratio ............ .90:1 1.93:1 1.29:1 1.53:1 2.16:1
Total Assets ............. 38,004 41,073 40,609 33,164 30,535
Long-term Debt ........... 5,401 10,400 4,663 2,168 1,913
Total Stockholders' Equity 15,949 19,748 18,534 18,327 18,218
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto.
RESULTS OF OPERATIONS
1997 VS 1996
The Company's (ESI's) after-tax profits (losses) for the years ended 1997 and
1996 respectively were ($4,339,000) and $1,119,000. Management attributes the
after-tax profit decrease of $5,458,000 in 1997 over 1996 mainly to a decrease
in revenues, gross profit margins and an increase in expenses. Included in these
losses were the security trading loss of $497,000 and asset, inventory, and
accounts receivable write-downs of approximately $818,000. ESI's revenues for
1997 decreased $9,817,000 (6.2%) to $148,963,000 compared to $158,780,000 in
1996. ChemWay's sales of R-12 decreased from $13,669,000 in 1996 to $1,400,000
in 1997. Fuel sales gallonage increased to 106,907,000 gallons compared to
105,357,000 in 1996; a 1,550,000 (1.5%) increase. ESI's gross profit for 1997
was $16,522,000 (11.1%) compared to $21,685,000 (13.7%) in 1996. Management
attributes the decline in profit margins to competitive pricing in Petroleum
Marketing, ChemWay, and EDCO Environmental and to the decline of ChemWay's R-12
sales.
Operating expenses in 1997 increased to $21,329,000 compared to $19,147,000 in
1996. Operating expenses were 14.3% of revenues in 1997, and 12.1% in 1996.
Management attributes the increase in expenses primarily to Petroleum Marketing
and Convenience Stores and, to a lesser extent, increases in the other business
segments. (Refer to the discussion of each business segment for additional
detail in this section).
PETROLEUM MARKETING
The Petroleum Marketing segment had sales of $98,376,000 in 1997 compared to
$91,374,000 in 1996, a $7,002,000 (7.7%) increase. Fuel sales gallonage
increased to 88,448,000 gallons compared to 85,845,000 in 1996, a 2,603,000
(3.0%) increase. Gross profits for 1997 and 1996 were $7,676,000 and $8,810,000
respectively. Gross profit margins decreased to 7.8% compared to 9.6% in 1996.
Operating expenses increased $879,000 in 1997. Operating expenses were 9.1% of
revenues in 1997, and 8.9% in 1996 primarily due to the transfer of EDCO
Environmental's service department into Petroleum Marketing and the related
increase in employment expenses, a $111,000 increase in allowance for doubtful
accounts in general and administrative expenses and a $100,000 write-down in
software costs. ESI, the parent company, is included in the Petroleum Marketing
results. Operating income (loss) decreased to ($1,369,000) compared to $644,000
in 1996.
<PAGE>
CONVENIENCE STORES
The Convenience Store segment had sales of $38,300,000 in 1997 compared to
$39,602,000 in 1996; a $1,302,000 (3.3%) decrease. Fuel sales decreased to
$22,525,000 in 1997 compared to $22,993,000 in 1996; a $468,000 (2.0%) decrease.
Fuel sales gallonage decreased to 18,459,000 gallons compared to 19,512,000 in
1996; a 1,053,000 (5.4%) decrease. Merchandise sales decreased to $15,089,000 in
1997 compared to $15,996,000 and other income increased to $686,000 compared to
$613,000. Management attributes the declines to operating 6 fewer stores for
part of 1997. Gross profit margins decreased to 19.3% in 1997 compared to 20.0%
in 1996. Gross profit margins on fuel sales decreased to 9.4% compared to 10.6%;
merchandise margins decreased to 30.4% compared to 30.6% in 1996.
Operating expenses increased $837,000 in 1997. Operating expenses were 22.5% of
revenues in 1997 and 19.6% in 1996. Increases in operating expenses were
centered in employment $202,000, other operating $407,000, and general
administration $113,000. Operating income (loss) decreased to ($1,208,000)
compared to $171,000 in 1996.
CHEMWAY
ChemWay had sales of $10,967,000 in 1997 compared to $25,773,000 in 1996; a
$14,806,000 (57.4%) decrease. The decrease was mainly attributable to a decrease
in R-12 sales of $12,269,000. Gross profit for 1997 and 1996 was $1,078,000 and
$4,422,000, respectively. Gross profit margins declined to 9.8% in 1997 compared
to 17.2% in 1996. Management attributes the decline in gross profit margins to
the loss of sales of R-12. Operating expenses increased $667,000 in 1997
compared to 1996. Included in these increases were asset, inventory, and
accounts receivable write-downs of approximately $398,000. Operating income
(loss) decreased to ($1,831,000) compared to $2,179,000 in 1996.
EDCO ENVIRONMENTAL
EDCO Environmental sales were $1,320,000 in 1997 compared to $2,031,000 in 1996;
a $711,000 (35.0%) decrease. Gross profit for 1997 and 1996 was $366,000 and
$510,000 respectively. Gross profit margins increased to 27.7% compared to 25.1%
in 1996. Operating expenses decreased $201,000 in 1997 compared to 1996. The
$201,000 decrease was mainly attributable to the transfer of EDCO's service
department to Petroleum Marketing offset by asset write-downs of approximately
$209,000. Operating loss was ($399,000) compared to ($456,000) in 1996.
1996 VS 1995
The Company's (ESI's) after-tax profits for the years ended 1996 and 1995
respectively were $1,119,000 and $335,000. Management attributes the after-tax
profit increase of $784,000 in 1996 over 1995 mainly to an increase in gross
profit margins in ChemWay on higher revenues and a decrease in expenses in the
Petroleum Marketing segment. ESI's revenues for 1996 increased $585,000 to
$158,780,000 compared to $158,195,000 in 1995. Fuel sales gallonage decreased to
105,357,000 gallons compared to 114,398,000 in 1995; a 9,041,000 (7.9%)
decrease. ESI's gross profits for 1996 were $21,686,000 (13.7%) compared to
$19,282,000 (12.2%) in 1995. Management attributes the increase in gross profit
margins to the fast food conversions began in 1996 and to ChemWay refrigerant
margins.
