SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2002.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ___________________ to
___________________.
Commission file number: 33-61888-FW
COMPRESSCO, INC.
(Exact name of small business issuer in its charter)
Delaware 72-1235449
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1313 SE 25th Street, Oklahoma City, Oklahoma 73129
(Address of principal executive offices) (Zip 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 / /
The number of shares outstanding of the issuer's classes of Common Stock as of
June 30, 2002:
Common Stock, $1.00 Par Value - 153,235 shares
COMPRESSCO, INC.
Index to Form 10-QSB
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2002 and December 31,
2001
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2002 and 2001
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2002 and 2001
Notes to the Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMPRESSCO,
INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2002 December 31, 2001
------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 114,047 $ 53,624
Accounts receivable, net 1,786,995 1,597,411
Inventories 2,222,040 1,961,346
Notes receivable 7,882 23,662
Other 174,271 186,910
Deferred income tax asset 25,073 25,073
-------------- --------------
Total current assets 4,330,308 3,848,026
PROPERTY AND EQUIPMENT:
Compressors 17,264,695 17,009,626
Less- Accumulated depreciation (2,361,886) (1,699,708)
--------------- ---------------
Total compressors, net 14,902,809 15,309,918
-------------- --------------
Vehicles and Equipment 1,315,627 1,127,172
Less - Accumulated depreciation (361,241) (237,471)
--------------- ---------------
Total vehicles and equipment, net 954,386 889,701
OTHER ASSETS 77,566 110,775
-------------- --------------
Total assets $ 20,265,069 $ 20,158,420
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES:
Accounts payable $ 792,083 $ 482,227
Accrued liabilities 264,536 651,590
Current portion of long-term debt 606,679 560,012
-------------- --------------
Total current liabilities 1,663,298 1,693,829
LONG-TERM DEBT, net of current portion 13,717,686 14,184,121
DEFERRED INCOME TAXES 954,711 713,300
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value; 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, $1 par value; 20,000,000 shares authorized;
153,235 shares issued and outstanding 153,235 153,235
Warrants outstanding 100,000 100,000
Additional paid-in capital 2,663,715 2,663,715
Retained earnings 1,012,424 650,220
-------------- --------------
Total stockholders' equity 3,929,374 3,567,170
-------------- --------------
Total liabilities and stockholders' equity $ 20,265,069 $ 20,158,420
============== ==============
The accompanying notes are an integral part of these consolidated balance
sheets.
COMPRESSCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the For the For the Three For the
Six Months Six Months Months Ended Three Months
Ended Ended June 30, 2002 Ended
June 30, 2002 June 30, 2001 June 30,2001
REVENUES:
Rental revenue $ 5,814,107 $ 3,679,488 $ 3,022,963 $ 2,021,093
Sales - Compressors and parts 314,437 473,254 200,758 261,173
Service and other 488,260 373,522 254,735 203,385
-------- ---------- -------- -------
Total revenues 6,616,804 4,526,264 3,478,456 2,485,651
---------- ---------- ---------- ---------
COST OF SALES AND EXPENSES:
Cost of sales 173,042 341,593 115,609 208,838
Operating expenses 4,416,299 2,765,852 2,263,750 1,405,689
Depreciation and amortization expense 786,284 572,894 396,897 306,272
-------- ---------- -------- -------
Total cost of sales and expenses 5,375,625 3,680,339 2,776,256 1,920,799
--------- ---------- --------- ---------
OPERATING INCOME 1,241,179 845,925 702,200 564,852
OTHER INCOME (EXPENSE)
Interest income --- 3,823 ---- 1,720
Interest expense (637,564) (569,973) (313,417) (297,392)
--------- --------- --------- ----------
Total other income (expense) (637,564) (566,150) (313,417) (295,672)
--------- --------- --------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 603,615 279,775 388,783 269,180
PROVISION FOR INCOME TAXES 241,411 111,905 155,478 107,447
--------- -------- -------- ----------
NET INCOME $ 362,204 $ 167,870 $ 233,305 $ 161,733
========== ========== =========== ==========
Earnings per common share:
Basic $ 2.36 $ 1.10 $ 1.52 $ 1.06
======= ======= ======= =======
Diluted $ 2.24 $ 1.02 $ 1.44 $ .98
