What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-03-18 compared with 2021-03-31 · 138 added, 268 removed, 715 unchanged (36% of the section changed)

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Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.

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

Material Weaknesses in Internal Control over Financial Reporting

During the fourth quarter of fiscal year 2018, we identified a material weakness in internal controls over financial reporting related to our accounting and reporting of income tax (expense) benefit and consolidated balance sheet and the consolidated operations statement accounts.

We did not design and maintain an effective control environment with formal accounting policies and controls to adequately provide sufficient information for the preparation of our tax provision to our third party tax professionals and did not provide an appropriate level or sufficient review of the tax provision.

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

This material weakness resulted in an immaterial misstatement in the provision for income taxes in our consolidated financial statement as of and for the years ended December 31, 2017, 2016 and 2015.

Consolidated financial statements included in our Annual Report on Form 10-K issued as of December 31, 2018 reflect the correction of this misstatement of income tax (expense) benefit, the related consolidated balance sheet and the consolidated operations statement accounts.

We have undergone evaluations, enhancements and implementation in our internal controls over financial reporting to address the identified material weakness.

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

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

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

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

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

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

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

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

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

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

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

Changes in Internal Control Over Financial Reporting

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

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

OTHER INFORMATION

DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

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

Description of Securities (Incorporated by reference to the Registrant's Registration Statement on From 8-A, filed with the SEC on October 27, 2008.)

Form of Senior Indenture (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on From S-3 (No.

333-261091) and filed on November 16, 2021)

Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-3 (No.

333-261091) and filed on November 16, 2021

2019 Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K dated June 20, 2019 and filed with the Securities and Exchange Commission on June 21, 2019.)

Stock Option Plan, as amended and restated (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2016.)

Credit Agreement between Natural Gas Services Group, Inc.

and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2014.)

Fifth Amendment of Credit Agreement between Natural Gas Services Group, Inc.

and JPMorgan Chase Bank, N.A., dated August 31, 2017 (Incorporated by reference to Exhibit 10.2 of the Registrant's Current report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2017.)

Security Agreement between Natural Gas Services Group, Inc.

and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2011.)

Fourth Security Agreement between Natural Gas Services Group, Inc.

and JPMorgan Chase Bank, N.A., dated August 31, 2017 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2017.)

Promissory Note in the aggregate amount of $30,000,000 issued to JPMorgan Chase Bank, N.A., dated August 31, 2017, in connection with the revolving credit line under the Credit Agreement with JPMorgan Chase Bank, N.A.

(Incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2017.)

Amended and restated Employment Agreement dated April 27, 2015 between Natural Gas Services Group, Inc.

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The Executive Nonqualified Excess Plan Adoption Agreement, referred to as the Nonqualified Deferred Compensation Plan (Incorporated by reference to Exhibit 10.11 of the Registrant's Quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 6, 2016.)

Credit Agreement dated as of May 11, 2021, among the Natural Gas Services Group, Inc.

and NGSG Properties, LLC, a Colorado limited liability company, the banks and other financial institutions identified therein as Lenders from time to time party thereto and Texas Capital Bank, National Association, as Administrative Agent, Swing Line Lender and L/C Issuer.

Pledge and Security Agreement dated as of May 11, 2021, among Natural Gas Services Group, Inc., the Loan Parties (as defined therein) and Texas Capital Bank, National Association, as Administrative Agent.

Note dated as of May 11, 2021, by Natural Gas Services Group, Inc.

in favor of Texas Capital Bank, National Association, as Lender.

Annual Incentive Bonus Plan (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2012.)

Subsidiaries of the registrant

Consent of BDO USA, LLP

Consent of Moss Adams LLP

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(Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen C.

Taylor and Micah C.

Foster, jointly and severally, as his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

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Taylor Chairman of the Board of Directors, Chief Executive Officer and President (Principal Executive Officer) March 18, 2022

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

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

March 18, 2022

Larry Lawrence

/s/ Leslie A.

