AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 22, 2000
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended MARCH 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-21956
EVANS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1613155
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (Identification number)
720 AVENUE F NORTH, BAY CITY, TEXAS 77414 (409) 245-2424
(Address including zip code and telephone number, including
area code, of registrant's principal executive offices)
JERRIEL L. EVANS, SR., PRESIDENT
Mailing Address: P.O. Box 2480, Bay City, Texas 77404-2480 (409) 245-2424
Physical Address: 720 Avenue F North, Bay City, Texas 77414 (409) 245-2424
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports,) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of common stock of registrant outstanding exclusive of Treasury
shares or shares held by subsidiaries of the registrant at May 19, 2000 were
4,094,831.
<PAGE>
EVANS SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Financial Statements (Unaudited) PAGE NUMBER
Condensed Consolidated Balance Sheet
as of March 31, 2000 and September 30, 1999 ........... 3
Condensed Consolidated Statement of Income
for the Three Months Ended March 31, 2000 and 1999 .... 4
Condensed Consolidated Statement of Income
for the Six Months Ended March 31, 2000 and 1999 ...... 5
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended March 31, 2000 and 1999 ...... 6
Notes to the Condensed Consolidated
Financial Statements .................................. 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 16
PART II. OTHER INFORMATION
Item 1.Legal Proceedings ....................................... 29
Item 6.Exhibits and Reports on Form 8-K
A. Exhibits Index ....................................... 29
B. Reports on Form 8-K .................................. 29
Signatures ..................................................... 30
2
<PAGE>
PART I. FINANCIAL INFORMATION EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(in thousands)
MARCH 31, SEPTEMBER 30,
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 1,036 $ 992
Trade receivables, net of allowance for
doubtful accounts of $188,000 and
$290,000, respectively ........................ 2,356 2,411
Inventory ......................................... 2,950 2,984
Prepaid expenses and other current assets ......... 495 342
-------- --------
Total current assets .......................... 6,837 6,729
Property and equipment, net ........................... 14,262 14,896
Investment in marketable securities ................... 860 398
Other assets .......................................... 183 319
-------- --------
Total assets ............................... $ 22,142 $ 22,342
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............. $ 6,755 $ 5,920
Current portion of long-term debt ................. 11,145 9,844
Accrued interest .................................. 1,022 688
-------- --------
Total current liabilities ..................... 18,922 16,452
Long-term debt, less current portion .................. 898 1,634
-------- --------
Total liabilities ............................. 19,820 18,086
-------- --------
Commitments and contingencies ......................... -- --
Redeemable common stock, 40,000 shares issued and
outstanding ....................................... -- 160
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 15,000,000 shares
authorized, 4,064,929 and 4,064,929 shares issued,
respectively ...................................... 41 41
Additional paid-in capital ........................ 16,098 15,686
Accumulated deficit ............................... (13,579) (11,197)
Unrealized gain on marketable securities .......... 196 --
Treasury stock, 72,589 shares, at cost ............ (434) (434)
-------- --------
Total stockholders' equity .................... 2,322 4,096
-------- --------
Total liabilities and stockholders' equity . $ 22,142 $ 22,342
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
---------------------------
2000 1999
-------- --------
Revenue:
Refined product sales ........................ $ 19,353 $ 14,804
Other sales and services ..................... 3,797 4,355
-------- --------
Total revenue ................................ 23,150 19,159
Cost of sales .................................... 20,580 16,343
-------- --------
Gross profit ..................................... 2,570 2,816
-------- --------
Operating expenses:
Employment expenses .......................... 1,557 1,625
Other operating expenses ..................... 1,014 742
General & administrative expenses ............ 714 1,049
Depreciation and amortization ................ 367 413
-------- --------
Total operating expenses ..................... 3,652 3,829
-------- --------
Operating loss ................................... (1,082) (1,013)
Other income (expense)
Interest expense, net ........................ (342) (415)
Loss on sale of assets ....................... (15) --
Loss on abandonment of assets ................ -- (111)
Other, net ................................... 9 (150)
-------- --------
Loss before benefit from income taxes ............ (1,430) (1,689)
Provision for state income taxes ................. 4 --
-------- --------
Net income (loss) ................................ $ (1,434) $ (1,689)
-------- --------
Unrealized gain (loss) on marketable securities .. 157 (938)
-------- --------
Comprehensive income ( loss) ..................... $ (1,277) $ (2,627)
======== ========
Basic and diluted earnings (loss) per share:
Net income (loss) ............................ $ (.36) $ (.44)
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except per share amounts)
SIX MONTHS ENDED MARCH 31,
------------------------
2000 1999
-------- --------
Revenue:
Refined product sales ......................... $ 37,634 $ 31,480
Other sales and services ...................... 7,528 8,677
-------- --------
Total revenue ................................. 45,162 40,157
Cost of sales ..................................... 40,007 33,948
-------- --------
Gross profit ...................................... 5,155 6,209
-------- --------
Operating expenses:
Employment expenses ........................... 3,016 3,680
Other operating expenses ...................... 1,814 1,744
General & administrative expenses ............. 1,334 1,653
Depreciation and amortization ................. 740 840
-------- --------
Total operating expenses ...................... 6,904 7,917
-------- --------
Operating loss .................................... (1,749) (1,708)
Other income (expense)
Interest expense, net ......................... (897) (687)
Gain (loss) on sale of assets ................. (14) 110
Other, net .................................... 16 (182)
-------- --------
Loss before benefit from income taxes ............. (2,644) (2,467)
Provision for state income taxes .................. 4 --
-------- --------
Loss from continuing operations ................... (2,648) (2,467)
Discontinued operations:
Gain on disposal of ChemWay, net of
taxes of $0 and $1,203 ........................ 266 3,973
-------- --------
Net income (loss) ................................. $ (2,382) $ 1,506
-------- --------
Unrealized gain (loss) on marketable securities ... 196 (938)
-------- --------
Comprehensive income ( loss) ...................... $ (2,186) $ 568
======== ========
Basic and diluted earnings (loss) per share:
Net income (loss) ............................. $ (.59) $ 0.41
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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EVANS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED MARCH 31,
--------------------------
2000 1999
------- -------
Cash flows from operating activities:
Net income (loss) ................................ $(2,382) $ 1,506
Adjustments:
Depreciation and amortization ................ 740 840
Loss (gain) on sale of fixed assets .......... 14 (110)
Gain on disposal of discontinued operations .. (266) (5,176)
Stock option compensation expense ............ 252 248
Changes in working capital:
Current assets ............................ (64) 30
Current liabilities ....................... 1,169 656
------- -------
Total adjustments ................................ 1,845 (2,309)
------- -------
Net cash provided (used) by operating activities ..... (537) (803)
------- -------
Cash flows from investing activities:
Capital expenditures ............................. (318) (355)
Proceeds from sale of property and equipment ..... 198 681
Other, net ....................................... 136 (76)
------- -------
Net cash provided (used) by investing activities ..... 16 250
------- -------
Cash flows from financing activities:
Repayment on notes payable, net .................. (435) (412)
Proceeds of additional bank debt ................. 1,000 --
Net proceeds from exercise of stock options ...... -- 1,194
------- -------
Net cash used by financing activities ................ 565 782
------- -------
Net increase (decrease) in cash ...................... 44 229
Cash and cash equivalents, beginning of period ....... 992 831
------- -------
Cash and cash equivalents, end of period ............. $ 1,036 $ 1,060
------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Evans
Systems, Inc. and its subsidiaries (collectively referred to as the "Company")
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. It is recommended that these interim condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company 's Annual Report on Form
10-K for the year ended September 30, 1999. Except as disclosed herein, there
has been no material change in the information disclosed in the notes to the
consolidated financial statements included in the annual report on Form 10-K. 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 and six month periods ended March 31, 2000 are
not necessarily indicative of the results which may be expected for any other
interim periods, or for the year ending September 30, 2000. Certain prior period
amounts have been reclassified for comparative purposes.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
NOTE B - PROPOSED ASSET SALE
In December 1999, the Company reached an agreement to sell its Texas petroleum
marketing and convenience store assets (the "TSC Transaction") to TSC Services,
Inc. ("TSC"). Under the terms of the agreement, TSC would make a cash payment to
the Company of $12.7 million for substantially all of the fixed assets of the
Texas petroleum marketing and convenience store segments, having a net book
value of $13.0 million at March 31, 2000. In addition, TSC agreed to assume
certain capital lease obligations of approximately $0.6 million, and has agreed
to purchase the segments' inventories at the Company's cost, estimated by
management at $2.4 million. The Company does not expect to incur a loss on the
TSC Transaction.
