What changed in this filing

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Item 9A. Controls and Procedures

2021-03-31 compared with 2020-03-31 · 223 added, 448 removed, 760 unchanged (47% of the section changed)

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Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of the design of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or, the “Exchange Act”) as of December 31, 2019, pursuant to Exchange Act Rule 13a-15.In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures.

Based upon that evaluation, the President and Chief Executive Officer and our Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting discussed below in Management’s Annual Report on Internal Control Over Financial Reporting .

Based upon that evaluation, the President and Chief Executive Officer and our Vice President and Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2020, are effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and financial officers as appropriate to allow timely decisions regarding required disclosures.

Due to the inherent limitations of control systems, not all misstatements may be detected.

Those inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.

Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people.

Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

Management’s Report on Internal Control Over Financial Reporting

Our management, including the President and Chief Executive Officer and our Principal Accounting Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and

15d-15(f) under the Exchange Act.

Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013).

Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2019, due to the material weaknesses in our internal control over financial reporting discussed below.

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2020.

For the year ended December 31, 2019, management determined that our internal control over financial reporting was not effective due to the material weaknesses noted below.

Material Weaknesses in Internal Control over Financial Reporting

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We have implemented various changes and enhancements to improve our controls related to the material weakness.

Nevertheless, after testing, our improved controls were not considered remediated at year end 2019, so further changes will need to be implemented.

Management expects this material weakness to be remediated by the end of 2020.

After testing, our revised controls were not considered remediated at year end 2019, so further changes were implemented.

Changes made include timely submittal of tax input data to our preparer, tie-out of key inputs and review meetings with financial management and our preparer to confirm assumptions and results.

We have re-assessed our internal controls at the end of 2020 and have concluded that the changes made sufficiently remediate the material weakness.

During the fourth quarter of fiscal year 2019, we identified another material weakness in internal controls over financial reporting related to our accounting and reporting of compressor "make-ready" jobs, as well as various other compressor maintenance jobs, that were inappropriately capitalized, resulting in immaterial increases to the Company’s cost of rentals and, to a much lesser extent, depreciation expense in prior periods.

These increases in operating costs and expenses were immaterial to all prior annual and interim periods, but would have been material to the fourth quarter of 2019 if these cumulative operating costs and expenses were taken as an out-of-period adjustment.

As detailed in Notes 2, 17 and 18 of the Company’s financial statements for the year ended December 31, 2019 in this Annual Report on Form 10-K, the Company has revised its prior period financial statements to reflect these additional operating costs and expenses.

We did not design and maintain an effective control environment with formal accounting policies and controls to adequately provide sufficient information to report these expenses in a timely manner.

The material weakness created a reasonable possibility that there could be a material misstatement of our annual or interim financial statements.

Management plans to address the control deficiency that led to this material weakness during 2019.

Our plan is to perform an in-depth review over controls regarding reporting of “make-ready” and other compressor maintenance jobs.

This review may involve external experts.

Management expect this material weakness to be remediated by the end of 2020.

Report Over Internal Controls

Pursuant to the Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of management's assessment of the effectiveness of our internal controls as part of this annual report on Form 10-K for the fiscal year December 31, 2019.

BDO USA, LLP, our independent registered public accounting firm, has issued an attestation report dated March 31, 2020 on the effectiveness of internal control over financial reporting on page 40 of this report.

Management reviewed its procedures around the activity that led to this material weakness during 2019.

We have completed our review and changed the treatment of make-ready jobs to expense the cost at the time the job occurs and have made changes to our capitalization policy and review procedures.

We believe these changes have been in place for a sufficient period to conclude that the material weakness has been remediated by the end of 2020.

Changes in Internal Control Over Financial Reporting

Except for the control deficiencies discussed, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Except for the remediation of control deficiencies discussed above, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

OTHER INFORMATION

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Natural Gas Services Group, Inc.

Midland, Texas

Opinion on Internal Control over Financial Reporting

We have audited Natural Gas Services Group, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management's statements referring to any corrective actions taken by the Company after the date of management's assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes, and our report dated March 31, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Material weaknesses regarding management’s failure to design and maintain controls over accounting for income taxes, as well as accounting for "make-ready" jobs and various other compressor maintenance jobs, has been identified and described in management’s assessment.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 financial statements, and this report does not affect our report dated March 31, 2020 on those financial statements.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Austin, Texas

March 31, 2020

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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Bylaws, as amended (Incorporated by reference to Exhibit 3.11 of the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2016.)

Lease Agreement, dated January 9, 2018, between WNB Tower, LTD and Natural Gas Services Group, Inc.

(Incorporated by reference to Exhibit 10.15 of the Registrant’s Form 10-K for the fiscal year ended December 31, 2017 and filed with the Securities and Exchange Commission on March 9, 2018.)

2009 Restricted Stock/Unit Plan, as amended (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K dated June 3, 2014 and filed with the Securities and Exchange Commission on June 6, 2014.)

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Consent of BDO USA, LLP

Consent of Moss Adams, LLP

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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Taylor Chairman of the Board of Directors, Chief Executive Officer and President (Principal Executive Officer) March 31, 2021

Lawrence Vice President and Chief Financial Officer (Principal Accounting Officer)

Larry Lawrence Vice President and Chief Financial Officer (Principal Accounting Officer)

March 31, 2021

/s/ Charles G.

Curtis Director March 31, 2020

Larry Lawrence

/s/ Leslie A.

Beyer Director March 31, 2021

/s/ William F.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm 1

Report of Independent Registered Public Accounting Firm F- 1

Consolidated Balance Sheets as of December 31, 2020 and 2019

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Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements 6

Notes to Consolidated Financial Statements F- 8

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Natural Gas Services Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Natural Gas Services Group, Inc.

and subsidiary (the “Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Estimation of Undiscounted Cash Flows in Assessment of Long-Lived Asset Impairment

As described in Notes 1 and 4, the Company assesses long-lived assets, including rental equipment, for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

The Company's evaluation of possible triggering events uses both internal and external data, including the following key indicators and internally developed assumptions:

i) significant underperformance relative to historical or projected cash flows;

ii) significant adverse changes in the extent or manner an asset group is being used or its condition, including meaningful drop in fleet utilization over the prior period quarters, and iii) significant negative industry or company specific trends or actions.

We identified the estimation of undiscounted cash flows in the assessment of long-lived asset impairment as a critical audit matter.

The estimation of undiscounted cash flows uses inputs that require significant management judgment, including estimating future anticipated revenues and expenses.

Assessing these assumptions require a high degree of subjective auditor

judgment to perform procedures due to the nature and extent of audit evidence and effort required to appropriately address these matters.

The primary procedures we performed to address this critical audit matter included:

• Obtaining an understanding of the design of the Company's process and controls over the identification of possible long-lived asset impairment triggering events, including the process to develop the indicators and assumptions listed above.

• Evaluating management's identification of events or changes in circumstances that indicate the carrying amounts may not be recoverable.

