10-Q 1 tenq.txt TENQ.TXT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 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 February 14, 2002 was 1,586,891. ================================================================================ 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)

~~September~~December 3031, 2001 (Unaudited) June 30, 2001 ----------------- -------------~~---~~ Assets Current Assets Cash $ ~~383~~634 $ 509 Trade receivables - net 23,~~472~~591 2,549 Inventories 2,~~953~~818 2,783 Forward sales contracts 87-- 115 Prepaid expenses ~~736~~972 198 Deferred income taxes 200 200 -------~~---------~~ -------~~---------~~ Total Current Assets 68,~~831~~215 6,354 -------~~---------~~ -------~~---------~~ Property, plant and equipment 5350,~~641~~383 56,593 Less accumulated depreciation 2423,~~851~~225 25,742 -------~~---------~~ -------~~---------~~ Fixed Assets - Net 2827,~~790~~158 30,851 -------~~---------~~ -------~~---------~~ Other Assets Debt acquisition costs - net 1,~~059~~101 1,174 Excess of cost over fair value of net assets acquired - net 4,~~849~~267 5,016 ~~Notes~~Note receivable 12,~~764~~349 942 Other 1,~~502~~516 1,628 -------~~---------~~ -------~~---------~~ Total Other Assets 9,~~174~~233 8,760 -------~~---------~~ -------~~---------~~ Total Assets $44,~~795~~606 $45,965 =======~~=========~~ =======~~=========~~

See Notes to Condensed Consolidated Financial Statements 2 ALL STAR GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except Per Share Amounts)

~~September~~December 3031, 2001 (Unaudited) June 30, 2001 ----------------- -------------~~---~~ Liabilities and Stockholders' Equity (Deficit) Current Liabilities Checks in process of collection $ 3,049 $ 1,243 Current maturities of long-term debt $67,~~199~~976 $14,493 Notes payable - bank 5,~~007~~701 3,979 Accrued interest 1,~~558~~777 1,339 Customer prepayments 96,~~783~~161 10,208 Income taxes payable 23,~~593~~074 3,705 Accounts payable and accrued expenses 65,~~297~~376 43,~~732~~489 Forward purchase contracts ~~141~~-- 200 ---------~~-------~~ ---------~~-------~~ Total Current Liabilities 9293,~~578~~114 38,656 Long-term debt 43,~~084~~865 56,726 Deferred income taxes 4,~~494~~420 5,738 Accrued self-insurance liability 529 529 ---------~~-------~~ ---------~~-------~~ Total Liabilities 101,~~685~~928 101,649 ---------~~-------~~ ---------~~-------~~ Stockholders' Equity (Deficit) Common ~~stock~~; $.001 par value; authorized 20,000,000 shares, issued - 14,291,020 shares 14 14 Common stock purchase warrants 1,227 1,227 Additional paid-in capital 28,574 28,574 Retained earnings ~~1,209~~777 2,415 ---------~~-------~~ ---------~~-------~~ 3130,~~024~~592 32,230 Treasury stock, at cost ~~September 30, 2001~~ - 12,704,129 shares; ~~June 30, 2001 - 12,704,105 shares~~ (87,914) (87,914) ---------~~-------~~ ---------~~-------~~ Total Stockholders' Equity (Deficit) (5657,~~890~~322) (55,684) ---------~~-------~~ ---------~~-------~~ Total Liabilities and Stockholders' Equity (Deficit) $ 44,~~795~~606 $ 45,965 =========~~=======~~ =========~~=======~~

See Notes to Condensed Consolidated Financial Statements 3 ALL STAR GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000 (Unaudited) (Dollars in Thousands, Except Per Share Amounts)

