What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 130 added, 170 removed, 311 unchanged (49% of the section changed)

3 unchanged sentences

(in thousands, except par value)

September 30, December 31,

March 31, December 31,

Current Assets:

8 unchanged sentences

59,656 54,147

Long-term inventory, net 1,726 1,582

Rental equipment, net 224,964 206,985

Property and equipment, net 20,015 20,828

Right of use assets - operating leases, net 277 285

Intangibles, net 931 1,025

Long-term inventory, net of allowance for obsolescence of $ 40 and $ 120 , respectively

Rental equipment, net of accumulated depreciation of $ 182,560 and $ 177,729 , respectively

287,181 246,450

Property and equipment, net of accumulated depreciation of $ 17,554 and $ 16,981 , respectively

22,420 22,176

Right of use assets - operating leases, net of accumulated amortization $ 760 and $ 721 , respectively

Intangibles, net of accumulated amortization of $ 2,290 and $ 2,259 , respectively

Other assets 4,784 2,667

19 unchanged sentences

Retained earnings 129,904 129,534

Treasury Shares, at cost, 1,310 and 775 shares, respectively

Treasury shares, at cost, 1,310 shares, respectively

( 15,004 ) ( 15,004 )

5 unchanged sentences

(in thousands, except earnings per share)

Three months ended Nine months ended

September 30, September 30,

2022 2021 2022 2021

Three months ended

Rental income $ 22,723 $ 17,129

5 unchanged sentences

Cost of rentals, exclusive of depreciation stated separately below

9,988 8,826 28,460 25,065

Cost of sales, exclusive of depreciation stated separately below

1,987 1,563 5,416 5,955

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

186 327 593 625

Selling, general and administrative expenses 4,562 2,502

1 unchanged sentence

Total operating costs and expenses 26,218 19,954

Operating loss ( 1,498 ) ( 1,563 ) ( 458 ) ( 4,224 )

Operating income 402 382

Other income (expense):

Interest expense — ( 24 )

Other income, net 1,370 119 1,007 270

Other income (expense), net 118 ( 32 )

Total other income, net 118 ( 56 )

Income (loss) before provision for income taxes ( 153 ) ( 1,469 ) 475 ( 3,994 )

Income tax benefit (expense) 73 212 ( 288 ) 425

Net income (loss) $ ( 80 ) $ ( 1,257 ) $ 187 $ ( 3,569 )

Earnings (loss) per share:

Income before provision for income taxes 520 326

Income tax (expense) benefit ( 150 ) 11

Net income $ 370 $ 337

Earnings per share:

Basic $ 0.03 $ 0.03

11 unchanged sentences

— $ — 13,394 $ 134 $ 114,017 $ 130,103 775 $ ( 8,344 ) $ 235,910

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

Compensation expense on restricted common stock — — — 1 473 — — — 474

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

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

BALANCES, March 31, 2021

— — 13,358 134 112,864 138,892 38 ( 490 ) 251,400

Compensation expense on common stock options — — — — 21 — — — 21

Issuance of restricted stock — — 79 — — — — — —

2 unchanged sentences

Purchase of treasury shares 247 ( 2,928 ) ( 2,928 )

Net loss — — — — — ( 1,918 ) — — ( 1,918 )

BALANCES, June 30, 2021

— — 13,394 134 113,175 136,974 213 ( 2,382 ) 247,901

Compensation expense on restricted stock — — — — 421 — — — 421

Purchase of treasury shares — — — — — — 258 ( 2,540 ) ( 2,540 )

Net loss — — — — — ( 1,257 ) — — ( 1,257 )

BALANCES, September 30, 2021

Net income — — — — — 337 — — 337

BALANCES, March 31, 2022

— $ — 13,473 $ 135 $ 114,080 $ 130,440 1,022 $ ( 11,272 ) $ 233,383

NATURAL GAS SERVICES GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

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

Shares Amount Shares Amount Shares Amount

BALANCES, January 1, 2023

4 unchanged sentences

Taxes paid related to net shares settlement of equity awards — — — — ( 184 ) — — — ( 184 )

