SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the fiscal year ended December 31, 2001.
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|o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]                                         

Commission file number: 33-61888-FW

COMPRESSCO, INC.
(Exact name of small business issuer in its charter)

|DELAWARE
(State or other jurisdiction of
incorporation or organization)               | 72-1235449
(I.R.S. Employer
Identification No.)
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|                                                                                      |                                                
|1313 SE 25th Street, OKLAHOMA CITY, OKLAHOMA
(Address of principal executive offices) | 73129
(Zip Code)                               
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|Registrant's telephone number, including area code:                                   | (405) 677-0221                                 
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|Securities registered pursuant to Section 12(b) of the Act:                           | NONE                                           
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|Securities registered pursuant to Section 12(g) of the Act:                           | NONE                                           

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   /   /

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]

| | State issuer's revenues for its most recent fiscal year: $10,672,250                                                           
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| | The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2001 was $3,110,850.
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| | The number of shares outstanding of the issuer's classes of Common Stock as of December 31, 2001:                              
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| | Common Stock, $1.00 Par Value - 153,235 shares                                                                                 

DOCUMENTS INCORPORATED BY REFERENCE: NONE



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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB (this "Report" or this "Form 10-KSB") contains certain forward-looking statements and information relating to Compressco, Inc. and its subsidiaries, their industry and the oil and gas industry that is based on the beliefs of our management, as well as assumptions made by and information currently available to management. All statements other than statements of historical facts contained in this Report, including statements regarding our future financial position, growth strategy, budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, among other things:

| | conditions in the gas and oil industry, including the demand for natural gas and the price of oil and natural gas,     
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| | competition among the various providers of compression services and products,                                          
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| | changes in safety, health and environmental regulations pertaining to the production and transportation of natural gas,
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| | changes in economic or political conditions in the markets in which we operate, and                                    
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| | introduction of competing technologies by other companies.                                                             

In addition, the factors described in "Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations--Risk Factors" could cause our actual results to differ materially from the expectations reflected in the forward-looking statements contained herein. These statements relate to future events or our future financial performance. These forward-looking statements may be found in "Item. 1. Description of Business," "Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Report. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," or "continue," the negative of such terms or other comparable terminology. The forward-looking statements in this Report are based largely on our expectations and are subject to a number of risks and uncertainties which may be beyond our control. Actual results may differ materially from the anticipated or implied results in the forward-looking statements. We do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we can give no assurances that the forward-looking events and circumstances included in this Report will occur.

ITEM 1.     DESCRIPTION OF BUSINESS

HISTORY AND ORGANIZATION

Compressco, Inc., formerly Emerging Alpha Corporation, was incorporated in the State of Delaware on February 10, 1993 for the purpose of acquiring business opportunities. On October 29, 1999, we purchased Compressco Field Services, Inc., an Oklahoma corporation, and Compressco Testing L.L.C. Subsequent to the acquisition, the two companies became our wholly owned subsidiaries.

In October 2001, we 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 the manufacture of two compressors for trial in the Canadian market.

COMPANY OVERVIEW AND STRATEGY

OVERVIEW

Compressco, Inc. is a provider of compression services, natural gas measurement and production enhancement strategies. We provide products and services to customers who are producing and transporting natural gas from relatively low-pressure, low-volume gas and oil wells and gathering systems. As part of our operations, we also design and fabricate low-pressure natural gas compressors, which include our patented designs.

Through our principal operating subsidiary, Compressco Field Services, we have been involved in the compression services industry since 1990, and have been continually improving our products and services since that time. We offer for rental or sale two models of Gas Jack® brand compressors, which we believe are superior to our competitors' compressors because they are more fuel efficient and more reliably handle variable liquid conditions in the wellbore. Our Gas Jack® compressors utilize patented designs that allow operators to increase production from and to extend the productive lives of low-volume or marginal gas wells. In addition, with our E-Pumper product, a remote operation monitoring and alarm system, our customers are able to better monitor their wells, thereby reducing costly down time. We provide natural gas measurement services and natural gas well monitoring.

In connection with the acquisition of our principal operating subsidiary by a new investor group in October 1999, we installed a new management team, and placed a new emphasis on leveraging our proprietary technology to aggressively grow our business. As of December 31, 2001, we had 658 compressors in service, which represented an increase of approximately 75% during the past year. Total revenues for the year ended December 31, 2001 were $10.7 million compared to $5.3 million for the year ended December 31, 2000, an increase of $5.4 million or 102%. For the year ended December 31, 2001, our revenue related to compressor rentals was $8.9 million compared to $4.0 million for the year ended December 31, 2000, an increase of $4.9 million, or 122%.

We service our rental compressor fleet as well as provide maintenance services through our 30 mobile field technicians. Currently, all of our technicians are based in the south central United States, the area in which the majority of our customers operate. As a result, we are able to provide quality maintenance service without the expense of maintaining many costly service centers.

INDUSTRY CONDITIONS

As natural gas fields age, they lose pressure, thereby requiring compression to produce the remaining reserves at economic volumes. At June 30, 2001, there was approximately 16.3 million horsepower of field compression equipment in the United States, of which approximately 4.6 million horsepower was outsourced. At June 30, 2001, industry statistics show 15,394 rental compressors operating in North America. From 1993 to 1998, the compression rental industry grew at a rate of approximately 15.4% per year in the United States in terms of horsepower. Our industry also has recently begun to grow rapidly internationally.

The demand for compression services is linked to natural gas consumption rather than exploration activities. As a result, our financial performance historically has been less affected by the short-term market cycles and volatile commodity prices of oil and natural gas than companies operating in other sectors of the energy industry. Demand for compression services has increased over time, even during periods of volatile natural gas prices. We believe the natural gas compression services industry will continue to have significant growth potential, especially as it relates to marginal wells, due to the following factors:

| | The number of new gas wells drilled in the United States, excluding an occasional increase, has been on the decline for the past several years. This has resulted in more mature gas wells that have lost pressure over time and require compression to produce remaining reserves at economic volumes;
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| | Newer gas fields in the United States are experiencing more rapid loss of pressure than older fields and are requiring compression at earlier stages to maintain production levels;                                                                                                                    
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| | High activity can not overcome geologic reality-reduced supply from older basins;                                                                                                                                                                                                                      
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| | The U.S. natural gas production history indicates a forecasted 29% 2002 decline rate for daily gas supply;                                                                                                                                                                                             
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| | Natural gas consumption is increasing in the United States at an average rate of 2.0% to 2.5% per year and internationally at an average rate of 3.0% to 4.0% per year; and                                                                                                                            
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| | Natural gas producers are increasingly outsourcing gas compression requirements to reduce overall cost of compression, improve run-time performance, reduce capital requirements and better meet changing compression needs.                                                                           

OUR GROWTH STRATEGY

Our growth strategy is to continue to focus on meeting the evolving needs and demands of our customers by providing consistent, superior services and dependable, high quality products. We will continue to serve existing customers in and increase market share of our core service area located in the south central United States. The key elements of our strategy are described below:

| | Expanding our sales and service coverage in our core markets. We intend to expand the coverage of our sales force by increasing the number of sales and marketing personnel that we employ to market to, advise and service our customers in the south central United States.                                                                                                      
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| | Expanding into new geographic areas. Currently the majority of our customers operate in the south central United States. We believe there are, however, gas fields in other regions of the United States that would benefit by our compression products. Accordingly, we intend to expand our presence by engaging sales and service personnel outside our core geographic markets.
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| | Offering complementary products and services. We intend to expand our range of compression services and products to meet the needs of our customers. Our E-Pumper product allows customers to obtain real-time information regarding the operation of production equipment.                                                                                                       
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| | Continuing a standardized approach to our business. Since we design and fabricate two models of compressors, we are able to develop expertise in operating and maintaining our compressors, provide our customers with consistent, high quality service, optimize our inventory, reduce our costs and train our service technicians faster and more effectively.                   

OPERATIONS

Compressor Fleet

We have manufactured a total of 1,016 compressors including 337 units in the year ended December 31, 2001. As of the end of 2001, we had a compressor fleet of 800 units; of these units, 658 are currently on rent. Our rental agreements are primarily on a month to month basis. These units, as well as certain sold units, are maintained by company personnel. Since inception in 1990, an aggregate of 231 units have been sold to customers in the United States, Canada, Holland, Indonesia and Argentina.

The Gas Jack compressor utilizes an integral design as the frame for the compressor. A Ford industrial 460 cubic inch V-8 is modified so that one bank of four cylinders uses natural gas from the well to power the other bank of four cylinders that provide compression. This configuration is capable of handling suction pressures from vacuum conditions of up to 12 inches vacuum and discharge pressures of up to 250 PSIG. This configuration allows the Company to provide a moderately priced, reliable well head compressor that is easy to maintain and does not require special parts, tools, fluids or training to operate. The design also allows for a compact unit that is easily transported and requires minimal site preparation, which assists the producer in testing and evaluating subject properties.

Fabrication

Our current manufacturing staff and facility is capable of producing up to 60 new units per month, as well as the required reconditioning of units that are returned from rental. Over the last few years, we have improved our shop and suppliers scheduling, implemented shop and supplier quality control, maximized the use of our existing facility and personnel. This has resulted in cost reductions, minimized rework, improved inventory control and increased production efficiency.

