EVANS SYSTEMS INC, 10-K405, 2000-01-13

EVANS SYSTEMS INC
10-K405, 2000-01-13
PETROLEUM BULK STATIONS & TERMINALS

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AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON JANUARY 13, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

-----------------------------

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended SEPTEMBER 30, 1999
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)

Securities registered pursuant to Section 12(b) of the Act:
None.

-----------------------------

Securities registered pursuant to Section 12(g) of the Act: None

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value $.01 per share NASDAQ-NMS Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

On January 10, 2000 , the aggregate market value of the Registrant's voting
stock held by non-affiliates was approximately $6,284,493.

On January 10, 2000, there were 4,032,340 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of the Registrant.

DOCUMENTS INCORPORATED BY REFERENCE: None.

<PAGE>
PART I

This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to successfully
consummate the sale of its operations or to close on its proposed refinancing,
changes in costs of raw materials, labor, and employee benefits, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Annual Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as
representation by the Company or any other person that the objectives and plans
of the Company will be achieved. In assessing forward-looking statements
included herein, readers are urged to carefully read those statements. When used
in the Annual Report on Form 10-K, the words "estimate," "anticipate," "expect,"
"believe," and similar expressions are intended to be forward-looking
statements.

ITEM 1. BUSINESS

Evans Systems, Inc. ("ESI"), through its wholly-owned subsidiaries, collectively
referred to herein as the "Company," is a vertically integrated company which
has historically been engaged in the following business segments:

o Texas petroleum marketing operations;
o Texas convenience store operations;
o environmental remediation services;
o Louisiana operations; and
o packaging and marketing of automotive after-market chemical
products.

The Company began in 1968 with a single gasoline station in Bay City, Texas,
emphasizing service and careful attention to customers' preferences and needs.
The Company has expanded over the years, and now distributes the products of
seven major oil companies, and operates a chain of convenience stores throughout
southeast Texas and southern Louisiana.

After sustaining losses during 1997, in early fiscal 1998 the management of ESI
developed and began to implement its turnaround strategy. Among other things,
the strategy included a decision to refocus the Company on its "core" business
segments: petroleum marketing and convenience store operations. Within these
"core" segments, the Company sold or closed lower-volume outlets. The Company
also took actions, including the elimination of nonessential corporate staff, to
reduce overhead expenses. See "Texas Petroleum Marketing" and "Texas Convenience
Store" segment discussions, below.

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"). ChemWay's financial
results have been reclassified as a "discontinued operation" for financial
reporting purposes. In December 1998, the Company sold ChemWay in a
stock-for-stock transaction to Affiliated Resources Corporation ("Affiliated").
See "ChemWay" below.

On March 3, 1999, the Company announced that it had signed a letter of intent to
merge with Duke & Long Distributing Company, Inc., however such merger
discussions were terminated on April 16, 1999. In conjunction with the proposed
merger, the Company incurred legal and professional fees of $479,700, which are
included within General and Administrative expenses for the year ended September
30, 1999.

In April 1999, the Company announced that it believed future opportunities in
the Texas Petroleum Marketing business was limited, and that it intended to
divest itself of the Texas Petroleum Marketing and Louisiana Operations segments
and reposition itself as a provider of e-commerce to the convenience store
industry. The Company announced, in May 1999, that it had signed a letter of
intent to acquire A-Free-Gift.Com, an internet marketing venture. The Company
and A-Free-Gift.Com were unable to reach final agreement on a definitive
purchase agreement, however, and the proposed acquisition was abandoned in July
1999.

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<PAGE>
In December 1999, the Company signed an agreement to sell its Texas petroleum
marketing and convenience store operations to TSC Services, Inc., ("TSC") for
cash consideration of $12.7 million. TSC also agreed to assume certain capital
lease obligations which the Company estimates will total approximately $0.9
million at the time of closing. In addition, TSC will acquire the Company's
inventories in the Texas petroleum marketing and Texas convenience store
segments at the Company's cost, estimated by management at approximately $2.4
million.. The sale has been approved by the Board of Directors and is subject to
approval by the Company's shareholders. Terms of the agreement call for the sale
of substantially all of the property and equipment and inventories in the Texas
petroleum marketing and Texas convenience store segments.

The Company has also announced that it is presently negotiating with potential
merger partners.

During the year ended September 30, 1999, the Company adopted SFAS 131,
"Disclosure About Segments of an Enterprise and Related Information." Prior year
segment information presented below has been restated to conform to the current
year presentation.

Operating results for each of the Company's segments follow (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1999 SEPT. 30, 1998 SEPT. 30, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
TEXAS PETROLEUM MARKETING
Revenue ........................... $ 50,164 $ 64,458 $ 92,477
Operating Loss .................... (1,335) (987) (866)

TEXAS CONVENIENCE STORES
Revenue ........................... $ 22,873 $ 25,626 $ 29,351
Operating Loss .................... (34) (543) (805)

LOUISIANA OPERATIONS
Revenue ........................... $ 12,694 $ 12,878 $ 14,848
Operating Loss .................... (334) (88) (785)

EDCO ENVIRONMENTAL
Revenue ........................... $ 1,542 $ 1,152 $ 1,320
Operating Income (Loss) ........... 177 (81) (399)

GENERAL AND ADMINISTRATIVE EXPENSES (1,854) (2,295) (827)

TOTAL CONTINUING OPERATIONS
Revenue ........................... $ 87,273 $ 104,114 $ 137,996
Operating Loss .................... (3,380) (3,994) (3,682)

CHEMWAY(1)
Revenue ........................... $ 75 $ 2,268 $ 10,967
Operating Income (Loss) ........... (317) (1,694) (1,831)

TOTAL
Revenue ........................... $ 87,348 $ 106,382 148,963
Operating income (Loss) ........... (3,697) (5,688) (5,513)

</TABLE>
(1) ChemWay was sold on December 30, 1998.

Page 3
<PAGE>
TEXAS PETROLEUM MARKETING

The following table sets forth the revenues of the Texas Petroleum Marketing
segment (in thousands):

FISCAL YEAR ENDED
SEPTEMBER 30
1999 1998 1997
---- ---- ----
Refined petroleum product
sales ................... $49,143 $63,077 $90,888
Non-petroleum product
sales ................... 1,021 1,381 1,589
------- ------- -------
Total Sales ............. $50,164 $64,458 $92,477

The Texas Petroleum Marketing segment's revenues are primarily derived from the
sale of motor fuels to the public through retail outlets:

o Gasoline retail facilities with Company-supplied equipment
consisting of pumps, lights, canopies and in many cases
underground storage tanks, at independently owned convenience
stores. Under the terms of the Company's agreements with such
independent store operators ("Special Purpose Leases"), the
Company receives 40 percent or 50 percent of the gasoline gross
profit, depending upon who owns the underground gasoline
equipment.

o 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, tires and
accessories to commercial and industrial customers.

The Texas Petroleum Marketing segment distributes to its motor fuel customers
both directly from refinery racks, and through the Company's bulk plant
facilities. The Company also has a 110,000 barrel terminal facility, located in
Bay City, Texas, from which it has historically distributed motor fuels to the
southeast Texas market. During the first fiscal quarter of 1998, the Company's
supply agreement with the primary fuel supplier to the Bay City terminal
facility was terminated. The loss of the fuel supply agreement had an adverse
effect upon the Texas Petroleum Marketing segment's performance during 1998 and
1999.

Under regulations issued by the U.S. Environmental Protection Agency ("EPA"),
all underground storage tanks in the State of Texas were required to meet
certain standards of protection as of December 22, 1998. During 1998, the
Company evaluated the revenues generated by its Special Purpose Lease accounts,
and determined that it could not justify further investment at approximately 46
of such locations. Accordingly, management decided to either sell or close those
identified lower-volume Special Purpose Lease facilities. As of September 30,
1998, the Company sold its investment at 23 of the lower-volume Special Purpose
Lease accounts, and has subsequently sold the equipment at seven additional
sites. Additionally, the Company has discontinued the delivery of motor fuels,
and has removed the underground storage tanks at 16 Special Purpose Lease sites.
The Special Purpose Lease locations where the Company sold its investment in
equipment are now served by the Company as Open Dealers. See "Environmental
Issues," below.

The effect of the conversion of Special Purpose Lease customers into Open
Dealers is to increase the Company's sales revenues with reduced gross margin,
working capital requirements, and capital investment, resulting in an improved
return on investment. Since the Company's margins on Open Dealer accounts are
contractually fixed, however, the Texas Petroleum Marketing Segment's gross
margins may be less volatile in the future, as a larger percentage of the
segment's business will be at fixed margins.

On May 21, 1999, the company closed its bulk storage facility and office in El
Campo, Texas and eliminated 35% of its staff in the Texas Petroleum Marketing
segment. The company also sold its Bay City Tire Store on May 3, 1999. On June
30, 1999, the Company sold its Fuelman fleet card franchise to a competitor.

Page 4
<PAGE>
TEXAS CONVENIENCE STORES

The following table sets forth the revenues of the Texas Convenience Store
segment (in thousands):

FISCAL YEAR ENDED
SEPTEMBER 30
1999 1998 1997
---- ---- ----
Refined petroleum product
sales ................... $12,705 $14,069 $16,989
Merchandise sales ....... 9,599 10,783 11,583
Other income ............ 569 774 779
------- ------- -------
Total Sales ............. $22,873 $25,626 $29,351

Number of operating stores
at year-end ............. 17 19 26

At September 30, 1999, the Company operated 17 convenience stores, featuring
self-service motor fuels and a variety of food and non-food merchandise. Eight
of the Company's convenience stores are co-branded with a nationally recognized
fast food franchised or licensed food service operation.

The Company's stores are located in smaller communities throughout the gulf
coast region of Texas.

During fiscal 1998, the Company discontinued operations at seven underperforming
convenience stores, and sold the equipment and business to independent
convenience store operators. In each of these transactions, the Company retained
the wholesale gasoline business, through an Open Dealer contract.

The Company closed two underperforming Texas convenience stores during 1999, one
of which was subsequently leased to an independent operator who also agreed to
purchase fuel from the Company as an Open Dealer.

LOUISIANA OPERATIONS

The following table sets forth the revenues of the Louisiana Operations segment
(in thousands):

FISCAL YEAR ENDED
SEPTEMBER 30
1999 1998 1997
---- ---- ----
Refined petroleum product
sales .................... $ 9,671 $10,014 $11,489
Merchandise sales ........ 2,882 2,706 3,239
Other income ............. 141 158 120
------- ------- -------
Total Sales .............. $12,694 $12,878 $14,848

Number of operating stores
at year-end .............. 7 7 11

At September 30, 1999 Louisiana operations are comprised of a fuel bulk storage
facility and distribution center, one full-service station without a convenience
store, and seven convenience stores, located in and around Lake Charles,
Louisiana. The Company has previously announced its intention to sell its
Louisiana operations, however there can be no assurance that a sale on terms
satisfactory to the Company will be completed.

Page 5
<PAGE>
EDCO ENVIRONMENTAL

EDCO Environmental provides environmental assessment and remediation services
for the petroleum distribution industry in the southeast Texas market area. EDCO
Environmental currently focuses its efforts on the following activities:

Underground storage tank ("UST") removal UST regulator upgrades Site
assessments for regulatory agencies UST repairs and maintenance Site
clean up reimbursement

EDCO Environmental has provided environmental remediation services to
approximately 100 customers ranging from gasoline stations, convenience stores,
public utilities, banks, major oil companies, large industrial corporations,
various small local enterprises and a variety of governmental institutions and
enterprises. The environmental protection business is primarily the result of
government mandate. In the mid-1980's, the EPA initiated a program for the
management of USTs throughout the U.S.

The EPA now requires stage II vapor recovery improvements at fuel facilities
rather than through on-board canisters in new motor vehicles. The deadline for
compliance with the new UST improvement guidelines was December 1998.

A number of states, including Texas, have established remediation funds to
assist owners/operators in the clean-up of leaking USTs. In Texas, this was
accomplished through the Groundwater Protection Act ("GPA"), which became
effective on September 1, 1989. The GPA, as amended, provides clean-up funds for
eligible expenses, less applicable deductibles. The fund is continually financed
by a tax assessed on motor fuels sold in the state. Financing programs secured
by assignments of rights to reimbursement by the Texas Natural Resource
Conservation Commission ("TNRCC") can be obtained for leaking petroleum storage
tank sites impacted by releases from USTs. For locations where contamination
already exists, the UST owner/operator must comply with TNRCC clean-up
regulations or risk fines of up to $10,000 per day and disqualification from the
benefits and funding of the GPA.

EDCO Environmental reported revenues of $1,542,000, $1,152,000 and $1,320,000 in
1999, 1998 and 1997, respectively.

The TNRCC is continuing to provide reimbursements for clean-up of contaminated
locations.

CHEMWAY (DISCONTINUED MARCH 31, 1998; SOLD DECEMBER 30, 1998)

ChemWay packages aerosol and liquid chemical products for the aftermarket
automotive industry. In February 1998, the Company suspended production and, in
March 1998, announced plans to sell its investment in ChemWay. On December 30,
1998, the Company completed the sale of ChemWay to an unrelated third party,
Affiliated. The Company received 1,500,000 shares of common stock of Affiliated
in exchange for all of the common stock of ChemWay. The number of shares of
Affiliated common stock became subject to a "make whole" provision whereby the
Company received an additional 1,000,000 shares of Affiliated common stock at
December 30, 1999. The Affiliated common stock is unregistered, however the
Company has demand registration rights with respect to such stock.

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 low closing price in the quarter ended June
30, 1998 of $0.88 to a closing price of $6.00 at December 31, 1998 and a closing
price of $0.265 at September 30, 1999.

Page 6
<PAGE>
ACQUISITION STRATEGY AND TO FUND FUTURE OPERATIONS, AND THAT THESE
ACQUISITIONS WILL GENERATE SUFFICIENT REVENUES TO OPERATE INDEPENDENTLY
AND PROVIDE AN ASSET BASE FOR CONTINUED GROWTH. THERE IS NO ASSURANCE,
HOWEVER THAT THE COMPANY WILL BE SUCCESSFUL IN RAISING EQUITY AND
CONTINUING AS A GOING CONCERN.
In its quarterly report on form 10-QSB, Affiliated reported revenues from
operations of $486,000, a net loss of $1.6 million, negative working capital of
$1.6 million, an accumulated deficit of $9.2 million and stockholders' equity of
$5.0 million.

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.

EMPLOYEE RELATIONS

The Company employs 244 people, none of whom are represented by any collective
bargaining organizations. The Company has had no work stoppages, slow downs or
strikes. On July 1, 1997, the Company implemented an employee directed 401K
plan.