Operating expenses in 1996 increased to $19,147,000 compared to $18,364,000 in
1995. Operating expenses were 12.1% of revenues in 1996, and 11.6 % in 1995.
Management attributes the increase in expenses primarily to the cost of volume
increases in ChemWay, the preparation to expand the Convenience Store segment,
and increased depreciation in all segments related to expansion in equipment to
provide for future growth. (Refer to the discussion of each business segment for
additional detail in this section.)
PETROLEUM MARKETING
The Petroleum Marketing segment had sales of $91,374,000 in 1996 compared to
$93,963,000 in 1995, a $2,589,000 (2.8%) decrease. Fuel sales gallonage
decreased to 85,845,000 gallons compared to 94,513,000 in 1995, a 8,668,000
(9.2%) decrease. Gross profits for 1996 and 1995 were $8,810,000 and $9,181,000,
respectively. Gross profit margins
<PAGE>
decreased to 9.6% compared to 9.8% in 1995. Operating expenses decreased
$762,000 in 1996. Operating expenses were 8.9% of revenues in 1996, and 9.4% in
1995. Management attributes the decrease to decreases in employment expenses of
$364,000; transportation of $205,000; general administrative expense of
$412,000; and to increases in repairs to buildings and fuel dispensing equipment
of $51,000 and depreciation of $168,000. These changes were mainly attributable
to the corporate restructuring made during the year. ESI, the parent company, is
included in the Petroleum Marketing results. Operating income increased to
$644,000 compared to $252,000 in 1995.
CONVENIENCE STORES
The Convenience Store segment had sales of $39,602,000 in 1996 compared to
$39,538,000 in 1995; a $64,000 (0.2%) increase. Fuel sales decreased to
$22,993,000 in 1996 compared to $23,667,000 in 1995. Fuel sales gallonage
decreased to 19,512,000 gallons compared to 20,425,000 in 1995; a 913,000 (4.5%)
decrease. Merchandise sales increased to $15,996,000 in 1996, compared to
$15,466,000 in 1995, and other income increased to $613,000 compared to
$405,000. Management attributes the $64,000 increase in sales to merchandise
$530,000; other income of $208,000; and a decrease in fuel of $674,000.
Gross profit margins increased to 20.0% in 1996 compared to 19.2%. Gross profit
margins on fuel sales decreased to 10.6% compared to 12.5%; merchandise margins
increased to 30.6% compared to 27.4% in 1995.
Operating expenses increased $421,000 in 1996. Operating expenses were 19.6% of
revenues in 1996 and 18.6% in 1995. Increases in operating expenses were
centered in employment $453,000; transportation $30,000; depreciation $166,000
and decreases in building/equipment repairs and leases $83,000 and general
administration $145,000. These increases were mainly attributable to the
additional employees required in its fast food outlets, management restructuring
for growth, and increased depreciation on rebuilds or store remodeling.
Operating income decreased to $171,000 compared to $245,000 in 1995.
CHEMWAY
ChemWay sales were $25,773,000 in 1996 compared to $22,853,000 in 1995; a
$2,920,000 (12.8%) increase. The increase was mainly attributable to an increase
in R-12 sales. Gross profits for 1996 and 1995 were $4,422,000 and $1,937,000,
respectively. Gross profit margins increased to 17.2% in 1996 compared to 8.5%
in 1995. Management attributes the increase in gross profit margins mainly to
improved margins on refrigerant products. Operating expenses increased $998,000
in 1996 compared to 1995. Increases in operating expenses were centered in
employment $628,000; freight $135,000; repairs, maintenance and equipment
$94,000; general administrative $78,000; and depreciation $63,000. Management
attributes these increases to production costs related to volume increases and
the expansion of its market area to 50 states in 1996. Operating income
increased to $2,179,000 compared to $692,000 in 1995, a $1,487,000 increase.
EDCO ENVIRONMENTAL
EDCO Environmental sales were $2,031,000 in 1996 compared to $1,841,000 in 1995;
a $190,000 (10.3%) increase. Gross profits for 1996 and 1995 were $510,000 and
$568,000, respectively. Gross profit margins declined to 25.1% compared to 30.9%
in 1995. The decrease in gross profit margins were due to competitive
construction contracts and lower margin equipment sales in 1996. Operating
expenses increased $127,000 in 1996 compared to 1995. The $127,000 increase was
mainly attributable to increases in employment expenses $37,000; repairs
maintenance $38,000; general administrative expenses $8,000; depreciation
$48,000; and a decrease in transportation costs of $4,000. A portion of the
increase in expenses were attributable to costs incurred on its first
application of the Matrix process. Operating loss was ($456,000) compared to
($271,000) in 1995. The $185,000 additional loss was due to a $58,000 decrease
in gross profit and a $127,000 increase in expenses.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and marketable securities were $1,297,000 at September
30, 1997 compared to $4,392,000 at September 30, 1996. Working capital deficit
was $1,692,000 at September 30, 1997, a $10,694,000 decrease from working
capital of $9,002,000 at September 30, 1996. The net decrease resulted primarily
<PAGE>
from the operating loss of $4,339,000 and the reclassification of long-term debt
to short-term debt at September 30, 1997 of $6,400,000. The decrease in
long-term debt was primarily due to the change in maturity of certain bank debt
with one of the Company's lenders.
Cash used by operations was $1,398,000 for the year ended September 30, 1997
compared to cash provided by operations of $1,180,000 for the year ended
September 30, 1996. The decrease was mainly attributable to the 1997 net loss of
$4,339,000 offset by depreciation and amortization of $2,129,000.