COMPETITION

Primary competition for our compression manufacturing and rental services business is from various local and regional packagers that generally use a screw compressor with a separate engine driver or a reciprocating compressor with a separate engine driver. Our Gas Jack compressor competes with these packagers by making use of the engine for both compression and drive thereby eliminating a significant amount of the cost associated with the competitor offerings. We believe that our patented technology helps us to maintain a competitive position in the marginal well application of compressor technology. The gas compression industry is highly competitive but we believe we are positioned well because we have focused our products and efforts on low volume, low pressure oil and gas wells.

EMPLOYEES

As of December 31, 2001 we and our subsidiaries had a total of 73 employees. None of our employees are subject to a collective bargaining agreement.

CUSTOMERS AND SUPPLIERS

At December 31, 2001, we had approximately 190 customers. During the year ended December 31, 2001, we had sales to one customer, Burlington Resources Oil & Gas, comprising approximately 13% of our total revenues. As of December 31, 2001, no customers represented over 10% of our total accounts receivable balance.

The Company purchases a substantial portion of its equipment, specifically, compressor engines and related items, from one supplier, Ford Motor Company.

ITEM 2.      DESCRIPTION OF PROPERTY

We lease approximately 20,000 square feet of space, located on approximately three acres, that is used for administrative offices, fabrication facilities, warehouse and outside storage space in Oklahoma City, Oklahoma pursuant to a lease agreement expiring on August 31, 2004. We have an option to purchase the facility for $550,000 in August 2004.

ITEM 3.     LEGAL PROCEEDINGS

None.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the last quarter of the fiscal period ended December 31, 2001.



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PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common Stock is not and has not been traded on a stock exchange or national quotation system. As of December 31, 2001, there were 338 stockholders of record. No dividends have been paid and none are expected to be paid in the foreseeable future. In addition, our ability to pay dividends is restricted by our existing bank credit facility.

In March 2000, we issued 70,002 shares of our common stock through a private placement for $30.00 per share or total proceeds of $2.1 million. The equity proceeds were used in part to repay borrowings under our credit facility and the remaining proceeds were used primarily to fund the growth in our compressor fleet.

In December 2000 and January 2001, we completed an offering of our 13% subordinated promissory notes and warrants to purchase our common stock through a private placement. At December 31, 2001, $5,550,000 of the subordinated promissory notes were issued. These notes are subordinated, unsecured obligations of ours and rank junior to all of our existing and future senior indebtedness. The notes mature on the earlier of (1) the consummation of an underwritten public offering of our capital stock or (2) December 31, 2003. We 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. Each purchaser of the notes also received warrants to purchase shares of our common stock at a purchase price of $120 per share. Each $1,000 of issued principal amount of notes received warrants to purchase 8.4 shares of common stock, or a total of 46,620 shares. Of the total proceeds received, $100,000 was allocated to the stock warrants.

The offerings described above were completed in private placements pursuant to Section 4(2) of the Securities Act of 1933.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS OVERVIEW

On October 29, 1999, the Company purchased Compressco Field Services, Inc., and Compressco Testing L.L.C. Compressco Field Services, Inc., 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.

In January 2000 the Company established a wholly owned energy production subsidiary, Providence Natural Gas, Inc., ("Providence") to acquire certain pressure depleted reservoirs, having key reservoir characteristics known to be receptive to well-head compression. The Company plans to install compressors at the sites to enhance production and then market and sell the natural gas. Since its inception, Providence has acquired interests in one natural gas well. Due to the high cost of gas in 2000, it became cost prohibitive to acquire gas-producing properties without severely impacting the ability of the company to expand its basic business. Therefore, the Company is no longer pursuing the development of Providence Natural Gas at this time.

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 has hired a Canadian representative, opened an office and began the manufacture of two compressors for trial in the Canadian market.

The following table sets forth selected financial information for the years ended and as of December 31, 2001 and 2000 and is qualified in its entirety by the consolidated financial statements appearing elsewhere in this Form 10-KSB.

RESULTS OF OPERATIONS

SELECTED CONSOLIDATED FINANCIAL DATA FOR COMPRESSCO

|                                                                               | Year Ended
December 31,2001 |            | Year Ended
December 31,2000
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|                                                                               |                             |            |                            
|STATEMENT OF OPERATIONS DATA:                                                  |                             |            |                            
|Operating Revenues............................................................ | $                           | 10,672,250 |                            
|Cost of Sales and Expenses....................................                 |                             | 8,311,168  |                            
|Operating Income...............................................                |                             | 2,361,082  |                            
|Net Income (Loss)..............................................                |                             | 671,366    |                            
|                                                                               |                             |            |                            
|BALANCE SHEET DATA (AT END OF PERIOD):                                         |                             |            |                            
|Cash................................................................           | $                           | 53,624     |                            
|Total Assets......................................................             |                             | 20,158,420 |                            
|Total Liabilities.................................................             |                             | 16,591,250 |                            
|Stockholders' Equity.............................................              |                             | 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.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

The total revenue for the year ended December 31, 2001 was $10,672,250 compared to $5,304,001 for the year ended December 31, 2000. The Company's compressor units on rental increased 75% from 375 at December 31, 2000 to 658 units at December 31, 2001.

The total cost of sales and operating expenses for the year ended December 31, 2001 were $7,126,784 compared to $4,311,940 for the year ended December 31, 2000. The total cost of sales and operating expenses for the year ended December 31, 2001 were 67% of total revenues compared to 81% for the year ended December 31, 2000. The decrease in cost of sales and operating expenses as a percent of total revenue in 2001 was due to the significant growth in rental revenue in 2001, resulting from increasing the rental units in service and increased rental rates with lower increases in operating expenses to support the increased units.

For the year ended December 31, 2001, the Company had depreciation and amortization expense of $1,184,384 compared to $667,597 for the year ended December 31, 2000. The increase is due to the increase in the Company's compressor fleet in 2001 from 471 units at December 31, 2000 to 800 units at December 31, 2001. Effective July 1, 2000, the Company changed its estimate of the useful life and salvage value of its compressors for purposes of computing depreciation. The useful life and salvage value was changed from seven years with no salvage to twelve years with ten percent salvage value. The effect of the change in the accounting estimate for the years ended December 31, 2001 and 2000 was to decrease depreciation expense by $999,751 and $290,696 respectively, and increase net income after income taxes in 2001 by $599,851 and decrease the net loss after taxes in 2000 by $180,232.

Operating income for the year ended December 31, 2001 was $2,361,082 compared to $324,464 for the year ended December 31, 2000. Operating income for the year ended December 31, 2001 was 22.1% of total revenue for the year ended December 31, 2001 compared to 6.1% for the year ended December 31, 2000. The increase in operating income as a percent of total revenue in 2001 was due to the significant growth in rental revenue in 2001 as a result of increasing the rental units in service and increased rental rates with lower increases in operating expenses to support the increased units.

For the year ended December 31, 2001, the Company had interest expense of $1,248,854 compared to $338,648 of interest expense for the year ended December 31, 2000. The increase in interest expense in 2001 is due to interest on the subordinated promissory loans issued in December 2000 and increased bank financing to fund the increased compressor fleet in 2001.

The year ended December 31, 2001 resulted in pre-tax net income of $1,118,049 compared to a pre-tax net income of $12,333 for the year ended December 31, 2000.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The use of estimates is necessary in the preparation of the Company's financial statements. The circumstances that make these judgments difficult, subjective and complex have to do with the need to make estimates about the effect of matters that are inherently uncertain. The use of estimates and assumptions affects the reported amounts of assets and liabilities at the date of the financial statements, as well as, the amounts of revenues and expenses recognized during the reporting period. The most significant estimates and assumptions that affect reported results are those related to the depreciation of the Company's compressor fleet and the capitalization of fabrication shop costs related to the building of compressors. Changes in the lives or salvage value of the compressors would impact the Company's calculation of depreciation expense. The capitalization of fabrication shop costs is based on the number of units fabricated and will vary with the level of production. Management believes it is necessary to understand the Company's significant accounting policies, "Item 7, Financial Statements and Supplementary Data-Note 2 - Summary of Significant Accounting Policies" of this Form 10-KSB, in order to understand the Company's financial condition, changes in financial condition and results of operations.

LIQUIDITY AND CAPITAL RESOURCES

In December 2000 and January 2001, the Company completed an offering of 13% subordinated promissory notes and stock warrants to qualified private investors. At December 31, 2001, $5,550,000 of the subordinated promissory notes were issued. 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. Of the total proceeds received, $100,000 was allocated to the stock warrants.

In March 2000, we issued 70,002 shares of our common stock through a private placement for $30.00 per share or total proceeds of $2.1 million. The equity proceeds were used in part to repay borrowings under our credit facility and the remaining proceeds were 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 December 31, 2001). 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 leases of the Company.