Management considers its employee relations to be satisfactory.

COMPETITION

All of the Company's business segments operate in a highly competitive
environment. The Company competes on the basis of price, service, and quality.
In addition, each of the respective business systems faces special competitive
factors. In all phases of operations, the Company encounters strong competition
from a number of companies, including some companies with significantly greater
resources than the Company. Many of these larger competitors possess and employ
financial and personnel resources substantially in excess of those which are
available to the Company. The Company's Texas Petroleum Marketing Segment, Texas
Convenience Store Segment and Louisiana Operations Segment also compete with
integrated oil companies which, in some cases, own or control a majority of
their Petroleum Marketing facilities or convenience store locations. These major
oil companies may offer their products to the Company's competitors on more
favorable terms than those available to the Company from its suppliers. A
significant number of companies, including integrated oil companies and
petroleum products distribution companies, distribute petroleum products through
a larger number of facilities than the Company.

The convenience store industry is a retail service-oriented industry. It is
distinguished from other retail businesses by its emphasis on location and
convenience rather than price, and a commitment to customers who need to
purchase items quickly at extended hours. Convenience stores feature a wide
variety of items including groceries, dairy products, tobacco products,
beverages, and health and beauty aids. Many sell petroleum on a self-service
basis. Stores are generally designed with ample customer parking and quick
checkout procedures to maximize convenience as well as encourage impulse buying
of high margin items.

The convenience store industry is highly competitive, fragmented, and
regionalized. It is characterized by a few large companies and many small
independent companies. Several competitors are substantially larger and have
greater resources than the Company. The Company's primary competitors include
Diamond Shamrock, RaceTrac, Thomas Petroleum, and E-Z Mart. The Company also
competes with other convenience stores, small supermarkets, grocery stores, and
major and independent gasoline distributors who have converted units to
convenience stores.

EDCO Environmental is a full service environmental company. In the past, the
remediation industry was not highly competitive, but increasingly companies are
entering the environmental business. Management of EDCO Environmental
anticipates that the business will become increasingly competitive in the years
ahead.

The remediation industry is characterized by a few large companies, some medium
sized companies such as EDCO Environmental, and many small independent
companies. Some competitors are larger and have greater resources than EDCO
Environmental. EDCO Environmental competes primarily with engineering firms and
private contractors in addition to other environmental remediation companies.

The continued growth in the remediation service is dependent upon market
penetration, customer base, government regulations, funding, and legislative
changes. EDCO Environmental's growth in underground storage tank upgrading
depends upon its ability to

Page 7
<PAGE>
work efficiently, meet price competition, and will be adversely affected by
restrictions upon reimbursements by the Texas Natural Resource Conservation
Commission (See "Business," "EDCO Environmental Systems, Inc.").

ITEM 2. PROPERTIES

The Company has extensive real estate interests in Texas and Louisiana. The
Company owns 24 convenience stores with gasoline installations in Texas and
Louisiana, and rents or leases another 26 convenience stores under varying
terms.

In July 1999, The Company vacated its former general office facility, which was
located in a 10,300 square foot, free-standing building located on a 15-acre
tract with 400 feet of frontage along Highway 60 North in Bay City, Texas. The
former general office facility has been listed for sale. EDCO Environmental's
facilities include a 19,200 square foot shop, fabrication, and maintenance
building adjacent to the administration building.

The Company relocated its general offices into space in its additional office
and administrative operations (5,985 square feet) and 7,490 square foot
warehouse together with 14,784 square feet of additional warehouse buildings,
located on 3 acres of land approximately 1/2 mile north of the general offices
on Highway 60. Bulk storage equipment, including 14 fuel storage tanks and 20
lube oil and antifreeze tanks, are located adjacent to the warehouses

ITEM 3. LEGAL PROCEEDINGS

A purported class action lawsuit has been filed 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 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. See Note 15 to the Consolidated Financial Statements, included herein.

The Company is also subject to litigation, primarily as a result of customer
claims, in the ordinary conduct of its operations. In the opinion of management,
there are no legal proceedings other than discussed above which, by themselves
or in the aggregate could be expected to have a material adverse effect on the
consolidated financial position of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

STOCK INFORMATION

Traded On the National Market System -- The Company's Common Stock, $.01 par
value, is listed on the NASDAQ exchange under the Symbol "EVSI." At September
30, 1999, there were approximately 1,028 shareholders of record. The Company has
not paid any cash dividends, and the Company currently has no plans to adopt a
regular cash dividend.

The Company has received notification from the Nasdaq stock exchange that it is
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 has scheduled a hearing on such matters
with Nasdaq on January 14, 2000.

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<PAGE>
The aggregate market value of the Company's voting stock held by non-affiliates
was approximately $6.3 million on January 10, 2000. Furthermore, the Company has
previously announced that it intends to hold an annual shareholder meeting on
February 28, 2000. There can be no assurance, however, that the Company will
prevail at the hearing. The Company's ability to raise additional equity capital
in the future could be adversely affected if the Company's common stock were no
longer listed on a national exchange. The high and low price range for the last
two years, based on the closing sales price as reported by NASDAQ, is listed
below:

DATES HIGH LOW
- - ----- ---- ---
October 1, 1997 through December 31, 1997 2 3/4 1 1/8
January 1, 1998 through March 31, 1998 1 3/4 15/16
April 1, 1998 through June 30, 1998 3 7/8 7/8
July 1, 1998 through September 30, 1998 5 7/8 3 3/8
October 1, 1998 through December 31, 1998 15 5/8 6 7/16
January 1, 1999 through March 31, 1999 18 3/4 15 1/4
April 1, 1999 through June 30, 1999 32 3 5/8
July 1, 1999 through September 30, 1999 2 1/8 1 3/8

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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data which should be
read in conjunction with the Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included herein. Amounts are in thousands, except per-share data.

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
INCOME STATEMENT DATA: 1999 1998 1997 1996 1995
- - ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ 87,273 $ 104,114 $ 137,996 $ 133,007 $ 135,342
Gross Profit .............................. 11,854 13,868 14,765 17,266 17,345
Operating Income (Loss) ................... (3,380) (3,994) (3,682) 359 226
Income (Loss) from Continuing Operations .. (13,306) (4,605) (3,458) (185) (110)
Net Income (Loss) ......................... (9,333) (5,453) (4,804) 1,119 335
Basic Income (loss) from continuing
operations per common share(1) ............ (3.46) (1.48) (1.12) (.06) (.04)
Basic earnings (loss) per common share(1) . (2.43) (1.75) (1.56) .37 .11
Basic weighted average number of common
shares outstanding(1) ..................... 3,846 3,116 3,075 3,010 3,026
Diluted earnings (loss) from continuing
operations per common share(1) ............ (3.46) (1.48) (1.12) (.06) (.04)
Diluted earnings (loss) per common share(1) (2.43) (1.75) (1.56) .37 .11
Weighted average number of common and
common equivalent shares outstanding(1) ... 3,846 3,116 3,075 3,010 3,026

(1) Adjusted for 5% stock dividend paid on January 20, 1997.

<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA:
- - ------------------
<S> <C> <C> <C> <C> <C>
Current Assets ............................ $ 6,729 $ 9,914 $ 14,962 $ 18,726 $ 21,566
Current Liabilities ....................... 16,452 9,751 17,333 9,724 16,698
Current Ratio ............................. .41:1 1.02:1 .86:1 1.93:1 1.29:1
Total Assets .............................. 22,342 32,448 38,218 41,073 40,609
Long-Term Debt ............................ 1,634 11,151 5,401 10,400 4,663
Total Stockholders' Equity ................ 4,096 11,546 15,484 19,748 18,534
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the historical financial
statements and notes thereto appearing elsewhere in this document.

In 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"). In December 1998,
the Company sold ChemWay to Affiliated in a stock-for-stock transaction. See
"ChemWay" below. In exchange for the common stock of ChemWay, the Company
received 1,500,000 shares of Affiliated common stock. The number of shares of
Affiliated common stock became subject to a "make whole" provision whereby the
Company received 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.

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<PAGE>
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.

At December 31, 1998, Affiliated reported, in its Annual Report on Form 10-KSB,
an accumulated deficit of $7,630,070 based on historic losses, 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. In its Annual Report on Form 10-KSB for the year ended
December 31, 1998, Affiliated's management stated:
MANAGEMENT BELIEVES THAT CURRENT DISCUSSIONS WITH INVESTORS WILL YIELD
SUFFICIENT ADDITIONAL CAPITAL TO CONTINUE ITS ACQUISITION STRATEGY AND
TO FUND FUTURE OPERATIONS, AND THAT THESE ACQUISITIONS WILL GENERATE
SUFFICIENT REVENUES TO OPERATE INDEPENDENTLY AND PROVIDE AN ASSET BASE
FOR CONTINUED GROWTH. THERE IS NO ASSURANCE, HOWEVER THAT THE COMPANY
WILL BE SUCCESSFUL IN RAISING EQUITY AND CONTINUING AS A GOING CONCERN.
In its quarterly report on form 10-QSB, Affiliated reported revenues from
operations of $486,000, a net loss of $1.6 million, negative working capital of
$1.6 million, an accumulated deficit of $9.2 million and stockholders' equity of
$5.0 million.

In April 1999, the Company announced that it believed that future opportunities
in the Texas Petroleum Marketing business was limited, and that it intended to
divest itself of the Texas Petroleum Marketing and Louisiana Operations segments
and reposition itself as a provider of e-commerce to the convenience store
industry. The Company announced, in May 1999, that it had signed a letter of
intent to acquire A-Free-Gift.Com, an internet marketing venture. The Company
and A-Free-Gift.Com were unable to reach final agreement on a definitive
purchase agreement, however, and the proposed acquisition was abandoned in July
1999.

In December 1999, the Company signed an agreement to sell its Texas petroleum
marketing and convenience store operations to TSC Services, Inc., ("TSC") for
cash consideration of $12.7 million (the "TSC Transaction". TSC also agreed to
assume certain capital lease obligations which the Company estimates will total
approximately $0.9 million at the time of closing. In addition, TSC will acquire
the Company's inventories in the Texas petroleum marketing and Texas convenience
store segments at the Company's cost, estimated by management at approximately
$2.4 million. The sale has been approved by the Board of Directors and is
subject to approval by the Company's shareholders. Terms of the agreement call
for the sale of substantially all of the property and equipment and inventories
in the Texas petroleum marketing and Texas convenience store segments. See Note
2 to the Consolidated Financial Statements included herein.

The Company has also announced that it is presently negotiating with potential
merger partners.

RESULTS OF OPERATIONS

1999 COMPARED WITH 1998

Consolidated revenues from continuing operations declined $16,841,000 or
approximately 16.18% to $87,273,000 in the year ended September 30, 1999. The
decline, primarily in the Texas Petroleum Marketing segment, is primarily due to
the closing of

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underperforming or low volume locations and to the lower fuel prices which
prevailed during the current year period. See segment discussions, below.

Consolidated gross profit from continuing operations declined $2,014,000 or
approximately 14.5% to $11,854,000 in the year ended September 30, 1999. Gross
profit expressed as a percentage of revenues ("Gross Margin") increased to
approximately 13.6% of sales in 1999 from approximately 13.3% of sales in 1998.
Gross Margin improved in the Texas Petroleum Marketing and EDCO Environmental
segments, and declined in the Texas Convenience Stores and Louisiana Operations
segments in 1999, as compared with 1998. The decline in gross profit in 1999 is
due to reduced revenues in the current year, partially offset by higher Gross
Margins which prevailed in 1999. See segment discussions, below.

Consolidated operating expenses of continuing operations declined $2,628,000 or
approximately 14.7% in 1999 to $15,234,000. Operating expenses declined in each
of the Company's segments in 1999, as compared with 1998. The decline in
operating expenses is due to the closing of underperforming locations and to a
general reduction in staff which occurred in 1999.

Consolidated operating losses of continuing operations declined $614,000 or
approximately 15.4% to $3,380,000 in 1999 as compared with a loss of $3,994,000
in 1998. The reduced operating loss is due to reduced operating expenses in
1999, partially offset by reduced gross profits.

Consolidated net loss of $9,333,000 in 1999 includes the loss on impairment of
the Company's investment in Affiliated common stock of $8,602,000, partially
offset by a gain on sale of ChemWay of $3,973,000, net of income taxes. General
and administrative expenses in 1999 included a non-cash charge of $404,000 to
compensation expense, as a result of the application of Accounting Principles
Board Option No. 25, "Accounting for Stock Issued to Employees," with respect to
the vesting of certain incentive stock options which had previously been awarded
to employees. 1999 expenses also includes a noncash charge of $61,000,
representing the market value of the Company's common stock contributed to the
Company's 401-K employee benefit plan, nonrecurring legal and professional fees
of $480,000 arising from the proposed merger with Duke & Long Distributing
Company, and legal and professional fees of $339,000 arising from a number of
matters, including the restatement of the Company's previously reported
financial statements, the negotiation of the purchase agreement with
A-Free-Gift.Com, and the refinancing of the Company's senior debt.

General and administrative expenses in 1998 included non-cash compensation
expense of $1,133,000 arising from the vesting of certain incentive stock
options which had previously been awarded to employees. Adjusting 1999 and 1998
for the $1,284,000 and $1,133,000 in non-cash and nonrecurring expenses,
respectively, and adjusting for the non-cash gain on sale of ChemWay and
subsequent loss on impairment in marketable securities, adjusted net loss in
1999 of $3,420,000 declined $900,000 from an adjusted net loss of $4,320,000 in
1998.

TEXAS PETROLEUM MARKETING SEGMENT

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Sales in the Texas Petroleum Marketing Segment declined $14,294,000 or
approximately 22.2% to $50,164,000 in 1999, as compared with $64,458,000 in
1998. Sales in gallons declined to 44,441,000 gallons in 1999 from 60,158,000
gallons in 1998, a decline of approximately 26.13%. Average sellling price per
gallon increased in 1999 to approximately $1.13 per gallon, as compared with
$1.07 per gallon in 1998. The increase is due to the conversion of Special
Purpose Lease customers into Open Dealers during late 1998 and early 1999.
Although the Company realizes a higher average selling price per gallon, the
Company's gross profit per gallon on sales to Open Dealers can be significantly
lower than on sales to Special Purpose Lease customers.

Gross Profit in 1999 declined to $4,401,000 from $5,461,000 in 1998, a decline
of $1,060,000 or approximately 19.4%. Gross Margin increased to approximately
8.77% of sales in 1999 from approximately 8.47% of sales in 1998.

Operating expenses in 1999 declined to $5,736,000 from $6,448,000 in 1998, a
decline of $712,000 or approximately 11.0%, primarily as a result of a general
reduction in staff.