• Evaluating management's estimate of useful lives of rental equipment, and anticipated rental rates of units, net returns or sets, and estimated gross margins utilized in the estimate of discounted cash flows by comparison to historical rates and performing sensitivity analysis.

• Evaluating the Company's ability to forecast future rental revenue and related assumptions by comparing to historical results of operations.

/s/ Moss Adams LLP

Dallas, Texas

March 31, 2021

We have served as the Company's auditor since 2020.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Natural Gas Services Group, Inc.

(the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Natural Gas Services Group, Inc.

(the “Company”) as of December 31, 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2029, and the results of its operations and its cash flows for each of the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 31, 2020 expressed an adverse opinion thereon.

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/s/ BDO USA, LLP

We have served as the Company's auditor since 2010.

We have served as the Company's auditor from 2010 to 2020.

Austin, Texas

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Inventory 19,926 21,080

Federal income tax receivable 11,538 —

Prepaid income taxes 66 40

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Right of use assets - operating leases, net of accumulated amortization $ 356

Goodwill — 10,039

Intangibles, net of accumulated amortization of $ 2,008 and $ 1,883 , respectively

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Total current liabilities 10,861 5,508

Line of credit — 417

Deferred income tax liability 41,890 31,243

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Treasury shares, at cost, 38 shares

( 490 ) ( 490 )

Total stockholders' equity 251,544 247,693

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For the Years Ended December 31,

2019 2018 2017

Rental income $ 60,826 $ 56,701

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Total operating costs and expenses 71,654 93,597

Operating (loss) income ( 15,153 ) ( 507 ) 1,471

Operating loss ( 3,599 ) ( 15,153 )

Other income (expense):

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Total other income, net 615 596

(Loss) income before income taxes:

Loss before income taxes:

( 2,984 ) ( 14,557 )

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Deferred ( 10,646 ) 662

Total income tax benefit (expense) 693 ( 72 ) 18,287

Net (loss) income $ ( 13,864 ) $ ( 466 ) $ 19,794

(Loss) earnings per share:

Total income tax benefit 4,792 693

Net income (loss) $ 1,808 $ ( 13,864 )

Earnings (loss) per share:

Basic $ 0.14 $ ( 1.06 )

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Taxes paid related to net shares settlement of equity awards — — — — ( 273 ) — — — ( 273 )

Net income — — — — — 19,794 — — 19,794

BALANCES, December 31, 2017 — $ — 12,880 $ 129 $ 105,325 $ 151,808 — $ — $ 257,262

Exercise of common stock options — — 38 — 680 — — — 680

Compensation expense on common stock options — — — — 159 — — — 159

Issuance of restricted stock — — 87 — — — — — —

Compensation expense on restricted common stock — — — 1 2,225 — — — 2,226

Taxes paid related to net shares settlement of equity awards — — — — ( 629 ) — — — ( 629 )

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

Net loss — — — — — ( 13,864 ) — — ( 13,864 )

BALANCES, December 31, 2019 — — 13,178 132 110,573 137,478 38 ( 490 ) 247,693

Exercise of common stock options — — 56 1 505 — — — 506

Compensation expense on common stock options — — — — 19 — — — 19

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Taxes paid related to net shares settlement of equity awards — — — — ( 152 ) — — — ( 152 )

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

Net loss — — — — — 1,808 — — 1,808

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For the Years Ended December 31,

2019 2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES:

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Deferred income 463 559

Other 61 163 666

NET CASH PROVIDED BY OPERATING ACTIVITIES 32,649 29,412

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Taxes paid related to net share settlement of equity awards ( 152 ) ( 273 )

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 273 ) 16 453

NET CASH USED IN FINANCING ACTIVITIES ( 157 ) ( 273 )

NET CHANGE IN CASH AND CASH EQUIVALENTS 17,333 ( 41,036 )

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

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year's presentation.

Use of Estimates

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It is at least reasonably possible these estimates could be revised in the near term and the revisions could be material.

Cash Equivalents, Financial Instruments and Concentration of Credit Risks

Cash Equivalents and Financial Instruments

For purposes of reporting cash flows, we consider all short-term investments with an original maturity of three months or less to be cash equivalents.

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While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

One customer accounted for 35 % and 26 % of our accounts receivable as of December 31, 2019 and 2018, respectively.

One customer accounted for 35 % of our accounts receivable as of December 31, 2020 and 2019.

A significant change in the liquidity or financial position of this customer could have a material adverse impact on the collectability of our accounts receivable and our future operating results.

The allowance for doubtful accounts was $ 918,000 and $ 291,000 at December 31, 2019 and 2018, respectively.

The allowance for doubtful accounts was $ 1.2 million and $ 0.9 million at December 31, 2020 and 2019, respectively.

Management believes that the allowance is adequate;

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Revenue Recognition Policy

The Company adopted ASC 606, Revenue from Contracts with Customers ("ASC 606") on January, 1, 2018.

As a result, the Company has changed its accounting policy for revenue recognition as detailed below.

The Company applied ASC 606 using the cumulative effect method.

We had no significant changes in our recognition of revenue at adoption and our review of all open revenue from contracts with customers on January 1, 2018 indicated we had no adjustment to be made.

Accordingly, our consolidated financial statements for 2017 reported under ASC 605 are comparable to the consolidated financial statements for 2018 reported under ASC 606, since an adjustment was not needed, except for the respective additional disclosures as detailed below.

Revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e.

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The customer will formally request we ship the equipment per their direction from our manufacturing facility at a later specified date and that we segregate the equipment from our finished goods, such that they are not available to fill other orders.

Per the customer’s agreement change of control is passed to the customer once the equipment

is complete and ready for shipment.

Per the customer’s agreement change of control is passed to the customer once the equipment is complete and ready for shipment.

We have operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both the customer and us.

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(in thousands)

2019 2018 2017

Compressors - sales

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Flares - sales

959 2,535 2,755

Other (Parts/Rebuilds) - sales

3,619 2,740 4,071

Service and maintenance 1,572 1,980

Total revenue from contracts with customers

21,743 17,712 21,647

ASC 842 rental revenue 60,826 56,701

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Contract Balances

As of December 31, 2019 and December 31, 2018, we had the following receivables and deferred income from contracts with customers:

December 31, 2019 December 31, 2018

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

(in thousands)

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We did not reassess whether any contracts or land easements entered into prior to adoption are leases or contain leases.

The cumulative effect of the changes made to our consolidated balance sheet at January 1, 2019, for the adoption of ASC 842 was as follows (in thousands):

The cumulative effect of the changes made to our consolidated balance sheet at January 1, 2019, for the adoption of ASC 842 was as follows:

Balance at December 31, 2018 Adjustments due to ASC 842 Balance at January 1, 2019

(in thousands)

Balance Sheet

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("Oxy") in 2020 and 2019 amounted to 30 % and 36 % of revenue, respectively.

Sales and rental income to Oxy and Devon Energy Production, Inc.

in 2017 amounted to 20 % and 15 % of revenue, respectively.

No other single customer accounted for more than 10% of our revenues in 2019, 2018 or 2017.

