What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-16 compared with 2020-08-17 · 193 added, 129 removed, 549 unchanged (37% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

June 30, December 31,

September 30, December 31,

Current Assets:

45 unchanged sentences

Three months ended

Six months ended

June 30, June 30,

Nine months ended

September 30, September 30,

2020 2019 2020 2019

13 unchanged sentences

Depreciation and amortization 6,318 5,920 18,859 17,217

Impairment of goodwill — 10,039 — 10,039

Inventory allowance — 3,350 — 3,350

Retirement of rental equipment — 1,512 — 1,512

Total operating costs and expenses 16,706 34,873 52,422 72,602

Operating (loss) income ( 148 ) 302 ( 421 ) 157

Operating loss ( 941 ) ( 14,021 ) ( 1,362 ) ( 13,864 )

Other income (expense):

2 unchanged sentences

Total other income, net 212 89 394 567

Income (loss) before provision for income taxes 222 479 ( 239 ) 635

Income tax (expense) benefit ( 57 ) ( 152 ) 4,486 ( 210 )

Net income $ 165 $ 327 $ 4,247 $ 425

Earnings per share:

Loss before provision for income taxes ( 729 ) ( 13,932 ) ( 968 ) ( 13,297 )

Income tax benefit 167 1,353 4,653 1,143

Net (loss) income $ ( 562 ) $ ( 12,579 ) $ 3,685 $ ( 12,154 )

(Loss) earnings per share:

Basic $ ( 0.04 ) $ ( 0.96 ) $ 0.28 $ ( 0.93 )

24 unchanged sentences

BALANCES, June 30, 2019 — $ — 13,138 $ 131 $ 109,218 $ 151,767 — $ — $ 261,116

Compensation expense on common stock options — — — — 32 — — — 32

Issuance of restricted stock — — 4 — — — — — —

Compensation expense on restricted common stock — — — — 611 — — — 611

Purchase of treasury shares — — — — — — 38 ( 490 ) ( 490 )

Net loss — — — — — ( 12,579 ) — — ( 12,579 )

BALANCES, September 30, 2019 — $ — 13,142 $ 131 $ 109,861 $ 139,188 38 $ ( 490 ) $ 248,690

NATURAL GAS SERVICES GROUP, INC.

15 unchanged sentences

BALANCES, June 30, 2020 — $ — 13,286 $ 133 $ 111,489 $ 141,725 38 $ ( 490 ) $ 252,857

Compensation expense on common stock options — — — — 1 — — — 1

Issuance of restricted stock — — 4 — — — — — —

Compensation expense on restricted common stock — — — — 562 — — — 562

Net loss — — — — — ( 562 ) — — ( 562 )

BALANCES, September 30, 2020 — $ — 13,290 $ 133 $ 112,052 $ 141,163 38 $ ( 490 ) $ 252,858

NATURAL GAS SERVICES GROUP, INC.

1 unchanged sentence

(in thousands)

Six months ended

Nine months ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 4,247 $ 425

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ 3,685 $ ( 12,154 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 18,859 17,217

2 unchanged sentences

Bad debt allowance 287 55

Inventory allowance — 3,350

Impairment of goodwill — 10,039

Gain on sale of assets ( 284 ) ( 37 )

Retirement of rental equipment — 1,512

Loss (gain) on company owned life insurance 19 ( 145 )

7 unchanged sentences

Deferred tax liability increase due to tax law change 10,103 —

Other 226 125

NET CASH PROVIDED BY OPERATING ACTIVITIES 27,932 21,285

9 unchanged sentences

Repayment of loan ( 4,601 ) —

Payments from other long-term liabilities, net ( 2 ) ( 10 )

Payments of other long-term liabilities, net ( 2 ) ( 16 )

Proceeds from exercise of stock options — 505

Purchase of treasury shares — ( 490 )

Taxes paid related to net share settlement of equity awards ( 149 ) ( 183 )

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

NET CASH USED IN FINANCING ACTIVITIES

( 151 ) ( 184 )

NET CHANGE IN CASH AND CASH EQUIVALENTS 15,967 ( 33,146 )

21 unchanged sentences

economic conditions.

This significant drop in economic activity has caused global demand for crude oil to drastically decline.

This significant drop in economic activity caused global demand for crude oil to drastically decline.

According to the International Energy Agency’s (“IEA”) Oil Market Report for July 2020, global crude oil demand during the second quarter of 2020 declined 16.4 million barrels per day (“MMbpd”) compared to the second quarter of 2019, a decrease of more than 15%.

11 unchanged sentences

As states throughout the U.S., as well as many other countries around the world, began to lift restrictions and reopened their economies to varying degrees, global demand for crude oil partially recovered.

This increased demand, combined with the production cuts mentioned above, have resulted in the oil markets coming back into balance.

After trading below $20 per barrel in the second half of April and averaging $28.53 per barrel in May, WTI crude oil has averaged approximately $40 per barrel since June 1 with greatly reduced price volatility.