On October 29, 1999, the Company entered into a revolving line of credit agreement with Hibernia National Bank. Under the agreement, as amended and restated November 28, 2001, the Company can borrow the lesser of (i) $8,883,997 or (ii) 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 the acquisition of the business on October 29, 1999. At December 31, 2001, the amount utilized on the revolving line of credit, including a letter of credit, was $7,824,158 with $1,059,839 remaining availability. The line of credit bears interest at 0.5% over Wall Street Journal Prime Rate (5.25% at December 31, 2001). Interest is payable monthly with all outstanding borrowings due at maturity on December 27, 2003. The loan is secured with the assets and compressor leases of the Company. The Company's credit facility imposes a number of financial and restrictive covenants that among other things, limit the Company's ability to incur additional indebtedness, create liens and pay dividends. At December 31, 2001, the Company was in compliance with all such covenants. Management expects that the Company will be in compliance with the revised covenants under the amended credit facility throughout 2002.

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's projected capital expenditures for 2002, based on current market conditions, is approximately $2 million. The Company cannot provide assurance that these funds will be available or if available will be available on satisfactory terms.

RISK FACTORS

As described in "Part I. Special Note Regarding Forward-Looking Statements," this Report contains forward-looking statements regarding our business and industry. The risk factors described below, among others, could cause our actual results to differ materially from the expectations reflected in the forward-looking statements. If any of the following risks actually occur, our business, financial condition and operating results could be materially negatively impacted. Additional risks not presently known to us or which we currently consider immaterial may also negatively impact the Company.

RISKS INHERENT IN OUR INDUSTRY

We are significantly dependent on demand for natural gas, and a prolonged, substantial reduction in this demand could adversely affect the demand for our services and products.

Gas compression operations are materially dependent upon the demand for natural gas. Demand may be affected by, among other factors, natural gas prices, demand for energy and availability of alternative energy sources. Any prolonged, substantial reduction in the demand for natural gas would, in all likelihood, depress the level of production, exploration and development activity and result in a decline in the demand for our compression services and products. This could materially adversely affect our results of operations.

We intend to make substantial capital investments to implement our growth strategy.

We anticipate that we will continue to make substantial capital investments to increase expand our compressor rental fleet and enhance our sales and marketing and service operations. For the year ended December 31, 2001, our capital expenditures totaled approximately $8.3 million, primarily associated with the expansion of our compressor rental fleet. Historically, we have financed these expenditures through equity placements and bank facilities. These significant capital expenditures require cash that we could otherwise apply to other business needs. However, if we do not incur these expenditures while our competitors make substantial investments to improve their rental fleets and other services, our market share may decline and our business may be adversely affected. In addition, if we are unable to generate sufficient cash internally or obtain alternative sources of capital, it could materially adversely affect our growth.

Our business subjects us to potential liabilities which may not be covered by insurance.

Natural gas service operations are subject to inherent risks, such as equipment defects, malfunction and failures and natural disasters which can result in uncontrollable flows of gas or well fluids, fires and explosions. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, pollution and other environmental damages. Although we have obtained insurance against many of these risks, there can be no assurance that our insurance will be adequate to cover our liabilities. Further, there can be no assurance that insurance will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected.

We are subject to substantial environmental regulation, and changes in these regulations could increase our costs or liabilities.

We are subject to stringent and complex federal, state and local laws and regulatory standards, including regulations regarding the discharge of materials into the environment, emission controls and other environmental protection concerns. Environmental laws and regulations may, in certain circumstances, impose "strict liability" for environmental contamination, rendering us liable for cleanup costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties. In addition, it is not uncommon for the neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Cleanup costs and other damages arising as a result of environmental laws, and costs associated with changes in existing environmental laws and regulations or the adoption of new laws and regulations could be substantial and could have a material adverse effect on our operations and financial condition. Moreover, failure to comply with these environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties.

We routinely deal with natural gas, oil and other petroleum products. As a result of our engineered products and overhaul and field operations, we generate, manage and dispose of or otherwise recycle hazardous wastes and substances, such as solvents, thinner, waste paint, waste oil, wash own wastes and sandblast material. Although it is our policy to utilize generally accepted operating and disposal practices in accordance with applicable environmental laws and regulations, hydrocarbons or other wastes may have been disposed or released on, under or from properties owned, leased, or operated by us or on or under other locations where such wastes have been taken for disposal. These properties and the wastes disposed on them may be subject to investigatory, remedial and monitoring requirements under federal, state and local environmental laws.

We believe that our operations are in substantial compliance with applicable environmental laws and regulations. Nevertheless, the modification or interpretation of existing federal, state and local environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil and natural gas exploration and production companies, which in turn could have a material adverse effect on us and other similarly situated service companies.

We operate in a highly competitive industry.

The natural gas compression service and engineered products business is highly competitive. Our main competitors are large national and multinational companies, which have significantly greater financial resources than our company. These competitors offer a wide range of compressors for sale or rental. If these companies substantially increase the resources they devote to the development and marketing of competitive products and services, we may not be able to compete effectively.

RISKS SPECIFIC TO AN INVESTMENT IN OUR COMPANY

We are dependent on particular suppliers and are vulnerable to product shortages and price increases.

Both models of Gas Jack® compressors that we fabricate are powered by a Ford 460 cubic inch V-8 engine. Ford recently announced that it has discontinued the production of this engine model. As a result, we recently implemented a strategy of purchasing remanufactured Ford 460 engines. Although we have not yet experienced a significant delay in receiving the requisite engines, a prolonged delay or substantial increase in the cost of new or remanufactured Ford 460 engines could materially adversely affect our results of operations.

In addition, both of our compressor models share many components that we obtain from a single source or a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of required components in a timely manner. The partial or complete loss of certain of these sources could have at least a temporary material adverse effect on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these components could have a material adverse effect on our results of operations.

We are highly leveraged and vulnerable to interest rate changes.

As of December 31, 2001, we had approximately $14.7 million in outstanding indebtedness, including the current portion of long-term debt, representing approximately 80% of our total capitalization. Of this amount, approximately $9.3 million bears interest at floating rates. Changes in economic conditions could result in higher interest and lease payment rates, thereby increasing our interest expense and lease payments and reducing our funds available for capital investment, operations or other purposes. In addition, a substantial portion of our cash flow must be used to service our debt, which may affect our ability to capital expenditures.

Our patents may not be adequate or enforceable and others may use our proprietary technology.

We have applied for and have received four patents related to the fully integrated engine design that we use in our Gas Jack® compressors. It is our understanding that our patents are narrowly drafted. We can offer no assurances, however, that these patents will be enforceable. In addition, we know of one fabricator using a design, for which he also obtained a patent, that is similar to our patented design. If the protection of our intellectual property proves to be inadequate, others may use our proprietary developments without compensating us and in competition against us, giving cost advantages to our competitors.

Our success depends on key members of our management team, the loss of whom could disrupt our business.

Our success depends to a significant degree upon the continued contributions of key management, operations, engineering, sales and marketing, customer support, finance and manufacturing personnel. We are particularly dependent on Brooks Mims Talton, our Chief Executive Officer. The Company has a $1.0 million key employee policy on Mr. Talton. Furthermore, we do not maintain and do not intend to obtain key employee life insurance for any of our other employees. The departure of any of our key personnel could have a material adverse effect on our business, operating results and financial condition. In addition, we believe that our success depends on our ability to attract and retain additional qualified employees. If we fail to recruit other skilled personnel, we could be unable to compete effectively.

We are a holding company and rely on our subsidiaries for operating income.

We are a holding company and, as such, we derive all of our operating income from our operating subsidiaries. We do not have any significant assets other than the equity of our operating subsidiaries. Consequently, we are dependent on the earnings and cash flow of our subsidiaries to meet our obligations and pay dividends. Our subsidiaries are separate legal entities that are not legally obligated to make funds available to us. We cannot assure you that our subsidiaries will be able to, or be permitted to, pay to us amounts necessary to meet our obligations or to pay dividends.

A third party could be prevented from acquiring control of us because of the anti-takeover provisions in our charter and bylaws.

There are provisions in our certificate of incorporation and bylaws that may make it more difficult for a third party to acquire, or attempt to acquire, control of us, even if a change in control would result in the purchase of your shares at a premium to the market price or would otherwise be beneficial to you. For example, our certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In addition, provisions of our certificate of incorporation could make it more difficult for a third party to acquire control of us. Delaware corporation law may also discourage takeover attempts that have not been approved by our board of directors.

ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company required to be included in Item 7 are set forth in the Financial Statements beginning on page F-1.

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE

Not Applicable.



---

PART III

|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
|------- | -------------------------------------------------------------
|        | COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.           

DIRECTORS AND EXECUTIVE OFFICERS

Directors are elected to serve until the annual meeting of shareholders and until their successors have been elected and have qualified. Officers are appointed to serve, subject to the discretion of the Board of Directors, until the meeting of the Board following the annual meeting of shareholders and until their successors have been elected and have qualified.

|NAME                    | AGE | YEARELECTED | OFFICE WITHCOMPANY                  
|----------------------- | --- | ----------- | ------------------------------------
|                        |     |             |                                     
|Burt H. Keenan          | 62  | 1993        | Chairman of the Board               
|Brooks Mims Talton, III | 35  | 1999        | Chief Executive Officer and Director
|Kenneth Reagan          | 67  | 2001        | Chief Operating Officer             
|Gary McBride            | 49  | 2000        | Chief Financial Officer             
|Jerry W. Jarrell        | 60  | 2000        | Director                            
|D. B. H. Chaffe III     | 68  | 1993        | Director                            
|Jack Rettig             | 48  | 1999        | Director                            
|J. Michael Drennen      | 49  | 2000        | Director                            

Each officer and director will devote only such time to the business affairs of the Company as he deems appropriate, as discussed under the caption "Executive Compensation".

