What changed in this filing

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Item 1A. Risk Factors

2021-03-31 compared with 2020-03-31 · 54 added, 55 removed, 229 unchanged (32% of the section changed)

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During this time, the market began to experience a decline in oil prices in response to oil demand concerns due to the global economic impacts of COVID-19.

In addition, recent events concerning OPEC and Russia resulted in Saudi Arabia significantly discounting the price of its crude oil, as well as Saudi Arabia and Russia significantly increasing their oil supply.

These actions have led significant weakness in oil prices and ensuing reductions of E&P company capital and operating budgets.

These developments have led to significant weakness in oil prices and ensuing reductions of E&P company capital and operating budgets.

If economic and industry conditions do not improve, these events will adversely impact our financial condition and results of operations in 2021 and perhaps beyond, as further discussed in risk factors below.

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Adverse macroeconomic and business conditions may significantly and negatively affect our results of operations.

As a result of the COVID-19 outbreak discussed above and other economic conditions in the United States and abroad, our revenue and profitability will likely be adversely affected.

As a result of the COVID-19 outbreak discussed above and other economic conditions in the United States and abroad, our revenue and profitability has been and will likely continue to be adversely affected.

The condition of domestic and global financial markets, relatively low oil and natural gas prices, and the potential for disruption and illiquidity in the credit markets could have an adverse effect on our operating results and financial condition, and if sustained for an extended period, such adverse effects could also become significant.

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• tax policies.

Because of the recent significant reductions in the market prices of oil and natural gas, many companies developing oil and natural gas reserves have curtailed or canceled their drilling programs, thereby reducing demand for our equipment and services.

Because of the significant reductions in the market prices of oil and natural gas in 2020, many companies developing oil and natural gas reserves have curtailed or canceled their drilling programs, thereby reducing demand for our equipment and services.

Our rental contracts are generally short-term, and oil and natural gas companies tend to respond quickly to upward or downward changes in prices.

Any prolonged reduction in drilling and production activities historically has materially eroded both pricing and utilization rates for our equipment and services and adversely affects our financial results.

Any prolonged reduction in drilling and production activities historically has reduced our compressor sales and materially eroded both rental pricing and utilization rates for our equipment and services and adversely affects our financial results.

As a result of any such prolonged reductions, we may suffer losses, be unable to make necessary capital expenditures and be unable to meet our financial obligations.

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Oil and natural gas prices and the level of drilling and exploration activity can be volatile.

For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil and natural gas prices such as have occurred in the first quarter of 2020.

As a result, the demand for our natural gas compression services will be adversely affected.

A reduction in demand could also force us to reduce our pricing substantially.

A reduction in demand has, and could continue to, force us to reduce our pricing substantially.

Additionally, our customers’ production from oil-weighted reserves constitutes the majority percentage of our business.

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We have been required to enter into lower rate rental contracts in response to market conditions and our rentals and sales revenue have decreased as a result of such conditions.

Due to the short-term nature of most of our rental

contracts, changes in market conditions can quickly affect our business.

Due to the short-term nature of most of our rental contracts, changes in market conditions can quickly affect our business.

As a result of the cyclicality of our industry, we anticipate our results of operations will be volatile in the future.

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Several states and local jurisdictions also have adopted or are considering adopting regulations that could restrict or prohibit hydraulic fracturing in certain circumstances, impose more stringent operating standards and/or require the disclosure of the composition of hydraulic fracturing fluids.

While we do not perform hydraulic fracturing, many of our customers do and their activity level drives demand for our products.

More recently, federal and state governments have begun investigating whether the disposal of produced water into underground injection wells has caused increased seismic activity in certain areas.

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• performance of site investigatory, remedial or other corrective actions.

Increasing attention to environmental, social and governance matters may impact our business, financial results and stock price.

In recent years, increasing attention has been given to corporate activities related to environmental, social and governance (“ ESG ”) matters in public discourse and the investment community.

A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community.

These activities include increasing attention and demands for action related to climate change and energy transition matters, such as promoting the use of substitutes to fossil fuel products

and encouraging the divestment of fossil fuel equities, as well as pressuring lenders and other financial services companies to limit or curtail activities with fossil fuel companies.

Members of the investment community have begun to screen companies for sustainability performance, including practices related to climate change.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings systems for evaluating companies on their approach to ESG matters.

