10-Q/A 1 tenqa.txt TENQA.TXT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q/A AMENDMENT 1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 Commission File Number 1-6537-3 ALL STAR GAS CORPORATION (Exact Name of Registrant as Specified in its Charter) MISSOURI 43-1494323 --------------------- ---------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) P.O. Box 303, 119 West Commercial Street, Lebanon, Missouri 65536 (Address of Principal Executive Offices and Zip Code) (417) 532-3103 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Number of Shares of outstanding common stock (one class only) as of October 31, 2001 was 1,586,891. ================================================================================ The Condensed Consolidated Statement of Operations included in Item 1 of Part 1 of Form 10-Q contained a calculation error in the gain or loss on the sale of assets (3 retail service centers) which resulted in an understatement of the Company's net loss and basic and diluted loss per common share for the three months ended September 30, 2001. This also resulted in an error in the balances of income taxes payable, deferred income taxes payable and retained earnings on the Condensed Consolidated Balance Sheet at September 30, 2001 included in Item 1 of Part 1 of Form 10-Q. The calculation error also resulted in the Condensed Consolidated Statement of Cash Flows for the three months ended September 30, 2001 included in Item 1 of Part 1 of Form 10-Q reflecting errors in cash flows from operating activities. The Condensed Consolidated Financial Statements as of and for the three months ended September 30, 2001 in Item 1 of Part 1 have been restated to correct the calculation error. Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part 1 has been restated to correct the Company's working capital (deficit). Items 1 and 2 of Part 1 of the registrant's Form 10-Q are hereby amended in their entirety as follows: PART I -- FINANCIAL INFORMATION Item 1. Financial Statements ALL STAR GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except Per Share Amounts)

3 ALL STAR GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except Per Share Amounts)

See Notes to Condensed Consolidated Financial Statements 4 ALL STAR GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) (Dollars in Thousands, Except Per Share Amounts)

See Notes to Condensed Consolidated Financial Statements. 5 ALL STAR GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) (Dollars in Thousands)