No other single customer accounted for more than 10% of our revenues in 2020 and 2019.

Oxy's accounts receivable balances amounted to 35 % and 35 % of our accounts receivable as of December 31, 2020 and 2019, respectively.

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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.

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We accrue amounts for estimated warranty claims based upon current and historical product warranty costs and any other related information known.

The warranty reserve was $ 74,000 and $ 22,000 for December 31, 2019 and 2018, respectively, and is included in accrued liabilities on the consolidated balance sheet.

There was no warranty reserve as of December 31, 2020.

The warranty reserve was $ 74,000 for December 31, 2019, and is included in accrued liabilities on the consolidated balance sheet.

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 carry-forwards.

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Recently Issued Accounting Pronouncements

On January 1, 2019, the Company adopted ASC Topic 842, Leases.

We applied certain practical expedients that allow companies to not reassess leases that are in effect prior to adoption, the practical expedient that allows lessors to not separate lease and non-lease components for certain asset classes and the practical expedient that allows lessors to exclude third party taxes from lease revenue and lease-related expenses.

Adoption of ASC 842 resulted in an increase in lease assets and lease liabilities on the consolidated balance sheet of approximately $ 451,000 .

The adoption by the Company of ASC 842, in regards

to the increase in liabilities, did not impact the debt covenants on our existing line of credit, as leases are not considered new indebtedness in our credit agreement as confirmed with our ban k.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate ("LIBOR").

The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships and other transactions that reference LIBOR as a benchmark rate are modified.

This guidance is effective upon issuance and expires on December 31, 2022.

We are currently evaluating the impact of the LIBOR transition and this ASU 2020-04 on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC Topic 740), which simplifies accounting for income taxes by removing certain exceptions to various tax accounting principles and clarifies other existing guidance in order to improve consistency of application.

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We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and note disclosures .

Revisions of Prior Period Financial Statements

In conjunction with the preparation of its year-end financial statements for 2019, the Company determined that certain, immaterial operating costs and expenses were inappropriately capitalized during the years ended December 31, 2018 and 2017, as well for interim periods in 2019 and 2018.

As a result, the Company revised its prior period financial statements to incorporate additional operating costs and expenses of $ 1.1 million, $ 1.14 million and $ 96,000 for the nine months ended September 30, 2019, the year ended December 31, 2018 and the year ended December 31, 2017, respectively.

In accordance with Staff Accounting Bulletin (“SAB”) No.

99, “Materiality”, and SAB No.

108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, we evaluated the aforementioned errors and, based on an analysis of quantitative and qualitative factors, determined that the related impact was not material to our consolidated financial statements for any prior annual or interim period.

Therefore, amendments of previously filed reports are not required.

A summary of the revisions to our previously issued annual financial statements is included in Note 18, Revisions of Prior Period Financial Statements.

In addition, a summary of the revisions to our unaudited quarterly financial data is included in Note 17, Quarterly Financial Data (Unaudited).

The impacted balances in the accompanying notes to these consolidated financial statements have also been revised accordingly.

Our inventory, net of allowance for obsolescence of $ 24,000 and $ 19,000 at December 31, 2019 and 2018, respectively, consisted of the following (in thousands):

Our inventory, net of allowance for obsolescence of $ 221,000 and $ 24,000 at December 31, 2020 and 2019, respectively, consisted of the following:

(in thousands)

Raw materials - current $ 18,026 $ 19,388

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Inventory - total $ 20,991 $ 22,148

There were seven newly completed compressor units available for sale in finished goods for a total of $ 1.0 million at December 31, 2018.

These units were transferred from inventory to our rental fleet due to customer demands during 2019.

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.

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

Inventory Allowance

Given its concerns about the industry backdrop, Company management determined during the third quarter of 2019 that an increase of its inventory allowance was necessary.

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, management recorded an increase of $ 3.4 million to the Company's inventory allowance reserve for costs that may not be recoverable in the future.

fourth quarter of 2019, management identified another $ 408,000 of slow moving or obsolete inventory.

Given its concerns about the industry backdrop, Company management determined during 2019 that an increase of its inventory allowance was necessary.

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, management recorded a charge of $ 3.8 million to write off inventory that will not be recoverable in the future.

For the year ended December 31, 2020, inventory allowance totaled $ 0.3 million.

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Rental Equipment

Our rental equipment and associated accumulated depreciation as of December 31, 2019 and 2018, respectively, consisted of the following (in thousands):

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

(in thousands)

Compressor units $ 379,623 $ 370,961

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Our rental equipment has an estimated useful life between 15 and 25 years.

Depreciation expense for rental equipment was $ 21.4 million, $ 20.9 million and $ 20.0 million for the year ended December 31, 2019, 2018 and 2017, respectively.

In January 2019, the Company reviewed the estimated useful lives of its rental equipment.

This review indicated that the actual lives of its larger horsepower rental equipment were longer than the estimated useful lives used for depreciation purposes in the Company’s financial statements.

These units incorporate newer technology and heavier, more robust castings and forging, which allows for complete overhauls at longer cycles when compared to its older, lower horsepower units.

Accordingly, as of January 1, 2019, the Company changed its estimates of the useful lives of for these higher horsepower units from 15 years to 20 years (for its 400-600 horsepower units) or 25 years (for its 1,380 horsepower units).

This analysis is consistent with our peers, which are depreciating their compressor units over 20 to 30 years.

The effect of this change in estimate was to reduce 2019 depreciation expense by approximately $ 1.47 million, decrease 2019 net loss by $ 1.13 million, and decrease 2019 basic and diluted loss per share by $ 0.09 .

Depreciation expense for rental equipment was $ 22.7 million and $ 21.4 million for the year ended December 31, 2020 and 2019, respectively.

Retirement of Rental Equipment

Given its concerns about the current industry backdrop, Company management determined during the third quarter of 2019 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.

Company management routinely reviews its inventory of rental equipment for retirement or obsolescence.

During 2020, management reviewed the rental fleet to determine 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 216 units should be retired from our rental fleet.

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During our review of our rental compressor units in 2019, we determined 327 units should be retired from our rental fleet.

We recorded no loss on this retirement, as these units were fully depreciated.

We did not record any retirements from our rental fleet in 2017.

We recorded a $ 1.5 million loss on retirement of rental equipment.

Property and Equipment

Property and equipment consists of the following at December 31, 2019 and 2018 (in thousands):

Property and equipment consists of the following at December 31, 2020 and 2019:

Useful Lives (Years) 2020 2019

($ in thousands)

Land — $ 1,680 $ 1,290

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Vehicles 3 7,598 7,560

Construction in Progress — — 8,319

Total 35,665 34,716

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Total $ 21,749 $ 21,869

Depreciation expense for property and equipment was $ 1.7 million, $ 1.1 million and $ 1.2 million for the year ended December 31, 2019, 2018 and 2017, respectively.

Depreciation expense for property and equipment was $ 2.3 million and $ 1.7 million for the year ended December 31, 2020 and 2019, respectively.