Operating loss in 1999 increased to $1,335,000 from $987,000 in 1998, an
increase of $348,000 or approximately 35.3%, as a result of lower revenues and
gross profits in 1999, partially offset by reduced operating expenses in 1999.

TEXAS CONVENIENCE STORE SEGMENT

Total sales declined $2,753,000 or approximately 10.7% in 1999 to $22,873,000
from $25,626,000 in 1998. Fuel sales in 1999 were $12,659,000 as compared with
$13,965,000 in 1997; fuel sales in gallons also declined in 1999, to 12,753,000
gallons as compared with 13,131,000 gallons in 1998. The decrease in fuel sales
revenues is due to the lower retail selling prices for fuels which prevailed
during 1999, and to fewer operating stores during the current year. Merchandise
sales decreased $1,184,000 to $9,599,000 as compared with $10,783,000 in 1998.
The decline in merchandise sales is primarily due to fewer operating stores
during 1999.

Gross profit declined to $4,768,000 in 1999 as compared with $5,615,000 in 1998.
Gross Margin in the Texas Convenience Store segment declined in 1999 to
approximately 20.85% as compared with approximately 21.91% in 1998. Merchandise
Gross Margin increased in 1999, to approximately 32.08% of sales, as compared to
approximately 31.18% of sales in 1998. Fuel Gross Margin, however, decreased to
approximately 8.74% during 1999, as compared with approximately 10.0% during
1998.

Operating expenses during 1999 in the Texas Convenience Store segment was
$4,802,000 as compared with $6,158,000 in 1998, a decrease of $1,356,000 or
approximately 22.0%. The decline in operating expenses is principally
attributable to the closing of 2 underperforming stores during 1999, and to an
overall reduction in staff during late 1998.

The Convenience Store segment incurred an operating loss of $34,000 in 1999, as
compared with a loss of $543,000 in 1998. The reduced loss is due to reduced
operating expenses during the current year, partially offset by reduced sales
and resulting gross profits.

LOUISIANA OPERATIONS SEGMENT

Sales declined $184,000 or approximately 1.4% to $12,694,000 in 1999 from
$12,878,000 in 1998. Sales of fuels and other refined petroleum products
declined $343,000 or approximately 3.4% to $9,671,000 in 1999 as compared with
$10,014,000 in 1998. Convenience store merchandise sales increased $176,000 in
1999, or approximately 6.5%, to $2,882,000 as compared with $2,706,000 in 1998.

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Gross profits declined $387,000 or approximately 17.9% in 1999, to $1,778,000 as
compared with $2,165,000 in 1998. Gross Margin declined to approximately 14.0%
of sales in 1999, as compared with approximately 16.8% of sales in 1998. Gross
Margin on fuel sales declined to approximately 9.3% of sales in 1999, as
compared with approximately 11.8% of sales in 1998, primarily due to the
competitive retail fuel pricing which prevailed in the Louisiana market area in
1999. Merchandise Gross Margin in 1999 declined to approximately 23.5% of sales,
as compared to approximately 27.3% of sales in 1998. The Company generally
reduced its merchandise retail pricing in 1999 to meet competition.

Operating expenses in 1999 were $2,112,000, a reduction of $141,000 or
approximately 6.3% as compared to 1998. The reduction in operating expenses
primarily reflects a reduction in staff which was implemented in 1999.

Operating loss in 1999 increased to $334,000, as compared with a loss of $88,000
in 1998. The increased loss in 1999 is attributable to lower sales and resultant
gross profits in 1999, partially offset by reduced operating expenses.

EDCO ENVIRONMENTAL SEGMENT

EDCO Environmental reported an operating profit of $177,000 in the year ended
September 30, 1999, as compared with an operating loss of $81,000, primarily due
to increased sales revenues and resultant gross profits. The work performed in
conjunction with bringing sites into compliance with the December 22, 1998 EPA
requirements is substantially complete. EDCO Environmental will continue to
focus its attention on environmental remediation projects which have been
pre-approved for reimbursement by the Texas Natural Resource Conservation
Commissions' ("TNRCC") fund, or by private insurers. Management believes that
such opportunities will continue to exist, however there can be no assurance
that they will do so.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses declined $441,000 in 1999, to $1,854,000 as
compared with $2,295,000 in 1998. General and administrative expenses in 1999
included a non-cash charge of $404,000 to compensation expense, as a result of
the application of Accounting Principles Board Option No. 25, "Accounting for
Stock Issued to Employees," with respect to the vesting of certain incentive
stock options which had previously been awarded to employees. 1999 expenses also
includes a noncash charge of $61,000, representing the market value of the
Company's common stock contributed to the Company's 401-K employee benefit plan,
nonrecurring legal and professional fees of $480,000 arising from the proposed
merger with Duke & Long Distributing Company, and legal and professional fees of
$339,000 arising from a number of matters, including the restatement of the
Company's previously reported financial statements, the negotiation of the
purchase agreement with A-Free-Gift.Com, and the refinancing of the Company's
senior debt.

General and administrative expenses in 1998 included non-cash compensation
expense of $1,133,000 arising from the vesting of certain incentive stock
options which had previously been awarded to employees. Adjusting 1999 and 1998
for the $1,284,000 and $1,133,000 in non-cash and nonrecurring expenses,
respectively, adjusted general and administrative expenses in 1999 of $570,000
declined $592,000 or approximately 51.0% as compared with adjusted expenses of
$1,162,000 in 1998. The reduction in ongoing general and administrative expenses
is due to the Company's expense reduction programs implemented in late 1998 and
throughout 1999.

1998 COMPARED WITH 1997

Consolidated sales revenues from continuing operations declined to $104,114,000
in 1998, from $137,996,000 in 1997, a decline of $33,882,000 or approximately
24.6%. During 1998, the Company implemented its turnaround strategy to
rationalize its base of stores and customers, which resulted in sales declines
in each of the Company's business segments. Sales revenues also declined as a
result of the lower overall pricing levels for petroleum products which
prevailed during 1998, as compared with 1997. Additionally, sales of fuels
through the Company's terminal facility declined $8,568,000 during 1998 as a
result of the termination of the Company's supply agreement for such facility.
See segment discussions, below.

Gross profit in 1998 was $13,868,000 as compared with $14,765,000 in 1997, a
decline of $897,000 or approximately 6.1%. Gross Margin however, increased to
approximately 13.3% of sales in 1998 as compared with approximately 10.7% of
sales in 1997. The improved Gross Margin is principally attributable to the
closing of unprofitable stores and improved management of the Company's daily
pricing of fuels.

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<PAGE>
Operating expenses in 1998 were $17,862,000, as compared with $18,447,000 in
1997, a decrease of $585,000 or approximately 3.2%. Operating expenses in 1998
include a noncash charge of $1,133,000 in compensation expense, as a result of
the application of APB25 with respect to certain incentive stock options which
had previously been awarded to employees. Fiscal 1997 included a provision for
loss on marketable securities of $497,000 and a write-down of other assets of
approximately $818,000. The decline in operating expenses in 1998, as compared
with 1997, is primarily due to the closing of underperforming convenience
stores, and to an overall staff reduction.

Consolidated operating losses from continuing operations increased $312,000;
operating losses on continuing operations were $3,994,000 in 1998 as compared
with $3,682,000 in 1997. As noted above, fiscal 1998 results included a non-cash
charge of $1,133,000. Adjusted for the effect of the noncash compensation
expense charge, operating losses from continuing operations declined $821,000.
The Texas Convenience Store segment, Louisiana Operations and EDCO Environmental
segment improved during 1998, however the improvement was offset by higher
losses in the Texas Petroleum Marketing segment, due to reduced sales revenues,
the $1,133,000 non-cash compensation expense charges, the effect of which was
partially offset by an improved Gross Margin.

The Company incurred net losses of $5,453,000 and $4,804,000 for fiscal years
ended September 30, 1998 and September 30, 1997, respectively. Losses from
continuing operations were $4,605,000 and $3,458,000 in fiscal years 1998 and
1997, respectively. The net loss for 1998 included an increase in the deferred
tax asset valuation allowance of $782,000 and, as described above, non-cash
charges of $1,133,000.

TEXAS PETROLEUM MARKETING SEGMENT

The Texas Petroleum Marketing segment's sales revenues declined $28,019,000 to
$64,458,000 in 1998, as compared with $92,477,000 in 1997, a decline of
approximately 30.3%. Fuel sales in gallons was 60,158,000 in 1998, as compared
with 84,053,000 gallons in 1997, a decrease of approximately 28.4%. The Texas
Petroleum Marketing segment distributes to its motor fuel customers both
directly from refinery racks, and through the Company's bulk plant facilities.
The Company, through its wholly- owned subsidiary Way Energy also has a 110,000
barrel terminal facility, located in Bay City, Texas, from which it has
historically distributed motor fuels to the southeast Texas market. During the
first quarter of 1998, the Company's supply agreement with the primary fuel
supplier to the Bay City terminal facility was terminated. The loss of the fuel
supply agreement had an adverse effect upon the Texas Petroleum Marketing
segment's performance during 1998: the Company was unable to sell fuels through
its exchange agreements with other major oil companies. Way Energy's sales
during 1998 were $3,826,000 as compared with $12,394,000 in 1997, a decline of
$8,568,000 or approximately 69%.

The effect of the conversion of Special Purpose Lease customers into Open
Dealers is to increase the Company's sales revenues with reduced Gross Margins,
working capital requirements, and reduced capital investment, resulting in
improved return on investment. Since the Company's margins on Open Dealer
accounts are contractually fixed, however, the Texas Petroleum Marketing
Segment's gross margins may be less volatile in the future, as a larger
percentage of the segment's business will be at fixed margins.

Gross profit in the Texas Petroleum Marketing Segment was $5,461,000 in 1998, as
compared with $6,634,000 in 1997, a decline of $1,173,000 or approximately
17.7%. Gross Margin, however, improved in 1998, to approximately 8.5% of sales
as compared with approximately 7.2% in 1997. The improvement in Gross Margin is
principally attributable to a higher gross profit earned per gallon, divided by
the lower selling prices which prevailed during 1998, as compared with 1997.
Gross profit per gallon sold increased in 1998, to approximately $0.091, as
compared to $0.079 in 1997, due to improved management of the Company's daily
pricing of fuels.

Operating expenses in the Texas Petroleum Marketing Segment were $6,448,000 in
1998, as compared with $7,500,000 in 1997, a decrease of $1,052,000 or
approximately 14.0%, reflecting management's cost reduction programs implemented
during 1998.

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Operating loss of the Texas Petroleum Marketing Segment increased to $987,000 in
1998 as compared with $866,000 in 1997. The increased loss is primarily due to
the lower sales revenues and resultant gross profit, partially offset by reduced
operating, discussed above.

TEXAS CONVENIENCE STORE SEGMENT

Sales in the Texas Convenience Store segment were $25,626,000 in 1998, as
compared with $29,351,000 in 1997, a decline of approximately 13%. During 1998,
however, the company closed and sold seven underperforming stores, and
subsequently sold two additional stores during December 1998. Fuel sales in 1998
were $13,965,000 as compared with $16,911,000 in 1997; fuel sales in gallons
also declined in 1998, to 13,131,000 gallons as compared with 14,831,000 gallons
in 1997. The decrease in fuel sales revenues is due to the lower retail selling
prices for fuels which prevailed during 1998, and to fewer operating stores
during the current year. Merchandise sales decreased $800,000 to $10,783,000 as
compared with $11,583,000 in 1997. The decline in merchandise sales is primarily
due to fewer operating stores during 1998.

Gross profit declined to $5,615,000 in 1998 as compared with $5,980,000 in 1997.
Gross Margin in the Convenience Store segment improved during 1998, however, to
approximately 21.9% as compared with approximately 20.3% in 1997. Merchandise
Gross Margin increased to approximately 31.2% of sales in 1998, as compared with
approximately 28.7% of sales in 1997. Fuel Gross Margin, however, declined to
approximately 10.0% during 1998, as compared with approximately 10.6% of sales
during 1997.

The improvement in overall Gross Margin is partially due to the fact that
merchandise sales represented a higher percentage of the stores' total sales
during 1998 than in 1997; merchandise sales were approximately 42.1% of total
sales during 1998 as compared with approximately 39.5% during 1997. In addition
to closing seven underperforming stores during 1998, the Company began pricing
its fuel more aggressively in order to maintain customer traffic, and generate
additional higher-margin merchandise sales.

Operating expenses during 1998 in the Texas Convenience Store segment were
$6,158,000 as compared with $6,785,000 in 1997, a decrease of $627,000 or
approximately 9.2%. The decline in operating expenses is principally
attributable to the closing of seven underperforming stores during 1998, and to
an overall reduction in staff during 1998.

The Texas Convenience Store segment incurred an operating loss of $543,000 in
1998, as compared with a loss of $805,000 in 1997. The reduced loss is due to
reduced operating expenses during the current year, partially offset by reduced
sales and resulting gross profits.

LOUISIANA OPERATIONS

The Company closed four underperforming stores in 1998, completing the year with
seven stores at September 30, 1998, as compared with 11 stores at September 30,
1997.

Sales in 1998 declined $1,970,000 to $12,878,000, as compared with sales of
$14,848,000 in 1997, primarily as a result of the fewer number of stores in
operation during 1998. Fuel sales in gallons were 11,320,000 in 1998,as compared
with 11,082,000 gallons in 1997. Fuel sales in 1998 declined $1,429,000 to
$9,719,000 , as compared with fuel sales of $11,148,000 in 1997, the decline is
also attributable lower fuel pricing which prevailed in 1998. Merchandise sales
declined $533,000, to $2,706,000 in 1998, as compared with $3,239,000 in 1997.

Gross profit in 1998 increased $380,000, to $2,165,000, as compared with
$1,785,000 in 1997. Gross Margin increased to approximately 16.8% of sales in
1998, as compared with approximately 12.0% of sales in 1997. Fuel gross profits
increased to $1,143,000 in 1998, as compared with $619,000 in 1997. Fuel Gross
Margin increased to approximately 11.7% of sales in 1998, as compared with
approximately 5.5% of sales in 1997. Merchandise gross profit decreased to
$740,000 in 1998, as compared with $932,000 in 1997. Merchandise Gross Margin
decreased, however, to approximately 27.3% of sales in 1998, as compared with
approximately 28.8% of sales in 1997.

Operating expenses decreased $317,000 in 1998, to $2,253,000, as compared with
$2,570,000 in 1997. The decrease is due to the closing of four underperforming
stores during 1998, and to a staff reduction which was implemented in December
1997.

