<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
--------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ________to_____________
Commission file number 0-16618
-------------------
CATALYST ENERGY SERVICES, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 72-0885519
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3 Riverway, Ste 770, Houston, TX 77056
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(713) 623-8133
- -------------------------------------------------------------------------------
(Issuer's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 No X
---- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of 6/30/96, 12,957,223 shares of
common stock were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes ; No X
---- ----
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheet as of
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
Three and six months ended June 30, 1996 and 1995 . . . . . 4
Consolidated Statements of Cash Flows
Six months Ended June 30, 1996 and 1995 . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . 7-9
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<PAGE>
Catalyst Energy Services, Inc.
Consolidated Balance Sheet
June 30, 1996
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 459,137
Accounts receivable-trade, net of allowance for
doubtful accounts of $91,618 1,622,835
Notes receivable due from officers 127,845
Inventory, net 2,313,600
Prepaids and other current assets 84,954
-----------
Total current assets 4,608,371
PROPERTY AND EQUIPMENT, NET 3,679,525
OTHER ASSETS:
Inventory 713,447
Notes receivable due from officers 34,800
-----------
TOTAL ASSETS $9,036,143
-----------
-----------
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts payable-trade $ 424,773
Accrued liabilities 237,430
Deferred revenue 424,763
Federal and state income taxes payable 97,463
Current portion of long-term debt and notes payable 1,452,681
-----------
Total current liabilities 2,637,110
LONG-TERM LIABILITIES:
Deferred income taxes 302,852
Long-term debt, net of current portion 1,710,592
-----------
Total long-term liabilities 2,013,444
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value:
No stated dividend, non voting and non cumulative;
5,000,000 shares authorized, 319,174 shares of Series A
issued and outstanding 3,192
Common stock, $.01 par value:
225,000,000 shares authorized, 12,957,223 shares
issued and outstanding 129,572
Additional paid-in capital 1,396,150
Retained earnings 2,857,675
-----------
4,386,589
-----------
Treasury stock (2,500 shares at cost) (1,000)
-----------
Total stockholders' equity 4,385,589
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $9,036,143
-----------
-----------
See accompanying notes
3
<PAGE>
Catalyst Energy Services, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Six months ended June 30 Three months ended June 30
-------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Service revenues $2,875,337 $2,433,673 $1,537,043 $1,337,191
Rental revenues 2,656,344 2,715,877 1,369,026 1,324,514
---------- ---------- ---------- ----------
Total revenues 5,531,681 5,149,550 2,906,069 2,661,705
Cost of service revenues 1,982,672 1,603,920 1,004,904 832,121
Cost of rental revenues 1,430,505 1,555,050 743,976 761,025
---------- ---------- ---------- ----------
Cost of service and rental 3,413,177 3,158,970 1,748,880 1,593,146
Gross profit 2,118,504 1,990,580 1,157,189 1,068,559
Selling, general & administrative expenses:
Selling, general and administrative 996,152 1,056,940 463,023 548,647
Depreciation and amortization 445,620 420,178 226,113 224,700
---------- ---------- ---------- ----------
Total SG&A expenses 1,441,772 1,477,118 689,136 773,347
Operating income 676,732 513,462 468,053 295,212
Other income(expense):
Gain on sale of equipment 50,819 104,319 1,172 78,996
Interest income 16,149 13,762 3,760 8,399
Other, net (332) 14,104 (875) 11,405
Interest expense (120,189) (147,929) (61,373) (70,614)
---------- ---------- ---------- ----------
Total other (expense) (53,553) (15,744) (57,316) 28,186
Income before tax 623,179 497,718 410,737 323,398
Income tax expense
Federal-current 231,027 149,800 141,551 100,757
State-current 34,902 23,300 21,957 17,729
Deferred (22,113) 258,447 (10,952) 258,447
---------- ---------- ---------- ----------
243,816 431,547 152,556 376,933
---------- ---------- ---------- ----------
Net income $ 379,363 $ 66,171 $ 258,181 $ (53,535)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Number of common and common equivalent shares 12,957,223 12,957,223 12,957,223 12,957,223
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Pro Forma information
Historical income before tax $ 497,718 $ 323,398
Pro Forma provision for income taxes 192,219 124,892
---------- ----------
Pro Forma net income $ 305,499 $ 198,506