See Notes to Condensed Consolidated Financial Statements 6 ALL STAR GAS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) (1) BASIS OF PRESENTATION All Star Gas Corporation (the "Company") was founded in 1963 and through its subsidiaries has been in operation for over 38 years. The Company is engaged primarily in the retail marketing of propane and propane related appliances, supplies and equipment to residential, agricultural and commercial customers. The accompanying unaudited condensed consolidated financial statements contain, in the opinion of Management, all adjustments necessary to present fairly the Company's consolidated financial position as of September 30, 2001, and the consolidated results of its operations and cash flows for the periods ended September 30, 2001 and 2000. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the Company's audited consolidated financial statements as of June 30, 2001, and the notes thereto included in the Form 10-K as filed with the United States Securities and Exchange Commission as disclosure which would substantially duplicate the disclosure contained in that registration has been omitted. The condensed consolidated balance sheet of the Company as of June 30, 2001 has been derived from the audited consolidated balance sheet of the Company as of that date. Due to the seasonal nature of the Company's business, the results of operations for the three months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year. The report of BKD, LLP commenting upon their review accompanies the condensed consolidated financial statements included in Item 1 of Part I. (2) MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS The Company reported income from operations during the fiscal year ended June 30, 2000, primarily due to the gains recognized on the sale of certain retail service centers. The Company has otherwise suffered recurring losses from operations and continues to have net working capital and net stockholders' equity deficiencies, which have existed since June 30, 1994 and is in default with respect to its outstanding Senior Secured Notes due 2003 and with its 9% Subordinated Debentures due 2007. Also, as a result of the Company's significant disposition of retail service centers during fiscal 2000, the Company has incurred a $7.7 million federal tax liability that was due September 15, 2000. The Company was unable to pay the obligation when due. The Internal Revenue Service (the "IRS") has placed liens on Company assets. The Company has entered into a workout plan with the IRS for payment of the tax obligation. 7 The financial statements have been prepared assuming the Company will continue as a going concern, realizing assets and liquidating liabilities in the ordinary course of business. Management is undertaking several strategies involving additional debt and equity restructurings for mitigating these conditions during the coming year. Although not currently planned, realization of assets in other than the ordinary course of business to meet liquidity needs could incur losses not reflected in these financial statements. (3) SELF-INSURANCE AND CONTINGENCIES Under the Company's current insurance program, the Company purchases comprehensive general, auto and employers liability coverage and an excess liability policy provides for losses of up to $75 million. The general liability coverage has a $250,000 self-insured retention with a $1 million cap on total claims. The Company's combined auto and workers' compensation coverage is insured through participation in a captive insurance program. The Company obtains excess coverage on occurrence basis policies. Provisions for self-insured losses are recorded based upon the Company's estimates of the aggregate self-insured liability for claims incurred, resulting in a retention for a portion of these expected losses. The Company and its subsidiaries are defendants in other various lawsuits related to the self-insurance program, which presently are not expected to have a material adverse effect on the Company's financial position or results of operations but could change materially in the near term. The Company and its subsidiaries are presently involved in other various federal and state tax audits, which presently are not expected to have a material adverse effect on the Company's financial position or results of operations. (4) FUTURES AND FORWARD CONTRACTS The Company routinely makes purchase and sale commitments under supply contracts and similar agreements with other parties that typically have a term of less than one year. As of September 30, 2001, the Company had outstanding commitments to purchase approximately 11.2 million gallons of LP gas for approximately $6.2 million. The Company also had outstanding commitments to sell approximately 2.4 million gallons of LP gas at September 30, 2001. The Company also uses commodity futures contracts to reduce the risk of price fluctuations for liquefied propane (LP) gas purchase and sale commitments. As of September 30, 2001 the Company had no open positions on commodity futures contracts. As of September 30, 2000 the Company's open positions on futures contracts consisted of 5.5 million gallons and had a fair value of approximately $326,000. 8 (5) LOSS PER COMMON SHARE Loss per common share is computed by dividing the net loss for the three month periods by the average number of common shares and, except where anti-dilutive, common share equivalents outstanding, if any. Common share equivalents outstanding as of September 30, 2001 and 2000 consisted of stock options and common stock purchase warrants which are anti-dilutive at those dates and were excluded from the computation of earnings per share. The weighted average number of common shares outstanding used in the computation of loss per common share was 1,586,891 and 1,586,915 as of September 30, 2001 and 2000, respectively. (6) ACQUISITIONS AND DISPOSITIONS OF RETAIL SERVICE CENTERS During the three months ended September 30, 2001, the Company acquired five retail service centers through an asset purchase transaction for a total of $3.2 million of which $123,000 was paid in cash with the remainder in mortgage obligations and the assumption of certain liabilities. Pro forma results of these operations as if the transaction had been completed at the beginning of the period would not be materially different from actual results due to the timing of the transaction and the seasonal nature of the business. During the three months ended September 30, 2001, the Company sold 4 retail service centers at a loss. At June 30, 2001, the carrying value of the retail service centers sold was approximately 9% of total assets. Pro forma results of these operations as if the transactions had been completed at the beginning of the period would not be materially different from actual results due to the timing of the transaction and the seasonal nature of the business. (7) ADDITIONAL CASH FLOW INFORMATION (In Thousands)

(8) SENIOR SECURED NOTES AND SUBORDINATED DEBENTURES On October 30, 2001, due to the nonpayment of interest, the Company defaulted with respect to the $53,063,600 principal balance of the 11% Senior Secured Notes due 2003 (the "Senior Notes"). 9 Due to the nonpayment of interest, the Company is in default with respect to the $9,729,000 principal balance of the 9% Subordinated Debentures due 2007 (the "Subordinated Debentures"). The Company is prohibited under the terms of the Subordinated Debentures from making any interest payments if such payment shall create a default in the payment of amounts due on any Senior indebtedness. As a result of the defaults, the holders of the Senior Notes and the Subordinated Debentures have the right to accelerate the balance due and require immediate payment in full. Accordingly, the entire balance of the obligations are included in current liabilities at September 30, 2001. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition, Liquidity and Capital Resources The following table is presented as a measure of the Company's liquidity and financial condition (in thousands).