Purchase of treasury shares — — — — — — 247 ( 2,928 ) ( 2,928 )

Net income — — — — — 370 — — 370

1 unchanged sentence

— $ — 13,548 $ 135 $ 115,714 $ 129,904 1,310 $ ( 15,004 ) $ 230,749

Compensation expense on common stock options — — — — 147 — — — 147

Issuance of restricted stock — — 26 — — — — — —

Compensation expense on restricted common stock — — — — 184 — — — 184

Taxes paid related to net shares settlement of equity awards — — — — ( 156 ) — — — ( 156 )

Purchase of treasury shares — — — — — — 288 ( 3,732 ) ( 3,732 )

Net loss — — — — — ( 70 ) — — ( 70 )

BALANCES, June 30, 2022

— $ — 13,499 $ 135 $ 114,255 $ 130,370 1,310 $ ( 15,004 ) $ 229,756

Compensation expense on common stock options — — — — 193 — — — 193

Compensation expense on restricted common stock — — — — 390 — — — 390

Net loss — — — — — ( 80 ) — — ( 80 )

BALANCES, September 30, 2022

— $ — 13,499 $ 135 $ 114,838 $ 130,290 1,310 $ ( 15,004 ) $ 230,259

See accompanying notes to these unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine months ended

September 30,

Three months ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 187 $ ( 3,569 )

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

Net income $ 370 $ 337

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 6,165 6,061

22 unchanged sentences

Payments of debt issuance costs ( 2,131 ) —

Repayments of line of credit, net — ( 417 )

Purchase of treasury shares — ( 2,928 )

Taxes paid related to net share settlement of equity awards ( 184 ) ( 359 )

NET CASH USED IN FINANCING ACTIVITIES

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

33,660 ( 3,289 )

6 unchanged sentences

Right of use asset acquired through an operating lease $ — $ 91

Transfer of rental equipment to inventory $ 708 $ —

See accompanying notes to these unaudited condensed consolidated financial statements.

4 unchanged sentences

(the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado corporation), is a provider of natural gas compression equipment and services to the energy industry.

The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for oil and natural gas production and plant facilities.

The Company manufactures, fabricates, rents, sells and maintains natural gas compressors systems for oil and natural gas production and plant facilities.

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

3 unchanged sentences

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

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at September 30, 2022 and the results of our operations for the three and nine months ended September 30, 2022 and 2021 not misleading.

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at March 31, 2023 and the results of our operations for the three months ended March 31, 2023 and 2022 not misleading.

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

1 unchanged sentence

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

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2023.

Revenue Recognition Policy

12 unchanged sentences

Rental Revenue.

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

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

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

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

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

Our revenue is recognized over time, with equal monthly payments over the term of the contract.

Our revenue is recognized over time, generally monthly, in accordance with payment terms under the contract..

After the terms of the contract have expired, a customer may renew their contract or continue renting on a monthly basis thereafter.

In accordance ASC 842, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.

In accordance with ASC 842, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.

Sales Revenue.

The Company generates revenue by the sale of custom/fabricated compressors, flare systems and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.

Custom/fabricated compressors and flare systems - The Company designs and fabricates compressors and flares based on the customer’s specifications outlined in their contract.

Though the equipment being built is customized by the customer, control under these contracts does not pass to the customer until the compressor or flare package is complete and shipped, or in accordance with a bill and hold arrangement, the customer accepts title and assumes the risk and rewards of ownership.

The Company generates revenue by the sale of custom/fabricated compressors, and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.

Custom/fabricated compressors - The Company designs and fabricates compressors based on the customer’s specifications outlined in their contract.

Though the equipment being built is customized by the customer, control under these contracts does not pass to the customer until the compressor package is complete and shipped, or in accordance with a bill and hold arrangement, the customer accepts title and assumes the risk and rewards of ownership.