This increased demand, combined with the production cuts mentioned above, resulted in the oil markets coming back into balance.

After trading below $20 per barrel in the second half of April and averaging $28.53 per barrel in May, WTI crude oil has averaged approximately $40 per barrel from June 1 through early November with greatly reduced price volatility.

While oil markets have remained in balance, crude oil supply and demand grew significantly during July and August.

According to IEA's Oil Market Reports for August and September 2020, global supply grew by a combined 3.6 MMbpd, while according to IEA’s Oil Market Report for October 2020, global demand in July increased 3.4 MMbpd from June.

These issues discussed above resulted in an increasing number of unit returns and shut-in notices from our customers during April and May 2020, which primarily impacted our small (125 HP or less) and medium (126 HP – 399 HP) horsepower units.

1 unchanged sentence

As a result, our rental revenue, unit utilization, and horsepower utilization declined 6.0 %, 5.2 % and 4.5 %, respectively, in the second quarter when compared to the first quarter of 2020.

In addition, unit utilization remained steady in July compared to June, and unit pricing has stabilized.

While we continued to receive several additional restart notices in July and August for wells that were recently shut-in, our utilization has remained stable from June through September.

Compared to the second quarter, the Company’s rental revenue declined 1.8 %, while the Company’s unit utilization and horsepower utilization remained steady ( 0.1 % and 0.2 % increases, respectively) in the third quarter.

Unit pricing has also been stable since June.

Nevertheless, risks remain high in this environment.

As restrictions have been reduced in many states and countries, the rate of COVID-19 infections, hospitalizations and deaths has increased, particularly in the U.S.

This has resulted in a reinstatement of some restrictions in several states, including Texas.

As restrictions have been reduced in many states and countries, the rate of COVID-19 infections, hospitalizations and deaths has increased.

Since October, the rate of infections has risen very

quickly in several countries, with the U.S.

setting new records for daily infections in November.

This has resulted in a reinstatement, to varying degress, of restrictions in several states and countries, including several European countries.

If states and countries need to put further restrictions in place to help prevent the spread of the virus, crude oil demand could decline again.

In addition, according to IEA’s August report, global oil supply rose by 2.5 MMbpd in July after Saudi Arabia ended its 1 MMbpd additional voluntary production cut and U.S.

production increased.

Additional shut-in production could be restored, and completion activities by domestic producers are likely to increase somewhat during the second half of 2020 to offset production declines.

These risks to both

supply and demand could negatively impact oil prices, which would impact our utilization, rental revenues and overall financial performance during the remainder of 2020 as well as 2021.

Given the current economic and industry backdrop, we still expect compressor sales to be low for the remainder of 2020, as exploration and production companies have significantly reduced their capital expenditures budgets.

Due to the resurgence of COVID-19 in Europe and the United States, the IEA (in its November Oil Market Report) lowered its near-term global demand outlook for the remainder of 2020 and the first quarter of 2021.

While positive news about potential vaccines has provided some support for oil prices, the IEA notes that vaccines are unlikely to significantly boost oil demand until well into 2021.

All of these risks could negatively impact oil prices, which would impact our utilization, rental revenues and overall financial performance during the remainder of 2020 as well as 2021.

Given the current economic and industry backdrop, we still expect compressor sales to be low for the remainder of 2020 and early 2021, as exploration and production companies have significantly reduced their capital expenditures budgets.

In regards to our costs, we implemented various cost cutting measures with respect to operating expenses and capital expenditures during the second quarter.

Our operating expense reductions included reductions in our headcount from both layoffs and attrition, wage freezes, centralization of certain processes for better cost control, and the enlistment of our suppliers in our cost cutting efforts.

We expect these cost cutting measures to continue to benefit our financial performance through the remainder of 2020.

In addition, as we have done during prior downturns, we have reduced our capital expenditures budget.

We invested $ 11.0 million in capital expenditures during the first six months of 2020.

After recently securing new rental orders from one of our larger customers, we plan to only incur another $8-$10 million in capital expenditures for the remainder of 2020, bringing our 2020 capital expenditures budget to $19-$21 million, down from $ 69.9 million in 2019.

Finally, in keeping with current commercial precautions and practices in our industry, we implemented new guidelines to mitigate health risks to our employees and customers during this outbreak.

We adopted remote and staggered work processes at our Midland headquarters.

After reopening our headquarters in Midland, Texas on June 1, Midland experienced a significant increase in COVID-19 infections, including a verified positive test among the Company’s professional staff.

As a result, the Company was forced to close its corporate headquarters for a second time on June 29, 2020.

The Company’s corporate headquarters remains closed as of the date of this filing.

The office closure - which was dictated by positive testing and subsequent quarantines - and staffing challenges resulted in delays in our collection and assimilation of financial data related to the completion of our interim financial statements required for this filing.

With remote and staggered work processes back in place, we do not anticipate such issues going forward.