During the three months ended September 30, 2001, the Company incurred $2.7 million of additional bank debt for working capital purposes. This increase in long-term debt was offset by mortgage obligation principal payments and principal payments on the Company's Senior Notes. The changes in working capital and the resulting effects on the current ratio are due principally to the balance of the Senior Notes and the Subordinated Debentures and their classification as current at September 30, 2001 and 2000. The Company's prepaid product program allows customers to prebuy product at an established price, reducing their risk of winter price fluctuations brought about by changes in demand and allowing the Company to improve its seasonal cash flow and further enhance its hedging of product purchases and marketing programs to its customers. Customer prepayments related to the program increased $1.8 million for the three months ended September 30, 2001 compared to the same period in 2000. On October 30, 2001, due to the nonpayment of interest, the Company defaulted with respect to the $53,063,600 principal balance of the 11% Senior Secured Notes due 2003 (the "Senior Notes"). Due to the nonpayment of interest, the Company is in default with respect to the $9,729,000 principal balance of the 9% Subordinated Debentures due 2007 (the "Subordinated Debentures"). The Company is prohibited under the terms of the Subordinated Debentures from making any interest payments if such payment shall create a default in the payment of amounts due on any Senior indebtedness. As a result of the defaults, the holders of the Senior Notes and the Subordinated Debentures have the right to accelerate the balance due and require immediate payment in full. Accordingly, the entire balance of the obligations are included in current liabilities at September 30, 2001. The holders of the Senior Notes and the Subordinated Debentures have not accelerated the balance due as of November 14, 2001. 11 In the event that the Company continues to fail to make any interest payment otherwise payable pursuant to the Senior Notes and the Subordinated Debentures, the trustee and the holders of such indebtedness may choose to pursue any and all remedies contained in the indenture or at law relating to such indebtedness. If the holders of the Senior Notes or the Subordinated Debentures accelerate the Company's obligations under such indebtedness, such events would have a material adverse effect on the Company's liquidity and financial position. Under these circumstances, the Company's financial position would necessitate the development of an alternative financial structure. Considering the limited financial resources and the existence of certain defaults, there can be no assurances that the Company would succeed in formulating and consummating an acceptable alternative financial structure. Also, as a result of the Company's significant disposition of retail service centers during fiscal 2000, the Company has incurred a $7.7 million federal tax liability that was due September 15, 2000. The Company was unable to pay the obligation when due. The Internal Revenue Service (the "IRS") has placed liens on Company assets. The Company has entered into a workout plan with the IRS for payment of the tax obligation. Results of Operations Due to the seasonal nature of its business, the Company usually realizes an operating loss the first quarter. Operating revenues and results of forward and futures contracts for a particular quarter are not necessarily indicative of a full fiscal year's operations primarily because of the seasonal element. Other expense items such as depreciation and general and administrative expenses, however, generally continue on a more annualized basis. Interest expense also continues on a more level basis although interest expense is generally higher during the summer and fall months due to increased working capital borrowings used to finance inventory purchases in preparation for the Company's principal sales months. The following table presents additional operating data for the three months ended September 30, 2001 and 2000 and the year ended June 30, 2001 (in thousands).