Burt H. Keenan has served as our Chairman of the Board since inception in February 1993. He also served as President until October 1999. From August 1999 to September 2000, he was a non-executive Director of Independent Energy Holdings PLC. From April 1991 to August 1999, Mr. Keenan served as Executive Chairman of Independent Energy. In September 2000, Independent Energy became the subject of a receivership proceeding under U.K. law. Since 1987, he has been associated with Chaffe & Associates, Inc., an investment banking firm located in New Orleans, Louisiana, where he specializes in capital formation for emerging and middle market companies. From 1969 to 1986, Mr. Keenan was the founder, Chairman and CEO of Offshore Logistics, Inc., a public oil and gas service company operating a fleet of marine service vessels and helicopters worldwide. Mr. Keenan was a member of the National Advisory Council on Oceans and Atmosphere, a United States Presidential Commission, and of various industry associations. Mr. Keenan received Bachelors and Masters degrees in business administration from Tulane University.

Brooks Mims Talton, III has served as our Chief Executive Officer and a Director since October 1999. He is also the founder and President of GJ Measurement, L.L.C., which we acquired in October 1999, operating since 1994 as a natural gas measurement, monitoring and control systems company. Customers range from small independents to major oil and gas companies. From 1991 to 1994, he was founder and Co-owner of Well Link Corporation. From 1989 to 1991 he operated as a sole proprietor, Mims Oil Tools specializing in automated plunger lift production systems. Prior to 1989, Mr. Talton worked for two oil and gas exploration and production companies performing prospect research and development. Mr. Talton holds a B. A. Political Science with an emphasis on Energy/Public Policy from the University of Oklahoma.

Kenneth R. Reagan was employed in February 2001 as Chief Operating Officer. Mr. Reagan was with Weatherford Compression Company from 1988 to 1998 serving as Senior Area Sales Manager in Oklahoma City in 1997 and 1998; as Vice President of Sales and Marketing in Houston and Oklahoma City from 1991 to 1996; and as Vice President of Service in Corpus Christi from 1988 to 1990. He worked with Waukesha-Pierce Industries, Inc. from 1960 to 1988 including service as Vice President of Operations - Engine Division from 1984 to 1988 and Vice President of Marketing from 1981 to 1984. Mr. Reagan received a bachelors degree in geology from the University of Oklahoma in 1958.

Gary McBride was employed in November 2000 and, effective January 1, 2001, replaced Jerry W. Jarrell as the Chief Financial Officer. Mr. McBride previously served as Vice-President of Finance with Cain's Coffee Company in Oklahoma City and had been with Cain's since 1980. Cain's is a regional roaster, manufacturer and distributor of coffee, tea and spices with annual revenue of approximately $90 million and 550 employees. Mr. McBride attended the University of Central Oklahoma earning a B. S. degree in accounting and is a certified public accountant.

Jerry W. Jarrell served as our Chief Financial Officer since inception in February 1993 through December 2000. Effective January 1, 2001, Mr. Jarrell resigned as Chief Financial Officer and was replaced by Gary McBride. Mr. Jarrell will continue to serve as a director of the Company. From May 1998 to September 2000, he was a non-executive Director of Independent Energy Holdings PLC. From April 1991 to May 1998, Mr. Jarrell was an Executive Director and Chief Financial Officer of Independent Energy. In September 2000, Independent Energy became the subject of a receivership proceeding under U.K. law. He served as Chief Financial Officer for the Woodson Companies, an oil field construction company, from 1977 to 1990. From 1971 to 1977, he was Secretary-Controller for Offshore Logistics. From 1966 to 1971, he was a Certified Public Accountant with Arthur Andersen and Company, and holds a B. S. degree in accounting from Louisiana Tech University.

D.B.H. Chaffe III has been President and CEO of Chaffe & Associates, Inc., an investment banking firm located in New Orleans, Louisiana, since 1982. From 1981 to 1985, Mr. Chaffe was President, CEO and Treasurer of Becker & Associates, Inc., a marine contracting firm, following a leveraged buy-out by Mr. Chaffe and two other individuals. From 1969 to 1981, he was Executive Vice President and Director and head of corporate finance at Howard, Weil, Labouisse, Friedrichs, Inc., Prior to 1969, Mr. Chaffe was a registered representative and principal of investment banking firms. He has served on advisory committees and has been a member of National Securities Associations and stock exchanges. Mr. Chaffe received a bachelors degree in engineering from Tulane University.

Jack Rettig was President of Moores Wireline, a oilfield service company, from 1993 to 1998 and currently is an independent consultant. During 1978 to 1993 he worked with various exploration and production companies including Exxon, Tee Operating, Pacific Enterprises and Walter International. He graduated from Louisiana State University in 1978 with a BS in mechanical engineering and is a registered professional engineer.

J. Michael Drennen is currently a Vice President and partner with LaRoche Petroleum Consultants Ltd. He was with Devon Energy from 1974 to 2001. During this time he had held the positions of Manager of Corporate Acquisitions Engineering, Manager of Reservoir and Acquisitions Engineering, Manager of Production and District Engineer. Mr. Drennen is a registered petroleum engineer and graduated from the University of Oklahoma in 1974 with BS in petroleum engineering.

INDEMNIFICATION

The Delaware Supreme Court has held that directors' duty of care to a corporation and its stockholders requires the exercise of an informed business judgment. Having become informed of all material information reasonably available to them, directors must act with requisite care in the discharge of their duties. The Delaware General Corporation Law permits a corporation through its certificate of incorporation to exonerate or indemnify its directors from personal liability to the corporation or its stockholders for monetary damages or breach of fiduciary duty of care as a director, with certain exceptions. The Companies have adopted these exoneration and indemnification provisions in the Delaware General Corporation Law in their respective certificates of incorporation and bylaws. The exceptions include a breach of the director's duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law, improper declarations of dividends, and transaction from which the directors derived an improper personal benefit. The Company's Certificate of Incorporation exonerates its directors, acting in such capacity, from monetary liability to the extent permitted by this statutory provision. The limitation of liability provision does not eliminate a stockholder's right to seek non-monetary, equitable remedies such as an injunction or recision to redress an action taken by directors. However, as a practical matter, equitable remedies may not be available in all situations, and there may be instances in which no effective remedy is available.

The extent to which the indemnification provisions of the Delaware General Corporation Law and the Companies' certificates of incorporation and bylaws provide indemnification to officers and directors for violations of the federal securities laws has not been settled by court precedent. The Companies understand that, in the position of the Securities and Exchange Commission, such indemnification is against public policy and is unenforceable.

ITEM 10.     EXECUTIVE COMPENSATION

The following table sets forth the cash compensation of the Company's executive officers during each of the last two fiscal periods. The remuneration described in the table includes the cost to the Company of benefits furnished to the named executive officers, including premiums for health insurance and other benefits provided to such individual that are extended in connection with the conduct of the Company's business.

BOARD COMMITTEES

AUDIT COMMITTEE

Our audit committee consists of Jerry W. Jarrell, Burt H. Keenan and D.B.H. Chaffe III. The audit committee makes recommendations to the board of directors regarding the selection of independent auditors, reviews the results and scope of the audit and other services provided by our independent auditors and evaluates our internal accounting procedures.

COMPENSATION COMMITTEE

Our compensation committee consists of Burt H. Keenan, Jack Rettig and Jerry W. Jarrell. The compensation committee reviews and approves compensation and benefits for our executive officers. The compensation committee also administers our compensation and stock plans and makes recommendations to the board of directors regarding such matters.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Until October 1999, the Company had no employees and no compensation committee. No member of the compensation committee is or has been an employee of the Company at any time. None of our executive officers serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our board of directors or compensation committee.

DIRECTOR COMPENSATION

Other than reimbursing directors for customary and reasonable expenses incurred in attending board of directors and committee meetings, we do not currently compensate our directors.

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by or paid to the named executive officers for the years ended December 31, 2001 and 2000.

|                                      | ANNUALCOMPENSATION | LONG-TERM
COMPENSATIONSECURITIES |                  
|------------------------------------- | ------------------ | -------------------------------- | -----------------
|NAME AND PRINCIPAL POSITION           | SALARY             | BONUS                            | UNDERLYINGOPTIONS
|                                      |                    |                                  |                  
|Year ended December 31, 2001:         |                    |                                  |                  
|Burt H. Keenan, Chairman of the Board | --                 | --                               | --               
|Brooks Mims Talton, CEO               | $80,000            | $40,000                          | --               
|Gary McBride, CFO                     | $93,000            | $20,000                          | --               
|                                      |                    |                                  |                  
|Year ended December 31, 2000:         |                    |                                  |                  
|Burt H. Keenan, Chairman of the Board | --                 | --                               | 1,500            
|Brooks Mims Talton, CEO               | $80,000            | $25,000                          | --               

OPTION GRANTS

No options were granted to the named executive officers during the year ended December 31, 2001.