These cost cutting measures helped our financial performance and liquidity during the third quarter, and we expect these cost cutting measures to continue to benefit our financial performance through the remainder of 2020 and into 2021.

In addition, as we have done during prior downturns, we have significantly reduced our capital expenditures budget.

We invested $ 12.0 million in capital expenditures during the first nine months of 2020, including $ 1.0 million during the third quarter of 2020.

Depending on customer needs, we plan to incur another $7-$9 million in capital expenditures during the fourth quarter of 2020, bringing our 2020 capital expenditures budget to $19-$21 million, down from $ 69.9 million in 2019.

Finally, in keeping with current commercial precautions and practices in our industry, we have continued to implement guidelines to mitigate health risks to our employees and customers during this outbreak.

We adopted remote work processes at our Midland headquarters.

Due to continued and resurgent positive COVID-19 cases in the Midland area, including exposure and positive tests among the Company’s professional staff and immediate families, the Company’s corporate headquarters has remained closed through the date of this filing, and is staffed at minimum levels throughout the past and present quarter.

Our continued office closure and staffing challenges resulted in delays in our collection and assimilation of financial data related to the completion of our interim financial statements required for this filing.

In addition, we adapted our field and fabrication work processes as well.

11 unchanged sentences

All significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation.

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at June 30, 2020 and the results of our operations for the three and six months ended June 30, 2020 and 2019 not misleading.

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at September 30, 2020 and the results of our operations for the three and nine months ended September 30, 2020 and 2019 not misleading.

As permitted by the rules and regulations of the Securities and Exchange Commission (SEC), the accompanying condensed consolidated financial statements do not include all disclosures normally required by generally accepted accounting principles in the United States of America (GAAP).

These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 on file with the SEC.

In our opinion, the condensed consolidated financial statements are a fair presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for the periods presented.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2020.

In our opinion, the condensed consolidated financial statements are a fair

presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for the periods presented.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2020.

Revenue Recognition Policy

17 unchanged sentences

After the terms of the contract have expired, a customer may renew their contract or continue renting on a monthly basis thereafter.

In accordance ASC 842 – Leases, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.

In accordance ASC 842, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.

Sales Revenue.

13 unchanged sentences

All control is shouldered by the customer and there are no exceptions to the customer’s commitment to accept and pay for the manufactured equipment.

Revenues recognized related to bill and hold arrangements for the six months ended June 30, 2020 and 2019 was approximately $ 852,000 and $ 6.1 million, respectively.

Revenue recognized related to bill and hold arrangements for the nine months ended September 30, 2020 and 2019 was approximately $ 852,000 and $ 9.4 million, respectively.

Parts - Revenue is recognized after the customer obtains control of the parts.

2 unchanged sentences

Exchange or rebuilding customer owned compressors - Based on the contract, the Company will either exchange a new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor.

Revenue is recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e., by physical delivery, delivery and installment, or shipment of the compressor.

recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e., by physical delivery, delivery and installment, or shipment of the compressor.

Used compressors or flares - From time to time, a customer may request to purchase a used compressor or flare out of our rental fleet.

6 unchanged sentences

Disaggregation of Revenue

The following table shows the Company's revenue disaggregated by product or service type for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30, Six months ended June 30,

The following table shows the Company's revenue disaggregated by product or service type for the three and nine months ended September 30, 2020 and 2019:

Three months ended September 30, Nine months ended September 30,

(in thousands)

13 unchanged sentences

Contract Balances

As of June 30, 2020 and December 31, 2019, we had the following receivables and deferred income from contracts with customers:

As of September 30, 2020 and December 31, 2019, we had the following receivables and deferred income from contracts with customers:

(in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Accounts Receivable

2 unchanged sentences

Total Accounts Receivable $ 11,503 $ 10,024

$ 12,646 $ 10,024

Allowance for doubtful accounts ( 1,119 ) ( 918 )

Total Accounts Receivable, net $ 10,384 $ 9,106

$ 11,674 $ 9,106

Deferred income $ 583 $ 640

The Company recognized rental revenue of $ 73,000 for the six months ended June 30, 2020 that was included in deferred income at the beginning of 2020.

The Company recognized rental revenue of $ 73,000 for the nine months ended September 30, 2020 that was included in deferred income at the beginning of 2020.

For the year ended December 31, 2019, the Company recognized revenue of $ 48,000 from amounts related to sales that were included in deferred income at the beginning of 2019.

1 unchanged sentence

Transaction Price Allocated to the Remaining Performance Obligations

As of June 30, 2020, the Company did not have revenue related to unsatisfied performance obligations.

As of September 30, 2020, the Company did not have revenue related to unsatisfied performance obligations.

Contract Costs

12 unchanged sentences

We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on current and anticipated customer demand and production requirements.

The Company accesses anticipated customer demand based on current and upcoming capital expenditure budgets of its major customers as well as other significant companies in the industry, along with oil and natural gas price forecasts and other factors affecting the industry.