Beyer Director March 18, 2022

/s/ William F.

Director March 31, 2021

Jenvey Director March 18, 2022

Bradshaw Director March 18, 2022

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm F- 1

Report of Independent Registered Public Accounting Firm ( Moss Adams, LLP ;

Dallas, Texas ;

PCAOB ID 659 )

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Opinion on the Financial Statements

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

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

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

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

and subsidiary (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

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

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Accordingly, we express no such opinion.

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

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

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

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

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

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

Critical Audit Matter

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

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

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

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

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

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

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

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

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

Assessing these assumptions require a high degree of subjective auditor

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

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

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

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

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

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

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Moss Adams LLP

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

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

NATURAL GAS SERVICES GROUP, INC.

Midland, Texas

Opinion on the Consolidated Financial Statements

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

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

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

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

Basis for Opinion

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

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

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

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

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

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

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

We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

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

Austin, Texas

March 31, 2020

NATURAL GAS SERVICES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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Trade accounts receivable, net of allowance for doubtful accounts of $ 1,129 and $ 1,161 , respectively

10,389 11,884

Inventory 19,329 19,926

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20,828 21,749

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

Right of use assets - operating leases, net of accumulated amortization $ 555 and $ 356 , respectively

Intangibles, net of accumulated amortization of $ 2,134 and $ 2,008 , respectively

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Total liabilities 62,596 55,257

Commitments and contingencies (Notes 6 and 17)

Commitments and contingencies (Note 14)

Stockholders’ Equity:

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Retained earnings 130,103 139,286

Treasury shares, at cost, 38 shares

Treasury shares, at cost, 775 shares and 38 , respectively

( 8,344 ) ( 490 )

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Depreciation and amortization 25,397 25,198

Impairment of goodwill — 10,039

Inventory allowance 208 184

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

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

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

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

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

Net loss — — — — — 1,808 — — 1,808

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Taxes paid related to net shares settlement of equity awards — — — — ( 336 ) — — — ( 336 )

Purchase of treasury shares — — — — — — 737 ( 7,854 ) ( 7,854 )

Net loss — — — — — ( 9,183 ) — — ( 9,183 )

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Depreciation and amortization 25,397 25,198

Amortization of debt issuance costs 31 —

Deferred taxes ( 2,602 ) 10,646

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Retirement of rental equipment 3,096 291

Bad debt allowance (recovery) 329 664

Bad debt allowance 65 329

Inventory allowance 208 184

Impairment of goodwill — 10,039

Stock-based compensation 1,738 2,195

(Gain) loss on company owned life insurance ( 168 ) ( 219 )

Gain on company owned life insurance ( 298 ) ( 168 )

Changes in operating assets and liabilities:

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Deferred income 208 463

Other 600 527

NET CASH PROVIDED BY OPERATING ACTIVITIES 28,527 32,649

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Purchase of company owned life insurance ( 150 ) ( 296 )

Proceeds from insurance claim — 35

Proceeds from sale of property and equipment 195 394

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Proceeds of other long-term liabilities ( 1 ) ( 5 )

Proceeds from exercise of stock options — 506

Repayments of line of credit, net ( 417 ) —

Payments of debt issuance costs ( 237 ) —

Purchase of treasury shares ( 7,854 ) —

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NON-CASH TRANSACTIONS

Transfer of rental equipment to inventory — 836

Transfer of inventory to rental equipment — 1,184

Transfer of prepaids to rental equipment and inventory — 958

Right of use asset acquired through an operating lease — 77

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At times, cash balances at banks and financial institutions may exceed federally insured amounts.

We believe that the risk to our cash balance is minimal because we have chosen a large bank with strong long-term ratings of Aa2/A+.

We believe that the risk to our cash balance is minimal because we have chosen a large regional bank with strong long-term ratings of Baa3/BBB-.

Accounts Receivable

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

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

One customer accounted for 46 % and 35 % of our accounts receivable as of December 31, 2021 and 2020, respectively.

