What changed in this filing

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Item 1A. Risk Factors

2022-03-18 compared with 2021-03-31 · 66 added, 54 removed, 229 unchanged (34% of the section changed)

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Risks Associated With Our Industry

The outbreak of COVID-19 and recent oil market developments could adversely impact our financial condition and results of operations.

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.

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

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

In addition, the spread of the virus into our workforce could prevent us meeting the demands of our customers and adequately servicing existing compressors.

Similarly, if our customers or suppliers experience adverse business consequences due to COVID-19, demand for our equipment and services could also be adversely affected.

The magnitude and duration of potential social, economic and labor instability as a direct result of COVID-19 cannot be estimated at this time.

Should any of these potential impacts continue for an extended period of time, the impact on our business could have an adverse effect on our financial position and results of operations.

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

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

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

Uncertainty and turmoil in the credit markets may negatively impact the ability of our customers to finance purchases of our products and services and could result in a decrease in, or cancellation of, orders included in our backlog or adversely affect the collectability of our receivables.

If the availability of credit to our customers is reduced, they may reduce their drilling and production expenditures, thereby decreasing demand for our products and services, which could have a negative impact on our financial condition.

A prolonged period of depressed prices for oil and natural gas would likely result in delays or cancellation of projects by our customers, reducing the demand for our products and services.

Decreased oil and natural gas prices and oil and gas industry expenditure levels adversely affect our revenue.

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• terrorist activities in the United States and elsewhere;

• the cost of developing alternate energy sources;

• the cost of developing alternative energy sources;

• environmental regulation;

• tax policies.

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

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

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These companies may also be better positioned than us to successfully endure downturns in the oil and natural gas industry.

Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices, features, performance or other competitive characteristics than our products and services.

Competitive pressures or other factors also may result in significant price competition that could harm our revenue and our business.

Additionally, we may face competition in our efforts to acquire other businesses.

The outbreak of COVID-19 and recent oil market developments could adversely impact our financial condition and results of operations.

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.

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

While economic and industry conditions have improved, further or increased outbreaks of COVID-19 could impact our financial condition and results of operations in 2022 and perhaps beyond, as further discussed in risk factors below.

In addition, the continued spread of the virus into our workforce could prevent us meeting the demands of our customers and adequately servicing existing compressors.

Similarly, if our customers or suppliers experience adverse business consequences due to COVID-19, demand for our equipment and services could also be adversely affected.

The magnitude and duration of potential social, economic and labor instability as a direct result of COVID-19 cannot be estimated at this time.

Should any of these potential impacts continue for an extended period of time, the impact on our business could have an adverse effect on our financial position and results of operations.

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

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

A prolonged period of depressed prices for oil and natural gas would likely result in delays or cancellation of projects by our customers, reducing the demand for our products and services.

Additionally, if we are not able to pass along increases to our costs due to inflation on parts, fluids, labor and other aspects of our business, it may adversely affect our results of operations and cash flows.

A reduction in demand for oil could adversely affect our business.

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

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

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

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

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

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

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

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

Regulatory requirements related to ESG or sustainability reporting have been issued in the European Union that apply to financial market participants.

In the United States, such regulations have been issued related to pension investments in California, and for the responsible investment of public funds in Illinois.

Additional regulation is pending in other states.

We expect regulatory requirements related to ESG matters to continue to expand globally.

If we are not able to meet future sustainability reporting requirements of regulators or current and future expectations of investors, customers or other stakeholders, our business and ability to raise capital may be adversely affected.

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

International, national and state governments and agencies continue to evaluate and promulgate legislation and regulations that are focused on restricting greenhouse gas (GHG) emissions.

Compliance with climate action regulations applicable to our customers' operations may have significant implications that could adversely affect our business and operating results in the fossil fuel sectors, and boosting demand for technologies contributing to the climate action agenda.

In the United States, the U.S.

Environmental Protection Agency (EPA) has taken steps to regulate GHG emissions as air pollutants under the U.S.

Clean Air Act of 1970, as amended.

The EPA's Greenhouse Gas Reporting Rule requires monitoring and reporting of GHG emissions from, among others, certain mobile and stationary GHG emission sources in the oil and natural gas industry.

In addition, the U.S.

government has proposed rules in the past setting GHG emissions standards for, or otherwise aimed at reducing GHG emissions from, the oil and natural gas industry.

Caps or fees on carbon emissions, including in the U.S., have been and may continue to be established and the cost of such caps or fees could disproportionately affect the fossil fuel sectors.

We are unable to predict whether and when the proposed changes in laws or regulations ultimately will occur or what they ultimately will require, and accordingly, we are unable to assess the potential financial or operational impact they may have on our business.