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The Louisiana segment incurred an operating loss of $88,000, as compared with an
operating loss of $785,000 in 1997. The decreased loss is due to the lower
operating expenses and higher gross profits in 1998 as compared with 1997.
EDCO ENVIRONMENTAL

The management of EDCO Environmental focused its attention on increasing sales
of environmental services, and reducing operating expenses. Sales were
$1,152,000 in 1998, as compared with $1,320,000 in 1997, a decrease of $168,000
or approximately 12.7%. Gross profit was $627,000 in 1998, an increase of
$261,000 from 1997. Gross Margin improved to approximately 54.4% of sales in
1998, as compared with approximately 27.7% of sales during 1997. The improved
Gross Margin is primarily attributable to management's decision to discontinue
low-margin construction operations at year-end 1997.

Operating expenses at EDCO Environmental decreased $57,000 in 1998, to $708,000
as compared with $765,000 in 1997, a decrease of approximately 7.5%. The
decrease is due to increased management emphasis on expense control, and staff
reductions.

EDCO Environmental incurred an operating loss of $81,000 in 1998, as compared
with an operating loss of $399,000 in 1997. The improvement is due to the higher
Gross Margin and reduced operating expenses during 1998.

CHEMWAY (DISCONTINUED MARCH 31, 1998; SOLD DECEMBER 30, 1998)

Production activities at the ChemWay facility ceased in February 1998, and the
ChemWay segment was classified as a discontinued operation as of March 31, 1998.
Sales in the ChemWay segment were $2,268,000 in 1998, as compared with
$10,967,000 in 1997, a decline of $8,699,000 or approximately 79.3%. Gross
Margin in the ChemWay facility was approximately 3.1% of sales during 1998, as
compared with approximately 9.8% in 1997. During 1998, the Company liquidated
much of ChemWay's inventories, sometimes at prices at or below cost. Operating
expenses at ChemWay were $1,744,000 in 1998, as compared with $2,909,000 in
1997, reflecting the cessation of production activities in February 1998.
Operating losses at ChemWay were $1,694,000 in 1998 as compared with $1,831,000
in 1997, reflecting the reductions in operating expenses during the current
fiscal year, partially offset by lower sales and reduced Gross Margins.

GENERAL AND ADMINISTRATIVE EXPENSES

The Company's general and administrative expenses increased $1,468,000 to
$2,295,000 in 1998, as compared with $827,000 in 1997. Operating expenses in
1998 include a noncash charge of $1,133,000 in compensation expense, as a result
of the application of APB25 with respect to certain incentive stock options
which had previously been awarded to employees.

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 and continuing covenant defaults; (ii) extended the maturity
of its loan balance to January 31, 2001; and (iii) assumed the amounts
outstanding under the other bank lender's loans under their current terms and
conditions. Under the 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 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, however the bank has waived such
covenant defaults. Furthermore, the bank has agreed to revise the financial
covenants and management believes the Company will be able to comply with the
revised financial covenants during the foreseeable future, however there can be
no assurance that the Company will be able to do so. See Note 6 to the
Consolidated Financial Statements, included herein. Management intends to repay
the existing bank debt with proceeds from the TSC Transaction, or alternatively,
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

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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, the payment of
which the bank agreed to defer until the earlier of February 28, 2000 or the
repayment of the loan; furthermore, the Company became obligated to pay
additional fees of $250,000 on August 31, 1999 and December 31, 1999 as the loan
obligations are not repaid by those respective dates. Interest expense in the
year ended September 30, 1999 includes $513,000, reflecting the payments which
were originally due June 30 and August 31, and accrued late charges thereon.

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 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 December 1999, the Company reached agreement to sell its Texas petroleum
marketing and convenience store assets to TSC. Under the terms of the agreement,
TSC would make a cash payment to the Company of $12.7 million for the fixed
assets of the Texas petroleum marketing and convenience store segments. In
addition, TSC agreed to assume certain capital lease obligations of
approximately $0.9 million, and has agreed to purchase the segments' inventories
at the Company's cost, estimated by management at $2.4 million. The sale has
been approved by the Board of Directors and is subject to approval by the
Company's shareholders. Terms of the agreement call for the sale of
substantially all of the property and equipment and inventories in the Texas
petroleum marketing and Texas convenience store segments. Management believes
the TSC Transaction will close in March 2000, and will provide sufficient cash
to repay the Company's existing bank debt, described above, although there can
be no assurance that the transaction will close. See Notes 2 and 3 to the
Consolidated Financial Statements, included herein.

In the event that the TSC Transaction does not close, the Company intends to
proceed with the B&I Loan. There can be no assurance that management's plans
will be successful. See Note 3 to the Consolidated Financial Statements included
herein.

Cash and cash equivalents were $992,000 and $831,000 at September 30, 1999 and
1998, respectively. Primarily as a result of the reclassification of certain
bank debt, the Company had a net working capital deficit of $9,723,000, as
compared with a deficit of $163,000 at September 30, 1998.

Cash used by operating activities was comparable at $618,000 and $611,000 in the
years ended September 30, 1999, and September 30, 1998, respectively.

The Company identified certain nonessential assets which it sold during the year
ended September 30, 1999; assets disposed of during the current fiscal year
included nonperforming convenience stores, the Company's investment in certain
of its Special Purpose Lease locations, the Company's tire center, and the
Company's Fuelman/Gascard franchise. The Company received proceeds of $1,606,000
from the sale of such assets during 1999. Cash provided by investing activities
was $965,000 in 1998, as compared with $179,000 cash provided by investing
activities during 1998.

In December 1998, the Company completed the sale of its ChemWay subsidiary, in a
stock-for-stock exchange with Affiliated. Although the Company did not receive
any cash consideration in the transaction, Affiliated agreed to repay
outstanding trade credit liabilities of ChemWay of approximately $2,100,000. The
Company received 1.5 million shares of common stock of Affiliated in exchange
for all of the common stock of ChemWay. The number of shares of Affiliated
common stock became subject to a "make whole" provision whereby the Company
received an additional 1,000,000 shares of Affiliated common stock on December
30, 1999. The Company recorded a gain on the disposition of ChemWay of
$3,973,000, net of provision for income taxes of $1,203,000. In accordance with
generally accepted accounting principles, the Affiliated common stock received
in exchange for the common stock of ChemWay was initially recorded at its "fair
value" of $6 per share, resulting in a carrying value of $9 million. Subsequent
to the exchange of ChemWay common stock for Affiliated common stock, the
Affiliated stock has declined in value to $0.265 per share at September 30,
1999. 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 in the year ended September 30, 1999.

The Company's investment in Affiliated common stock is illiquid; in addition,
the average trading volume of Affiliated is small in

Page 18
<PAGE>
comparison to the number of shares held by the Company. The trading price of
Affiliated stock has been volatile, ranging from a reported low closing price in
the quarter ended June 30, 1998 of $0.88 to a closing price of $6.00 at December
31, 1998 and a closing price of $0.265 at September 30, 1999.

On June 1, 1998, the Company agreed to issue 350,000 common shares for total
consideration of $262,500 in a private placement to accredited investors. Such
shares were issued on October 27, 1998 and the Company received proceeds of
$131,250. The remaining proceeds of $131,250 were received in the quarter ended
June 30, 1999.

During the year ended September 30, 1999, the Company received proceeds of
$1,185,000, arising from the issuance of common stock.

The aggregate market value of the Company's voting stock held by non-affiliates
was approximately $6.3 million on January 10, 2000. Furthermore, the Company has
previously announced that it intends to hold an annual shareholder meeting on
February 28, 2000. There can be no assurance, however, that the Company will
prevail at the hearing. The Company's ability to raise additional equity capital
in the future could be adversely affected if the Company's common stock were no
longer listed on a national exchange. As a result of matters discussed above,
there is substantial doubt about the Company's ability to continue as a going
concern.

YEAR 2000

As many computer systems and other equipment with embedded chips or processors
(collectively, "Business Systems") use only two digits to represent the year,
they may have been unable to process accurately certain data before, during or
after the year 2000. As a result, business and governmental entities were
perceived to be at risk for possible miscalculations or systems failures causing
disruptions in their business operations. This is commonly known as the Year
2000 ("Y2K") issue. The Y2K issue can arise at any

Page 19
<PAGE>
point in the Company's supply, processing, distribution and financial systems.

The Company completed a Y2K readiness program with the objective of having all
of the Company's significant Business Systems functioning properly with respect
to the Y2K before January 1, 2000.

The first component of the Y2K readiness program was to identify the internal
Business Systems of the Company that are susceptible to system failures or
processing errors as a result of the Y2K issue.

The second component of the Y2K readiness program involved the actual
remediation and replacement of Business Systems. The Company primarily utilized
internal resources to complete this project. The Company substantially completed
all remediation and replacement of internal Business Systems by December 1999.
As part of the Y2K readiness program, significant service providers, vendors,
suppliers, customers and governmental entities ("Key Business Partners") that
are believed to be critical to business operations after January 1, 2000 were
identified and the Company surveyed its Key Business Partners in an attempt to
reasonably ascertain their stage of Y2K readiness.

The Company utilizes a limited number of Business Systems in the conduct of its
operations, however due to the significant number of Key Business Partners, the
Company believed that it could have experienced some disruption in its business
due to the Y2K problem. More specifically, the Company could have been
materially adversely affected if utilities, private businesses and governmental
entities with which it does business or that provide essential services were not
Y2K ready. The possible consequences of the Company or Key Business Partners not
being fully Y2K compliant by January 1, 2000 included, among other things,
delays in the delivery of products, delays in the receipt of supplies, invoice
and collection errors, and inventory and supply obsolescence. Consequently, the
business and results of operations of the Company could have been materially
adversely affected by a temporary inability of the Company to conduct its
business in the ordinary course for a period of time after January 1, 2000. The
Company has not experienced any significant disruptions or adverse effect as a
result of the Y2K problem There can be no assurance, however, that the Company
will not experience any adverse effect or disruptions in the future.

Concurrently with the Y2K readiness measures described above, the Company
developed contingency plans intended to mitigate the possible disruption in
business operations that may result from the Y2K issue. Contingency plans
included developing interim manual processes to ensure the continued operation
of the businesses.

Since much of the Company's cost of its Y2K readiness program has been internal
resources, who are also involved in other duties related to the Company's
ongoing operations, the cost of the Y2K readiness program is not known, however
the Company does not believe that such costs were material. The costs were
expressed as they were incurred, and were substantially all funded through
operating cash flow.

THE ESTIMATES AND CONCLUSIONS HEREIN CONTAIN FORWARD-LOOKING STATEMENTS AND ARE
BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS TO COMPLETING THE
PLAN INCLUDE THE AVAILABILITY OF RESOURCES, OUR ABILITY TO DISCOVER AND CORRECT
THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON SPECIFIC FACILITIES, AND THE ABILITY OF KEY BUSINESS PARTNERS TO BRING
THEIR SYSTEMS INTO YEAR 2000 COMPLIANCE.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company included in this annual
report on Form 10-K are listed under Item 14, Exhibits, Financial Statement
Schedules and Reports on Form 8-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Page 20
<PAGE>
ITEMS 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to the current
directors and executive officers of the Company.

<TABLE>
<CAPTION>
NAME POSITION AGE
<S> <C> <C>
Jerriel L. Evans, Sr. Chairman of the Board, President and Chief 60
Executive Officer

Peter J. Losavio, Jr. Vice Chairman of the Board 58

Maybell H. Evans Secretary 60

Darlene N. Jones Director, Treasurer and Administrative Manager 41

Charles N. Way Director, Vice President and Controller 57

Richard A. Goeggel Director, Vice President and Chief Financial Officer 48

Julie H. Edwards Director 41

Carl W. Schafer Director 63

Jerry L. Evans, Jr. Vice President of Corporate Relations and 34
Human Resources
</TABLE>

The principal occupation of each director and executive officer for at least the
last five years is set forth below:

JERRIEL L. EVANS, SR. has been a member of the Company's Board of Directors
since August, 1968. Mr. Evans founded the Company in 1968. Mr. Evans founded the
Company in 1968 and has served as its Chairman of the Board, President and Chief
Executive Officer since that time. Mr. Evans was born in Flint, Texas, in 1939
and subsequently moved to Woodsboro, Texas, where he graduated from Woodsboro
High School in 1957. Mr. Evans attended San Antonio Community College where he
majored in Business Administration. From 1954 to 1960, Mr. Evans owned and
operated a gasoline service station. From 1960 to 1968, Mr. Evans was employed
by Amoco Oil Company where he held various sales and managerial positions. In
1985, he was awarded top salesman for the Kansas City Region. Because the region
comprised several states, the honor bestowed upon Mr. Evans was very
prestigious. Additionally, in 1992, Mr. Evans was selected as a Regional
Finalist for the Entrepreneur of the year Award granted annually by Ernst &
Young and Merrill Lynch.

PETER J. LOSAVIO, JR. has been a member of the Company's Board of Directors
since May, 1993. Mr. Losavio was born in Baton Rouge, Louisiana in 1949 and
graduated from Baton Rouge High School in 1967. He received his Bachelor of
Science degree in chemistry from Tulane University in 1970, and his Masters
degree in chemistry from Tulane University in 1973. He graduated from Louisiana
State University Law School in Baton Rouge, Louisiana in 1975 and received a
masters of laws in taxation from the University of Florida in 1976. Mr. Losavio
is a Board Certified Tax Attorney. He became a licensed and certified accountant
in Louisiana in 1979. He completed the certified financial planning program
offered by the College for Financial Planning in Denver, Colorado in 1987. From
1980 to present, Mr. Losavio has been an instructor in the College of Business
Administration at Louisiana State University, teaching corporate tax,
partnership taxation, Sub S, estate planning, and tax practices and procedures.
Mr. Losavio has been a co-author and lecturer for various continuing education
programs sponsored by the Society of Louisiana Certified Public Accountants and
National Business Institute. He was a speaker at the 1990 Louisiana Advanced Tax
Workshop. From 1990 to present, he has been a member of the Ad Hoc Advisory
Committee to the Commissioner of Securities for the State of Louisiana. From
1980 to present, he has been as assistant bar examiner. In 1980, he was Chairman
of the Tax Committee for the Society of Louisiana Certified Public Accountants.

MAYBELL H. EVANS was a member of the Company's Board of Directors from August
1968 to June 1999. Ms. Evans has also served as the Company's Secretary since
its inception. Ms. Evans was born in Holliday, Texas in 1939 and graduated from
Sweeny High School, Sweeny Texas, in 1957. She joined the Company full time in
1968, managing accounts receivable, collections, and corporate affairs.

