-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AgLTcZjN5i8vM+bcbFnYu83cbSgtYP5VZXbyaL6V2qkJEPrfDFN6E/Xuz54RbdQm GAbnMntzghuovh7jTVvvYQ== 0000921530-03-000660.txt : 20031114 0000921530-03-000660.hdr.sgml : 20031114 20031114165325 ACCESSION NUMBER: 0000921530-03-000660 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPRESSCO INC CENTRAL INDEX KEY: 0000904147 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY [5200] IRS NUMBER: 721235449 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-61888-FW FILM NUMBER: 031005491 BUSINESS ADDRESS: STREET 1: 220 CAMP ST CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045241801 MAIL ADDRESS: STREET 1: 220 CAMP ST CITY: NEW ORLEANS STATE: LA ZIP: 70130 FORMER COMPANY: FORMER CONFORMED NAME: EMERGING ALPHA CORP DATE OF NAME CHANGE: 19930511 10QSB 1 compressco_10qsb93003.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB o [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2003. o [ ] 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 September 30, 2003: 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 September 30, 2003 and December 31, 2002 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 Notes to the Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Controls and Procedures 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) September 30, 2003 December 31, 2002 ------------------ ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 754,479 $ 317,707 Accounts receivable, net 4,002,339 2,238,850 Inventories 3,040,520 2,028,662 Prepaid expenses 259,388 245,359 Deferred income tax asset 57,570 57,570 -------------- -------------- Total current assets 8,114,296 4,888,148 PROPERTY AND EQUIPMENT: Compressors 23,928,121 18,617,232 Less- Accumulated depreciation (4,120,173) (3,020,925) --------------- -------------- Total compressors, net 19,807,948 15,596,307 -------------- -------------- Vehicles and Equipment 1,828,628 1,473,982 Less - Accumulated depreciation (654,446) (489,090) --------------- -------------- Total vehicles and equipment, net 1,174,182 984,892 OTHER ASSETS 124,929 60,052 -------------- -------------- Total assets $ 29,221,355 $ 21,529,399 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITES: Accounts payable $ 1,685,922 $ 523,089 Accrued liabilities 745,726 608,119 Deferred revenues 33,071 266,239 Current portion of long-term debt --- 560,012 -------------- -------------- Total current liabilities 2,464,719 1,957,459 LONG-TERM DEBT, net of current portion 16,708,263 13,077,850 DEFERRED INCOME TAXES 3,006,587 1,709,581 -------------- -------------- Total liabilities 22,179,569 16,744,890 -------------- ------------- COMMITMENTS (Note 4) STOCKHOLDERS' EQUITY: Preferred stock, $1 par value; 200,000 shares authorized; no shares issued or outstanding __ __ Common stock, $1 par value; 500,000 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 4,124,836 1,867,559 -------------- -------------- Total stockholders' equity 7,041,786 4,784,509 -------------- -------------- Total liabilities and stockholders' equity $ 29,221,355 $ 21,529,399 ============== ============== 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 Three Nine Months Nine Months Months Ended Months Ended Ended Ended September 30, September 30, September 30, September 30, 2003 2002 2003 2002 REVENUES: Rental revenue $ 12,564,897 $ 9,186,888 $ 4,726,446 $ 3,372,781 Sales - Compressors and parts 2,386,333 610,468 1,296,792 296,031 Service and other 1,020,302 753,197 383,360 264,937 ------------- ------------- ------------- ------------- Total revenues 15,971,532 10,550,553 6,406,598 3,933,749 ------------- ------------- ------------- ------------- COST OF SALES AND EXPENSES: Cost of sales 1,467,205 346,282 795,973 173,240 Operating expenses 8,815,534 6,880,165 3,335,880 2,463,866 Depreciation and amortization expense 1,390,460 1,186,635 504,076 400,351 -------------- -------------- ------------- ------------- Total cost of sales and expenses 11,673,199 8,413,082 4,635,929 3,037,457 ------------- ------------- ------------- ------------- OPERATING INCOME 4,298,333 2,137,471 1,770,669 896,292 OTHER INCOME (EXPENSE) Gain on sale of assets 84,405 --- --- --- Interest expense (828,455) (961,505) (267,171) (323,941) -------------- -------------- ------------- ------------- Total other income (expense) (744,050) (961,505) (267,171) (323,941) -------------- -------------- ------------- ------------- INCOME BEFORE PROVISION FOR INCOME TAXES 3,554,283 1,175,966 1,503,498 572,351 PROVISION FOR INCOME TAXES 1,297,006 470,352 510,444 228,941 ------------- ------------- ------------- ------------- NET INCOME $ 2,257,277 $ 705,614 $ 993,054 $ 343,410 ============= ============= ============= ============= Earnings per common share: Basic $ 14.73 $ 4.60 $ 6.48 $ 2.24 ============= ============= ============ ============ Diluted $ 11.05 $ 4.36 $ 4.70 $ 2.12 ============= ============= ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
