What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-14 compared with 2020-11-16 · 137 added, 451 removed, 291 unchanged (67% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30, December 31,

March 31, December 31,

Current Assets:

2 unchanged sentences

Trade accounts receivable, net of allowance for doubtful accounts of $ 1,155 and $ 1,161 , respectively

12,724 11,884

Inventory 19,982 19,926

41 unchanged sentences

Three months ended

Nine months ended

September 30, September 30,

2020 2019 2020 2019

Rental income $ 15,341 $ 16,100

5 unchanged sentences

Cost of rentals, exclusive of depreciation stated separately below

6,760 6,707 21,286 19,540

Cost of sales, exclusive of depreciation stated separately below

997 4,390 4,596 12,508

Cost of service and maintenance, exclusive of depreciation stated separately below

138 164 363 470

Selling, general and administrative expenses 2,649 2,162

Depreciation and amortization 6,297 6,240

Impairment of goodwill — 10,039 — 10,039

Inventory allowance — 3,350 — 3,350

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

Total operating costs and expenses 18,766 18,163

2 unchanged sentences

Interest expense ( 1 ) ( 3 )

Other income, net 214 93 407 579

Total other income, net 212 89 394 567

Other income (expense), net 101 ( 185 )

Total other income (expense), net 100 ( 188 )

Loss before provision for income taxes ( 269 ) ( 461 )

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

Income tax (expense) benefit ( 125 ) 4,543

Net (loss) income $ ( 394 ) $ 4,082

12 unchanged sentences

BALANCES, January 1, 2020 — $ — 13,178 $ 132 $ 110,573 $ 137,478 38 $ ( 490 ) $ 247,693

Exercise of common stock options — — 57 — 555 — — — 555

Compensation expense on common stock options — — — — 17 — — — 17

4 unchanged sentences

BALANCES, March 31, 2020 — $ — 13,273 $ 133 $ 110,926 $ 141,560 38 $ ( 490 ) $ 252,129

Exercise of common stock options ( 50 ) ( 50 )

Compensation expense on common stock options — — — — 30 — — — 30

Issuance of restricted stock — — 5 — — — — — —

Compensation expense on restricted common stock — — — — 612 — — — 612

Taxes paid related to net shares settlement of equity awards — — — — 9 — — — 9

Net income — — — — — 327 — — 327

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

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

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

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

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

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

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

NATURAL GAS SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders' Equity

Shares Amount Shares Amount Shares Amount

BALANCES, January 1, 2021 — $ — 13,296 $ 133 $ 112,615 $ 139,286 38 $ ( 490 ) $ 251,544

Compensation expense on common stock options — — — — 17 — — — 17

Issuance of restricted stock — — 62 — — — — — —

1 unchanged sentence

Taxes paid related to net shares settlement of equity awards — — — — ( 224 ) — — — ( 224 )

Net income — — — — — 4,082 — — 4,082

BALANCES, March 31, 2020 — $ — 13,273 $ 133 $ 110,926 $ 141,560 38 $ ( 490 ) $ 252,129

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

Issuance of restricted stock — — 13 — — — — — —

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

Net income — — — — — 165 — — 165

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

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

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

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

Net loss — — — — — ( 394 ) — — ( 394 )

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

BALANCES, March 31, 2021 — $ — 13,358 $ 134 $ 112,864 $ 138,892 38 $ ( 490 ) $ 251,400

See accompanying notes to these unaudited condensed consolidated financial statements.

NATURAL GAS SERVICES GROUP, INC.

1 unchanged sentence

(in thousands)

Nine months ended

September 30,

Three months ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

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

Net (loss) income $ ( 394 ) $ 4,082

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

Depreciation and amortization 6,297 6,240

2 unchanged sentences

Bad debt allowance 15 21

Inventory allowance — 3,350

Impairment of goodwill — 10,039

Gain on sale of assets — ( 68 )

Retirement of rental equipment — 1,512

Loss (gain) on company owned life insurance ( 98 ) 262

13 unchanged sentences

Proceeds from sale of property and equipment — 68

Proceeds from sale of deferred compensation mutual fund 10 —

Proceeds from insurance claims of property and equipment — 11

NET CASH USED IN INVESTING ACTIVITIES ( 4,982 ) ( 6,665 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from loan 4,601 —