Depreciation Expense by Product Line

The following table depicts annual depreciation expense associated with each product line as well as our corporate activities at December 31, 2019, 2018 and 2017 (in thousands):

2019 2018 2017

The following table depicts annual depreciation expense associated with each product line as well as our corporate activities at December 31, 2020 and 2019:

(in thousands)

Rentals $ 24,255 $ 22,596

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Total $ 25,073 $ 23,143

Rental Activity

We rent natural gas compressor packages to entities in the petroleum industry.

These rental arrangements are classified as operating leases and generally have original terms of six months to sixty months and continue on a month-to-month basis thereafter.

Future minimum rent payments for arrangements not on a month-to-month basis at December 31, 2020 are as follows:

Years Ending December 31, (in thousands)

2021 $ 21,565

Thereafter 13,880

Total $ 78,727

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 one to 10 years.

The Company's leases have remaining lease terms of one to nine years .

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

The Company's lease agreements do not contain any contingent rental payments, material residual guarantees or material restrictive covenants.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

As substantially all of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is based on a fully collateralized loan over the lease term, to determine the present value of lease payments.

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

The impact of the new lease standard on the December 31, 2019 consolidated balance sheet was as follows:

Classification on Consolidated Balance Sheet December 31, 2019

The impact of the new lease standard on the December 31, 2020 and 2019 consolidated balance sheet was as follows:

Classification on Consolidated December 31,

Balance Sheet 2020 2019

($ in thousands)

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Total operating lease costs for the year ended December 31, 2020 was approximately $ 550,000 .

December 31, 2019

(in thousands)

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(1) Lease costs are classified on the Consolidated Statements of Operations in cost of sales, cost of compressors and selling, general and administrative expenses.

(2) Includes costs of $ 350,000 for leases with terms of 12 months or less and $ 198,000 for leases with terms greater than 12 months.

(2) Includes costs of $ 333,000 for leases with terms of 12 months or less and $ 217,000 for leases with terms greater than 12 months for the year ended December 31, 2020.

Includes costs of $ 350,000 for leases with terms of 12 months or less and $ 198,000 for leases with terms greater than 12 months for the year ended December 31, 2019.

The following table shows the future maturities of lease liabilities:

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Imputed interest ( 48 )

Under the previous lease standard (Topic 840), future minimum obligations under lease commitments in effect at December 31, 2018 were as follows:

Operating Leases

(in thousands)

Thereafter 15

Rent expense under such leases was $ 217,000 and $ 198,000 for the years ended December 31, 2020 and 2019, respectively.

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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, we recorded a goodwill impairment charge of $ 10.0 million in 2019.

Goodwill, net

December 31, 2018 $ 10,039

Impairments ( 10,039 )

December 31, 2019 $ —

We experienced no impairment of goodwill during the years ended December 31, 2018 and 2017.

As a result of our quantitative evaluation, we recorded a goodwill impairment charge of $ 10.0 million in 2019 eliminating our goodwill balance at that date.

At December 31, 2020 and 2019, the Company had intangible assets, which relate to developed technology and a trade name.

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Credit Facility

We have a senior secured revolving credit agreement with JP Morgan Chase Bank, N.A (the "Amended Credit Agreement") aggregate commitment of $ 30 million, subject to collateral availability.

We also have a right to request from the Lender, on an uncommitted basis, an increase of up to $ 20 million on the aggregate commitment (which could potentially increase the commitment amount to $ 50 million).

We had a senior secured revolving credit agreement with JP Morgan Chase Bank, N.A (the "Amended Credit Agreement") that matured on March 31, 2021.

Please see Note 18 - Subsequent Events for further discussion of the maturity event.

The Amended Credit Agreement had an aggregate commitment of $ 30 million, subject to collateral availability.

We also had a right to request from the Lender, on an uncommitted basis, an increase of up to $ 20 million on the aggregate commitment (which could have potentially increased the commitment amount to $ 50 million).

Borrowing Base .

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.

JPMorgan Chase Bank (the “Lender”) may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral.

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

Generally, the borrowing base equaled 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.

JPMorgan Chase Bank (the “Lender”) could adjust the borrowing base components if material deviations in the collateral were discovered in audits of the collateral.

We had $ 29.5 million borrowing base availability at December 31, 2020 under the terms of our Amended Credit Agreement.

Interest and Fees .

Under the terms of the Amended Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) LIBOR multiplied by the Statutory Reserve Rate (as defined in the Amended Credit Agreement), with respect to this rate, for Eurocurrency funding, plus the Applicable Margin (“LIBOR-based”), or (b) CB Floating Rate, which is the Lender's Prime Rate less the Applicable Margin;

provided, however, that no more than three LIBOR-based borrowings under the agreement may be outstanding at any one time.

For purposes of the

LIBOR-based interest rate, the Applicable Margin is 1.50 %.

Under the terms of the Amended Credit Agreement, we had the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) LIBOR multiplied by the Statutory Reserve Rate (as defined in the Amended Credit Agreement), with respect to this rate, for Eurocurrency funding, plus the Applicable Margin (“LIBOR-based”), or (b) CB Floating Rate, which is the Lender's Prime Rate less the Applicable Margin;

provided, however, that no more than three LIBOR-based borrowings under the agreement could be outstanding at any one time.

For purposes of the LIBOR-based interest rate, the Applicable Margin is 1.50 %.

For purposes of the CB Floating Rate, the Applicable Margin is 1.25 %.

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.

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.

The agreement may be terminated early upon our request or the occurrence of an event of default.

The obligations under the Amended Credit Agreement are secured by a first priority lien on all of our inventory and accounts and lease receivables, along with a first priority lien on a variable number of our leased compressor equipment the book value of 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 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;

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

In addition, fees and expenses were 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, originally scheduled for December 31, 2020, was extended to March 31, 2021 on December 29, 2020, at which time all amounts borrowed under the agreement will be due and outstanding letters of credit must be cash collateralized.

The agreement could be terminated early upon our request or the occurrence of an event of default.

The obligations under the Amended Credit Agreement were secured by a first priority lien on all of our inventory and accounts and lease receivables, along with a first priority lien on a variable number of our leased compressor equipment the book value of 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 Amended Credit Agreement contained customary representations and warranties, as well as covenants which, among other things, limited our ability to incur additional indebtedness and liens;

enter into transactions with affiliates;

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or change the nature of our business.

In addition, we also have certain financial covenants that require us to maintain a leverage ratio less than or equal to 2.50 to 1.00 as of the last day of each fiscal quarter.

In addition, we also had certain financial covenants that required us to maintain a leverage ratio less than or equal to 2.50 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration.

The Amended Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults;

The Amended Credit Agreement contained customary events of default for credit facilities of this size and type, and included, without limitation, payment defaults;

defaults in performance of covenants or other agreements contained in the loan documents;

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certain change in control events and the defectiveness of any liens under the secured revolving credit facility.

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

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

As of December 31, 2020, we were in compliance with all 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.

A default under our Credit Agreement would 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.