The Company assesses anticipated customer demand based on current and upcoming capital expenditure budgets of its major customers as well as other significant companies in the industry, along with oil and natural gas price forecasts and other factors affecting the industry.

In addition, our long-term inventory consists of raw materials that remain viable but which the Company does not expect to sell within the next year.

Rental Equipment and Property and Equipment

Rental equipment and property and equipment are recorded at cost less accumulated depreciation, except for work-in-progress on new rental equipment which is recorded at cost until it’s complete and added to the fleet.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

13 unchanged sentences

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating losses and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to

taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

4 unchanged sentences

A liability for unrecognized tax benefits is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.

We have no liabilities for uncertain tax positions as of June 30, 2020.

We have no liabilities for uncertain tax positions as of September 30, 2020.

Our policy regarding income tax interest and penalties is to expense those items as interest expense and other expense, respectively.

2 unchanged sentences

In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes.

Please read Note 4, Federal Income Tax Receivable for a discussion about the impact on our condensed consolidated financial statements.

Please see Note 4, Federal Income Tax Receivable for a discussion about the impact on our condensed consolidated financial statements.

Fair Value Measurement

5 unchanged sentences

Level 3- valuation methodology with unobservable inputs that are significant to the fair value measurement.

Management believes that the fair value of our cash and cash equivalents, trade receivables, accounts payable and line of credit at June 30, 2020 and December 31, 2019 approximate their carrying values due to the short-term nature of the instruments or the use of prevailing market interest rates.

Management believes that the fair value of our cash and cash equivalents, trade receivables, accounts payable and line of credit at September 30, 2020 and December 31, 2019 approximate their carrying values due to the short-term nature of the instruments or the use of prevailing market interest rates.

Segments and Related Information

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As stated in our Annual Report on Form 10-K for the year ended December 31, 2019, we revised our consolidated financial statements for the years ended December 31, 2018 and 2017, as well as for interim periods in 2019 and 2018, for immaterial operating costs and expenses that were inappropriately capitalized.

The following is a summary of the revisions to our unaudited, condensed consolidated financial statements for the three and six months ended June 30, 2019:

The following is a summary of the revisions to our unaudited, condensed consolidated financial statements for the three and nine months ended September 30, 2019:

Revised Condensed Consolidated Statements of Operations

For the three months ended June 30, 2019

($ in thousands) As Reported Revisions As Revised

For the three months ended September 30, 2019

($ in thousands, except per share) As Reported Revisions As Revised

Total revenue $ 20,852 $ — $ 20,852

3 unchanged sentences

Total operating costs and expenses 34,413 460 34,873

Operating income (loss) 593 ( 291 ) 302

Income before provision for income taxes 770 ( 291 ) 479

Income tax (expense) benefit ( 197 ) 45 ( 152 )

Net income (loss) 573 ( 246 ) 327

Earnings (loss) per share, basic 0.04 ( 0.02 ) 0.02

Earnings (loss) per share, diluted 0.04 ( 0.02 ) 0.02

For the six months ended June 30, 2019

($ in thousands) As Reported Revisions As Revised

Operating loss ( 13,561 ) ( 460 ) ( 14,021 )

Loss before provision for income taxes ( 13,472 ) ( 460 ) ( 13,932 )

Income tax benefit 1,240 113 1,353

Net loss ( 12,232 ) ( 347 ) ( 12,579 )

Loss per share, basic ( 0.93 ) ( 0.03 ) ( 0.96 )

Loss per share, diluted ( 0.93 ) ( 0.03 ) ( 0.96 )

For the nine months ended September 30, 2019

($ in thousands, except per share) As Reported Revisions As Revised

Total revenue $ 58,738 $ — $ 58,738

3 unchanged sentences

Total operating costs and expenses 71,497 1,105 72,602

Operating income (loss) 802 ( 645 ) 157

Income before provision for income taxes 1,280 ( 645 ) 635

Income tax (expense) benefit ( 350 ) 140 ( 210 )

Net income (loss) 930 ( 505 ) 425

Earnings (loss) per share, basic 0.07 ( 0.04 ) 0.03

Earnings (loss) per share, diluted 0.07 ( 0.04 ) 0.03

Operating loss ( 12,759 ) ( 1,105 ) ( 13,864 )

Loss before provision for income taxes ( 12,192 ) ( 1,105 ) ( 13,297 )

Income tax benefit 890 253 1,143

Net loss ( 11,302 ) ( 852 ) ( 12,154 )

Loss per share, basic ( 0.86 ) ( 0.07 ) ( 0.93 )

Loss per share, diluted ( 0.86 ) ( 0.07 ) ( 0.93 )

Revised Condensed Consolidated Statement of Stockholders' Equity

For the six months ended June 30, 2019

For the nine months ended September 30, 2019

($ in thousands) As Reported Revisions As Revised

7 unchanged sentences

Total stockholders' equity at June 30, 2019 262,570 ( 1,454 ) 261,116

Net income (loss) for the three months ended September 30, 2019 $ ( 12,232 ) $ ( 347 ) $ ( 12,579 )