Page 21
<PAGE>
DARLENE E. JONES has been a member of the Company's Board of Directors since
December, 1992. Ms. Jones is also Treasurer and serves as the Administrative
Manager for the Company. She has held these positions since 1993. Ms. Jones was
born in San Antonio, Texas, in 1958, and graduated from Bay City High School in
1976. She then attended and graduated in 1980 from Southwestern University where
she received a Bachelor of Science degree in Biology/Chemistry. Subsequently,
Ms. Jones complete course work involving computer systems technology. She joined
the Company in 1980.

CHARLES N. WAY has been a member of the Company's Board of Directors since March
1982. Mr. Way also serves as the Vice President and Controller of the Company.
He has held these positions since June 1980 and July 1998, respectively. Mr. Way
previously served as the Company's Chief Financial Officer from June 1980 until
June 1998. Mr. Way joined the Company in June of 1979. He was born in Houston,
Texas, in 1942 and graduated from Jessie H. Jones High School in 1961. He
received a B.B.A. degree in Accounting from Texas A&M University in 1966. He was
employed with Texaco, Inc. from 1966 to 1968 where he served as an accountant.
From 1968 to 1973, Mr. Way served as an Accounting Division Manager with Tenneco
Oil Company. From 1973 to 1976, he was employed as a Controller with News, Inc.
And Subsidiaries. From 1976 to 1979, Mr. Way owned and operated All- Ways
Automotive Tire Service in Houston, Texas.

RICHARD A. GOEGGEL has been a member of the Company's Board of Directors since
December 1998. Mr. Goeggel was born in St. Louis, Missouri in 1951 and earned
his A.B. degree in Economics and M.B.A. in Finance & Accounting from Cornell
University in 1974 and 1976 respectively. Until 1997, Mr. Goeggel was employed
as Vice President and CFO of Truck Accessories Group, Inc. From 1995 to 1996 he
served as financial advisor to the Board of Directors of Stanley Stores, Inc.;
and from 1989 to 1995 he was employed with AppleTree Markets, Inc. as Vice
President, treasurer and director. Mr. Goeggel joined the Company in January
1998 as financial advisor and was hired as Vice President and Chief Financial
Officer in June 1998.

JULIE H. EDWARDS has been a member of the Company's Board of Directors since
December 1997. Ms. Edwards was born in Charleston, West Virginia in 1959 and
earned her Bachelor of Science degree in geology and geophysics from Yale
University in 1980. Ms. Edwards earned her Masters degree in Business
Administration/Finance from Wharton Graduate School in 1985. Ms. Edwards was
employed with Smith Barney, Harris Upham & Co. from 1984 to 1991 and served as
Vice President of Corporate Finance with Smith Barney, Harris Upham & Co., from
1988 to 1991. Since 1991, Mrs. Edwards has been employed with Wainco Oil
Corporation as Senior Vice President of Finance and Chief Financial Officer.

CARL W. SCHAFER has been a member of the Company's Board of Directors since
December 1992. Mr. Schafer was born in Chicago, Illinois in 1936 and obtained
his primary and secondary education in Illinois. He received his Bachelor of
Arts with distinction from the University of Rochester in 1958. He served with
the U. S. Bureau of the Budget as a budget examiner (1961-1964), a legislative
analyst (1964-1966), deputy director of budget preparation (1966-1968), director
of budget preparation (1968-1969), and as staff assistant to the U. S. House of
Representative Appropriations Committee (1969). He served with Princeton
University as director of the budget (1969), treasurer (1972-1976), financial
vice president, treasurer and chief financial officer (1976-1987). He served as
a principal of Rockefeller and Company, Inc., from 1987 to 1990. He is currently
president of the Atlantic Foundation, Princeton, New Jersey. He served as
co-chairman of the New Jersey Governor's Task Force on improving New Jersey's
Economic and Regulatory Climate from 1982 to 1983, and is currently a trustee or
director of Roadway Express, Inc., Wainoco Oil Corporation, Nutraceutix, Inc.,
Electronic Clearing House, Inc., the Paine Webber and Guardian Groups of Mutual
Funds, Harbor Branch Institution, Inc., the Jewish Guild for the Blind, the
Johnson Atelier and School of Sculpture, and Hidden Lakes Gold Mines, Ltd. He is
a member of the advisory council of Domain Partners and a member of the
International Advisory Council of William Sword and Company, Inc.

JERRY L. EVANS, JR. has been with the Company for the past fifteen years having
started with the Company as a Store Associate in 1983. Mr. Evans graduated from
Bay City High School in 1983 and attended both Wharton Junior college and
Southwest Texas State, where he focused on Communications and Political Science.
Mr. Evans served as Vice President of Investor Relations from 1993 to 1998 when
he was appointed Vice President of Corporate and Investor Relations and Human
Resources in April 1998. Mr. Evans is active on several organization and
community committees having served as Chairman of the Matagorda County
Republican Party, City Councilman for Bay City, Chairman of the Home Rule
Charter Commission and the Board of Directors of the Texas Petroleum Marketers
and Convenience Store Association.

There are no family relationships between any directors and executive officers
of the Company except that Jerriel L. Evans, Sr. and Maybell H. Evans are
husband and wife and Jerry L. Evans, Jr. and Darlene E. Jones are their son and
daughter, respectively.

Page 22
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

During the fiscal year ended September 30, 1999 ("Fiscal 1999"), the Company's
Board of Directors formally met on six occasions. Each of the directors attended
(or participated by telephone) more than 75% of such meetings of the Board of
Directors and Committees on which he served during Fiscal 1998. The Board of
Directors has no committees other than the Compensation Committee and the Audit
Committee.

The Company's Compensation Committee, which is comprised of Peter J. Lasavio
(Chairman), Carl W. Schafer, and Julie H. Edwards, reviews and approves the
compensation of the Company's executive officers and administers and interprets
the Company's stock option plans. The Compensation Committee met or took action
on two occasions during Fiscal 1999.

The Company's Audit Committee, which is comprised of Carl W. Schafer (Chairman),
Peter J. Losavio, and Julie H. Edwards recommends the Company's independent
auditors, reviews the scope of their engagement, consults with the auditors,
reviews the results of their examination, acts as liaison between the Board of
Directors and the auditors and reviews various Company policies, including those
relating to accounting and internal controls. The Audit Committee met or took
action on two occasions during Fiscal 1999.

COMPENSATION OF DIRECTORS

During Fiscal 1999, each director, who is not an employee of the Company,
received $1,500 for each Board of Directors' meeting attended, or $500 for each
committee meeting attended, which was held on a day other than a Board of
Director's meeting day. The Company also pays its non-employee directors a
monthly retainer fee of $500. Employees of the Company receive no additional
compensation for service as a director. All directors are reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company.

On December 19, 1997, directors Edwards, Schafer and Losavio, were each granted
options to purchase 7,500 shares of Common Stock at an exercise price of $1.625
per share under the ESI Stock Benefit Plan of 1995.

In December 1998, the Company granted certain members of the Board of Directors
options to acquire an aggregate of 7,500 shares at $11.63 per share.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal years ended September 30, 1999,
1998, and 1997, certain summary information concerning annual and long-term
compensation paid by the Company for services in all capacities to the company
of the Chief Executive Officer, and the other most highly compensated executive
officers of the Company at September 30, 1999 who received compensation of at
least $100,000 during the Fiscal 1999 (collectively, the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------------- --------------------------------------
OTHER ANNUAL RESTRICTED
NAME AND COMPENSATION STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($) OPTIONS(#) COMPENSATION
------------------ ---- -------- -------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerriel L. Evans, Sr.(2)
Chairman of the Board, . 1999 96,250 -0- -- 75,000 (2)
President and .......... 1998 125,093 -0- -- -- 91,500 (2)
Chief Executive Officer . 1997 125,093 -0- -0- 1,210 -- (2)

Richard A. Goeggel (3)
Vice-President and .... 1999 120,000 -0- -- -0- --
Chief Financial Officer 1998 85,000 -0- -- 50,000 --
1997 -0- -0- -- -0- --

Richard B. Dix (4)
Executive Vice-President 1999 51,508 -0- -- -- -- --
1998 108,000 -0- -- -- 35,000 --
1997 -0- -0- -- -- -- --
</TABLE>

Page 23
<PAGE>
(1) Although the officers receive certain perquisites, the value of such
perquisites did not exceed for any officer the lesser of $50,000 or 10% of
the officer's salary and bonus.

(2) In addition to the compensation for Mr. Evans set forth above, he also
receives lease income for the rental of various properties used by the
Company.

(3) Mr. Goeggel's employment with the company (including time spent as a
consultant) began in January 1998.

(4) Mr. Dix's employment with the Company began in April 1998. Mr. Dix left
the Company on June 11, 1999 to pursue other business interests.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information concerning Options/SARs
granted during Fiscal 1998 to the Named Officers.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE OF ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM(2)

SHARES % OF TOTAL
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES OR BASE EXPIRATION
NAME GRANTED(#) IN FISCAL 1999 ($/SHARE)(1) DATE 5%($) 10%($)
---- ---------- -------------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jerriel L. Evans, Sr. 75,000 76% 5.00 4/16/03 214,996 342,244
</TABLE>

(1) The exercise price of the options granted is equal to the market
value of the Company's Common Stock on the date of grant.

(2) Potential realizable value of each grant assumes that the market
prices of the underlying security appreciates at annualized rates
of 5% and 10% over the term of the award. Actual gains, if any,
on stock option exercises are dependent on the future performance
of common stock. There can be no assurance that the amounts
reflected on this table will be achieved.

EMPLOYMENT AGREEMENTS

J. L. Evans, Sr. and the Company entered into an employment agreement, dated
April 6, 1998, for Mr. Evans to serve as President and Chief Executive Officer
of the Company through September 30, 2001. The agreement provides for an annual
base salary of $120,000 during the first year of its term, $140,000 during the
second year of its term, $150,000 during the third year of its term and for
annual increases in each of the remaining years to be determined by the Board of
Directors. The agreement also provides for an annual bonus in an amount equal to
7 1/2% of the net consolidated after-tax profits of the Company. The agreement
provides that certain options granted to Mr. Evans will vest upon a change of
control of the Company. During the term of his employment with the Company, Mr.
Evans is also entitled to (i) participation in all other benefit plans provided
by the Company to its executives, (ii) four weeks paid vacation per year, (iii)
term life insurance policies in the aggregate face amount of $2,000,000, and
(iv) a $500 per month non-accountable car allowance. The agreement also
restricts Mr. Evans from competing with the Company or soliciting customers or
other business for any entity other than the Company during the term of the
agreement and from disclosing certain confidential information with respect to
the Company.

Richard A. Goeggel and the Company entered into an employment agreement, dated
June 22, 1998, for Mr. Goeggel to serve as Vice President and Chief Financial
Officer of the Company through June 15, 2000. The agreement provides for an
annual base salary of $120,000 during the first year of its term and for annual
increases in each of the remaining years to be determined by the Board of
Directors. The agreement provides that certain options granted to Mr. Goeggel
will vest upon a change of control of the Company. During the term of his
employment with the Company, Mr. Goeggel is also entitled to (i) participation
in all other benefit plans

Page 24
<PAGE>
provided by the Company to its executives, and (ii) two weeks paid vacation per
year. Upon a change of control of the Company that results in Mr. Goeggel's
removal as Vice-President or Chief Financial Officer, a significant change in
the conditions of his employment or other breach of the agreement, Mr. Goeggel
has the right to elect to deem his employment to have been terminated by the
Company and receive a lump sum payment equal to the remaining term of the
agreement (which amount shall be reduced such that all payments will be
deductible to the Company and not subject to the excise tax imposed by the
United States Internal Revenue Code of 1986, as amended). Except as expressly
permitted in the agreement, Mr. Goeggel is also restricted from competing with
the Company or soliciting customers or other business for any entity other than
the Company during the term of the agreement and from disclosing certain
confidential information with respect to the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information concerning ownership of the Company's
Common Stock, as of December 31, 1998, by (i) each person who is known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, (ii) each of the Company's directors, (iii) each Named Officer, and (iv)
all current directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS(1) OWNERSHIP(2) CLASS(3)
------------------- ------------- ----------
<S> <C> <C>
J. L. Evans Systems, Ltd., a Texas Limited Partnership 1,436,000(4) 35.7%
J. L. Evans, Sr. 1,628,460(5) 40.4%
Maybell H. Evans 1,459,300(6) 36.2%
Charles N. Way 13,350 *
Richard A. Goeggel 50,000(7) 1.2%
Darlene E. Jones 0 *
J. L. Evans, Jr. 2,420 *
Carl W. Schafer 16,625(8) *
c/o The Atlantic Foundation
16 Faber Road
Princeton, NJ 08540
Peter J. Losavio, Jr. 6,900 *
8414 Bluebonnet Blvd., Suite 110
Baton Rouge, LA 70810
Julie H. Edwards 5,000(9)
3826 Coleridge
Houston, TX 77005
All executive officers and Directors as a group (10 persons) 1,746,055 43.4%
</TABLE>

* less than 1%

(1) Unless otherwise indicated, the address of each beneficial owner is c/o
the Company, Post Office Box 2480, Bay City, Texas 77404-2480.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act ("Rule 13d-3") and unless otherwise indicated,
represents shares of which the beneficial owner has sole voting and
investment power.
(3) The percentage of class is calculated in accordance with Rule 13d-3 and
assumes that the beneficial ower has exercised any options or other
rights to subscribe which are execrable within sixty (60) days and that
no other options or rights to subscribe have been exercised by anyone
else.
(4) The general partner is J.L. Evans Evans Management, Inc. (controlled by
J.L. Evans, Sr. and Maybell H. Evans) and the limited partners are
Jerriel L. Evans, Sr., Maybell H. Evans, and their children, Darlene E.
Jones, Jerriel L. Evans, Jr., and Terry W. Evans.
(5) Includes 1,436,000 shares held by J.L. Evans Systems, Ltd., of which Mr.
Evans claims beneficial ownership. Includes 75,000 shares issuable upon
the exercise of options.
(6) Includes 1,436,000 shares held by J.L. Evans Systems, Ltd., of which
Mrs. Evans claims beneficial ownership.
(7) Includes 50,000 shares issuable to Mr. Goeggel upon the exercise of
options.
(8) Includes 7,500 shares issuable to Mr. Schafer upon the exercise of
options.
(9) Includes 5,000 shares issuable to Ms. Edwards upon the exercise of
options.

Page 25
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than ten percent
shareholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.

