<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 March 31, 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 year)
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
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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 3/31/96, 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
March 31, 1996 3
Consolidated Statements of Operations
Three months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 7 - 8
PART II - OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
2
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CATALYST ENERGY SERVICES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 438,867
Accounts receivable-trade, net of allowance of $90,018 1,312,929
Notes receivable due from officers 147,206
Inventory, net 2,289,876
Prepaids and other current assets 70,777
-----------
Total current assets 4,259,655
PROPERTY AND EQUIPMENT, AT COST:
Property and equipment 6,371,437
Accumulated depreciation (2,656,800)
-----------
Total property and equipment, net 3,714,637
-----------
OTHER ASSETS:
Inventory 683,948
Notes receivable due from officers 34,800
-----------
TOTAL ASSETS $ 8,693,040
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 525,228
Accrued liabilities 311,291
Deferred revenue 416,902
Federal and state income taxes payable 110,608
Current portion of long-term debt and notes payable 999,109
-----------
Total current liabilities 2,363,138
LONG-TERM LIABILITIES:
Deferred income taxes 313,804
Long-term debt (net of current portion) 1,888,689
-----------
Total long-term liabilities 2,202,493
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 2,599,495
-----------
4,128,409
-----------
Treasury stock (2,500 shares at cost) (1,000)
-----------
Total stockholders' equity 4,127,409
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,693,040
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3
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CATALYST ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
QUARTERS ENDED MARCH 31
-----------------------
1996 1995
---------- ----------
Service revenues $1,338,294 $1,096,482
Rental revenues 1,287,318 1,391,363
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Total revenues 2,625,612 2,487,845
Cost of service revenues 977,768 771,790
Cost of rental revenues 686,529 794,025
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Cost of service and rental 1,664,297 1,565,815
Gross profit 961,315 922,030
Selling, general and administrative expenses:
Selling, general and administrative 533,129 508,292
Depreciation and amortization, net of amounts
included in cost of service and rental 219,507 195,479
---------- ----------
Total selling, general and administrative 752,636 703,771
---------- ----------
Operating income 208,679 218,259
Other income (expense):
Gain on sale of equipment 49,647 25,323
Interest expense (58,816) (77,315)
Interest income 12,389 5,363
Other, net 543 2,700
---------- ----------
Total other (expense) 3,763 (43,929)
---------- ----------
Income before income tax 212,442 174,330
Income tax expense
Federal - current 89,476 49,043
State - current 12,945 5,571
Deferred tax expense (11,161) --
---------- ----------
91,260 54,614
---------- ----------
Net income $ 121,182 $ 119,716
---------- ----------
---------- ----------
Net income per share $ .01 $ .01
---------- ----------
---------- ----------
Number of common and common equivalent shares 12,957,223 12,733,791
---------- ----------
---------- ----------
Pro Forma information
Historical income before tax $ 174,330
Pro Forma provision for income taxes (Note 3) 59,272
----------
Pro Forma net income $ 115,058
----------
----------
Pro Forma net income per share $ .01
----------
----------
4
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CATALYST ENERGY SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
QUARTERS ENDED MARCH 31
1996 1995
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Operating activities:
Net income $ 121,182 $ 119,716
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (11,161) --
Depreciation and amortization 247,178 215,205
Gain on sale of equipment (49,647) (25,323)
Changes in operating assets and liabilities:
Accounts receivable 183,204 265,681
Other assets and prepaid expenses (12,124) (29,890)
Inventory 16,859 (35,561)
Accounts payable, accrued liabilities &
deferred revenue 87,383 (449,249)
Federal and state income tax payable (39,679) 49,614
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Net cash provided by operating activities 543,195 110,193
Investing activities:
Capital expenditures for property and equipment (460,601) (51,842)
Proceeds from sale of equipment 51,975 34,120
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Net cash (used in) investing activities (408,626) (17,722)
Financing activities:
Borrowings on revolving note 285,430 --
Issuance of notes receivable - officers (147,206) --
Proceeds from long-term debt 27,380 --
Principal payments on long-term debt (183,252) (235,641)
Partnership distributions -- (100,986)
--------- ---------
Net cash (used in) financing activities (17,648) (336,627)
Net increase (decrease) in cash and cash equivalents 116,921 (244,156)
Cash and cash equivalents at beginning of period 321,946 828,563
--------- ---------
Cash and cash equivalents at end of period $ 438,867 $ 584,407
--------- ---------
--------- ---------
5
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CATALYST ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 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 ended March 31,
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
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 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 given effect 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 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 (see Note 2) 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 quarter ending March 31, 1995. This provision was computed as if
the former partnership were a C Corporation and responsible for its
federal and state income taxes.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
In August 1994, CESI acquired 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
fiscal quarters ended March 31, 1996 and 1995 in a more fully described the
following "Results of Operations".
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED MARCH 31, 1996 COMPARED TO FISCAL QUARTER ENDED
MARCH 31, 1995.
CESI, whose operations are predominantly those of its two wholly owned
subsidiaries MVSI and CDI, had total revenues for the first quarter 1996 of
$2,625,612, which represented an increase of 5.5% over 1995's first quarter
of $2,487,845. Separately, MVSI's revenues for the first quarter 1996 of
$1,338,294, represents an increase of 22% over 1995's of $1,096,482,
resulting from increased services provided to a robust offshore drilling
market. CDI's revenues for the first quarter 1996 of $1,287,318 represents a
decrease of 8.5% from 1995's first quarter of $1,391,363, due to an
approximate 8.5% drop in average rental rates, which was not completely
offset by marginally higher rental fleet utilization.