The sale has been approved by the Board of Directors and is subject to approval
by the Company's shareholders. Management believes that TSC must obtain
additional financing in order to close the TSC Transaction, and there can be no
assurance that they will be successful in doing so. Although there can be no
assurance that the transaction will close, the Company's management believes the
TSC Transaction will close in July 2000, and will provide sufficient cash to
repay the Company's existing bank debt described below, and to pay its trade
accounts payable balances.
NOTE C - TERMINATION OF MERGER WITH I-NET
On January 23, 2000, the Company executed an Amended and Restated Agreement and
Plan of Merger(as amended, the "Merger Agreement") with I-Net Holdings Inc., a
Delaware Corporation ("I-Net"), pursuant to which a wholly-owned subsidiary of
the Company would have been merged with and into I-Net (the "Merger"). The
principal shareholder of I-Net, Richard Dix, is a former officer of the Company.
The Company, I-Net, and the principal shareholder of I-Net agreed to terminate
the Merger Agreement on May 19, 2000, and release each other
7
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
from any and all claims arising under the Merger Agreement. To induce I-Net to
agree to the immediate termination of the Merger Agreement , the Company has
agreed to pay $50,000 to I-Net as partial reimbursement of the expenses incurred
by it in conjunction with the Merger Agreement upon consummation of the TSC
Transaction or a similar sale of substantially all of the Company's assets.
General and administrative expenses for the three and six months ended March 31,
2000 include legal and professional fees of $81,600 and $91,600, respectively,
arising from the negotiation and performance of the Merger Agreement.
NOTE D - LONG-TERM DEBT
On March 31, 1999, the Company closed on an amendment to its credit agreement
with one of its bank lenders (the "Refinancing"), pursuant to which the bank (i)
waived all previous covenant defaults; (ii) extended the maturity of its loan
balance to January 31, 2001; and (iii) assumed the amounts outstanding under the
other bank lender's loans under their current terms and conditions. Under the
terms of the Refinancing, such bank lender received a first lien position on
certain assets of the Company, including, inventories, accounts receivable,
convenience store real estate and equipment. The effect of the Refinancing was
to cure all then outstanding defaults in the Company's credit agreements, and to
extend the final maturity to January 31, 2001. The Refinancing, however, did not
provide any additional borrowing capacity or liquidity for the Company, and the
Company has no available borrowing capacity at this time. The Refinancing
contains financial covenant obligations, including minimum net worth, minimum
earnings before interest, taxes and depreciation ("EBITDA"), working capital
ratio and fixed charge coverage ratio, all as defined within the loan documents.
The Company was not in compliance with the minimum net worth, fixed charge
coverage ratio, and working capital ratio financial covenants at September 30,
1999, December 31, 1999, and March 31 2000. The bank has waived such covenant
defaults through December 31, 1999. Since, however, the bank has not waived or
amended such covenants past December 31, 1999, and the final maturity of such
bank debt is January 31, 2001, all of the debt due to this bank, totaling
$9,587,000 including the new $1,000,000 facility discussed below, has been
classified as current at March 31, 2000. Management intends to repay the
existing bank debt with proceeds from the TSC Transaction, as defined above, or
in the event such transaction is not consummated, to replace the existing bank
debt with new financing, discussed below, which would have the effect of
increasing the availability of working capital. There can be no assurance that
it will be able to do so.
Furthermore, covenants in the Company's loan agreement (i) limit the Company's
ability to make capital expenditures to the greater of $1,000,000 or 25% of
EBITDA, (ii) prohibit the payment of cash dividends and (iii) limit the
Company's ability to incur additional indebtedness. Under the terms of the
Refinancing, interest is payable monthly at an annual rate of two percent above
the bank's established prime lending rate. In addition, the Company is obligated
to make a principal repayment of approximately $41,000 per month. Since the loan
was not repaid by June 30, 1999, the Company became subject to a fee of
$250,000. Furthermore, the Company became obligated to pay additional fees of
$250,000 on August 31, 1999 and December 31, 1999 as the loan obligations were
not repaid by those respective dates. Interest expense for the six months ended
March 31, 2000 includes $269,000, reflecting the December 31, 1999 fee, and
accrued late charges on the deferred fees. Accrued interest at March 31, 2000
includes $810,800, which is comprised of the $750,000 in fees and late charges
thereon.
On January 26, 2000, the Company closed on an additional $1 million credit
facility with its principal bank lender. The new loan is secured by the
Company's general offices, 7,490 square foot warehouse together with 14,784
square feet of additional warehouse buildings, which are located on three acres
of land approximately 1/2 mile north of the Company's former general offices on
Highway 60. The loan is further secured by a pledge of the Company's rights and
interests in funds held by an escrow agent, which would be payable to the
Company as a result of a
8
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
breach by TSC of its obligations under the purchase agreement. Proceeds of the
new loan will be used for working capital, and to fund expenses necessary to
close the TSC Transaction or the B&I Loan. Interest on the $1 million loan will
accrue at an annual rate of two percent above the bank's established prime
lending rate, payable monthly. The note became payable on May 1, 2000. The
Company has requested the bank to extend the note for an additional 60 days,
although there can be no assurance that the bank will do so.
On July 21, 1999, the Company was notified that it had been approved for term
loans totaling $10 million by the United States Department of Agriculture Rural
Development Business and Industry Guaranteed Loan Program ("B&I Loan".) Proceeds
of the B&I Loan would be used to repay obligations owed under the Refinancing,
and to provide working capital. The closing of the B&I Loan is contingent upon,
among other things, the completion of environmental cleanup at several sites and
obtaining a new revolving credit facility in order to provide a minimum of $2.5
million in availability. The required environmental cleanup, consisting of
removal of contaminated soil and tank removal was completed at a cost of
$20,807. The Company estimates that it will cost an additional $9,800 to dispose
of the contaminated soil. The Company has received a commitment from its present
bank lender to provide revolving debt sufficient to meet the requirements of the
B&I Loan. In order to proceed with the B&I Loan, however, the Company will
require additional financing in an amount sufficient to repay the additional
$1,000,000 borrowed on January 26, 2000.
In the event that the TSC Transaction does not close, the Company intends to
proceed with the B&I Loan. As a result of the Company's continuing losses,
however, and the additional $1,000,000 borrowed on January 26, 2000, there can
be no assurance that the Company will be able to proceed with the B&I Loan. In
the event that the Company is unsuccessful in closing the TSC Transaction or the
B&I Loan, it is unlikely that the Company will be able to continue as a going
concern. See NOTE K below.
NOTE E - SEASONAL NATURE OF BUSINESS
The refined petroleum products market customarily experiences decreased margins
in the fall and winter months followed by increased demand during spring and
summer when construction, travel, and recreational activities increase.
NOTE F - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted earnings (loss) per share for the three and six months ending
March 31, 2000 were computed using 4,032,340 weighted average common shares
outstanding. Basic and diluted earnings (loss) per share for the three and six
months ending March 31, 1999 were computed using 3,855,974 and 3,673,978
weighter average common shares outstanding, respectively. Stock options and
warrants were not included in the computation of diluted loss per common share
for the quarters ended December 31, 1999 and 1998 since they would have resulted
in an antidilutive effect on loss from continuing operations.
NOTE G - SALE OF DISCONTINUED OPERATION
In February 1998, ESI discontinued operations in the packaging and marketing of
automotive after-market chemical products, previously operated through its
wholly-owned subsidiary, ChemWay Systems, Inc. ("ChemWay"). The Company's
working capital resources were limited, primarily as a result of its defaults
under its credit agreement
9
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
with its primary bank lender. As such, the Company was unable to invest the cash
into ChemWay which would have been necessary to repay certainly seriously
past-due trade creditors or to purchase raw materials.
In December 1998, the Company sold ChemWay to Affiliated Resources Corporation
("Affiliated") in a stock-for- stock transaction. Management believed the sale
to Affiliated had strategic merit in that Affiliated represent to the Company
that it was prepared to contribute sufficient cash into ChemWay to satisfy
ChemWay's trade creditors and to resume production. In retaining an ownership
interest in Affiliated, management believed that the Company would share in any
future earnings of ChemWay should ChemWay return to profitability. There can be
no assurance, however, that ChemWay will return to profitability or that the
market value of Affiliated common stock will rise in the future.
Affiliated was an unrelated party with respect to the Company, however, the
Chairman and CEO of Affiliated , who was also the President of Southhills
Partners, and one of his legal advisors were potential shareholders of the
Company, having committed to purchase 350,000 shares of the Company's common
stock for $0.75 per share in a private placement transaction on June 1, 1998.