We request some of our customers to make progressive payments as the product is being built;

4 unchanged sentences

At the customer’s request, we will bill the customer upon completing all performance obligations, but before shipment.

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

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

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

2 unchanged sentences

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

There was no revenue recognized for bill and hold arrangements for the nine months ended September 30, 2022 or 2021.

There was no revenue recognized for bill and hold arrangements for the three months ended March 31, 2023 or 2022.

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

3 unchanged sentences

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

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

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

Revenue from the sale of rental equipment is recognized when the control has passed to the customer based on the terms of the contract, i.e., when the customer has taken physical possession or the equipment has been shipped.

5 unchanged sentences

Disaggregation of Revenue

The following table shows the Company's revenue disaggregated by product or service type for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30,

Nine months ended September 30,

2022 2021 2022 2021

(in thousands) (in thousands)

The following table shows the Company's revenue disaggregated by product or service type for the three months ended March 31, 2023 and 2022:

Three months ended March 31,

(in thousands)

Compressors - sales $ 969 $ 1,968

Flares - sales 131 74 214 149

Other (parts/rebuilds) - sales 2,023 925

4 unchanged sentences

Contract Balances

As of September 30, 2022 and December 31, 2021, we had the following receivables and deferred income from contracts with customers:

September 30, 2022 December 31, 2021

As of March 31, 2023 and December 31, 2022, we had the following receivables and deferred income from contracts with customers:

March 31, 2023 December 31, 2022

(in thousands)

6 unchanged sentences

Deferred income $ 114 $ 37

The Company recognized sales revenues of $ 1.3 million for the nine months ended September 30, 2022 that was included in deferred income at the beginning of 2022.

For the year ended December 31, 2021, the Company recognized sales revenues of $ 1.1 million that was included in deferred income at the beginning of 2021.

The increase of accounts receivable and decrease of deferred income were primarily due to normal timing differences between our performance and the customers’ payments.

The Company recognized sales revenues of $ 37,000 for the three months ended March 31, 2023 that was included in deferred income at the beginning of 2023.

The increase in accounts receivable and decrease in deferred income were primarily due to normal timing differences between our performance and the customers’ payments.

Remaining Performance Obligations

As of September 30, 2022, the Company did no t have deferred revenue related to unsatisfied performance obligations.

As of March 31, 2023, the Company had deferred revenue of $ 114 thousand related to unsatisfied performance obligations.

Contract Costs

9 unchanged sentences

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

We have no liabilities for uncertain tax positions as of September 30, 2022.

We have no liabilities for uncertain tax positions as of March 31, 2023.

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

Capitalized Interest

Beginning January 1, 2023, the Company began capitalizing interest from external borrowings on significant expenditures for the fabrication of its natural gas compressor equipment until such projects are ready for their intended use.

Capitalized interest is added to the cost of the underlying asset and is amortized over the useful lives of the assets in the same manner as the underlying assets.

For the three months ended March 31, 2023, the Company capitalized interest aggregating approximately $ 855,000 .

Recently Issued Accounting Pronouncements

3 unchanged sentences

For companies that qualify as smaller reporting companies, the amendments in this update are effective for interim and annual periods beginning after January 1, 2023.

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

Our inventory, net of allowance for obsolescence of $ 37,000 at September 30, 2022 and $ 64,000 at December 31, 2021, consisted of the following amounts:

September 30, 2022 December 31, 2021

We have adopted ASU 2016-13 on January 1, 2023.

The adoption did not result in any material change to our financial statements.

Our inventory, net of allowance for obsolescence of $ 40,000 at March 31, 2023 and $ 120,000 at December 31, 2022, consisted of the following amounts:

March 31, 2023 December 31, 2022

(in thousands)

8 unchanged sentences

A summary of our inventory allowance is as follows:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in thousands)

7 unchanged sentences

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

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

During the third quarter of 2020, the Company received refunds totaling $ 3.9 million related to its 2018 NOLs, which reduced its federal income tax receivable to $ 11.5 million on its condensed consolidated balance sheet as of September 30, 2022.