======= ======= ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
COMPRESSCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 362,204 $ 167,870
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization 786,284 554,302
Amortization of discount on subordinated promissory notes 16,668 16,668
Amortization of deferred financing costs 19,650 18,592
Provision for bad debts 28,000 15,000
Other assets 13,560 (571)
Deferred income tax 241,411 111,905
Changes in current assets and liabilities:
Accounts receivable (217,584) (165,971)
Notes receivable 15,780 13,192
Inventories (260,694) 502,686
Other current assets 12,639 (54,085)
Accounts payable 309,856 (713,182)
Accrued liabilities (387,054) 224,043
--------- --------
Net cash provided by operating activities 940,720 690,449
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to compressor rental units (253,511) (4,104,056)
Additions to vehicles and equipment (190,351) (208,664)
Proceeds from sales of other equipment --- 26,000
---------- ---------
Net cash used in investing activities (443,862) (4,286,720)
CASH FLOWS FROM FINANCING ACTIVITES:
Proceeds from issuance of subordinated debt --- 300,000
Deferred financing costs --- (26,452)
Payments of notes payable (233,334) (282,211)
Proceeds from line of credit 4,848,642 3,953,242
Principal payments on line of credit (5,051,743) (1,047,689)
------------ -----------
Net cash provided by (used in) financing activities (436,435) 2,896,890
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 60,423 (699,381)
CASH AND CASH EQUIVALENTS, Beginning of period 53,624 860,043
---------- ----------
CASH AND CASH EQUIVALENTS, End of period $ 114,047 $ 160,662
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Compressco, Inc., formerly Emerging Alpha Corporation (the "Company"), was
incorporated in the State of Delaware on February 10, 1993, for the purpose of
acquiring business opportunities. On October 29, 1999, the Company purchased
Compressco Field Services, Inc., an Oklahoma corporation, and Compressco Testing
L.L.C. Subsequent to the acquisition the two companies are wholly owned
subsidiaries of the Company.
The Company is engaged primarily in the manufacture, rental and service of
natural gas compressors that provide economical well head compression to mature,
low pressure natural gas wells. The Company's compressors are currently sold and
rented to natural gas producers located primarily in Oklahoma, Kansas, Texas,
Arkansas, Colorado, Louisiana and New Mexico. Compressco Testing L.L.C. is a
natural gas measurement, testing and service company, based in Oklahoma City,
that began operations in September 1999.
In October 2001, the Company established a wholly owned Canadian subsidiary,
Compressco Canada, Inc., to market the sale and rental of compressors in Canada.
During the fall of 2001 the Company hired a Canadian representative, opened an
office and began manufacturing compressors for trial in the Canadian market. At
June 30, 2002 the Company has completed eight compressors for the Canadian
market with seven units on rental and one unit sold.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of June 30, 2002 and the consolidated
statements of operations and cash flows for the periods ended June 30, 2002 and
2001 are unaudited. In the opinion of management, such consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows for the periods presented.
The consolidated balance sheet data as of December 31, 2001 was derived from
audited consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles. The consolidated financial
statements presented herein should be read in connection with the Company's
December 31, 2001 consolidated financial statements included in the Company's
Form 10-KSB.
The results of operations for the three and six months ended June 30, 2002 are
not necessarily indicative of the results of operations to be expected for the
full fiscal year ending December 31, 2002.
3. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 2002:
(a) On December 22, 2000, the Company offered an issue of 13% subordinated
promissory notes and stock warrants (see Note 5) to qualified private
investors. At June 30, 2002, $5,550,000 of the subordinated promissory
notes were issued. Of the $5,550,000 in proceeds, $100,000 was allocated to
the stock warrants. The notes are subordinated unsecured obligations of the
Company and rank subordinate to all existing indebtedness of the Company.