In exchange for the common stock of ChemWay, the Company received 1,500,000
shares of Affiliated common stock, representing approximately 9% of the
outstanding Affiliated common stock at December 31, 1998. The number of shares
of Affiliated common stock became subject to a "make whole" provision whereby
the Company became entitled to receive an additional 1,000,000 shares of
Affiliated common stock on December 30, 1999. The Affiliated common stock is
unregistered, however the Company has demand registration rights with respect to
the stock. In December 1999, the Company received an additional 1,000,000 shares
of Affiliated common stock, pursuant to a "make whole" provision in the sales
agreement. The Company recorded an additional gain on sale of ChemWay of
$266,000 in December 1999 to reflect receipt of the additional shares at their
fair value.
Affiliated common stock is currently quoted on the Nasdaq Over-the-Counter
Bulletin Board. In accordance with generally accepted accounting principles, the
Affiliated common stock received in exchange for the common stock of ChemWay was
valued at its "fair value" indicated by the bid price of $6.00 per share, as
quoted on the Nasdaq Over-the-Counter Bulletin Board, which resulted in a gain
of $3,973,000, net of a provision for income taxes of $1,203,000 as follows:
Value of stock received $9,000
Less cost of settling claim from financial advisor (610)
Net Assets of ChemWay:
Notes and Accounts Receivable, net 59
Inventory 1,031
Prepaid expenses 652
Property and equipment 3,071
Accumulated depreciation (781)
-----
Property and equipment, net 2,290
Deferred income taxes 1,179
Accounts payable and accrued expenses (1,765)
Notes payable (232)
-----
Net assets 3,214 (3,214)
===== ------
Pretax gain on sale 5,176
10
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Provision for income taxes (1,203)
------
Gain on sale $3,973
======
The Company's investment in Affiliated common stock is illiquid; in addition,
the average trading volume of Affiliated is small in comparison to the number of
shares held by the Company. The trading price of Affiliated stock has been
volatile, ranging from a reported closing price in the quarter ended June 30,
1998 of $0.88 to a closing price of $6.00 at December 31, 1998, a closing price
of $0.265 at September 30, 1999, a closing price of $0.281 at December 31, 1999,
and a closing price of $0.344 at March 31, 2000. The Company recorded an
unrealized gain of $39,000 through Stockholders' Equity and Comprehensive Income
on the Affiliated shares to reflect an increase in fair value from $.265 at
September 30, 1999 to $.281 at December 31, 1999. In March 2000, the Company
recorded an unrealized gain of $157,000 through Stockholders' Equity and
Comprehensive Income on the Affiliated shares to reflect an increase in fair
value from $.281 at December 31, 1999 to $0.344 at March 31, 2000.
Affiliated was a shell company at the time of this transaction, and had no
operations or experience in packaging and marketing automotive chemical
products. At December 31, 1998, Affiliated reported, in its Annual Report on
Form 10-KSB, an accumulated deficit of $7,630,070 and a negative working capital
balance of $912,605. Affiliated reported no revenues from operations during the
last six months of 1998, and reported a loss from operations of $526,843.
Management does not believe that the stock price of Affiliated will increase in
the foreseeable future and has determined that its investment in Affiliated
common stock is permanently impaired and, accordingly, has recorded a realized
loss of $8,602,000, resulting in a carrying value of $398,000 at September 30,
1999. While the Company does not intend to sell its Affiliated common stock in
the foreseeable future, there can be no assurance that the Company would be able
to realize the recorded value of the Affiliated common stock. As of March 31,
2000, the investment in Affiliated had a carrying value of $860,000 due to the
$266,000 gain described above and the unrealized gain of $196,000 for the six
months ended March 31, 2000.
NOTE H - CONTINGENT LIABILITIES
A purported class action lawsuit has been filed in the Southern District of
Texas against the Company and several of its current and former officers and
directors on behalf of purchasers of the Company's common stock. The lawsuit was
filed after the Company announced that is would be restating its financial
statements for the years of 1997 and 1998, and the first two quarters of 1999,
and asserts that the defendants violated federal securities laws by issuing
allegedly false and misleading statements in 1997, 1998 and 1999 about the
Company's financial condition and results of operations. The lawsuit demands,
among other relief, unspecified compensatory damages, attorney's fees and costs
of conducting the litigation. It is not possible, at this time, to predict the
impact that the lawsuit may have upon the Company, nor is it possible to predict
whether any other suits or claims may arise out of these matters in the future.
It is reasonable possible, however, that the outcome of any present or future
litigation may have a material adverse impact on the Company's financial
condition or results of operations in one or more future periods. The Company
intends to defend itself vigorously in these matters.
NOTE I - MARKET FOR THE COMPANY'S COMMON STOCK
In December 1999 the Company received notification from the Nasdaq stock
exchange that it was not in compliance with two requirements for continued
listing on the Nasdaq NMS: the Company did not hold an annual stockholder
11
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EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
meeting in 1998, and the market value of the public float in the Company's
common stock did not meet or exceed a minimum level of $5 million. The Company
had a hearing on such matters with Nasdaq on January 14, 2000 and informed
Nasdaq that the aggregate market value of the Company's voting stock held by
non-affiliates was in compliance, with an aggregate market value of
approximately $6.3 million on January 10, 2000. Furthermore, Nasdaq was
appraised of the Company's intention to proceed with the TSC Transaction, and
was informed of the Company's merger negotiations with I-Net. The Company was
subsequently delisted by Nasdaq on February 17, 2000. The Company's common stock
is now traded on the over-the-counter bulletin board system, maintained by
Nasdaq. The Company's ability to raise additional equity capital in the future
could be adversely affected as a result of the Company's common stock no longer
being listed on a national exchange.
NOTE J - SEGMENT REPORTING
During the year ended September 30, 1999, the Company adopted SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information." The prior
year's segment information has been restated to conform to the current-year
presentation. The Company has four reportable segments: Texas petroleum
marketing, Texas convenience stores, Louisiana petroleum marketing and
convenience store operations, and environmental remediation services. The Texas
petroleum marketing segment sells motor fuels to the public through retail
outlets in southeast Texas and supplies the Company's Texas convenience stores
with motor fuels. The Texas convenience stores feature self-service motor fuels
and a variety of food and nonfood merchandise in southeast Texas. As described
in Note B, the Company has agreed to sell its Texas petroleum marketing and
Texas convenience store segments. The Louisiana operations sell motor fuels to
the public through retail outlets and through convenience stores that feature
self-service motor fuels and a variety of food and nonfood merchandise in
Louisiana. The environmental remediation services segment serves the petroleum
industry in the southeast Texas market area.
Information concerning the Company's business activities is summarized as
follows: (in thousands)
<TABLE>
<CAPTION>
TEXAS TEXAS ENVIRONMENTAL OTHER
PETROLEUM CONVENIENCE LOUISIANA REMEDIATION RECONCILING CONSOLIDATED
QUARTER ENDED MARKETING STORES OPERATIONS SERVICES ITEMS(1) TOTAL
--------- ----------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000--
Revenues from external
Customers:
Motor fuel sales .............. $ 13,093 $ 3,697 $ 2,563 $ 19,353
Convenience store sales ....... -- 2,258 763 3,021
Other ......................... 325 126 71 $ 254 776
-------- -------- --------
Intersegment revenues ............ 4,137 $ (4,137) --
-------- -------- --------
Total revenues ............... $ 17,555 $ 6,081 $ 3,397 $ 254 $ (4,137) $ 23,150
======== ======== ======== ======== ======== ========
amortization .................... 251 67 32 13 4 367
Operating income (loss) .......... (145) (273) (66) (11) (587) (1,082)
</TABLE>
12
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999---
Revenues from external
Customers:
Motor fuel sales .............. $ 9,985 $ 2,746 $ 2,073 $ 14,804
Convenience store sales ....... 2,349 674 3,023
Other ......................... 719 86 36 $ 491 1,332
Intersegment revenues ............ 3,282 -- -- -- $ (3,282) --
-------- -------- -------- -------- -------- --------
Total revenues ............... $ 13,986 $ 5,181 $ 2,783 $ 491 $ (3,282) $ 19,159
======== ======== ======== ======== ======== ========
Depreciation and
amortization .................... 280 81 33 14 5 413
Operating income (loss) .......... (413) (61) 7 83 (629) (1,013)
(1) Consists primarily of corporate overhead expenses.