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

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

Revenues recognized related to bill and hold arrangements for the years ended December 31, 2020 and 2019 was approximately $ 0.9 million and $ 11.6 million, respectively.

Revenues recognized related to bill and hold arrangements for the years ended December 31, 2021 and 2020 was approximately $ 20,000 and $ 852,000 , respectively.

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

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Deferred income $ 1,312 $ 1,103

The Company recognized $ 73,000 in revenue for the year ended December 31, 2020 that was included in deferred income at the beginning of 2020.

The Company recognized $ 1.1 million in revenue for the year ended December 31, 2021 that was included in deferred income at the beginning of 2021.

For the period ended December 31, 2020, the Company recognized revenue of $ 73,000 from amounts related to sales that were included in deferred income at the beginning of 2020.

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These costs are included in selling, general and administrative expense on our 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.

The comparative information has not been restated and continues to be reported under the lease accounting standard in effect for those periods.

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

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

(in thousands)

Balance Sheet

Right of use assets $ — $ 451 $ 451

Current portion of operating leases $ — $ 126 $ 126

Long term portion of operating leases — 325 325

Total lease liabilities $ — $ 451 $ 451

The Company, as a lessee, 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.

Accounting Standards Codification ("ASC") 842 requires all leases to be reported on the balance sheet as right-of-use ("ROU") assets and lease obligations.

We determine if an arrangement is a lease at inception and determine lease classification and recognize ROU assets and liabilities on the lease commencement date based on the present value of lease payments over the lease term.

As the discount rate implicit in the lease is rarely readily determinable, we estimate our incremental borrowing rate using information available at the commencement date in determining the present value of the lease payments.

We, as a lessee, apply 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.

For 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 has elected to not separate non-lease components from lease components.

Major Customers and Concentration of Credit Risk

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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.

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

Rental Equipment and Property and Equipment

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

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

Goodwill is 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.

As further described in Note 7 of these financial statements, we fully impaired the Company's goodwill during the third quarter of 2019, resulting in a goodwill impairment charge of $ 10.0 million for the year ended December 31, 2019.

At December 31, 2021 and 2020, NGS had intangible assets, which relate to developed technology and a trade name.

Developed technology is amortized on a straight-line basis with a useful life of 20 years, with a weighted average remaining life of approximately five years as of December 31, 2020.

Developed technology is amortized on a straight-line basis with a useful life of 20 years, with a weighted average remaining life of approximately four years as of December 31, 2021.

NGS has an intangible asset related to the trade name of SCS which was acquired in our acquisition of Screw Compression Systems in January 2005.

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In the event that assets are found to be carried at amounts in excess of estimated undiscounted future cash flows, then the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets.

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

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

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

When warranted, we accrue amounts for estimated warranty claims based upon current and historical product warranty costs and any other related information known.

There was no warranty reserve as of December 31, 2021 and 2020.

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

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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.

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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

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

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

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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Work-in-process 1,801 1,900

Finished goods — —

Inventory - current 19,329 19,926

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Inventory Allowance

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

Due to the slow moving nature or obsolescence of a portion of its long-term inventory and inventory related to the retirement of rental equipment, management recorded a charge of $ 3.8 million to write off inventory that will not be recoverable in the future.

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

We ended 2020 with an inventory allowance balance of $ 221,000 .

We routinely review our inventory allowance balance to account for slow moving or obsolete inventory costs that may not be recoverable in the future.

A summary of our inventory allowance is as follows:

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Depreciation expense for rental equipment was $ 22.9 million and $ 22.7 million for the year ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021 we added 65 units to our rental fleet, 35 of which were repurchased from a significant customer who had previously purchased these units from us under a bill and hold arrangement in prior years, but had not yet placed the units in service.

Retirement of Rental Equipment

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Building 39 18,977 18,977

Building and leasehold improvements 39 1,168 1,168

Leasehold improvements 39 1,197 1,168

Office equipment and furniture 5 2,016 2,016

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

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

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

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

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

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 consolidated statements of income and had no impact on the Company's consolidated statements of cash flows.