2001 OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table sets forth information concerning the value realized upon exercise of options during 2001 and the number and value of unexercised options held by the named executive officers at December 31, 2001. The value of the unexercised in-the-money options is based on the fair market value of our common stock as of December 31, 2001, determined by the board of directors in the manner discussed above to be $30.00 per share, minus the per share exercise price, multiplied by the number of shares underlying the option.

|NAME                          | SHARES
ACQUIRED
ONEXERCISE | VALUEREALIZED | NUMBER OF UNEXERCISEDOPTIONS AT DECEMBER 31, 2001 | VALUE OF UNEXERCISED IN-
THE -MONEY OPTIONS ATDECEMBER 31, 2001
|----------------------------- | -------------------------- | ------------- | ------------------------------------------------- | ---------------------------------------------------------------
|EXERCISABLE                   | UNEXERCISABLE              | EXERCISABLE   | UNEXERCISABLE                                    
|                              |                            |               |                                                   |                                                                
|Burt H. Keenan............... | --                         | --            | --                                                | 6,500                                                          
|Brooks Mims Talton.........   |                            |               |                                                   |                                                                
|Gary McBride................  | --                         | --            | --                                                | 3,000                                                          

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 31, 2001, the stock ownership of all persons known to own beneficially five percent or more of the Company's Common Stock and all directors and officers of the Company, individually and as a group. Each person has sole voting and investment power over the shares indicated, except as noted.

|NAME                                                  | NUMBER OF SHARES OF
COMMON STOCKBENEFICIALLY OWNED | PERCENT
|----------------------------------------------------- | -------------------------------------------------- | -------
|                                                      |                                                    |        
|5% Stockholders:                                      |                                                    |        
|John E. Koerner (1)                                   | 14,200                                             |        
|Antony F. Lundy (2)                                   | 11,273                                             |        
|Officers and Directors:                               |                                                    |        
|Burt H. Keenan (3)                                    | 14,150                                             |        
|Brooks Mims Talton                                    | 28,333                                             |        
|Kenneth Reagan                                        | --                                                 |        
|Gary McBride                                          | --                                                 |        
|Jerry W. Jarrell (4)                                  | 2,965                                              |        
|D. B. H. Chaffe III                                   | 4,320                                              |        
|Jack Rettig (5)                                       | 8,172                                              |        
|Michael Drennen                                       | --                                                 |        
|All officers and directors as a group (8 persons) (6) | 57,940                                             |        



|(1) | Includes 4,200 shares issuable upon exercise of stock warrants held by Koerner Capital Corporation.               
|--- | ------------------------------------------------------------------------------------------------------------------
|(2) | Includes 2,940 shares issuable upon exercise of stock warrants held by Mr. Lundy.                                 
|(3) | Includes 6,300 shares issuable upon exercise of stock warrants held by Mr. Keenan.                                
|(4) | Includes 840 shares issuable upon exercise of stock warrants held by Mr. Jarrell.                                 
|(5) | Includes 1,260 shares issuable upon exercise of stock warrants held by Mr. Rettig.                                
|(6) | Includes 8,400 shares issuable upon exercise of stock warrants held by the named executive officers and directors.

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Consulting Agreement

The Company has an oral agreement with Jerry W. Jarrell, a director, to provide consulting services to the Company. The agreement, which commenced on January 1, 1995, and was renewed in 1997 and 1999, currently provides for $2,000 compensation per month and expires in October 2002. See "Stock Option Plan" below.

STOCK OPTION PLAN

The Company, by resolution of its Board of Directors and stockholders, adopted a 1993 Stock Option Plan (the "Plan") on February 16, 1993. The Plan enables each Company to offer an incentive based compensation system to employees, officers and directors and to employees of companies who do business with the Company.

In the discretion of a committee comprised of non-employee directors (the "Committee"), directors, officers, and key employees of the Company and its subsidiaries or employees of companies with which the Company does business become participants in the Plan upon receiving grants in the form of stock options or restricted stock. A total of 2,000,000 shares are authorized for issuance under the Plan, of which 30,950 shares are issuable under options granted to officers, directors and key employees at December 31, 2001. The Company may increase the number of shares authorized for issuance under the Plan or may make other material modifications to the Plan without shareholder approval. However, no amendment may change the existing rights of any option holder.

Any shares which are subject to an award but are not used because the terms and conditions of the award are not met, or any shares which are used by participants to pay all or part of the purchase price of any option may again be used for awards under the Plan. However, shares with respect to which a stock appreciation right has been exercised may not again be made subject to an award.

Stock options may be granted as non-qualified stock options or incentive stock options, but incentive stock options may not be granted at a price less than 110% of the fair market value of the stock as of the date of grant; non-qualified stock options may not be granted at a price less than 85% of fair market value of the stock as of the date of grant. Restricted stock may not be granted under the Plan in connection with incentive stock options.

Stock options may be exercised during a period of time fixed by the Committee except that no stock option may be exercised more than ten years after the date of grant or three years after death or disability, whichever is later. In the discretion of the Committee, payment of the purchase price for the shares of stock acquired through the exercise of a stock option may be made in cash, shares of the Company's Common Stock or by delivery of recourse promissory notes or a combination of notes, cash and shares of the Company's Common Stock or a combination thereof. Incentive stock options may only be issued to directors, officers and employees of the Company.

Stock options granted under the Plan may include the right to acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option grant contains the AO feature and if a participant pays all or part of the purchase price of the option with shares of the Company's Common Stock, then upon exercise of the option the participant is granted an AO to purchase, at the fair market value as of the date of the AO grant, the number of shares of common stock of the Company equal to the sum of the number of whole shares used by the participant in payment of the purchase price and the number of whole shares, if any, withheld by the Company as payment for withholding taxes. An AO may be exercised between the date of grant and the date of expiration, which will be the same as the date of expiration of the option to which the AO is related.

Stock appreciation rights and/or restricted stock may be granted in conjunction with, or may be unrelated to stock options. A stock appreciation right entitles a participant to receive a payment, in cash or common stock or a combination thereof, in an amount equal to the excess of the fair market value of the stock at the time of exercise over the fair market value as of the date of grant. Stock appreciation rights may be exercised during a period of time fixed by the Committee not to exceed ten years after the date of grant or three years after death or disability, whichever is later.

Restricted stock requires the recipient to continue in service as an officer, director, employee or consultant for a fixed period of time for ownership of the shares to vest. If restricted shares or stock appreciation rights are issued in tandem with options, the restricted stock or stock appreciation right is canceled upon exercise of the option and the option will likewise terminate upon vesting of the restricted shares.

ITEM 13.     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                                                                    
| |     | *3.2                                                                    
| |     | *3.3                                                                    
| | 10. | Material Contracts                                                      
| |     | *10.1                                                                   
| |     | *10.2                                                                   
| |     | **10.3                                                                  
| |     | **10.4                                                                  
| |     |  10.5                                                                  
| |     |  10.6                                                                  
| |     | ***10.7                                                                 
| |     | ***10.8                                                                 
| |     | ***10.9                                                                 
| |     | ***10.10                                                                
| |     |  99.1                                                                  

------------------

| |    | Filed herewith.                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------
| | *   | Filed with Registration Statement on Form SB-2, File No. 33-61888-FW and incorporated by reference herein.   
| | **  | Filed with Current Report on Form 8-K (October 29, 1999) and incorporated by reference herein.               
| | *** | Filed with Annual Report on 10-KSB for the year ended December 31, 2000 and incorporated by reference herein.





---

INDEX TO FINANCIAL STATEMENTS

COMPRESSCO, INC.

| | Report of Independent Public Accountants                                                       |  | F-2
| | ---------------------------------------------------------------------------------------------- |  | ---
| | Consolidated Balance Sheet as of December 31, 2001                                             |  | F-3
| | Consolidated Statements of Operations for the Years Ended December 31, 2001 and 2000           |  | F-4
| | Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001 and 2000 |  | F-5
| | Consolidated Statements of Cash Flows for the Years Ended December 31, 2001 and 2000           |  | F-6
| | Notes to Consolidated Financial Statements                                                     |  | F-7



F-1



---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Compressco, Inc.:

We have audited the accompanying consolidated balance sheet of Compressco, Inc. and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2001 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Compressco, Inc. as of December 31, 2001, and the results of their operations and their cash flows for the years ended December 31, 2001 and 2000, in conformity with accounting principles generally accepted in the United States.

|Oklahoma City, Oklahoma | ARTHUR ANDERSEN LLP | 
|----------------------- | ------------------- | 
|March 1, 2002           |                     | 