A reconciliation of the Company's segment operating information to consolidated
loss from continuing operations before income taxes is as follows (in
thousands):
QUARTER ENDED MARCH. 31
---------------------
2000 1999
------- -------
Total operating loss for reportable segments ....... $ (495) $ (384)
Loss on abandonment of assets ...................... -- (111)
Loss on sale of assets ............................. (15) --
Interest expense, net .............................. (342) (415)
Unallocated corporate expenses ..................... (587) (629)
Other, net ......................................... 9 (150)
------- -------
Total consolidated loss from continuing
operations before income taxes ..................... $(1,430) $(1,689)
======= =======
TEXAS TEXAS ENVIRONMENTAL OTHER
PETROLEUM CONVENIENCE LOUISIANA REMEDIATION RECONCILING CONSOLIDATED
QUARTER ENDED MARKETING STORES OPERATIONS SERVICES ITEMS(1) TOTAL
--------- ----------- ---------- ------------- ----------- ------------
March 31, 2000--
Revenues from external
Customers:
Motor fuel sales ............... $ 25,397 $ 7,321 $ 4,916 $ 37,634
Convenience store sales ........ 4,526 1,524 6,050
Other .......................... 589 211 117 $ 561 1,478
-------- -------- --------
Intersegment revenues ............. 8,222 $ (8222) --
-------- -------- --------
Total revenues ................ $ 34,208 $ 12,058 $ 6,557 $ 561 $ (8,222) $ 45,162
======== ======== ======== ======== ========
Depreciation and
amortization ..................... 508 134 63 26 9 740
Operating income (loss) ........... (233) (295) (299) 67 (989) (1,749)
</TABLE>
13
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999---
Revenues from external
Customers:
Motor fuel sales .................... $ 21,519 $ 5,725 $ 4,236 $ 31,480
Convenience store sales ............. 4,774 1,325 6,099
Other ............................... 1,475 236 71 $ 796 2,578
Intersegment revenues .................. 7,335 -- -- -- $ (7,335) --
-------- -------- -------- -------- -------- --------
Total revenues ..................... $ 30,329 $ 10,735 $ 5,632 $ 796 $ (7,335) $ 40,157
======== ======== ======== ======== ======== ========
Depreciation and
amortization .......................... 573 163 66 30 8 840
Operating income (loss) ................ (295) (72) (193) (31) (1,117) (1,708)
</TABLE>
(1) Consists primarily of corporate overhead expenses.
A reconciliation of the Company's segment operating information to consolidated
loss from continuing operations before income taxes is as follows (in
thousands):
SIX MONTHS ENDED MARCH. 31
--------------------------
2000 1999
------- -------
Total operating loss for reportable segments ..... $ (760) $ (591)
Gain (loss) on sale of assets .................... (14) 110
Interest expense, net ............................ (897) (687)
Unallocated corporate expenses ................... (989) (1,117)
Other, net ....................................... 16 (182)
------- -------
Total consolidated loss from continuing
operations before income taxes ................... $(2,644) $(2,467)
======= =======
14
<PAGE>
EVANS SYSTEMS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE K - MANAGEMENT'S PLANS
The Company has determined, based upon review of the Company's historical
operating performance, that it is unlikely that the Company's revenues will
increase in the foreseeable future in an amount sufficient to offset its
operating expenses without a capital infusion. In order to continue as a going
concern, management believes the Company must either sell the Company or its
assets, or obtain a capital infusion of either equity or debt.
As discussed in Note B above, the Company has an agreement to sell substantially
all of the assets in its Texas Petroleum Marketing and convenience store
segments. The proposed sale is contingent upon approval by the Company's
shareholders; furthermore, the Company believes that in order to close on the
asset sale, TSC must obtain additional financing.
In the event that the TSC Transaction does not close, the Company intends to
proceed with the B&I Loan, as described in Note D. As a result of the Company's
continuing losses, however, and the additional $1,000,000 borrowed on January
26, 2000, there can be no assurance that the Company will be able to proceed
with the B&I Loan.
If the Company is successful in closing the TSC Transaction, management intends
to continue to operate the remaining Louisiana and environmental segments, and
to pursue another strategic combination. There can be no assurance that
management's plans will be successful.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to successfully
implement its turnaround strategy, changes in costs of raw materials, labor, and
employee benefits, as well as general market conditions, competition and
pricing. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Quarterly Report will prove to
be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as representation by the Company or any other person that
the objectives and plans of the Company will be achieved. In assessing
forward-looking statements included herein, readers are urged to carefully read
those statements. When used in the Quarterly Report on Form 10-Q, the words
"estimate," "anticipate," "expect," "believe," and similar expressions are
intended to be forward-looking statements.
RECENT EVENTS
In December 1999, the Company reached an agreement to sell its Texas petroleum
marketing and convenience store assets (the "TSC Transaction") to TSC Services,
Inc. ("TSC"). Under the terms of the agreement, TSC would make a cash payment to
the Company of $12.7 million for substantially all of the fixed assets of the
Texas petroleum marketing and convenience store segments, having a net book
value of $13.0 million at March 31, 2000. In addition, TSC agreed to assume
certain capital lease obligations of approximately $0.6 million, and has agreed
to purchase the segments' inventories at the Company's cost, estimated by
management at $2.4 million. The Company does not expect to incur a loss on the
TSC Transaction.
The sale has been approved by the Board of Directors and is subject to approval
by the Company's shareholders. Management believes that TSC must obtain
additional financing in order to close the TSC Transaction, and there can be no
assurance that TSC will be successful in obtaining such additional financing.
Although there can be no assurance that the transaction will close, the
Company's management believes the TSC Transaction will close in July 2000, and
will provide sufficient cash to repay the Company's existing bank debt and to
pay its trade accounts payable balances.
On January 23, 2000, the Company executed an Amended and Restated Plan of
Merger,(as amended, the "Merger Agreement") by and among the Company and I-Net
Holdings Inc., a Delaware Corporation ("I-Net"), pursuant to which a
wholly-owned subsidiary of the Company would have been merged with and into
I-Net (the "Merger"). The principal shareholder of I-Net, Richard Dix, is a
former officer of the Company. The Company, I-Net, and the principal shareholder
of I-Net agreed to terminate the Merger Agreement on May 19, 2000, and release
each other from any and all claims arising under the Merger agreement. To induce
I-Net to agree to the immediate termination of the Merger Agreement and to give
the Company a release of its obligations under the Merger Agreement,, the
Company has agreed to pay $50,000 to I-Net as partial reimbursement of the
expenses incurred by it in conjunction with the Merger Agreement upon
consummation of the TSC Transaction or a similar future sale of substantially
all of the Company's assets.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the condensed consolidated
unaudited financial statements and notes thereto appearing elsewhere in this
document.
The following table reflects the operating results of Evans Systems, Inc. ("ESI"
or the "Company") business segments for the three months ended March 31, 2000
and 1999. This is the second quarter of ESI's fiscal year which begins on
October 1 and ends on September 30.
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(In thousands) (In thousands)
TEXAS PETROLEUM MARKETING
Revenue ...................................... $ 13,418 $ 10,704
Gross profit ................................. 1,076 967
Operating expenses ........................... 1,221 1,380
-------- --------
Operating loss ............................... (145) (413)
TEXAS CONVENIENCE STORES
Revenue ...................................... $ 6,081 $ 5,181
Gross profit ................................. 954 1,154
Operating expenses ........................... 1,227 1,215
-------- --------
Operating loss ............................... (273) (61)
LOUISIANA OPERATIONS
Revenue ...................................... $ 3,397 $ 2,783
Gross profit ................................. 429 394
Operating expenses ........................... 495 387
-------- --------
Operating loss ............................... (66) 7
EDCO ENVIRONMENTAL
Revenue ...................................... $ 254 $ 491
Gross profit ................................. 111 301
Operating expenses ........................... 122 218
-------- --------
Operating income (loss) ...................... (11) 83
GENERAL AND ADMINISTRATIVE EXPENSES .......... $ (587) $ (629)
-------- --------
TOTAL
Revenue ...................................... $ 23,150 $ 19,159
Gross profit ................................. 2,570 2,816
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Operating expenses ........................... 3,652 3,829
-------- --------
Operating loss ............................... (1,082) (1,013)
Consolidated revenues increased $3,991,000 or approximately 20.8% in the quarter
ended March 31, 2000, as compared with the quarter ended March 31, 1999. The
increase, however, is attributable to significantly higher fuel prices which
prevailed during the current year period. Fuel sales increased $4,549,000 or
approximately 30.7% while other sales and services declined $558,000 or
approximately 12.9% in the quarter ended March 31, 2000, as compared with the
quarter ended March 31, 1999. The decline in other sales and services is due to
fewer active projects in the EDCO Environmental segment and to the Company's
decision to discontinue servicing lower volume customers, and to close
underperforming convenience stores during 1999. See segment discussions, below.
