NATURAL GAS SERVICES GROUP INC 10-Q

Item 1. Financial Statements NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited) March 31, December 31, 2023 2022 ASSETS Current Assets: Cash and cash equivalents $ 7,412 $ 3,372 Trade accounts receivable, net 14,971 14,668 Inventory 25,077 23,414 Federal income tax receivable (Note 4) 11,538 11,538 Prepaid income taxes 10 10 Prepaid expenses and other 648 1,145 Total current assets 59,656 54,147 Long-term inventory, net of allowance for obsolescence of $ 40 and $ 120 , respectively 1,588 1,557 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 309 349 Intangibles, net of accumulated amortization of $ 2,290 and $ 2,259 , respectively 869 900 Other assets 4,784 2,667 Total assets $ 376,807 $ 328,246 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 24,835 $ 6,481 Accrued liabilities 16,946 23,726 Current operating leases 123 155 Deferred income 114 37 Total current liabilities 42,018 30,399 Long-term debt 61,011 25,000 Deferred income tax liability 39,946 39,798 Long-term operating leases 186 194 Other long-term liabilities 2,897 2,779 Total liabilities 146,058 98,170 Commitments and contingencies (Note 9) Stockholders’ Equity: Preferred stock, 5,000 shares authorized, no shares issued or outstanding — — Common stock, 30,000 shares authorized, par value $ 0.01 ; 13,548 and 13,519 shares issued, respectively 135 135 Additional paid-in capital 115,714 115,411 Retained earnings 129,904 129,534 Treasury shares, at cost, 1,310 shares, respectively ( 15,004 ) ( 15,004 ) Total stockholders' equity 230,749 230,076 Total liabilities and stockholders' equity $ 376,807 $ 328,246 See accompanying notes to these unaudited condensed consolidated financial statements. 1 NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share) (unaudited) Three months ended March 31, 2023 2022 Revenue: Rental income $ 22,723 $ 17,129 Sales 2,992 2,893 Service and maintenance income 905 314 Total revenue 26,620 20,336 Operating costs and expenses: Cost of rentals, exclusive of depreciation stated separately below 11,645 9,230 Cost of sales, exclusive of depreciation stated separately below 3,237 1,988 Cost of service and maintenance, exclusive of depreciation stated separately below 609 173 Selling, general and administrative expenses 4,562 2,502 Depreciation and amortization 6,165 6,061 Total operating costs and expenses 26,218 19,954 Operating income 402 382 Other income (expense): Interest expense — ( 24 ) Other income (expense), net 118 ( 32 ) Total other income, net 118 ( 56 ) 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 Diluted $ 0.03 $ 0.03 Weighted average shares outstanding: Basic 12,213 12,537 Diluted 12,354 12,698 See accompanying notes to these unaudited condensed consolidated financial statements. 2 NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) (unaudited) Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders' Equity Shares Amount Shares Amount Shares Amount BALANCES, January 1, 2022 — $ — 13,394 $ 134 $ 114,017 $ 130,103 775 $ ( 8,344 ) $ 235,910 Compensation expense on common stock options — — — — 21 — — — 21 Issuance of restricted stock — — 79 — — — — — — Compensation expense on restricted common stock — — — 1 401 — — — 402 Taxes paid related to net shares settlement of equity awards — — — — ( 359 ) — — — ( 359 ) Purchase of treasury shares 247 ( 2,928 ) ( 2,928 ) Net income — — — — — 337 — — 337 BALANCES, March 31, 2022 — $ — 13,473 $ 135 $ 114,080 $ 130,440 1,022 $ ( 11,272 ) $ 233,383 BALANCES, January 1, 2023 13,519 $ 135 $ 115,411 $ 129,534 1,310 $ ( 15,004 ) $ 230,076 Compensation expense on common stock options — — 22 — — 22 Issuance of restricted stock — — 29 — — — — Compensation expense on restricted common stock — — — — 465 — — — 465 Taxes paid related to net shares settlement of equity awards — — — — ( 184 ) — — — ( 184 ) Net income — — — — — 370 — — 370 BALANCES, March 31, 2023 — $ — 13,548 $ 135 $ 115,714 $ 129,904 1,310 $ ( 15,004 ) $ 230,749 See accompanying notes to these unaudited condensed consolidated financial statements. 3 NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three months ended March 31, 2023 2022 CASH FLOWS FROM 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 Amortization of debt issuance costs 52 12 Deferred income tax (benefit) expense 148 ( 11 ) Stock-based compensation 487 423 Bad debt allowance 48 — Gain on sale of assets ( 25 ) ( 36 ) Loss (gain) on company owned life insurance ( 18 ) 130 Changes in operating assets and liabilities: Trade accounts receivables ( 351 ) ( 2,494 ) Inventory ( 986 ) 2,085 Prepaid expenses and prepaid income taxes 497 238 Accounts payable and accrued liabilities 11,574 ( 349 ) Deferred income 77 ( 1,312 ) Other 184 ( 89 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 18,222 4,995 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of rental equipment, property and other equipment ( 47,792 ) ( 8,212 ) Purchase of company owned life insurance ( 50 ) ( 47 ) Proceeds from sale of property and equipment — 37 NET CASH USED IN INVESTING ACTIVITIES ( 47,842 ) ( 8,222 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loan 36,011 — Payments of other long-term liabilities, net ( 36 ) ( 2 ) Payments of debt issuance costs ( 2,131 ) — Purchase of treasury shares — ( 2,928 ) Taxes paid related to net share settlement of equity awards ( 184 ) ( 359 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 33,660 ( 3,289 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 4,040 ( 6,516 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,372 22,942 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,412 $ 16,426 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 855 $ 12 NON-CASH TRANSACTIONS 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 Natural Gas Services Group, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Description of Business Natural Gas Services Group, Inc. (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 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. 2. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with the Company's deferred compensation plan. 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 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). These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 on file with the SEC. In our opinion, the condensed consolidated financial statements are a fair presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for the periods presented. The results of operations for the three 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 The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), except for rental revenue as discussed below. Under ASC 606, revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e. sales and property taxes). Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive for those goods or services. To recognize revenue, we (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligation(s). Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our condensed consolidated statements of operations. Nature of Goods and Services The following is a description of principal activities from which the Company generates its revenue: Rental Revenue. 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, 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 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, and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment. 5 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; these payments are recorded as a contract liability on the Deferred Income line on the condensed consolidated balance sheet until control has been transferred. These contracts also may include an assurance warranty clause to guarantee the product is free from defects in material and workmanship for a set duration of time; this is a standard industry practice and is not considered a performance obligation. From time to time we recognize revenue when manufacturing is complete and the equipment is ready for shipment. 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 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. We have operated using bill and hold agreements with certain customers for many years, with consistent and satisfactory results for both the customer and us. The credit terms on these agreements are consistent with the credit terms on all other sales. All control is maintained by the customer and there are no exceptions to the customer’s commitment to accept and pay for the manufactured equipment. There was no revenue recognized for bill and hold arrangements for the three months ended March 31, 2023 or 2022. Parts - Revenue is recognized after the customer obtains control of the parts. Control is passed either by the customer taking physical possession or the parts being shipped. The amount of revenue recognized is not adjusted for expected returns, as our historical part returns have been de minimis. Exchange or rebuilding customer owned compressors - Based on the contract, the Company will either exchange a new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor. 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 - 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. Service and Maintenance Revenue . The Company provides routine or call-out services on customer owned equipment. Revenue is recognized after services in the contract are rendered. Payment terms for sales revenue and service and maintenance revenue discussed above are generally 30 to 60 days, although terms for specific customers can vary. Also, transaction prices are not subject to variable consideration constraints. Disaggregation of Revenue 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, 2023 2022 (in thousands) Compressors - sales $ 969 $ 1,968 Other (parts/rebuilds) - sales 2,023 925 Service and maintenance 905 314 Total revenue from contracts with customers 3,897 3,207 Add: ASC 842 rental revenue 22,723 17,129 Total revenue $ 26,620 $ 20,336 6 Contract Balances 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) Accounts Receivable Accounts receivable - contracts with customers $ 4,245 $ 4,353 Accounts receivable - ASC 842 11,107 10,653 Total Accounts Receivable 15,352 15,006 Less: Allowance for doubtful accounts ( 381 ) ( 338 ) Total Accounts Receivable, net $ 14,971 $ 14,668 Deferred income $ 114 $ 37 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 March 31, 2023, the Company had deferred revenue of $ 114 thousand related to unsatisfied performance obligations. Contract Costs The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses on our condensed consolidated statements of operations. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense in the tax provision in our condensed consolidated statements of operations. We account for uncertain tax positions in accordance with guidance in ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the condensed consolidated financial statements. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. 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 March 31, 2023. Our policy regarding income tax interest and penalties is to expense those items as interest expense and other expense, respectively. 7 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 In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments to ASC Topic 326 require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables. 