These ratings are used by some investors to inform their investment and voting decisions.

Unfavorable ESG ratings may lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital.

Increasing attention to climate change, increasing societal expectations on companies to address climate change, and potential consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our customers’ hydrocarbon products which will likely translate to reduced demand for compression services, reduced profits, increased investigations and litigation, increased governmental regulations and negative impacts on our stock price and access to capital markets.

Risks Associated With Our Company

A majority of our compressor rentals are for terms of six months or less which, if terminated or not renewed, would adversely impact our revenue and our ability to recover our initial equipment costs.

A significant majority of our compressor rentals are for terms of six months or less which, if terminated or not renewed, would adversely impact our revenue and our ability to recover our initial equipment costs.

The length of our compressor rental agreements with our customers varies based on customer needs, equipment configurations and geographic area.

In most cases, under currently prevailing rental rates, the initial rental periods are not long enough to enable us to fully recoup the average cost of acquiring or fabricating the equipment.

Of the 1,419 compressors rented

at December 31, 2019, 953 were rented on a month-to-month basis.

Of the 1,274 compressors rented at December 31, 2020, 948 were rented on a month-to-month basis.

Given the current oil and gas price environment, we cannot be sure that a substantial number of our customers will continue to renew their rental agreements or that we will be able to re-rent the equipment to new customers or that any renewals or re-rentals will be at comparable rental rates.

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We had one customer that accounted for an aggregate of approximately 30% of our revenue for the year ended December 31, 2020, and the same customer accounted for an aggregate of approximately 36% of our revenue for the year ended December 31, 2019.

At December 31, 2019, one customer accounted for an aggregate of 35% of our accounts receivable.

At December 31, 2020, this same customer accounted for an aggregate of 35% of our accounts receivable.

Unless we are able to retain our existing customers, or secure new customers if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected.

In addition, the default on payments by one or more of these significant customers may negatively impact our cash flow and current assets.

In addition, the default on payments by our significant customer or other important customers may negatively impact our cash flow and current assets.

Loss of key members of our management could adversely affect our business.

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Taylor has been instrumental in our communications and standing with the investment community.

If any of our key executives resign or become unable to continue in his present role and is not adequately replaced, our business operations could be materially adversely affected.

If any of our key executives resign, such as the recent resignation of our Chief Financial Officer, or become unable to continue in his present role and is not adequately replaced, our business operations could be materially adversely affected.

We do not carry any key-man insurance on any of our officers or directors.

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The amount and timing of any capital expenditures may vary depending on a variety of factors, including the level of activity in the oil and natural gas exploration and production industry and the presence of alternative uses for our capital, including any acquisitions that we may pursue.

Historically, we have funded our capital expenditures through cash flows from operations and borrowings under bank credit facilities.

Although we believe that cash on hand, cash flows from our operations and/or bank borrowing from our line of credit will provide us with sufficient cash to fund our planned capital expenditures for 2020, we cannot assure you that these sources will be sufficient.

During the past year, we funded our capital expenditures through cash flows from operations.

Although we believe that cash on hand and cash flows from our operations and/or potential bank borrowing from our anticipated line of credit (see below) will provide us with sufficient cash to fund our planned capital expenditures for 2021, we cannot assure you that these sources will be sufficient.

We may require additional capital to fund any significant unanticipated capital expenditures, such as a material acquisition.

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Failure to generate sufficient cash flow, together with the absence of alternative sources of capital, could have a material adverse effect on our business, financial condition, results of operations or cash flow.

Of our $30.0 million line of credit, we owe $417,000 as of December 31, 2019.

All outstanding principal and unpaid interest is due on December 31, 2020.

Although we believe that we will be able to renew our existing line of credit, or obtain a new line of credit with another lender, we can provide no assurance that we will be successful in renewing our line of credit or obtaining a new line.

In addition, any renewal of our existing line of credit or creation of a new line of credit may be on terms less favorable that our existing line.

For instance, changes in the terms of a new line of credit may include, but not be limited to:

Our prior $30.0 million line of credit with JP Morgan Chase Bank, under which we owed $417,000 as of December 31, 2020, expired on March 31, 2021.

On March 17, 2021, we repaid our outstanding principal balance and unpaid interest is due on March 31, 2021.