COMPRESSCO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2003 and 2002 (Unaudited) 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,257,277 $ 705,614 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 1,390,460 1,186,635 Amortization of discount on subordinated promissory notes 25,000 25,000 Amortization of deferred financing costs 46,461 28,785 Provision for bad debts 90,000 43,000 Other assets (28,445) 6,067 Gain on sale of operating equipment and natural gas well (84,405) --- Deferred income tax 1,297,006 470,352 Changes in current assets and liabilities: Accounts receivable (1,853,489) (303,789) Notes receivable --- 23,662 Inventories (1,011,857) 162,459 Other current assets (14,029) (15,741) Accounts payable 1,162,833 (67,480) Accrued liabilities 137,610 (247,501) Deferred revenues (233,168) --- --------------- -------------- Net cash provided by operating activities 3,181,254 2,017,063 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to compressor rental units (5,372,900) (1,186,329) Additions to vehicles and equipment (519,772) (240,379) Proceeds from sales of operating equipment 189,700 2,621 -------------- -------------- Net cash used in investing activities (5,702,972) (1,424,087) CASH FLOWS FROM FINANCING ACTIVITES: Proceeds from new bank credit agreement 11,166,596 --- Payment of bank line of credit (8,690,795) --- Payments of term note payable (1,026,640) (419,999) Proceeds from line of credit 10,249,141 8,860,508 Principal payments on line of credit (8,652,900) (8,859,928) Deferred financing costs (86,912) --- --------------- -------------- Net cash provided by (used in) financing activities 2,958,490 (419,419) -------------- --------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 436,772 173,557 CASH AND CASH EQUIVALENTS, Beginning of period 317,707 53,624 -------------- -------------- CASH AND CASH EQUIVALENTS, End of period $ 754,479 $ 227,181 ============== ============== 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. 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 the mid-continent hydrocarbon producing regions of the United States and western Canada. 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 to service the Canadian market. As of September 30, 2003 the Company had 75 compressors on rental and had sold 20 compressors in Canada. 2. BASIS OF PRESENTATION The consolidated balance sheet as of September 30, 2003 and the consolidated statements of operations and cash flows for the nine months ended September 30, 2003 and 2002 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, 2002 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, 2002 consolidated financial statements included in the Company's Form 10-KSB. The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2003. 3. LONG-TERM DEBT Long-term debt consists of the following as of September 30, 2003: (a) On December 22, 2000, the Company offered an issue of 13% subordinated promissory notes (the "Notes") and stock warrants (see Note 5) to qualified private investors. As of September 30, 2003, $5,550,000 of the 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. In March 2003, the Company and the holders of the Notes agreed to amend the Notes to extend the maturity to March 31, 2005, change the interest rate from 13% per annum to 10% effective April 1, 2003 and make the Notes convertible by the holder into common stock of the Company at anytime prior to maturity at a conversion price of $150 per share. The Notes mature on the earlier of (1) the consummation of an underwritten public offering of the Company's capital stock or (2) March 31, 2005. 