Consolidated gross profit declined $246,000 or approximately 8.7% in the quarter
ended March 31, 2000, as compared with the quarter ended March 31, 1999. Gross
profit expressed as a percentage of sales, "Gross Margin", declined to
approximately 11.1% of sales in the quarter ended March 31, 2000, as compared
with approximately 14.7% of sales in the quarter ended March 31, 1999. The
decline in Gross Margin is primarily due to reduced Gross Margins in motor
fuels.
Operating expenses declined $177,000 or approximately 4.6% in the quarter ended
March 31, 2000, as compared with the quarter ended March 31, 1999. The decline
is primarily due to a general reduction in staff during 1999. Operating expenses
in the quarters ended March 31, 2000 and March 31, 1999 included noncash charges
of $126,000 and $-0-, respectively, for compensation expense on employee stock
options. General and administrative expenses in the quarter ended March 31, 2000
included $81,600 in legal and professional fees associated with the Company's
proposed merger with I-Net, and $24,000 in expenses associated with the
Company's proposed asset sale, both as discussed below. General and
administrative expenses in the quarter ended March 31, 1999 included $480,000 in
legal and professional fees associated with the Company's proposed merger with
Duke & Long Distributing Company, Inc. ("Duke & Long").
Operating losses increased $69,000 or approximately 6.7% in the quarter ended
March 31, 2000, as compared with the quarter ended March 31, 1999, due to the
lower gross profit in the current year period, the effect of which was partially
offset by reduced operating expenses in the current year period.
Net loss decreased to $1,434,000 in the quarter ended March 31, 2000, as
compared with $1,689,000 in the quarter ended March 31, 1999; net loss in the
prior year quarter included losses on abandonment of fixed assets of $111,000.
Comprehensive loss of $1,277,000 reflects an unrealized gain on marketable
securities of $157,000 to adjust the carrying value of the Company's 2,500,000
shares of Affiliated common stock to its fair value at March 31, 2000. See Note
G to the unaudited condensed consolidated financial statements included herein.
TEXAS PETROLEUM MARKETING SEGMENT
The Texas Petroleum Marketing segment's revenues are primarily derived from the
sale of motor fuels to the public through retail outlets:
A. Gasoline retail facilities with Company-supplied equipment
consisting of pumps, lights, canopies
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
and in many cases underground storage tanks, at independently owned
convenience stores. Under the terms of the Company's agreements with
such independent store operators ("Special Purpose Leases"), the
Company receives 40 percent or 50 percent of the gasoline gross
profit, depending upon who owns the underground gasoline equipment.
B. Independently owned gasoline stations and convenience stores ("Open
Dealers") to which the Company provides major oil company brand
names, credit card processing and signs and, without further
investment, receives its customary markup on fuel deliveries.
The Texas Petroleum Marketing segment also supplies lubricants to commercial and
industrial customers.
Revenues increased $2,714,000, or approximately 25.4% to $13,418,000 in the
quarter ended March 31, 2000, as compared with revenues of $10,704,000 in the
quarter ended March 31, 1999. The increase in revenues is due to higher fuel
prices which prevailed during the current year. Fuel sales in gallons declined
approximately 4.7%, to 9,789,000 gallons, as compared with 10,272,000 gallons in
the quarter ended March 31, 1999. The decline in fuel sales in gallons is
primarily due to the closing of underperforming outlets. Average selling price
of fuel per gallon increased to $1.34 per gallon in the quarter ended March 31,
2000, as compared with an average selling price of $0.97 per gallon in the
quarter ended March 31, 1999.
Gross profit increased $109,000 or approximately 11.4% to $1,076,000 in the
quarter ended March 31, 2000, as compared with $967,000 in the quarter ended
March 31, 1999. Gross Margin declined to approximately 8.0% of sales in the
quarter ended March 31, 2000, as compared with approximately 9.0% of sales in
the quarter ended March 31, 1999. Fuel gross profit per gallon decreased to
approximately $0.090 as compared with $0.094 in the quarters ended March 31,
2000 and 1999, respectively. The increase in gross profit is attributable to an
increase in other income in the current year period, partially offset by
decreased fuel gross profit.
Operating expenses in the quarter ended March 31, 2000 declined $159,000 or
approximately 11.4% as compared with the quarter ended March 31, 1999. The
decline is primarily due to staff reductions which were implemented during 1999.
The Texas petroleum marketing segment's reduced operating loss of $145,000 in
the quarter ended March 31, 2000, as compared to an operating loss of $413,000
in the quarter ended March 31, 1999, is attributable to the increased gross
profit per gallon sold and reduced operating expenses during the current year
period, partially offset by the reduced sales volume (in gallons).
TEXAS CONVENIENCE STORE SEGMENT
The Company operated 17 stores during the quarter ended March 31, 2000, as
compared with 18 stores in the quarter ended March 31, 1999.
Total revenues in the quarter ended March 31, 2000 increased $900,000 or
approximately 17.4% to $6,081,000, as compared with $5,181,000 in the quarter
ended March 31, 1999. The increase is due to higher fuel prices which prevailed
during the current year. Although fuel sales increased $951,000 or approximately
34.6% to $3,697,000 in the quarter ended March 31, 2000, as compared with
$2,746,000 in the quarter ended March 31, 1999, fuel sales in gallons declined
approximately 9.4% in the current year period. Merchandise sales declined
$91,000 or approximately 3.9% to $2,258,000 in the quarter ended March 31, 2000,
as compared with $2,349,000 in the quarter ended March 31, 1999.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Gross profit declined $200,000 or approximately 17.4% to $954,000 as compared
with $1,154,000 in the quarter ended March 31, 1999. Gross Margin declined to
approximately 15.7% of sales in the quarter ended March 31, 2000, as compared
with approximately 22.3% of sales in the quarter ended March 31, 1999. The
decline is primarily due to the lower margins on fuel which prevailed during the
current year period. Gross Margin on fuel declined to approximately 5.7%of fuel
sales in the quarter ended March 31, 2000 as compared with approximately 10.8%
in the quarter ended March 31, 1999. Fuel gross profit per gallon declined to
approximately $0.079 per gallon in the current quarter, as compared with
approximately $0.102 in the comparable prior year quarter, primarily due to the
competitive conditions which prevailed during the current year quarter.
Operating expenses were comparable in the quarters ended March 31, 2000 and
1999.
The Texas Convenience Store segment incurred an operating loss of $273,000 in
the quarter ended March 31, 2000, as compared with a loss of $61,000 in the
quarter ended March 31, 1999. The increased loss is due to the lower merchandise
sales and lower gross profit in the current quarter.
LOUISIANA OPERATIONS
At September 30, 1999, the Louisiana Operations segment is comprised of a bulk
fuel storage and distribution facility, seven convenience stores with gasoline,
and a full-service gasoline station without a convenience store, all located in
and around Lake Charles, Louisiana. During the quarter ended December 31, 1999,
the Company took possession of four convenience stores which it had previously
leased to an independent operator, whom the Company supplied with fuel through a
supply agreement. Three of such locations were closed and the Company is
presently operating one of those locations. The Company has previously announced
its intention to sell its Louisiana Operations, however there are presently no
offers under consideration. Management believes that a sale of the Louisiana
Operations segment would not require shareholder approval under Texas law, as
the segment does not comprise a significant portion of the Company's assets,
revenues or cash flows.
Total revenues increased $614,000 or approximately 22.1% in the quarter ended
March 31, 2000, as compared with the quarter ended March 31, 1999. The increase
is primarily attributable to higher overall fuel prices which prevailed during
the current year period. Fuel sales increased $490,000 or approximately 23.6% to
$2,563,000 in the quarter ended March 31, 2000 as compared with $2,073,000 in
the quarter ended March 31, 1999. Fuel sales in gallons, however, declined
343,000 gallons or approximately 12.6% to 2,379,00 gallons in the quarter ended
March 31, 2000, as compared with 2,722,000 gallons in the quarter ended March
31, 1999. Convenience store merchandise sales increased $89,000 or approximately
13.2% to $763,000 in the quarter ended March 31, 2000 as compared with $674,000
in the quarter ended March 31, 1999. The increase in merchandise sales is
attributable to the Company's adoption of an aggressive pricing policy designed
to increase customer traffic.
Gross profit increased $35,000 or approximately 8.9% in the quarter ended March
31, 2000, as compared with the quarter ended March 31, 1999. Gross Margin
declined to approximately 12.6% of sales in the quarter ended March 31, 2000, as
compared with approximately 14.2% of sales in the quarter ended March 31, 1999.
The decline in Gross Margin primarily reflects the competitive market conditions
for fuels which prevailed during the current year period, and the Company's
adoption of more aggressive merchandise pricing in its convenience stores,
discussed above.