ESI's current ratio, the ratio of current assets to current liability, was .90
for 1997 and 1.93 for 1996. This decrease is primarily attributable to the
reclassification of $6,400,000 of long-term debt to current debt.
Certain of the Company's notes payable to banks require maintenance of financial
covenants, including current, debt to equity, tangible net worth and debt
service coverage ratios. At September 30, 1997, the Company was in violation of
certain of these covenants. In addition, the Company was out of compliance with
the borrowing base limits with one bank. The bank has waived these covenant
defaults and has agreed to a standstill of the breach of the borrowing base
limits. In exchange for these waivers and the standstill agreement, the Company
has pledged the stock of its subsidiaries, pledged the proceeds of the sale of
non-income producing assets, provided the bank a second lien on its office
facility and agreed to a maturity date of April 30, 1998. As of September 30,
1997, ESI had $ 2,563,000 available in unused lines of credit, however, due to
borrowing base limits these unused lines of credit were not currently available
for use.
The Company is in the process of seeking long-term senior debt and replacement
for the current lines of credit. The Company has hired an investment banking
firm to work with management to obtain this senior debt financing. The
investment banker and management believe this financing can be obtained prior to
the current credit lines expiring. The Company has also identified various
non-income producing assets and non-strategic properties which it intends to
sell.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company included in this Form 10-K
are listed under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND
EXECUTIVE COMPENSATION
As permitted by General Instruction G, the information called for by these items
with respect to the Company's directors and executive compensation is
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As permitted by General Instruction G, the information called for by this item
is incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
<PAGE>
As permitted by General Instruction G, the information called for by this item
is incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 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 16.
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EVANS SYSTEMS, INC.
/s/ JERRIEL L. EVANS, SR.
Jerriel L. Evans, Sr.
Chairman of the Board and
Chief Executive Officer
December 24, 1997
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/ JERRIEL L. EVANS, SR.
Jerriel L. Evans, Sr., December 24, 1997
Chairman of the Board and Chief Executive Officer
/s/ LARRY N. MILLER
Larry N. Miller, December 24, 1997
Chief Financial Officer
/s/ MAYBELL H. EVANS
Maybell H. Evans, December 24, 1997
Secretary and Director
/s/ DARLENE E. JONES
Darlene E. Jones, December 24, 1997
Treasurer and Director
/s/ CHARLES N. WAY
Charles N. Way, December 24, 1997
Corporate Controller and Director
/s/ CARL W. SCHAFER
Carl W. Schafer, December 24, 1997
Director
/s/ DAVID L. DEERMAN
David L. Deerman, December 24, 1997
Director
/s/ PETER J. LOSAVIO, JR.
Peter J. Losavio, Jr., December 24, 1997
Director
<PAGE>
EVANS SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
<PAGE>
EVANS SYSTEMS, INC.
FORM 10-K
INDEX TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet at September 30, 1997 and 1996............... F-3
Consolidated Statement of Operations for the Years Ended
September 30, 1997, 1996 and 1995..................................... F-4
Consolidated Statement of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995..................................... F-5
Consolidated Statement of Stockholders' Equity for the
Years Ended September 30, 1997, 1996 and 1995......................... F-6
Notes to Consolidated Financial Statements.............................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Evans Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, cash flows and stockholders' equity
present fairly, in all material respects, the financial position of Evans
Systems, Inc. and its subsidiaries at September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
December 23, 1997
F-2
<PAGE>
EVANS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 1,297 $ 2,793
Marketable equity securities 1,599
Trade receivables, net of allowance for
doubtful receivables of $340,000
and $50,000 4,584 5,160
Inventory 7,962 8,182
Income taxes receivable 310 37
Prepaid expenses and other current assets 618 955
Deferred income taxes 191
-------- --------
Total current assets 14,962 18,726
Property, plant and equipment, net 21,610 20,848
Other assets 1,035 1,499
Deferred income taxes 397
-------- --------
Total assets $ 38,004 $ 41,073
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 8,474 $ 6,051
Accrued excise and other taxes payable 343 1,511
Current portion of long-term debt 7,837 2,145
Deferred income taxes 17
-------- --------
Total current liabilities 16,654 9,724
Long-term debt 5,401 10,400
Deferred income taxes 1,201
-------- --------
Total liabilities 22,055 21,325
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 15,000,000
shares authorized, 3,163,573 and
3,105,590 shares issued 32 31
Additional paid-in capital 12,297 12,133
Retained earnings 4,054 8,393
Net unrealized loss on marketable
equity securities (375)
Treasury stock, 72,589 shares, at cost (434) (434)
-------- --------
Total stockholders' equity 15,949 19,748
-------- --------
Total liabilities and stockholders' equity $ 38,004 $ 41,073
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EVANS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
Revenue:
Refined product sales (including
consumer excise and state fuel
taxes of $20,391, $17,514 and
$18,649, respectively) $ 119,364 $ 112,790 $ 115,677
Other sales and services 29,599 45,990 42,518
--------- --------- ---------
Total revenue 148,963 158,780 158,195
Cost of sales 132,441 137,095 138,913
--------- --------- ---------
Gross profit 16,522 21,685 19,282
--------- --------- ---------
Operating expenses:
Employment expenses 10,098 10,072 9,318
Other operating expenses 4,847 4,061 4,007
Other general and administrative
expenses 4,255 3,387 3,857
Depreciation and amortization 2,129 1,627 1,182
--------- --------- ---------
Total operating expenses 21,329 19,147 18,364
--------- --------- ---------
Operating income (loss) (4,807) 2,538 918
--------- --------- ---------
Other income (expense):
Gain on sale of assets 17 125 81
Interest income 78 165 190
Interest expense (1,178) (1,005) (836)
Other (487) (104) 135
--------- --------- ---------
Total other income (expense) (1,570) (819) (430)
--------- --------- ---------
Income (loss) before provision for
income taxes (6,377) 1,719 488
Provision for (benefit from)
income taxes (2,038) 600 153
--------- --------- ---------