Retained earnings balance at September 30, 2019 140,989 ( 1,801 ) 139,188

Total stockholders' equity at September 30, 2019 250,491 ( 1,801 ) 248,690

Revised Condensed Consolidated Statement of Cash Flows

For the six months ended June 30, 2019

For the nine months ended September 30, 2019

($ in thousands) As Reported Revisions As Revised

4 unchanged sentences

Inventory decrease 1,861 1,937 3,798

Prepaid expenses and prepaid income taxes increase ( 22 ) ( 203 ) ( 225 )

Prepaid expenses and prepaid income taxes decrease (increase) 198 ( 270 ) ( 72 )

Net cash provided by operating activities 20,609 676 21,285

Cash flows from operating activities:

Cash flows from investing activities:

Purchase of rental equipment, property and other equipment ( 53,401 ) ( 676 ) ( 54,077 )

1 unchanged sentence

Net change in cash and cash equivalents ( 33,146 ) — ( 33,146 )

Our inventory, net of allowance for obsolescence of $ 37,000 at June 30, 2020 and $ 24,000 at December 31, 2019, consisted of the following amounts:

Our inventory, net of allowance for obsolescence of $ 37,000 at September 30, 2020 and $ 24,000 at December 31, 2019, consisted of the following amounts:

(in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Raw materials - current $ 16,275 $ 19,388

4 unchanged sentences

Our long-term inventory consists of raw materials that remain viable but that the Company does not expect to sell or use within the year.

During the six months ended June 30, 2020 and 2019, there were no write-offs of obsolete inventory against the allowance for obsolescence.

During the nine months ended September 30, 2020, there were no write-offs of obsolete inventory against the allowance for obsolescence.

Inventory Allowance

Due to the slow moving nature or obsolescence of a portion of its long-term inventory and inventory related to the retirement of rental equipment, the Company recorded an increase of $ 3.35 million to its inventory allowance during the nine months ended September 30, 2019 for costs that may not be recoverable in the future.

The Company did no t record an increase to its inventory allowance during the nine months ended September 30, 2020.

Federal Income Tax Receivable

1 unchanged sentence

The Company generated significant NOLs during 2018 and 2019, and plans to carryback these losses for five years.

Accordingly, as of June 30, 2020, the Company recorded a federal income tax receivable of $ 15.0 million and an increase to its deferred income tax liability of $ 10.1 million on its condensed consolidated balance sheet.

In addition, the Company recorded a current income tax benefit of $ 4.9 million on its condensed consolidated statement of operations for the six months ended June 30, 2020.

Accordingly, as of March 31, 2020, the Company recorded a federal income tax receivable of $ 15.0 million and an increase to its deferred income tax liability of $ 10.1 million on its condensed consolidated balance sheet.

During the third quarter of 2020, the Company received refunds totaling $ 3.9 million related to its 2018 NOLs, which reduced its federal income tax receivable to $ 11.1 million on its condensed consolidated balance sheet as of September 30, 2020.

In addition, the Company recorded a current income tax benefit of $ 4.9 million on its condensed consolidated statement of operations for the nine months ended September 30, 2020.

Rental Equipment

Our rental equipment and associated accumulated depreciation as of June 30, 2020 and December 31, 2019, respectively, consisted of the following:

Our rental equipment and associated accumulated depreciation as of September 30, 2020 and December 31, 2019, respectively, consisted of the following:

(in thousands)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Compressor units $ 385,920 $ 370,961

3 unchanged sentences

Rental equipment, net of accumulated depreciation $ 210,876 $ 217,742

We evaluated our rental equipment for potential impairment as of June 30, 2020, and determined that no such impairment existed as of that date.

We evaluated our rental equipment for potential impairment as of September 30, 2020, and determined that no such impairment existed as of that date.

Retirement of Rental Equipment

During the third quarter of 2019, Company management determined which units were not of the type, configuration, make or model that our customers are demanding or that were not cost efficient to refurbish, maintain and/or operate.

As a result of this review, we determined 327 units should be retired from our rental fleet.

Accordingly, the Company recorded a $ 1.5 million loss on retirement of rental equipment during the nine months ended September 30, 2019.

The Company did no t record any retirements from its rental fleet during the nine months ended September 30, 2020.

The Company determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company’s leases are primarily related to property leases for its field offices.

The Company's leases have remaining lease terms of two months to 9 years.

The Company's leases have remaining lease terms of 1 year to almost 9 years.

Renewal and termination options are included in the lease term when it is reasonably certain that the Company will exercise the option.

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The new lease standard did not materially impact the Company's condensed consolidated statements of operations and had no impact on the Company's condensed consolidated statements of cash flows.