F-2



---

COMPRESSCO, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001

|ASSETS                                                                          |                                                                                                     
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------
|CURRENT ASSETS:                                                                 |                                                                                                     
|                                                                                | Cash and cash equivalents                                                                           
|                                                                                | Accounts receivable, net of allowance of $83,000                                                    
|                                                                                | Inventories                                                                                         
|                                                                                | Notes receivable                                                                                    
|                                                                                | Prepaids and other                                                                                  
|                                                                                | Deferred income tax asset                                                                           
|                                                                                | Total current assets                                                                                
|                                                                                |                                                                                                     
|COMPRESSORS, cost                                                               | 17,009,626                                                                                          
|                                                                                | Less- Accumulated depreciation                                                                      
|                                                                                | Total compressors, net                                                                              
|VEHICLES, EQUIPMENT and OTHER PROPERTY, cost                                    | 1,127,172                                                                                           
|                                                                                | Less- Accumulated depreciation                                                                      
|                                                                                | Total vehicles, equipment and other property, net                                                   
|OTHER ASSETS                                                                    | 110,775                                                                                             
|                                                                                | Total assets                                                                                        
|                                                                                | LIABILITIES AND STOCKHOLDERS' EQUITY                                                                
|CURRENT LIABILITIES:                                                            |                                                                                                     
|                                                                                | Accounts payable                                                                                    
|                                                                                | Accrued liabilities                                                                                 
|                                                                                | Current portion of long-term debt                                                                   
|                                                                                | Total current liabilities                                                                           
|LONG-TERM DEBT, net of current portion                                          | 14,184,121                                                                                          
|DEFERRED INCOME TAXES                                                           | 713,300                                                                                             
|                                                                                | Total liabilities                                                                                   
|                                                                                |                                                                                                     
|COMMITMENTS (Note 8)                                                            |                                                                                                     
|                                                                                |                                                                                                     
|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
|                                                                                | Warrants outstanding                                                                                
|                                                                                | Additional paid-in capital                                                                          
|                                                                                | Retained earnings                                                                                   
|                                                                                | Total stockholders' equity                                                                          
|                                                                                |                                                                                                     
|                                                                                | Total liabilities and stockholders' equity                                                          
|The accompanying notes are an integral part of this consolidated balance sheet.



F-3



---

COMPRESSCO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

|                                                                                        | 2001                                  | 2000        
|--------------------------------------------------------------------------------------- | ------------------------------------- | ------------
|REVENUES:                                                                               |                                       |             
|                                                                                        | Rental revenue                        | $  8,943,963
|                                                                                        | Sales - Compressors and parts         | 980,186     
|                                                                                        | Service and other                     | 748,101     
|                                                                                        | Total revenues                        | 10,672,250  
|                                                                                        |                                       |             
|COST OF SALES AND EXPENSES:                                                             |                                       |             
|                                                                                        | Cost of sales                         | 603,998     
|                                                                                        | Operating expenses                    | 6,522,786   
|                                                                                        | Depreciation and amortization expense | 1,184,384   
|                                                                                        | Total cost of sales and expenses      | 8,311,168   
|                                                                                        |                                       |             
|OPERATING INCOME                                                                        | 2,361,082                             |             
|                                                                                        |                                       |             
|OTHER INCOME (EXPENSE):                                                                 |                                       |             
|                                                                                        | Interest income                       | 5,821       
|                                                                                        | Interest expense                      | (1,248,854) 
|                                                                                        | Total other income (expense)          | (1,243,033) 
|                                                                                        |                                       |             
|PROVISION FOR INCOME TAXES                                                              | 446,683                               |             
|                                                                                        |                                       |             
|NET INCOME (LOSS)                                                                       | $     671,366
=========               |             
|                                                                                        |                                       |             
|BASIC EARNINGS (LOSS) PER COMMON SHARE                                                  | $           4.38
=========            |             
|                                                                                        |                                       |             
|DILUTED EARNINGS PER COMMON SHARE                                                       | $           4.15
=========            |             
|                                                                                       
|The accompanying notes are an integral part of these consolidated financial statements.
|                                                                                       



F-4



---

COMPRESSCO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

|                                                                                         | COMMON STOCK | STOCKWARRANTS | PAID-IN CAPITAL | RETAINED EARNINGS(DEFICIT) | TOTAL    
|---------------------------------------------------------------------------------------- | ------------ | ------------- | --------------- | -------------------------- | ---------
|SHARES                                                                                   | PAR VALUE   
|                                                                                         |              |               |                 |                            |          
|Balance December 31, 1999                                                                | 83,233       | $ 83,233      | $       -       | $633,657                   | $(10,577)
|Issuance of common stock                                                                 | 70,002       | 70,002        | -               | 2,030,058                  | -        
|Issuance of stock warrants                                                               | -            | -             | 100,000         | -                          | -        
|Net loss                                                                                 | -            | -             | -               | -                          | (10,569) 
|                                                                                         |              |               |                 |                            |          
|Balance December 31, 2000                                                                | 153,235      | 153,235       | 100,000         | 2,663,715                  | (21,146) 
|                                                                                         |              |               |                 |                            |          
|Net income                                                                               | -            | -             | -               | -                          | 671,366  
|                                                                                         |              |               |                 |                            |          
|Balance December 31, 2001                                                                | 153,235      | $153,235      | $100,000        | $2,663,715                 | $ 650,220
|                                                                                         | =====        | ======        | ======          | =======                    | =======  
|                                                                                        
|The accompanying notes are an integral part of these 
consolidated financial statements.
|                                                                                        



F-5



---

COMPRESSCO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

|                                                                                         |                                                                                                      |                                                           |                                           |                       | 2001          |              | 2000       
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | --------------------- | ------------- | ------------ | -----------
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |                                                                                                      |                                                           |                                           |                      
|                                                                                         | Net income (loss)                                                                                    | $                                                         | 671,366                                   | $                     | (10,569)     
|                                                                                         | Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities- |                                                           |                                           |                       |              
|                                                                                         |                                                                                                      | Depreciation and amortization                             |                                           | 1,184,384             |               | 667,597     
|                                                                                         |                                                                                                      | Provision for bad debts                                   |                                           | 46,916                |               | 23,000      
|                                                                                         |                                                                                                      | Amortization of discount on subordinated promissory notes |                                           | 3,333                 |               | --          
|                                                                                         |                                                                                                      | Amortization of deferred financing costs                  |                                           | 37,858                |               | --          
|                                                                                         |                                                                                                      | Other assets                                              |                                           | (26,726)              |               | (28,803)    
|                                                                                         |                                                                                                      | Loss on sale of operating equipment                       |                                           | 11,240                |               | --          
|                                                                                         |                                                                                                      | Deferred income taxes                                     |                                           | 446,683               |               | 22,902      
|                                                                                         |                                                                                                      | Changes in current assets and liabilities:                |                                           |                       |               |             
|                                                                                         |                                                                                                      |                                                           | Accounts receivable                       |                       | (606,466)     |              | (572,237)  
|                                                                                         |                                                                                                      |                                                           | Notes receivable                          |                       | 54,957        |              | --         
|                                                                                         |                                                                                                      |                                                           | Inventories                               |                       | 9,549         |              | (1,167,484)
|                                                                                         |                                                                                                      |                                                           | Prepaids and other                        |                       | (100,241)     |              | (25,635)   
|                                                                                         |                                                                                                      |                                                           | Accounts payable                          |                       | (1,071,992)   |              | 1,016,652  
|                                                                                         |                                                                                                      |                                                           | Accrued liabilities                       |                       | 458,828       |              | 96,014     
|                                                                                         |                                                                                                      |                                                           | Other current liabilities                 |                       | --            |              | (8,273)    
|                                                                                         |                                                                                                      |                                                           | Net cash provided by operating activities |                       | 1,149,689     |              | 13,164     
|                                                                                         |                                                                                                      |                                                           |                                           |                       |               |              |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |                                                                                                      |                                                           |                                           |                      
|                                                                                         | Additions to compressors                                                                             |                                                           | (7,775,521)                               |                       | (6,458,139)  
|                                                                                         | Additions to vehicles and other property                                                             |                                                           | (556,873)                                 |                       | (374,014)    
|                                                                                         | Proceeds from sale of operating equipment                                                            |                                                           | 38,200                                    |                       | --           
|                                                                                         | Net cash used in investing activities                                                                |                                                           | (8,294,194)                               |                       | (6,832,153)  
|                                                                                         |                                                                                                      |                                                           |                                           |                       |               |              |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |                                                                                                      |                                                           |                                           |                      
|                                                                                         | Proceeds from issuance of common stock                                                               |                                                           | --                                        |                       | 2,100,060    
|                                                                                         | Proceeds from issuance of stock warrants                                                             |                                                           | --                                        |                       | 100,000      
|                                                                                         | Proceeds from issuance of subordinated debt                                                          |                                                           | 300,000                                   |                       | 5,150,000    
|                                                                                         | Deferred financing costs                                                                             |                                                           | (26,166)                                  |                       | (89,443)     
|                                                                                         | Principal payments on notes payable                                                                  |                                                           | (562,217)                                 |                       | (628,369)    
|                                                                                         | Proceeds from line of credit                                                                         |                                                           | 11,391,734                                |                       | 5,335,842    
|                                                                                         | Principal payments on line of credit                                                                 |                                                           | (4,765,265)                               |                       | (4,385,314)  
|                                                                                         | Net cash provided by financing activities                                                            |                                                           | 6,338,086                                 |                       | 7,582,776    
|                                                                                         |                                                                                                      |                                                           |                                           |                      
|NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                |                                                                                                      | (806,419)                                                 |                                           | 763,787              
|                                                                                         |                                                                                                      |                                                           |                                           |                      
|CASH AND CASH EQUIVALENTS, BEGINNING
     OF PERIOD                                      |                                                                                                      | 860,043                                                   |                                           | 96,256               
|                                                                                         |                                                                                                      | $     53,624
========                                     |                                           | $    860,043
========
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |                                                                                                      |                                                           |                                           |                      
|                                                                                         |                                                                                                      |                                                           |                                           |                      
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
     INFORMATION:                                  |                                                                                                      |                                                           |                                           |                      
|                                                                                         | Cash paid during the period for:                                                                     |                                                           |                                           |                       |              
|                                                                                         |                                                                                                      | Interest                                                  |                                           | $    977,653          |               | $    344,553
|                                                                                         |                                                                                                      | Income taxes                                              |                                           | --                    |               | --          
|                                                                                         |                                                                                                      |                                                           |                                           |                      
|SUPPLEMENTAL DISCLOSURES OF NONCASH
     INVESTING AND FINANCING ACTIVITIES:             |                                                                                                      |                                                           |                                           |                      
|                                                                                         | Issuance of notes receivable on compressor sales                                                     |                                                           | $           --                            |                       | $     102,900
|                                                                                         |                                                                                                      |                                                           |                                           |                       |               |              |            
|The accompanying notes are an integral part of these 
consolidated financial statements.