Operating expenses increased $108,000 or approximately 27.9% in the quarter
ended March 31, 2000, as compared with the quarter ended March 31, 1999. The
increase in operating expenses as compared with the comparable prior year
quarter is attributable to the reopening of a previously closed store and to the
Company's attempt to maintain a high level of customer service in its facilities
in order to maintain the business of the Louisiana Operations segment.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Louisiana Operations segment incurred an operating loss of $66,000 in the
quarter ended March 31, 2000, as compared with an operating profit of $7,000 in
the quarter ended March 31, 1999. The loss is primarily due to increased
operating expenses and reduced Gross Margins, partially offset by increased
revenues in the current year period.
EDCO ENVIRONMENTAL
EDCO Environmental provides environmental assessment and remediation services
for the petroleum distribution industry in the southeast Texas market area.
Edco's revenues declined $237,000 or approximately 48.3% in the quarter ended
March 31, 2000, as compared with the quarter ended March 31, 1999. Revenues in
the quarter ended March 31, 1999 reflected the completion of projects mandated
by new underground storage tank environmental regulations, which became
effective in late December 1998.
Gross profit in the quarter ended March 31, 2000 decreased $190,000, as compared
with the quarter ended March 31, 1999. The decrease in gross profit is due to
the lower revenues during the current year period, and to a change in the
segment's mix of business during the current year period.
Operating expenses declined $96,000, reflecting a staff reduction which was
implemented during 1999, and to fewer projects in operation during the current
year period.
EDCO Environmental reported an operating loss of $11,000 in the quarter ended
March 31, 2000, as compared with an operating profit of $83,000 in the quarter
ended March 31, 1999. The current year loss can be mainly attributed to the
lower revenues realized during the current year quarter.
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses decreased $42,000 or approximately 6.8% in
the quarter ended March 31, 2000, as compared with the quarter ended March 31,
1999. The current year period includes legal and professional fees and other
expenses associated with the negotiation of the TSC Transaction and the Merger,
and $126,000 in noncash compensation expense, incurred as a result of the
vesting of certain employee stock options. The prior year period includes
$480,000 in legal and professional fees resulting from the proposed merger with
Duke & Long.
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the condensed consolidated
unaudited financial statements and notes thereto appearing elsewhere in this
document.
THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table reflects the operating results of Evans Systems, Inc. ("ESI"
or the "Company") business segments for the six months ended March 31, 2000 and
1999. This is the first half of ESI's fiscal year which begins on October 1 and
ends on September 30.
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(In thousands) (In thousands)
TEXAS PETROLEUM MARKETING
Revenue ...................................... $ 25,986 $ 22,994
Gross profit ................................. 2,040 2,647
Operating expenses ........................... 2,273 2,942
-------- --------
Operating loss ............................... (233) (295)
TEXAS CONVENIENCE STORES
Revenue ...................................... $ 12,058 $ 10,735
Gross profit ................................. 2,013 2,411
Operating expenses ........................... 2,308 2,483
-------- --------
Operating loss ............................... (295) (72)
LOUISIANA OPERATIONS
Revenue ...................................... $ 6,557 $ 5,632
Gross profit ................................. 767 753
Operating expenses ........................... 1,066 946
-------- --------
Operating loss ............................... (299) (193)
EDCO ENVIRONMENTAL
Revenue ...................................... $ 561 $ 796
Gross profit ................................. 336 398
Operating expenses ........................... 269 429
-------- --------
Operating income (loss) ...................... 67 (31)
GENERAL AND ADMINISTRATIVE EXPENSES .......... $ (989) $ (1,117)
-------- --------
TOTAL
Revenue ...................................... $ 45,162 $ 40,157
Gross profit ................................. 5,156 6,209
Operating expenses ........................... 6,905 7,917
-------- --------
Operating loss ............................... (1,749) (1,708)
Consolidated revenues increased $5,005,000 or approximately 12.5% in the six
months ended March 31, 2000, as compared with the six months ended March 31,
1999. The increase, however, is attributable to significantly higher fuel prices
which prevailed during the current year period. Fuel sales increased $5,750,000
or approximately 17.8% while other sales and services declined $745,000 or
approximately 9.5% in the six months ended March 31, 2000, as compared with the
six months ended March 31, 1999. The decline in other sales and services is due
to the Company's decision to discontinue servicing lower volume customers, and
to close underperforming convenience stores during 1999. See segment
discussions, below.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Consolidated gross profit declined $1,053,000 or approximately 17.0% in the six
months ended March 31, 2000, as compared with the six months ended March 31,
1999. Gross Margin declined to approximately 11.4% of sales in the six months
ended March 31, 2000, as compared with approximately 15.5% of sales in the six
months ended March 31, 1999. The decline in Gross Margin is primarily due to
reduced Gross Margins in motor fuels.
Operating expenses declined $1,012,000 or approximately 12.8% in the six months
ended March 31, 2000, as compared with the six months ended March 31, 1999. The
decline is primarily due to a general reduction in staff during 1999. Operating
expenses in the six months ended March 31, 2000 and March 31, 1999 included
noncash charges of $252,000 and $205,000, respectively, for compensation expense
on employee stock options. General and administrative expenses in the six months
ended March 31, 2000 included $173,000in legal and professional fees associated
with the Company's proposed merger with I-Net, and $68,000 in expenses
associated with the TSC Transaction, both as discussed below. General and
administrative expenses in the six months ended March 31, 1999 included $480,000
in legal and professional fees associated with the Company's proposed merger
with Duke & Long.
Operating losses increased $41,000 or approximately 2.4% in the six months ended
March 31, 2000, as compared with the six months ended March 31, 1999, due to the
lower gross profit in the current year period, the effect of which was partially
offset by reduced operating expenses in the current year period.
Loss from continuing operations increased to $2,648,000 in the six months ended
March 31, 2000, as compared with $2,467,000 in the six months ended March 31,
1999 as a result of lower gross profit during the current year period, partially
offset by reduced operating expenses.
The Company recorded an addition to the gain on sale of ChemWay in December 1999
of $266,000, reflecting the receipt by the Company of an additional 1,000,000
shares of Affiliated common stock. See Note G to the unaudited condensed
consolidated financial statements included herein.
Comprehensive loss of $2,186,000 reflects an unrealized gain on marketable
securities of $196,000 to adjust the carrying value of the Company's 2,500,000
shares of Affiliated common stock to its fair value at March 31, 2000. See Note
G to the unaudited condensed consolidated financial statements included herein.
TEXAS PETROLEUM MARKETING SEGMENT
Revenues increased $2,992,000, or approximately 13.0% to $25,986,000 in the six
months ended March 31, 2000, as compared with revenues of $22,994,000 in the six
months ended March 31, 1999. The increase in revenues is due to higher fuel
prices which prevailed during the current year. Fuel sales in gallons declined
approximately 6.7%, to 20,403,000 gallons, as compared with 21,869,000 gallons
in the six months ended March 31, 1999. The decline in fuel sales in gallons is
primarily due to the closing of underperforming outlets. Average selling price
of fuel per gallon increased to $1.24 per gallon in the six months ended March
31, 2000, as compared with an average selling price of $0.98 per gallon in the
six months ended March 31, 1999.
Gross profit in the six months ended March 31, 2000 declined $607,000 or
approximately 22.9%, as compared with the six months ended March 31, 1999. Gross
Margin was approximately 7.8% and 11.5% of sales in the six month periods ended
March 31, 2000 and 1999, respectively. Average gross profit per gallon sold also
declined, to $0.088 per gallon in the six months ended March 31, 2000, as
compared with $0.121 per gallon in the six months ended March 31, 1999. The
decline in total segment gross profit is due to reduced gross profit per gallon
on reduced sales volume in gallons during the current year period.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Operating expenses in the six months ended March 31, 2000 declined $669,000 or
approximately 22.7% as compared with the six months ended March 31, 1999. The
decline is primarily due to staff reductions which were implemented during 1999.
The Texas petroleum marketing segment's operating loss of $233,000 in the six
months ended March 31, 2000, as compared to an operating loss of $295,000 in the
quarter ended March 31, 1999, is attributable to the increased gross profit per
gallon sold and reduced operating expenses during the current year period,
partially offset by the reduced sales volume (in gallons).
TEXAS CONVENIENCE STORE SEGMENT
The Company operated 17 stores during the quarter ended March 31, 2000, as
compared with 18 stores in the six months ended March 31, 1999.
Total revenues in the six months ended March 31, 2999 increased $1,323,000 or
approximately 12.3% to $12,058,000, as compared with $10,735,000 in the six
months ended March 31, 1999. The increase is due to higher fuel prices which
prevailed during the current year. Fuel sales increased $1,596,000 or
approximately 27.9% to $7,321,000 in the six months ended March 31, 2000, as
compared with $5,725,000 in the six months ended March 31, 1999, but fuel sales
in gallons declined approximately 6.5% in the current year period. Merchandise
sales declined $248,000 or approximately 5.2% to $4,526,000 in the six months
ended March 31, 2000, as compared with $4,774,000 in the six months ended March
31, 1999.
