As filed with the Securities and Exchange Commission on February 13, 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 DECEMBER 31, 1996
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 ___ No___
Number of shares of common stock of registrant
outstanding exclusive of Treasury:
Shares or shares held by subsidiaries
of the registrant at February 12, 1997: 3,036,429
<PAGE>
EVANS SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Financial Statements (Unaudited) Page Number
Condensed Consolidated Balance Sheet
December 31, 1996 and September 30, 1996 ..................... 3
Condensed Consolidated Statement of Income
Three Months Ended December 31, 1996 and 1995 .................. 4
Condensed Consolidated Statement of Cash Flows
Three Months Ended December 31, 1996 and 1995 .................. 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 ................................................ 11
B. Reports on Form 8-K ........................................... 11
Signature ............................................................ 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
December 31, September 30,
1996 1996
(in thousands) (in thousands)
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ....................... 2,733 $ 2,793
Marketable equity securities .................... 1,385 1,599
Trade receivables, net of allowance of
doubtful receivable of $87,000 and $50,000 .... 4,962 5,160
Inventory ....................................... 8,130 8,182
Prepaid expenses and other current assets ....... 1,163 955
Income taxes receivable ......................... 37 37
-------- --------
Total current assets ..................... 18,410 18,726
-------- --------
Property, plant and equipment, net ................. 21,049 20,848
-------- --------
Other assets ....................................... 1,527 1,499
-------- --------
Total assets ............................. $ 40,986 $ 41,073
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........... $ 6,833 $ 6,051
Accrued excise and other taxes payable .......... 1,506 1,511
Current portion of long-term debt ............... 2,190 2,145
Deferred income taxes ........................... (387) 17
-------- --------
Total current liabilities ................ 10,142 9,724
Long-term debt ..................................... 10,194 10,400
Deferred income taxes .............................. 1,201 1,201
Deferred Revenue ................................... 103
-------- --------
Total liabilities ........................ 21,640 21,325
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock $0.01 par value, 15,000,000
shares authorized, 3,105,562 and 3,105,562
shares issued ................................... 31 31
Additional paid-in capital ......................... 12,133 12,133
Retained earnings ............................... 7,616 8,393
Net unrealized loss on marketable equity
securities .................................... (375)
Treasury stock, 69,133 common shares at
cost .......................................... (434) (434)
-------- --------
Total stockholders' equity ............... 19,346 19,748
-------- --------
Total liabilities and stockholders'
equity .............................. 40,986 $ 41,073
======== ========
SEE NOTES TO THE CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1996 1995
-------- --------
(in thousands, except
per share amounts)
Revenue:
Refined product sales .......................... $ 31,340 $ 25,143
Other sales and services ..................... 6,334 13,984
-------- --------
Total revenue .............................. 37,674 39,127
Cost of sales: ................................. 33,212 34,494
-------- --------
Gross profit: .................................. 4,462 4,633
-------- --------
Operating expenses:
Employment expenses .......................... 2,541 2,230
Other operating expenses ..................... 1,087 930
General & administrative expenses ............ 922 852
Depreciation and amortization ............... 439 294
-------- --------
Total operating expenses ................... 4,989 4,306
-------- --------
Operating income(loss) ......................... (527) 327
Other income/expense
Interest expense ............................. (289) (231)
Other income/(loss) net ...................... (364) (52)
-------- --------
Income/(loss) before provision for
income taxes ................................... (1,180) 44
Provision for income taxes: .................... (405) 6
-------- --------
Net income/(loss) .............................. $ (775) $ 38
-------- --------
Earnings/(loss) per share ...................... ($ 0.25) $ 0.01
======== ========
SEE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
------- -------
(in thousands)
Cash flows from operating activities:
Net income .................................... $ (775) $ 38
Non-cash adjustments:
Depreciation and amortization ........... 439 294
Changes in:
Current assets ...................... 256 (1,405)
Current liabilities ................. 420 2,979
Other, net
------- -------
Net cash provided by
operating activities ............. 340 1,906
------- -------
Cash flows from investing activities:
Capital expenditures .......................... (640) (1,537)
Reclassification of securities ............... 375
Other, net .................................... (28) (113)
------- -------
Net cash used by investing
activities ...................... (293) (1,650)
------- -------
Cash flows from financing activities:
Notes payable, net ............................ (205) (713)
Deferred Revenue ............................. 98
Net cash (used) by
financing activities .............. (107) (713)
------- -------
Net (decrease) in cash ............................. (60) (457)
Cash and cash equivalents, beginning of
period ......................................... 2,793 3,544
------- -------
Cash and cash equivalents, end of period ........... $ 2,733 $ 3,087
======= =======
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 three month period ended December
31, 1996 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 FAS123 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.