The Notes mature on the earlier of (1) the consummation of an underwritten
public offering of the Company's capital stock or (2) December 31, 2003.
The Company may, at any time prepay any part of the principal balance on
the Notes, in increments of $10,000, without premium or penalty prior to
maturity. Interest is payable at 13% per annum and is payable quarterly in
arrears.
(b) On October 29, 1999, the Company borrowed $2,800,000 under a term loan
agreement with a bank. The note bears interest at 1% over Wall Street Prime
Rate (5.75% at June 30, 2002). Principal payments of $46,667 plus accrued
interest are due monthly until maturity on October 30, 2004. The loan
balance at June 30, 2002 is $1,353,308 of which $746,629 is long term. The
loan is secured with the assets and compressor rental agreements of the
Company.
(c) On October 29, 1999, the Company entered into a revolving line of credit
agreement with a bank. Under the agreement, as amended and restated
November 28, 2001, the Company can borrow the lesser of $8,883,997 or the
sum of 80% of the aggregate amount of eligible receivables, plus 50% of the
aggregate amount of eligible inventory, plus 85% of the appraised value of
compressors fabricated since acquisition of the business on October 29,
1999. The line of credit bears interest at 0.5% over Wall Street Journal
Prime Rate (5.25% at June 30, 2002). Interest is due monthly with all
outstanding borrowings due at maturity on December 27, 2003. The loan is
secured with the assets and compressor rental agreements of the Company.
The balance outstanding under the line of credit agreement at June 30, 2002
was $7,471,057. The Company's credit facility imposes a number of financial
and restrictive covenants that among things, limit the Company's ability to
incur additional indebtedness, create liens and pay dividends. At June 30,
2002, the Company was in compliance with its loan covenant ratios.
Management expects that the Company will be in compliance with the
covenants under the credit facility for the next twelve months.
4. COMMITMENTS
The Company entered into a purchase agreement on December 14, 2000, with a
supplier to purchase 1,000 compressor engines by December 31, 2002. At June 30,
2002, the Company had taken delivery of 176 engines from the supplier. The
purchase agreement provides that the Company's liability to the supplier for any
failure to purchase the full amount of engines is limited to (i) pay for the
engines delivered, (ii) reasonable direct out of pocket cost incurred by the
supplier in acquiring material for production of the number of engines
contemplated by the agreement and (iii) the reasonable costs incurred by the
supplier for the work in progress at the time of termination of the agreement
including labor costs and reasonable quantities of parts and materials ordered
by the supplier. Based on current projections, management estimates that it will
not fulfill the entire purchase commitment by December 31, 2002. However,
management believes that the impact of its commitment, including the limitations
described above, will not be material to the Company's financial position or
results of operations.
5. STOCKHOLDERS' EQUITY
In connection with the offering of the subordinated promissory notes discussed
in Note 3, the Company issued stock warrants to purchase 420 shares of the
Company's common stock per every $50,000 amount of Notes purchased. The warrants
have an exercise price of $120 per share. At June 30, 2002 total stock warrants
of 46,620 had been issued. The warrants are exercisable upon issue, and expire
on December 31, 2003.
The Company obtained a valuation as to the amount to be assigned to the warrants
from the total proceeds received from the issuance of the subordinated
promissory notes. The value was determined using the Valrex model, which is an
option valuation model that uses established option pricing theory to price
nontrading options and warrants. Based on the valuation estimate, the value
assigned to the warrants is $100,000. This amount is shown as outstanding
warrants in stockholders' equity and as a discount to the subordinated
promissory notes. The discount is being amortized over the three-year life of
the stock warrants as additional interest expense. The effective interest rate
on the Notes is 13.84% when the value of the warrants is taken into
consideration.
6. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
shares issued and outstanding during the period. The weighted average shares
issued and outstanding for the six and three months ending June 30, 2002 and
2001 were 153,235. Diluted weighted average shares for the six and three months
ending June 30, 2002 and 2001 were 161,860 and 164,860 respectively.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Compressco, Inc., formerly Emerging Alpha Corporation (the "Company"), was
incorporated in the State of Delaware on February 10, 1993, for the purpose of
acquiring business opportunities. On October 29, 1999, the Company purchased
Compressco Field Services, Inc., an Oklahoma corporation, and Compressco Testing
L.L.C. Subsequent to the acquisition the two companies are wholly owned
subsidiaries of the Company.
The Company is engaged primarily in the manufacture, rental and service of
natural gas compressors that provide economical well head compression to mature,
low pressure natural gas wells. The Company's compressors are currently sold and
rented to natural gas producers located primarily in Oklahoma, Kansas, Texas,
Arkansas, Colorado, Louisiana and New Mexico. Compressco Testing L.L.C. is a
natural gas measurement, testing and service company, based in Oklahoma City,
that began operations in September 1999.
In October 2001, the Company established a wholly owned Canadian subsidiary,
Compressco Canada, Inc., to market the sale and rental of compressors in Canada.
During the fall of 2001 the Company hired a Canadian representative, opened an
office and began manufacturing compressors for trial in the Canadian market. At
June 30, 2002 the Company has completed eight compressors for the Canadian
market with seven units on rental and one unit sold.
The following table sets forth selected consolidated financial information for
the fiscal year ended December 31, 2001 and as of June 30, 2002 and for the six
months and three months ended June 30, 2002 and 2001 and is qualified in its
entirety by the consolidated financial statements appearing elsewhere in this
Form 10-QSB.
Results of Operations
SELECTED CONSOLIDATED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
Operating Revenues................... $6,616,804 $4,526,264 $3,478,456 $2,485,651
Cost of Sales and Expenses ......... 5,375,625 3,680,339 2,776,256 1,920,799
Operating Income.................... 1,241,179 845,925 702,200 564,852
Net Income.......................... $ 362,204 $ 167,870 $ 233,305 $ 161,733
BALANCE SHEET DATA (AT END OF PERIOD):
June 30, 2002 December 31, 2001
------------ -----------------
Cash and Cash Equivalents ............... $ 114,047 $ 53,624
Total Assets............................. 20,265,069 20,158,420
Total Liabilities........................... 16,335,695 16,591,250
Stockholders' Equity........................ $ 3,929,374 $ 3,567,170
The following discussion regarding the consolidated financial statements of the
Company should be read in conjunction with the consolidated financial statements
and notes thereto appearing elsewhere in this report.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
The revenues for the six months ended June 30, 2002 of $6,616,804 increased by
$2,090,540 or 46.2% for the comparable period in 2001. The following table sets
forth the components of our revenues for the six months ended June 30, 2002 and
2001:
2002 2001
----- -----
Revenue:
Rental revenue $5,814,107 $3,679,488
Sale of compressors and parts 314,437 473,254
Service and other 488,260 373,522
--------- ----------
Total revenue $6,616,804 $4,526,264
========== ==========
The Company had 703 compressors in service at June 30, 2002 compared to 563 at
June 30, 2001. The increase in the number of compressors in service occurred
primarily in the first nine months of 2001 due to the higher price of natural
gas. During the six months ended June 30, 2002 the compressors in service
increased by a net of 45 units compared to an increase of 188 units in the first
six months of 2001. The decrease in the number of net units set in 2002 was due
primarily to the lower price of natural gas. In the six months ended June 30,
2002 the Company sold six compressors, the same number as sold in the 2001
period.