Three Months Ended Six Months Ended December 31 December 31 2001 2000 2001 2000 -------- --------~~------~~ -------- --------~~-----~~ Operating ~~Revenue~~revenue $ 714,~~645~~556 $ 719,~~682~~539 $ 22,201 $ 27,221 Cost of ~~Product~~product ~~Sold~~sold 48,~~726~~257 413,~~548~~768 12,983 18,315 -------- --------~~------~~ -------- --------~~-----~~ Gross Profit 26,~~919~~299 35,~~134~~771 9,218 8,906 -------- --------~~------~~ -------- --------~~-----~~ Operating Costs and Expenses General and administrative 34,~~702~~579 3,~~508~~932 8,281 7,440 Depreciation and amortization ~~951~~883 1,~~034~~028 1,834 2,063 (Gain) loss on sale of assets (1,~~174~~041) ~~204~~(61) (971) 143 (Gain) loss on forward and futures contracts (431) ~~462~~1,299 (44) 1,761 -------- --------~~------~~ -------- --------~~-----~~ 34,~~436~~420 56,~~208~~198 9,100 11,407 -------- --------~~------~~ -------- --------~~-----~~ Operating Income (Loss) 1,879 (~~517~~427) 118 (2,~~074~~501) -------- --------~~------~~ -------- --------~~-----~~ Other Expense Interest expense (~~457~~410) (1,~~821~~943) (867) (3,764) Amortization of debt discount ~~and~~(923) ~~expense~~(134) (~~915~~1,838) (~~134~~268) -------- --------~~------~~ -------- --------~~-----~~ (1,~~372~~333) (12,~~955~~077) (2,705) (4,032) -------- --------~~------~~ -------- --------~~-----~~ Income (Loss) Before Income Taxes 546 (12,~~889~~504) (42,~~029~~587) (6,533) Provision (Credit) for Income Taxes 202 (~~683~~1,215) (1949) (2,~~241~~456) -------- --------~~------~~ -------- --------~~-----~~ Income (Loss) Before Cumulative Effect of Change in Accounting Principle 344 (1,~~206~~289) (21,~~788~~638) (4,077) Cumulative Effect of Change in Accounting Principle, Net of Income Taxes of $546,000 -- ~~940~~ -- -- 940 -------- ---------- -------- --------~~-----~~ Net Income (Loss) $ 344 $ (1,~~206~~289) $ (1,~~848~~638) $ (3,137) ======== ========~~======~~ ======== ========~~=====~~ Basic and Diluted Income (Loss) Per Common Share Before Cumulative Effect of Change in Accounting Principle $ .22 $ (.7681) $ (1.7503) $ (2.57) Basic and Diluted Income (Loss) Per Common Share on Cumulative Effect of Change in Accounting Principle -- ~~.59~~ -- -- .59 -------- ---------- -------- --------~~-----~~ Basic and Diluted Income (Loss) Per Common Share $ .22 $ (.7681) $ (1.1603) $ (1.98) ======== ========~~======~~ ======== ========~~=====~~

See Notes to Condensed Consolidated Financial Statements. 4 ALL STAR GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000 (Unaudited) (Dollars in Thousands)

2001 2000 -------~~----------~~ -------~~----------~~ Cash Flows From Operating Activities Net ~~Loss~~loss $ (1,~~206~~638) $(13,~~848~~137) Items not requiring (providing) cash Depreciation ~~727~~1,409 ~~793~~1,580 Amortization 12,~~139~~262 ~~375~~751 (Gain) loss on sale of retail service centers and other assets (~~1,174~~971) ~~204~~143 Cumulative effect of change in accounting principle -- (940) (Gain) loss on forward and futures contracts (44) ~~462~~1,761 Deferred income taxes --(1,318) (~~733~~629) Changes In: Trade receivables (~~112~~1,373) (17,~~778~~270) Inventories (~~215~~264) (1,~~491~~351) Prepaid expense and other (~~433~~259) ~~989~~591 Accounts payable and customer prepayments ~~1,689~~(121) 34,~~827~~960 Accrued expenses ~~340~~(103) ~~822~~2,080 Income taxes payable (~~1,112~~631) (~~765~~3,596) -------~~----------~~ -------~~----------~~ Net cash used in operating activities (~~401~~3,051) (835,057) -------~~----------~~ -------~~----------~~ Cash Flows From Investing Activities Purchase of property &and equipment (~~606~~1,870) (~~620~~1,163) Acquisition of retail service centers (123) --(110) Proceeds from sales of property and equipment 150 ~~909~~1,159 Disposal of retail service centers 13,~~076~~033 929 ~~Advances~~Purchase ~~from~~of ~~related~~interest ~~parties~~in ~~117~~limited liability company -- (261) -------~~----------~~ -------~~----------~~ Net cash provided by investing activities ~~614~~ 1,~~218~~190 554 -------~~----------~~ -------~~----------~~ Cash Flows From Financing Activities Increase ~~(decrease)~~ in checks in process of collection ~~458~~1,806 ~~(985)~~1,946 Advances from related parties 501 1,210 Proceeds on notes payable to banks 3,444 2,~~750~~924 -- Principal payments on notes payable to banks (1,722) ~~1,990~~-- Principal payments on other long-term debt (12,~~825~~043) (~~971~~1,244) -------~~----------~~ -------~~----------~~ Net cash provided by ~~(used in)~~ financing activities ~~(339)~~1,986 344,836 -------~~----------~~ -------~~----------~~ INCREASE ~~(DECREASE)~~ IN CASH ~~(126)~~125 ~~1,169~~333 CASH, BEGINNING OF PERIOD 509 432 -------~~----------~~ -------~~----------~~ CASH, END OF PERIOD $ ~~383~~634 $~~1,601~~ 765 =======~~==========~~ =======~~==========~~