F-6



---

COMPRESSCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION:

Compressco, Inc. (the "Company"), formerly Emerging Alpha Corporation, 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 leased 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 January 2000 the Company established a wholly owned energy production subsidiary, Providence Natural Gas, Inc., ("Providence") to acquire certain pressure depleted reservoirs, having key reservoir characteristics known to be receptive to well-head compression. The Company plans to install compressors at the sites to enhance production and then market and sell the natural gas. Since its inception, Providence has acquired interests in one natural gas well. Due to the high cost of gas in 2000, it became cost prohibitive to acquire gas-producing properties without severely impacting the ability of the company to expand its basic business. Therefore, the Company is no longer pursuing the development of Providence Natural Gas at this time.

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 the manufacture of two compressors for trial in the Canadian market. The subsidiary uses the U.S. dollar as its functional currency.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts and operations of the Company as of and for the years ended December 31, 2001 and 2000. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with initial maturities of three months or less to be cash equivalents.

INVENTORIES

Inventories consist primarily of compressor components and parts, and work-in-progress, and are stated at the lower of cost or market using the average cost method.

NOTES RECEIVABLE

During 2000, the Company financed the sale of several compressors through the issuance of notes receivable secured by a lien on the compressor. The notes are for two years with interest rates ranging from 10 to 12 percent. The Company recognizes the sale and gain from the sale upon delivery of the compressor to the customer. The total amount of receivable under these notes is $23,662 as of December 31, 2001.

F-7



---

OTHER ASSETS

The Company includes in other assets gross deferred financing costs of approximately $116,000 related to the subordinated promissory notes and bank revolver facility. These costs are being amortized on a straight line basis over the three-year life of the related financing. Accumulated amortization as of December 31, 2001 was approximately $38,000.

COMPRESSORS, VEHICLES, EQUIPMENT AND OTHER PROPERTY

Compressors include units currently being rented and available for rent. Compressors, vehicles and equipment are recorded at cost. Depreciation is computed using the straight-line method based on the following estimated useful lives:

| | Compressors         | 12 years
| | ------------------- | --------
| | Vehicles            | 5 years 
| | Equipment and other | 7 years 

Effective July 1, 2000, the Company changed its estimate of the useful life and salvage value of its compressors for purposes of computing depreciation. The estimated useful life and salvage value of its compressors was changed from seven years with no salvage value to 12 years with a 10% salvage value. Based upon the Company's data relating to the service history of its compressor fleet, the Company believes that the new estimated useful life and salvage value more accurately reflects the service life of its compressor fleet. The change is accounted for prospectively. The effect of the change in accounting estimate was as follows for the years ended December 31, 2001 and 2000.

| |                                                                 |  | 2001     |  | 2000    
| | --------------------------------------------------------------- |  | -------- |  | --------
| |                                                                 |  |          |  |         
| | Depreciation expense was decreased by                           |  | $999,751 |  | $290,696
| | Net income was increased by and (loss) was decreased by         |  | 599,851  |  | 180,232 
| | Basic income was increased by and (loss) per share decreased by |  | $3.91    |  | $1.30   

REVENUE RECOGNITION

Revenue on the sale of compressors and parts is recorded upon shipment. The Company rents compressors to customers on terms ranging from two weeks to one year. As of December 31, 2001, all rental agreements are cancellable within 30 days written notice by the customer. Certain of the rental agreements provide that in case of early cancellation by the customer increased rental payments are due for the previous periods the customer rented the compressor. Revenues from rental and service agreements are recorded as services are provided over the lives of the respective contracts.

FABRICATION SHOP OVERHEAD COSTS

The Company capitalizes certain fabrication shop overhead costs as part of the total cost of the compressors fabricated. The amount capitalized is based on ratios determined by the Company and will vary with the level of production. The fabrication shop costs include payroll, burden, supplies, utilities, rent, freight and other miscellaneous costs. The portion of the fabrication shop overhead costs that is not capitalized as part of the compressors is expensed in the period incurred.

F-8



---

INCOME TAXES

Deferred income taxes are provided to reflect the future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities are computed using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Income tax expense is the current tax payable or refundable benefit for the period plus or minus the net change in the deferred tax assets and liabilities.

Deferred taxes are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate. Deferred tax arising from temporary differences that are not related to an asset or liability are classified as current or noncurrent depending on the period in which the temporary differences are expected to be used. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares outstanding for the period. The weighted-average number of shares used to compute basic earnings (loss) per common share was 153,235 for the year ending December 31, 2001, and 138,851 for the year ended December 31, 2000.

Diluted earnings per common share for the year ended December 31, 2001, was determined on the assumption that the stock options and stock warrants outstanding were exercised at January 1, 2001. The weighted-average of fully diluted shares used to calculate diluted basic earnings for the year ended December 31, 2001 was 161,860. Diluted loss per common share is not shown for the year ended December 31, 2000 as the effect of outstanding stock options and stock warrants would be anti-dilutive.

BUSINESS SEGMENTS

The Company operates in one business segment pursuant to Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information".

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued in August 2001. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This statement requires (a) recognition of an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measurement of an impairment loss as the difference between the carrying amount and the fair value of the asset. The Company will adopt the statement January 1, 2002 with no material impact on the Company's results of operations or financial position.



F-9



---

Certain reclassifications have been made to the 2000 balances to conform to the 2001 presentation. Such reclassifications had no effect on total assets or net income.

3.     INVENTORIES:

Inventories consist of the following at December 31, 2001:

| | Components and parts | $1,542,717
| | -------------------- | ----------
| | Work-in-progress     | 418,629   
| |                      | $1,961,346
| |                      | ========  

4.     LONG-TERM DEBT:

Long-term debt consists of the following at December 31, 2001:

|    | Subordinated promissory notes (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $5,550,000           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------
|    | Term loan (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 1,586,642            
|    | Revolving line of credit (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 7,674,158            
|    | Total outstanding debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 14,810,800           
|    | Less- Discount on subordinated promissory notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | (66,667)             
|    | Less- Current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (560,012)            
|    | Total long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $14,184,121 
========
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                      
|(a) | On December 22, 2000, the Company offered an issue of 13% subordinated promissory notes and stock warrants (see Note 10) to qualified private investors. At December 31, 2001, $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 December 31, 2001). 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 leases 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 on 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 December 31, 2001). Interest is due monthly with all outstanding borrowings due at maturity on December 27, 2003. The loan is secured with the assets and compressor leases of the Company. The Company's credit facility imposes a number of financial and restrictive covenants that among other things, limit the Company's ability to incur additional indebtedness, create liens and pay dividends. The Company's ability to borrow on this line of credit is limited should the Company's percentage of off-rental compressors exceed the limit set forth in the Company's credit agreement. At December 31, 2001, the Company was in compliance with the loan covenants. Management expects that the Company will be in compliance with the revised covenants under the amended credit facility throughout 2002.



F-10



---

The annual maturities of long-term debt subsequent to December 31, 2001, are as follows:

| | 2002  |  | 560,012              
| | ----- |  | ---------------------
| | 2003  |  | 13,784,159           
| | 2004  |  | 466,629              
| |       |  |                      
| | Total |  | $14,810,800
=========

Unless otherwise noted, the carrying value of the Company's financial instruments approximates fair value. The Company estimates the fair value of its subordinated promissory notes based on market prices or on the current rates available to the Company for debt with similar terms and remaining maturity at December 31, 2001 to be approximately $5,598,000.