Accordingly, during 2020, the Company recorded a federal income tax receivable of $ 15.0 million and an increase to its

deferred income tax liability of $ 10.1 million on its condensed consolidated balance sheet.

Rental Equipment

Our rental equipment and associated accumulated depreciation as of September 30, 2022 and December 31, 2021, respectively, consisted of the following:

September 30, 2022 December 31, 2021

Our rental equipment and associated accumulated depreciation as of March 31, 2023 and December 31, 2022, respectively, consisted of the following:

March 31, 2023 December 31, 2022

(in thousands)

4 unchanged sentences

Rental equipment, net of accumulated depreciation $ 287,181 $ 246,450

We evaluated our rental equipment for potential impairment as of September 30, 2022, and determined that no such impairment existed as of that date.

We evaluated our rental equipment for potential impairment as of March 31, 2023, and determined that no such impairment existed as of that date.

Long-term Debt

Our long-term debt consists of the following:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in thousands)

Revolving credit facility $ 2,000 $ —

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 $ 0.4 million 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.

Total long-term debt $ 61,011 $ 25,000

Credit Agreement

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

We also have a right to request from the Lender, on an uncommitted basis, an increase of up to $ 30 million on the aggregate commitment;

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

The maturity date of the 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.

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

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

As of December 31, 2022, we were in compliance with all financial covenants in our Credit Agreement.

At December 31, 2022, we had $ 25 million outstanding under the Credit Agreement with a weighted average interest rate of 7.32 % .

Amended and Restated Credit Agreement

On February 28, 2023, we entered into a five-year senior secured revolving credit agreement (“Amended and Restated Credit Agreement”) with Texas Capital Bank, as administrative agent (the “Lender”), TCBI Securities, Inc., as joint lead arranger and sole book runner and Bank of America, N.A., as joint lead arranger, with an initial commitment of $ 175 million as of the closing date.

Subject to collateral availability, we also have a right to request from the Lender, on an uncommitted basis, an increase of up to $ 125 million on the aggregate commitment;

provided, however, the aggregate commitment amount is not permitted to exceed $ 300 million.

The maturity date of the Amended and Restated Credit Agreement is February 28, 2028.

The obligations under the Amended and Restated 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 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 $ 2.0 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 September 30, 2022, our allowable borrowing base was $ 18.0 million.

At any time before the maturity of the Amended and Restated 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) 85 % of eligible accounts receivable owed to the Company, plus (b) 50 % of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of the component not to exceed $ 2.5 million, plus (c) 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 (d) 80 % of the net book value, valued at the lower cost (excluding any costs for capitalized interest or other non-cash capitalized costs) or market of the eligible new compressor fleet, minus (e) any required availability reserves determined by the Lender in its sole discretion.

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

At March 31, 2023, our borrowing base was approximately $ 138 million.

Interest and Fees .

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;

Under the terms of the Amended and Restated 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 Term SOFR ("Secured Overnight Financing Rate") Loan, the Adjusted Term SOFR 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 a 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;

and (c) the Adjusted Term SOFR for such day plus 1.00 %.

Depending on the leverage ratio, the Applicable Margin can be 2.00 % to 2.75 % for Base Rate Loans (as defined in Amended and Restated Credit Agreement) and 3.00 % to 3.75 % for Term SOFR 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 Amended and Restated Credit Agreement is in effect at an annual rate equal to 0.50 % of the unused commitment amount.

Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Term SOFR Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

The Amended and Restated 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;

6 unchanged sentences

or change the nature of our business.

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

In addition, we are subject to certain financial covenants during certain trigger periods in the Amended and Restated Credit Agreement that require us to maintain (i) a leverage ratio, as defined, lesser than or equal to 3.50 to 1.00 as of the last day of each fiscal quarter thereafter and (ii) a fixed charge coverage ratio greater than or equal to 1.25 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration .

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;

The Amended and Restated 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 Amended and Restated Credit Agreement and the other transaction documents;

inaccuracies in representations and warranties;

5 unchanged sentences

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 September 30, 2022, we were in compliance with all financial covenants in our New Credit Agreement.

At September 30, 2022, we had $ 2.0 million outstanding under the New Credit Agreement with an interest rate of 6.50 % as of September 30, 2022.

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

As of March 31, 2023, we were in compliance with all financial covenants in our 2023 Amended and Restated Credit Agreement.

At March 31, 2023, we had $ 61 million outstanding under our Amended and Restated Credit Agreement with a weighted average interest rate of 8.55 %.

At March 31, 2023, we had approximately $ 77 million available for borrowing under the Amended and Restated Credit Agreement, subject to borrowing base determination.

Stock-Based and Other Long-Term Incentive Compensation

Stock Options

A summary of all option activity as of December 31, 2021, and changes during the nine months ended September 30, 2022 is presented below.

A summary of all option activity as of December 31, 2022, and changes during the three months ended March 31, 2023 is presented below:

Stock Options

3 unchanged sentences

Outstanding, December 31, 2022 201,584 $ 19.32 3.90 $ —

Granted 190,000 $ 15.95 — $ —

Cancelled / Forfeited ( 2,667 ) $ 10.58 — $ 3

( 13,000 ) $ 18.75 — $ —

Outstanding, September 30, 2022 326,584 $ 18.21 3.33 $ —

Exercisable, September 30, 2022 120,584 $ 23.72 1.96 $ —

The following table summarizes information about our stock options outstanding at September 30, 2022:

Outstanding, March 31, 2023 185,917 $ 19.49 3.84 $ —

Exercisable, March 31, 2023 147,084 $ 21.72 2.51 $ —

The following table summarizes information about our stock options outstanding at March 31, 2023:

Range of Exercise Prices

10 unchanged sentences

185,917 3.84 $ 19.49 147,084 $ 21.72

32,167 1.47 $ 30.41 32,167 $ 30.41

326,584 3.33 $ 18.21 120,584 $ 23.72

The summary of the status of our unvested stock options as of December 31, 2021 and changes during the nine months ended September 30, 2022 is presented below:

The summary of the status of our unvested stock options as of December 31, 2022 and changes during the three months ended March 31, 2023 is presented below:

Unvested Stock Options:

2 unchanged sentences

41,500 $ 5.48

Granted 190,000 $ 4.38

Vested ( 30,000 ) $ 2.85

Exercised — $ —

Cancelled/Forfeited ( 2,667 ) $ 5.15

Unvested at September 30, 2022

Unvested at March 31, 2023

38,833 $ 5.50

As of September 30, 2022, there was $ 0.7 million of unrecognized compensation cost related to unvested options.

For the nine months ended September 30, 2022 there was $ 0.4 million of compensation expense for stock options.

For the nine months ended September 30, 2021, there was no compensation expense for stock options.

As of March 31, 2023, there was $ 157 thousand of unrecognized compensation cost related to unvested options.

For the three months ended March 31, 2023, there was $ 22 thousand of compensation expense for stock options.

For the three months ended March 31, 2022, there was $ 21 thousand of compensation expense for stock options.

Restricted Shares/Units

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 stock to an executive officer that vests 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 Board member.

On April 26, 2022, 4,212 shares of restricted common stock were awarded to each of our four independent Board members.

On April 26, 2022, 4,212 shares of restricted common stock were awarded to each of our three independent Board members.

The restricted stock issued to these directors vest in one year from the date of grant.

On August 15, 2022, the Compensation Committee awarded 32,040 shares of restricted common stock to two executive officers that vest ratably over 3 years, beginning on April 25, 2023.

On August 15, 2022, the Compensation Committee awarded 32,040 shares of restricted common stock to two executive officers that vest ratably over three years , beginning on April 25, 2023.

In addition, on August 15, 2022, the Compensation Committee awarded 60,839 shares of restricted stock to Mr.

Stephen Taylor, our former Chief Executive Officer.

The restricted shares granted to Mr.