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

The Company has no finance leases.

The following table reflects the amounts related to leases that are recorded on our consolidated balance sheets as of December 31, 2021 and 2020 :

Classification on Consolidated December 31,

Balance Sheet 2020 2019

Balance Sheets 2021 2020

($ in thousands)

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Rent expense under such leases was $ 210,000 and $ 217,000 for the years ended December 31, 2021 and 2020, respectively.

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

Goodwill is 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, we recorded a goodwill impairment charge of $ 10.0 million in 2019 eliminating our goodwill balance at that date.

At December 31, 2021 and 2020, the Company had intangible assets, which relate to developed technology and a trade name.

The carrying amount net of accumulated amortization at December 31, 2020 and 2019 was $ 1.2 million and $ 1.3 million, respectively.

Amortization expense recognized in each of the years ending December 31, 2021 and 2020 was $ 125,000 .

Estimated amortization expense for the years 2021-2024 is $ 125,000 per year.

Estimated amortization expense for the years 2022-2024 is approximately $ 125,000 per year.

The Company has an intangible asset with a gross carrying value of $ 654,000 at December 31, 2021 related to the trade name of SCS which was acquired in our acquisition of Screw Compression Systems in January 2005.

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Based upon our analysis, we experienced no impairment of intangible assets (excluding goodwill) during the years ended December 31, 2020 or 2019.

In addition, in conjunction with our quantitative assessment of goodwill, we used the services of an independent valuation specialist to assist us in determining the fair value of our trade name during the third quarter of 2019.

In this impairment analysis, the estimated fair value of our trade name was determined utilizing an income-based approach that required significant judgment, including those about an appropriate royalty rate and discount rate.

This analysis indicated no impairment of our trade name.

Based upon our analysis, we experienced no impairment of intangible assets during the years ended December 31, 2021 or 2020.

Credit Facility

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

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

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

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

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.

Prior to maturation, the outstanding balance of $ 417,000 was repaid.

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

New Credit Agreement

On May 11, 2021, we entered into a five year senior secured revolving credit agreement ("New 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 New Credit Agreement is May 11, 2026.

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

Borrowing Base.

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

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

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

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

At any time before the maturity of the New 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 million, 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.

As of December 31, 2021, our allowable borrowing base was $ 20.0 million.

Interest and Fees.

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

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

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

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

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

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

The maturity date of the Amended Credit Agreement, originally scheduled for December 31, 2020, was extended to March 31, 2021 on December 29, 2020, at which time all amounts borrowed under the agreement will be due and outstanding letters of credit must be cash collateralized.

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

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

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

Under the terms of the New 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 for 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 New 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 New Credit Agreement) and 1.25 % to 1.75 % for Eurodollar Rate Loans and for requested letters of credit.

In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the New Credit Agreement is in effect at an annual rate equal to 0.25 % of the unused commitment amount.

Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, 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 New 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;

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or change the nature of our business.

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

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

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

The New 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 $ 50,000 ;

certain defaults with respect to any other Company indebtedness in excess of $ 1.0 million;

certain bankruptcy or insolvency events;

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

the rendering of certain judgments in excess of $ 1.0 million;

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 could be accelerated upon the occurrence of an event of default.

As of December 31, 2020, we were in compliance with all covenants in our Amended Credit Agreement.

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

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

At December 31, 2020 our balance on the line of credit was $ 417,000 .

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

CARES Act Loan

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

Small Business Administration ("SBA").

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

JPMorgan Chase Bank, N.A.

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

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

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

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.

As of December 31, 2021, we were in compliance with all financial covenants in our New Credit Agreement.

At December 31, 2021, we had no amounts outstanding under the New Credit Agreement .