Net income (loss) $ (4,339) $ 1,119 $ 335
========= ========= =========
Earnings (loss) per share $ (1.41) $ .36 $ .11
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EVANS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:-
Net income (loss) $(4,339) $ 1,119 $ 335
Adjustments:
Depreciation and amortization 2,129 1,627 1,182
Gain on sale of assets (17) (125) (81)
Deferred income taxes (1,806) 479 226
Loss on marketable securities 498 106 (19)
Changes in assets and liabilities:
Receivables 576 1,207 (1,689)
Inventory 220 (32) (2,104)
Prepaid expenses and other 359 432 285
Accounts payable and accrued expenses 2,423 (3,461) 4,011
Accrued excise and other taxes payable (1,168) (227) 144
Income taxes receivable/payable (273) 55 (181)
------- ------- -------
Net cash provided (used) by operating activities (1,398) 1,180 2,109
------- ------- -------
Cash flows from investing activities:
Capital expenditures (3,052) (3,712) (5,577)
Proceeds from sale of marketable equity securities 1,454 346
Proceeds from sale of property and equipment 667 460 195
Purchase of marketable equity securities (923)
Purchase of treasury stock (153)
Other 184 (246) 203
------- ------- -------
Net cash used by investing activities (747) (3,152) (6,255)
------- ------- -------
Cash flows from financing activities:
New borrowings 3,962 8,515 7,714
Reduction of long-term debt (3,478) (7,364) (4,550)
Net proceeds from stock issuance 165 70
------- ------- -------
Net cash provided by financing activities 649 1,221 3,164
------- ------- -------
Net decrease in cash and cash equivalents (1,496) (751) (982)
Cash and cash equivalents, beginning of year 2,793 3,544 4,526
------- ------- -------
Cash and cash equivalents, end of year $ 1,297 $ 2,793 $ 3,544
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 108
Cash paid for interest $ 1,178 $ 997 $ 812
Supplemental disclosure of noncash transactions:
Acquisition of property by capital lease and
issuance of debt $ 209 $ 1,308
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EVANS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
(IN THOUSANDS) --------------------- PAID-IN RETAINED LOSS ON TREASURY
SHARES AMOUNT CAPITAL EARNINGS SECURITIES STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - September 30, 1994 2,934,205 $29 $11,381 $7,623 $ (425) $ (281) $ 18,327
Purchase of 27,700 treasury
shares (153) (153)
Decrease in marketable equity
securities valuation allowance 25 25
Net income for 1995 335 335
-------------- ------ ----------- ---------- --------- ---------- -----------
Balance - September 30, 1995 2,934,205 29 11,381 7,958 (400) (434) 18,534
Decrease in marketable equity
security valuation allowance 25 25
Warrants exercised by
employees and stock award 23,500 1 69 70
Net income for 1996 1,119 1,119
5% common stock dividend 147,885 1 683 (684)
-------------- ------ ----------- ---------- --------- ---------- -----------
Balance - September 30, 1996 3,105,590 31 12,133 8,393 (375) (434) 19,748
Warrants exercised by employees 57,983 1 164 165
Decrease in marketable equity
securities valuation allowance 375 375
Net loss for 1997 (4,339) (4,339)
-------------- ------ ----------- ---------- --------- ---------- -----------
Balance - September 30, 1997 3,163,573 $32 $12,297 $4,054 $ (434) $ 15,949
============== ===== =========== ========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
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, the packaging and
marketing of automotive after-market chemical products and environmental
remediation services.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Evans
Systems, Inc. and its subsidiaries. All significant intercompany
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
For purposes of the statement 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.
MARKETABLE EQUITY SECURITIES
Marketable equity securities available for sale are carried at market. The
cost of available for sale securities at September 30, 1996 was $1,500,000
resulting in a net unrealized loss of $375,000. Such securities were sold
in 1997 and a loss of $335,000 is included in other expense for 1997.
Marketable equity securities classified as trading securities are also
carried at market. The market value of trading securities at September 30,
1996 was $474,000. Realized losses of $163,000 are included in other
expense for 1997. Realized and unrealized losses of $12,000 and $94,000,
respectively, are included in other expense for 1996. Realized and
unrealized gains of $115,000 and $20,000, respectively, are included in
other income for 1995.
INVENTORIES
Substantially all inventories are products held for sale. Inventories of
oil and grease, automotive/chemical products, tire and automotive
accessories 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 $189,000 and $177,000 less
at September 30, 1997 and 1996, respectively, than it would have been if
the FIFO method had been used.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and is depreciated
utilizing the straight-line method of computing depreciation over their
estimated useful lives. Repairs and maintenance are charged to expense as
incurred. Expenditures for major additions and replacements which extend
the lives of assets are capitalized and depreciated over their estimated
useful lives. The Company depreciates assets over the following estimated
useful lives:
Buildings and plant 15-39 years
Leasehold improvements Life of lease up to 39 years
Equipment 15 years
Transportation equipment 5 years
Office equipment 5-7 years
F-7
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company implemented Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of " (SFAS 121) in fiscal 1997. This
statement establishes accounting standards for determining 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. The adoption of SFAS 121 did not have a
material impact on the Company's financial position or results of
operations.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128), which establishes standards for computing and presenting
earnings per share. This statement simplifies the standards for computing
earnings per share (EPS) previously found in APB Opinion No. 15, "Earnings
per Share." The new standard replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. This statement is effective for financial
statements issued for interim periods and annual periods ending after
December 15, 1997. Earlier application is not permitted. The Company will
adopt the provisions of this statement in the quarter ending December 31,
1997. Management believes the provisions of this statement will not have a
material effect on EPS.
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 the deferred tax assets and liabilities during the
period.
F-8
<PAGE>
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by using the weighted-average number
of common and dilutive common equivalent shares outstanding each period.