Other developments focused on restricting GHG emissions include the Regional Greenhouse Gas Initiative, the Western Climate Action initiative, and various state programs implementing the California Global Warming Solutions Act of 2006 (known as Assembly Bill 32).

Requirements and voluntary initiatives to reduce greenhouse gas emissions, as well as increased climate change awareness, may result in increased costs for the oil and gas industry to curb greenhouse gas emissions and could have an adverse impact on demand for oil and natural gas.

International, national, and state governments, agencies and bodies continue to evaluate and promulgate regulations and voluntary initiatives that are focused on restricting GHG emissions.

These requirements and initiatives are likely to become more stringent over time and to result in increased costs for the oil and gas industry to curb GHG emissions.

In addition, these developments, and public perception relating to climate change, may curtail production and demand for hydrocarbons such as oil and natural gas by shifting demand towards and investment in relatively lower carbon energy sources such as wind, solar and alternative energy solutions.

If renewable energy becomes more competitive than fossil-fuel energy globally, it could have a material effect on our results of operations.

The potential for climate related changes may pose future risks to our operations and those of our customers.

These changes can include extreme variability in weather patterns such as increased frequency and severity of significant weather events (e.g.

flooding, hurricanes and tropical storms), natural hazards (e.g., increased wildfire risk), rising mean temperature and sea levels, and long-term changes in precipitation patterns (e.g.

drought, desertification, or poor water quality).

Such changes have the potential to affect business continuity and operating results, particularly at facilities in coastal areas or areas prone to chronic water scarcity.

Risks Associated With Our Company

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Of the 1,254 compressors rented at December 31, 2021, 827 were rented on a month-to-month basis.

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

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

The inability to timely renew or re-rent a substantial portion of our compressor rental fleet has and will have a material adverse effect upon our business, financial condition, results of operations and cash flows.

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Any future damages caused by our products or services that are not covered by insurance, are in excess of policy limits or are subject to substantial deductibles, would reduce our earnings and our cash available for operations.

The loss of one or more of our current customers could adversely affect our results of operations.

A significant amount of our revenues and accounts receivable are related to one customer and a loss of this customer or other current customers could adversely affect our results of operations.

Our business is dependent not only on securing new customers but also on maintaining current customers.

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

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

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

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

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

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

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

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

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Many of our customers finance their exploration and development activities through cash flow from operations, the incurrence of debt or the issuance of equity.

During times when the oil or natural gas markets are weak, such as now, our customers are more likely to experience a downturn in their financial condition.

During times when the oil or natural gas markets are weak, our customers are more likely to experience a downturn in their financial condition.

Many of our customers’ equity values and liquidity substantially declined during the most recent fall in oil and natural gas prices, and in some cases access to capital markets may be an unreliable source of financing for some customers.

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

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

Although we believe that cash on hand and cash flows from our operations and/or potential bank borrowing from line of credit will provide us with sufficient cash to fund our planned capital expenditures for 2022, we cannot assure you that these sources will be sufficient.

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

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

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

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

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

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

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

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

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

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• our leverage if increased to an unacceptable level, could make us more vulnerable to economic downturns.

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

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

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

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

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

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

We believe that our current cash position and anticipated cash flow from operations and the amount available under our line of credit will be sufficient to meet our capital needs through 2022.

However, if we were to materially borrow under our line of credit or other borrowing arrangements, it is possible that our business will not generate sufficient cash flow from

operations to meet any debt service requirements and the payment of principal when due depending on the amount of borrowings at any given time.

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

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

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

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

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

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

Under the terms of our current credit agreement, we must:

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

• not exceed specified levels of debt

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• and other customary limitations.

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

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

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

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

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

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

If a breach occurs, no further borrowings would be available under our credit arrangement.

If we are unable to repay any outstanding amounts, the lending organization could proceed against and foreclose on the assets we pledged as collateral to secure payment of our indebtedness.

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

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

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

environment for acquisitions.

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

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

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

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

During the year ended December 31, 2018, management noted a material weakness related to our accounting and reporting of income taxes.

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

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

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

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

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This may adversely affect the value of your investment.

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

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

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

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

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• cumulative voting is not allowed, which limits the ability of minority shareholders to elect any directors;

• advance notice for nominations of directors by shareholders and for shareholders to include matters to be considered at our annual meeting;

• the unanimous vote of the board of directors or the affirmative vote of the holders of not less than 80% of the votes entitled to be cast by the holders of all shares entitled to vote in the election of directors is required to change the size of the board of directors;

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

What changed 10-K

Item 1A. Risk Factors