See Notes to Condensed Consolidated Financial Statements 5 ALL STAR GAS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED DECEMBER 31, 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 December 31, 2001, and the consolidated results of its operations and cash flows for the periods ended December 31, 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 document 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 and six months ended December 31, 2001 and 2000 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 its 9% Subordinated Debentures due 2007. The Company has recently been required to make additional cash deposits with two of its major propane suppliers to maintain current terms. Also, as a result of the Company's significant disposition of retail service centers during fiscal 2000, the Company 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. The balance of income taxes payable as of December 31, 2001 is approximately $3.0 million. 6 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 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 state tax audits, which 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 December 31, 2001, the Company had outstanding commitments to purchase approximately 5.5 million gallons of LP gas for approximately $3.1 million. The Company also had outstanding commitments to sell approximately 730,000 gallons of LP gas at December 31, 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 December 31, 2001 the Company had no open positions on commodity futures contracts. As of December 31, 2000 the Company's open positions on futures contracts consisted of 4.7 million gallons and had a fair value of approximately $775,000. (5) INCOME (LOSS) PER COMMON SHARE Income (loss) per common share is computed by dividing the net income (loss) for the three and six 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 December 31, 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 income (loss) per common share was 1,586,891 and 1,586,915 as of December 31, 2001 and 2000, respectively. 7 (6) DISPOSITIONS OF RETAIL SERVICE CENTERS During the three months ended December 31, 2001, the Company sold 5 retail service centers at a gain, of which 3 were sold to a related party. At June 30, 2001, the carrying value of the retail service centers sold was approximately 6% 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)

Additional Cash Payment Information 2001 2000 ----------------------------------- ---- ---- Interest Paid $ 1,~~696~~888 $27116 Income Taxes Paid $1,302 ~~429~~ $~~262~~906 Noncash Investing and Financing Activities ------------------------------------------ ~~Note~~Purchase ~~receivable~~contract ~~from~~obligations ~~sale~~incurred on the acquisition of retail service centers $1,792 ~~834~~$591 Long-term obligation incurred for investment in Missouri Investment Partners I, LLC, a purchaser of Missouri low-income ~~Purchase~~housing ~~contract~~tax ~~obligations~~credits ~~incurred~~-- ~~for~~$870 ~~acquisitions~~Notes receivables from sale of retail service centers $ 12,~~792~~103 -- Mortgage and lease obligations incurred onfor ~~the~~ purchase of property and equipment $364 $85204

(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"). The Company also has not made the interest payment due December 31, 2001 on the Senior Notes. 8 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 December 31, 2001. (9) SUBSEQUENT EVENT In February 2002, the Company entered into a sale-leaseback agreement with an unrelated third party involving 28 pieces of real estate, some of which were property not utilized currently in the Company's operations. The Company realized $2.2 million in cash proceeds which were utilized to retire $750,000 of federal tax liability, to pay down existing bank debt, and to fund operating capital needs. The effects of this transaction on the Company's financial statements have not yet been determined. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity The following table is presented as a measure of the Company's liquidity and financial condition (in thousands).

~~September~~December 3031 June 30 2001 2000 2001 2000 ---- ---- ---- ---- Total long-term debt (including current maturities) $76 77,~~290~~542 $6261,~~322~~541 $75,198 $61,074 Working Capital (deficit) $(8584,~~747~~899) $ (8082,~~917~~763) $ (32,302) $ (80,513) Current Ratio .0709 .1619 .16 .08