The weighted-average number of shares used in the calculation of earnings
(loss) per share was 3,075,000, 3,067,000 and 3,088,000 shares for 1997,
1996 and 1995, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash, marketable
equity securities, trade receivables, accounts payable, accrued expenses,
revolving credit facilities and notes payable. The carrying values of
cash, trade receivables, accounts payable, accrued expenses and notes
payable approximates current fair value. Marketable equity securities are
carried at their 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.
CONCENTRATIONS OF CREDIT RISK
The Company performs periodic evaluations of the relative credit standing
of the financial institutions and investment funds which are considered in
the Company's investment strategy. As of the date of the financial
statements, the Company has no concentration of customers engaged in
similar activities for which a failure to perform up to the terms of their
obligations due to shared activities, regions or economic characteristics
would result in a material credit risk to the Company. Management believes
that its credit and collection policies mitigate the potential effect of a
concentration of credit risk in its accounts receivable.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30
(in thousands):
1997 1996
Land $ 2,950 $ 2,955
Building and plant 6,809 6,132
Leasehold improvements 935 730
Equipment 18,470 17,622
Transportation equipment 2,895 3,021
Office equipment 2,955 2,478
----------- ------------
35,014 32,938
Less - accumulated depreciation and amortization 13,404 12,090
----------- ------------
Property, plant and equipment, net $21,610 $ 20,848
----------- ------------
F-9
<PAGE>
3. LONG-TERM DEBT
Long-term debt is summarized as follows at September 30 (in thousands):
1997 1996
Notes payable to banks, at prime to prime
plus 1%, payable to 2003, secured by
property and equipment, accounts
receivable, inventory and cash surrender
value of life insurance $11,135 $ 9,769
Capital lease liability 1,209 1,217
Notes payable, 7.2% to 11.5%, payable to
2005, secured by property, equipment,
improvements, inventory, accounts
receivable and cash surrender value of
life insurance 625 731
Notes payable, 7.75%, secured by marketable
equity securities, repaid in 1997 658
Other 269 170
------- -------
13,238 12,545
Less - current maturities 7,837 2,145
------- -------
Total $ 5,401 $10,400
======= =======
Notes payable to banks include $6,637,000 owed pursuant to short-term
lines of credit. At September 30, 1997, the Company had $2,563,000
available in unused lines of credit. However, due to the covenant defaults
and borrowing base limits discussed below, these unused lines of credit
are not available for use and their maturity dates have been accelerated
to April 1998.
Certain of the Company's notes payable to banks require maintenance of
financial covenants, including current, debt to equity, tangible net worth
and debt service coverage ratios. At September 30, 1997, the Company was
in violation of certain of these covenants. The banks have waived these
violations at September 30, 1997. In addition, the Company was out of
compliance with the borrowing base limits with one bank.
The Company is in the process of seeking long-term senior debt and
replacement for the current lines of credit. The Company has hired an
investment banking firm to work with management to obtain this senior debt
financing. Management believes this financing can be obtained prior to the
current credit lines expiring. The Company has also identified various
nonincome producing assets and nonstrategic properties which it intends to
sell.
The Company is prohibited by its bank agreement from payment of any cash
dividends and from obtaining additional debt without the bank's consent.
F-10
<PAGE>
The Company's capital lease liability relates to the lease of the
Company's information system and trucks which were capitalized using
effective interest rates of 9.3% and 9%, respectively. At September 30,
1997 and 1996, the gross amount of assets recorded under capital leases
was $1,436,000 and $1,308,000, respectively, and the related accumulated
amortization was $299,000 and $32,000, respectively. Total future capital
lease payments are $1,461,000 and include unearned interest of $244,000.
As of September 30, 1997, principal maturities of long-term debt are as
follows (in thousands):
1998 $ 7,837
1999 2,648
2000 989
2001 763
2002 297
Thereafter 704
------------
Total $ 13,238
------------
4. INCOME TAXES
The provision for (benefit from) income taxes consists of the following
(in thousands):
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1997 1996 1995
Current:
Federal $ (201) $ (25) $ (87)
State (31) 146 14
---------- -------- ----------
(232) 121 (73)
---------- -------- ----------
Deferred:
Federal (1,628) 421 207
State (178) 58 19
---------- -------- ----------
(1,806) 479 226
---------- -------- ----------
Total $(2,038) $ 600 $ 153
========== ======== ==========
F-11
<PAGE>
The difference between income taxes at the statutory federal and effective
income tax rates is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Taxes computed by applying federal statutory rate $(2,169) $ 584 $ 166
State taxes, net of federal benefit (137) 135 22
Change in deferred tax asset valuation allowance 231
Other, net 37 (119) (35)
----------- -------- ----------
$(2,038) $ 600 $ 153
----------- -------- ----------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (in
thousands)
SEPTEMBER 30,
----------------------
1997 1996
Deferred tax liabilities:
Book/tax depreciation differences $(2,446) $(2,072)
Prepaid expenses (78)
Other (37) (81)
------- -------
Total (2,483) (2,231)
------- -------
Deferred tax assets:
Net operating loss carryforward 2,296 807
Alternative minimum tax credit 454 86
Net capital loss carryforwards 205
Allowance for doubtful receivables 167
Expense accruals 103
Investment tax credit 26 26
Unrealized loss on marketable
equity securities 35
Section 263A inventory adjustment 38 26
Other 13 33
------- -------
Total 3,302 1,013
------- -------
Deferred tax asset valuation allowance (231)
------- -------
Net deferred tax asset (liabilities) $ 588 $(1,218)
======= =======
At September 30, 1997, the Company had regular tax net operating loss
carryforwards of $6,204,000 available for federal income tax purposes
which expire through 2012.
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.