The impact of the new lease standard on the June 30, 2020 condensed consolidated balance sheet was as follows:

Classification on the Condensed Consolidated Balance Sheet June 30, 2020

The impact of lease standard ASC 842 on the September 30, 2020 condensed consolidated balance sheet was as follows:

Classification on the Condensed Consolidated Balance Sheet September 30, 2020

(in thousands, except years)

6 unchanged sentences

Operating lease costs are recognized on a straight-line basis over the lease term.

Total operating lease costs for the six months ended June 30, 2020 was approximately $ 275,000 .

June 30, 2020

Total operating lease costs for the nine months ended September 30, 2020 was approximately $ 419,000 .

September 30, 2020

(in thousands)

3 unchanged sentences

(2) Includes costs of $ 275,000 for leases with terms of 12 months or less and $ 144,000 for leases with terms greater than 12 months.

The following table shows the future maturities of lease liabilities as of June 30, 2020:

The following table shows the future maturities of lease liabilities as of September 30, 2020:

Years Ending December 31, Lease Liabilities

(in thousands)

2020 (excluding the six months ended June 30, 2020) $ 101

2020 (excluding the nine months ended September 30, 2020) $ 54

Thereafter 168

6 unchanged sentences

At any time before the maturity of the Amended Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above.

Generally, the borrowing base equals the sum of (a) 80 % of our eligible accounts receivable plus (b) 50 % of the book value of our eligible general inventory (not to exceed 50 % of the commitment amount at the time) plus (c) 75 % of the book value of our eligible equipment inventory.

Generally, the

borrowing base equals the sum of (a) 80 % of our eligible accounts receivable plus (b) 50 % of the book value of our eligible general inventory (not to exceed 50 % of the commitment amount at the time) plus (c) 75 % of the book value of our eligible equipment inventory.

The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral.

We had $ 29.5 million borrowing base availability at June 30, 2020 under the terms of our Amended Credit Agreement.

We had $ 29.5 million borrowing base availability at September 30, 2020 under the terms of our Amended Credit Agreement.

Interest and Fees .

3 unchanged sentences

For purposes of the CB Floating Rate, the Applicable Margin is 1.50 %.

For the six month period ended June 30, 2020, our weighted average interest rate was 2.45 %.

For the nine month period ended September 30, 2020, our weighted average interest rate was 2.11 %.

Accrued interest is payable monthly on outstanding principal amounts, provided that accrued interest on LIBOR-based loans is payable at the end of each interest period, but in no event less frequently than quarterly.

In addition, fees and expenses

are payable in connection with our requests for letters of credit (generally equal to the Applicable Margin for LIBOR-related borrowings multiplied by the face amount of the requested letter of credit) and administrative and legal costs.

In addition, fees and expenses are payable in connection with our requests for letters of credit (generally equal to the Applicable Margin for LIBOR-related borrowings multiplied by the face amount of the requested letter of credit) and administrative and legal costs.

The maturity date of the Amended Credit Agreement is December 31, 2020, at which time all amounts borrowed under the agreement will be due and outstanding letters of credit must be cash collateralized.

1 unchanged sentence

The obligations under the Amended Credit Agreement are secured by a first priority lien on all of our inventory and accounts and leases receivables, along with a first priority lien on a variable number of our leased compressors, the book value of which must be maintained at a minimum of 2.00 to 1.00 commitment coverage ratio (such ratio being equal to (i) the amount of the borrowing base as of such date to (ii) the amount of the commitment as of such date).

The Fifth Amendment of Security Agreement in connection with our Amended Credit Agreement was executed by the Company and the Lender on September 28, 2020.

This amendment contained an updated list our leased compressors, which provided our the Lender with additional collateral under its first priority lien.

The Amended Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, limit our ability to incur additional indebtedness and liens;

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Obligations under the Amended Credit Agreement may be accelerated upon the occurrence of an event of default.

As of June 30, 2020, we were in compliance with all financial covenants in our Amended Credit Agreement.

As of September 30, 2020, we were in compliance with all financial covenants in our Amended Credit Agreement.

A default under our Credit Agreement could trigger the acceleration of our bank debt so that it is immediately due and payable.

Such default would likely limit our ability to access other credit.

At June 30, 2020 and December 31, 2019, our outstanding balance on the line of credit was $ 417,000 .

At September 30, 2020 and December 31, 2019, our outstanding balance on the line of credit was $ 417,000 .

CARES Act Loan

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A Company owned life insurance policy held in a rabbi trust is utilized as a source of funding for the plan.

The cash surrender value of the life insurance policy is $ 1.6 million and $ 1.5 million as of June 30, 2020 and December 31, 2019, respectively.

We reported in other (expense) income in the condensed consolidated statements of operations a loss related to the policy of approximately $ 92,000 and a gain of approximately $ 131,000 for the six months ended June 30, 2020 and 2019, respectively.

The cash surrender value of the life insurance policy is $ 1.7 million and $ 1.5 million as of September 30, 2020 and December 31, 2019, respectively.