The (provision for) benefit from income taxes for the years ended December 31, 2021 and 2020, consists of the following (in thousands):

Current benefit (provision):

Federal benefit (expense) $ 15,587 $ 86

Current benefit:

Federal benefit $ — $ 15,587

State (expense) benefit 1 ( 149 )

Total current benefit (provision) 15,438 31

Deferred benefit (provision):

Total current benefit 1 15,438

Deferred benefit:

Federal benefit (expense) 1,991 ( 10,234 )

State ( 412 ) —

State benefit (expense) 611 ( 412 )

Total deferred benefit (expense) 2,602 ( 10,646 )

Total benefit (provision) $ 4,792 $ 693

Total benefit $ 2,603 $ 4,792

The effective tax rate for the years ended December 31, 2021 and 2020, differs from the statutory rate as follows:

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State and local taxes 5.2 % ( 17 ) %

Uncertain tax position — % — %

Goodwill impairment — % ( 13.7 ) %

Research and development credit — % 1.4 %

Stock based compensation ( 0.7 ) % ( 13.1 ) %

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Effective rate 22.1 % 160.1 %

Deferred re-measurement for rate change — % — %

Effective rate 22.1 % 160.1 %

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As of December 31, 2021, the Company had NOL carryforwards for federal income tax purposes of $ 20.8 million, which may be carried forward indefinitely and can offset up to 80% of future taxable income in any given year.

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

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

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

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

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

During the years ended December 31, 2021 and 2020, there were no significant income tax interest or penalty items in the statement of operations.

We file income tax returns in the U.S.

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

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

The cash surrender value of the life insurance policy is $ 2.5 million and $ 2.0 million as of December 31, 2021 and 2020, respectively, with a gain related to the policy of $ 298,000 and $ 168,000 reported in other income in our consolidated statement of operations for the year ended December 31, 2021 and 2020, 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 deferred 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 and was $ 2.8 million and $ 2.2 million as of December 31, 2021 and 2020, respectively.

The deferred obligation is included in other long-term liabilities in the consolidated balance sheet.

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

The deferred obligation is included in other long-term liabilities in the consolidated balance sheets.

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

As of December 31, 2021 and 2020, respectively, we

have 17,248 and 45,998 unvested restricted stock units being deferred.

As of December 31, 2021 and 2020, respectively we have released and issued 174,452 and 145,702 shares to the deferred compensation plan with a value of $ 2.5 million and $ 2.2 million, respectively.

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Preferred Stock

We have a total of 5.0 million authorized preferred shares with rights and preferences as designated by the Board of Directors.

We have a total of 5.0 million authorized preferred shares which may be issued in series with rights and preferences as designated by the Board of Directors.

As of December 31, 2021 and 2020, there were no issued or outstanding preferred shares.

Stock-Based and Other Long-Term Incentive Compensation

Restricted Stock/Units

On June 18, 2014, at our annual meeting of shareholders, our shareholders approved a proposed amendment to the 2009 Restricted Stock/Unit Plan (the "2009 Plan") to add additional 500,000 shares of common stock to the Plan, thereby authorizing the issuance of up to 800,000 shares of common stock under the Plan.

The 2009 Plan expired on June 16, 2019.

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

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

Restricted Stock

On June 20, 2019, at our annual meeting of shareholders, our shareholders approved an Equity Incentive Plan for restricted shares/units, stock options and other equity awards.

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

As of December 31, 2021, we had 276,319 shares outstanding under the Equity Incentive Plan that will vest over the next three years .

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

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

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

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

The restricted shares/units to Mr.

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

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

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

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

As of December 31, 2021, 47,135 shares were still available for issuance under the Equity Incentive Plan.

On March 18, 2021, the Compensation Committee awarded 129,212 shares of restricted common stock to two executive officers that vest ratably over three years , beginning on March 18, 2022.

On June 17, 2021, the Compensation Committee awarded 5,000 shares of restricted common stock to an executive officer that vest ratably over three years beginning on June 17, 2022.

In addition, on March 18, 2021, 5,612 shares of restricted common stock were awarded to each of our three independent Board members.

Lastly, on April 1, 2021, 5,291 shares of restricted common stock were awarded to a newly appointed independent Board member.