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Our weighted average interest rate for the year ended December 31, 2020 was 2.75 %.

CARES Act Loan

On April 10, 2020, the Company entered into a promissory note (the "Loan") for an unsecured loan in the amount of $ 4.6 million through the Paycheck Protection Program ("PPP") established by the CARES Act and administered by the U.S.

Small Business Administration ("SBA").

The Loan was made for the purpose of securing funding for salaries and wages of employees that may have otherwise been displaced by the outbreak of COVID-19 and the resulting detrimental impact on the Company's business.

JPMorgan Chase Bank, N.A.

(the "Lender") processed and funded the Loan.

On April 23, 2020, the SBA advised that companies that applied for and received PPP loans that had other sufficient sources of liquidity that would not be "significantly detrimental" to their businesses may be subject to increased scrutiny and potential liability unless these companies repaid their loans in full by May 7, 2020.

While the Company believes it was justified in seeking the Loan and the funds received were earmarked for the purposes set forth in the original PPP regulations, the Company voluntarily repaid the Loan, with accrued interest, to the Lender on May 4, 2020.

The (provision for) benefit from income taxes for the years ended December 31, 2020 and 2019, consists of the following (in thousands):

2019 2018 2017

Current benefit (provision):

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Federal benefit (expense) ( 10,234 ) 662

State ( 412 ) —

Total deferred benefit (expense) ( 10,646 ) 662

Total benefit (provision) $ 4,792 $ 693

On December 22, 2017, the U.S.

government enacted the 2017 Tax Act.

The 2017 Tax Act made broad and complex changes to the U.S.

tax code that affected the Company’s 2017 financial results.

The 2017 Tax Act also established new tax laws that affected the Company’s financial results after 2017, including a reduction in the U.S.

federal corporate income tax rate from 35 percent to 21 percent, additional limitations on the deductibility of executive compensation, limitations on the

deductibility of interest, and repeal of the domestic manufacturing deduction.

As such, the Company recognized a $ 18.4 million income tax benefit related to the re-measurement of our deferred tax assets and liabilities in our 2017 financial statements in accordance with SAB 118, which provides SEC staff guidance for the application of ASC 740 in the reporting period in which the 2017 Tax Act was signed into law.

We completed our detailed analysis in 2018 with no material adjustments.

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and (liabilities) as of December 31, 2019 and 2018, are as follows (in thousands):

Deferred income tax assets:

Net operating loss carryover $ 1,519 $ 2,730

Stock compensation 580 746

Deferred compensation $ 389 $ 243

Other 321 197

Total deferred income tax assets $ 2,809 $ 3,916

Deferred income tax liabilities:

Property and equipment $ ( 33,761 ) ( 35,030 )

Goodwill and other intangible assets ( 291 ) ( 573 )

Other — ( 219 )

Total deferred income tax liabilities ( 34,052 ) ( 35,822 )

Net deferred income tax liabilities $ ( 31,243 ) $ ( 31,906 )

The effective tax rate for the years ended December 31, 2020 and 2019, differs from the statutory rate as follows:

2019 2018 2017

Statutory rate 21.0 % 21.0 %

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Nondeductible compensation ( 11.6 ) % ( 0.3 ) %

Domestic production credit — % — % ( 15.2 ) %

Effect of CARES Act 180.3 % — %

Other 0.5 % 0.9 %

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Effective rate 160.1 % 4.8 %

During the fourth quarter of 2018, the Company discovered a potential uncertain tax position attributable to the deductibility of certain executive compensation expense for federal income tax purposes aggregating approximately $ 168,000 , $ 149,000 and $ 230,000 for the years ended December 31, 2017, 2016 and 2015, respectively.

As a result, in accordance with ASC Topic 740, during the fourth quarter of 2018, the Company recorded a tax adjustment of $ 547,000 and accrued penalty and interest expense of $ 55,000 attributable to the uncertain tax position.

Management of the Company determined that effect of the potential uncertain tax position on previously reported results of operations for the years ended December 31, 2017, 2016 and 2015 was not material.

As of December 31, 2019, the Company has filed amended tax returns for the years ended 2015, 2016 and 2017 and has recognized certain offsetting deductions, thus removing our uncertain tax position reserve for 2015, 2016 and 2017.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the economic impact caused by the COVID-19 pandemic.

The CARES Act, among other things, permits federal income tax net operating loss ("NOL") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

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.

The Company generated significant NOLs during 2018 and 2019 and filed carryback claims for these losses to the preceding five years.

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

During the third quarter of 2020, the Company received refunds corresponding to the 2018 NOL carryback, leaving a balance in the federal income tax receivable of $ 11.5 million at December 31, 2020.

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and (liabilities) as of December 31, 2020 and 2019, are as follows (in thousands):

Deferred income tax assets:

Net operating loss $ 3,361 $ 1,519

Research and development credits 1,363 161

Stock compensation 175 580

Deferred compensation 705 389

Other 398 160

Total deferred income tax assets 6,002 2,809

Deferred income tax liabilities:

Property and equipment ( 47,626 ) ( 33,761 )

Goodwill and other intangible assets ( 266 ) ( 291 )

Total deferred income tax liabilities ( 47,892 ) ( 34,052 )

Net deferred income tax liabilities $ ( 41,890 ) $ ( 31,243 )

As of December 31, 2020, the Company had NOL carryforwards for federal income tax purposes of $ 11.6 million, which may be carried forward indefinitely and can offset up to 80% of future taxable income in any given year.

Future changes in ownership, as defined by Section 382 of the Internal Revenue Code, could limit the amount of NOL carryforwards used in any one year.

In general, under Section 382 and 383 of the IRC, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and certain tax credits, to offset future taxable income and tax.

In general, an ownership change occurs if the aggregate stock ownership of certain stockholders changes by more than 50 percentage points over such stockholders’ lowest percentage of ownership during the testing period (generally three years).

We account for uncertain tax positions in accordance with guidance in FASB ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements.

A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):

Balance at January 1, 2019 $ 578

Additions based on tax positions related to current year —

Reductions for tax positions of prior years ( 578 )

Balance at December 31, 2019 $ —

The Company assessed whether it had any uncertain tax positions related to open tax years and concluded there were none.

Accordingly, no reserve for uncertain tax positions has been recorded as of December 31, 2020 and 2019.

Our policy regarding income tax interest and penalties is to expense those items as incurred.

During the years ended December 31, 2020 and 2019, there were no significant income tax interest or penalty items in the statement of income.

We had a regular income tax net operating loss carry forward of $ 6.7 million for federal income taxes as of December 31, 2019.

This net operating loss will be carried forward indefinitely but subject to 80% limitation.

We file income tax returns in the U.S.

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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 $ 1.5 million and $ 1.0 million as of December 31, 2019 and 2018, respectively, with a gain related to the policy of $ 218,800 and a loss of $ 153,900 reported in other income in our consolidated income statement for the year ended December 31, 2019 and 2018, respectively.