We reported in other (expense) income in the condensed consolidated statements of operations a loss related to the policy of approximately $ 19,000 and a gain of approximately $ 145,000 for the nine months ended September 30, 2020 and 2019, respectively.

For deferrals of base salary, bonus, commissions and director fees, settlement payments are made to participants in cash, either in a lump sum or in periodic installments.

The obligation to pay the deferred compensation and the deferred director fees is adjusted to reflect the positive or negative performance of investment measurement options selected by each participant.

The deferred compensation liability, which is included in other long-term liabilities in the condensed consolidated balance sheet, was $ 1.7 million as of June 30, 2020 and December 31, 2019.

The deferred compensation liability, which is included in other long-term liabilities in the condensed consolidated balance sheet, was $ 1.9 million and $ 1.7 million as of September 30, 2020 and December 31, 2019, respectively.

For deferrals of restricted stock units, the plan does not allow for diversification, therefore, distributions are paid in shares of common stock and the obligation is carried at grant value.

As of June 30, 2020 and 2019, respectively, we had 48,601 and 62,145 unvested restricted stock units being deferred.

As of June 30, 2020, we had released and issued 143,099 shares with a value of $ 2.2 million to the deferred compensation plan.

As of June 30, 2019, we had released and issued 79,688 shares with a value of $ 1.7 million to the deferred compensation plan.

As of September 30, 2020 and 2019, respectively, we had 47,299 and 94,148 unvested restricted stock units being deferred.

As of September 30, 2020, we had released and issued 144,401 shares with a value of $ 2.2 million to the deferred compensation plan.

As of September 30, 2019, we had released and issued 80,604 shares with a value of $ 1.7 million to the deferred compensation plan.

Stock-Based and Other Long-Term Incentive Compensation

Stock Options

A summary of all option activity as of December 31, 2019, and changes during the six months ended June 30, 2020 is presented below.

A summary of all option activity as of December 31, 2019, and changes during the nine months ended September 30, 2020 is presented below.

Stock Options

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Outstanding, December 31, 2019 208,334 $ 23.67 3.66 $ —

Granted 5,000 4.91 9.56 18

Cancelled / Forfeited ( 7,000 ) 31.12 — —

( 40,000 ) 19.11

Outstanding, June 30, 2020 173,334 $ 24.18 4.18 $ 7

Exercisable, June 30, 2020 168,334 $ 24.75 4.01 $ —

The following table summarizes information about our stock options outstanding at June 30, 2020:

Outstanding, September 30, 2020 166,334 $ 23.89 3.91 $ 18

Exercisable, September 30, 2020 161,334 $ 24.48 3.74 $ —

The following table summarizes information about our stock options outstanding at September 30, 2020:

Range of Exercise Prices

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166,334 3.91 $ 23.89 161,334 $ 24.48

The summary of the status of our unvested stock options as of December 31, 2019 and changes during the six months ended June 30, 2020 is presented below.

The summary of the status of our unvested stock options as of December 31, 2019 and changes during the nine months ended September 30, 2020 is presented below.

Unvested stock options:

4 unchanged sentences

Vested ( 10,433 ) 11.93

Canceled/Forfeited — —

Unvested at June 30, 2020 5,000 $ 2.07

As of June 30, 2020, there was $ 8,000 of unrecognized compensation cost related to unvested options.

Total compensation expense for stock options was $ 18,000 and $ 61,000 for the six months ended June 30, 2020 and 2019, respectively.

Unvested at September 30, 2020 5,000 $ 2.07

As of September 30, 2020, there was $ 8,000 of unrecognized compensation cost related to unvested options.

Total compensation expense for stock options was $ 18,000 and $ 92,000 for the nine months ended September 30, 2020 and 2019, respectively.

Restricted Shares/Units

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These awards of restricted stock vest one year from the date of grant.

Total compensation expense related to these and previously granted restricted stock awards was $ 1.0 million and $ 1.1 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, there was a total of $ 2.9 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 2.75 years.

Total compensation expense related to these and previously granted restricted stock awards was $ 1.7 million for the nine months ended September 30, 2020 and 2019.

As of September 30, 2020, there was a total of $ 2.3 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 2.5 years.

Other Long-Term Incentive Compensation

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Taylor and our independent Board members as liabilities under accrued liabilities on our condensed consolidated balance sheet.

The vesting of these awards awards is subject to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined).

Total compensation expense related to these other long-term incentive awards was approximately $ 126,000 for the six months ended June 30, 2020.

As of June 30, 2020, there was a total of $ 1.1 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 2.75 years.

The vesting of these awards awards is subject

to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined).

Total compensation expense related to these other long-term incentive awards was approximately $ 252,000 for the nine months ended September 30, 2020.

As of September 30, 2020, there was a total of $ 960,000 of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 2.5 years.

Impairment of Goodwill

Goodwill represents the cost in excess of fair value of the identifiable net assets acquired.