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 have adopted ASU 2016-13 on January 1, 2023. The adoption did not result in any material change to our financial statements. 3. Inventory 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) Raw materials - current $ 24,281 $ 21,354 Work-in-process 796 2,060 Inventory - current 25,077 23,414 Raw materials - long term (net of allowances of $ 40 and $ 120 , respectively) 1,588 1,557 Inventory - total $ 26,665 $ 24,971 Our long-term inventory consists of raw materials that remain viable but that the Company does not expect to sell or use within the year. Inventory Allowance 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: March 31, 2023 December 31, 2022 (in thousands) Beginning balance $ 120 $ 64 Accruals — 83 Write-offs ( 80 ) ( 27 ) Ending balance $ 40 $ 120 4. Federal Income Tax Receivable On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the economic impact caused by the COVID-19 pandemic. The CARES Act allowed NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes. The Company generated significant NOLs during 2018 and 2019, and 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 8 deferred income tax liability of $ 10.1 million on its condensed consolidated balance sheet. During the third quarter of 2020, the Company received refunds totaling $ 3.9 million related to its 2018 NOLs, which reduced its federal income tax receivable to $ 11.5 million on its condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022. 5. Rental Equipment 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) Compressor units $ 404,175 $ 387,145 Work-in-process 65,566 37,034 Rental equipment 469,741 424,179 Accumulated depreciation ( 182,560 ) ( 177,729 ) Rental equipment, net of accumulated depreciation $ 287,181 $ 246,450 We evaluated our rental equipment for potential impairment as of March 31, 2023, and determined that no such impairment existed as of that date. 6. Long-term Debt Our long-term debt consists of the following: March 31, 2023 December 31, 2022 (in thousands) 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 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 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 9 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 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 Term SOFR 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 Amended and Restated Credit Agreement. 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. Covenants . 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; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes; make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our business. In addition, we 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 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; certain defaults, termination events or similar events; 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 $ 1.0 million; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit agreement. 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. 10 7. Stock-Based and Other Long-Term Incentive Compensation Stock Options A summary of all option activity as of December 31, 2022, and changes during the three months ended March 31, 2023 is presented below: Number of Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2022 201,584 $ 19.32 3.90 $ — Cancelled / Forfeited ( 2,667 ) $ 10.58 — $ 3 Expired ( 13,000 ) $ 18.75 — $ — 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 Options Outstanding Options Exercisable Shares Weighted Average Remaining Contractual Life (years) Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 0.01 - 18.00 103,333 5.24 $ 13.37 64,500 $ 14.78 $ 22.01 - 26.00 29,667 2.04 $ 22.90 29,667 $ 22.90 $ 26.01 - 30.00 20,750 3.89 $ 28.15 20,750 $ 28.15 $ 30.01 - 34.00 32,167 0.97 $ 30.41 32,167 $ 30.41 185,917 3.84 $ 19.49 147,084 $ 21.72 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: Shares Weighted Average Grant Date Fair Value Per Share Unvested at December 31, 2022 41,500 $ 5.48 Cancelled/Forfeited ( 2,667 ) $ 5.15 Unvested at March 31, 2023 38,833 $ 5.50 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. 11 Restricted Shares/Units 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 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 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: Number of Shares Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2022 250,847 $ 9.14 1.42 $ 2,681 Granted 8,944 $ 10.81 $ 100 Vested ( 48,583 ) $ 10.04 $ 467 Canceled/Forfeited ( 14,357 ) $ — $ 158 Outstanding, March 31, 2023 196,851 $ 8.40 1.20 $ 1,587 Other Long-Term Incentive Compensation 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. 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. 12 8. Earnings per Share The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation: Three months ended March 31, 2023 2022 (in thousands, except per share data) Numerator: Net income $ 370 $ 337 Denominator for earnings per basic common share: Weighted average common shares outstanding 12,213 12,537 Denominator for earnings per diluted common share: Weighted average common shares outstanding 12,213 12,537 Dilutive effect of stock options and restricted stock/units 141 161 Diluted weighted average shares 12,354 12,698 Earnings per common share: Basic $ 0.03 $ 0.03 Diluted $ 0.03 $ 0.03 9. Commitments and Contingencies From time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flow. 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. 10. Subsequent Events 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. 13