The cash surrender value of the life insurance policy is $ 2.0 million and $ 1.5 million as of December 31, 2020 and 2019, respectively, with a gain related to the policy of $ 168,000 and $ 218,800 reported in other income in our consolidated income statement for the year ended December 31, 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.

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As of December 31, 2020 and 2019, respectively, we have 45,998 and 85,565 unvested restricted stock units being deferred.

As of December 31, 2019 and 2018, respectively we have released and issued 89,187 and 34,732 shares to the deferred compensation plan with a value of $ 1.7 million and $ 871,300 , respectively.

As of December 31, 2020 and 2019, respectively we have released and issued 145,702 and 89,187 shares to the deferred compensation plan with a value of $ 2.2 million and $ 1.7 million, respectively.

Stockholders' Equity

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As of December 31, 2020 and 2019, there were no issued or outstanding preferred shares.

Rental Activity

We rent natural gas compressor packages to entities in the petroleum industry.

These rental arrangements are classified as operating leases and generally have original terms of six months to sixty months and continue on a month-to-month basis thereafter.

Future minimum rent payments for arrangements not on a month-to-month basis at December 31, 2019 are as follows:

Years Ending December 31,

(in thousands)

2020 $ 25,924

2021 $ 18,489

2022 $ 16,310

2023 $ 12,507

Thereafter $ 2,366

Total $ 85,384

Stock-Based Compensation

Stock-Based and Other Long-Term Incentive Compensation

Restricted Stock/Units

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The 2009 Plan expired on June 16, 2019.

At December 31, 2019 we had 123,092 shares outstanding under the 2009 Plan that will vest over the next two years .

At December 31, 2020 we had 34,899 shares outstanding under the 2009 Plan that will vest over the next one year .

On June 20, 2019, at our annual meeting of shareholders, our shareholders approved a new proposed Equity Incentive Plan for restricted shares/units and stock options.

The Equity Incentive Plan allows issuance up to 500,000 share of common stock.

As to December 31, 2019, only restricted shares/units had been granted.

As of December 31, 2020, we had 223,202 shares outstanding under the Equity Incentive Plan that will vest over the next three years .

In accordance with the Company's employment agreement with Stephen Taylor, the Company's Chief Executive Officer, the Compensation Committee reviewed his performance in determining the issuance of restricted common stock.

Based on this review which included consideration of the Company's 2019 performance, Mr.

Taylor, was awarded 131,674 restricted shares/units on March 29, 2019, which vest over three years , in equal installments beginning March 29, 2020.

On March 29, 2019, the Compensation Committee awarded 20,000 restricted shares/units to each G.

Larry Lawrence, our former CFO, and James Hazlett, our Vice President of Technical Services.

The restricted shares/units to Messrs.

Hazlett and G.L.

Lawrence vest over three years , in equal installments, beginning March 29, 2020.

We also awarded and issued 23,136 shares of restricted common stock/units to our Board of Directors as partial payment for 2019 directors' fees.

The restricted stock/units issued to our directors vests over one year , in quarterly installments, beginning March 31, 2020.

On November 15, 2019, our former CFO, G.

Larry Lawrence, retired from the Company.

At time of retirement, the Board of Directors approved the accelerated vesting of all unvested shares held by Mr.

In accordance with ASC 718, the Company considered the Board’s approval of accelerated vesting as a modification to all of the unvested shares held by Mr.

Lawrence on the date of his retirement.

The grant-date fair value of Mr.

Lawrence’s restricted shares/units ranged from $ 17.29 to $ 24.55 per share.

The closing price of the Company's stock was $ 11.18 on November 15, 2019, the modification date.

Due to the price on date of modification being less than the original grant value, the Company recorded less compensation expense related to the accelerated vesting than would have been recognized over the vesting period if Mr.

Lawrence had not retired.

Total compensation expensed booked related to the Mr.

Lawrence’s accelerated shares was $ 189,000 .

Compensation expense related to the restricted shares/units was approximately $ 2.5 million, $ 2.2 million and $ 3.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

As of December 31, 2019, there was a total of approximately $ 3.3 million of unrecognized compensation expense related to the nonvested portion of these restricted shares/units.

This expense is expected to be recognized over the next three years and a quarter.

Taylor, was awarded 94,133 restricted shares/units on April 28, 2020, which vest over three years , in equal installments beginning April 28, 2021.

On April 28, 2020, the Compensation Committee awarded 10,000 restricted shares/units to James Hazlett, our Vice President of Technical Services.

The restricted shares/units to Mr.

Hazlett vest over three years , in equal installments, beginning April 28, 2021.

We also awarded and issued 4,432 shares of restricted common stock/units to each of our four independent Board members as partial payment for 2020 directors' fees.

The restricted stock/units issued to our directors vests in one year from the date of grant.

Compensation expense related to the restricted shares/units was approximately $ 2.2 million and $ 2.5 million for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, there was a total of approximately $ 1.8 million of unrecognized compensation expense related to the unvested portion of these restricted shares/units.

This expense is expected to be recognized over the next three years .

As of December 31, 2020, 200,141 shares were still available for issuance under the Equity Incentive Plan.

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Outstanding, December 31, 2020 258,101 $ 12.87 8.61 $ 2,447

199,810 17.16 — 3,433

( 134,674 ) 24.26 — 2,807

Canceled/Forfeited

Outstanding, December 31, 2019 279,766 $ 20.15 8.77 $ 3,430

Other Long-Term Incentive Compensation

On April 28, 2020, based on its review of Mr.

Taylor's 2019 performance, the Compensation Committee also issued a long-term incentive award of $ 1.1 million to Mr.

Taylor that vests in equal, annual tranches over three years .

At the time of vesting, each tranche will be payable in cash or common stock at the discretion of the Compensation Committee.

In addition, on April 28, 2020, we issued a $ 50,000 award to each of our four independent members of our Board of Directors as partial payment for their services in 2020.

These awards vest one year from the date of grant and are payable in cash upon vesting.

The Company accounts for these other long-term incentive awards to Mr.

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

The vesting of these 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 $ 0.4 million for the year ended December 31, 2020.

As of December 31, 2020 there was a total of $ 0.8 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 2.25 years.

Stock Option Plan

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Risk free rate 0.48 %

Expected life 6 years

Expected life 6.59

Expected volatility 42.33 %

Expected dividend yield — %

There were no stock option grants made in 2019 or 2018.

There were no stock option grants made in 2019.

A summary of all option activity as of December 31, 2019 and 2020 and changes during the years then ended are presented below:

Shares Weighted Average

Grant Date Fair Value Weighted

Exercise Price Weighted

Contractual Life (years) Aggregate

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( 56,352 ) 8.97 — 474

( 55,666 ) 20.12 — 446

Outstanding, December 31, 2017 327,270 $ 20.21 4.28 $ 2,255

( 38,250 ) 17.19 — 216

Canceled/Forfeited

( 8,000 ) 21.60 — —

( 11,000 ) 17.74 — —

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

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The weighted average grant date fair value of options granted during 2020 was $ 2.07 .