The Company believes, based solely on review of copies of such forms furnished
to the Company, or written representations that no Form 5's were required, that
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with during Fiscal
1998, except that each of Messrs. Dix and Goeggel inadvertently filed a Form 3
late.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 1999, the Company leased three convenience store locations from Mr. J.L.
Evans, Sr., the largest shareholder of the Company. One ten-year lease commenced
in June 1987 with monthly lease payments of $2,500 and allows for one five-year
automatic renewal at the Company's option. One ten-year lease commenced in
December 1995 with monthly lease payments of $1,500 and allows for two five-year
automatic renewals at the Company's option. The other location was sold by Mr.
Evans in December 1998. The amounts paid under these leases were $54,300,
$76,800, and $73,000 for the years ended September 30, 1999, 1998 and 1997,
respectively. Future minimum lease commitments as of September 30, 1999 are
$9,500.

As of September 30, 1999, the Company rented on a month-to-month basis, five
convenience store locations from Mr. Evans. Previously, the Company rented
additional locations which were sold by Mr. Evans to unrelated parties. The
total month-to-month rent paid for the year ended September 30, 1998 was $34,800
and $104,000 for the year ended September 30, 1997. All five locations were sold
by Mr. Evans to unrelated parties in December 1997.

Other current assets at September 30, 1998 include a $111,000 note receivable
from a former director which was refinanced from an earlier note. The note was
paid in December 1998.

From time to time, the Company makes advances to individuals who are
shareholders, directors, officers and/or employees. Such advances are usually
unsecured and accrue interest at 9%. There were no advances outstanding at
September 30, 1999 and 1998.

Page 27
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following financial statements, schedules and exhibits are filed as
part of this report:

(1) and (2) Financial Statements and Financial Statement Schedules.
See Index to Consolidated Financial Statements on Page F-1.
(3) Exhibits.
See Index to Exhibits on sequential page 28.

(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended September 30,
1999.

EVANS SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997

<PAGE>

EVANS SYSTEMS, INC.
FORM 10-K
INDEX TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------------------

F-1
Report of Independent Accountants....................................... F-2

Consolidated Balance Sheet at September 30, 1999 and 1998............... F-3

Consolidated Statement of Operations for the Years Ended
September 30, 1999, 1998 and 1997..................................... F-4

Consolidated Statement of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997..................................... F-5

Consolidated Statement of Stockholders' Equity and Comprehensive Loss
for the Years Ended September 30, 1999, 1998 and 1997................. F-6

Notes to Consolidated Financial Statements.............................. F-7

<PAGE>

Evans Systems, Inc.
Page 3
To the Board of Directors and Stockholders of

F-2
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Evans Systems, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, cash flows and stockholders' equity and
comprehensive loss present fairly, in all material respects, the financial
position of Evans Systems, Inc. and its subsidiaries at September 30, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

PricewaterhouseCoopers LLP

Houston, Texas
January 13, 2000

<PAGE>

EVANS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 AND 1998
- - --------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.
F-7
[OBJECT OMITTED]

<PAGE>

EVANS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- - --------------------------------------------------------------------------------------------

[OBJECT OMITTED]

<PAGE>

EVANS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- - --------------------------------------------------------------------------------------------

[OBJECT OMITTED]

<PAGE>

EVANS SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
- - --------------------------------------------------------------------------------------------

[OBJECT OMITTED]

<PAGE>

EVANS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
- - --------------------------------------------------------------------------------------------

F-8
1.....DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS OPERATIONS
Evans Systems, Inc. and its subsidiaries (the Company) are engaged in petroleum
marketing, convenience store operations and environmental remediation services.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Evans Systems, Inc. and
its subsidiaries. All significant intercompany transactions have been eliminated.

CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less
to be cash equivalents. Cash and cash equivalents are stated at cost which
approximates fair market value.

INVENTORIES
Substantially all inventories are products held for sale. Inventories of
oil and grease, automotive/chemical products, automotive accessories and
convenience store products utilize the first-in, first-out (FIFO) method
of accounting and are stated at the lower of cost or market. Gas and
diesel fuels inventory is valued using the last-in, first-out (LIFO)
method which resulted in inventory being $101,000 and $100,000 less at
September 30, 1999 and 1998 than replacement cost. During 1999 inventory
quantities were reduced. The reduction resulted in a liquidation of LIFO
inventory quantities carried at lower costs prevailing in prior years, the
effect of which decreased cost of sales by $77,000.

PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated utilizing the
straight-line method of computing depreciation over their estimated useful
lives. The cost of assets retired and the related accumulated depreciation
are removed from the accounts and any gain or loss is included in the
results of operations when incurred. Repairs and maintenance are charged
to expense as incurred. Expenditures for major additions and replacements
which extend the lives of assets are capitalized and depreciated over
their remaining estimated useful lives. The Company depreciates assets
over the following estimated useful lives:

Buildings 15-41 years
Life of lease, up to 31
Leasehold improvements years
Equipment 15 years
Transportation equipment 5 years
Office equipment 5-7 years

IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses the realizability of its long-lived
assets and evaluates such assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future
cash flows, undiscounted and without interest charges, are less than the
carrying amount.

MARKETABLE SECURITIES
The Company's investments classified as marketable securities are
considered as "available for sale". Such securities are recorded at market
value with unrealized gains and losses, net of income taxes, being
recognized as a separate component of shareholders' equity. Any "other
than temporary" impairment to the market value of the securities are
recognized as expense during the period in which the impairment occurs.

STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its plans.

INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return.

The Company recognizes income tax expense based on the liability method of
accounting for income taxes. Deferred tax assets and liabilities are
recognized for the income tax effect of temporary differences between the
tax basis of assets and liabilities and their carrying values for
financial reporting purposes. Deferred tax expense or benefit is the
result of changes in deferred tax assets and liabilities during the
period. The Company has recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which more likely than not will be
unrealized.

EARNINGS (LOSS) PER SHARE
The Company reports both basic earnings per share, which is based on the
weighted average number of common shares outstanding, and diluted earnings
per share, which is based on the weighted average number of common shares
as well as all potentially dilutive common shares outstanding. Stock
options and warrants are the only potentially dilutive shares the Company
has outstanding for the periods presented. Stock options and warrants were
not included in the computation of diluted loss per common share for 1999,
1998 and 1997 since they would have resulted in an antidilutive effect on
loss from continuing operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash, trade
receivables, marketable securities, accounts payable, accrued expenses,
revolving credit facilities and notes payable. The carrying values of
cash, trade receivables, accounts payable, accrued expenses and notes
payable approximates current fair value. Revolving credit facilities are
at variable market rates.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Management believes that the estimates are reasonable.

CONCENTRATIONS OF CREDIT RISK
The Company performs periodic evaluations of the relative credit standing
of the financial institutions and investment funds which are considered in
the Company's investment strategy. A majority of the Company's trade
receivables are from retail gasoline stations and convenience stores.
Management believes that its credit and collection policies mitigate the
potential effect of a concentration of credit risk in its accounts
receivable.
2. AGREEMENT TO SELL OPERATIONS

The Company agreed in December 1999 to sell its Texas petroleum marketing
and convenience store operations for cash of $12,675,000 plus the
assumption of capital lease obligations approximating $900,000 and the
cost of inventory on hand at the closing date, estimated to be $2,400,000
also to be received in cash. The sale has been approved by the Board of
Directors and is subject to approval by the Company's shareholders. Terms
of the agreement call for the sale of substantially all of the property
and equipment and inventories in the Texas petroleum marketing and Texas
convenience store segments.
3. RESULTS OF OPERATIONS, LIQUIDITY AND MANAGEMENT'S PLANS

During the three years in the period ended September 30, 1999, the Company
has recorded operating losses from continuing operations aggregating $11.1
million and net losses aggregating $19.6 million. At September 30, 1999,
the Company has a working capital deficit of $9.7 million and
stockholders' equity of $4.1 million. In addition, the Company is in
violation of various debt covenants for which default has been waived by
the bank through December 31, 1999 (Note 6).

As described in Note 2, the Company has agreed to sell a major portion of
its operating assets and is considering liquidating its remaining
operating assets. The Company plans to use the proceeds from the sale of
these assets to retire debt and provide working capital. The Company has
disclosed that it is presently holding talks with several potential merger
candidates in businesses unrelated to its historical business. However,
there can be no assurance that any sale or potential merger can be
consummated on terms which will allow the Company to meet its current and
future obligations.

Should the above noted transactions not be consummated, management has
arranged to replace its existing bank debt with new financing. The new
financing would have the effect of increasing the availability of working
capital; however, the Company may ultimately be required to enter into
other strategic transactions in order to generate positive cash flow and
to meet its current and future obligations.

The Company has received notification from the Nasdaq stock exchange that
it is 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 has
scheduled a hearing on such matters with Nasdaq for

<PAGE>

January 14, 2000. There can be no assurance, however, that the Company
will prevail at the hearing. The Company's ability to raise additional
equity capital in the future could be adversely affected if the Company's
common stock were no longer listed on a national exchange.

There can be no assurance that management's plans as described above will
be successful.
4. DISCONTINUED OPERATION AND LOSS ON IMPAIRMENT OF MARKETABLE SECURITIES

In February 1998, the Company suspended the production activities of its
ChemWay operation which was engaged in the packaging and marketing of
automotive after-market chemical products. In March 1998, the Company made
the decision to sell ChemWay and recorded an estimated loss on disposal of
$705,000 (net of applicable income tax benefit of $395,000) which included
a provision for losses of $200,000 during the phase-out period. The
results of operations of ChemWay have been classified as discontinued
operations and prior periods have been restated. Summary operating results
are as follows (in thousands):

[OBJECT OMITTED] (1) Through December 30, 1998.

On December 30, 1998, the Company completed the sale of ChemWay to
Affiliated Resources Corporation (Affiliated). At that time, the Company
received 1.5 million shares of common stock of Affiliated in exchange for
all the outstanding common stock of ChemWay. In accordance with the terms
of the sale agreement, on December 30, 1999, the Company became entitled
to receive an additional one million shares of common stock of Affiliated
since the average closing price of Affiliated common stock fell below an
agreed-upon price. The Company recorded a gain on the sale, net of
$1,203,000 of income taxes, of $3,973,000 in the first quarter of 1999. As
a result of the sale, the estimated loss on disposal and the related
provision for losses during the phase-out period recorded in the second
and third quarters of 1998 were reversed during the fourth quarter of
1998.

Affiliated common stock is 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 at the transaction date resulting in the gain noted above. The
Company's investment in Affiliated common stock is unregistered and
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 low
closing price in the quarter ended June 30, 1998 of $0.88 to closing
prices of $6.00,$0.63 and $0.27 at December 31, 1998, June 30, 1999 and
September 30, 1999, respectively. 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 and a loss from operations of
$526,843 during the last six months of 1998. In its September 30, 1999
quarterly report on Form 10-QSB, Affiliated reported revenues from
operations of $486,000, a net loss of $1.6 million, negative working
capital of $1.6 million, an accumulated deficit of $9.2 million and
stockholders' equity of $5.0 million.

Subsequent to the exchange of ChemWay common stock for Affiliated common
stock, the Affiliated stock has declined in value to $0.27 per share at
September 30, 1999. 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. 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.
5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at September 30 (in
thousands):

[OBJECT OMITTED]
6. LONG-TERM DEBT

Long-term debt is summarized as follows at September 30 (in thousands):

[OBJECT OMITTED]

On March 31, 1999, the Company amended its credit agreement with one of
its bank lenders (the Refinancing), pursuant to which the bank (i) waived
all previous and continuing covenant defaults; (ii) extended the maturity
of its loan balance to January 31, 2001; and (iii) assumed the amounts
outstanding under the other bank lender's loans under their current terms
and conditions. Under the terms of the Refinancing, such bank lender
received a first-lien position on all of the assets of the Company. The
Refinancing contains certain financial covenant obligations, including
minimum net worth, minimum earnings before interest, taxes and
depreciation, working capital ratio and fixed charge coverage ratio. At
September 30, 1999, the Company was in violation of substantially all of
these covenants; 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 September 30,
1999.

The Company is prohibited by its bank agreement from payment of any cash
dividends and from obtaining additional debt without the bank's consent.

The Company's capital lease liability relates to the lease of the
Company's information system and trucks which were capitalized using
effective interest rates of 9.3% and 9%, respectively. At September 30,
1999 and 1998, the gross amount of assets recorded under capital leases
was $1,436,000 and the related accumulated amortization was $878,000 and
$658,000, respectively. Total future capital lease payments are $1,011,000
and include unearned interest of $142,000.

As of September 30, 1999 (after consideration of the debt refinancing
described above), scheduled principal maturities of long-term debt are as
follows (in thousands):

[OBJECT OMITTED]
7. INCOME TAXES

The provision for (benefit from) income taxes consists of the following
(in thousands):

[OBJECT OMITTED]

The difference between income taxes at the statutory federal and effective
income tax rates is as follows (in thousands):

[OBJECT OMITTED]

Income taxes are attributable to the following (in thousands):

[OBJECT OMITTED]

Deferred tax assets (liabilities) are comprised of the following (in
thousands):

[OBJECT OMITTED]

At September 30, 1999, the Company had regular tax net operating loss
carryforwards from continuing operations of $15.6 million available for
federal income tax purposes which expire through 2019.

Changes in the Company's ownership, as defined under Section 382 of the
Internal Revenue Code, could result in certain limitations on the annual
amount of net operating losses that may be utilized.
8. OPERATING LEASES

The Company leases 25 convenience store locations and four other
facilities under operating lease agreements with varying lives and terms.
Three of these leases are with related parties (Note 10). At September 30,
1999, the scheduled future minimum lease payments required under the terms
of the operating leases in effect are (in thousands):

[OBJECT OMITTED]

In addition, the Company rents six convenience store locations and other
facilities on a month-to-month basis from various parties, including one
from a related party (Note 10). Rent paid for these facilities totaled
$20,200, $75,600 and $180,000 for the years ended September 30, 1999, 1998
and 1997.

The Company has 12 subleases. Minimum rentals to be received in the future
under these noncancelable subleases totaled $493,950 as of September 30,
1999.
9. COMMON STOCK

On December 16, 1996, the Company declared a five percent stock dividend
to stockholders of record on December 31, 1996 which was paid on January
20, 1997.

In August 1992, the Company issued warrants to purchase shares of the
Company's common stock at an exercise price of $2.86 per share. In June
1997, the Company extended the expiration date of the remaining warrants
to August 1, 2002 and recorded compensation expense of $38,000. In 1999,
1998 and 1997, 54,938, 4,725 and 57,938 of such warrants were exercised.
At September 30, 1999, warrants to purchase 10,000 shares are outstanding.

In December 1994 and May 1995, the Company issued warrants to purchase
262,500 shares of the Company's common stock at an exercise price of $4.76
per share. These warrants expired in May 1997 and December 1999.

In May 1998, the Company issued warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $1.00 per share in exchange
for certain consulting services and recorded compensation expense of
$38,500. The warrants were exercised in July 1998.