The cost of sales and operating expenses for the 2002 period were $4,589,341, or
69.4% of operating revenues, compared to $3,107,445, or 68.7%, in the 2001
period. Operating expenses for the 2002 period were $4,416,299, or 70.1% of
rental and service revenues, compared to $2,765,852, or 68.2% for the 2001
period. The increase in cost of sales and operating expenses as a percent of
operating revenues in 2002 was due to the Company manufacturing fewer
compressors in 2002 resulting in a lower amount of shop operating expenses being
capitalized. The Company has made certain reductions in the shop operating
expenses during 2002, however, it has retained its core shop personnel who have
devoted their time to maintaining the compressor fleet and building units for
the Canadian market.
The Company manufactured 8 compressors in the 2002 period compared to 181 in the
2001 period. The decrease in the number of compressors manufactured was due to
lower demand as a result of lower natural gas prices in late 2001 and early
2002. The Company is only manufacturing new compressors, as needed, for the
Canadian operation at this time until the demand increases in the US market. The
Company had 94 compressors off rental at June 30, 2002 compared to 151 units off
rental at March 31, 2002 and 85 units off rental at June 30, 2001.
Depreciation and amortization expense increased in the 2002 period to $786,284
compared to $572,894 for the 2001 period. The increase was due to the increase
in the Company's compressor fleet in 2002 to 797 units from 648 units at June
30, 2001.
Interest expense for the 2002 period was $637,564 compared to $569,973 for the
2001 period. The increase was due to the increased balance outstanding under the
line of credit in 2002 used to finance the increased compressor rental fleet.
Net income was $362,204 for the 2002 period compared to $167,870 for the 2001
period. The increase in net income was primarily due to the growth in the
company's compressor rental fleet.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
The revenues for the three months ended June 30, 2002 of $3,478,456 increased by
$992,805 or 39.9% for the comparable period in 2001. The following table sets
forth the components of our revenue for the three months ended June 30, 2002 and
2001:
2002 2001
----- -----
Revenue:
Rental revenue $3,022,963 $2,021,093
Sale of compressors and parts 200,758 261,173
Service and other 254,735 203,385
--------- ----------
Total revenue $3,478,456 $2,485,651
========== ==========
The Company had 703 compressors in service at June 30, 2002 compared to 563 at
June 30, 2001. The increase in the number of compressors in service occurred
primarily in the first nine months of 2001 due to the higher price of natural
gas. During the three months ended June 30, 2002 the compressors in service
increased by a net of 60 units compared to an increase of 101 units in the same
period in 2001. The decrease in the number of net units set in 2002 was due
primarily to the lower price of natural gas. In the three months ended June 30,
2002 the Company sold three compressors, the same number as sold in the 2001
period.
The cost of sales and operating expenses for the 2002 period were $2,379,359, or
68.4% of operating revenues, compared to $1,614,527, or 65.0%, in the 2001
period. Operating expenses for the 2002 period were $2,263,750 or 69.1% of
rental and service revenues, compared to $1,405,689, or 63.2% for the 2001
period. The increase in cost of sales and operating expenses as a percent of
operating revenues in 2002 was due to the Company manufacturing fewer
compressors in 2002 resulting in a lower amount of shop operating expenses being
capitalized. The Company has made certain reductions in the shop operating
expenses during 2002, however, it has retained its core shop personnel who have
devoted their time to maintaining the compressor fleet and building units for
the Canadian market.
The Company manufactured 5 compressors in the 2002 period compared to 81 in the
2001 period. The decrease in the number of compressors manufactured was due to
lower demand as a result of lower natural gas prices in late 2001 and early
2002. The Company is only manufacturing new compressors, as needed, for the
Canadian operation at this time until the demand increases in the US market. The
Company had 94 compressors off rental at June 30, 2002 compared to 151 units off
rental at March 31, 2002 and 85 units off rental at June 30, 2001.
Depreciation and amortization expense increased in the 2002 period to $396,897
compared to $306,272 for the 2001 period. The increase was due to the increase
in the Company's compressor fleet in 2002 to 797 units from 648 units at June
30, 2001.