F-12
<PAGE>
5. OPERATING LEASES
The Company leases 26 convenience store locations and 5 other facilities
under operating lease agreements with varying lives and terms. Three of
these leases are with related parties (see Note 7). At September 30, 1997,
the scheduled future minimum lease payments required under the terms of
the operating leases in effect are (in thousands):
YEAR ENDED SEPTEMBER 30,
1998 $ 453
1999 368
2000 296
2001 236
2002 204
Thereafter 373
------------
Total $ 1,930
============
In addition, the Company rents 14 convenience store locations and other
facilities on a month-to-month basis from various parties, including 7
from a related party (see Note 7). Rent paid for these facilities totaled
$180,000, $174,000 and $258,000 for the years ended September 30, 1997,
1996 and 1995.
The Company has nine subleases. Minimum rentals to be received in the
future under noncancelable subleases totaled $502,000 as of September 30,
1997.
6. COMMON STOCK
On December 16, 1996, the Company declared a five percent stock dividend
to stockholders of record on December 31, 1996 to be paid on January 20,
1997. All earnings per share information included in the accompanying
financial statements has been adjusted to give retroactive effect to the
stock dividend for all periods presented. Additionally, all share
information shown below has been adjusted to give retroactive effect to
the stock dividend.
In August 1992, the Company issued warrants to purchase 141,750 shares of
the Company's common stock at an exercise price of $2.86 per share. In
1997 and 1996, 57,938 and 24,150 of such warrants were exercised. 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 May 1994, the Company issued warrants to purchase 105,000 shares of the
Company's common stock at an exercise price of $7.86 per share as part of
an agreement with a consultant. These warrants expired in May 1997.
In December 1994 and May 1995, the Company issued warrants to purchase
262,500 shares of the Company's common stock at an exercise price of $4.76
per share. Of these warrants, 52,500 expired in May 1997. The remaining
warrants expire in 1999.
F-13
<PAGE>
The following common stock purchase warrants are outstanding as of
September 30, 1997:
WARRANT NUMBER OF EXPIRATION
PRICE WARRANTS DATE
$ 7.62 7,875 December 29, 2002
16.50 126,000 July 15, 1999
4.76 210,000 December 1, 1999
2.86 59,662 August 1, 2002
-----------
403,537
-----------
In November 1992, the Company adopted the Evans Systems, Inc. Incentive
Stock Option Plan. Up to 420,000 shares of the Company's common stock may
be purchased under the plan. The Company's Board of Directors may issue
options to one or more persons who are full-time employees of the Company
and/or its subsidiaries. Options granted under the plan must be granted
within ten years from the date of the plan. Under the plan, no eligible
employee shall be granted options during any one calendar year to the
extent that the fair market value of such shares (determined at the time
the option is granted) exceeds $100,000. If an employee, who is granted
options under the plan, owns more than 10% of the outstanding voting stock
of the Company, the options expire five years from the date of grant;
otherwise, the expiration date is ten years from the date of grant. The
options are nontransferable except upon death of the optionee. The option
price of the stock shall not be less than the fair market value of the
stock on the date of the grant, except in the case of an employee owning
more than 10% of the outstanding voting stock when the exercise price
shall be 110% of the fair market value of the stock at the date of grant.
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
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 August 1995, the Company granted contingent stock awards to two
individuals. The individuals were granted an aggregate of 105,000 shares
of restricted common stock which vest in fiscal 1996, 1997 and 1998
subject to achievements of certain profitability levels. The grants will
be canceled if such provisions are not met. In 1997 and 1996, such
provisions were not met and grants for 32,500 and 31,500 shares,
respectively, were canceled.
In June 1996, an officer of the company was awarded 525 shares of
restricted common stock.
F-14
<PAGE>
A summary of the option activity under the various plans follows:
WEIGHTED-
NUMBER OF AVERAGE
SHARES OPTION PRICE
Outstanding at September 30, 1994 81,900 $ 7.13
Granted in 1995 282,713 5.32
Expired in 1995 (96,338) 5.22
-------------
Outstanding at September 30, 1995 268,275 6.04
Granted in 1996 98,700 5.53
Expired in 1996 (194,933) 5.81
-------------
Outstanding at September 30, 1996 172,042 6.01
Granted in 1997 55,650 3.35
Expired in 1997 (138,550) 5.32
-------------
Outstanding at September 30, 1997 89,142 5.42
-------------
The weighted average fair value at date of grant for options granted
during 1997 and 1996 was $1.89 and $3.31 per option, respectively.
As of September 30, 1997, 89,142 options were outstanding with exercise
prices ranging from $3.25 to $7.62, a weighted average remaining
contractual life of 3.5 years and a weighted average option price of
$5.42. Of these options outstanding, 53,142 were exercisable with a
weighted average exercise price of $6.07.
The Company applies 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 Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation":
YEAR ENDED
SEPTEMBER 30,
1997 1996
Net income (loss):
As reported $(4,339) $1,119
Pro forma (4,396) 1,084
Earnings (loss) per share:
As reported $ (1.41) $ .36
Pro forma (1.43) .35
F-15
<PAGE>
The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following assumptions: no dividend yield,
volatility of 50 - 52%, risk-free interest rate of 6.4% and an expected
life of five years.
7. RELATED PARTY TRANSACTIONS
The Company leases three convenience store locations from the majority
shareholder of the Company. One ten-year lease commenced in June 1987 with
monthly lease payments of $2,500 and allows for one five-year automatic
renewal at the Company's option. The other two leases are for terms of
five years and commenced in April 1990. Each provides for a monthly lease
payment of $1,800 with one automatic five-year renewal at the Company's
option. The amounts paid under these leases were $73,000 for the years
ended September 30, 1997, 1996 and 1995. Future minimum lease commitments
as of September 30, 1997 are $251,000.
As of September 30, 1997, the Company rents, on a month-to-month basis,
six convenience store locations and an office facility from the majority
shareholder. Previously, the Company rented additional locations which
were sold by the shareholder to unrelated parties. The total
month-to-month rents paid for the years ended September 30 were: 1997 -
$104,000, 1996 - $104,000, and 1995 - $93,000. If all locations continue
to be rented under similar terms for the fiscal year ending September 30,
1998, the Company would pay approximately $104,000.