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 quarterly in arrears. (b) The Company entered into a new credit agreement on June 30, 2003 with a bank and repaid all amounts due on its prior line of credit and term facilities. Under the new credit agreement the Company may borrow up to the lesser of $17,500,000 or the sum of (i) 85% of the aggregate amount of eligible receivables, (ii) 50% of the aggregate amount of eligible inventory, and (iii) the lower of 80% of the appraised orderly liquidated value or the net book value of its compressor fleet. In addition no additional borrowings are allowed if utilization of the compressor fleet falls below 70%. The balance outstanding under the line of credit agreement as of September 30, 2003 was $11,166,596. The borrowing under the credit facility bear interest between 0.25% and 0.5% over Wall Street Journal Prime Rate (4.50% at September 30, 2003) or between 3.0% and 3.25% over LIBOR (4.27% at September 30, 2003) based on the Company's ratio of debt to earnings before interest, taxes, depreciation and amortization. Interest is due quarterly with all outstanding borrowings due at maturity on the earlier of June 30, 2006 or 45 days prior to the maturity of the $5,550,000 subordinated promissory notes currently due March 31, 2005. The loan is secured with the assets and compressor rental agreements of the Company. 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. As of September 30, 2003, 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 at least the next twelve months. In addition, no additional draws are permitted under the credit facility if utilization of the compressor fleet falls below 70%. As of September 30, 2003, the utilization rate of the compressor fleet was 95.7%. 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. As of September 30, 2003, the Company had taken delivery of 387 engines from the supplier including 140 engines during the first nine months of 2003. The purchase agreement was amended on February 24, 2003 to provide that the Company shall purchase 13 engines per month commencing January 1, 2003 and not less than 156 engines per year until the remaining balance of engines have been purchased. 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. 5. STOCKHOLDERS' EQUITY In connection with the offering of the 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 September 30, 2003 total stock warrants of 46,620 had been issued. The warrants are exercisable upon issue, and expire on March 31, 2005. 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. 6. EARNINGS PER COMMON SHARE Basic earnings per share is calculated using the weighted average number of shares issued and outstanding during the period. Diluted weighted average shares is calculated using the effect of exercising stock options and stock warrants and the conversion of subordinated promissory notes into common shares. Basic and diluted earnings per common share are calculated as follows:
2003 2002 -------------------------------- -------------------------------- Per Share Per Share Net Income Shares Amount Net Income Shares Amount ---------- ------- ------- --------- ------ -------- Nine Months Ended September 30 - ------------------------------ Basic: Income available to common Stockholders $2,257,277 153,235 $14.73 $ 705,614 153,235 $4.60 ====== ===== Diluted: Effect of stock options and warrants -------- 40,303 ------- 8,625 Effect of conversion of subordinated promissory notes 290,751 37,000 ------- -------- ------- ------ ------- -------- Income available to common stockholders plus assumed exercises of stock options and stock warrants and conversion of subordinated promissory notes $2,548,028 230,538 $ 11.05 $ 705,614 161,860 $4.36 ========== ======= ======= ========== ======= ===== Three Months Ended September 30 - ------------------------------- Basic: Income available to common shareholders $ 993,054 153,235 $ 6.48 $ 343,410 153,235 $2.24 ======= ===== Diluted: Effect of stock options and warrants -------- 40,303 -------- 8,625 Effect of conversion of subordinated promissory notes 91,575 37,000 -------- -------- ------ ------ --------- -------- Income available to common stockholders plus assumed exercises of stock options and stock warrants and conversion of subordinated promissory notes $1,084,629 230,538 $ 4.70 $ 343,410 161,860 $2.12 ========== ======= ======= ========== ======= =====
7. STOCK BASED COMPENSATION The Company applies APB Opinion No. 25 in accounting for its fixed price stock options. Accordingly, no compensation cost for options has been recognized in the financial statements. The chart below sets forth the Company's net income per share for the nine and three months ended September 30, 2003 and 2002, as reported and on a pro forma basis as if the compensation cost of stock options had been determined consistent with SFAS 123.