Interest expense for the 2002 period was $313,417 compared to $297,392 for the
2001 period. The increase was due to the increased balance outstanding under the
line of credit in 2002 used to finance the increased compressor rental fleet.
Net income was $233,305 for the 2002 period compared to $161,733 for the 2001
period. The increase in net income was primarily due to the growth in the
company's compressor rental fleet.
LIQUIDITY AND CAPITAL RESOURCES
In December 2000 and January 2001, the Company offered its 13% subordinated
promissory notes and stock warrants in a private placement. At June 30, 2002,
$5,550,000 of the subordinated promissory notes were issued. Of the $5,550,000
in proceeds, $100,000 was allocated to the stock warrants. The notes are
subordinated unsecured obligations of the Company and rank junior to all
existing indebtedness of the Company. The Notes mature on the earlier of (1) the
consummation of an underwritten public offering of the Company's capital stock,
and (2) December 31, 2003. The Company may, at any time, prepay any part of the
principal balance on the notes, in increments of $10,000, without premium or
penalty prior to maturity. Interest is payable at 13% per annum and is payable
quarterly in arrears.
In March 2000 the Company issued 70,002 shares of its common stock through a
Private Placement for $30.00 per share or total equity proceeds of $2,100,060.
The equity proceeds were used in part to repay borrowings under the Company's
line of credit and the remaining proceeds will be used primarily to fund the
growth in our compressor fleet.
On October 29, 1999, the Company borrowed $2,800,000 under a term loan agreement
with Hibernia National Bank. The related note bears interest at 1% over Wall
Street Prime Rate (5.75% at June 30, 2002). Principal payments of $46,667, plus
accrued interest, are due monthly until maturity on October 30, 2004. The loan
is secured with the assets and compressor rental agreements of the Company.
On October 29, 1999, the Company entered into a revolving line of credit
agreement with a bank. Under the agreement, as amended and restated November 28,
2001, the Company can borrow the lesser of $8,883,997 or the sum of 80% of the
aggregate amount of eligible receivables, plus 50% of the aggregate amount of
eligible inventory, plus 85% of the appraised value of compressors fabricated
since acquisition of the business on October 29, 1999. The line of credit bears
interest at 0.5% over Wall Street Journal Prime Rate (5.25% at June 30, 2002).
Interest is due monthly with all outstanding borrowings due at maturity on
December 27, 2003. The loan is secured with the assets and compressor rental
agreements of the Company. The balance outstanding under the line of credit
agreement at June 30, 2002 was $7,471,057. The Company's credit facility imposes
a number of financial and restrictive covenants that among things, limit the
Company's ability to incur additional indebtedness, create liens and pay
dividends. At June 30, 2002, the Company was in compliance with its loan
covenant ratios. Management expects that the Company will be in compliance with
the covenants under the credit facility for the next twelve months.
The Company believes that cash flow from operations and funds available under
its credit facilities will provide the necessary working capital to fund the
Company's requirements for current operations through 2002. However, in
connection with any expansion of operations or acquisition activities, it is
likely that the Company will need additional sources of debt or equity
financing. The Company cannot provide assurance that these funds will be
available or if available will be available on satisfactory terms.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
In connection with forward-looking statements contained in this Form 10-QSB and
those that may be made in the future by or on behalf of the Company which are
identified as forward-looking by such words as "believes," "intends" or words of
a similar nature, the Company notes that there are various factors that could
cause actual results to differ materially from those set forth in any such
forward-looking statements. The forward-looking statements contained in this
Form 10-QSB were prepared by management and are qualified by, and subject to,
significant business, economic, competitive, regulatory and other uncertainties
and contingencies, all of which are difficult or impossible to predict and many
of which are beyond the control of the Company. Accordingly, there can be no
assurance that the forward-looking statements contained in this Form 10-QSB will
be realized or the actual results will not be significantly higher or lower.