Repayment of loan ( 4,601 ) —

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

Proceeds from exercise of stock options — 505

Purchase of treasury shares — ( 490 )

Repayments of line of credit, net ( 417 ) —

Taxes paid related to net share settlement of equity awards ( 224 ) ( 149 )

8 unchanged sentences

NON-CASH TRANSACTIONS

Transfer of rental equipment components to inventory $ — $ 746

Transfer of prepaids to rental equipment and inventory $ — $ 958

Right of use asset acquired through an operating lease $ — $ 4

7 unchanged sentences

NGS is headquartered in Midland, Texas, with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas, and service facilities located in major oil and natural gas producing basins in the U.S.

Recent 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.

The effects of the COVID-19 outbreak, including actions taken by businesses and governments to contain the spread of the virus, resulted in a significant, rapid decline in global and U.S.

economic conditions.

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

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

In March 2020, discussion between OPEC and Russia (“OPEC+”) resulted in Saudi Arabia significantly discounting the price of its crude oil, as well as Saudi Arabia and Russia significantly increasing their oil supply in April 2020.

The dramatic decline in crude oil demand combined with this increase in supply resulted in unprecedented storage issues and a resulting severe lack of takeaway capacity for oil producers.

As a result, crude oil prices reached record or multi-year lows in April.

West Texas Intermediate (“WTI”) crude oil traded below $20 per barrel and Brent crude oil traded below $30 per barrel during the second half of April, including an anomalous trading day where WTI traded at negative values on low volume close to the end of a contract trading month.

In April 2020, OPEC+ agreed to cut production by 9.7 MMbpd starting in May 2020, while Saudi Arabia voluntarily cut another 1 MMbpd starting in June 2020.

Meanwhile, oil production dropped dramatically in non-OPEC countries, including the U.S.

Burdened by low prices and takeaway issues, U.S.

producers (including several of our customers) shut in production to varying degrees in April and May, and drilling and completion activities dramatically declined.

According to IEA’s Oil Market Report for August 2020, U.S.

production in May dropped 2 MMbpd from April and 2.9 MMbpd from its all-time high in November 2019.

According to IEA’s July report, global oil supply fell to a nine-year low of 86.9 MMbpd in June.

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

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

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

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

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

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

In late May and throughout June as oil prices partially recovered and stabilized, we received restart notices for several wells that were recently shut in.

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

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

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

Unit pricing has also been stable since June.

Nevertheless, risks remain high in this environment.

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

Since October, the rate of infections has risen very

quickly in several countries, with the U.S.

setting new records for daily infections in November.

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

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

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

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

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

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

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

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

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

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

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

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

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

We adopted remote work processes at our Midland headquarters.

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

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

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

To date, our field operations have continued largely uninterrupted, as the U.S.

Department of Homeland Security designated our industry as part of our country’s critical infrastructure.

Remote work and work process adjustments related to COVID-19 have not impacted our ability to maintain of service operations or caused us to incur significant costs.

In addition, we have not experienced any supply chain issues in connection with the COVID-19 outbreak.

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

As such, it is uncertain as to the full magnitude that the pandemic will have on the Company's financial condition, liquidity, and future results of operations.

Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.

Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity during the remainder of 2020 or 2021.

Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with the Company's deferred compensation plan (see Note 9).

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

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

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at March 31, 2021 and the results of our operations for the three months ended March 31, 2021 and 2020 not misleading.

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

These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 on file with the SEC.

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

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

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

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

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2021.

Revenue Recognition Policy

8 unchanged sentences

and (v) recognize revenue when, or as, we satisfy the performance obligation(s).

Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our consolidated statements of operations.

Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our condensed consolidated statements of operations.

Nature of Goods and Services

2 unchanged sentences

The Company generates revenue from renting compressors and flare systems to our customers.

These contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing the compressor or flare during the rental contract.

These contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing the compressor or flare during the rental contract period.

Our rental contracts typically range from six to 24 months, with our larger horsepower compressors having contract terms of up to 60 months.