5.     INCOME TAXES:

The components of income taxes for the years ended December 31, 2001 and 2000 are set forth as follows:

| |                    | 2001            |  | 2000         
| | ------------------ | --------------- |  | -------------
| |                    |                 |  |              
| | Current provision  | $            -  |  | $          - 
| | Deferred provision | 446,683         |  | 22,902       
| | Income taxes       | $446,683
====== |  | $22,902
=====

The differences between the provision for income taxes at the expected Federal statutory rates and the provision for income taxes recorded in the consolidated statements of operations for the years ended December 31, 2001 and 2000 are summarized as follows:

| |                                                            | 2001            |  | 2000           | 
| | ---------------------------------------------------------- | --------------- |  | -------------- | 
| |                                                            |                 |  |                | 
| | Federal income tax at statutory rates                      | $380,137        |  | $ 4,193        | 
| | State income taxes, net of Federal
     income tax benefit | 48,971          |  | 2,561          | 
| | Nondeductible expenses                                     | 21,030          |  | 16,148         | 
| | Other                                                      | (3,455)         |  | -              | 
| | Provision for income taxes                                 | $446,683
====== |  | $22,902
====== | 

The significant components of the Company's deferred tax assets and liabilities are as follows at December 31, 2001:

| | Deferred tax assets:      |                                       
| | ------------------------- | --------------------------------------
| |                           | Accounts receivable                   
| |                           | Net current deferred tax asset        
| | Deferred tax liabilities: |                                       
| |                           | Depreciation                          
| |                           | Net operating losses                  
| |                           | Net non-current deferred tax liability

At December 31, 2001, the Company has cumulative net operating loss carry forwards of approximately $1,682,000 which will begin to expire in 2011.

F-11



---

6.     EMPLOYEE BENEFIT PLANS:

401(k) Plan

The Company implemented a 401(k) plan on October 1, 2001 in which substantially all full time employees of the Company are eligible to participate. The 401(k) plan provides that the Company will match 100% of the employees contributions up to the first of 1% employee compensation and 50% of employee contributions up to the next 2% of employee compensation. The Company contribution is limited to the first $50,000 of an employees annual compensation. The employee vests in the Company's contribution 50% after one year and 100% after two years. The Company contributions to the 401(k) plan were $5,900 for the year ended December 31, 2001. Hartford Life is the plan provider and provides the investment, administrative and reporting services for the participants. The plan assets are invested, at the employees discretion, in a choice of several Hartford funds.

Stock Ownership and Incentive Stock Option Plan

The Company's 1993 Stock Option Plan provides for the issuance of up to 2 million shares of common stock at no less than 85% of market value at the time of grant (for non-qualified options) and no less than 110% of market value for incentive stock options.

A summary of the Company's stock options as of December 31, 2001 and 2000 and changes during the years then ended are presented below:

| |                                  | Numberof Shares | Weighted-AverageExercise Price
| | -------------------------------- | --------------- | ------------------------------
| | Outstanding at December 31, 1999 | 19,000          |                               
| | Granted                          | 15,250          |                               
| | Canceled                         | (3,750)         |                               
| | Outstanding at December 31, 2000 | 30,500          |                               
| | Granted                          | 7,700           |                               
| | Canceled                         | (7,250)         |                               
| | Outstanding at December 31, 2001 | 30,950 
======  |                               
| | Exercisable at December 31, 2001 | None            |                               

The stock options outstanding at December 31, 2001 become exercisable beginning in December 2002 through September 2004. The stock options are exercisable for a period of three years.

In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," effective for the Company at March 31, 1997. Under SFAS 123, companies can either record expense based on the fair value of stock-based compensation upon issuance or elect to remain under the current APB Opinion No. 25 method whereby no compensation cost is recognized upon grant if the exercise price of options are 100% or greater than the stock price at the grant date. The Company accounts for its stock-based compensation plan under APB Opinion No. 25. Entities electing to remain with the accounting in APB Opinion No. 25 must make disclosures as if SFAS 123 had been applied. The disclosure requirements of this Statement are effective for options granted in fiscal 1996 and later.

The SFAS No 123 method of accounting is based on several assumptions and should not be viewed as indicative of the operations of the Company in future periods. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2001 and 2000, as follows:

| |                     | 2001    | 2000
| | ------------------- | ------- | ----
| |                     |         |     
| | Interest rate       | 4.60%   |     
| | Dividend yield      | 0.00%   |     
| | Expected volatility | 110.0%  |     
| | Expected life       | 6 years |     



F-12



---

The weighted average fair value per share of options granted during the years ended December 31, 2001 and 2000 were $25.37 and $15.03 respectively.

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 and loss per share for year ended December 31, 2001 and 2000, as reported and on a pro forma basis as if the compensation cost of stock options had been determined consistent with SFAS 123.

| |                                  |             |      | 2001    |   | 2000 
| | -------------------------------- | ----------- | ---- | ------- | - | -----
| | Net Income (Loss):               |             |      |         |  
| |                                  | As reported | $    | 671,366 |   | $    
| |                                  | Pro forma   |      | 584,309 |   |      
| | Basic Income (Loss) per Share:   |             |      |         |   |      
| | As reported                      | $           | 4.38 |         | $ | (.08)
| | Pro forma                        |             | 3.81 |         |   | (.39)
| | Diluted Income (Loss) per Share: |             |      |         |   |      
| |                                  | As reported | $    | 4.15    |   | $    
| |                                  | Pro forma   |      | 3.61    |   |      

7.     RELATED PARTIES:

Certain directors and their family members purchased a total of $1,550,000 of the subordinated promissory notes including 13,020 stock warrants from the offering made to private investors in December 2000. The directors and their family members purchased the Notes and Warrants under the same terms and conditions as all other investors.

Certain officers and directors are compensated based on actual time and expenses devoted to the Company's business. During the years ended December 31, 2001 and 2000, a consulting fee of $2,000 per month was paid to a director who served as the Company's chief financial officer in 2000 and secretary in 2001.

8.     COMMITMENTS:

PURCHASE 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 December 31, 2001 the Company has taken delivery of 166 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 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 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.

FACILITIES AND VEHICLE LEASES

The Company has a three year lease terminating August 31, 2004 for its Oklahoma City manufacturing, warehouse and office facilities. The Company has a three year lease terminating September 5, 2004 for its warehouse and office facilities in New Mexico. The Company leases certain vehicles with original terms ranging up to two years.

As of December 31, 2001, future annual minimum lease payments under noncancellable operating leases were approximately $493,000 for 2002, $260,000 for 2003 and $95,000 for 2004.

Rent expense under all operating leases was approximately $472,000 and $176,000 for the years ended December 31, 2001 and 2000, respectively.

F-13



---

9.     MAJOR CUSTOMERS:

At December 31, 2001, the Company had approximately 190 customers. During the year ended December 31, 2001, the Company had one customer that amounted to approximately 13% of the Company's total 2001 revenue. At December 31, 2001, the Company had no customers which amounted to more than 10% of the Company's total accounts receivable balance.

10.    STOCK WARRANTS:

In connection with the offering of the subordinated promissory notes discussed in Note 5, 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 December 31, 2001 total stock warrants of 46,620 were issued and outstanding. The warrants are exercisable upon issuance, and expire on December 31, 2003. No stock warrants have been exercised as of December 31, 2001.

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. 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 will be 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.

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.

11.     NET INCOME (LOSS) PER COMMON SHARE

Basic and diluted net income (loss) per common share are calculated as follows:

|                                                                                     |  | Income (loss)(Numerator) |  | Shares(Denominator) |  | Per ShareAmount
|------------------------------------------------------------------------------------ |  | ------------------------ |  | ------------------- |  | ---------------
|Year Ended December 31, 2001                                                         |  |                          |  |                     |  |                
|Basic                                                                                |  |                          |  |                     |  |                
|Income available to common stockholders                                              |  | $671,366                 |  | 153,235             |  | $   4.38
===== 
|                                                                                     |  |                          |  |                     |  |                
|Effect of stock options                                                              |  | --                       |  | 8,625               |  |                
|Diluted                                                                              |  |                          |  |                     |  |                
|Income available to common stockholders plus
     assumed exercises of stock options |  | $671,366
=======         |  | 161,860
======      |  | $   4.15
===== 
|Year Ended December 31, 2000                                                         |  |                          |  |                     |  |                
|Basic                                                                                |  |                          |  |                     |  |                
|Income (loss) available to common stockholders                                       |  | $(10,569)                |  | 138,851             |  | $  (.08)
===== 

Diluted loss per common share is not shown for the year ended December 31, 2000 as the effect of outstanding stock options and stock warrants would be anti-dilutive.

Stock options for 13,700 common shares with an exercise price of $30.00 per share and stock warrants for 46,620 commons shares with an exercise price of $120.00 per share were excluded from the computation of diluted net income per common share for the year ended December 31, 2001 because the option or warrant exercise prices were greater than the average market price of the common shares.

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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 March 21, 2002.

| | COMPRESSCO, INC.                                                                           
| | -------------------------------------------------------------------------------------------
| | By:     /S/ BROOKS MIMS TALTON
         Brooks Mims Talton
         Chief Executive Officer
|
|
|

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on March 21, 2002.

|By:     /S/ BURT H. KEENAN
         Burt H. Keenan        | Chairman of Board and Director                                      
|--------------------------------------------------------- | --------------------------------------------------------------------
|By:     /S/ BROOKS MIMS TALTON
        Brooks Mims Talton | Chief Executive Officer, President
   and Director                  
|By:     /S/ GARY MCBRIDE
         Gary McBride            | Chief Financial Officer
(Principal Financial and Accounting Officer)
|By:     /S/ JERRY W. JARRELL
         Jerry W. Jarrell    | Director                                                            







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