Other current assets include a note receivable from a former director
which was refinanced from an earlier note and is due in quarterly
instalments. The note receivable is secured by 13,567 shares of the
Company's common stock. The balance of the note receivable was
approximately $111,000, $116,000 and $140,000 at September 30, 1997, 1996
and 1995, respectively. Interest accrues at 8.5%. An allowance of $111,000
has been provided against the note receivable at September 30, 1997 based
on the potential uncollectibility of the balance.
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, 1997 and 1996.
8. CONTINGENT LIABILITIES
From time to time the Company exchanges refined products with suppliers by
agreeing to purchase or sell refined products at a future date. Such
activity could adversely affect the results of operations and financial
condition of the Company if the market prices of such products were to
fluctuate significantly. As of September 30, 1997, management believes the
Company had no material risk related to such activities.
9. EMPLOYEE BENEFIT PLANS
In 1992, the Company adopted an employee stock ownership plan to provide
retirement benefits to eligible employees. Employees must have attained
the age of 18 and have completed six months of service with the Company.
Contributions to the plan may be made annually at the discretion of the
Company's management. The Company recorded contributions to the plan of
$40,000, $117,000 and $44,000 during fiscal 1997, 1996 and 1995.
F-16
<PAGE>
The Company established a defined contribution benefit plan, the ESI
Employee Retirement Plan, effective July 1, 1997. Employees become
eligible for participation in the plan upon attaining the age of 21 and
completion of 12 consecutive months of employment 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. The Company recorded contributions to the plan of $40,000 during
fiscal 1997. The company has approved the merger of the employee stock
ownership plan into the retirement plan effective January 1, 1998.
10. SEGMENT REPORTING
The Company is primarily engaged in the following industry segments:
marketing and distribution of wholesale petroleum products; retail
convenience store and gasoline station operations; producing, marketing
and distribution of automotive after-market chemical products (Chem-Way);
and providing environmental remediation services and installing and
maintaining underground storage tanks (EDCO Environ). Information
concerning the Company's business activities is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
PROPERTY
EARNINGS DEPRECIATION AND IDENTI-
(LOSS) FROM AND EQUIPMENT FIABLE
YEAR ENDED REVENUES OPERATIONS AMORTIZATION ADDITIONS ASSETS
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1997
Petroleum marketing $ 98,376 $(1,369) $1,379 $ 1,559 $19,643
Convenience stores 38,300 (1,208) 393 903 8,324
Chem-Way 10,967 (1,831) 192 796 6,419
EDCO Environ 1,320 (399) 165 3 1,277
--------- ------- ------ ------- -------
$ 148,963 $(4,807) $2,129 $ 3,261 $35,663
========= ======= ====== ======= =======
SEPTEMBER 30, 1996
Petroleum marketing $ 91,374 $ 644 $ 956 $ 3,067 $22,872
Convenience stores 39,602 171 408 1,059 8,912
Chem-Way 25,773 2,179 143 680 6,533
EDCO Environ 2,031 (456) 120 214 957
--------- ------- ------ ------- -------
$ 158,780 $ 2,538 $1,627 $ 5,020 $39,274
========= ======= ====== ======= =======
SEPTEMBER 30, 1995
Petroleum marketing $ 93,963 $ 252 $ 788 $ 3,081 $21,401
Convenience stores 39,538 245 242 1,299 8,942
Chem-Way 22,853 692 80 758 7,800
EDCO Environ 1,841 (271) 72 158 708
--------- ------- ------ ------- -------
$ 158,195 $ 918 $1,182 $ 5,296 $38,851
========= ======= ====== ======= =======
</TABLE>
F-17
<PAGE>
Earnings (loss) from operations by segment represent revenues less
operating costs, expenses and depreciation. Identifiable assets are
primarily cash, accounts receivable, inventory, property, equipment and
cash value of life insurance. All sales by the Company occur in the United
States.
During each of the years ending September 30, 1997, 1996 and 1995, no
single customer represented 10% or more of the Company's revenues.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for the years ended September 30, 1997 and
1996 are summarized as follows:
OPERATING NET EARNINGS
INCOME INCOME (LOSS) PER
QUARTER ENDED REVENUE (LOSS) (LOSS) SHARE
Year ended September 30, 1997:
September 30, 1997 $38,451 $(3,331) $(2,598) $(.84)
June 30, 1997 38,136 (594) (533) (.17)
March 31, 1997 34,702 (355) (433) (.14)
December 31, 1996 37,674 (527) (775) (.26)
Year ended September 30, 1996:
September 30, 1996 38,748 297 (66) (.02)
June 30, 1996 43,474 1,828 1,097 .37
March 31, 1996 37,431 86 50 .02
December 31, 1995 39,127 327 38 .01
F-18
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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, 1992[1]. -
Filed with May 11, 1993 filing of Form S-1 Registration # 33-62684
3.3 Certificate of 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 ChemWay--LaRoche Chemical Supply Agreement and amendment dated September