16 unchanged sentences

The credit terms on these agreements are consistent with the credit terms on all other sales.

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

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

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

There was no revenue recognized for bill and hold arrangements for the three months ended March 31, 2021.

Revenue recognized related to bill and hold arrangements for the three months ended March 31, 2020 was approximately $ 0.9 million.

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

2 unchanged sentences

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

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

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

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

6 unchanged sentences

Disaggregation of Revenue

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

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

(in thousands)

The following table shows the Company's revenue disaggregated by product or service type for the three months ended March 31, 2021 and 2020:

Three months ended March 30,

(in thousands)

2020 2019 2020 2019

Compressors - sales $ 1,891 $ 852

$ — $ 4,703 $ 2,211 $ 12,199

Flares - sales 46 80

67 243 308 783

Other (parts/rebuilds) - sales 774 518

1 unchanged sentence

Total revenue from contracts with customers 3,056 1,790

904 6,418 4,968 17,345

ASC 842 rental revenue 15,341 16,100

Total revenue $ 18,397 $ 17,890

$ 15,765 $ 20,852 $ 51,060 $ 58,738

Contract Balances

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

As of March 31, 2021 and December 31, 2020, we had the following receivables and deferred income from contracts with customers:

March 31, 2021 December 31, 2020

(in thousands)

September 30, 2020 December 31, 2019

Accounts Receivable

5 unchanged sentences

Deferred income $ 34 $ 1,103

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

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

The Company recognized sales and rental revenues of $ 1.1 million and $ 2,000 , respectively, for the three months ended March 31, 2021 that was included in deferred income at the beginning of 2021.

For the year ended December 31, 2020, the Company recognized sales and rental revenues of $ 0.5 million and $ 73,000 , respectively, that was included in deferred income at the beginning of 2020.

The increases (decreases) of accounts receivable and deferred income were primarily due to normal timing differences between our performance and the customers’ payments.

Transaction Price Allocated to the Remaining Performance Obligations

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

Remaining Performance Obligations

As of March 31, 2021, the Company did not have revenue related to unsatisfied performance obligations.

Contract Costs

1 unchanged sentence

These costs are included in selling, general and administrative expenses on our condensed consolidated statements of operations.

On January 1, 2019, we adopted ASC 842 using the modified retrospective method.

We recognized the cumulative effect of initially applying the new lease standard and had no adjustments to retained earnings.

ASC 842 requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations.

We elected the practical expedients permitted under the transition guidance of the new standard that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard.

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

The Company, as a lessor, applies the practical expedient to not separate non-lease components from lease components, therefore, accounting for each separate lease component and its associated non-lease component, as a single lease component.

Each lease that 1) contains the same timing and pattern of transfer for lease and non-lease components;

and 2) if the lease component, if accounted for separately, would be classified as an operating lease, the Company elects to not separate non-lease components from lease components.

Inventory (current and long-term) is valued at the lower of cost and net realizable value.

The cost of inventories is determined by the weighted average method.

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

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

Rental Equipment and Property and Equipment

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

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

Our rental equipment has an estimated useful life between 15 and 25 years, while our property and equipment has an estimate useful lives which range from 3 to 39 years.

The majority of our property and equipment, including rental equipment, is a direct cost to generating revenue.

We assess the impairment of rental equipment and property and equipment whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable.

The following factors could trigger an impairment review:

significant underperformance relative to historical or projected future cash flows;

significant adverse changes in the extent or manner in which asset (or asset group) is being used or its condition, including a meaningful drop in fleet utilization over the prior four quarters;

significant negative industry or company-specific trends or actions, including meaningful capital expenditure budget reductions by our major customers or other sizable exploration and production or midstream companies, as well as significant declines in oil and natural gas prices;

legislative changes prohibiting us from leasing our units or flares;

or poor general economic conditions.

An impairment loss is recognized if the future undiscounted cash flows associated with the asset (or asset group) and the estimated fair value of the asset are less than the asset's carrying value.

Sales of equipment out of the rental fleet are included with sales revenue and cost of sales, while retirements of units are shown as a separate operating expense.

Gains and losses resulting from sales and dispositions of other property and equipment are included within other income (expense).