---------- ----------
---------- ----------
Pro Forma net income per share $0.02 $0.02
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
4
<PAGE>
Catalyst Energy Services, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six months ended June 30
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 379,363 $ 66,171
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Deferred income taxes (22,113) 258,447
Depreciation and amortization 501,089 460,339
Gain on sale of property and equipment (50,819) (99,525)
Changes in operating assets and liabilities:
Accounts receivable, net (102,398) 414,562
Other assets and prepaid expenses (52,539) (14,306)
Inventory, net (9,574) (95,262)
Accounts payable, accrued liabilities &
income taxes payable (156,095) (473,975)
--------- ---------
Net cash provided by operating activities 486,914 516,451
Investing activities:
Purchases of property and equipment (680,156) (156,278)
Proceeds from sale of property & equipment, other 53,202 177,330
Issuance of notes receivable-officers (147,206) -
Collection of notes receivable 19,404 -
--------- ---------
Net cash from (used in) investing activities (754,756) 21,052
Financing activities:
Borrowings on revolving line of credit 742,661 -
Proceeds from issuance of long-term debt 27,380 -
Principal payments on long-term debt (365,008) (571,603)
Partnership distributions - (100,986)
--------- ---------
Net cash from (used in) financing activities 405,033 (672,589)
Net increase (decrease) in cash and
cash equivalents 137,191 (135,086)
Cash and cash equivalents at beginning of period 321,946 768,984
--------- ---------
Cash and cash equivalents at end of period $ 459,137 $ 633,898
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
5
<PAGE>
Catalyst Energy Services, Inc.
Consolidated Balance Sheet
June 30, 1996
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months and six months ended June 30, 1996, are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant Company and
Subsidiaries annual report on Form 10-KSB for the year ended December 31,
1995.
NOTE 2 BUSINESS COMBINATIONS
COMPRESSOR DYNAMICS, INC. ("CDI")
On June 15, 1995, the Company issued 7,774,334 (post split) shares of its
common stock and 319,174 shares of newly authorized Series A Preferred Stock,
$.01 par value, to the partners of Compressor Dynamics, Ltd. ("CDL") in
exchange all of such partners' interests in CDL, which constituted 100% of
such interests (the "Exchange Agreement"). The shares of common stock issued
in the CDL acquisition constituted approximately 60% of the common stock of
the Company then outstanding. The CDL acquisition has been accounted for as
though it had been effective for all periods covered by the accompanying
financial statements. Because the Company and CDL are effectively controlled
by a common entity (The Catalyst Group, Inc.), all assets and liabilities
transferred in the CDL acquisition have been accounted for at their
historical cost, in a manner similar to that in a pooling of interests.
NOTE 3 PRO FORMA PROVISION FOR INCOME TAXES
The partnership status of CDL was terminated with the Exchange Agreement as
of June 15, 1995. To reflect the earnings of CESI on an after-tax basis, an
unaudited pro forma provision for income tax has been included in the
accompanying Statements of Operations for the three months and six months
ended June 30, 1995. This provision was computed as if the former
partnership were a C Corporation and responsible for its federal and state
income taxes.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In August 1994, CESI acquired Manifold Valve Services, Inc. ("MVSI"). In
June of 1995, CESI merged with CDL through an exchange pursuant to the
Exchange Agreement accounted for following a method similar to pooling of
interests accounting. As a result of these developments and the related
accounting treatment of these events, CESI reports the consolidated results
for MVSI and CDI (formerly CDL) for the three months and six months ended
June 30, 1996 and 1995 in a more fully described the following "Results of
Operations".
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1996 COMPARED TO QUARTER ENDED JUNE 30, 1995.
CESI, whose operations are predominantly those of its two wholly-owned
subsidiaries MVSI and CDI, had total revenues for the second quarter 1996 of
$2,906,069, which represented an increase of 9.2% over 1995's second quarter
of $2,661,705. Separately, MVSI's revenues for the second quarter 1996 of
$1,537,043, represents an increase of 15% over 1995's of $1,337,191 resulting
from increased custom fabrication services provided to a robust domestic
offshore drilling market. CDI's revenues for the second quarter 1996 of
$1,369,026 represents an increase of 3.3% from 1995's second quarter of
$1,324,514, from marginally higher rental fleet utilization.