Gross profit declined $398,000 or approximately 16.5% to $2,013,000 as compared
with $2,411,000 in the six months ended March 31, 1999. Gross Margin declined to
approximately 16.7% of sales in the six months ended March 31, 2000, as compared
with approximately 22.5% of sales in the six months ended March 31, 1999. The
decline is primarily due to the lower margins on fuel which prevailed during the
current year period. Merchandise sales, which have a higher Gross Margin than
fuel sales, declined as a percentage of total sales in the six months ended
March 31, 2000 as compared to the six months ended March 31, 1999, further
contributing to the decline in overall segment Gross Margin.. Gross Margin on
fuel declined to approximately 6.6%of fuel sales in the six months ended March
31, 2000 as compared with approximately 10.0% in the six months ended March 31,
1999. Fuel gross profit per gallon also declined to approximately $0.08 per
gallon in the six month period ended March 31, 2000 as compared with
approximately $0.10 per gallon in the six months ended March 31, 1999. The
decline in gross profit per gallon is the result of the highly competitive
environment in which the Company's convenience stores operate.
Operating expenses in the six months ended March 31, 2000 declined $175,000 or
approximately 7.0% as compared with the six months ended March 31, 1999. The
decline in operating expenses can be partially attributed to the closing of one
underperforming store during the six months ended March 31, 1999, but is
primarily due to a reduction in staff which occurred in 1999.
The Texas Convenience Store segment incurred an operating loss of $295,000 in
the six months ended March 31, 2000, as compared with a loss of $72,000 in the
six months ended March 31, 1999. The increased loss is due to the lower sales
and gross profit, partially offset by reduced operating expenses in the current
year period.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LOUISIANA OPERATIONS
Total revenues increased $925,000 or approximately 16.4% in the six months ended
March 31, 2000, as compared with the six months ended March 31, 1999. The
increase is primarily attributable to higher overall fuel prices which prevailed
during the current year period. Fuel sales increased $680,000 or approximately
16.0% to $4,916,000 in the six months ended March 31, 2000 as compared with
$4,236,000 in the six months ended March 31, 1999. Fuel sales in gallons,
however, declined 862,000 gallons or approximately 15.8% to 4,595,00 gallons in
the six months ended March 31, 2000, as compared with 5,457,000 gallons in the
six months ended March 31, 1999. Convenience store merchandise sales increased
$199,000 or approximately 15.0% to $1,524,000 in the six months ended March 31,
2000 as compared with $1,325,000 in the six months ended March 31, 1999. The
increase in merchandise sales is primarily attributable to the Company's
adoption of an aggressive pricing policy designed to increase customer traffic,
and to the reopening of one previously closed store in December 1999.
Gross profit increased $14,000 or approximately 1.9% in the six months ended
March 31, 2000, as compared with the six months ended March 31, 1999. Gross
Margin declined to approximately 11.7% of sales in the six months ended March
31, 2000, as compared with approximately 13.3% of sales in the six months ended
March 31, 1999. The decline in Gross Margin primarily reflects the competitive
market conditions for fuels which prevailed during the current year period, and
the Company's adoption of more aggressive merchandise pricing in its convenience
stores, discussed above.
Operating expenses increased $120,000 or approximately 12.7% in the six months
ended March 31, 2000, as compared with the six months ended March 31, 1999. The
Company has attempted to maintain a high level of customer service in its
facilities in order to maintain the business of the Louisiana Operations
segment.
The Louisiana Operations segment incurred an operating loss of $299,000 in the
six months ended March 31, 2000, as compared with an operating loss of $193,000
in the six months ended March 31, 1999. The loss is primarily due to increased
operating expenses, partially offset by increased revenues and resultant gross
profit in the current year period.
EDCO ENVIRONMENTAL
EDCO Environmental provides environmental assessment and remediation services
for the petroleum distribution industry in the southeast Texas market area.
Edco's revenues declined $235,000 or approximately 29.6% in the six months ended
March 31, 2000, as compared with the six months ended March 31, 1999. Revenues
in the six months ended March 31, 1999 reflected the completion of projects
mandated by new underground storage tank environmental regulations, which became
effective in late December 1998.
Gross profit in the six months ended March 31, 2000 decreased $62,000, as
compared with the six months ended March 31, 1999. The decrease in gross profit
is due to the lower revenues during the current year period, and to a change in
the segment's mix of business during the current year period.
Operating expenses declined $160,000, reflecting a staff reduction which was
implemented during 1999, and to fewer projects in operation during the current
year period.
EDCO Environmental reported an operating profit of $67,000 in the six months
ended March 31, 2000, as compared with an operating loss of $31,000 in the six
months ended March 31, 1999. The current year operating profit can be mainly
attributed to the lower operating expenses, partially offset by the lower
revenues and gross profits realized during the current year period.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSES
General and Administrative expenses decreased $128,000 or approximately 11.4% in
the six months ended March 31, 2000, as compared with the six months ended March
31, 1999. The current year period includes legal and professional fees and other
expenses of $68,000 associated with the negotiation of the TSC Transaction,
$173,000 associated with the Merger, and $252,000 in noncash compensation
expense, incurred as a result of the vesting of certain employee stock options.
The prior year period includes $480,000 in legal and professional fees resulting
from the proposed merger with Duke & Long, and $205,000 in noncash compensation
expense.
CAPITAL RESOURCES AND LIQUIDITY
On March 31, 1999, the Company closed on an amendment to its credit agreement
with one of its bank lenders (the "Refinancing"), pursuant to which the bank (i)
waived all previous covenant defaults; (ii) extended the maturity of its loan
balance to January 31, 2001; and (iii) assumed the amounts outstanding under the
other bank lender's loans under their current terms and conditions. Under the
terms of the Refinancing, such bank lender received a first lien position on
certain assets of the Company, more specifically, inventories, accounts
receivable, convenience store real estate and equipment. The effect of the
Refinancing was to cure all then outstanding defaults in the Company's credit
agreements, and to extend the final maturity to January 31, 2001, however the
Refinancing does not provide any additional borrowing capacity or liquidity for
the Company, and the Company has no available borrowing capacity at this time.
The Refinancing contains financial covenant obligations, including minimum net
worth, minimum earnings before interest, taxes and depreciation ("EBITDA"),
working capital ratio and fixed charge coverage ratio, all as defined within the
loan documents. The Company was not in compliance with the minimum net worth,
fixed charge coverage ratio, and working capital ratio financial covenants at
September 30, 1999, December 31, 1999 and March 31, 2000, however the bank has
waived such covenant defaults through December 31, 1999. Since there is no
assurance that the Company can comply with the covenants subsequent to December
31, 1999, nor has the bank waived or amended such covenants past December 31,
1999, all of the debt due to this bank has been classified as current at
December 31, 1999. While the bank has not threatened to take action as a result
of the covenant defaults, its remedies could include acceleration of the amounts
owed, which totaled $9,587,000 at March 31, 2000. Management intends to repay
the existing bank debt with proceeds from the TSC Transaction, or in the event
such transaction is not consummated, to replace the existing bank debt with new
financing, discussed below, which would have the effect of increasing the
availability of working capital, however there can be no assurance that it will
be able to do so.
Furthermore, covenants in the Company's loan agreement (I) limit the Company's
ability to make capital expenditures to the greater of $1,000,000 or 25% of
EBITDA, (ii) prohibit the payment of cash dividends and (iii) limit the
Company's ability to incur additional indebtedness. Under the terms of the
Refinancing, interest is payable monthly at an annual rate of two percent above
the bank's established prime lending rate. In addition, the Company is obligated
to make a principal repayment of approximately $41,000 per month. Although the
final maturity date of the loan is January 31, 2001, since the loan was not
repaid by June 30, 1999, the Company became subject to a fee of $250,000.