Nine Months Ended Three Months Ended September 30 September 30 2003 2002 2003 2002 Net Income, as reported $ 2,257,277 $ 705,614 $ 993,054 $ 343,410 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (73,688) (75,743) (27,200) (26,428) ------- ------- ------- ------ Pro forma net income $ 2,183,589 $ 629,871 $ 965,854 $ 316,982 ========= ======= ========= ======= Basic Income per Share: As reported $ 14.73 $ 4.60 $ 6.48 $ 2.24 Pro forma 14.25 4.11 6.30 2.07 Diluted Income per Share: As reported $ 11.05 $ 4.36 $ 4.70 $ 2.12 Pro forma 10.73 3.89 4.59 1.96
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview 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 the mid-continent hydrocarbon producing regions of the United States and western Canada. 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 to service the Canadian market. As of September 30, 2003 the Company had 75 compressors on rental and had sold 20 compressors in Canada including 46 compressors placed on rental and 18 compressors were sold during the nine months ended September 30, 2003. The following table sets forth selected consolidated financial information for the year ended December 31, 2002 and as of September 30, 2003 and for the nine months and three months ended September 30, 2003 and 2002 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: Nine Months Ended Three Months Ended September 30, September 30, 2003 2002 2003 2002 ---- ---- ---- ---- Operating Revenues.............. $ 15,971,532 $ 10,550,553 $ 6,406,598 $ 3,933,749 Cost of Sales and Expenses...... 11,673,199 8,413,082 4,635,929 3,037,457 Operating Income................ 4,298,333 2,137,471 1,770,669 896,292 Net Income...................... $ 2,257,277 $ 705,614 $ 993,054 $ 343,410 BALANCE SHEET DATA (AT END OF PERIOD): September 30, 2003 December 31, 2002 ------------------ ----------------- Cash and Cash Equivalents............... $ 754,479 $ 317,707 Total Assets............................ 29,221,355 21,529,399 Total Liabilities....................... 22,179,569 16,744,890 Stockholders' Equity.................... $ 7,041,786 $ 4,784,509
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. NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINEMONTHS ENDED SEPTEMBER 30, 2002 The revenues for the nine months ended September 30, 2003 of $15,971,532 increased by $5,420,979, or 51.4% for the comparable period in 2002. The following table sets forth the components of our revenues for the nine months ended September 30, 2003 and 2002:
2003 2002 ---- ---- Revenue: Rental revenue $12,564,897 $ 9,186,888 Sale of compressors and parts 2,386,333 610,468 Service and other 1,020,302 753,197 ------------ ------------- Total revenue $15,971,532 $ 10,550,553 =========== ============
The Company had 991 compressors in service as of September 30, 2003 compared to 752 as of September 30, 2002. During the nine months ended September 30, 2003 the compressors in service increased by a net of 230 units, an increase of 30%, compared to an increase of 103 units in the first nine months of 2002. In the nine months ended September 30, 2003 the Company sold 42 compressors compared to 11 compressors sold in first nine months of 2002. The increase in the number of net units set and compressors sold in 2003 was due to our increased domestic sales staff in 2003, increased activity in our Canadian operations, combined with the higher price of natural gas during 2003. The cost of sales and operating expenses for the 2003 period were $10,282,739, or 64.4% of operating revenues, compared to $7,226,447, or 68.4%, in the 2002 period. Operating expenses for the 2003 period were $8,815,534, or 64.9% of rental and service revenues, compared to $6,880,165, or 69.2% for the 2002 period. The decrease in cost of sales and operating expenses as a percent of revenues in 2003 was due to the growth in rental revenue in 2003, resulting from increasing the rental units in service and increased rental rates with lower increases in operating expenses to support the increased number of units and the increase in the number of compressors sold in 2003. The Company manufactured 236 compressors in the 2003 period compared to 47 in the 2002 period. The increase in the number of compressors manufactured was due to higher demand as a result of our increased domestic sales staff in 2003, increased activity in our Canadian operation, combined with the higher price of natural gas in 2003. The Company had 45 compressors off rental as of September 30, 2003 compared to 79 units off rental as of September 30, 2002. The Company is manufacturing new compressors, as needed, for domestic and Canadian operations. Depreciation and amortization expense increased in the 2003 period to $1,390,460 compared to $1,186,635 for the 2002 period. The increase was due to the increase in the Company's compressor fleet in 2003 to 1,036 units from 831 units as of September 30, 2002. Interest expense for the 2003 period was $828,455 compared to $961,505 for the 2002 period. The decrease was due to lower interest rates in 2003 compared to 2002. Provision for income taxes for the 2003 period was $1,297,006 (36.5% effective rate) compared to $470,352 (40% effective rate) for 2002. The decrease in the effective income tax rate in 2003 was primarily due to utilizing the Canadian income tax loss carry forward from 2002 to offset Canadian income generated in 2003. Net income was $2,257,277 for the 2003 period compared to $705,614 for the 2002 period. The increase in net income was primarily due to the growth in the Company's compressor rental fleet and increase in the number of compressors sold in 2003. THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002 The revenues for the three months ended September 30, 2003 of $6,406,598 increased by $2,472,849, or 62.9% for the comparable period in 2002. The following table sets forth the components of our revenues for the three months ended September 30, 2003 and 2002:
2003 2002 ---- ---- Revenue: Rental revenue $4,726,446 $3,372,781 Sale of compressors and parts 1,296,792 296,031 Service and other 383,360 264,937 ------------ ------------ Total revenue $6,406,598 $3,933,749 ========== ==========
The Company had 991 compressors in service as of September 30, 2003 compared to 752 as of September 30, 2002. During the three months ended September 30, 2003 the compressors in service increased by a net of 99 units compared to an increase of 49 units in the same period in 2002. In the three months ended September 30, 2003, the Company sold 25 compressors compared to 5 compressors sold in the 2002 period. The increase in the number of net units set and compressors sold in 2003 was due to our increased domestic sales staff in 2003, increased activity in our Canadian operation, combined with the higher price of natural gas during 2003. The cost of sales and operating expenses for the 2003 period were $4,131,853, or 64.4% of operating revenues, compared to $2,637,106, or 67.0%, in the 2002 period. Operating expenses for the 2003 period were $3,335,880 or 65.3% of rental and service revenues, compared to $2,463,866, or 67.7% for the 2002 period. The decrease in cost of sales and operating expenses as a percent of revenues in 2003 was due to the growth in rental revenue in 2003, resulting from increasing the rental units in service and increased rental rates with lower increases in operating expenses to support the increased number of units and the increase in the number of compressors sold in 2003. The Company manufactured 109compressors in the 2003 period compared to 39 in the 2002 period. The increase in the number of compressors manufactured was due to higher demand as a result of our increased domestic sales staff in 2003, increased activity in our Canadian operation, combined with the higher price of natural gas in 2003. The Company had 45 compressors off rental as of September 30, 2003 compared to 79 units off rental as of September 30, 2002. The Company is manufacturing new compressors, as needed, for domestic and Canadian operations. Depreciation and amortization expense increased in the 2003 period to $504,076 compared to $400,351 for the 2002 period. The increase was due to the increase in the Company's compressor fleet in 2003 to 1,036 units from 831 units at September 30, 2002. Interest expense for the 2003 period was $267,171 compared to $323,941 for the 2002 period. The decrease was due to lower interest rates in 2003 compared to 2002. Provision for income taxes for the 2003 period was $510,444 (34% effective rate) compared to $228,941 (40% effective rate) for 2002. The decrease in the effective income tax rate in 2003 was primarily due to utilizing the Canadian income tax loss carry forward from 2002 to offset Canadian income generated in 2003. Net income was $993,054 for the 2003 period compared to $343,410 for the 2002 period. The increase in net income was primarily due to the growth in the Company's compressor rental fleet and increase in the number of compressors sold in 2003. LIQUIDITY AND CAPITAL RESOURCES On June 30, 2003, the Company entered into a credit agreement with a bank and repaid all amounts due on its prior line of credit and term facilities. Under the new credit agreement the Company may borrow up to the lesser of $17,500,000 or the sum of (i) 85% of the aggregate amount of eligible receivables, (ii) 50% of the aggregate amount of eligible inventory, and (iii) the lower of 80% of the appraised orderly liquidated value or the net book value of its compressor fleet. In addition no additional borrowings are allowed if utilization of the compressor fleet falls below 70%. The balance outstanding under the line of credit agreement as of September 30, 2003 was $11,166,596. The borrowings under the credit facility bear interest between 0.25% and 0.5% over Wall Street Journal Prime Rate (4.50% at September 30, 2003) or between 3.0% and 3.25% over LIBOR (4.27% at September 30, 2003) based on the Company's ratio of debt to earnings before interest, taxes, depreciation and amortization. Interest is due quarterly with all outstanding borrowings due at maturity on the earlier of June 30, 2006 or 45 days prior to the maturity of the $5,550,000 subordinated promissory notes currently due March 31, 2005. The loan is secured with the assets and compressor rental agreements of the Company. 