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

Compensation expense related to the restricted shares was approximately $ 1.7 million and $ 2.2 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, there was a total of approximately $ 1.4 million of unrecognized compensation expense related to the unvested portion of these restricted shares/units.

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

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

A summary of all restricted stock/units activity as of December 31, 2019 and 2020 and changes during the years then ended are presented below.

Shares Weighted Average

Exercise Price Weighted

A summary of all restricted stock activity as of December 31, 2020 and 2021 and changes during the years then ended are presented below.

Shares Grant Date Fair Value Weighted

Contractual Life (years) Aggregate

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Canceled/Forfeited

( 3333 ) $ 12.26 — $ 31

Outstanding, December 31, 2021 276,319 $ 9.67 1.77 $ 2,893

Other Long-Term Incentive Compensation

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

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

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

On April 28, 2020, the Compensation Committee issued a long-term incentive award of $ 1.1 million to an executive officer that vests in equal, annual tranches over three years .

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

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

On March 18, 2020, the Compensation Committee issued a long-term incentive award of $ 1.0 million to an executive officer that vests in equal, annual tranches over three years .

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

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

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

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

On March 18, 2021, we issued a $ 50,000 award to each of our three independent Board members.

On April 1, 2021, we issued a $ 50,000 award to a newly appointed independent Board member.

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 as liabilities under accrued liabilities on our condensed consolidated balance sheet.

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

Total compensation expense related to these other long-term incentive awards was approximately $ 0.8 million for the year ended December 31, 2021.

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

As of December 31, 2021 there was a total of $ 1.2 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next three years .

Stock Option Plan

Our Stock Option Plan which is stockholder approved, permits the granting of stock options to its employees for up to 1.0 million shares of common stock under the Stock Option Plan.

Our Stock Option Plan, which is stockholder approved, permits the granting of stock options to its employees for up to 1.0 million shares of common stock.

We believe that such awards align the interests of our employees with our stockholders.

Option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant;

those option awards generally vest based on three years of continuous service and have ten-year contractual terms.

those option awards generally vest in equal increments over three years of continuous service and have ten-year contractual terms.

Certain option and share awards provide for accelerated vesting if there is a change in control of the Company (as defined in the Stock Option Plan).

The last date that grants can be made under the Stock Option Plan is February 28, 2026.

As of December 31, 2020, 384,503 shares were still available for issue under the Stock Option Plan.

As of December 31, 2021, 345,003 shares were still available to be granted under the Stock Option Plan.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table.

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Expected dividend yield — %

There were no stock option grants made in 2019.

During the year ended December 31, 2021, 55,500 stock option grants were made.

A summary of all option activity as of December 31, 2020 and 2021 and changes during the years then ended are presented below:

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( 16,000 ) $ 17.81 — —

( 40,000 ) 19.11 — —

Outstanding, December 31, 2021 200,834 $ 21.17 4.83 $ —

Exercisable, December 31, 2021 145,334 $ 25.21 2.86 $ —

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

The weighted average grant date fair value of options granted during 2021 was $ 5.15 per option.

We had no grants in 2020.

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

There were no option exercises in 2020.

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

There were no option exercises in either 2021 or 2020.

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

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Granted 55,500 $ 10.58

Vested ( 10,433 ) 11.93

Canceled/Forfeited — —

Unvested at December 31, 2021 55,500 $ 10.58

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

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

We recognized stock compensation expense from stock options vesting of $ 728 and $ 19,366 for the years ended

December 31, 2021 and 2020, respectively.

As of December 31, 2021, there was $ 247,000 of unamortized compensation cost related to unvested stock options.

(Loss) Earnings per Share

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In the year ended ended December 31, 2020, 221,061 restricted stock/units and 161,334 stock options were not included in the computation of 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.

Commitments and Contingencies

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Subsequent Events

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

On March 17, 2021 all outstanding indebtedness was repaid.

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

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

What changed 10-K

Item 9A. Controls and Procedures