CESI's cost of services and rentals for the second quarter 1996 were
$1,748,880, or 60% of total revenues. This compares to 1995's second quarter
cost of services and rentals of $1,593,156, or 60% of total revenues.
Separately, MVSI's cost of services for the second quarter 1996 were
$1,004,904, or 65% of total service revenues. This compares to 1995's second
quarter cost of services of $832,131, or 62% of total sales. The increase
in cost of services, results largely from the mix of service revenues between
labor hours and equipment sales. Labor hour margins are generally less
attractive than margins on the sale of equipment. CDI's cost of rentals for
the second quarter 1996 were $743,976, or 54.3% of total sales. This
compares favorably to 1995's second quarter cost of sales of $761,025, or
57.5% of total sales. The decrease is due largely to lower field repair and
maintenance costs.
Selling, general and administrative ("SG&A") expenses were $463,023 for the
second quarter 1996, or 15.9% of revenues, compared to $548,647, or 20.6% in
the second quarter 1995. The modest decrease of $85,624 is attributable to
lower management incentive bonuses at MVSI and lower payroll costs resulting
from staffing reductions at CDI. Depreciation and amortization expense was
$226,113 for the second quarter 1996, versus $224,700 for the first quarter
1995, reflecting the additional depreciation expense related to net capital
expenditures of depreciable compression equipment at CDI.
Other income and expense, on a combined basis, resulted in a net other
expense of $57,316 for the second quarter 1996, up from 1995's second quarter
net other income of $28,186. This increase in net other expense in the
second quarter 1996 is largely the result of a lower 1996 level of idle or
surplus equipment dispositions at CDI.
7
<PAGE>
Net income from operations totalled $468,053 for the second quarter 1996
compared to $295,202 for the second quarter 1995. The 58% increase primarily
reflects the lower selling, general and administrative expenses relative to a
higher gross margin. Net income before taxes was $410,737 for the second
quarter 1996, a 27% increase from 1995's second quarter amount of $323,388.
The Company's income tax provision for the second quarter 1996 of $152,556
is based on operating results from CDI, MVSI and the Company's operations.
The second quarter of 1995 includes a current income tax provision of
$376,933 for the operations which are only to serve as the holding company
for the subsidiaries of MVSI and the Company, a current provision for only
the last 15 days of the quarter for CDI's operations and a one time deferred
income tax provision of $258,447 to provide for the effect of temporary
differences between the tax and financial reporting bases of certain assets
and liabilities of CDI resulting from the consummation of the Exchange
Agreement. Prior to the Exchange, CDL (CDI's predecessor) was a limited
partnership and therefore, no provision for income taxes was recognized.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total revenues for the six months ended June 30, 1996 increased $382,131 or
7.4% over the same 1995 period. Service revenues at MVSI increased $441,664
or 18% from 1995 to 1996, principally attributable to the expansion of
services provided to the domestic offshore drilling industry. Rental
revenues at CDI decreased by $59,533 or 2.2% largely due to a 10% decline in
average rental rates which was somewhat offset by marginal increases (3.8%)
in rental fleet utilization.
Costs of services and rentals for the 1996 six month period increased by
$254,207 or 8% over the comparable 1995 period. Costs of service at MVSI for
the 1996 six month period increased by $378,752 or 23.6% over the comparable
1995 period as a result of higher revenues from custom fabrication work,
which generally yields marginally lower gross profit margin than MVSI's
manifold and valve repair service work. CDI's costs of rental revenues for
the 1996 six month period decreased by $124,545 or 8% over the comparable
1995 period. The decline was primarily due to lower field repair and
maintenance costs coupled with the capitalization of certain costs of
deploying numerous compressor units related to a 1996 make ready and
mobilization for a large rental contract for CDI's largest customer.
Selling, general and administrative ("SG&A") expenses were $60,788, or 5.8%
lower in the six month period in 1996 than the comparable 1995 period. The
decline is due to lower management incentive bonuses at MVSI and lower
employment related costs from staffing reductions at CDI. Depreciation and
amortization expense increased by $25,442 reflecting the additional
depreciation on 1996 capital expenditures at CDI, related primarily to the
mobilization and make ready referred to above.
Other income and expense, resulted in $53,553 of other net expense for the
1996 six month period up from $15,744 of other net expense in the comparable
six month period of 1995. The $37,809 increase was attributable to lower
gains on sales of compression rental equipment ($53,500) offset somewhat by
lower interest expense ($27,740), resulting from a reduced level of average
outstanding debt, for the six month period in 1996.