We had no grants in 2019 and in 2018.

The total intrinsic value, or the difference between the exercise price and the market price on the date of exercise, of options exercised during the years ended December 31, 2019, 2018, and 2017 was approximately $ 474,000 , $ 216,000 , and $ 446,000 , respectively.

Cash received from stock options exercised during the years ended December 31, 2019, 2018, and 2017 was approximately $ 506,000 , $ 680,000 , and $ 1.1 million, respectively.

We had no grants in 2019.

There were no option exercises in 2020.

Cash received from stock options exercised during the years ended December 31, 2019 was approximately $ 506,000 .

The following table summarizes information about our stock options outstanding at December 31, 2020:

12 unchanged sentences

$ 30.01 - 34.00

44,167 3.22 30.41 44,167 30.41

161,334 3.48 $ 24.48 161,334 $ 24.48

The summary of the status of our unvested stock options as of December 31, 2020 and changes during the year then ended is presented below.

3 unchanged sentences

Unvested at December 31, 2019 10,433 $ 11.93

Granted 5,000 2.07

Vested ( 10,433 ) 11.93

2 unchanged sentences

We recognized stock compensation expense from stock options vesting of $ 19,366 and $ 124,000 for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2019, there was approximately $ 16,000 of total unamortized compensation cost related to unvested stock options.

We expect to recognize such cost in 2020.

As of December 31, 2020, there was no unamortized compensation cost related to unvested stock options.

(Loss) Earnings per Share

3 unchanged sentences

Year Ended December 31,

2019 2018 2017

Net (loss) income $ 1,808 $ ( 13,864 )

8 unchanged sentences

Diluted $ 0.14 $ ( 1.06 )

In the years ended ended December 31, 2019 and 2018, restricted stock and stock options were no t included in the computation of diluted loss per share due to their antidilutive effect.

In the year-ended December 31, 2017, options to purchase 83,917 shares of common stock with exercise prices ranging from $ 28.15 to $ 33.36 were not included in the computation of dilutive income per share, due to their anti-dilutive effect.

In the year ended ended December 31, 2020, 221,061 restricted stock/units and 161,334 stock options were not included in the computation of dilutive income per share, due to their anti-dilutive effect.

In the year ended ended December 31, 2019, 279,766 restricted stock/units and 208,334 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

Related Party

5 unchanged sentences

Commitments and Contingencies

We offer a 401(k) Plan to all employees that have reached the age of eighteen and have completed two months of service.

The participants may contribute up to 100 % of their salary subject to IRS limitations.

Employer contributions are subject to Board discretion and are subject to a vesting schedule of 20 % each year after the first year and 100 % after six years .

We contributed $ 393,000 , $ 355,000 , and $ 301,000 to the 401(k) Plan in 2019, 2018 and 2017, respectively, which is recorded in cost of revenues and selling, general and administrative expenses..

Legal Proceedings

2 unchanged sentences

We are not currently a party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any other threatened litigation.

Quarterly Financial Data (Unaudited)

The following tables presents selected unaudited financial data for each of the eight quarters in the two-year period ended December 31, 2019, which have been updated to reflect the revisions discussed in Note 2 (Summary of Significant Accounting Policies).

The revisions to the Company's unaudited interim financial statements during 2019 will be incorporated when it issues its Forms 10-Q for the first three quarter of 2020.

The Company believes this information reflects all recurring adjustments necessary to fairly state this information when read in conjunction with the Company's financial statements and the related notes.

Please note that amounts in the tables below may not sum due to rounding differences.

(in thousands, except per share)

2019 Q1 Q2 Q3 Q4 Total

Total revenue $ 17,991 $ 19,895 $ 20,852 $ 19,706 $ 78,444

Operating income (loss) ( 145 ) 302 ( 14,021 ) ( 1,289 ) ( 15,153 )

Net income (loss) 98 327 ( 12,579 ) ( 1,710 ) ( 13,864 )

Earnings (loss) per share, basic 0.01 0.02 ( 0.96 ) ( 0.13 ) ( 1.06 )

Earnings (loss) per share, diluted 0.01 0.02 ( 0.96 ) ( 0.13 ) ( 1.06 )

Earnings (loss) per share, year to date, basic 0.01 0.03 ( 0.93 ) ( 1.06 ) ( 1.06 )

Earnings (loss) per share, year to date, diluted 0.01 0.03 ( 0.93 ) ( 1.06 ) ( 1.06 )

2018 Q1 Q2 Q3 Q4 Total

Total revenue $ 14,718 $ 18,204 $ 16,396 $ 16,160 $ 65,478

Operating income (loss) 305 179 ( 500 ) ( 491 ) ( 507 )

Net income (loss) 190 211 ( 118 ) ( 749 ) ( 466 )

Earnings (loss) per share, basic 0.01 0.02 ( 0.01 ) ( 0.06 ) ( 0.04 )

Earnings (loss) per share, diluted 0.01 0.02 ( 0.01 ) ( 0.06 ) ( 0.04 )

Revisions to our unaudited quarterly financial data are as follows:

For the Three Months Ended September 30, 2019

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

Total revenue $ 20,852 $ — $ 20,852

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

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 Three Months Ended June 30, 2019

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

Total revenue $ 19,895 $ — $ 19,895

Operating income (loss) 593 ( 291 ) 302

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 Three Months Ended March 31, 2019

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

Total revenue $ 17,991 $ — $ 17,991

Operating income (loss) 209 ( 354 ) ( 145 )

Net income (loss) 357 ( 259 ) 98

Earnings (loss) per share, basic 0.03 ( 0.02 ) 0.01

Earnings (loss) per share, diluted 0.03 ( 0.02 ) 0.01

For the Three Months Ended December 31, 2018

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

Total revenue $ 16,160 $ — $ 16,160

Operating loss 106 ( 597 ) ( 491 )

Net loss ( 282 ) ( 467 ) ( 749 )

Loss per share, basic ( 0.02 ) ( 0.04 ) ( 0.06 )

Loss per share, diluted ( 0.02 ) ( 0.04 ) ( 0.06 )

For the Three Months Ended September 30, 2018

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

Total revenue $ 16,396 $ — $ 16,396

Operating (loss) ( 44 ) ( 456 ) ( 500 )

Net income (loss) 236 ( 354 ) ( 118 )

Earnings (loss) per share, basic 0.02 ( 0.03 ) ( 0.01 )

Earnings (loss) per share, diluted 0.02 ( 0.03 ) ( 0.01 )

For the Three Months Ended June 30, 2018

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

Total revenue $ 18,204 $ — $ 18,204

Operating income (loss) 226 ( 47 ) 179

Net income (loss) 247 ( 36 ) 211

Earnings (loss) per share, basic 0.02 — 0.02

Earnings (loss) per share, diluted 0.02 — 0.02

For the Three Months Ended March 31, 2018

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

Total revenue $ 14,718 $ — $ 14,718

Operating income (loss) 350 ( 45 ) 305

Net income (loss) 225 ( 35 ) 190

Earnings (loss) per share, basic 0.02 ( 0.01 ) 0.01

Earnings (loss) per share, diluted 0.02 ( 0.01 ) 0.01

Revisions of Prior Period Financial Statements

As discussed in Note 2 (Summary of Significant Accounting Policies), in conjunction with the preparation of its year-end financial statements for 2019, the Company determined that certain, immaterial operating costs and expenses were inappropriately capitalized during the years ended December 31, 2018 and 2017, as well for interim periods in 2019 and 2018.