These forward-looking statements have not been audited by, examined by, compiled
by or subjected to agreed-upon procedures by independent accountants, and no
third-party has independently verified or reviewed such statements. Readers of
this Form 10-QSB should consider these facts in evaluating the information
contained herein. In addition, the business and operations of the Company are
subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements contained in this Form 10-QSB. The inclusion of the
forward-looking statements contained in this Form 10-QSB should not be regarded
as a representation by the Company or any other person that the forward-looking
statements contained in this Form 10-QSB will be achieved. In light of the
foregoing, readers of this Form 10-QSB are cautioned not to place undue reliance
on the forward-looking statements contained herein.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In May 2002, the Company received notice of the filing of a complaint by a
vendor related to an agreement to purchase component parts for the Company's
compressors. The Company denies the contentions of the vendor. It is the opinion
of management that this lawsuit is routine litigation incidental to its business
and that any outcome will not be material to the Company's financial position or
operations.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting held on May 14, 2002 the following matters were voted on:
1. To elect six directors to hold office until the next annual meeting of
stockholders and until their successor are duly elected and qualified. The
nominees were Burt H. Keenan, Brooks Mims Talton, Jerry W. Jarrell, J.
Michael Drennen, D. B. H. Chaffe III and Jack B. Rettig.
Each of the nominees was elected by a vote of 104,789 shares for and 100
shares against.
2. To approve the ratification of the selection of Arthur Andersen LLP as the
independent public accountants of the Company.
The selection of Arthur Andersen LLP was ratified by a vote of 97,757
shares for and 7,107 shares against.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits of the Company are included
herein.
3. Certificate of Incorporation and Bylaws
*3.1 Restated Certificate of Incorporation
*3.2 Bylaws
*3.3 Proposed Certificate of Amendment to the Restated
Certificate of Incorporation
10. Material Contracts
*10.1 1993 Stock Option Plan
*10.2 Form of Stock Option Agreements with Messrs. Keenan,
Killeen, Jarrell and Chaffe with Schedule of Details
**10.3 Stock Purchase Agreement, dated as of October 29, 1999,
by and between the Company and the Stockholders of Gas
Jack, Inc.
**10.4 Loan Agreement, dated as of October 29, 1999, by and
between Hibernia National Bank and the Company
****10.5 Modification to Promissory Note and Loan Agreement, dated
as of December 28,2000, by and between the Company and
Hibernia National Bank.
****10.6 Amended and Restated Loan Agreement, dated as of November
28, 2001, by and among Hibernia National Bank, the
Company and Compressco Field Services, Inc.
***10.7 Securities Purchase Agreement, dated as of December 22,
2000, between the Company and each investor party
thereto.
***10.8 Stock Warrant Agreement, dated as of December 22, 2000,
between the Company and each investor party thereto.
***10.9 Subordinated Promissory Note, dated December 22, 2000,
issued by the Company to each purchaser of the notes.
***10.10 Registration Rights Agreement, dated as of December 22,
2000, between the Company and each investor party
thereto.
*****99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
October 29, 1999
June 11, 2002
The Company engaged Ernst & Young LLP to serve as its independent
public accountants for fiscal year 2002 and notified Arthur
Andersen LLP it would no longer serve as its independent public
accountants.
- ---------------------------
* Filed with Registration Statement on Form SB-2, File No. 33-61888-FW
and incorporated by reference herein.
** Filed with Form 8-K (October 29, 1999) and incorporated by reference
herein.
*** Filed with Form 10-KSB (December 31, 2000) and incorporated by
reference herein.
**** Filed with Annual Report on 10-KSB for the year ended December 31, 2001
and incorporated by reference herein.
***** Filed herewith.
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 on August 14, 2002.
COMPRESSCO, INC.
By: /S/ BROOKS MIMS TALTON
---------------------------------
Brooks Mims Talton
Chief Executive Officer
By: /S/ GARY MCBRIDE
----------------------------------
Gary McBride
Chief Financial Officer
(Principal Financial and
Accounting Officer)