12 Volumes. Retail volumes of propane sold increased 17% in the three months ended September 30, 2001 compared to the same period ended September 30, 2000. Comparing stores that were operated by the Company during both 2001 and 2000, volumes increased 8%. During the three months ended September 30, 2001 and 2000, the Company completed forward purchase and sale contracts which resulted in buying and selling 1.4 million and 8.2 million gallons, respectively, of propane to other suppliers during this three month period. Revenues. Operating revenues decreased slightly during the three months ended September 30, 2001 compared to the same period in 2000. Offsetting the increase in retail volumes discussed above, retail sales prices per gallon decreased 13% in the three months ended September 30, 2001 compared to 2000. Other sales, including gas systems, appliances and other fuels, decreased $236,000 or 31% as indicated in the table above. Cost of product and gross profit. Cost of product sold increased $178,000 due to the increase in volumes discussed above offset by average costs per gallon sold decreasing 13% over the same period in 2000. The Company's gross profit decreased $215,000 or 7% in the three months ended September 30, 2001 compared to the same period in 2000. General and administrative expense. General and administrative expense for the three months ended September 30, 2001 increased slightly over the same period in 2000. There were no significant changes occurring in any individual expense category. Depreciation and amortization. Depreciation and amortization expense decreased for the three months ended September 30, 2001 as compared to the same period in 2000 mainly due to the divestiture of 66 retail service centers during fiscal year 2000. Gains/loss on forward and futures contracts. Gain on forward and futures contracts was $43,000 for the three months ended September 30, 2001 compared to a loss of $462,000 for the three months ended September 30, 2000. The gain recognized during the three months ended September 30, 2001 is a result of the increase in fair value of the Company's derivative instruments during the quarter. Interest expense. Interest expense decreased approximately $1.4 million for the three months ended September 30, 2001 compared to the same period in 2000 primarily due to interest on the Senior Notes being a direct principal reduction due to the accounting treatment of the Senior Notes upon restructuring in February 2001. Impact of Recent Accounting Pronouncements The Financial Accounting Standard Board (FASB) recently issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations. This Statement addresses financial accounting and reporting for business combinations. It eliminates the pooling-of-interests method and requires that all business combinations be accounted for using the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. 13 The FASB also recently issued SFAS 142, Goodwill and Other Intangible Assets. This Statement establishes accounting and reporting standards for acquired goodwill and other intangible assets. The Statement addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. It also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Under the new standard, amortization of existing goodwill ceases upon adoption of SFAS 142 and is replaced by periodic evaluation for impairment using specified methodology. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Early adoption is permitted for entities with fiscal years beginning after March 15, 2001. The Company will apply SFAS 142 beginning with the first quarter of its fiscal year ending June 30, 2003, on a prospective basis. The effects of adoption of SFAS 142 on the Company's financial statements are not determinable currently. 14 PART II -- OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Note 3 of the Condensed Consolidated Financial Statements. Items 2, 3, 4 and 5 No information is reportable under these sections Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K November 2, 2001 Reviewed by Independent Certified Public Accountants The September 30, 2001 financial statements included in this filing on Form 10-Q/A have been reviewed by BKD, LLP, Independent Certified Public Accountants, in accordance with established professional standards and procedures for such a review. The report of BKD, LLP commenting upon their review is appended hereto. The report of BKD, LLP dated October 30, 2001 included in the Company's filing on Form 10-Q for the three months ended September 30, 2001 has been withdrawn and should no longer be relied upon. 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. All Star Gas Corporation Registrant By: /s/ Paul S. Lindsey, Jr. ------------------------- Paul S. Lindsey, Jr. President and CEO DATE: February 19, 2002 16 Independent Accountants' Report Board of Directors and Stockholders All Star Gas Corporation Lebanon, Missouri We have reviewed the accompanying condensed consolidated balance sheet of All Star Gas Corporation as of September 30, 2001, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended September 30, 2001 and 2000. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of All Star Gas Corporation as of June 30, 2001, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the year then ended (not presented herein); and in our report dated August 10, 2001, on those consolidated financial statements, we expressed an unqualified opinion that also contained an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. BKD, LLP Springfield, Missouri February 18, 2002

ALL STAR GAS CORP 10-Q/A