CESI's cost of services and rentals for the first quarter 1996 were
$1,644,297, or 63% of total revenues. This compares to 1995's first quarter
cost of services and rentals of $1,565,815, or 63% of total revenues.
Separately, MVSI's cost of services for the first quarter 1996 were $977,768,
or 73.1% of total service revenues. This compares to 1995's first quarter
cost of services of $771,790, or 70.4% 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 first
quarter 1996 were $686,529, or 53.3% of total sales. This compares favorably
to 1995's first quarter cost of sales of $794,025, or 75.1% of total sales.
This decrease in cost of rentals is due largely to the capitalization of
certain costs of deploying numerous units related to a large rental contract
for CDI's largest customer.
Selling, general and administrative ("SG&A") expenses were $533,129 for the
first quarter 1996, or 20.3% of revenues, compared to $508,292, or 20.4% in
the first quarter 1995. The modest increase of $24,837 for first quarter
1996 is attributable to costs associated with higher service revenues at
MVSI. Depreciation and amortization was $219,507 for the first quarter 1996,
versus $195,479 for the first quarter 1995, reflecting the additional
depreciation related to net capital expenditures of depreciable personal
property, principally at CDI.
7
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Other income and expense, on a combined basis, resulted in a net income of
$3,763 for the first quarter 1996, up from 1995's first quarter net expense
of $43,929. This decrease in net other expense in the first quarter 1996 is
largely the result of a reduction in interest expense from 1995's first
quarter of $77,315 to $58,816 in first quarter 1996. The reduction relates
primarily to the reduced level of fixed rate indebtedness. Gains on equipment
sales increased to $49,647 in the first quarter 1996 compared to $25,323 in
the first quarter 1995, reflecting higher levels of dispositions of idle
compression equipment at CDI.
Net income from operations totalled $208,679 for the first quarter 1996
compared to $218,259 for the first quarter 1995. The modest decline in
income from operations in the first quarter 1996 primarily reflects the
increased selling, general and administrative expenses, and higher
depreciation expense. Net income before taxes was $212,442 for the first
quarter 1996, a 21.8% increase from 1995's first quarter amount of $174,330.
The Company's income tax provision for the first quarter 1996 is based on
operating results from CDI, MVSI and the Company's operations. The first
quarter of 1995 does not include an income tax provision for CDI's
operations, since prior to the exchange on June 15, 1995, CDL was a limited
partnership and therefore, no provision for income taxes was recognized for
the first quarter 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents of $438,867 at March 31, 1996
decreased $145,540, or 25% from March 31, 1995 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 March 31, 1996 was $2,887,798 compared to
$3,666,750 at March 31, 1995. The Company reduced its net debt outstanding by
making principal payments of $1,091,762 and incurring $312,810 of additional
borrowings since March 31, 1995. At March 31, 1996, the Company had $285,430
outstanding borrowings against its revolving credit lines and has available
borrowings based on the note agreements in force at CDI and MVSI, of
$1,054,882. The Company anticipates that it will finance its working capital
needs from net cash provided by its operating activities and from its
revolving credit facilities, and/or amending its long-term financing
agreements.
For the first quarter of 1996, net cash provided by operating activities was
$543,195 compared to net cash provided of $110,195 in the first quarter 1995.
The increase was primarily due to increases in accrued liabilities and
accounts payable. Net cash used in investing activities increased from
$17,732 in the first quarter 1995, to $408,626 in the first quarter 1996, due
to increases in capital expenditures for compression equipment associated
with the deployment of numerous compressors for a large rental contract for
CDI's largest customer. Net cash used in financing activities decreased from
$336,627 in the first quarter 1995, to $17,648 in the first quarter 1996.
The decrease in cash used was principally attributable to a $100,986 decline
in partnership distributions because CDI ceased to be a partnership in June
of 1995, $52,389 less in long term debt payments, coupled with the addition
of $312,810 of revolving credit and long-term borrowings.
The Company expects that capital expenditures for the remainder of fiscal
year 1996 could range from $250,000 to $300,000, depending upon overall
market conditions in the compressor rental market. The Company expects to
fund these expenditures with a combination of net cash provided by operations
and the Company's revolving credit facilities, and/or amending its long-term
financing agreements.
8
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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 March 31, 1996
9
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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/ Rick Herrman
------------------------------------
May 9, 1996 Rick Herrman, on behalf of the
Registrant, and as Vice President
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 438,867
<SECURITIES> 0
<RECEIVABLES> 1,584,953
<ALLOWANCES> (90,018)
<INVENTORY> 2,973,824
<CURRENT-ASSETS> 4,259,655
<PP&E> 6,371,437
<DEPRECIATION> (2,656,800)
<TOTAL-ASSETS> 8,693,040
<CURRENT-LIABILITIES> 2,363,138
<BONDS> 2,887,798
0
3,192
<COMMON> 129,572
<OTHER-SE> 3,994,645
<TOTAL-LIABILITY-AND-EQUITY> 8,693,040
<SALES> 0
<TOTAL-REVENUES> 2,625,612
<CGS> 0
<TOTAL-COSTS> 2,416,933
<OTHER-EXPENSES> (62,579)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,816
<INCOME-PRETAX> 212,442
<INCOME-TAX> 91,260
<INCOME-CONTINUING> 121,182
<DISCONTINUED> 0
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<NET-INCOME> 121,182
<EPS-PRIMARY> .01
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