In December 1994, the Company adopted the ESI Stock Benefit Plan. Up to
420,000 shares of the Company's common stock may be purchased or granted
under the plan, and provision has been made for automatic increases in
such amount of shares in the event the number of common shares issued by
the Company increases to specified levels. An option granted under the
plan by the Board of Directors to a key employee may be an incentive stock
option or a nonqualified option and may be accompanied by stock
appreciation rights or limited rights. Incentive stock options must be
granted at an exercise price of not less than 100% of the then fair market
value of the stock. Nonqualified stock options must be granted at an
exercise price of not less than 90% of the then fair market value of the
stock. All options shall expire upon termination of employment or within
five or ten years of the date of grant. Nonemployee directors shall be
automatically granted nonqualified options to purchase 2,500 shares of
common stock annually. Vesting is to be determined by the Board of
Directors.

In August 1995, the Company granted contingent stock awards to two
individuals. The individuals were granted an aggregate of 105,000 shares
of restricted common stock which vested in fiscal 1998, 1997 and 1996,
subject to achievements of certain profitability levels. In 1998, 1997 and
1996, such provisions were not met and all grants were canceled.

In June 1996, an officer of the Company was awarded 525 shares of
restricted common stock.

In May and December 1997, the Company granted certain employees options to
purchase an aggregate of 330,600 shares of common stock at exercise prices
ranging from $1.31 to $4.00. The options vested upon the Company's common
stock reaching a market value of $6.50 per share for five consecutive days
as specified in the agreements. The grants would be canceled if such
provisions were not met. The provisions were met in November 1998. The
Company recorded compensation expense of $1.1 million and $229,000 for
continuing and discontinued operations, respectively, in the fourth
quarter of 1998 for the difference in the exercise prices of the options
and the market price of the Company's stock at September 30, 1998.
Additional compensation expense of $208,000 and $40,000 for continuing and
discontinued operations, respectively, was recorded in the first quarter
of 1999 for the difference in the market price of the Company's stock at
September 30, 1998 and $6.50 per share.

In December 1998, the Company granted certain members of the Board of
Directors options to acquire an aggregate of 7,500 shares at $11.63 per
share.

In December 1998, the Company agreed to grant options to acquire 75,000
shares at $11.63 per share to its chief executive officer, subject to
shareholder approval. Such options have not been granted.

In May 1999, the Company granted certain employees options to receive an
aggregate of 24,000 shares of common stock, of which 7,500 have
subsequently expired. The shares vest one year from the date of grant and
may be exercised 180 days thereafter. The closing price of the Company's
common stock was $30.56 per share and $196,000 has been recorded as
compensation expense in fiscal 1999.

A summary of the option activity under the various plans follows:

[OBJECT OMITTED]

Although 79,000 options are outstanding at September 30, 1999, only 29,000
underlying common shares are registered under a plan.

The weighted average fair value at date of grant for options granted
during 1999, 1998 and 1997 are as follows:

[OBJECT OMITTED]

As of September 30, 1999, 79,000 options were outstanding with exercise
prices ranging from $0 to $11.63, a weighted average remaining contractual
life of 3.4 years and a weighted average option price of $2.97. Of these
options outstanding, 42,500 were exercisable with a weighted average
option price of $3.95.

The Company applies APB 25 and related interpretations in accounting for
its plans. The following unaudited pro forma data is calculated as if
compensation cost for the Company's stock option plans were determined
based upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(in thousands):

[OBJECT OMITTED]

The fair value of the options granted is estimated using the Black-Scholes
option-pricing model with the following assumptions for 1999: no dividend
yield, volatility of 92%, risk-free interest rate of 4.5% to 4.9% and an
expected life of 3.7 to 5 years. For 1998, the following assumptions were
used: no dividend yield, volatility of 40%, risk-free interest rate of 5.5
- 5.7% and an expected life of five years.

On June 1, 1998, the Company agreed to issue 350,000 common shares for
total consideration of $262,500 in a private placement to accredited
investors. Such shares were issued on October 27, 1998. On January 4,
1999, the Company issued 40,000 common shares valued at $15.25 per share
to an investment advisor for investment advisory services rendered. The
investment advisor has the right to sell the shares back to the Company at
$4 per share until ninety days following the registration of the shares.
10. RELATED PARTY TRANSACTIONS

During 1999, the Company leased three convenience store locations from Mr.
J. L. Evans, the largest shareholder of the Company. One ten-year lease
commenced in June 1987 with monthly lease payments of $2,500 and allows
for one five-year automatic renewal at the Company's option. One ten-year
lease commenced in December 1995 with monthly lease payments of $1,500 and
allows for two five-year automatic renewals at the Company's option. The
other location was sold by Mr. Evans in December 1998. The amounts paid
under these leases were $54,300, $76,800 and $73,000 for the years ended
September 30, 1999, 1998 and 1997. Future minimum lease commitments as of
September 30, 1999 are $119,500.

As of September 30, 1997, the Company rented, on a month-to-month basis,
five convenience store locations from Mr. Evans. Previously, the Company
rented additional locations which were sold by Mr. Evans to unrelated
parties. The total month-to-month rent paid for the year ended September
30, 1998 was $34,800 and $104,000 for the year ended September 30, 1997.
All five locations were sold by Mr. Evans to unrelated parties in December
1997.

Other current assets at September 30, 1998 include a $111,000 note
receivable from a former director which was refinanced from an earlier
note. The note was repaid in December 1998.

From time to time, the Company makes advances to individuals who are
shareholders, directors, officers and/or employees. Such advances are
usually unsecured and accrue interest at 9%. There were no advances
outstanding at September 30, 1999 and 1998.
11. CONTINGENT LIABILITIES

From time to time the Company exchanges refined products with suppliers by
agreeing to purchase or sell refined products at a future date. Such
activity could adversely affect the results of operations and financial
condition of the Company if the market prices of such products were to
fluctuate significantly. As of September 30, 1999, management believes the
Company had no material risk related to such activities.

The Company is a guarantor of a $210,000 obligation of ChemWay to a bank.
During 1999, the Company paid $35,000 to satisfy its obligations under
this guarantee.

A purported class action lawsuit has been filed 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 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 the 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 reasonably 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.

The Company is subject to litigation, primarily as a result of customer
claims, in the ordinary conduct of its operations. As of September 30,
1999, the Company had no knowledge of any legal proceedings, other than as
described above, which, by themselves or in the aggregate, could be
expected to have a material adverse effect on the Company.
12. EMPLOYEE BENEFIT PLANS

The Company established a defined contribution benefit plan, the ESI
Employee Retirement Plan, effective July 1, 1997. Employees become
eligible for participation in the plan upon attaining the age of 21 and
completion of 12 consecutive months of employment and 1,000 hours or more
of service. The Company contributes an amount equal to 50% of employee
voluntary contributions up to a maximum of 5% of the employee's
compensation. Such contributions may be made in the common stock of the
Company. The Company recorded contributions to the plan of $61,000,
$45,000 and $40,000 during fiscal 1999, 1998 and 1997, respectively.

In 1992, the Company adopted an employee stock ownership plan to provide
retirement benefits to eligible employees. The Company recorded
contributions to the plan of $21,000 and $40,000 during fiscal 1998 and
1997, respectively. Effective December 31, 1998, the employee stock
ownership plan was merged into the ESI Employee Retirement Plan.
13. SEGMENT REPORTING

During the year ended September 30, 1999, the Company adopted SFAS 131,
"Disclosure About Segments of an Enterprise and Related Information".
Prior years' segment information has been restated to conform to the
current-year presentation. The Company has four reportable segments: Texas
petroleum marketing, Texas convenience stores, Louisiana petroleum
marketing and convenience store operations and environmental remediation
services. The Texas petroleum marketing segment 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 2, the Company has
agreed to sell its Texas petroleum marketing and convenience store
operations. 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.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating income (loss). Intersegment sales and
transfers are accounted for as if such sales or transfers were to third
parties, that is, at current market prices.

Information concerning the Company's business activities is summarized as
follows (in thousands):

[OBJECT OMITTED]
(1)Consists primarily of corporate overhead expenses and unallocated corporate
assets. Corporate assets include investment in marketable securities,
discontinued operations, income tax assets and corporate property and
equipment.

A reconciliation of the Company's segment operating information to
consolidated loss from continuing operations before income taxes is as
follows (in thousands):

[OBJECT OMITTED]
14. QUARTERLY FINANCIAL DATA (UNAUDITED)

Unaudited quarterly financial data is summarized as follows (in thousands,
except for per share amounts):

[OBJECT OMITTED]

[OBJECT OMITTED]
(1) The second quarter of 1998 included an estimated loss, net of
applicable taxes of $705,000, for the disposal of the ChemWay
operation. The third quarter of 1998 includes an operating loss from
ChemWay of $242,000. These estimated losses were reversed in the fourth
quarter of 1998 as ChemWay was sold in December 1998 at a gain (Note
4).
(2)The fourth quarter of 1998 included $1.1 million in compensation
expense for performance-based stock options charged to continuing
operations (Note 9).

</TABLE>

<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

EVANS SYSTEMS, INC.

/s/ J.L. EVANS, SR.
--------------------
Jerriel L. Evans, Sr.
Chairman of the Board and Chief
Executive Officer

January 13, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date(s) indicated:

/S/ J.L. EVANS, SR. /S/ RICHARD A. GOEGGEL
- - ----------------------------------------- -----------------------
Jerriel L. Evans, Sr., January 13, 2000 Richard A. Goeggel, January 13, 2000
Chairman of the Board and Chief Executive Chief Financial Officer and Director
Officer

/S/ CHARLES N. WAY /S/ CARL W. SCHAFER
- - ----------------------------------------- --------------------
Charles N. Way, January 13, 2000 Carl W. Schafer, January 13, 2000
Corporate Controller and Director Director

/S/ DARLENE E. JONES
- - ---------------------
Darlene E. Jones, January 13, 2000
Treasurer and Director

/S/ JULIE H. EDWARDS
- - ---------------------
Julie H. Edwards, January 13, 2000
Director

Page 27
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ---------------
<S> <C> <C>
3.1 Articles of Incorporation of the Company filed with the Texas
Secretary of State on October 22, 19681. Filed with May 11, 1993
filing of Form S-1 Registration #33-62684.
3.2 Certificate of Amendment to Articles of Incorporation of Evans
Systems, Inc., filed with the Texas Secretary of State on September
21, 19921. Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
3.3 Certificate Amendment of Articles of Incorporation of Evans Systems,
Inc., filed with the Texas Secretary of State on April 9, 1993.
Filed with May 11, 1993 filing of Form S-1 Registration #33-62684.
3.4 By-Laws of the Company. Filed with May 11, 1993 filing of Form S-1
Registration #33-62684.
10.1 Phillips "66" Marketing Agreement dated October 21, 1986. Filed with
May 11, 1993 filing of Form S- 1 Registration #33-62684.
10.2 Amoco Lubricants Distributor Agreement dated June 21, 1990 and
Schedule dated January 2, 1992. Filed with May 11, 1993 filing of
Form S-1 Registration #33-62684.
10.3 Diamond Shamrock Storage Lease dated July 12, 1985. Filed with May
11, 1993 filing of Form S-1 Registration #33-62684.
10.4 Star Enterprise "Texaco" Marketing Agreement effective July 1, 1993.
Filed with May 11, 1993 filing of Form S-1 Registration #33-62684.
10.5 Shell Lubricants Reseller Agreement effective January 1, 1992. Filed
with May 11, 1993 filing of Form S-1 Registration #33-62684.
10.6 Texaco Lubricants agreement effective July 1, 1990. Filed with May
11, 1993 filing of Form S-1 Registration #33-62684.
10.7 Conoco Jobber Franchise Agreement effective April 1, 1990. Filed
with May 11, 1993 filing of Form S-1 Registration #33-62684.
10.8 Mobil Marine Distributor Agreement effective June 3, 1992. Filed
with May 11, 1993 filing of Form S-1 Registration #33-62684.
10.9 Form of Series B Warrants to Purchase Common Stock of Registrant.
Filed with May 11, 1993 filing of Form S-1 Registration #33-62684.
10.10 Coastal Refinery & Marketing, Inc. Facilities Access Agreement,
effective September 5, 1989. Filed with May 11, 1993 filing of Form
S-1 Registration #33-62684.
10.11 FINA Lubricants Marketing Agreement dated February 1, 1989. Filed
with May 11, 1993 filing of Form S-1 Registration #33-62684.
10.12 Texaco Terminating Agreement dated April 30, 1986. Filed with May
11, 1993 filing of Form S-1 Registration #33-62684.
10.13 Citgo Petroleum Distributor Franchise Agreement effective August 1,
1992. Filed with May 11, 1993 filing of Form S-1 Registration
#33-62684.
10.14 Incentive Stock Option Plan. Filed with May 11, 1993 filing of Form
S-1 Registration #33-62684.
10.15 Form of Incentive Stock Option Agreement. Filed with May 11, 1993
filing of Form S-1 Registration #33-62684.
10.16 Summary Plan Description of E.S.O.P. Filed with May 11, 1993 filing
of Form S-1 Registration #33- 62684.
10.17 Employment Contract with Bill R. Kincer, incorporated by reference
from Exhibit 10.28 to the Company's Annual Report on Form 10-K for
the year ended September 30, 1994.
10.18 Pruett Petroleum, Inc. and Koonce Petroleum Company, Inc. agreement
dated October 4, 1994, incorporated by reference from Exhibit 10.29
to the Company's Annual Report on Form 10-K for the year ended
September 30, 1994.
10.19 Employment Agreement with Richard A. Goeggel, effective June 16,
1998, incorporated by reference from Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1998.
10.20 Employment Agreement with Richard B. Dix, effective April 16, 1998,
incorporated by reference from Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998.
10.21 Employment Agreement with J.L. Evans, Sr., effective April 6, 1998,
incorporated by reference from Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998.
</TABLE>
Page 28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ---------------
<S> <C> <C>
10.22 Stock Purchase Agreement dated as of October 30, 1998 by and among
the Company, Synaptix Systems Corporation, a Colorado corporation,
d.b.a. Affiliated Resources Corporation, and Way Energy, Inc., a
Delaware corporation, incorporated by reference from Exhibit 10.22
to the Company's Annual Report on Form 10-K for the year ended
September 30, 1998.
10.23 Amendment No. 1 to Stock Purchase Agreement, dated December 39, 1998
by and among the Company, Synaptix Systems Corporation, a Colorado
corporation, d.b.a. Affiliated Resources Corporation, and Way
Energy, Inc., a Delaware corporation, incorporated by reference from
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998.
10.24 Loan Agreement between the Company and Texas Commerce Bank National
Association, dated as of August 30, 1996, incorporated by reference
from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the three months ended March 31, 1999.
10.25 Amendment to Loan Agreement dated August 4, 1997, incorporated by
reference from Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999.
10.26 Amendment to Loan Agreement dated December 24, 1997, incorporated by
reference from Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999.
10.27 Amendment to Loan Agreement dated April 23, 1998, incorporated by
reference from Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999.
10.28 Amendment to Loan Agreement dated March 31, 1999, incorporated by
reference from Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1999.
10.29 Asset Purchase Agreement dated December 3, 1999, by and between TSC
Services, Inc., Evans Systems, Inc., Diamond Mini Mart, Inc., Evans
Oil Co., EDCO, Inc., and Way Energy Systems, Inc. incorporated by
reference from Exhibit 2.1 to the Company's Current Report on Form
8-K dated December 9, 1999.