Taylor will vest in full on June 30, 2023.

Total compensation expense related to these and previously granted restricted stock awards was $ 1.0 million and $ 1.3 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, there was a total of $ 1.5 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 1.7 years.

A summary of all restricted stock/units outstanding as of December 31, 2021 and activity during the nine months ended September 30, 2022 is presented below:

Stephen Taylor, our Interim Chief Executive Officer, that will vest in full on June 30, 2023.

On April 25, 2023, the Compensation Committee awarded 27,840 shares of restricted stock to our Chief Technical Officer that vest ratably over three years , beginning on April 25, 2024.

Pursuant to the Retirement Agreement dated May 17, 2022, between the Company and Stephen C.

Taylor, our Interim Chief Executive Officer, on April 25, 2023, the Compensation Committee awarded 58,790 fully vested shares of common stock to Mr.

Stephen Taylor, our Interim Chief Executive Officer that vest immediately.

Total compensation expense related to these and previously granted restricted stock awards was $ 0.5 million and $ 0.4 million for the three months ended March 31, 2023, and 2022, respectively.

A summary of all restricted stock/units outstanding as of December 31, 2022 and activity during the three months ended March 31, 2023 is presented below:

Shares Weighted Average

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Canceled/Forfeited

Outstanding, September 30, 2022 233,912 $ 9.01 1.71 $ 2,179

( 14,357 ) $ — $ 158

Outstanding, March 31, 2023 196,851 $ 8.40 1.20 $ 1,587

Other Long-Term Incentive Compensation

On March 18, 2021, the Compensation Committee issued a long-term incentive award of $ 1.0 million to an executive officer that vests in equal, annual tranches over 3 years beginning on the anniversary of the grant date.

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

On April 1, 2021, we issued a $ 50,000 award to a newly appointed independent member of our Board of Directors as partial payment for his services in 2021.

On April 26, 2022, we issued a $ 50,000 award to each of our three independent Board members.

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

There were no long-term incentive awards issued to executives during the nine months ended September 30, 2022.

On April 26, 2022, subject to vesting we granted a $ 50,000 cash award to each of our three independent Board members.

These awards vested on April 26, 2023 and have been paid.

There were no long-term incentive awards issued to executives during the three months ended March 31, 2023.

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 $ 0.7 million and $ 0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, 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 0.6 years.

Earnings (Loss) per Share

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

Three months ended Nine months ended

September 30, September 30,

2022 2021 2022 2021

In general the vesting of long term 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 and other long-term incentive awards was approximately $ 300,000 and $ 700,000 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, there was a total of $ 200,000 of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 3 months.

Earnings per Share

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

Three months ended

(in thousands, except per share data)

Net income (loss) $ ( 80 ) $ ( 1,257 ) $ 187 $ ( 3,569 )

Denominator for earnings (loss) per basic common share:

Net income $ 370 $ 337

Denominator for earnings per basic common share:

Weighted average common shares outstanding 12,213 12,537

Denominator for earnings (loss) per diluted common share:

Denominator for earnings per diluted common share:

Weighted average common shares outstanding 12,213 12,537

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Diluted weighted average shares 12,354 12,698

Earnings (loss) per common share:

Earnings per common share:

Basic $ 0.03 $ 0.03

Diluted $ 0.03 $ 0.03

For the three and nine months ended September 30, 2022, 233,912 and 143,891 restricted stock/units, respectively, were not included in the computation of diluted earnings per share due to their antidilutive effect.

For the three and nine months ended September 30, 2022 326,584 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

For the three and nine months ended September 30, 2021, 276,319 restricted stock/units and 145,334 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

Commitments and Contingencies

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We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation.

The Company believes it maintains adequate insurance coverage against any potential litigation loss.

Subsequent Events

In accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of September 30, 2022 through the date of this report and believes nothing is required thereunder.

In accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of March 31, 2023 through the date of this report and believes nothing is required thereunder.

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

What changed 10-Q

Item 1. Financial Statements