NOTE C -- SEASONAL NATURE OF BUSINESS
The refined petroleum products market customarily experiences competitive
margins in the fall and winter months 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:
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------- ------------
PETROLEUM MARKETING
Refined Petroleum Products ......... 3,384,721 3,197,197
Non-Petroleum Products ............ 606,118 638,222
CONVENIENCE STORES
Refined Petroleum Products .......... 588,491 492,528
Non-Petroleum Products ............. 1,020,421 1,049,364
CHEMWAY
Aerosol Chemical Products ........... 1,976,524 2,256,651
Liquid Automotive Products .......... 413,103 411,821
EDCO ENVIRONMENTAL
Environmental Remediation
Products ................................ 140,283 136,529
TOTAL INVENTORIES ....................... 8,129,661 8,182,312
NOTE E -- EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share for the quarters ended
December 31, 1996 and 1995 were computed using 3,036,429 and 3,008,326 weighted
average common shares outstanding plus 55,551 and 55,367 weighted average shares
of common stock equivalents, respectively.
Common stock equivalents are based on the assumed issuance of common stock for
dilutive options and warrants net of assumed repurchase of common shares based
upon the treasury stock method.
NOTE F -- RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts in order to
conform to the current year presentation.
THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
The following table reflects the operating results of the Company's business
segments for the Three Months ended December 31, 1996 and 1995.
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- --------------
PETROLEUM MARKETING(1)
Revenue .............................. $ 25,979,000 $ 20,373,000
Operating Income (Loss) .............. $ (26,000) $ 21,000
CONVENIENCE STORES
Revenue .............................. 9,586,000 8,999,000
Operating Income (Loss) .............. (90,000) 8,000
CHEMWAY
Revenue .............................. 1,610,000 9,151,000
Operating Income (Loss) .............. (502,000) 410,000
EDCO ENVIRONMENTAL
Revenue .............................. 499,000 604,000
Operating Income (Loss) ............. 91,000 (112,000)
TOTAL
Revenue .............................. $ 37,674,000 $ 39,127,000
Operating Income (Loss) .............. $ (527,000) $ 327,000
(1) Includes the Parent Company
The Company's net income (loss) for the quarters ended December 31, 1996 and
1995 was ($775,000) and $38,000. The quarter ended December 31, 1996, 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 quarters ended December 31, 1996
and 1995 would have been ($486,000) and $38,000.
ESI's revenues for the Three Months ended December 31, 1996, were $37,674,000
compared to $39,127,000 for the comparable period ending December 31, 1995. The
$1,453,000 (3.7%) three-month decrease in this year's revenues was mainly
attributable to a $7,541,000 decrease in ChemWay revenues partially offset by
increases in the petroleum marketing and convenience store segments.
ESI's gross profit for the Three Months ended December 31, 1996 was $4,462,000
(16.8%) compared to $4,633,000 (11.8%) for the comparable Three Months
ended December 31, 1995.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-CONTINUED
Operating expenses increased to $4,989,000 in 1996 compared to $4,306,000 in
1995. Operating expenses increased $683,000 in 1996. Operating expenses were
13.2 percent of revenues in 1996 and 11.0 percent in 1995.
PETROLEUM MARKETING
The Petroleum Marketing segment sales were $25,979,000 in 1996 compared to
$20,373,000 in 1995, a $5,606,000 (27.5%) increase. Fuel sales gallonage
increased to 22,885,000 gallons compared to 20,855,000 in 1995, a 2,030,000
(9.7%) increase. Gross profits for 1996 and 1995 were $2,113,000 and $1,927,000
respectively. Gross profit margins decreased to 8.1 percent compared to 9.5
percent in 1995. Operating expenses increased $233,000 in 1996. Operating
expenses were 8.2 percent of revenues in 1996, and 9.4 percent in 1995.
Management attributes the increase to employment expenses of $110,000 (mainly
centered in health insurance cost); transportation $113,000; depreciation
$73,000; and decreases in general administrative expenses $50,000; and repairs
to buildings and fuel dispensing equipment of $13,000. ESI, the parent company,
is included in the Petroleum Marketing results. Operating income (loss) was
($26,000) compared to $21,000 in 1995.