Maintenance and repairs are charged to cost of rentals as incurred.

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

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

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

We have no liabilities for uncertain tax positions as of March 31, 2021.

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

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.

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.

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

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.

ASC Topic 820 established a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value.

These inputs are categorized as follows:

Level 1- quoted prices in an active market for identical assets or liabilities;

Level 2- quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means;

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

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

Segments and Related Information

ASC 280-10-50, “Operating Segments”, define the characteristics of an operating segment as a) being engaged in business activity from which it may earn revenue and incur expenses, b) being reviewed by the company's chief operating decision maker (CODM) for decisions about resources to be allocated and assess its performance and c) having discrete financial information.

Although we look at our products to analyze the nature of our revenue, other financial information, such as certain costs and expenses, net income and EBITDA are not captured or analyzed by these categories.

Our CODM does not make resource allocation decisions or access the performance of the business based on these categories, but rather in the aggregate.

Based on this, management believes that it operates in one business segment.

In their analysis of product lines as potential operating segments, management also considered ASC 280-10-50-11, “Aggregation Criteria”, which allows for the aggregation of operating segments if the segments have similar economic characteristics and if the segments are similar in each of the following areas:

• The nature of the products and services;

• The nature of the production processes;

• The type or class of customer for their products and services;

• The methods used to distribute their products or provide their services;

• The nature of the regulatory environment, if applicable.

We are engaged in the business of designing and manufacturing compressors and flares.

Our compressors and flares are sold and rented to our customers.

In addition, we provide service and maintenance on compressors in our fleet and to third parties.

These business activities are similar in all geographic areas.

Our manufacturing process is essentially the same for the entire Company and is performed at our facilities in Midland, Texas and Tulsa, Oklahoma.

Our customers primarily consist of entities in the business of producing oil and natural gas.

The maintenance and service of our products is consistent across the entire Company and is performed via an internal fleet of vehicles.

The regulatory environment is similar in every jurisdiction in that the most impacting regulations and practices are the result of federal energy policy.

In addition, the economic characteristics of each customer arrangement are similar in that we maintain policies at the corporate level.

Recently Issued Accounting Pronouncements

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.

These amendments are effective for public entities for interim and annual periods beginning after December 15, 2020.

We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements and note disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326):

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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

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

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

Revised Condensed Consolidated Statements of Operations

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 costs and expenses:

Cost of rentals, exclusive of depreciation stated separately below 6,300 407 6,707

Depreciation and amortization 5,867 53 5,920

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

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

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

Income tax benefit 1,240 113 1,353

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

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

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

For the nine months ended September 30, 2019

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

Total revenue $ 58,738 $ — $ 58,738

Operating costs and expenses:

Cost of rentals, exclusive of depreciation stated separately below 18,544 996 19,540

Depreciation and amortization 17,108 109 17,217

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

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

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

Income tax benefit 890 253 1,143

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

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

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

Revised Condensed Consolidated Statement of Stockholders' Equity

For the nine months ended September 30, 2019

($ in thousands) As Reported Revisions As Revised

Retained earnings balance at January 1, 2019 $ 152,291 $ ( 949 ) $ 151,342

Total stockholders' equity at January 1, 2019 260,181 ( 949 ) 259,232

Net income (loss) for the three months ended March 31, 2019 357 ( 259 ) 98

Retained earnings balance at March 31, 2019 152,648 ( 1,208 ) 151,440

Total stockholders' equity at March 31, 2019 261,396 ( 1,208 ) 260,188

Net income (loss) for the three months ended June 30, 2019 $ 573 $ ( 246 ) $ 327

Retained earnings balance at June 30, 2019 153,221 ( 1,454 ) 151,767

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

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

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

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

Revised Condensed Consolidated Statement of Cash Flows

For the nine months ended September 30, 2019

($ in thousands) As Reported Revisions As Revised

Cash flows from operating activities:

Net income $ ( 11,302 ) $ ( 852 ) $ ( 12,154 )

Depreciation and amortization 17,108 109 17,217

Deferred taxes ( 929 ) ( 248 ) ( 1,177 )

Inventory decrease 1,861 1,937 3,798

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

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

Cash flows from investing activities:

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

Net cash used in investing activities ( 53,571 ) ( 676 ) ( 54,247 )

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

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

Our inventory, net of allowance for obsolescence of $ 37,000 at March 31, 2021 and $ 221,000 at December 31, 2020, consisted of the following amounts:

March 31, 2021 December 31, 2020

(in thousands)

September 30, 2020 December 31, 2019

Raw materials - current $ 18,619 $ 18,026

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

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

Inventory Allowance

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

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

Due to the slow moving nature or obsolescence of a portion of its long-term inventory and inventory related to the periodic retirement of rental equipment, the Company routinely reviews its inventory allowance balance for costs that may not be recoverable in the future.

A summary of our inventory allowance is as follows:

March 31, 2021 December 31, 2020

(in thousands)

Beginning balance $ ( 221 ) $ ( 24 )

Accruals — ( 251 )

Write-offs 184 54

Ending balance $ ( 37 ) $ ( 221 )

Federal Income Tax Receivable

As discussed in Note 2, 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 plans to carryback these losses for 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 income tax liability of $ 10.1 million on its condensed consolidated balance sheet.

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

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

The Company generated significant NOLs during 2018 and 2019, and has filed amended returns to carryback these losses for five years.

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

During the third quarter of 2020, the Company received refunds totaling $ 3.9 million related to its 2018 NOLs, which reduced its federal income tax receivable to $ 11.5 million on its condensed consolidated balance sheet as of March 31, 2021.

Rental Equipment

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

Our rental equipment and associated accumulated depreciation as of March 31, 2021 and December 31, 2020, respectively, consisted of the following:

March 31, 2021 December 31, 2020

(in thousands)

September 30, 2020 December 31, 2019

Compressor units $ 385,067 $ 379,623

Work-in-progress 4,116 9,129

Work-in-process 2,754 3,764

Rental equipment 387,821 383,387

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Rental equipment, net of accumulated depreciation $ 206,436 $ 207,585

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

Retirement of Rental Equipment

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

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

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

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

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

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

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

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

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.

As substantially all of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate to determine the present value of lease payments.

Based on the present value of lease payments for the Company's existing leases, the Company recorded net lease assets and lease liabilities of approximately $ 451,000 , respectively, upon adoption.

The Company had no finance leases.

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

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

Classification on the Condensed Consolidated Balance Sheet September 30, 2020

(in thousands, except years)

Operating lease assets Right of use assets-operating leases $ 509

Current lease liabilities Current operating leases $ 203

Noncurrent lease liabilities Long-term operating leases 306

Total lease liabilities $ 509

Weighted average remaining lease term in years 3.1

Implicit Rate 3.1 %

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

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

September 30, 2020

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

Operating lease cost (1) (2)

(1) Lease costs are classified on the condensed consolidated statements of operations in cost of sales, cost of compressors and selling, general and administrative expenses.

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

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

Years Ending December 31, Lease Liabilities

(in thousands)

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

Thereafter 168

Total lease payments 561

Imputed interest 52

We evaluated our rental equipment for potential impairment as of March 31, 2021, and determined that no such impairment existed as of that date.

Credit Facility

We have a senior secured revolving credit agreement the ("Amended Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") with an 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).

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.

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

We had $ 29.5 million borrowing base availability at September 30, 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 1.25 %.

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

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

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

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

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 leases receivables, along with a first priority lien on a variable number of our leased compressors, the book value of which must be maintained at a minimum of 2.00 to 1.00 commitment coverage ratio (such ratio being equal to (i) the amount of the borrowing base as of such date to (ii) the amount of the commitment as of such date).

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

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

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

enter into transactions with affiliates;

make acquisitions in excess of certain amounts;

pay dividends;

redeem or repurchase capital stock or senior notes;

make investments or loans;

make negative pledges;

consolidate, merge or effect asset sales;

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.

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;

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

inaccuracies in representations and warranties;

certain defaults, termination events or similar events;

certain defaults with respect to any other Company indebtedness in excess of $ 50,000 ;

certain bankruptcy or insolvency events;

the rendering of certain judgments in excess of $ 150,000 ;

certain ERISA events;

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.