19, 1991. - Filed with May 11, 1993 filing of Form S-1 Registration #
33-62684
10.2 DISC-Callahan Oil Company Licensed Program Agreement and addendum dated
December 9, 1988. - Filed with May 11, 1993 filing of Form S-1
Registration # 33-62684
10.3 Phillips "66" Marketing Agreement dated October 21, 1986. - Filed with May
11, 1993 filing of Form S-1 Registration # 33-62684
10.4 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
10.5 Diamond Shamrock Storage Lease dated July 12, 1985. - Filed with May 11,
1993 filing of Form S-1 Registration # 33-62684
10.6 Star enterprise "Texaco" Marketing Agreement effective July 1, 1993. -
Filed with May 11, 1993 filing of Form S-1 Registration # 33-62684
10.7 Shell Lubricants Reseller Agreement effective January 1, 1992. - Filed
with May 11, 1993 filing of Form S-1 Registration # 33-62684
10.8 Texaco Lubricants agreement effective July 1, 1990. - Filed with May 11,
1993 filing of Form S-1 Registration # 33-62684
10.9 Conoco Jobber Franchise Agreement effective April 1, 1990. - Filed with
May 11, 1993 filing of Form S-1 Registration # 33-62684
10.10 Mobil Marine Distributor Agreement effective June 3, 1992. - Filed with
May 11, 1993 filing of Form S-1 Registration # 33-62684
10.11 Form of Series B Warrants to Purchase Common Stock of Registrant. - Filed
with May 11, 1993 filing of Form S-1 Registration # 33-62684
10.12 Coastal Refinery & Marketing, Inc. Facilities Access Agreement effective
September 5, 1989. - Filed with May 11, 1993 filing of Form S-1
Registration # 33-62684
10.13 FINA Lubricants Marketing Agreement dated February 1, 1989. - Filed with
May 11, 1993 filing of Form S-1 Registration # 33-62684
10.14 Texaco Terminating Agreement dated April 30, 1986. - Filed with May 11,
1993 filing of Form S-1 Registration # 33-62684
10.15 Citgo Petroleum Distributor Franchise Agreement effective August 1, 1992.
- Filed with May 11, 1993 filing of Form S-1 Registration # 33-62684
10.16 Citgo Petroleum Exchange Agreement dated April 24, 1985. - Filed with May
11, 1993 filing of Form S-1 Registration # 33-62684
10.17 Phillips "66" Petroleum Exchange agreement dated March 1, 1992 and
amendment dated October 13, 1992. - Filed with May 11, 1993 filing of Form
S-1 Registration # 33-62684
10.18 Employment Contracts - David L. Deerman - Filed with May 11, 1993 filing
of Form S-1 Registration # 33-62684
10.19 Employment Contracts - James Bruce Grover - Filed with May 11, 1993 filing
of Form S-1 Registration # 33-62684
10.20 Employment Contract - J.L. Evans, Sr. - Filed with May 11, 1993 filing of
Form S-1 Registration # 33-62684
10.21 Employment Contract - Edward D. Meadows - Filed with May 11, 1993 filing
of Form S-1 Registration # 33-62684
10.22 Incentive Stock Option Plan - Filed with May 11, 1993 filing of Form S-1
Registration # 33-62684
10.23 Form of Incentive Stock Option Agreement - Filed with May 11, 1993 filing
of Form S-1 Registration # 33-62684
10.24 Summary Plan Description of E.S.O.P. - Filed with May 11, 1993 filing of
Form S-1 Registration # 33-62684
<PAGE>
INDEX TO EXHIBITS (continued)
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
10.25 Amendment to Employment Agreements - Filed with July 14, 1993 Form S-1,
Amendment #2 Registration # 33-62684
10.26 Sales Agreement between ChemWay Systems, Inc. and Hi-Lo Auto Supply,
Inc.-by reference from Exhibit 10.26 to the Company's Annual Report on
Form 10-K for the year ended September 30, 1993
10.27 Cyndel & Company, Inc. consulting agreement dated May 15, 1994 - by
reference from Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the year ended September 30, 1994
10.28 Employment Contract - Bill R. Kincer - by reference from Exhibit 10.28 to
the Company's Annual Report on Form 10-K for the year ended September 30,
1994 10.29 Pruett Petroleum, Inc. and Koonce Petroleum Company, Inc.
agreement dated October 4, 1994 - by reference from Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the year ended September 30, 1994
10.30 Clean-Age Minerals, Inc. agreement dated December 1, 1994 - by reference
from Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1994
22.0 Subsidiaries of Registrant
23.0 Consent to the Incorporation by reference of the report of independent
accountants in the Prospectus constituting part of the Registration
Statement on Form S-3 (No. 333-08197).
(The rest of this page is intentionally left blank.)
<PAGE>
EXHIBIT 22.0
SUBSIDIARIES OF REGISTRANT
(1) EVANS OIL OF LOUISIANA, INC.
100% Owned Subsidiary
Incorporated in the State of Louisiana
(2) IN & OUT MINI MART, INC.
100% Owned Subsidiary
Incorporated in the State of Texas
(3) DIAMOND MINI MART, INC.
100% Owned Subsidiary of
In & Out Mini Mart, Inc.
Incorporated in the State of Texas
(4) EVANS OIL COMPANY, INC.
100% Owned Subsidiary
Incorporated in the State of Texas
(5) EDCO, INC.
19% Owned Subsidiary of Evans Systems, Inc.
81% Owned Subsidiary of Evans Oil Company, Inc.
Incorporated in the State of Texas
(6) WAY ENERGY SYSTEMS, INC.
100% Owned Subsidiary
Incorporated in the State of Delaware
(7) CHEMWAY SYSTEMS, INC.
100% Subsidiary of the Way Energy Systems, Inc.
Incorporated in the State of Texas
(8) EDCO ENVIRONMENTAL SYSTEMS, INC.
100% Owned Subsidiary
Incorporated in the State of Texas
(9) DISTRIBUTOR INFORMATION SYSTEMS CORPORATION 100% Owned Subsidiary
Incorporated in the State of Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,297
<SECURITIES> 0
<RECEIVABLES> 4,584
<ALLOWANCES> 340
<INVENTORY> 7,962
<CURRENT-ASSETS> 14,962
<PP&E> 21,610
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,004
<CURRENT-LIABILITIES> 16,654
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 15,917
<TOTAL-LIABILITY-AND-EQUITY> 38,004
<SALES> 148,963
<TOTAL-REVENUES> 148,963
<CGS> 132,441
<TOTAL-COSTS> 153,770
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,178
<INCOME-PRETAX> (4,339)
<INCOME-TAX> (2,038)
<INCOME-CONTINUING> (4,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,339)
<EPS-PRIMARY> (1.41)
<EPS-DILUTED> 0
</TABLE>