CONVENIENCE STORES
The Convenience Store segment sales were $9,586,000 in 1996 compared to
$8,999,000 in 1995; a $587,000 ( 6.5 %) increase. Fuel sale increased to
$5,753,000 in 1996 compared to $5,129,000. Fuel sales gallonage increased to
5,496,000 gallons compared to 4,638,000 in 1995; a 858,000 (18.5 %) increase.
Merchandise sales decreased to $3,698,000 in 1996 compared to $3,712,000 and
other income decreased to $135,000 compared to $158,000. Management attributes
the increase in sales to fuel $624,000 and decreases in merchandise $14,000 and
other income of $23,000. Gross profit for 1996 and 1995 was $1,907,000 and
$1,804,000 respectively. Gross profit margins decreased to 19.9% in 1996
compared to 22.0%. Management attributes the decline in gross profit margins
mainly to its Louisiana operaions which declined to a 14.4% margin compared to
17.7% in 1995.
Operating expenses increased $201,000 in 1996. Operating income(loss) was
($90,000) compared to $8,000 in 1995. The most significant factor contributing
to the decrease in operating income was $118,000 loss in it's Louisiana
operations.
CHEMWAY
ChemWay sales were $1,610,000 in 1996 compared to $9,151,000 in 1995; a
$7,541,000 (82%) decrease. The decline was caused by the aerosol production line
being out of service in late November through December for complete refurbishing
and a seasonal decrease in the automotive aftermarket refrigerant business.
Gross profit for 1996 and 1995 was $111,000 and $799,000 respectively. Gross
profit margins decreased to 6.9% compared to 8.7% in 1995. Management attributes
the decrease in margins mainly to lower margin sales from the refrigerant
reclamation division.
Operating expense increased $224,000 in 1996 compared to 1995. The increases in
operating expenses were primarily employment $116,000; transportation $34,000;
general administrative expenses $79,000, mainly attributable to insurance, taxes
and computer systems; depreciation $12,000 and a decrease in repairs and
maintenance of $17,000. Operating income (loss) was ($502,000) compared to
$410,000 in 1995.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS- CONTINUED
EDCO ENVIRONMENTAL
EDCO Environmental sales were $499,000 compared to $604,000 in 1995; a $105,000
(17.4%) decrease. Gross profit for 1996 and 1995 was $330,000 and $103,000
respectively. Gross profit margins increased to 66.2 percent compared to 17.1
percent in 1995. 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 increased $24,000 in 1996 compared to 1995. Increases in
operating expenses were mainly attributable to selling and marketing $37,000;
office equipment and vehicle leases $9,000; Insurance $4,000; operating supplies
$8,000; and depreciation $15,000; and decreases in employment $29,000 and
equipment cost of $20,000. Operating income (loss) was $91,000 compared to
($112,000) in 1995.
CAPITAL RESOURCES AND LIQUIDITY
Cash, cash equivalents and marketable securities were $4,118,000 as of December
31, 1996 compared to $4,392,000 for September 30, 1996. Working capital was
$8,268,000 as of December 31, 1996, a decrease from $9,002,000 as of September
30, 1996. The net derease in working capital was largely attributable to an
increase in accounts payable and accrued expenses.
Cash provided from operations was $340,000 as of December 31, 1996 compared to
$1,906,000 for the same period ending December 31, 1995.
ESI's current ratio, the ratio of current assets to current liability, was 1.82
as of December 31, 1996 and 1.93 as of September 30, 1996.
ESI utilized proceeds from its $7,200.000 line of credit up to a maximum of
$5,404,000 in 1996 to fund operations. ESI's lines of credit will expire in
March, 1997 and August 1999. As of December 31, 1996, ESI had $1,796,000
available in unused lines of credit.
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 new acquisitions.
10
<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: February 13, 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
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,733
<SECURITIES> 1,385
<RECEIVABLES> 5,049
<ALLOWANCES> 87
<INVENTORY> 8,130
<CURRENT-ASSETS> 18,410
<PP&E> 33,501
<DEPRECIATION> 12,049
<TOTAL-ASSETS> 40,986
<CURRENT-LIABILITIES> 10,142
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 19,315
<TOTAL-LIABILITY-AND-EQUITY> 40,986
<SALES> 37,674
<TOTAL-REVENUES> 37,674
<CGS> 33,212
<TOTAL-COSTS> 38,201
<OTHER-EXPENSES> 364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> (1,180)
<INCOME-TAX> (405)
<INCOME-CONTINUING> (775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (775)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> 0.00
</TABLE>