These revisions are summarized in the tables below.

Revised Consolidated Balance Sheet

As of December 31, 2018

($ in thousands) As Reported Revisions As Revised

Inventory $ 30,974 $ ( 784 ) $ 30,190

Prepaid income taxes 3,148 40 3,188

Prepaid expenses and other 2,430 ( 734 ) 1,696

Total current assets 96,399 ( 1,478 ) 94,921

Rental equipment, net of accumulated depreciation 175,886 220 176,106

Property and equipment, net of accumulated depreciation 16,587 57 16,644

Total assets 305,401 ( 1,201 ) 304,200

Liabilities and Stockholders' Equity

Deferred income tax liability $ 32,158 $ ( 252 ) $ 31,906

Total liabilities 45,220 ( 252 ) 44,968

Retained earnings 152,291 ( 949 ) 151,342

Total stockholders' equity 260,181 ( 949 ) 259,232

Total liabilities and stockholders' equity 305,401 ( 1,201 ) 304,200

Revised Consolidated Statements of Income

For the Year Ended December 31, 2018

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

Total revenue $ 65,478 $ — $ 65,478

Operating costs and expenses:

Cost of rentals, exclusive of depreciation stated separately below 20,746 1,114 21,860

Depreciation and amortization 22,049 31 22,080

Total operating costs and expenses 64,840 1,145 65,985

Operating income (loss) 638 ( 1,145 ) ( 507 )

Income (loss) before provision for income taxes 751 ( 1,145 ) ( 394 )

Provision for income taxes:

Current benefit (expense) 248 ( 6 ) 242

Deferred (expense) benefit ( 573 ) 259 ( 314 )

Income tax (expense) benefit ( 325 ) 253 ( 72 )

Net income (loss) 426 ( 892 ) ( 466 )

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

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

For the Year Ended December 31, 2017

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

Total revenue $ 67,693 $ — $ 67,693

Operating costs and expenses:

Cost of rentals, exclusive of depreciation stated separately below 18,078 82 18,160

Depreciation and amortization 21,302 14 21,316

Total operating costs and expenses 66,126 96 66,222

Operating income (loss) 1,567 ( 96 ) 1,471

Income (loss) before provision for income taxes 1,603 ( 96 ) 1,507

Provision for income taxes:

Current (expense) benefit ( 3,334 ) 46 ( 3,288 )

Deferred benefit (expense) 21,582 ( 7 ) 21,575

Income tax benefit 18,248 39 18,287

Net income (loss) 19,851 ( 57 ) 19,794

Earnings (loss) per share, basic 1.55 ( 0.01 ) 1.54

Earnings (loss) per share, diluted 1.51 — 1.51

Revised Consolidated Statements of Stockholders' Equity

For the Year Ended December 31, 2018

($ in thousands) As Reported Revisions As Revised

Net income (loss) $ 426 $ ( 892 ) $ ( 466 )

Retained earnings 152,291 ( 949 ) 151,342

Total stockholders' equity 260,181 ( 949 ) 259,232

For the Year Ended December 31, 2017

($ in thousands) As Reported Revisions As Revised

Net income (loss) $ 19,851 $ ( 57 ) $ 19,794

Retained earnings 151,865 ( 57 ) 151,808

Total stockholders' equity 257,319 ( 57 ) 257,262

Revised Consolidated Statements of Cash Flows

For the Year Ended December 31, 2018

($ in thousands) As Reported Revisions As Revised

Cash flows from operating activities:

Net income (loss) $ 426 $ ( 892 ) $ ( 466 )

Depreciation and amortization 22,049 31 22,080

Deferred taxes 573 ( 259 ) 314

Inventory (increase) decrease ( 5,757 ) 655 ( 5,102 )

Prepaid income taxes and prepaid expenses (increase) decrease ( 1,318 ) 740 ( 578 )

Net cash provided by operating activities 23,414 275 23,689

Cash flows from investing activities:

Purchase of rental equipment, property and other equipment ( 39,790 ) ( 275 ) ( 40,065 )

Net cash used in investing activities ( 40,010 ) ( 275 ) ( 40,285 )

Net change in cash and cash equivalents ( 16,580 ) — ( 16,580 )

For the Year Ended December 31, 2017

($ in thousands) As Reported Revisions As Revised

Cash flows from operating activities:

Net income (loss) $ 19,851 $ ( 57 ) $ 19,794

Depreciation and amortization 21,302 14 21,316

Deferred taxes ( 21,582 ) 7 ( 21,575 )

Inventory (increase) decrease ( 5,350 ) 129 ( 5,221 )

Prepaid income taxes and prepaid expenses increase ( 1,806 ) ( 46 ) ( 1,852 )

Net cash provided by operating activities 17,452 47 17,499

Cash flows from investing activities:

Purchase of rental equipment, property and other equipment ( 13,489 ) ( 47 ) ( 13,536 )

Net cash used in investing activities ( 12,791 ) ( 47 ) ( 12,838 )

Net change in cash and cash equivalents 5,114 — 5,114

Subsequent Events

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus known as COVID-19 due to the risks it imposes on the international community as the virus spreads globally.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

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 to significant weakness in oil prices and ensuing reductions of exploration and production company capital and operating budgets.

The full impact of the COVID-19 outbreak continues to evolve daily as of the date of this report.

With the significant decline in oil prices as well as the general economic decline caused by the impacts of COVID-19, we expect utilization to decline among our smaller horsepower and medium horsepower units during the remainder of 2020 after a minimal decline during the first quarter of 2020.

In terms of sales, we expect minimal compressor sales for the year due to much lower capital expenditure budgets throughout the industry, including those of our major customers.

Finally, we have recently experienced and expect to continue to experience pricing pressure from our customers and competitors until industry and economic conditions improve.

We are currently experiencing no issues with potential workforce and supply chain disruptions.

Our relationship with our major customer continues to be strong, and they have continued to pay our invoices in a timely, consistent manner.

Nevertheless, if any of these circumstances change, our business could be adversely affected.

While management anticipates that the industry and economic impact of the pandemic and OPEC’s actions will have a negative effect on its results of operations in 2020 and perhaps beyond, the degree to which these factors will impact our business remains uncertain.

On March 31, 2021 our Amended Credit Agreement expired and we have decided not to renew the Amended Credit Agreement.

On March 17, 2021 all outstanding indebtedness was repaid.

We are in the process of negotiating a new credit facility which we expect to complete by the end of April 2021, although no guarantee can be made that we will be successful in finalizing and securing a new credit facility.

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 9A. Controls and Procedures