*10.30 Amendment to Loan Agreement dated June 30, 1999
*10.31 Amendment to Loan Agreement dated August 31, 1999
*10.32 Amendment to Loan Agreement dated November 30, 1999
*22.0 Subsidiaries of Registrant
*23.0 Consent to the incorporation by reference in the Company's
Registration Statements on Forms S-3 and S-8 of the report of
PricewaterhouseCoopers LLP included herein.
*27.1 Financial Data Schedule.
</TABLE>

o Filed herewith.

EXHIBIT 10.30

AMENDMENT TO LOAN AGREEMENT

THIS AMENDMENT TO LOAN AGREEMENT ("AMENDMENT") dated as of June 30, 1999
(the "AMENDMENT EFFECTIVE DATE") is made and entered into by and between EVANS
SYSTEMS, INC., a Texas corporation (the "BORROWER") and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION ("LENDER"), a national banking association.

RECITALS:

WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated
as of August 30, 1996, as heretofore amended (the "LOAN AGREEMENT"); and

WHEREAS, the Borrower executed and delivered to the Lender the Note (as
defined in the Loan Agreement); and

WHEREAS, the Borrower and the Lender have agreed, on the terms and
conditions herein set forth, that the Loan Agreement and the Note be amended in
certain respects;

NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:

SECTION 1. DEFINITIONS. Terms used herein which are defined in the Loan
Agreement shall have the same meanings when used herein unless otherwise
provided herein.

SECTION 2. AMENDMENTS TO THE LOAN AGREEMENT. On and after the Amendment
Effective Date, PARAGRAPH 2(D) of the Loan Agreement is hereby amended to read
in its entirety as follows:

(d) On the earlier of August 31, 1999 or the date that the Facility
Debt shall have been paid in full, pay to Lender a fee in the amount of
$250,000.00 and, in addition to and cumulative of the foregoing, on each
of August 31, 1999 and December 31, 1999 (unless the Facility Debt shall
have been paid in full on or prior to the applicable payment date), pay to
Lender a fee in the amount of $250,000.00.

SECTION 3. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Credit Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Lender may now have or may have in the
future under or in connection with the Loan Agreement, the Credit Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Loan Agreement, the Notes, and any other Credit Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this
Amendment and any of the foregoing documents, the terms

<PAGE>
of this Amendment shall be controlling. The representations and warranties made
in each Credit Document are true and correct in all material respects on and as
of the Amendment Effective Date.

SECTION 4. PAYMENT OF EXPENSES. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Lender, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which may be payable in respect of, or in respect of any modification
of, the Loan Agreement and the other Credit Documents. The provisions of this
Section shall survive the termination of the Loan Agreement and the repayment of
the Loans.

SECTION 5. GOVERNING LAW. This Amendment and the rights and obligations of
the parties hereunder and under the Loan Agreement shall be construed in
accordance with and be governed by the laws of the State of Texas and the United
States of America.

SECTION 6. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several Sections of this Amendment are inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.

SECTION 7. ENTIRE AGREEMENT. This Amendment and the documents referred to
herein represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof, including, without limitation, any commitment letters regarding the
transactions contemplated by this Amendment.

SECTION 8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts and all of such
counterparts shall together constitute one and the same instrument.

SECTION 9. AMENDED DEFINITIONS. As used in the Loan Agreement (including
all Exhibits thereto) and all other instruments and documents executed in
connection therewith, on and subsequent to the Amendment Effective Date the term
(i) "Agreement" shall mean the Loan Agreement as amended by this Amendment, and
(ii) references to any and all other Credit Documents shall mean such documents
as amended as contemplated hereby.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.

NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss 26.02

2
<PAGE>
THIS AMENDMENT AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

EVANS SYSTEMS, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT

3
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking
association

By: /s/ JAMES A. FLYNN
Name: JAMES A. FLYNN
Title: VICE PRESIDENT

4
<PAGE>
The undersigned hereby join in the execution of this Amendment to evidence
their consent hereto and their acknowledgment that the Credit Documents executed
by the undersigned shall continue to apply to the Loan Agreement, as amended
hereby.

WAY ENERGY SYSTEMS, INC.,
a Delaware corporation

By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT

DIAMOND MINI MART, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EDCO, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EVANS OIL COMPANY, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

5
<PAGE>
EDCO ENVIRONMENTAL SYSTEMS, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

IN & OUT MINI MART, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EXHIBIT 10.31

AMENDMENT TO LOAN AGREEMENT

THIS AMENDMENT TO LOAN AGREEMENT ("AMENDMENT") dated as of August 31, 1999
(the "AMENDMENT EFFECTIVE DATE") is made and entered into by and between EVANS
SYSTEMS, INC., a Texas corporation (the "BORROWER") and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION ("LENDER"), a national banking association.

RECITALS:

WHEREAS, the Borrower and the Lender are parties to a Loan Agreement dated
as of August 30, 1996, as heretofore amended (the "LOAN AGREEMENT"); and

WHEREAS, the Borrower executed and delivered to the Lender the Note (as
defined in the Loan Agreement); and

WHEREAS, the Borrower and the Lender have agreed, on the terms and
conditions herein set forth, that the Loan Agreement and the Note be amended in
certain respects;

NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:

SECTION 1. DEFINITIONS. Terms used herein which are defined in the Loan
Agreement shall have the same meanings when used herein unless otherwise
provided herein.

SECTION 2. AMENDMENTS TO THE LOAN AGREEMENT. On and after the Amendment
Effective Date, PARAGRAPH 2(D) of the Loan Agreement is hereby amended to read
in its entirety as follows:

(d) On the earlier of February 28, 2000 or the date that the
Facility Debt shall have been paid in full, pay to Lender a fee in the
amount of $506,250.00 and, in addition to and cumulative of the foregoing,
on the earlier of February 28, 2000 or the date that the Facility Debt
shall have been paid in full, pay to Lender fees accruing as follows (if
the Facility Debt shall be paid in full prior to the applicable accrual
date, the indicated fee for such date shall not become payable):

ACCRUAL DATE FEE

September 30, 1999 $6,250.00
October 31, 1999 $6,250.00
November 30, 1999 $6,250.00
December 31, 1999 $256,250.00
January 31, 2000 $9,375.00
February 28, 2000 $9,375.00

1
<PAGE>
SECTION 3. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement or any of
the other Credit Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Lender may now have or may have in the
future under or in connection with the Loan Agreement, the Credit Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Loan Agreement, the Notes, and any other Credit Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this
Amendment and any of the foregoing documents, the terms of this Amendment shall
be controlling. The representations and warranties made in each Credit Document
are true and correct in all material respects on and as of the Amendment
Effective Date.

2
<PAGE>
by this Amendment, and (ii) references to any and all other Credit Documents
shall mean such documents as amended as contemplated hereby.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.

NOTICE PURSUANT TO TEX. BUS. & COMM. CODES ss 26.02

THIS AMENDMENT AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

EVANS SYSTEMS, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT

3
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking
association

By: /s/ JAMES A. FLYNN
Name: JAMES A. FLYNN
Title: VICE PRESIDENT

WAY ENERGY SYSTEMS, INC.,
a Delaware corporation

By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT

DIAMOND MINI MART, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EDCO, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EVANS OIL COMPANY, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

5
<PAGE>
EDCO ENVIRONMENTAL SYSTEMS, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

IN & OUT MINI MART, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EXHIBIT 10.32

MODIFICATION OF NOTES

THIS MODIFICATION OF NOTES ("MODIFICATION") dated as of November 30, 1999
(the "MODIFICATION EFFECTIVE DATE") is made and entered into by and between
EVANS SYSTEMS, INC., a Texas corporation (the "BORROWER") and CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION ("LENDER"), a national banking association.

RECITALS:

WHEREAS, the Borrower has executed and delivered to the Lender (i) that
certain promissory note dated as of August 4, 1997 in the original principal
amount of $8,700,000, (ii)that certain promissory note dated as of November 29,
1996 in the original principal amount of $300,000, (iii) that certain promissory
note dated as of August 4, 1997 in the original principal amount of $600,000 and
(iv) that certain promissory note dated as of March 31, 1999 in the original
principal amount of $1,560,860 (such promissory notes being herein collectively
called the "NOTES"); and

WHEREAS, the Borrower and the Lender have agreed, on the terms and
conditions herein set forth, that the Notes be modified in certain respects;

NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, IT IS AGREED:

SECTION 1. MODIFICATION OF NOTES. Each of the Notes is hereby modified by
deferral of the principal payments due on November 30, 1999, December 31, 1999,
January 31, 2000 and February 28, 2000 until the stated maturity dates of the
respective Notes. Payment of accrued and unpaid interest shall not be deferred.

SECTION 2. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Loan Agreement (as
defined in the Notes) or any of the other Credit Documents 9as defined in the
Credit Agreement), or (b) except as expressly set forth herein, prejudice any
right or rights which the Lender may now have or may have in the future under or
in connection with the Loan Agreement, the Credit Documents or any of the other
documents referred to therein. Except as expressly modified hereby or by express
written amendments thereof, the terms and provisions of the Loan Agreement, the
Notes, and any other Credit Documents or any other documents or instruments
executed in connection with any of the foregoing are and shall remain in full
force and effect. In the event of a conflict between this Modification and any
of the foregoing documents, the terms of this Modification shall be controlling.
The representations and warranties made in each Credit Document are true and
correct in all material respects on and as of the Modification Effective Date.

SECTION 3. PAYMENT OF EXPENSES. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in connection with the
preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Modification,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Lender, and all stamp taxes (including interest and
penalties, if any), recording taxes and fees, filing taxes and fees, and other
charges which

<PAGE>
may be payable in respect of, or in respect of any modification of, the Loan
Agreement and the other Credit Documents. The provisions of this Section shall
survive the termination of the Loan Agreement and the repayment of the Notes.

SECTION 4. GOVERNING LAW. This Modification and the rights and obligations
of the parties hereunder and under the Loan Agreement shall be construed in
accordance with and be governed by the laws of the State of Texas and the United
States of America.

SECTION 5. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several Sections of this Modification are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.

SECTION 6. ENTIRE AGREEMENT. This Modification and the documents referred
to herein represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof, including, without limitation, any commitment letters regarding the
transactions contemplated by this Modification.

SECTION 7. COUNTERPARTS. This Modification may be executed in any number
of counterparts and by different parties on separate counterparts and all of
such counterparts shall together constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Modification to be
duly executed and delivered by their respective duly authorized offices as of
the date first above written.

NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss 26.02

THIS MODIFICATION AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

EVANS SYSTEMS, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT

2
<PAGE>
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, a national banking
association

By: /s/ JAMES A. FLYNN
Name: JAMES A. FLYNN
Title: VICE PRESIDENT

3
<PAGE>
The undersigned hereby join in the execution of this Modification to
evidence their consent hereto and their acknowledgment that the Credit Documents
executed by the undersigned shall continue to apply to the Notes, as modified
hereby.

WAY ENERGY SYSTEMS, INC.,
a Delaware corporation

By: /s/ J.L. EVANS, SR.
Name: J.L. EVANS, SR.
Title: PRESIDENT

DIAMOND MINI MART, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EDCO, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EVANS OIL COMPANY, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

4
<PAGE>
EDCO ENVIRONMENTAL SYSTEMS, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

IN & OUT MINI MART, INC.,
a Texas corporation

By: /s/ J.L. EVANS, SR.
Name J.L. EVANS, SR.
Title: PRESIDENT

EXHIBIT 22.0

SUBSIDIARIES OF REGISTRANT

1) EVANS OIL OF LOUISIANA, INC.
100% Owned Subsidiary
Incorporated in the State of Louisiana

2) IN & OUT MINI MART, INC.
100% Owned Subsidiary
Incorporated in the State of Texas

3) DIAMOND MINI MART, INC.
100% Owned Subsidiary of In & Out Mini Mart, Inc.
Incorporated in the State of Texas

4) EVANS OIL COMPANY, INC.
100% Owned Subsidiary
Incorporated in the State of Texas

5) EDCO, INC.
19% Owned Subsidiary of Evans Systems, Inc.
81% Owned Subsidiary of Evans Oil Company, Inc.
Incorporated in the State of Texas

6) WAY ENERGY SYSTEMS, INC.
100% Owned Subsidiary
Incorporated in the State of Delaware

7) EDCO ENVIRONMENTAL SYSTEMS, INC.
100% Owned Subsidiary
Incorporated in the State of Texas

8) DISTRIBUTOR INFORMATION SYSTEMS CORPORATION
100% Owned Subsidiary
Incorporated in the State of Texas

Page 30

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos 33-62684,, 33-943372 and 333-60217) and the
Prospectus constituting part of the Registration Statement on Form S-3 (No.
333-08197) of Evans Systems, Inc. of our report dated January 13, 2000,
appearing on page F-2 of this Form 10-K.

PricewaterhouseCoopers LLP

Houston, Texas
January 13, 2000

<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 992
<SECURITIES> 0
<RECEIVABLES> 2,701
<ALLOWANCES> 290
<INVENTORY> 2,984
<CURRENT-ASSETS> 6,729
<PP&E> 27,498
<DEPRECIATION> 12,602
<TOTAL-ASSETS> 717
<CURRENT-LIABILITIES> 22,342
<BONDS> 16,452
0
0
<COMMON> 0
<OTHER-SE> 41
<TOTAL-LIABILITY-AND-EQUITY> 4,055
<SALES> 22,342
<TOTAL-REVENUES> 87,273
<CGS> 87,273
<TOTAL-COSTS> 75,419
<OTHER-EXPENSES> 15,234
<LOSS-PROVISION> 8,265
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,708
<INCOME-TAX> (13,353)
<INCOME-CONTINUING> (47)
<DISCONTINUED> (13,306)
<EXTRAORDINARY> 3,973
<CHANGES> 0
<NET-INCOME> (9,333)
<EPS-BASIC> (2.43)
<EPS-DILUTED> (2.43)

</TABLE>