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

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

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

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

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.

Deferred Compensation Plan

The Company has a non-qualified deferred compensation plan for executive officers, directors and certain eligible employees.

The assets of the deferred compensation plan are held in a rabbi trust and are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.

The plan allows for deferral of up to 90 % of a participant’s base salary, bonus, commissions, director fees and restricted stock unit awards.

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 $ 1.7 million and $ 1.5 million as of September 30, 2020 and December 31, 2019, respectively.

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

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

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

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

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

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

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

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

Previous Credit Agreement

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

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

Subsequent to March 31, 2021, we entered into a new credit facility.

See footnote 10.

Stock-Based and Other Long-Term Incentive Compensation

Stock Options

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

A summary of all option activity as of December 31, 2020, and changes during the three months ended March 31, 2021 is presented below.

Stock Options

6 unchanged sentences

( 16,000 ) 17.81 — —

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

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

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

Outstanding, March 31, 2021 145,334 $ 25.21 3.61 $ —

Exercisable, March 31, 2021 145,334 $ 25.21 3.61 $ —

The following table summarizes information about our stock options outstanding at March 31, 2021:

Range of Exercise Prices

10 unchanged sentences

$ 30.01 - 34.00

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

Unvested stock options:

Weighted Average

Grant Date Fair Value Per Share

Unvested at December 31, 2019 10,433 $ 11.93

Granted 5,000 2.07

Vested ( 10,433 ) 11.93

Unvested at September 30, 2020 5,000 $ 2.07

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

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

44,167 2.97 30.41 44,167 30.41

145,334 3.61 $ 25.21 145,334 $ 25.21

As of March 31, 2021 and December 31, 2020, there were no unvested stock options.

As of March 31, 2021, there was no unrecognized compensation cost related to unvested options.

For the three months ended March 31, 2020, total compensation expense for stock options was $ 17,000 .

For the three months ended March 31, 2021 there was no compensation expense for stock options.

Restricted Shares/Units

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Based on this review, which included consideration of the Company's 2020 performance, Mr.

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

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

Taylor was awarded 109,212 restricted shares/units on March 18, 2021, which vest over three years , in equal annual installments, beginning March 18, 2022.

On March 18, 2021, the Compensation Committee awarded 20,000 restricted shares/units to our Vice President of Technical Services, James Hazlett.

The restricted shares to Mr.

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

We also awarded and issued 4,432 shares of restricted common stock to each of our four independent members of our Board of Directors as partial payment for their services in 2020.

Hazlett vest over three years , in equal annual installments, beginning March 18, 2022.

On March 18, 2021, we also awarded and issued 5,612 shares of restricted common stock to each of our three independent members of our Board of Directors as partial payment for their services in 2021.

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

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

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

Total compensation expense related to these and previously granted restricted stock awards was $ 474,000 and $ 485,000 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, there was a total of $ 2.6 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 2.0 years.

A summary of all restricted stock/units activity as of December 31, 2020 and changes during the three months ended March 31, 2021 is presented below:

Shares Weighted Average

Grant Date Fair Value Weighted

Contractual Life (years) Aggregate

(in thousands)

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

146,048 8.91 — 1,301

( 85,457 ) 20.25 — 804

Canceled/Forfeited

( 3,333 ) 12.26 — 31

Outstanding, March 31, 2021 315,359 $ 9.04 9.26 $ 2,977

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 $ 1,061,820 to Mr.

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

Taylor's 2019 performance, the Compensation Committee issued a long-term incentive award of $ 1,061,820 to Mr.

Taylor that vests in equal, annual tranches over 3 years beginning on the anniversary of the grant date.

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.

On March 18, 2021, based on its review of Mr.

Taylor's 2020 performance, the Compensation Committee issued a long-term incentive award of $ 973,080 to Mr.

Taylor that vests in equal, annual tranches over 3 years beginning on the anniversary of the grant date.

In addition, on April 28, 2020, we issued a $ 50,000 award to three of our 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.

On March 18, 2021, we issued a $ 50,000 award to three of our independent members of our Board of Directors as partial payment for their services in 2021.