Furthermore, the Company became obligated to pay additional fees of $250,000 on
August 31, 1999 and December 31, 1999 as the loan obligations were not repaid by
those respective dates. Interest expense in the six months ended March 31, 2000
includes $269,000, reflecting the December 31, 1999 fee, and accrued late
charges on the deferred fees, discussed above. Accrued interest at March 31,
2000 includes $810,800, comprised of the $750,000 in fees and late charges
thereon.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On January 26, 2000, the Company closed on an additional $1 million credit
facility with its principal bank lender. The new loan is secured by the
Company's general offices, 7,490 square foot warehouse together with 14,784
square feet of additional warehouse buildings, which are located on three acres
of land approximately 1/2 mile north of the Company's former general offices on
Highway 60. The loan is further secured by a pledge of the Company's rights and
interests in funds held by an escrow agent, which would be payable to the
Company as a result of the TSC Transaction. Proceeds of the new loan will be
used for working capital, and to fund expenses necessary to close the TSC
Transaction or the B&I Loan. Interest on the $1 million loan will accrue at an
annual rate of two percent above the bank's established prime lending rate, and
is payable monthly. The note became payable May 1, 2000. The Company has
requested the bank to extend the note for an additional 60 days, although there
can be no assurance that the bank will do so.
On July 21, 1999, the Company was notified that it had been approved for term
loans totaling $10 million by the United States Department of Agriculture Rural
Development Business and Industry Guaranteed Loan Program ("B&I Loan".) Proceeds
of the B&I Loan would be used to repay obligations owed under the Refinancing,
and to provide working capital. The closing of the B&I Loan is contingent upon,
among other things, the completion of environmental cleanup at several sites and
obtaining a new revolving credit facility in order to provide a minimum of $2.5
million in availability. The required environmental cleanup, consisting of
removal of contaminated soil and tank removal was completed at a cost of
$20,807; the Company estimates that it will cost an additional $9,800 to dispose
of the contaminated soil. The Company has received a commitment from its present
bank lender to provide revolving debt sufficient to meet the requirements of the
B&I Loan. In order to proceed with the B&I Loan, however, the Company will
require additional financing in an amount sufficient to repay the additional
$1,000,000 borrowed on January 26, 2000, discussed above. The Company's
continuing losses and the need for additional financing could create
difficulties in attempting to close the B&I Loan.
Cash used by operating activities was $537,000 in the six months ended March 31,
2000, as compared with cash used by operating activities of $803,000 in the six
months ended March 31, 1999. Although operating losses were comparable in the
two six month periods, interest expense in the current year period included
$269,000 in accrued fees and later charges under the credit agreement with the
Company's primary bank lender.
Cash and cash equivalents were $1,036,000 and $992,000 at March 31, 2000 and
September 30, 1999, respectively. The Company had a net working capital deficit
of $12,084,000, as compared with a deficit of $9,723,000 at September 30, 1999.
The working capital deficit is primarily the result of the reclassification of
certain long-term bank debt as a current liability. The increase in the working
capital deficit is primarily due to the Company's operating loss during the six
months ended March 31, 2000, and to the accrual of $269,000 in fees on the
Company's bank debt, as discussed above.
The Company has determined, based upon review of the Company's historical
operating performance, that it is unlikely that the Company's revenues will
increase in the foreseeable future in an amount sufficient to offset its
operating expenses without a capital infusion. In order to continue as a going
concern, management believes the Company must either sell the Company or its
assets, or obtain a capital infusion, either equity or debt.
As discussed in Note B to the unaudited condensed consolidated financial
statements included herein, the Company has an agreement to sell substantially
all of the assets in its Texas Petroleum Marketing and convenience store
segments. The proposed sale is contingent upon approval by the Company's
shareholders; furthermore, the Company believes that in order to close on the
asset sale, TSC must obtain additional financing.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In the event that the TSC Transaction does not close, the Company intends to
proceed with the B&I Loan, as described in Note D to the unaudited condensed
consolidated financial statements. As a result of the Company's continuing
losses, however, and the additional $1,000,000 borrowed on January 26, 2000,
there can be no assurance that the Company will be able to proceed with the B&I
Loan.
If the Company is successful in closing the TSC Transaction, management intends
to continue to operate the remaining Louisiana and environmental segments, and
to pursue another strategic combination. There can be no assurance that
management's plans will be successful.
In December 1998, the Company sold ChemWay to Affiliated Resources Corporation
("Affiliated") in a stock-for- stock transaction. See Note G to the unaudited
condensed consolidated financial statements included herein. Management does not
believe that the stock price of Affiliated will increase in the foreseeable
future and has determined that its investment in Affiliated common stock is
permanently impaired and, accordingly, has recorded a realized loss of
$8,602,000, resulting in a carrying value of $398,000 at September 30, 1999.
While the Company does not intend to sell its Affiliated common stock in the
foreseeable future, there can be no assurance that the Company would be able to
realize the recorded value of the Affiliated common stock. As of March 31, 2000,
the investment in Affiliated had a carrying value of $860,000 due to the
$266,000 gain described above and the unrealized gain of $196,000 for the six
months ended March 31, 2000.
In December, 1999 the Company received notification from the Nasdaq stock
exchange that it was not in compliance with two requirements for continued
listing on the Nasdaq NMS: the Company did not hold an annual stockholder
meeting in 1998, and the market value of the public float in the Company's
common stock did not meet or exceed a minimum level of $5 million. The Company
had a hearing on such matters with Nasdaq on January 14, 2000 and informed
Nasdaq that the aggregate market value of the Company's voting stock held by
non-affiliates was in compliance, with an aggregate market value of
approximately $6.3 million on January 10, 2000. Furthermore, Nasdaq was
appraised of the Company's intention to proceed with the TSC Transaction, and
was informed of the Company's merger negotiations with I-Net. The Company was
subsequently delisted by Nasdaq on February 17, 2000; the Company's common stock
is now traded on the over-the-counter bulletin board system, maintained by
Nasdaq. The Company's ability to raise additional equity capital in the future
could be adversely affected as a result of the Company's common stock being no
longer listed on a national exchange
28
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1999, two alleged purchasers of ESI common stock, who allegedly bought
their stock between December 29, 1997 and June 8, 1999, brought two purported
class action lawsuits against ESI and several of its current and former officers
and directors in the United States District Court for the Southern District of
Texas. Each of these lawsuits, which have been consolidated, assert that the
defendants violated federal securities laws by issuing allegedly false and
misleading statements in 1997, 1998 and 1999 about ESI's financial condition and
results of operations. The lawsuits demanded, among other relief, unspecified
compensatory damages, attorneys' fees and the costs of conducting the
litigation.
It is not possible at this time to predict the impact that the above lawsuits
may have upon the Company, nor is it possible to predict whether any other suits
or claims may arise out of these matters in the future. It is reasonably likely,
however, that the outcome of any present or future litigation may have a
material adverse impact on the Company's financial condition or results of
operations in one or more future periods. ESI intends to defend itself
vigorously in all the above matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS INDEX PAGE
----
27. Financial Data Schedule 31
B. REPORTS ON FORM 8-K
Current Report on Form 8-K dated February 1, 2000 announcing the signing of an
Amended and Restated Agreement and Plan of Merger between the Company and I-Net
Holdings, Inc.
Current Report on Form 8-K dated February 18, 2000 announcing that the Company
had received a letter from the Nasdaq Stock Market ("Nasdaq") informing the
Company that Nasdaq has determined to delist the Company's securities from The
Nasdaq Stock Market effective with the close of business, February 17, 2000.
Current Report on Form 8-K dated February 23, 2000 announcing that
PricewaterhouseCoopers LLP has declined to stand for re-election as the
independent accountants of Evans Systems, Inc.
Current Report on Form 8-K/A dated March 2, 2000 announcing Amendment No. 1 to
the Amended and Restated Agreement and Plan of Merger between the Company and
I-Net Holdings, Inc.
29
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EVANS SYSTEMS, INC.
(REGISTRANT)
Date: May 22, 2000 By: /s/ J.L. EVANS, SR. .
J.L. Evans, Sr.
Chairman of the Board and Chief
Executive Officer And authorized
to sign on behalf of the registrant
By: /s/ RICHARD A. GOEGGEL
Richard A. Goeggel
Vice president and Chief Financial
Officer And authorized to sign on
behalf of the registrant.
30
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,036
<SECURITIES> 0
<RECEIVABLES> 2,544
<ALLOWANCES> 188
<INVENTORY> 2,950
<CURRENT-ASSETS> 6,837
<PP&E> 27,295
<DEPRECIATION> 13,033
<TOTAL-ASSETS> 22,142
<CURRENT-LIABILITIES> 18,922
<BONDS> 0
0
0
<COMMON> 41
<OTHER-SE> 2,281
<TOTAL-LIABILITY-AND-EQUITY> 22,142
<SALES> 23,150
<TOTAL-REVENUES> 23,150
<CGS> 20,580
<TOTAL-COSTS> 3,652
<OTHER-EXPENSES> (6)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342
<INCOME-PRETAX> (1,430)
<INCOME-TAX> 4
<INCOME-CONTINUING> (1,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,434)
<EPS-BASIC> (0.36)
<EPS-DILUTED> (0.36)
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