During the six months ended December 31, 2001, the Company incurred $3.4 million of additional bank debt for working capital purposes. This increase in long-term debt was partially offset by principal payments on the Company's mortgage obligations and Senior Notes of $2.0 million. 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 December 31, 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 product purchasing program and marketing programs to its customers. The balance of customer prepayments related to the program was $6.2 million as of December 31, 2001 compared to $4.3 million as of December 31, 2000. 9 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"). The Company also has not made the interest payment due December 31, 2001 on 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 December 31, 2001. The holders of the Senior Notes and the Subordinated Debentures have not accelerated the balance due as of February 14, 2002. 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 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. The balance of income taxes payable as of December 31, 2001 is approximately $3.0 million. In February 2002, the Company entered into a sale-leaseback agreement with an unrelated third party involving 28 pieces of real estate, some of which were property not utilized currently in the Company's operations. The Company realized $2.2 million in cash proceeds which were utilized to retire $750,000 of federal tax liability, to pay down existing bank debt, and to fund operating capital needs. Results of Operations Due to the seasonal nature of its business, the Company usually realizes an operating loss the first quarter and operating income for the second quarter. Operating revenues for a particular quarter are not necessarily indicative of a full fiscal year's operations because of the seasonal element. Other expense items such as depreciation and general and administrative expenses, however, generally continue on a more annualized basis. The following table presents additional operating data for the periods ended December 31, 2001 and 2000 and the year ended June 30, 2001 (in thousands). 10

Three ~~Three~~ Months Ended Six Months Ended Year Ended ~~Ended~~12/31/01 ~~Ended~~12/31/00 912/3031/01 912/3031/00 6/30/01 -------- -------- -------- -------- ------- Revenues: Propane $612,~~784~~978 $ 617,~~667~~820 $ 19,762 $ 24,616 $ 52,920 Gas systems, appliances and other fuels ~~473~~696 ~~409~~599 1,169 1,008 1,787 Other ~~388~~882 ~~606~~1,120 1,270 1,597 2,345 Gross Profit: Propane 25,~~394~~231 24,~~373~~450 7,625 6,951 13,941 Gas systems, appliances and other fuels ~~137~~277 ~~155~~211 414 368 632 Other ~~388~~791 ~~606~~1,110 1,179 1,587 2,345

Volumes. Retail volumes of propane sold decreased 17% and 11% in the three and six months ended December 31, 2001, respectively, compared to the same periods ended December 31, 2000 due to the warmer winter weather experienced. Comparing stores that were operated by the Company during both 2001 and 2000, volumes decreased 14% and 7% in the three months and six months ended December 31, 2001, respectively, compared to the same periods in 2000. During the six months ended December 31, 2001 and 2000, the Company completed forward purchase and sale contracts which resulted in buying and selling 1.9 million and 25.3 million gallons, respectively, of propane to other suppliers during these six month periods. Revenues. Operating revenues decreased in the three and six months ended December 31, 2001 compared to the same period in 2000. In addition to the decrease in retail volumes discussed above, retail sales prices per gallon decreased 11%, in the six months ended December 31, 2001 compared to 2000. Other sales, including gas systems, appliances and other fuels, also decreased as indicated in the table above. Cost of product and gross profit. Cost of product sold decreased in the three and six month periods compared to the same periods in 2000 due to the decrease in volumes discussed above. There was also a 23% decrease in average costs per gallon sold for the six months ended December 31, 2001 compared to the same period in 2000. The Company's gross profit increased in the three and six months ended December 31, 2001 compared to the same periods in 2000. This is primarily due to the increase in margins per gallon experienced by the Company. 11 General and administrative expense. General and administrative expense for the three and six months ended December 31, 2001 increased $647,000 and $841,000, respectively, over the same periods in 2000. Salaries and commissions increased $207,000 and $305,000, respectively, for the three and six months ended December 31, 2001 compared to the same periods in 2000 due to increased expenses at the retail service centers. There were no other significant changes occurring in any individual expense category. Depreciation and amortization. Depreciation and amortization expense for the three and six months ended December 31, 2001 decreased over the same periods in 2000 mainly due to the divestiture of retail service centers during fiscal year 2001 and the six months ended December 31, 2001. Gain/loss on forward and futures contracts. Gain on forward and futures contracts for the three and six months ended December 31, 2001 increased $1.3 million and $1.8 million, respectively. The gain recognized is a result of the increase in fair value of the Company's derivative instruments during the three and six months ended December 31, 2001. Interest expense. Interest expense for the three and six months ended December 31, 2001 decreased $1.5 million and $2.9 million, respectively, 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. 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. 12 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 None Reviewed by Independent Certified Public Accountants The December 31, 2001 financial statements included in this filing on Form 10-Q 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. 13 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 /s/ Paul S. Lindsey ---------------------------------- PAUL S. LINDSEY PRESIDENT AND CEO DATE: February 14, 2002 14 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 December 31, 2001, and the related condensed consolidated statements of operations for the three- and six-month periods ended December 31, 2001 and 2000, and cash flows for the six-month periods ended December 31, 2001 and 2000. These 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 generally accepted auditing standards, 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 generally accepted accounting principles. 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 15

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