We are in the process of negotiating a new line of credit and, although we believe that we will be able to obtain a new line of credit with another lender, we can provide no assurance that we will be successful in obtaining a new line.

In addition, any creation of a new line of credit may be on terms less favorable that our existing line.

instance, changes in the terms of a new line of credit may include, but not be limited to:

a reduction in the borrowing amount, an increase in interest rate to be paid on borrowings under the line, or restrictive covenants that are more onerous than those on our existing line of credit.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations

Our variable rate debt is tied to the benchmark LIBOR.

LIBOR is calculated by reference to a market for interbank lending, and it's based on increasingly fewer actual transactions.

This increases the subjectivity of the LIBOR calculation process and increases the risk of manipulation.

Actions by the regulators or law enforcement agencies, as well as ICE Benchmark Administration (the current administrator of LIBOR), may result in changes to the manner that LIBOR is determined or the establishment of alternative reference rates.

For example, on July 27, 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

Dollar LIBOR will likely be replaced by the Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York;

however, the timing of this shift is currently unknown.

SOFR is an overnight rate instead of a term rate, making SOFR an inexact replacement for LIBOR, and there is not an established process to create robust, forward-looking, SOFR term rates.

Changing the benchmark rate for our debt instruments from LIBOR to SOFR requires calculations of a spread.

Industry organizations are attempting to structure the spread calculation in a manner that minimizes the possibility of value transfer between counterparties, borrowers, and lenders by the transition, but there is no assurance that the calculated spread will be fair and accurate.

At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented.

If LIBOR ceases to exist, we may need to renegotiate our line of credit to determine the interest rate to replace LIBOR with the new standard that is established.

As such, the potential effect of any such event on our interest expense cannot yet be determined.

Our debt levels may negatively impact our current and future financial stability.

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If we are unable to service our debt, we will likely be forced to take remedial steps that are contrary to our business plan.

As of December 31, 2019, we had $417,000 due under our Line of Credit agreement which allows us to borrow up to $30.0 million provided we maintain certain collateral and borrowing base requirements.

We believe that our current cash position and the amount available under the current line of credit are sufficient to meet our capital needs through 2020.

However, if we were to materially increase our borrowings, it is possible that our business will not generate sufficient cash flow from operations to meet our debt service requirements and the payment of principal when due depending on the amount of borrowings on the agreement at any given time.

As noted above, our existing line of credit expired on March 31, 2021.

Notwithstanding, we are in the process of negotiating a new line of credit which we anticipate will be in place by the end of April 2021, although we cannot guarantee that we will be successful in obtaining the new line of credit.

We believe that our current cash position and anticipated cash flow from operations and the potential amount available under a new line of credit will be sufficient to meet our capital needs through 2021.

However, if we are unable to obtain a new line of credit or were to materially increase our borrowings under a new line of credit or other borrowing arrangements, it is possible that our business will not generate sufficient cash flow from operations to meet any debt service requirements and the payment of principal when due depending on the amount of borrowings at any given time.

If this were to occur, we may be forced to:

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• refinance all or a portion of our indebtedness on terms that may be less favorable to us.

Our current credit agreement contains covenants that limit our operating and financial flexibility and, if breached, could expose us to severe remedial provisions.

Under the terms of our credit agreement, we must:

• comply with a minimum leverage ratio;

• comply with a commitment coverage ratio;

We anticipate that any new credit agreement will contain covenants that limit our operating and financial flexibility and, if breached, could expose us to severe remedial provisions.

If we are successful in obtaining a new bank line of credit or similar borrowing arrangement, such arrangement will likely contain terms that require us to:

• comply various leverage, commitment coverage and other customary ratios;

• not exceed specified levels of debt

• comply with limits on asset sales;

Our ability to meet the financial ratios and tests under our credit agreement can be affected by events beyond our control, and we may not be able to satisfy those ratios and tests.

A breach of any one of these covenants could permit the bank to accelerate the debt so that it is immediately due and payable.

If a breach occurred, no further borrowings would be available under our credit agreement.

If we were unable to repay the debt, the bank could proceed against and foreclose on our assets, substantially all of which have been pledged as collateral to secure payment of our indebtedness.

• comply with limits on cash dividends;

• and other customary limitations.

Our ability to meet the financial ratios and tests under a new credit facility can be affected by events beyond our control, and we may not be able to satisfy those ratios and tests.