8
<PAGE>
Net income from operations totalled $676,732 for the six months ended June 30,
1996 compared to $513,462 for the six months ended June 30, 1995. The 32%
increase reflects higher revenues coupled with a $60,788, or 5.8%, decline in
SG&A expenses. Net income before taxes increased by 25% from $497,718 for the
six months ended June 30, 1995 to $623,179 for the six months ended June 30,
1996.
The Company's income tax provision for the six months ended June 30, 1996 is
based on operating results from CDI, MVSI and the Company's operations, which
are only to serve as a holding company for the subsidiaries. The six months
ended June 30, 1995 includes a current income tax provision for the operations
of MVSI and the Company, a current provision for only the last 15 days of the
period for CDI's operations and a one-time deferred income tax provision of
$258,447 to provide for the effect of temporary differences between the tax and
financial reporting bases of certain assets and liabilities of CDI resulting
from the consummation of the Exchange Agreement. Prior to the Exchange, CDL
(CDI's predecessor) was a limited partnership and therefore, no provision for
income taxes was recognized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents of $459,137 at June 30, 1996 decreased
28% from June 30, 1995 balance of $633,898 due to the repayment of long-term
debt and capital expenditures in excess of net cash provided by operating
activities for 1996.
Total debt outstanding at June 30, 1996 was $3,163,273 compared to $3,330,788 at
June 30, 1995. The Company reduced its net outstanding debt by making principal
payments of $937,556 and incurring $770,041 of additional borrowings since June
30, 1995. At June 30, 1996, the Company had $742,661 outstanding borrowings
against the CDI revolving credit line and has available borrowings based on the
note agreements in force at CDI and MVSI, of $689,700. The Company amended the
terms of CDI's long-term financing agreements effective August 1, 1996 reducing
CDI's term note principal payments from $166,666 to $125,000 per quarter.
For the six months ended June 30, 1996, net cash provided by operating
activities was $486,914 compared to net cash provided of $516,451 in the
comparable 1995 period. The $29,537 decrease was primarily due to increase in
accounts receivables and decreases in accounts payable, accrued liabilities, and
income taxes payable. In the second quarter 1995 investing activities were a
$21,052 source of cash, compared to a $754,756 use of cash in the second quarter
1996. Increases in capital expenditures for compression equipment associated
with the deployment of compressors for a large rental contract for CDI's largest
customer was the primary reason for the change. For the six months of 1995,
financing activities used $672,589 in cash versus providing $754,756 in cash for
the six months of 1996. The increase in net cash provided resulted from $742,661
in borrowing on CDI's revolving line of credit to fund capital expenditures.
The Company expects that capital expenditures for the remainder of the fiscal
year 1996 could range from $300,000 to $400,000, depending upon overall market
conditions in the compressor rental market and capital equipment expansion
projects at MVSI. The Company expects to fund these expenditures with a
combination of net cash provided from operations and/or the Company's revolving
credit facilities.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed with this report.
27. Financial Data Schedule.
(b) No report on Form 8-K was filed during the quarter ended June 30, 1996.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CATALYST ENERGY SERVICES, INC. /S/ RON NIXON
- ------------------------------- ---------------------------------------
Ron Nixon, on behalf of the Registrant,
August 9, 1996 and as President
- -------------------------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000815029
<NAME> CATALYST ENERGY SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 459,137
<SECURITIES> 0
<RECEIVABLES> 1,877,098
<ALLOWANCES> (91,618)
<INVENTORY> 3,027,047
<CURRENT-ASSETS> 4,608,371
<PP&E> 6,573,406
<DEPRECIATION> (2,893,881)
<TOTAL-ASSETS> 9,036,143
<CURRENT-LIABILITIES> 2,637,110
<BONDS> 3,163,273
0
3,192
<COMMON> 129,572
<OTHER-SE> 4,252,825
<TOTAL-LIABILITY-AND-EQUITY> 9,036,143
<SALES> 0
<TOTAL-REVENUES> 5,531,681
<CGS> 3,413,177
<TOTAL-COSTS> 4,854,949
<OTHER-EXPENSES> (66,636)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,189
<INCOME-PRETAX> 623,179
<INCOME-TAX> 243,816
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379,363
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