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 awards is subject

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

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

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

Impairment of Goodwill

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

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

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

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

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

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

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

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

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

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

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

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

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

Earnings per Share

The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation (in thousands, except per share data) :

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

Total compensation expense related to these other long-term incentive awards was approximately $ 166,000 for the three months ended March 31, 2021.

As of March 31, 2021, there was a total of $ 1.8 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 2.4 years.

(Loss) Earnings per Share

The following table reconciles the numerators and denominators of the basic and diluted (loss) earnings per share computation:

Three months ended

Nine months ended

September 30, September 30,

2020 2019 2020 2019

(in thousands, except per share data)

Net (loss) income $ ( 394 ) $ 4,082

5 unchanged sentences

Diluted weighted average shares 13,263 13,416

Earnings per common share:

(Loss) earnings per common share:

Basic $ ( 0.03 ) $ 0.31

Diluted $ ( 0.03 ) $ 0.30

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

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

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

Related Party

In 2016, we entered into a joint venture partnership, N-G, LLC (‘N-G”), with Genis Holdings, LLC (“Genis”) to explore new technologies for wellhead compression.

NGS and Genis both share 50 % ownership of N-G.

We account for this investment under the equity method.

In 2018, we ordered some compressor packages from Genis, totaling $ 1.0 million.

The compressors were completed and paid in full at December 31, 2019.

For the three months ended March 31, 2021, 315,359 restricted stock/units and 145,334 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

For the three months ended March 31, 2020, options to purchase 182,839 weighted average shares of common stock were not included in the computation of diluted earnings per share due to their antidilutive effect.

Commitments and Contingencies

3 unchanged sentences

Subsequent Events

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

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

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

In addition, the Compensation Committee also awarded Ms.

Beyer a cash award of $ 25,000 .

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

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

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

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

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

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

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

This repurchase plan expires on September 30, 2021.

On May 11, 2021, we entered into a five year senior secured revolving credit agreement ("Credit Agreement") with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $ 20 million and an accordion feature that would increase the maximum commitment to $ 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 $ 30 million on the aggregate commitment;

provided, however, the aggregate commitment amount is not permitted to exceed $ 50 million.

The maturity date of the Credit Agreement is May 11, 2026.

The obligations under the Credit Agreement are secured by a first priority lien on all of our assets, including inventory and accounts receivable along with a first priority lien on a variable number of our leased compressor equipment.

Borrowing Base.

At any time before the maturity of the 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) 90 % of eligible accounts receivable owed to the Company by investment grade debtors, plus (b) 85 % of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50 % of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $ 2,000,000 , plus (d) the lesser of (i) 95 % of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80 % of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (e) 80 % of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion.

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

Interest and Fees.

Under the terms of the Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Eurodollar Rate Loan, the Adjusted Eurodollar Rate plus the Applicable Margin.

"Base Rate" means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day;

(b) the sum of the federal funds rate fro such day plus 0.50 %;

and (c) the Adjusted Eurodollar Rate for such day plus 1.00 %.

The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each fiscal quarter from time to time pursuant to the Credit Agreement.

Depending on the leverage ratio, the Applicable Margin can be 0.25 % to 0.75 % for Base Rate Loans (as defined in the Credit Agreement) and 1.25 % to 1.75 % for Eurodollar Rate Loans and for requested letters of credit.

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

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

enter into transactions with affiliates;

make acquisitions in excess of certain amounts;

pay dividends;

redeem or repurchase capital stock or senior notes;

make investments or loans;

make negative pledges;

consolidate, merge or effect asset sales;

or change the nature of our business.

In addition, we also have certain financial covenants that are applicable during certain trigger periods specified in the Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to 3.00 to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration.

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

defaults in performance of covenants or other agreements contained in the Credit Agreement and the other transaction documents;

inaccuracies in representations and warranties;

certain defaults, termination events or similar events;

certain defaults with respect to any other Company indebtedness in excess of $ 1,000,000 ;

certain bankruptcy or insolvency events;

the rendering of certain judgments in excess of $ 1,000,000 ;

certain ERISA events;

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

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

On May 11,2021, we had no amounts outstanding under the Credit Agreement.

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

What changed 10-Q

Item 1. Financial Statements