A breach of any one of these potential covenants or requirements could permit the lending organization to accelerate outstanding amounts so that it is immediately due and payable.

If a breach occurs, further borrowings will likely be unavailable under any such credit arrangement.

If we are unable to repay any outstanding amounts, the lending organization could proceed against and foreclose on the assets we pledge as collateral to secure the loan, which will likely be a significant portion or substantially all of our assets.

If we fail to acquire or successfully integrate additional businesses, our growth may be limited and our results of operations may suffer.

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However, there can be no assurance that we will be successful in consummating any such acquisitions.

Successful acquisition of businesses or assets will depend on various factors, including, but not limited to, our ability to obtain financing and the competitive environment for acquisitions.

Successful acquisition of businesses or assets will depend on various factors, including, but not limited to, our ability to obtain financing and the competitive

environment for acquisitions.

In addition, we may not be able to successfully integrate any businesses or assets that we acquire in the future.

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Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting.

During this assessment for the year ended December 31, 2018, management noted a If we fail to maintain effective internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.

If we fail to maintain effective internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.

Moreover, effective internal controls are necessary for us to produce reliable financial reports and to help prevent financial fraud.

result of deficiencies in our internal controls, we cannot provide reliable financial reports or prevent fraud, our business decision process may be adversely affected, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the price of our stock could decrease as a result.

If, as a result of deficiencies in our internal controls, we cannot provide reliable financial reports or prevent fraud, our business decision process may be adversely affected, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the price of our stock could decrease as a result.

In its Section 404 assessments, management has noted a material weakness in internal control over financial reporting in each of the prior two years.

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During the year ended December 31, 2019, management noted another material weakness related to our accounting and reporting of compressor "make-ready" jobs, as well as various other compressor maintenance jobs, that were not recorded in a timely manner.

As of December 31, 2020, based upon our most recent assessment of internal controls, management believes it has remediated these material weaknesses.

Please see Item 9A, Controls and Procedures, Material Weaknesses in Internal Control over Financial Reporting.

If management does not remediate these weaknesses in a timely manner, our business could be adversely affected and the price of our stock could decrease as a result.

We are exposed to risks related to Computer systems failures or cyber security threats

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These include network security, virus protection, filtering software and intrusion protection measures.

While an attack could potentially disrupt our activity, we do not house sensitive data that would affect the privacy of our customers, employees or business partners.

Risks Associated With Our Common Stock

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Substantial sales of our common stock in the public market, or the perception by the market that those sales could occur, may lower our stock price or make it difficult for us to raise additional equity capital in the future.

According to filings made with the Securities and Exchange Commission in February 2020, an aggregate of approximately 39.8% of the outstanding shares of our common stock are owned by six institutional investors, each of which owns more than 5% of our outstanding shares as of the date of their respective filings in February 2020.

According to filings made with the Securities and Exchange Commission in February 2021, an aggregate of approximately 27.9% of the outstanding shares of our common stock are owned by four institutional investors, each of which owns more than 5% of our outstanding shares as of the date of their respective filings in February 2021.

Potential sales of large amounts of these shares in a short period of time by one or more of these significant investors could have a negative impact on our stock price.

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This may adversely affect the value of your investment.

In addition, our common stock price could be subject to fluctuations in response to variations in quarterly operating results, changes in management, future announcements concerning us, general trends in the industry and other events or factors such as those described above.

In addition, our common stock price is subject to fluctuations in response to variations in quarterly operating

results, changes in management, future announcements concerning us, general trends in the industry and other events or factors such as those described above.

If we issue debt or equity securities, you may lose certain rights and be diluted.

If we raise funds in the future through the issuance of debt or equity securities, the securities issued may have rights and preferences and privileges senior to those of holders of our common stock, and the terms of the securities may impose restrictions on our operations or dilute your ownership in our Company.

We currently have on file with the SEC an effective "universal" shelf registration statement on Form S-3, which enables us to sell, from time to time, our common stock and other securities covered by the registration statement in one or more public offerings.

The shelf registration statement allows us to enter the public markets and consummate sales of the registered securities in rapid fashion and with little or no notice.

Issuances of securities under our shelf registration statement may dilute our existing shareholders.

If securities analysts downgrade our stock or cease coverage of us, the price of our stock could decline.

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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-K

Item 1A. Risk Factors