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. As of September 30, 2003, the Company was in compliance with its loan covenant ratios. Management believes that the Company will be in compliance with the covenants under the credit facility for at least the next twelve months. In addition, no additional draws are permitted under the credit facility if utilization of the compressor fleet falls below 70%. As of September 30, 2003 the utilization rate of the compressor fleet was 95.7%. In December 2000 and January 2001, the Company offered its 13% subordinated promissory notes (the "Notes") and stock warrants in a private placement. As of September 30, 2003, $5,550,000 of the 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. In March 2003 the Company and the holders of the Notes agreed to amend the Notes to extend the maturity to March 31, 2005, change the interest rate from 13% per annum to 10% effective April 1, 2003 and make convertible by the holder into common stock of the Company at anytime prior to maturity at a conversion price of $150 per share. The Notes mature on the earlier of (1) the consummation of an underwritten public offering of the Company's capital stock or (2) March 31, 2005. 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 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 were used primarily to fund the growth in our compressor fleet. 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 2003. 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. ITEM 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. As of September 30, 2003 we carried out an evaluation, under the supervision and the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the design and operation of these disclosure controls and procedures pursuant to the Exchange Act Rule 13a-14. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the company (including our consolidated subsidiaries) required to be included in our periodic SEC filings. (b) Changes in internal controls. There were no significant changes in internal controls or other factors that could significantly affect our internal controls subsequent to the date of our evaluation. PART II. OTHER INFORMATION Item 1. Legal Proceedings None 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 A special meeting of the shareholders was held on July 16, 2003 to vote on a proposal to amend and restate our certificate of incorporation to increase the number of authorized shares of the Company's common stock, par value $1.00 per share, from 200,000 shares to 500,000 shares and increase the number of authorized shares of the Company's preferred stock, par value $1.00 per share, from 50,000 shares to 200,000, which amendment has been proposed by the Board of Directors of the Company. The above proposal was approved by a vote of 111,363 shares for the proposal and 575 shares against the proposal and 75 shares abstaining. 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 Securities Purchase Agreement, dated as of December 22, 2000, between the Company and each investor party thereto. ***10.5 Stock Warrant Agreement, dated as of December 22, 2000, between the Company and each investor party thereto. ***10.6 Subordinated Promissory Note, dated December 22, 2000, issued by the Company to each purchaser of the notes. ***10.7 Registration Rights Agreement, dated as of December 22, 2000, between the Company and each investor party thereto. ****10.8 Credit Agreement, dated June 30, 2003, by and among Comercia Bank - Texas, the Company and Compressco Field Services, Inc. ****31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ****32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. No reports were filed in the quarter ended September 30, 2003 - --------------------------- * 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 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 November 14, 2003. 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) Exhibit 31 Certification of Chief Executive Officer As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Brooks Mims Talton, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Compressco, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 14, 2003 /S/ BROOKS MIMS TALTON ----------------------------- Brooks Mims Talton Chief Executive Officer Exhibit 32 Certification of Chief Financial Officer As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Gary McBride, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Compressco, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 14, 2003 /S/ GARY McBride --------------------------------- Gary McBride Chief Financial Officer Certification of Chief Executive Officer As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-QSB (the "form") for the quarter ended September 30, 2003 of Compressco, Inc. (the "Issuer"). I, Brooks Mims Talton, the Chief Executive Officer of Issuer certify that to the best of my knowledge: (i) the Form 10-QSB fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: November 14, 2003 By: /S/ BROOKS MIMS TALTON ----------------------- Chief Executive Officer Subscribed and sworn to before me this 14th day of November 2003. /S/ Jodi Thompson - -------------------- Name: Jodi Thompson Title: Notary Public My commission expires: April 23, 2005 Certification of Chief Financial Officer As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the quarterly report on Form 10-QSB (the "form") for the quarter ended September 30, 2003 of Compressco, Inc. (the "Issuer"). I, Gary McBride, the Chief Financial Officer of Issuer certify that to the best of my knowledge: (i) the Form 10-QSB fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (ii) the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: November 14, 2003 By: /S/ GARY MCBRIDE ------------------ Chief Financial Officer Subscribed and sworn to before me this 14th day of November 2003. /S/ Jodi Thompson - -------------------- Name: Jodi Thompson Title: Notary Public My commission expires: April 23, 2005 -----END PRIVACY-ENHANCED MESSAGE-----