Goodwill was tested annually for impairment or as needed upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired.

During the third quarter of 2019, the Company examined various qualitative factors to determine if a quantitative goodwill impairment test was needed.

For several months prior to the end of the third quarter of 2019, the Company experienced a significant decline in stock price, which was reflective of the significant deterioration of stock prices of companies throughout the oilfield services sector.

In addition, the Company noted its largest customer as well as several other exploration and production companies had announced significant reductions to their 2020 capital expenditures budgets compared to those in 2019.

These reductions clearly indicated lower demand for oilfield services, including compression services, in 2020 compared to 2019.

In addition, the reductions reflected the deteriorated equity markets for energy companies and demands from institutional investors that energy companies keep capital spending within operating cash flow.

After considering these factors and various other industry, economic and company-specific factors, we calculated our market capitalization (based on our closing stock price) as of September 30, 2019, and compared it to the carrying value of our net assets.

Since the carrying value of our net assets exceeded our market capitalization and after considering all of the aforementioned qualitative factors, Company management determined that it was more likely than not that the fair value of the Company’s net assets was less than its carrying amount.

As a result of our qualitative assessment, we proceeded to perform our quantitative goodwill impairment analysis, where we used an independent valuation specialist to assist us in determining the fair value of our net assets.

In this impairment analysis, the estimated fair value of our net assets was determined utilizing market and income-based approaches.

Determining fair value in this analysis required significant judgment, including judgments about appropriate comparable companies, appropriate discount rates and our estimated future cash flows, which are subject to change.

As a result of our quantitative evaluation, the Company recorded a full impairment charge of its goodwill of $ 10.0 million during the three months ended September 30, 2019.

Earnings per Share

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Three months ended

Six months ended

June 30, June 30,

Nine months ended

September 30, September 30,

2020 2019 2020 2019

Net income $ 165 $ 327 $ 4,247 $ 425

Denominator for earnings per basic common share:

Net (loss) income $ ( 562 ) $ ( 12,579 ) $ 3,685 $ ( 12,154 )

Denominator for (loss) earnings per basic common share:

Weighted average common shares outstanding 13,248 13,137 13,214 13,112

Denominator for earnings per diluted common share:

Denominator for (loss) earnings per diluted common share:

Weighted average common shares outstanding 13,248 13,137 13,214 13,112

4 unchanged sentences

Diluted $ ( 0.04 ) $ ( 0.96 ) $ 0.27 $ ( 0.93 )

For the three months ended June 30, 2020, options to purchase 168,334 weighted average shares of common stock with exercise prices ranging from $ 14.89 to $ 33.36 were not included in the computation of diluted earnings per share due to their antidilutive effect.

For the six months ended June 30, 2020, options to purchase 175,587 weighted average shares of common stock with exercise prices ranging from $ 14.89 to $ 33.36 were not included in the computation of diluted earnings per share due to their antidilutive effect.

For the three months ended June 30, 2019, options to purchase 216,669 weighted average shares of common stock with exercise prices ranging from $ 16.74 to $ 33.36 were not included in the computation of diluted earnings per share due to their antidilutive effect.

For the six months ended June 30, 2019, options to purchase 207,591 weighted average shares of common stock with exercise prices ranging from $ 17.74 to $ 33.36 were not included in the computation of diluted earnings per share due to their antidilutive effect.

For the three months ended September 30, 2020, restricted stock and stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

For the nine months ended September 30, 2020, options to purchase 171,900 weighted average shares of common stock with exercise prices ranging from $ 14.89 to $ 33.36 were not included in the computation of diluted earnings per share due to their antidilutive effect.

For the three and nine months ended September 30, 2019, restricted stock and stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

Related Party

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We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation.

Subsequent Events

Leslie Shockley Beyer joined our Board of Directors on June 10, 2020.

As part of her 2020 compensation as an independent Board member, the Compensation Committee of our Board awarded Ms.

Beyer 1,324 shares of restricted stock on October 15, 2020.

In addition, the Compensation Committee also awarded Ms.

Beyer a cash award of $ 25,000 .

Beyer's awards vest on June 20, 2021, and both are subject to acceleration under certain events.

As disclosed on Form 8-K, on October 23, 2020, our Board of Directors authorized the Company to enter into a share repurchase program for the purchase of up to an aggregate amount of $ 10 million of the Company’s common stock in accordance with the guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934.

Repurchases may be made in open market purchases, block trades or in privately negotiated transactions.

Repurchases, if any, under the program will be made at the discretion of management, and will depend upon market pricing and conditions, business, legal, accounting and other considerations.

The repurchase program may be modified, suspended or terminated at any time without notice, in the Company’s discretion, based upon a number of factors, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, the need for capital in the Company’s operations and other factors deemed appropriate.

These factors may also affect the timing and amount of share repurchases.

The repurchase program does not obligate the Company to repurchase any shares.

This repurchase plan expires on September 30, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements